SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) :
July 2, 1998 (June 19, 1998)
-------------------------------------------------------------------
Advanced Communication Systems, Inc.
-------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
-------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-22737 54-1421222
-----------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
10089 Lee Highway, Fairfax, Virginia 22030
-----------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(703) 934-8130
-----------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 19, 1998, Advanced Communication Systems, Inc., a Delaware corporation
("ACS"), acquired all the outstanding shares of SEMCOR, Inc., a New Jersey
corporation ("SEMCOR"), pursuant to a Stock Purchase Agreement, effective as of
June 10, 1998, by and between ACS and Vincent G. Vidas and John S. Degnan (the
"Shareholders"). The preliminary purchase price of $38 million, which is subject
to adjustment based on the net equity shown on the closing date balance sheet,
consisted of $37 million in cash and $1 million in ACS common stock. In
addition, ACS may pay additional amounts to the Shareholders based on the
achievement of certain financial goals by SEMCOR for the six-month period ending
December 31, 1998, and the twelve-month period ending December 31, 1999. ACS
will also pay the Shareholders up to $1.25 million for certain tax liabilities
of the Shareholders incurred pursuant to Section 338(h)(10) of the Internal
Revenue Code. The amount and type of consideration was determined on the basis
of negotiations between ACS and the Shareholders. ACS financed the acquisition
with proceeds from its revolving credit facilities with NationsBank, N.A. (as
described below).
On June 19, 1998, ACS increased its existing credit facilities with NationsBank
from $35 million to $45 million to finance the acquisition of SEMCOR and to
provide for its other working capital needs. The facilities are secured by all
assets of ACS and its subsidiaries, including contract receivables, and have
various financial covenants which require ACS to maintain specific financial
ratios and impose certain restrictions on, among other things, the creation or
incurrence of certain indebtedness, preferred stock or liens, the payment of
dividends, mergers and the sale of assets, certain capital expenditures and
certain transactions with and investments in affiliates.
SEMCOR provides a wide range of technical and engineering services, primarily to
the Department of Defense, in the areas of communication, aviation and
information technology. Headquartered in Mt. Laurel, New Jersey, SEMCOR has 42
offices in 24 states and employs more that 1,100 people.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
It is not practicable to provide the required financial
statements for SEMCOR at this time. The statements will be
filed as an amendment to this report on Form 8-K as soon as
they are prepared and not later than 60 days after the
deadline for filing this Form 8-K.
(b) Pro Forma Financial Information.
It is not practicable to provide the required pro forma
financial statements for ACS at this time. The statements will
be filed as an amendment to this report on Form 8-K as soon as
they are prepared and not later than 60 days after the
deadline for filing this Form 8-K.
(c) Exhibits
10.1 Stock Purchase Agreement by and between ACS and the
Shareholders, effective as of June 10, 1998.
10.2 Consent Agreement between ACS and NationsBank, N.A.
dated as of June 19, 1998.
10.3 Joinder Agreement between ACS and SEMCOR and NationsBank,
N.A. dated as of June 19,1998.
10.4 Third Amended and Restated Facility A Note dated as of
June 19, 1998.
10.5 Third Amended and Restated Facility B Note dated as of
June 19, 1998.
10.6 Waiver and First Amendment to Credit Agreement
between ACS and NationsBank dated as of June 19, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 2, 1998 ADVANCED COMMUNICATION SYSTEMS, INC.
/S/ Dev Ganesan
-----------------------------------------------------
Dev Ganesan
Executive Vice-President, Chief Financial Officer and
Treasurer
Exhibit 10.1
STOCK PURCHASE AGREEMENT
AMONG
ADVANCED COMMUNICATION SYSTEMS, INC.
AND
VINCENT G. VIDAS
AND
JOHN S. DEGNAN
EFFECTIVE AS OF
JUNE 10, 1998
TABLE OF CONTENTS
Page
1. Definitions..................................................... 1
2 Purchase and Sale of Company Shares............................. 6
2.1 Basic Transaction...................................... 6
2.2 Preliminary Purchase Price............................. 6
2.3 The Closing............................................ 7
2.4 Deliveries at the Closing.............................. 7
2.5 Preliminary Purchase Price Adjustment.................. 7
2.6 Contingent Purchase Price.............................. 8
2.7 Contingent Purchase Price Determination Procedures..... 9
3. Representations and Warranties Concerning the Transaction....... 10
3.1 Representations and Warranties of the Sellers.......... 10
3.2 Representations and Warranties of the Buyer............ 11
4. Representations and Warranties Concerning the Company .......... 12
4.1 Organization, Qualification, and Corporate Power....... 12
4.2 Capitalization......................................... 12
4.3 Noncontravention....................................... 13
4.4 Brokers' Fees.......................................... 13
4.5 Title to Assets........................................ 13
4.6 Financial Statements................................... 13
4.7 Events Subsequent to the Interim Balance Sheet Date.... 14
4.8 Undisclosed Liabilities................................ 16
4.9 Legal Compliance....................................... 16
4.10 Tax Matters............................................ 16
4.11 Real Property.......................................... 18
4.12 Intellectual Property.................................. 19
4.13 Tangible Assets........................................ 21
4.14 Inventory.............................................. 21
4.15 Contracts.............................................. 21
4.16 Notes and Accounts Receivable.......................... 22
4.17 Powers of Attorney..................................... 22
4.18 Insurance.............................................. 23
4.19 Litigation............................................. 23
4.20 Product Warranty....................................... 24
4.21 Product Liability...................................... 24
4.22 Employees.............................................. 24
4.23 Employee Benefits...................................... 24
4.24 Guaranties............................................. 26
4.25 Government Contracts................................... 26
4.26 Environment, Health, and Safety Matters................ 28
4.27 Subsidiaries........................................... 29
4.28 Disclosure............................................. 29
<PAGE>
Page
5. Post-Closing Covenants........................................... 29
5.1 General................................................. 29
5.2 Litigation Support...................................... 29
5.3 Transition.............................................. 30
5.4 Covenant Not to Compete................................. 30
5.5 Stock Options........................................... 32
5.6 Legal Opinions.......................................... 32
6. Deliveries at Closing............................................ 32
6.1 Deliveries of the Seller................................ 32
6.2 Deliveries of the Buyer................................. 33
7. Remedies for Breaches of This Agreement.......................... 34
7.1 Survival of Representations and Warranties.............. 34
7.2 Indemnity............................................... 34
7.3 Notice of Claim......................................... 35
7.4 Limitation.............................................. 36
7.5 Indemnity Fund.......................................... 36
7.6 Recoupment.............................................. 37
8. Tax Matters...................................................... 38
8.1 Section 338(h)(10) Election............................. 38
8.2 Tax Periods Ending on or Before the Closing Date....... 38
8.3 Allocation of Purchase Price ........................... 39
8.4 S Corporation Status.................................... 39
8.5 Tax Period Beginning Before and Ending After the
Closing Date............................................ 39
8.6 Cooperation on Tax Matters.............................. 40
9. Miscellaneous.................................................... 40
9.1 Cooperation............................................. 40
9.2 Successors and Assigns.................................. 41
9.3 Entire Agreement........................................ 41
9.4 Counterparts............................................ 41
9.5 Expenses................................................ 41
9.6 Notices................................................. 42
9.7 Governing Law........................................... 43
9.8 Severability............................................ 43
9.9 Absence of Third-Party Beneficiary Rights............... 43
9.10 Mutual Drafting......................................... 43
9.11 Further Representations................................. 43
9.12 Amendment; Waiver....................................... 43
9.13 Public Disclosure....................................... 43
Exhibit 6.1(d) Form of Employment Agreement for Vincent G. Vidas.......
Exhibit 6.1(e) Form of Opinion of Counsel to the Sellers...............
Exhibit 6.2(c) Form of Registration Rights Agreement...................
Schedule 3.1(a) Authorization of Transaction
Schedule 3.1(b) Noncontravention
Schedule 3.1(d) Company Shares
Schedule 4.1 Organization, Qualification and Corporate Power
Schedule 4.3 Noncontravention
Schedule 4.7 Events Subsequent to Interim Balance Sheet Date
Schedule 4.9 Legal Compliance
Schedule 4.10(b) Tax Matters
Schedule 4.11(b) Real Property
Schedule 4.12 Intellectual Property
Schedule 4.15 Contracts
Schedule 4.18 Insurance
Schedule 4.19 Litigation
Schedule 4.20 Product Warranties
Schedule 4.23 Employee Benefits
Schedule 4.25 Government Contracts
Schedule 4.26 Environmental, Health and Safety Matters
Schedule 4.28 Disclosure
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is effective as of June 10, 1998 (the
"Effective Date") by and among Advanced Communication Systems, Inc., a Delaware
corporation (the "Buyer"), and Vincent G. Vidas and John S. Degnan (the
"Sellers"). The Buyer and the Sellers are referred to individually as "Party"
and collectively herein as the "Parties."
RECITALS
WHEREAS, the Sellers own all of the outstanding capital stock of SEMCOR
INC., a New Jersey corporation (the "Company"); and
WHEREAS, this Agreement contemplates a transaction in which the Buyer
will purchase from the Sellers, and the Sellers will sell to the Buyer, all of
the outstanding capital stock of the Company in return for the consideration set
forth in this Agreement (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
"Adverse Consequences" has the meaning set forth in Section 7.2.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Arbitrator" has the meaning set forth in Section 2.7.
"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 reasonably be
anticipated to 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" has the meaning set forth in Section 2.5
below.
"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.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the preface above.
"Company Shares" means any share of the Company common stock, without
par value.
"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.
"Controlled Group" has the meaning set forth in Code section 1563.
"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, including without limitation any stock
option plan or other stock based forms of incentive or deferred compensation,
any severance or job security benefits and any individual compensation
agreements or arrangements, whether written or oral, providing for any of the
foregoing benefits, excluding payment of base salary or wages under the terms of
an individuals employment agreement.
"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.
"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 7.2 below.
"Indemnifying Party" has the meaning set forth in Section 7.2 below.
"Initial Earn Out Period" means the period commencing on July 1, 1998,
and ending on December 31, 1998.
"Initial Earn Out Period Net Income Before Taxes" shall mean net income
before taxes of the Company for the Initial Earn Out Period, taking into account
the Home Office Expense Allocation as defined in 5.3(b) (up to a maximum of one
(1) percent of the aggregate of direct labor, direct travel/ODC and total
overhead excluding general and administrative expenses and non-chargeable
expenses incurred by the Company during the Initial Earn Out Period), but
excluding (1) amortization of goodwill recognized and recorded on the books and
records of the Company in conjunction with the transactions contemplated by this
Agreement and (2) any increase in the depreciation expenses for tangible assets
attributable to any increase in the basis of such assets recognized and recorded
on the books and records of the Company in conjunction with the transactions
contemplated by this Agreement, and confirmed by a nationally recognized
accounting firm to have been determined in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements.
"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 Sellers" or the "Sellers' Knowledge" means the
knowledge of the Sellers, Thomas Karr, Hugh Christian, Edward Denion, Carl
Mazzan, John Phillips, Thomas Brennan and Nicholas Balovich, after investigation
sufficient to express an informed view concerning the matters to which the
covenant, representation, warranty or agreement relates, including appropriate
inquiries of the Company's officers, directors and employees.
"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, financial condition, results of operations or prospects of the
Company.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Equity" means the excess of assets over liabilities of the Company
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.
"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.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Second Earn Out Period" means the period commencing on January 1, 1999
and ending on December 31, 1999.
"Second Earn Out Period Net Income Before Taxes" shall mean net income
before taxes of the Company for the Second Earn Out Period, taking into account
the Home Office Expense Allocation as defined in Section 5.3(b) (up to a maximum
of one (1) percent of the aggregate of direct labor, direct travel/ODC and total
overhead excluding general and administrative expenses and non-chargeable
expenses incurred by the Company during the Second Earn Out Period), but
excluding (1) amortization of goodwill recognized and recorded on the books and
records of the Company in conjunction with the transactions contemplated by this
Agreement and (2) any increase in the depreciation expenses for tangible assets
attributable to any increase in the basis of such assets recognized and recorded
on the books and records of the Company in conjunction with the transactions
contemplated by this Agreement, and confirmed by a nationally recognized
accounting firm to have been determined in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements and increased
by the excess, if any, of the Initial Earn Out Period Net Income Before Taxes
over the amount of $2,400,000.
"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.
"Sellers" 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.
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 Sellers, and the Sellers
agree to sell to the Buyer, all of their Company Shares for the consideration
specified below in this Section 2.
2.2 Preliminary Purchase Price. The Buyer agrees to pay to the Sellers:
(A) $38,000,000 to be paid as follows:
(i) at Closing, an aggregate amount equal to $30,052,260 to be
paid to Sellers in accordance with the percentage ownership of the Sellers as
set forth in Schedule 3.1(d) hereto;
(ii) at Closing, up to $2,947,740 to be paid to First Union
Bank, N.A. ("First Union") to satisfy the line of credit of the Company with
First Union as described in Schedule 4.3(2), provided that if the outstanding
balance of such line of credit on the Closing Date is less than $2, 947,740, any
excess of $2,947,740 over the outstanding balance of such line of credit will be
paid into the operating account of the Company; and
(iii) in accordance with Section 7.5 of this Agreement,
(a) that certain number of shares of common stock,
par value $.01 (the "Common
Stock"), of the Buyer having a market value of $1,000,000, based on the average
closing price of the Common Stock on the Nasdaq National Market on the five
trading day prior to the Closing Date, with certificates representing such
shares to be delivered to the Sellers in accordance with the percentage
ownership of the Sellers set forth in Schedule 3.1(d) hereto, and
(b) an aggregate amount equal to $4,000,000,
with such cash and certificates to be allocated between the
Sellers in accordance with the percentage ownership of the Sellers as set forth
in Schedule 3.1(d) hereto; and
(B) on or before December 15, 1998, the lesser of $1,250,000 or the
actual 338(h)(10) Tax Liability (as defined in Section 8.1(b)) of the Sellers
(the "Preliminary Purchase Price").
The Preliminary Purchase Price shall be subject to adjustment in
accordance with Section 2.5 of this Agreement. All payments of cash to Sellers
by the Buyer under this Section 2.2, Section 2.5 and Section 2.6 shall be paid
by certified check or wire transfer as designated by each of the Sellers at
least two (2) business days prior to the date on which such payment is required
to be made by the Buyer.
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, LLP in Washington, D.C., commencing at 10:00 a.m. local time
on June 19, 1998, (the "Closing Date").
2.4 Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6.1 below, (ii) the Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in Section 6.2
below, (iii) the Sellers 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 Sellers
and First Union the consideration specified in Section 2.2(A)(i) and (ii) above.
2.5 Preliminary Purchase Price Adjustment.
(a) Within 60 days after the Closing Date, the Buyer will
cause Arthur Andersen LLP to prepare and deliver to the Sellers audited
financial statements for the Company for the fiscal years ended December 31,
1995, 1996 and 1997 and a reviewed balance sheet (the "Closing Date Balance
Sheet") for the Company as of the Closing Date.
(b) The Preliminary Purchase Price will be adjusted as
follows:
(i) If the Net Equity shown on the Closing Date
Balance Sheet exceeds $11,829,842, the
Buyer will pay to the Sellers an amount equal to such excess within three (3)
business days after the date on which the Closing Date Balance Sheet is
delivered to the Sellers.
(ii) If the Net Equity shown on the Closing Date
Balance Sheet is less than
$11,829,842, the Buyer first will reduce the Indemnity Fund by the amount of
such deficiency, and to the extent such deficiency exceeds the Indemnity Fund,
the Seller will pay to the Buyer an amount equal to such deficiency by wire
transfer of immediately available funds within three (3) business days after the
date on which the Closing Date Balance Sheet is delivered.
2.6 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) if the Initial Earn Out Period Net Income Before Taxes is
equal to or exceeds $2,400,000, the Buyer shall pay to the Sellers $5,000,000,
with such amount to be paid in cash except to the extent that either of the
Sellers provides the Buyer with written notice at least three (3) business days
before such payment is to be made of the portion (if any) of such Seller's share
of such amount that such Seller elects to receive in shares of Common Stock,
with the amount of shares of Common Stock to be determined based on the average
closing price of the Common Stock on the Nasdaq National Market on the last five
trading days preceding the date on which such payment is to be made (the
"Initial Contingent Purchase Price"). No amount shall be due by the Buyer to the
Sellers if the Initial Earn Out Period Net Income Before Taxes is less than
$2,400,000. 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 2.6 at the rate of the regular commercial prime
rate of interest that 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 Sellers and ending on the date on which Buyer
pays such amount to the Sellers, which payment shall include any interest
accrued thereon. The Buyer shall pay the Initial Contingent Purchase Price to
the Sellers 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 Net
Income Before Taxes 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 Net Income
Before Taxes.
(b) if the Second Earn Out Period Net Income Before Taxes
exceeds $5,200,000, the Buyer shall pay to the Sellers an amount equal to the
product of six and one-quarter (6.25) multiplied by the amount by which the
Second Earn Out Period Net Income Before Taxes exceeds $5,200,000, up to a
maximum of $5,000,000, and, to the extent that the Second Earn Out Period Net
Income Before Taxes exceeds $6,000,000, the Buyer shall pay to the Sellers an
amount equal to the product of two (2) multiplied by the amount by which the
Second Earn Out Period Net Income Before Taxes exceeds $6,000,000 up to a
maximum of $5,000,000, with such amounts to be paid in cash except to the extent
that either of the Sellers provides the Buyer with written notice at least three
(3) business days before such payment is to be made of the portion (if any) of
such Seller's share of such amount that such Seller elects to receive in shares
of Common Stock, with the amount of shares of Common Stock to be determined
based on the average closing price of the Common Stock on the Nasdaq National
Market on the last five trading days preceding the date on which such payment is
to be made (the "Second Contingent Purchase Price"). 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 2.6 at the
rate of the regular commercial prime rate of interest that 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 Sellers and
ending on the date on which Buyer pays such amount to the Sellers, 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 Net Income Before Taxes 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 Net Income Before Taxes.
The Preliminary Purchase Price increased by the amount of any Contingent
Purchase Price is referred to herein as the "Purchase Price."
2.7 Contingent Purchase Price Determination Procedures. Within 30 days
after 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 Net Income
Before Taxes or the Second Earn Out Period Net Income Before Taxes, as the case
may be, (the "Draft Net Income Before Taxes Calculations") prepared by a
nationally recognized accounting firm. If either of the Sellers has any
objection to the Draft Net Income Before Taxes Calculations, such Seller shall
deliver a detailed statement describing his objections to the Buyer within 15
days after receiving either of the Draft Net Income Before Taxes Calculations.
The Buyer and such Seller will use reasonable efforts to resolve any such
objections themselves. If the Buyer and such 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 such 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 such 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 Net Income Before
Taxes 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 Net Income Before Taxes and the Second Earn Out Period
Net Income Before Taxes, as the case may be.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
3.1 Representations and Warranties of the Sellers. Each of the Sellers
hereby jointly and severally represent and warrant to the Buyer that the
statements contained in this Section 3.1 are correct and complete as of the
Closing Date:
(a) Authorization of Transaction. The Sellers have full power
and authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Sellers, enforceable in accordance with its terms and
conditions. The Sellers 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. Except as set forth on Schedule 3.1(b),
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 Sellers
are 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 Sellers are a party or by which they are bound or to which any of their
assets are subject.
(c) Brokers' Fees. The Sellers have 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 Buyer could become
liable or obligated.
(d) Company Shares. The Sellers hold of record and own
beneficially the number of Company Shares set forth next to their names in
Schedule 3.1(d) hereto, 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 Sellers are not a party to any
option, warrant, purchase right, or other contract or commitment that could
require the Sellers to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). The Sellers are 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.
(e) Investment. The Sellers are not acquiring the Common Stock
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act. The Sellers acknowledge that the sale of the
Common Stock has not been registered under the Securities Act or applicable
state securities laws. The Common Stock may not be transferred or resold except
as permitted under the Securities Act and the applicable state securities laws,
pursuant to registration or exemption therefrom. The Sellers also acknowledge
that the Common Stock is also subject to certain transfer restrictions set forth
in the Registration Rights Agreement between the Sellers and the Buyer dated as
of the date hereof. The Sellers have received and reviewed a copy of the
prospectus dated May 20, 1998. Each Seller (i) has such knowledge,
sophistication and experience in business and financial matters that they are
capable of evaluating the merits and risks of an investment in the shares of
Common Stock and (ii) can bear the economic risk of any investment in the shares
of Common Stock and can afford a complete loss of such investment. Each Seller
has had an adequate opportunity to ask questions and receive answers (and has
asked such questions and received answers to its satisfaction) from the officers
of the Buyer concerning the business, operations and financial condition of the
Buyer.
3.2 Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Sellers that the statements contained in this Section 3.2
are correct and complete as of the Closing Date:
(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 Sellers could become
liable or obligated.
(e) Investment. The Buyer is not acquiring the Company Shares
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
(f) 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.
(g) SEC Documents. The Buyer has filed all required periodic
reports on forms 8-K, 10-Q, and 10-K with the Commission since July, 1997, and
has filed prospectuses dated June 27, 1997, and May 20, 1998 with the Commission
(the "Buyer SEC Documents"). As of their respective dates, and giving effect to
any amendments thereto, (i) the Buyer SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the applicable rules and regulations of the Commission
promulgated thereunder and (ii) none of the Buyer SEC Documents contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
Each of the Sellers hereby jointly and severally represent and warrant
to the Buyer that the statements contained in this Section 4 are correct and
complete as of the Closing Date:
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. The Company is duly authorized to
conduct business and is 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 material 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 Sellers have
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 2,500 Company Shares, of which 200 shares are issued and outstanding
and 100 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 Sellers. 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 state and federal
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 Sellers, as a result of the
transactions contemplated by this Agreement, the Buyer will 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 in 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 government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.4 Brokers' Fees. The Company does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement or legal, accounting
or consulting fees to the extent not accrued on the Closing Date Balance Sheet.
4.5 Title to Assets. Except as set forth in Schedule 4.5, 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, or shown on the
Interim Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Interim Balance Sheet.
4.6 Financial Statements. The Company has delivered the following
financial statements (collectively, the "Financial Statements") to the Buyer:
(i) balance sheets, statements of income, changes in stockholders' equity, and
cash flow as of and for the years ended December 31, 1995 and 1996, and for the
six months ended June 30, 1997, reviewed by an independent accountant for the
Company; and (ii) unaudited balance sheets as of April 24, 1998, and statements
of income (the "Interim Financial Statements") for the period commencing January
1, 1998 and ending April 24, 1998 (the "Interim Balance Sheet Date"), for the
Company. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
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. Except as set
forth in Schedule 4.7, since the Interim Balance Sheet Date, there has not been
any change in the business, financial condition, operations, results of
operations, or future prospects of the Company that resulted or could be
expected to have a Material Adverse Effect or which the Sellers, the Company or
any subsidiary has reason to believe could be expected to result in a Material
Adverse Effect, and none of the Seller, the Company or any of the subsidiaries
knows of such change that is threatened, nor has there been any damage,
destruction or loss affecting the assets, prospects, business, prospects,
operation or condition (financial or otherwise) of the Company or any of the
subsidiaries, whether or not covered by insurance which has resulted or
reasonably could be expected to result in or which the Seller, the Company or
any subsidiary has reason to believe could be expected to result in a Material
Adverse Effect. 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 $25,000 or outside the Ordinary Course of
Business;
(c) no party (including the Company) has accelerated,
terminated, modified, failed to renew, or canceled any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than an aggregate of $25,000 to which the Company is a
party or by which it is bound and the Company has not received any notice from
any party that it intends to terminate, modify, fail to renew any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than an aggregate of $25,000 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 $25,000 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 $25,000 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 an aggregate
of $25,000;
(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 an aggregate of $25,000 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) 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, and employees outside
the Ordinary Course of Business;
(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;
(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;
(u) there has not been any other occurrence, event, incident,
action, failure to act, or, except the transactions contemplated by this
Agreement, transaction outside the Ordinary Course of Business involving the
Company;
(v) the Company has not made any change in its accounting
methods or practices or made any change in depreciation or amortization policies
or lives adopted by it; and
(w) the Company has not committed to any of the foregoing.
4.8 Undisclosed Liabilities. The Company does not have any Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against it giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Interim Balance Sheet (rather than in any notes thereto) and (ii) Liabilities
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. Except as set forth in Schedule 4.9, each of the
Company and its respective predecessors has complied 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 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. The
Company has at all times complied with the provisions of the Foreign Corrupt
Practices Act of 1977, as amended. The Company has not made any illegal payments
to officers or employees of any governmental or regulatory body, or made any
payment to customers for the sharing of fees or to customers or suppliers for
rebating of charges, or engaged in any other reciprocal practices, or made
illegal payment or given any other illegal consideration to purchasing agents or
other representative of customers in respect of the sales made or to be made by
the Company.
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 except for taxes not yet due. 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 Sellers 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 or (ii) as to which the
Sellers have Knowledge based upon personal contact with any agent of such
authority. The Sellers have delivered to the Buyer correct and complete copies
of all federal income Tax Returns, 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 January 1982 and will be an S
corporation up to and including the Closing Date.
(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 of 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.
(a) The Company currently does not own and has never owned any
real property.
(b) Schedule 4.11(b) lists and describes briefly all real
property leased or subleased to the Company. The Sellers have delivered to the
Buyer correct and complete copies of the leases and subleases listed in Schedule
4.11(b) (as amended to date). With respect to each lease and sublease listed in
Schedule 4.11(b):
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) to the Knowledge of the Sellers, the lease or
sublease 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, subject to
any requirement in any such lease requiring notice to or consent of the landlord
in connection with the transactions contemplated hereby;
(iii) the Company is not 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 and, to the Knowledge of
the Sellers, no other 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;
(iv) to the Knowledge of the Sellers no party to the
lease or sublease has repudiated
any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to
the lease or sublease;
(vi) with respect to each sublease, the
representations and warranties set forth in subsections (i) through (v) above
are true and correct with respect to the underlying lease;
(vii) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold or subleasehold;
(viii) all facilities leased or subleased thereunder
have received all material
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
(ix) 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 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) Except as set forth on Schedule 4.12, 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
Sellers nor the directors or officers (and employees with responsibility for
Intellectual Property matters) of the Company have 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 Sellers, 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 Sellers have made available 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) except as set forth on Schedule 4.12, 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 Sellers have 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 Knowledge of the Sellers, 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 any assignments and assumptions
required in connection with the transactions contemplated hereby);
(iii) to the Knowledge of the Sellers, 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) to the Knowledge of the Sellers, no party to the
license, sublicense, agreement,
or permission has repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through (iv) above
are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is
not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(vii) 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
(viii) 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 Sellers, the Company will not
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 Sellers have 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 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,
except for assets surplus to reasonable business needs of the Company.
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 $50,000 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 will extend over a period of more than one year, could reasonably be
expected to result in a loss to the Company, or involve consideration in excess
of $50,000;
(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 an aggregate of $50,000
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, excepting agreements with
consultants that have never been employees of the Company which shall be listed
only if annual compensation under such agreement is in excess of $100,000;
(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 Government Contract or Government Subcontract in
excess of $50,000; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $50,000, whether or not
made in the Ordinary Course of Business or under which the consequences of a
default or termination could have a Material Adverse Effect.
The Sellers have delivered 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: (i) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (ii) to the
Knowledge of the Sellers, 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; (iii) the Company is
not in breach or default and, to the Knowledge of the Sellers, 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 (iv) to the Knowledge of the Sellers, no
party has repudiated any provision of the agreement.
4.16 Notes and Accounts Receivable. All notes and accounts receivable
of the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts 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.
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 within the past 5 years:
(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) the policy 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; (iii) neither the Company nor any other party to the policy is in breach
or default (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 breach or default, 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: (i) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) 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. Except as set forth on Schedule
4.19, none of the actions, suits, proceedings, hearings, and investigations set
forth in Schedule 4.19 could result in any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Neither the Sellers nor the directors or officers (and employees
with responsibility for litigation matters) of the Company have any reason to
believe that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company. The Sellers have discharged all
obligations directly or indirectly related to the agreement dated May 15, 1998
as described in Schedule 4.7(1), 4.9(1) and 4.25(2).
4.20 Product Warranty. Each product manufactured, sold, leased, or
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 (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any 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. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. Schedule 4.20 includes copies of the standard terms
and conditions of sale or lease for the Company (containing applicable guaranty,
warranty, and indemnity provisions).
4.21 Product Liability. The Company does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any 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 Sellers, 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 Sellers have 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. The Company has not
knowingly hired and has not knowingly continued to employ illegal aliens.
4.23 Employee Benefits.
(a) Schedule 4.23 lists each Employee Benefit Plan that the
Company has maintained or to which the Company has contributed or has had any
obligation to contribute at any time during the last 5 years.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or
fund) complies in form and in operation in all 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 such
Employee Benefit Plan which is an Employee Welfare Benefit Plan and which is a
group health plan as defined in ERISA Section 607.
(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 a favorable determination letter from the
Internal Revenue Service (such letter having considered the provision of the Tax
Reform Act of 1986) that it is a "qualified plan," and the Sellers are 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) covered under Title IV of ERISA equals or exceeds the
present value of all vested and nonvested benefit Liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the date for determination
and there has been no "accumulated funding deficiency" or "unfunded current
liability" as defined in ERISA Section 302 regarding any such plan.
(vi) The Sellers have delivered 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) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or has been the subject of a Reportable Event
as to which notices would be required to be filed with the PBGC. No proceeding
by the PBGC to terminate any 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 and no excise taxes are payable with
respect to any such 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 Sellers have no Knowledge of
any Basis for any such action, suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred, and neither the
Sellers nor any of the directors or officers (and employees with responsibility
for employee benefits matters) of the Company have 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) The Company is not and has never been a member of a
Controlled Group. The Company does not contribute to, has not ever contributed
to, and has not ever been required to contribute to any Multiemployer Plan and
has no 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).
(e) The Company is not subject to any legal obligation to
continue any Employee Benefit Plan either before or after the Closing Date and
any such plan may be terminated without the consent of any participant or
beneficiary thereof.
(f) No amount shall become payable nor shall any amount become
vested under any Employee Benefit Plan as a result of the transactions
contemplated hereby, nor shall any amount payable under any Employee Benefit
Plan, individually or collectively, to any employee or former employee of the
Company be nondeductible under Code Section 280G or result in an excise tax
under Code Section 4999.
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. Except as set forth in Schedule 4.25,
(a) (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) (i) neither the U.S. Government nor any prime contractor,
subcontractor or other Person has notified the Sellers 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) (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 of the
Sellers 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) 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. 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. 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 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) 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. 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
Laws.
(f) 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
and any services provided by the Company were in compliance with industry
standards and applicable representations, warranties and certifications. 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.
4.26 Environmental, Health, and Safety Matters.
(i) To the Knowledge of the Sellers, 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 Sellers, 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, 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 Sellers in
this Agreement, nor any financial statement, certificate, schedule, document or
exhibit prepared by or on behalf of the Company or the Sellers and furnished or
to be prepared by or on behalf of the Company or the Sellers and furnished by
the Company, to the Sellers 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.
There is no event, fact or condition that has caused, or that reasonably could
be expected to cause a Material Adverse Effect, that has not been set forth in
this Agreement. Except as set forth on Schedule 4.28, the Company's monthly
income statements for calendar year 1997 and January, February, March and April
of calendar year 1998, which were prepared for internal management purposes,
provided to the Buyer, including amounts and percentages set forth as gross
margins and operating margins, are true and correct in all material respects.
The Company's internal and external budgets for calendar year 1998 that were
provided to the Buyer are true and correct in all material respects.
5. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing.
5.1 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 7 below).
The Sellers acknowledge and agree 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 .
5.2 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 7 below).
5.3 Transition.
(a) The Sellers 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. Vincent G. Vidas shall serve as President and
Chief Executive Officer and as a member of the Board of Directors of the Company
until the expiration of the Second Earn Out Period subject to removal only for
cause.
(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 allocate a portion of its home office general and
administrative and overhead expenses to the Company (the "Home Office Expense
Allocation"), and that the Home Office Expense Allocation will be calculated in
accordance with applicable regulations. The parties acknowledge that the Buyer
has no obligation to provide any support or capital to the Company from the
Closing Date through the end of the Second Earn Out Period.
(c) The Buyer shall take all necessary action to cause Vincent G. Vidas
to be elected to its Board of Directors at the next regularly scheduled meeting
of its Board of Directors.
5.4 Covenant Not to Compete.
(a) Until the later of (x) the end of the two (2) year period
following the Closing Date or (y) two (2) years subsequent to the date on which
the Sellers' employment with the Company terminates, each 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 Sellers 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 Sellers agree that
the foregoing covenant may be enforced by the Buyer in the event of breach by
the Sellers, by injunctions and restraining orders.
(c) Reasonable Restraint. The Parties agree that the foregoing
covenants in this Section 5.4 impose a reasonable restraint on the Sellers 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 Sellers 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 Sellers
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 5.4(a), the Sellers shall not
be chargeable with a violation of this Section 5.4 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
5.4 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
5.4 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 Sellers
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 5.4(a),
during which the agreements and covenants of each the Sellers made in this
Section 5.4 shall be effective, shall be computed by excluding from such
computation any time during which such Seller is found by a court of competent
jurisdiction to have been in violation of any provision of this Section 5.4. The
covenants contained in Section 5.4 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 Sellers hereby agree that the covenants
set forth in this Section 5.4 are a material and substantial part of the
transactions contemplated by this Agreement.
5.5 Stock Options. Promptly after the Closing, the Buyer shall grant to
certain employees of the Company as designated by the Sellers an option to
purchase an aggregate of 250,000 shares of Common Stock, such grant to be
subject to the terms of the Buyer's 1996 Employee Stock Incentive Plan and 1997
Employee Stock Incentive Plan.
5.6 Legal Opinions. At the time of the issuance of Common Stock to the
Sellers hereunder, the Buyer will deliver an opinion of counsel to the Sellers
reasonably satisfactory to the Sellers.
6. Deliveries at Closing
6.1 Deliveries of the Seller. Prior to or at the Closing:
(a) the Sellers shall have delivered to the Buyer a
certificate dated as of the Closing Date and executed by the President of the
Company to the effect that (A) the Company shall have procured all of the third
party consents and given notices to third parties in connection with the matters
set forth in Section 4.3, above; and (B) 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);
(b) the Sellers shall have delivered certificates representing
the Company Shares, duly endorsed (or accompanied by duly executed stock
powers), with signatures guaranteed, for transfer to the Buyer;
(c) the Sellers shall have delivered to the Buyer a
certificate dated as of the Closing Date executed by the Secretary of the
Company (i) certifying that the Bylaws, as attached to such certificate, is a
true and correct copy of the Company's Bylaws as in effect as of the Closing
Date, (ii) providing as attachments thereto, the Company's Certificate of
Incorporation and Certificate of Good Standing certified by an appropriate New
Jersey state official as of a date not more than 10 days before the Closing Date
and by the Company's Secretary as of the Closing Date;
(d) Vincent G. Vidas shall have entered into and delivered the
employment agreement with the Buyer in the form attached hereto as Exhibits
6.1(d);
(e) the Buyer shall have received from counsel to the Sellers
an opinion in form and substance as set forth in Exhibit 6.1(e) attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(f) the Buyer shall have received the resignations, effective
as of the Closing, of each director and executive officer of the Company, except
for the resignation of Vincent G. Vidas as Chief Executive Officer, President
and member of the Board of Directors of the Company;
(g) the Sellers shall have delivered all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby reasonably satisfactory in form and substance to the Buyer;
(h) the Seller shall have delivered a list setting forth the
name of Company employees and the number of shares of Common Stock for which
such employees will be granted an option to purchase by the Buyer as set forth
in Section 5.5 above.
6.2 Deliveries of the Buyer. Prior to or at the Closing:
(a) the Buyer shall have delivered to the Sellers a
certificate executed by the Secretary of the Buyer dated as of the Closing Date
to the effect that 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);
(b) the Buyer shall have delivered all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby reasonably satisfactory in form and substance to the
Sellers; and
(c) the Sellers and the Buyer shall have entered into a
Registration Rights Agreement in the form attached hereto as Exhibit 6.2(c); and
(d) the Sellers shall have received from counsel to the Buyer
an opinion in form and substance as set forth in Exhibit 6.2(d) attached hereto,
addressed to the Sellers, and dated as of the Closing Date.
7. REMEDIES FOR BREACHES OF THIS AGREEMENT.
7.1 Survival of Representations and Warranties. Except with respect to
Sections 3.1(a), 3.1(d), 4.1, 4.2, 4.10, 4.23, Government Contract Claims (as
defined herein) or 4.26, 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 until December 31, 1999. 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 or any
representation or warranty relating to a Government Contract ("Government
Contract Claims") shall survive Closing and shall remain in full force and
effect for a period of six (6) years. Representations and warranties contained
in Section 4.26 shall survive Closing and shall remain in full force and effect
for a period of five (5) years. Representations and warranties contained in
Sections 3.1(a), 3.1(d), 4.1, 4.2, 4.10, 4.23, shall survive Closing and shall
remain in full force and effect until the expiration of applicable statutes of
limitation. 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 7)
notwithstanding that the scope of loss may not be determined, remedial work
completed or claim otherwise resolved prior to such expiration.
7.2 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 7 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 (including
the covenants and obligations set forth in Article 8, below) of the Indemnifying
Party contained in this Agreement;
(iii) the scheduled items set forth on Schedules 4.9, 4.19 and 4.25;and
(iv) any and all Adverse Consequences incidental to any of the
foregoing or to the enforcement of this Section 7.2. Without limiting the
foregoing, the Sellers' 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. Each 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 Sellers (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
7.3 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 7.3(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 all 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 Sellers 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.
7.4 Limitation. Notwithstanding the above, and except for (i)
misrepresentations and breaches of warranties by the Sellers under Sections
3.1(a), 3.1(d), 4.1, 4.2, 4.10, 4.23, 4.26, (ii) and (iii) Adverse Consequences
resulting from or arising out of the scheduled items set forth on Schedule 4.9,
4.19 and 4.25(i), the Sellers shall not be liable under this Section 7 (y) until
the aggregate amount of Adverse Consequences in respect of misrepresentations
and breaches of warranties to the Buyer exceeds $300,000, and only to the extent
of such excess, and (z) to the extent that the Adverse Consequences to the Buyer
exceeds $20,000,000.
7.5 Indemnity Fund. The Buyer shall withhold from the Purchase Price an
indemnity fund in the amount of $5,000,000 in the form of cash and Common Stock
as set forth in Section 2.2 (the "Indemnity Fund") as a hold-back in order to
provide a fund for the payment of any Adverse Consequences resulting from or
arising out of (i) the scheduled items set forth on Schedule 4.9, 4.19 and 4.25,
(ii) any breach of any representation or warranty of the Sellers contained in
this Agreement or in any schedule, exhibit, certificate, document or other item
delivered by the Sellers or (iii) any payments required to be made to Buyer in
accordance with Section 2.5, above. Any payments made from the Indemnity Fund
shall first reduce the number of shares of the Buyer's common stock held within
the Indemnity Fund, such shares being valued at the same value as set forth in
Section 2.2 herein, and then shall reduce the amount of cash held within the
Indemnity Fund. No interest shall accrue on any funds held within the Indemnity
Fund. Any dividends received by the Buyer with respect to Common Stock held
within the Indemnity Fund shall be retained by the Buyer as part of the
Indemnity Fund and released to the Sellers in accordance with the terms of this
Section 7.5. The Indemnity Fund shall be retained by the Buyer until the earlier
of three business days after delivery of the Closing Date Balance Sheet in
accordance with Section 2.5 or ninety days subsequent to the Closing Date (the
"Release Date"). If after the Release Date, the Buyer has no claims for
indemnification pending, then the Buyer shall pay to the Sellers the Indemnity
Fund. If the Buyer has any claims for indemnification pending, any funds
reasonably necessary to satisfy such claims shall be retained by the Buyer
pending final resolution of such claims, at which point the Buyer shall pay the
balance, if any, remaining in the Indemnity Fund, to the Sellers. The Sellers
and the Buyer expressly acknowledge that if the Buyer's claims for
indemnification for breaches of representations or warranties exceed the amount
of such Indemnity Fund, the Sellers and their successors and assigns, shall
remain liable for any such excess in accordance with this Section 7.
7.6 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 7) by notifying the
Sellers within 30 days after the end of the applicable Earn Out Period that the
Buyer is reducing the amount of any Contingent Purchase Price otherwise payable
to the Sellers. The written notice shall specify the general, factual basis for
such claim and the amount the Contingent Purchase Price is to be reduced. The
Buyer shall pay the remainder of the Contingent Purchase Price not recouped. If
the Sellers have any objection to the reduction, the Sellers shall have 30 days
to make such investigation of the claim as the Sellers deems necessary or
desirable. For the purposes of such investigation, the Buyer agrees to make
available to the Sellers or their authorized representatives the information
relied upon by Buyer to substantiate the reduction. If the Buyer and Sellers 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 Sellers 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 that 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 Sellers.
8. TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between the Buyer and the Sellers for certain tax matters following the
Closing Date:
8.1 Section 338(h)(10) Election.
(a) The Sellers agree, 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.
(b) The Sellers shall pay (i) any Tax, 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 and (ii) 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, provided, however, that the Buyers will pay to the Sellers up
to an aggregate amount of $1,250,000 pursuant to Section 2.2 above to the
Sellers for any Tax attributable to the making of the Section 338(h)(10)
election, including any income Tax liability of the Sellers attributable to the
Company electing to convert from a cash to an accrual method of accounting for
federal income tax purposes, such election being effective for the federal
taxable year ending on the Closing Date, to the extent that such income Tax
exceeds the income Tax for which the Sellers would otherwise have been liable if
the Sellers had sold their Company Shares without making any such election (the
"338(h)(10) Tax Liability"). The Sellers will be liable for any Tax due on any
payments made by the Buyer to the Sellers pursuant to this Section 8.1(b).
8.2 Tax Periods Ending on or Before the Closing Date. The Sellers 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 Sellers shall permit the Buyer to review and
comment on each such Tax Return described in the preceding sentence prior to
filing. Sellers shall pay any Taxes shown on any such Tax Returns. As the
shareholders of an S corporation, except for amounts reserved on the Closing
Date Balance Sheet, the Sellers will pay and discharge and be responsible for
any and all Taxes due or payable by the Sellers and by the Company for any
taxable year or taxable period ending on or before the Closing Date including,
without limitation, any liability that the Sellers may owe as individuals in any
jurisdiction in which the Company is treated as an S corporation. In addition,
the Sellers will pay and discharge and be responsible for any state taxes
(including without limitation, excise and franchise taxes) due or payable by the
Company for any taxable year or taxable period ending on or before the Closing
Date, including without limitation, any liability that the Sellers may owe as
individuals in any jurisdiction in which the Company is treated as an S
corporation.
8.3 Allocation of Purchase Price. Within 30 days after the Closing
Date, the Buyer shall deliver to the Sellers 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 Sellers have any objection to the Draft Purchase Price
Allocation, the Sellers shall deliver a detailed statement describing their
objections to the Buyer within 5 days after receiving the Draft Purchase Price
Allocation. The Buyer and the Sellers will use reasonable efforts to resolve any
such objections themselves. If the Buyer and Sellers 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 Sellers 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 Sellers 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 Sellers and for
any determinations of the Arbitrator shall be referred to herein as the "Final
Purchase Price Allocation." The Buyer and the Sellers will file and the Sellers
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.
8.4 S Corporation Status. The Sellers 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 Sellers 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.
8.5 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 Sellers to
review and comment upon each such Tax Return described in the preceding sentence
prior to filing. The Sellers 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 .
8.6 Cooperation on Tax Matters.
(a) The Buyer and the Sellers shall, and the Sellers 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 8 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 Parties agree (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 other Party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if requested, allowing the other Party to take
possession of such books and records.
(b) Buyer and Sellers 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 Sellers 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.
9. MISCELLANEOUS.
9.1 Cooperation. The Sellers and the Buyer, for no further
consideration, shall each deliver or cause to be delivered to the other on the
Closing Date, and 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 Sellers will
cooperate and use their reasonable efforts to cause the Company's present
officers, directors and employees to 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
Sellers before, on and after the Closing Date in furnishing any such information
to employees of the Sellers 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 Sellers will cooperate and use
their 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 Sellers will use their reasonable efforts to cause the Company's
accountants at the Buyer's sole cost and expense, to assist the Buyer and the
Company in the preparation of such financial statements.
9.2 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 Sellers.
9.3 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.
9.4 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.
9.5 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
Sellers have paid and will pay the fees, expenses and disbursements of the
Sellers and the Company and its agents, representatives, financial advisors,
accountants and counsel incurred in connection with the subject matter of this
Agreement.
9.6 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 Sellers, to:
Vincent G. Vidas
730 Lippincott Drive
Moorestown, New Jersey 08057
Fax No. (609) 234-6137
John S. Degnan
420 5th Avenue
Beach Haven, New Jersey 08008
Fax No.: (609) 492-3235
with a required copy to (for each of the
Sellers):
Earp Cohn & Pendery
The Rohrer Building
222 Haddon Avenue
Westmont, NJ 08108
Attn: Thomas L. Earp, Esq.
Fax No.: (609) 854-6434
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.
9.7 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without regard to conflicts of laws provisions.
9.8 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 5.4(d).
9.9 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.
9.10 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.
9.11 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.
9.12 Amendment; Waiver. This Agreement may be amended by the Parties
hereto at any time after 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.
9.13 Public Disclosure. Each Party agrees to keep the others apprised
in advance of any planned disclosure of the subject matter of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
this __ day of June, 1998.
BUYER:
ADVANCED COMMUNICATION SYSTEMS, INC.
By:________________________________
George A. Robinson
President and Chief Executive Officer
SELLERS:
-----------------------------------
Vincent G. Vidas
-----------------------------------
John S. Degnan
Exhibit 10.2
CONSENT AGREEMENT
CONSENT AGREEMENT, dated as of June 19, 1998 by and among ADVANCED
COMMUNICATION SYSTEMS, INC., INTEGRATED SYSTEMS CONTROL, INC., RF MICROSYSTEMS,
INC. and ADVANCED MANAGEMENT, INC. (together with any other Person that has
become a borrower to the Credit Agreement as provided therein, collectively, the
"Borrowers" and individually each a "Borrower"), the banks and other financial
institutions parties to this Agreement (the "Lenders"), and NationsBank, N.A. as
agent (in such capacity, the "Agent") for the Lenders (this "Agreement").
WITNESSETH:
WHEREAS, the Borrowers, the Lenders and the Agent are parties to the
Credit Agreement dated as of February 17, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement");
WHEREAS, the Borrowers may borrow under the Agreement for the purpose
of acquiring Acquired Businesses, as defined in the Credit Agreement, upon the
terms, and subject to the conditions set forth in the Credit Agreement and this
Agreement;
WHEREAS, Advanced Communication Systems, Inc. ("ACS Inc.")
has requested that Loans be made under the Credit Agreement, the proceeds of
which are to be used for the acquisition of SEMCOR Stock (as hereinafter
defined);
WHEREAS, the Agent and the Lenders are willing to provide financing to
ACS Inc. for the acquisition of such SEMCOR Stock only upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.0. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein are used as defined and the following terms
shall have the following meanings:
"Acquired Government Contracts": the Government Contracts, as defined
in the SEMCOR Stock Purchase
Agreement.
"Acquisition Date": the date on which the SEMCOR Stock is acquired by
ACS Inc. pursuant to the terms of the SEMCOR Stock Purchase Agreement.
"Agent": as defined in the preamble to this Agreement.
"Borrowers": as defined in the preamble to this Agreement.
"Credit Agreement": as defined in the preamble to this Agreement.
"Lenders": as defined in the preamble to this Agreement.
"SEMCOR": SEMCOR, Inc., a New Jersey corporation.
"SEMCOR Stock": the two hundred (200) Company Shares (as defined in the
SEMCOR Stock Purchase Agreement) which number of shares shall represent one
hundred percent (100%) of the issued and outstanding common stock.
"SEMCOR Stock Purchase Agreement": the Stock Purchase Agreement
effective as of June 19, 1998, among ACS Inc. as buyer, and Vincent G. Vidas and
John S. Degnan, as sellers (together, the "Seller").
1.1. Other Definitional Provisions:
(a) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section and subsection
references are to this Agreement unless otherwise specified.
(b) Periods of days referred to in this Agreement shall be counted in
calendar days unless Business Days are expressly prescribed.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. APPROVAL OF ACQUISITION
1.2. Approval. Subject to the terms and conditions hereof, the
Lenders and the Agent hereby approve the acquisition by ACS Inc. of the SEMCOR
Stock pursuant to the terms and subject to the conditions set forth in the
SEMCOR Stock Purchase Agreement.
1.3. Loan Document. This Agreement shall constitute a Loan Document
under the Credit Agreement and the other Loan Documents.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make
the Loans in connection with the acquisition of the SEMCOR Stock by ACS Inc.,
the Borrowers hereby jointly and severally represent and warrant to the Agent
and each Lender that:
1.4. Certificate of Pro Forma Covenant Compliance. A certificate of the
chief financial officer of the Borrowers, dated as of March 31, 1998 a copy of
which has heretofore been furnished to the Agent, is complete and correct and
sets forth in reasonable detail the calculation on a pro forma basis of the
financial covenants of subsection 8.1 of the Credit Agreement as amended by
Section 5 of this Agreement and demonstrates that after giving effect to the
transactions contemplated by the SEMCOR Stock Purchase Agreement that the
Borrowers shall be in compliance with such covenants.
1.5. Pro Forma Borrowing Base Certificate. The pro forma Borrowing Base
Certificate, dated as of April 30, 1998, a copy of which has heretofore been
furnished to the Agent, is complete and correct and sets forth in reasonable
detail the calculation on a pro forma basis of the Loan Value of the Eligible
Receivables.
1.6. No Material Change. Since September 30, 1997 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
1.7. Disclosure. The Borrowers have provided the Agent with a true,
correct and complete copy of the SEMCOR Stock Purchase Agreement. No
information, schedule, exhibit or report or other document prepared and
furnished by the Borrowers or any of their Subsidiaries to the Agent or any
Lender in connection with the SEMCOR Stock Purchase Agreement or negotiation of
this Agreement or any other Loan Document (or pursuant to the terms hereof or
thereof), as such information, schedule, exhibit or report or other document has
been amended, supplemented or superseded by any other information, schedule,
exhibit or report or other document later delivered to the same parties
receiving such information, schedule, exhibit or report or other document,
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein, in light of the
circumstances when made, not materially misleading. Nothing herein shall be
deemed to constitute any representation by the Borrowers with respect to the
accuracy of any representation or warranty under the SEMCOR Stock Purchase
Agreement.
1.8. Incorporation of Representations and Warranties from Credit
Agreement. The representations and warranties contained in Section 6 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date this Agreement shall become effective and to the
same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.
SEC1.9. Conditions to Approval. The agreements of each Lender contained herein
are subject to the satisfaction, on or before the Acquisition Date, of the
following conditions precedent:
(a) Financial Statements. The Agent shall have received the
financial statements described in subsections 3.1 and 3.2.
(b) SEMCOR Stock Purchase Agreement. The Agent shall have received a
true and correct copy, certified as to authenticity by ACS Inc., of the SEMCOR
Stock Purchase Agreement and such Agreement shall remain in full force and
effect.
(c) Settlement Agreement and Release. The Agent shall have received a
true and correct copy, certified as to authenticity by ACS Inc., of the
Settlement Agreement and Release dated May 15, 1998 by and between SEMCOR, as
Defendant and Lisa D. Washington, as Plaintiff and such Agreement and Release
shall remain in full force and effect.
(d) Department of Navy Letter. The Agent shall have received the letter
from the Department of Navy relating to the subject matter of the Settlement
Agreement and Release in form and substance satisfactory to the Agent .
(e) Termination of Existing Credit Facilities. The Agent shall have
received evidence reasonably satisfactory to it of repayment of any advances
made by (i) First Union N.A. (fka CoreStates Bank) to SEMCOR and (ii) made by
the Seller to SEMCOR and termination statements on form UCC-3, duly executed by
Vincent G. Vidas and John S. Degnan releasing all of their liens filed with
respect to SEMCOR.
(f) Agreements. The Agent shall have received true and correct copies,
certified as to authenticity by the Borrowers, of such documents or instruments
as may be reasonably requested by the Agent.
(g) No Default. No Default or Event of Default shall have occurred and
be continuing on the date of this Agreement or after giving effect to the
transactions contemplated by this Agreement.
(h) Miscellaneous. The Agent shall have received such other opinions or
documents as the Agent or the Majority Lenders through the Agent may reasonably
request.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrowers hereby jointly and severally agree that:
1.10. SEMCOR/Loan Party. The requirements of subsection 7.12 of the
Credit Agreement with respect to SEMCOR shall have been satisfied as of the
close of business on the Acquisition Date.
1.11. Assignments of Government Receivables. The Borrowers shall
execute and deliver to the Agent, for the benefit of the Lenders, within thirty
(30) days after the Acquisition Date, all statements of assignment, in form and
substance satisfactory to the Agent, which are deemed necessary by the Agent in
connection with the assignment to the Agent by the Borrowers of the Government
Receivables of SEMCOR that arise under Government Contracts existing as of the
Acquisition Date, provided, however that the Borrowers shall not be required to
execute and deliver such statements of assignment and/or notification with
respect to Government Receivables of SEMCOR that arise (i) under a contract with
a maximum ceiling value of $500,000 or less or (ii) under a contract (including
all options, extensions and other like provisions with respect thereto) of six
(6) months or less remaining in duration as of the Acquisition Date. The failure
by the Borrowers to assign such Government Receivables will be deemed to be a
default under Section 9(c) of the Credit Agreement.
1.12. Representations of SEMCOR. Notwithstanding anything contained in
the Credit Agreement, the Joinder Agreement or any other Loan Document to the
contrary:
(a) for the period from the date hereof until the delivery of the
Officer's Certificate described in paragraph (c) hereof, SEMCOR shall not be
deemed to make any representation contained in the Credit Agreement or the
Security Agreement;
(b) the Borrowers hereby represent and warrant to the Agent and each
Lender that each of the representations and warranties made by the Seller with
respect to the "Company" (as therein defined) in the SEMCOR Stock Purchase
Agreement are true and correct on and as of the date hereof;
(c) on or before the thirtieth (30th) day after the Acquisition Date,
SEMCOR shall deliver to the Agent and the Lenders a certificate of a Responsible
Officer of SEMCOR certifying that each of the representations and warranties
made by SEMCOR, as a Borrower under the Credit Agreement and under the Security
Agreement, are true and correct in all material respects on and as of the date
of such certificate;
(d) the failure of SEMCOR to deliver the certificate described in
paragraph (c) shall be an Event of Default under Section 9(c) of the Credit
Agreement.
1.13. General Information. The Agent shall have received such other
opinions or documents as the Agent or the Majority Lenders through the Agent may
reasonably request.
SECTION 6. FINANCIAL COVENANTS
The Borrowers hereby jointly and severally agree that:
1.14. Debt. Notwithstanding anything contained in the Credit Agreement
or any other Loan Document to the contrary, for the purpose of determining
compliance with the negative covenant contained in 8.1(a) of the Credit
Agreement, for any fiscal period, only seventy-five percent (75%) of deferred
purchase price of property or services with respect to SEMCOR for such period
shall be included in the calculation of Debt provided that if as of March 31,
1999 and/or the last day of any fiscal quarter thereafter, the EBITDA of SEMCOR
would on an annualized pro forma basis equal EBITDA as of the Initial Earn Out
Period (as defined in the SEMCOR Stock Purchase Agreement) or EBITDA as of the
Second Earn Out Period (as defined in the SEMCOR Stock Purchase Agreement) then
one hundred percent (100%) of the deferred purchase price of property or
services with respect to SEMCOR for each such period thereafter shall be
included in the calculation of Debt.
1.15. EBIDA/EBITDA. Notwithstanding anything contained in the Credit
Agreement or any other Loan Document to the contrary, for the purpose of
determining compliance with the negative covenants contained in 8.1(a) and
8.1(b) of the Credit Agreement, for any fiscal period from March 31, 1998 until
and including March 31, 1999, the following amounts shall be restored to the
Consolidated Net Income or Consolidated Net Loss, as the case may be, in the
calculation of EBIDA and EBITDA for ACS Inc.: (i) the amount attributable to
payments to a former shareholder of SEMCOR which is set forth opposite the
caption "payments to former stockholder" (or any like caption) on the
consolidating income statement of ACS Inc., to the extent such amount is
incurred prior to the Acquisition Date, and (ii) the amount attributable to
SEMCOR owners' salaries in excess of the DCAA allowable amount which is set
forth opposite the caption "amount paid to owners over DCAA allowable" (or any
like caption) on the consolidating income statement of ACS Inc., to the extent
such amount is incurred prior to the Acquisition Date.
SECTION 7. MISCELLANEOUS
1.16. Effect of Agreement. Except as hereby specifically amended,
modified or supplemented, the Credit Agreement and all other Loan Documents are
hereby confirmed and ratified in all respects and shall remain in full force and
effect according to their respective terms. Whenever reference is made in any
note, document, letter, conversation or Loan Document to the Credit Agreement,
such reference shall be deemed to refer to the Credit Agreement as supplemented
hereby.
1.17. Joint and Several Liability. WHETHER OR NOT EXPRESSLY STATED
HEREIN OR IN ANY OTHER LOAN DOCUMENT, ALL OBLIGATIONS OF THE BORROWERS (OR OF
ANY BORROWER) HEREUNDER AND UNDER EACH OTHER LOAN DOCUMENT (WHETHER IN
CONNECTION WITH LOANS, LETTERS OF CREDIT OR OTHER OBLIGATIONS) ARE JOINT AND
SEVERAL OBLIGATIONS OF ALL BORROWERS.
1.18. Maximum Amount of Joint and Several Liability. To the extent that
applicable Law otherwise would render the full amount of the joint and several
obligations of any Subsidiary of ACS Inc. hereunder and under the other Loan
Documents invalid or unenforceable, such Subsidiary's obligations hereunder and
under the Loan Documents shall be limited to the maximum amount which does not
result in such invalidity or unenforceability, provided, however, that each
Borrower's obligations hereunder and under the other Loan Documents shall be
presumptively valid and enforceable to their fullest extend in accordance with
the terms hereof or thereof, as if this subsection 7.3 were not a part of this
Agreement.
1.19. Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrowers and the
Agent.
1.20. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
1.21. Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrowers, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
1.22. Section Headings. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or to be taken into consideration in the interpretation hereof.
1.23. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Borrowers and shall inure to the benefit of the
Agent and the Lenders and their successors and assigns.
1.24. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF VIRGINIA.
Exhibit 10.3
JOINDER AGREEMENT
THIS JOINDER AGREEMENT, dated as of June 19, 1998, (as amended,
supplemented or otherwise modified from time to time, this "Agreement") made by
the Borrowers signatory hereto and SEMCOR, INC., a New Jersey corporation (the
"Additional Borrower") in favor of NATIONSBANK, N.A. as agent (in such capacity,
the "Agent") for the benefit of the Lenders as the holders of the Secured
Obligations and as parties to the Credit Agreement described below.
WITNESSETH:
WHEREAS, Advanced Communication Systems, Inc., Integrated Systems
Control, Inc. and RF Microsystems, Inc. (together with any other Person that has
become a borrower to the Credit Agreement as provided therein, collectively, the
"Borrowers" and individually, each a "Borrower") are parties to the Credit
Agreement dated as of February 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") by and among the Borrowers,
the banks and other financial institutions thereto (the "Lenders") and the
Agent;
WHEREAS, the Borrowers in connection with the Credit Agreement have
entered into the Security Agreement (as amended, supplemented or otherwise
modified from time to time, the "Security Agreement"), dated as of February 17,
1998, made by the Borrowers, in favor of the Agent, for the benefit of the
Lenders;
WHEREAS, the Borrowers have designated that the Additional Borrower
become a borrower under the Credit Agreement and the other Loan Documents;
WHEREAS, the Borrowers are required by subsection 7.12 of the Credit
Agreement to cause the Additional Borrower to become a party to the Security
Agreement;
WHEREAS, the Additional Borrower has agreed to execute and deliver this
Agreement in order to become a party to the Credit Agreement, the Security
Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein, the Additional Borrower hereto agrees
with the Agent, for the benefit of the Lenders, as follows:
Defined Terms. Unless otherwise defined herein, terms defined in the Credit
Agreement and the Security Agreement and used herein shall have the meanings
given to them respectively in the Credit Agreement and Security Agreement. The
words "hereof", "herein", "hereto" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section, subsection and Schedule
references are to this Agreement unless otherwise specified. The meanings given
to terms defined herein shall be equally applicable to this Agreement unless
otherwise specified.
Credit Agreement. The Additional Borrower hereby acknowledges, agrees and
confirms that, by its execution of this Agreement, the Additional Borrower will
be deemed to be a party to the Credit Agreement and a "Borrower" for all
purposes of the Credit Agreement, and shall have all of the obligations of a
Borrower thereunder as if it had executed the Credit Agreement. The Additional
Borrower hereby ratifies, as of the date hereof, and agrees to be bound by, all
of the terms, provisions and conditions contained in the Credit Agreement,
including without limitation all of the undertakings and waivers set forth
therein. The information set forth in Exhibit A hereto is hereby added to the
information set forth in Schedules I-IX to the Credit Agreement. The Additional
Borrower hereby represents and warrants that each of the representations and
warranties contained in Section 5 of the Credit Agreement, as supplemented by
the information in Exhibit A hereto, is true and correct on and as of the date
hereof (after giving effect to this Agreement) as if made on and as of such
date. Without limiting the foregoing, the Additional Borrower hereby agrees as
of the date hereof, to become a party to each Note evidencing the Loans of the
Lenders.
Security Agreement. The Additional Borrower hereby acknowledges, agrees and
confirms that, by its execution of this Agreement, the Additional Borrower will
be deemed to be a party to the Security Agreement and a "Borrower" for all
purposes of the Security Agreement, and shall have all of the obligations of a
Borrower thereunder as if it had executed the Security Agreement. The Additional
Borrower hereby ratifies, as of the date hereof, and agrees to be bound by, all
of the terms, provisions and conditions contained in the Security Agreement,
including without limitation all of the undertakings and waivers set forth
therein. The information set forth in Exhibit B hereto is hereby added to the
information set forth in Schedules 1-6 to the Security Agreement. The Additional
Borrower hereby represents and warrants that each of the representations and
warranties contained in the Security Agreement, as supplemented by the
information in Exhibit B hereto, is true and correct on and as of the date
hereof (after giving effect to this Agreement) as if made on and as of such
date.
Loan Documents. The Additional Borrower hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Additional Borrower will be deemed
to be a party to all of the other Loan Documents and a "Borrower" for all
purposes under such Loan Documents, and shall have all of the obligations of a
Borrower thereunder. This Agreement is a Loan Document.
Notices. The address of the Additional Borrower for the purposes of all notices
and other communications under the Credit Agreement and the other Loan Documents
is c/o Advanced Communication Systems, Inc., 10089 Lee Highway, Fairfax, VA
22030, Attn: Dev Ganesan, Chief Financial Officer.
Section Headings. The Section and subsection headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
Successors and Assigns. This Agreement shall be binding upon the successors and
assigns of the Borrowers and the Additional Borrower and shall inure to the
benefit of the Agent and its successors and assigns.
Joint and Several Liability. WHETHER OR NOT EXPRESSLY STATED HEREIN OR IN ANY
OTHER LOAN DOCUMENT, ALL OBLIGATIONS OF THE BORROWERS (OR OF ANY BORROWER)
HEREUNDER AND UNDER EACH OTHER LOAN DOCUMENT (WHETHER IN CONNECTION WITH LOANS,
LETTERS OF CREDIT OR OTHER OBLIGATIONS) ARE JOINT AND SEVERAL OBLIGATIONS OF ALL
BORROWERS.
Maximum Amount of Joint and Several Liability. To the extent that applicable Law
otherwise would render the full amount of the joint and several obligations of
any Subsidiary of ACS Inc. hereunder and under the other Loan Documents invalid
or unenforceable, such Subsidiary's obligations hereunder and under the Loan
Documents shall be limited to the maximum amount which does not result in such
invalidity or unenforceability, provided, however, that each Borrower's
obligations hereunder and under the other Loan Documents shall be presumptively
valid and enforceable to their fullest extent in accordance with the terms
hereof or thereof, as if this Section 9 were not a part of this Agreement.
GOVERNING LAW. THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
Counterparts. This Agreement may be executed in two or more counterparts and by
the different parties hereto on separate counterparts, each constituting an
original, but all together constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Borrowers has caused this Agreement to
be duly executed by its authorized officers as of the day and year first above
written.
<PAGE>
IN WITNESS WHEREOF, the Additional Borrower has caused this Agreement
to be duly executed by its authorized officers, and the Agent, for the benefit
of the Lenders, has caused the same to be accepted by its authorized officer, as
of the day and year first above written.
ADVANCED COMMUNICATION SYSTEMS, INC.
INTEGRATED SYSTEMS CONTROL, INC.
RF MICROSYSTEMS, INC.
ADVANCED MANAGEMENT, INC.,
as Borrowers
By:_______________________________
Dev Ganesan
Chief Financial Officer
SEMCOR, INC.,
as Additional Borrower
By:_______________________________
Dev Ganesan
Chief Financial Officer
Acknowledged and accepted:
NATIONSBANK, N.A.,
as Agent
By:______________________________
Jennifer B. Lathrop
Assistant Vice President
Exhibit 10.4
THIRD AMENDED AND RESTATED FACILITY A NOTE
$20,000,000.00
Commonwealth of Virginia
June 19, 1998
FOR VALUE RECEIVED, the signatories hereto (the "Borrowers"), hereby,
jointly and severally, unconditionally promise to pay to the order of
NATIONSBANK, N.A. (the "Lender") at the office of NationsBank, N.A. located at
8300 Greensboro Drive, McLean, VA 22102 in lawful money of the United States of
America and in immediately available funds, on the Facility A Maturity Date the
principal amount of (a) TWENTY MILLION DOLLARS AND NO CENTS ($20,000,000.00) or,
if less, (b) the aggregate unpaid principal amount of all Facility A Loans made
by the Lender to the Borrowers pursuant to subsection 2.1(a) of the Credit
Agreement, as hereinafter defined. The Borrowers further, jointly and severally,
agree to pay interest in like money at such office on the unpaid principal
amount hereof from time to time outstanding at the rates and on the dates
specified in subsection 4.10 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof, or on a continuation thereof which shall
be attached hereto and made a part hereof, the date, Type and amount of each
Facility A Loan made pursuant to the Credit Agreement and the date and amount of
each payment or prepayment of principal thereof, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of
Eurodollar Loans, the length of each Interest Period with respect thereto. Each
such endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed. The failure to make any such endorsement shall not affect
the obligations of the Borrowers in respect of such Facility A Loan.
This Note (a) is one of the Facility A Notes referred to in the Credit
Agreement, dated as of February 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), by and among the Borrowers,
the Lender, the banks and financial institutions from time to time parties
thereto and NationsBank, N.A. as agent, (b) is subject to the provisions of the
Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is secured as
provided in the Loan Documents. Reference is hereby made to the Loan Documents
for a description of the properties and assets in which a security interest has
been granted, the nature and extent of the security, the terms and conditions
upon which the security interests were granted and the rights of the holder of
this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
This Note may be executed by one or more of the Borrowers on any number
of separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings attributed to them in the Credit
Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF VIRGINIA.
ADVANCED COMMUNICATION SYSTEMS, INC.,
INTEGRATED SYSTEMS CONTROL, INC.,
RF MICROSYSTEMS, INC.,
ADVANCED MANAGEMENT, INC.,
SEMCOR, INC.,
as Borrowers
By:_______________________________
Dev Ganesan
Chief Financial Officer
Exhibit 10.5
THIRD AMENDED AND RESTATED FACILITY B NOTE
$25,000,000.00
Commonwealth of Virginia
June 19, 1998
FOR VALUE RECEIVED, the signatories hereto (the "Borrowers"), hereby,
jointly and severally, unconditionally promise to pay to the order of
NATIONSBANK, N.A. (the "Lender") at the office of NationsBank, N.A. located at
8300 Greensboro Drive, McLean, VA 22102 in lawful money of the United States of
America and in immediately available funds, on the Facility B Maturity Date the
principal amount of (a) TWENTY-FIVE MILLION DOLLARS AND NO CENTS
($25,000,000.00) or, if less, (b) the aggregate unpaid principal amount of all
Facility B Loans made by the Lender to the Borrowers pursuant to subsection
2.1(b) of the Credit Agreement, as hereinafter defined. The Borrowers further,
jointly and severally, agree to pay interest in like money at such office on the
unpaid principal amount hereof from time to time outstanding at the rates and on
the dates specified in subsection 4.10 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof, or on a continuation thereof which shall
be attached hereto and made a part hereof, the date, Type and amount of each
Facility B Loan made pursuant to the Credit Agreement and the date and amount of
each payment or prepayment of principal thereof, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of
Eurodollar Loans, the length of each Interest Period with respect thereto. Each
such endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed. The failure to make any such endorsement shall not affect
the obligations of the Borrowers in respect of such Facility B Loan.
This Note (a) is one of the Facility B Notes referred to in the Credit
Agreement, dated as of February 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), by and among the Borrowers,
the Lender, the banks and financial institutions from time to time parties
thereto and NationsBank, N.A. as agent, (b) is subject to the provisions of the
Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is secured as
provided in the Loan Documents. Reference is hereby made to the Loan Documents
for a description of the properties and assets in which a security interest has
been granted, the nature and extent of the security, the terms and conditions
upon which the security interests were granted and the rights of the holder of
this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
This Note may be executed by one or more of the Borrowers on any number
of separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings attributed to them in the Credit
Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF VIRGINIA.
ADVANCED COMMUNICATION SYSTEMS, INC.,
INTEGRATED SYSTEMS CONTROL, INC.,
RF MICROSYSTEMS, INC.,
ADVANCED MANAGEMENT, INC.,
SEMCOR, INC.,
as Borrowers
By:________________________________
Dev Ganesan
Chief Financial Officer
Exhibit 10.6
WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT
This WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT (this "Waiver and
Amendment") is dated as of June 19, 1998 and entered into by and among ADVANCED
COMMUNICATION SYSTEMS, INC., INTEGRATED SYSTEMS CONTROL, INC., RF MICROSYSTEMS,
INC. and ADVANCED MANAGEMENT, INC. (the "Borrowers"), the banks and other
financial institutions from time to time parties to the Credit Agreement (the
"Lenders") and NATIONSBANK, N.A., as administrative agent for the Lenders (in
such capacity, the "Agent").
WITNESSETH:
WHEREAS, Advanced Communication Systems, Inc., Integrated Systems
Control, Inc. and RF Microsystems, Inc. (together with any other Person that has
become a borrower to the Credit Agreement as provided therein, collectively, the
"Borrowers" and individually, each a "Borrower") are parties to the Credit
Agreement dated as of February 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") by and among the Borrowers,
the banks and other financial institutions thereto (the "Lenders") and the
Agent;
WHEREAS, as of the date of this Waiver and Amendment, duly authorized
officers of the Borrowers have not yet executed and delivered all of the
statements of assignment and/or notification with respect to acquired Government
Contracts ("Direct Assignment Documentation") required to be so executed and
delivered pursuant to subsection 7.9 of the Credit Agreement and subsection 7.4
of the Security Agreement and have requested that the Agent and the Lenders
waive such non-compliance with such subsections;
WHEREAS, the Borrowers have requested that the Agent and the Lenders
revise certain financial condition covenants in the Credit Agreement;
WHEREAS, the Borrowers have requested that the Agent and Lenders
increase the aggregate Facility A Commitments by $5,000,000 to an aggregate
amount of up to $20,000,000 and increase the aggregate Facility B Commitments by
$5,000,000 to an aggregate amount of up to $25,000,000 such that the aggregate
Commitments will be increased by $10,000,000 to an aggregate amount of up to
$45,000,000;
WHEREAS, upon the effectiveness of such increase, the aggregate
Facility A Commitments will equal $20,000,000, the aggregate Facility B
Commitments will equal $25,000,000 and the aggregate Commitments of the Lenders
under the Credit Agreement will equal $45,000,000;
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein, the parties hereto agree as follows:
SECTION 1. Waiver. Subject to the terms and conditions set forth
herein, the Agent and the Lenders hereby waive any Default or Event of Default
that may have arisen pursuant to subsection 7.9 of the Credit Agreement and
subsection 7.4 of the Security Agreement as a result of the Borrowers' failure
to timely deliver the Direct Assignment Documentation to the Agent, provided
that such Direct Assignment Documentation, in form and substance satisfactory to
the Agent, shall have been executed and delivered by duly authorized officers of
each party thereto and copies thereof shall be delivered to the Agent on or
before July 15, 1998.
SECTION 2. Amendment to Loan Documents. The Credit Agreement and the
other Loan Documents are, effective as of the date hereof, and subject to the
satisfaction of the terms and conditions set forth herein, hereby amended as
follows:
1.1. Debt to EBITDA Ratio- Financial Condition Covenants. Paragraph (a)
of subsection 8.1 of the Credit Agreement is hereby amended by (i) deleting the
Ratio of "4.00" set forth opposite the Fiscal Period ended 12/31/98 and
substituting therefor the new Ratio of "4.25", (ii) deleting the Ratio of "3.50"
set forth opposite the Fiscal Period ended 12/30/99 and substituting therefor
the new Ratio of "3.75" and (iii) deleting the Ratio of "3.00" set forth
opposite the Fiscal Period ended thereafter and substituting therefor the new
Ratio of "3.25".
1.2. Minimum Net Worth Requirement - Financial Condition Covenants.
Paragraph (c) of subsection 8.1 of the Credit Agreement is hereby amended by
deleting the amount of "$17,000,000" and substituting therefor the amount of
"41,000,000".
1.3. Commitments.
(a) Schedule II to the Credit Agreement is hereby amended and
restated in its entirety to read as set forth in Exhibit A hereto;
(b) Each reference to "$15,000,000" contained in the Credit Agreement,
each other Loan Document and each other related agreement, where such reference
refers to the aggregate Facility A Commitments of the Lenders is hereby amended
to read "$20,000,000" and shall be deemed to refer to the amended aggregate
amount of the Facility A Commitment as described herein;
(c) Each reference to "$20,000,000" contained in the Credit Agreement,
each other Loan Document and each other related agreement, where such reference
refers to the aggregate Facility B Commitments of the Lenders is hereby amended
to read "$25,000,000" and shall be deemed to refer to the amended aggregate
amount of the Facility B Commitments as described herein; and
(d) Each reference to "$35,000,000" contained in the Credit Agreement,
each other Loan Document and each other related agreement, where such reference
refers to the aggregate Commitments of the Lenders is hereby amended to read
"$45,000,000" and shall be deemed to refer to the amended aggregate amount of
Commitments as described herein.
1.4. Amendments to Notes.
(a) The Borrowers shall execute and deliver to the Agent, a new
Facility A Note in the principal amount of $20,000,000 in the form attached
hereto as Exhibit B-1 in replacement of the Amended and Restated Facility A
Note, dated February 26, 1998; and
(b) The Borrowers shall execute and deliver to the Agent, a new
Facility B Note in the principal amount of $25,000,000 in the form attached
hereto as Exhibit B-2 in replacement of the Amended and Restated Facility B
Note, dated February 26, 1998 (together with the new Facility A Note, the
"Replacement Notes").
SECTION 3. Borrowers Representations and Warranties.
To induce the Agent and the Lenders to enter into this Waiver
and Amendment, the Borrowers hereby, jointly and severally, represent and
warrant to the Agent and the Lenders that:
1.5. Corporate Existence; Compliance with Law. Each of the Borrowers is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and is in compliance with all
Requirements of Law except to the extent that all failures to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
1.6. Disclosure. No information, schedule, exhibit or report or other
document furnished by the Borrowers or any of their respective Subsidiaries to
the Agent or the Lenders in connection with the negotiation of this Waiver and
Amendment (or pursuant to the terms hereof or thereof), as such documentation
has been amended, supplemented or otherwise superseded, contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein, in light of the circumstances when
made, not materially misleading.
1.7. Corporate Power; Authorization. (a) The execution, delivery and
performance by the Borrowers of this Waiver and Amendment and the Loan
Documents, as amended hereby, and the consummation of the transactions
contemplated hereby, are within the Borrowers' corporate powers and have been
duly authorized by all necessary corporate action on the part of the Borrowers.
(b) No consent or authorization of, or filing with, notice to or other act by,
or in respect of, any Governmental Authority or any other Person is required in
connection with the execution, delivery and performance by the Borrowers of this
Waiver and Amendment.
1.8. Enforceability. This Waiver and Amendment and each of the Loan
Documents, amended hereby, to which the Borrowers are parties, when executed and
delivered hereunder, will constitute a legal, valid and binding obligation of
the Borrowers enforceable against the Borrowers in accordance with its terms
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
1.9. No Legal Bar. The execution, delivery and performance by the
Borrowers of this Waiver and Amendment and each of the Loan Documents, amended
hereby, will not violate any Requirement of Law or Contractual Obligation of the
Borrowers or any of their respective Subsidiaries and will not result in, or
require the creation or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any Requirement of Law or Contractual
Obligation.
1.10. Incorporation of Representations and Warranties from Credit
Agreement. The representations and warranties contained in Section 6 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date this Waiver and Amendment shall become effective
and to the same extent as though made on and as of that date, except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.
SECTION 4. Conditions to Effectiveness of this Waiver and Amendment.
1.11. Execution; Authorization. This Waiver and Amendment shall become
effective as of the date first written when, and only when, the Agent shall have
received: (a) counterparts of this Waiver and Amendment executed by the
Borrowers and the Lenders; (b) the Replacement Notes executed by the Borrowers
and (c) written or telephonic notification by the aforementioned parties or
their duly authorized representatives of such execution and delivery thereof.
1.12. No Default. No Default or Event of Default shall have occurred
and be continuing on the date of this Waiver and Amendment or after giving
effect to the transactions contemplated by this Waiver and Amendment.
1.13. Amendment Provisions of Credit Agreement. This Waiver and
Amendment is subject to the provisions of subsection 11.1 of the Credit
Agreement and similar provisions in the remaining Loan Documents.
SECTION 5. Limitation of Waiver; Reference to and Effect on the Loan
Documents
1.14. Limitation. Without limiting the generality of the provisions of
subsection 11.1 of the Credit Agreement, the waiver set forth in Section 1 of
this Waiver and Amendment shall be limited precisely as written and is provided
solely to address the matters described herein, and this waiver does not
constitute, nor should be construed as a waiver of compliance by the Borrowers
or any other Loan Party, with respect to (i) in any other instance, any term,
provision or condition of subsection 7.9 of the Credit Agreement of subsection
7.4 of the Security Agreement or (ii) any other term, provision or condition to
the Credit Agreement, the Security Agreement, Loan Document or any other
instrument or agreement referred to therein.
1.15. Reference. On and after the effective date of this Waiver and
Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "herein" or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof", or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
this Waiver and Amendment.
1.16. Full Force and Effect. The Credit Agreement and each of the other
Loan Documents, as specifically amended by this Waiver and Amendment, are and
shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed.
1.17. No Waiver. The execution, delivery and effectiveness of this
Waiver and Amendment shall not, except as expressly provided herein, operate as
a waiver of any right, power, or remedy of the Lender under any of the Loan
Documents, nor constitute a waiver of any provision of the Loan Documents.
SECTION 6. General Terms.
1.18. Recitals. The recitals provided for at the commencement of this
Waiver and Amendment are hereby incorporated herein as if set forth in this
Section 5.
1.19. Headings. Section and subsection headings in this Waiver and
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Waiver and Amendment for any other purpose or be given
any substantive effect.
1.20. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Borrowers and the Additional Borrower and shall
inure to the benefit of the Agent and its successors and assigns.
1.21. Costs; Expenses. The Borrowers, jointly and severally, agree to
pay or reimburse the Agent for all of their reasonable out-of-pocket costs and
expenses incurred in connection with the preparation, execution of, and any
amendment, supplement or modification to this Waiver and Amendment or any other
documents prepared in connection herewith, and the consummation and
administration of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent in accordance with the terms of subsection 11.6 of the Credit Agreement.
1.22. Joint and Several Liability. WHETHER OR NOT EXPRESSLY STATED
HEREIN OR IN ANY OTHER LOAN DOCUMENT, ALL OBLIGATIONS OF THE BORROWERS (OR OF
ANY BORROWER) HEREUNDER AND UNDER EACH OTHER LOAN DOCUMENT (WHETHER IN
CONNECTION WITH LOANS, LETTERS OF CREDIT OR OTHER OBLIGATIONS) ARE JOINT AND
SEVERAL OBLIGATIONS OF ALL BORROWERS.
1.23. Maximum Amount of Joint and Several Liability. To the extent that
applicable Law otherwise would render the full amount of the joint and several
obligations of any Subsidiary of ACS Inc. hereunder and under the other Loan
Documents invalid or unenforceable, such Subsidiary's obligations hereunder and
under the Loan Documents shall be limited to the maximum amount which does not
result in such invalidity or unenforceability, provided, however, that each
Borrower's obligations hereunder and under the other Loan Documents shall be
presumptively valid and enforceable to their fullest extent in accordance with
the terms hereof or thereof, as if this subsection 6.6 were not a part of this
Agreement.
1.24. Governing Law. THIS WAIVER AND AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF VIRGINIA WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
1.25. Counterparts. This Waiver and Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which when taken together shall constitute but one and the same agreement.
1.26. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to such terms
in the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
ADVANCED COMMUNICATION SYSTEMS, INC.
INTEGRATED SYSTEMS CONTROL, INC.
RF MICROSYSTEMS, INC.
ADVANCED MANAGEMENT, INC.
as Borrowers
By: _______________________________
Dev Ganesan
Chief Financial Officer
NATIONSBANK, N.A.
as Agent and as a Lender
By: _________________________________
Jennifer Lathrop
Assistant Vice President
