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STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERICAN COMMUNICATIONS SERVICES, INC.
AND
XXXXXX X. VAN ARNEM AND XXXXXX X. XXXXXX
AND
CYBERGATE, INC.
DATED
DECEMBER 13, 1996
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TABLE OF CONTENTS
ARTICLE I TERMS OF PURCHASE AND SALE............................... 1
1.1 Purchase and Sale of the Shares.......................... 1
1.2 Time and Place of Closing................................ 2
1.3 Payment of Purchase Price................................ 2
1.4 Adjustment Shares........................................ 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS AND CYBERGATE................................ 4
2.1 Organization and Qualification............................ 4
2.2 Capitalization............................................ 5
2.3 Title to Shares........................................... 7
2.4 Authority................................................. 7
2.5 Consents and Approvals.................................... 8
2.6 Absence of Conflicts...................................... 8
2.7 Subsidiaries; Acquisitions; Dispositions.................. 9
2.8 Financial Statements; Accounts Receivable; Liabilities.... 11
2.9 Absence of Undisclosed Liabilities........................ 12
2.10 Absence of Certain Changes or Events...................... 12
2.11 Real and Personal Property; Inventories................... 14
2.12 Intellectual Property..................................... 15
2.13 Insurance................................................. 16
2.14 Contracts and Commitments................................. 17
2.15 Litigation and Administrative Proceedings................. 18
2.16 Tax Matters............................................... 19
2.16.1 All Returns Filed................................. 19
2.16.2 All Taxes Paid.................................... 19
2.16.3 Examinations, Etc................................. 20
2.16.4 Section 341(f).................................... 20
2.16.5 Withholding....................................... 20
2.16.6 Foreign Person, Etc............................... 21
2.16.7 Parachute Payments................................ 21
2.16.8 Accounting; Tax Attributes........................ 21
2.16.9 Prior Consolidated Groups......................... 22
2.17 Compliance with Laws...................................... 22
2.18 Environmental Compliance.................................. 22
2.19 Employee Benefits......................................... 24
2.20 Licenses and Permits...................................... 26
2.21 Relations with Suppliers and Customers.................... 26
2.22 Interest in Competitors, Suppliers, Customers, Etc........ 27
2.23 Employment Matters........................................ 27
2.24 Discrimination; Occupational Safety; Labor................ 27
2.25 Related Transactions...................................... 28
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2.26 Brokers and Finders....................................... 29
2.27 Questionable Payments..................................... 29
2.28 Books and Records......................................... 30
2.29 Bank Accounts; Safe Deposit Boxes......................... 30
2.30 Full Disclosure........................................... 30
2.31 Effect of Certificates.................................... 30
2.32 Acquisition for Investment................................ 31
2.33 Export Law Compliance..................................... 32
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACSI.................... 32
3.1 Organization and Qualification............................ 32
3.2 Authority................................................. 32
3.3 Consents and Approvals.................................... 33
3.4 Absence of Conflicts...................................... 33
3.5 Litigation and Administrative Proceedings................. 33
3.6 No Material Misstatements................................. 34
3.7 Brokers and Finders....................................... 34
ARTICLE IV COVENANTS OF SHAREHOLDERS AND CYBERGATE................... 34
4.1 Conduct of Business....................................... 34
4.2 Negative Covenants........................................ 35
4.3 Access.................................................... 36
4.4 Reasonable Efforts........................................ 38
4.5 Consents and Approvals.................................... 38
4.6 Disposition of ACSI Common Stock.......................... 38
4.7 Further Assurances........................................ 39
4.8 Exclusivity............................................... 39
ARTICLE V COVENANTS OF ACSI......................................... 41
5.1 Reasonable Efforts........................................ 41
5.2 Consents and Approvals.................................... 41
5.3 Retention of Records...................................... 42
5.4 Release of Libra and Gemini............................... 42
5.5 Post-Closing Operating and Accounting Procedures.......... 43
5.6 Further Assurances........................................ 43
ARTICLE VI MUTUAL COVENANTS.......................................... 43
6.1 Confidentiality........................................... 43
6.2 Tax Reporting............................................. 44
6.3 Cooperation............................................... 44
ARTICLE VII SURVIVAL; INDEMNIFICATION................................. 44
7.1 Survival.................................................. 44
7.2 Indemnification........................................... 44
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7.3 Indemnification Procedure.................................. 48
7.4 Treatment as Adjustment of Purchase Price.................. 50
ARTICLE VIII CLOSING DELIVERIES AND REQUIREMENTS........................ 51
8.1 Conditions Precedent to ACSI's Obligation to Close......... 51
8.2 Conditions Precedent to Shareholders' Obligation to Close.. 54
8.3 Closing Deliveries of CyberGate and the Shareholders....... 56
8.4 Closing Deliveries of ACSI................................. 57
ARTICLE IX TERMINATION................................................ 58
ARTICLE X MISCELLANEOUS.............................................. 59
10.1 Amendment and Modification................................. 59
10.2 Waiver of Compliance....................................... 59
10.3 Expenses................................................... 59
10.4 Notices.................................................... 59
10.5 Assignment................................................. 61
10.6 Publicity.................................................. 62
10.7 Headings................................................... 62
10.8 Severability............................................... 63
10.9 Governing Law.............................................. 63
10.10 Counterparts............................................... 63
10.11 Third Parties.............................................. 63
10.12 Entire Agreement........................................... 63
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 13, 1996,
by and among American Communications Services, Inc., a Delaware corporation
("ACSI"), CyberGate, Inc., a Florida corporation ("CyberGate"), Xxxxxx X. Van
Arnem, a resident of the State of Florida ("Van Arnem"), and Xxxxxx X. Xxxxxx,
a resident of the State of Florida ("Xxxxxx") (Van Arnem and Xxxxxx being the
shareholders of CyberGate, individually a "Shareholder" and collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders own of record and beneficially all 1,000 issued
and outstanding shares of common stock, par value $0.01 per share, of CyberGate
(the "CyberGate Common Stock");
WHEREAS, ACSI desires to purchase from the Shareholders, and the
Shareholders desire to sell to ACSI, all 1,000 shares of the CyberGate Common
Stock (the "Shares").
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants,
agreements, representations and warranties contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 Purchase and Sale of the Shares. Subject to the terms and conditions
contained in this Agreement, at the Closing Date (as hereinafter defined), the
Shareholders shall sell, assign, transfer and deliver the Shares to ACSI, and
ACSI shall purchase the
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Shares from the Shareholders, for an aggregate purchase price consisting of the
items and amounts set forth in Section 1.3 hereof (the "Purchase Price")
payable pursuant to the terms provided in Section 1.3 hereof.
1.2 Time and Place of Closing. Subject to the terms and conditions
contained in this Agreement, the purchase and sale of the Shares (the
"Closing") will take place at the offices of CyberGate, 0000 Xxxxxxx Xxxxxx
Xxxxx, Xxxxxxxxx Xxxxx, Xxxxxxx, xx December ___, 1996, or such other date as
the parties hereto may agree (the "Closing Date").
1.3 Payment of Purchase Price. Upon satisfaction of all the terms and
conditions set forth in Article VIII hereof, ACSI shall deliver the Purchase
Price consisting of 1,150,000 shares of ACSI's Common Stock, $0.01 par value
per share (the "ACSI Common Stock"), to be paid as follows: (a) at the Closing,
the Shareholders shall receive an aggregate of 750,000 shares of ACSI Common
Stock to be allocated between the Shareholders as set forth in Schedule 1.3
hereof, (b) at the Closing, 250,000 shares of ACSI Common Stock (the
"Indemnification Shares") shall be delivered to the escrow agent (the "Escrow
Agent") selected by mutual agreement of the parties hereto prior to the Closing
in accordance with Article VIII hereof, to be held in escrow pursuant to the
terms and conditions of the Indemnification Escrow Agreement attached hereto as
Exhibit A with such change as may be required by the Escrow Agent and not
objected to by the Shareholders or ACSI (the "Indemnification Escrow
Agreement"), and (c) 150,000 shares of ACSI Common Stock (the "Adjustment
Shares") will be retained by ACSI to be paid to the Shareholders, if at all, in
accordance with the provisions of Section 1.4 hereof.
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1.4 Adjustment Shares. On the dates listed below, the Shareholders shall
be entitled to receive such aggregate number of shares of the Adjustment
Shares, to be allocated between the Shareholders as set forth in Schedule 1.4
hereto, if any, as is determined by the following formulas:
(a) on March 1, 1998, such number of Adjustment Shares as is equal
to the number derived by the following formula:
50,000 x [(CyberGate's actual EBITDA (as defined by
generally accepted accounting principles) for the year
ended December 31, 1997 ("Calendar 1997") divided by
2,225,916]
provided, however, that in no event shall more than 50,000
Adjustment Shares be earned by the Shareholders on such date
and, provided further, however, that no Adjustment Shares shall
be earned on such date if the quotient of CyberGate's actual
EBITDA for Calendar 1997 divided by 2,473,240 is less than .70.
(b) on March 1, 1999, such number of Adjustment Shares as is equal
to the number derived by the following formula:
50,000 x [(CyberGate's actual EBITDA for the year ended
December 31, 1998 ("Calendar 1998") divided by 4,280,528]
provided, however, that in no event shall more than 50,000
Adjustment Shares be earned by the Shareholders on such date
and, provided further, however, that no Adjustment Shares
shall be earned on such date if the quotient of CyberGate's
actual EBITDA for Calendar 1998 divided by 4,756,120 is less
than .70.
(c) on March 1, 2000, such number of Adjustment Shares as is equal
to the number derived by the following formula:
50,000 x [(CyberGate's actual EBITDA for the fiscal year
ended December 31, 1999 ("Calendar 1999") divided by
7,452,612]
provided, however, that in no event shall more than 50,000
Adjustment Shares be earned by the Shareholders on such date
and, provided further, however, that no Adjustment Shares shall
be earned on such date if the quotient of CyberGate's actual
EBITDA for Calendar 1999 divided by 8,280,680 is less than .70.
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Notwithstanding the foregoing, if ACSI has not invested the minimum capital set
forth opposite each of Calendar 1997, Calendar 1998, and Calendar 1999 below,
the Shareholders shall receive 50,000 Adjustment Shares, to be allocated
between the Shareholders as set forth in Schedule 1.4 hereto, on February 15 of
each calendar year subsequent to the calendar year in which such failure
occurred until such time as the Shareholders shall have received all 150,000
Adjustment Shares.
Minimum Capital
Investment
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Calendar 1997 $4,500,000
Calendar 1998 $5,400,000
Calendar 1999 $5,400,000
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND
CYBERGATE
The Shareholders, severally with respect to their individual
representations and warranties, and CyberGate and the Shareholders, jointly and
severally with respect to CyberGate's representations and warranties, represent
and warrant to ACSI as follows:
2.1 Organization and Qualification.
(a) CyberGate is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida and has the corporate
power and authority to enter into this Agreement, to consummate the
transactions contemplated hereby, to own and lease the properties and other
assets it presently owns or leases and to carry on its business as presently
conducted.
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(b) The copy of the Articles of Incorporation, and all amendments
thereto, of CyberGate, as certified by the Secretary of State of the State of
Florida, and of the By-Laws, as amended to date, of CyberGate, as certified by
its Secretary, heretofore delivered to ACSI are true, complete and correct
copies of the Articles of Incorporation and By-Laws of CyberGate, as amended
and presently in effect. All minutes for proceedings of CyberGate's
shareholders and directors are contained in the minute books of CyberGate and
have been furnished to ACSI for examination. There are no matters, events,
actions or proceedings taken or omitted to be taken by the directors or
shareholders not included in the minute books, where taking or omission to take
such action would have a material, adverse effect on CyberGate, the rights of
CyberGate to enter into the transactions contemplated by this Agreement or the
realization by ACSI of the benefits to be received by it hereunder. No minutes
have been included in such minute books since such examination by ACSI which
have not heretofore been furnished to ACSI, and no corporate action has been
taken since such examination which would be required to be reflected in the
minute book.
(c) Except where such failure to be licensed or qualified would not
have a material adverse impact on CyberGate's business or assets, CyberGate is
duly licensed or qualified to do business as a foreign corporation, and is in
good standing, in every domestic and foreign jurisdiction in which CyberGate is
required to be so licensed or qualified.
2.2 Capitalization. The entire authorized capital stock of CyberGate and
the number of shares thereof which are issued and outstanding are as follows:
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NUMBER OF NUMBER ISSUED
AUTHORIZED SHARES CLASS AND OUTSTANDING
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1,000 Common Stock, $0.01 par value 1,000
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1,000 Cumulative Preferred Stock, 1,000
$1.00 par value
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All of the issued and outstanding shares of CyberGate's capital stock are owned
of record and beneficially by the Shareholders in the respective amounts set
forth in Schedule 2.2 hereto. Except for the matters set forth on Schedule 2.2
hereto, each of which will be removed prior to the Closing, the CyberGate
Common Stock is subject to no restrictions on transferability other than
restrictions imposed by the Securities Act of 1933, as amended (the "1933
Act"), and applicable state securities laws. All of the outstanding shares of
capital stock of CyberGate are duly authorized and validly issued and
outstanding, fully paid and non-assessable, and were not issued in violation of
any preemptive rights. There are no shares of CyberGate capital stock reserved
for issuance. Except as set forth in Schedule 2.2 hereto, there are no
outstanding subscriptions, options, rights, warrants, convertible securities or
other agreements or commitments to issue, or contracts or any other agreements
obligating CyberGate to issue, any shares of its capital stock, or securities
convertible into such capital stock. Except for this Agreement and as set forth
on Schedule 2.2 hereto, neither of the Shareholders is a party to any contract
or agreement which would require either of them to transfer title to any of the
shares of CyberGate Common Stock currently owned by either of them. Except as
set forth on Schedule 2.2 hereto, there are no agreements or understandings
with respect to the voting, holding or selling of any shares of
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capital stock of CyberGate, or any contractual obligations of CyberGate with
respect to CyberGate's capital stock. No person has any right to require
CyberGate to register any of its securities under the 1933 Act.
2.3 Title to Shares. Except for the matters set forth on Schedule 2.3
hereto, each of which will be removed prior to the Closing, the Shareholders
own and have good and marketable title to the CyberGate Common Stock, free and
clear of any lien, pledge, claim, encumbrance, restriction or right of any
third party of any kind. Except for the matters set forth on Schedule 2.3
hereto, each of which will be removed prior to the Closing, the Shareholders
have complete and unrestricted authority to sell the Shares and there are no
trust agreements, shareholders' agreements, redemption agreements, buy-sell
agreements, restrictive stock transfer agreements, voting trusts, proxies or
similar agreements pertaining to the Shares which would preclude or require the
consent of any person other than the Shareholders to the sale of the Shares
contemplated by this Agreement or would give any person any right or interest
in the Shares after the consummation of the transactions contemplated herein.
At the Closing, the Shareholders will convey to ACSI good and marketable title
to the Shares, free and clear of any lien, pledge, claim, encumbrance,
restriction or right of any third party of any kind. Except as set forth in
Schedule 2.3 hereto, the Shares represent the only interest of the Shareholders
in CyberGate.
2.4 Authority. Each of the Shareholders and CyberGate has full power,
capacity and authority (corporate or otherwise) to execute and deliver this
Agreement and the other agreements contemplated hereby and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other agreements
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contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by each of the
Shareholders and CyberGate, and no other proceedings (corporate or otherwise)
on the part of any of the Shareholders or CyberGate are necessary to authorize
this Agreement or the other agreements contemplated hereby or to consummate the
transactions contemplated hereby and thereby. This Agreement and the other
agreements contemplated hereby have been duly and validly executed and
delivered by each of the Shareholders and CyberGate, and constitute the legal,
valid and binding agreements of the Shareholders and CyberGate.
2.5 Consents and Approvals. Except as disclosed on Schedule 2.5 hereto,
there is no authorization, consent, order or approval of, or notice to or
filing with, any individual or entity required to be obtained or given in order
for the Shareholders and CyberGate to consummate the transactions contemplated
hereby and fully perform their respective obligations hereunder, excluding,
however, any authorization, consent, order, approval, notice or filing which if
not obtained or given would not have a material adverse effect on the business
or assets of CyberGate and any authorization, consent, order, approval, notice
or filing which ACSI is required to obtain or give.
2.6 Absence of Conflicts. The execution, delivery and performance by the
Shareholders and CyberGate of this Agreement and the other agreements
contemplated hereby and the consummation by the Shareholders and CyberGate of
the transactions contemplated hereby and thereby will not, with or without the
giving of notice or lapse of time, or both, (i) violate any provision of law,
statute, rule or regulation to which the Shareholders, CyberGate or the
Subsidiaries (as hereinafter defined) are subject, (ii) violate
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any order, judgment or decree applicable to the Shareholders, CyberGate or the
Subsidiaries, (iii) conflict with or result in a breach or default, or result
in any event which would materially interfere with the Shareholders' or
CyberGate's ability to consummate the transactions contemplated hereby and
thereby, under any term or condition of the Articles of Incorporation or
By-Laws of CyberGate, or any bond, debenture, note, indenture, mortgage, deed
of trust, loan or credit agreement, contract, lease, judgment, decree, order,
award or any other material agreement or instrument to which any of the
Shareholders, CyberGate or the Subsidiaries is a party or by which any of them
or their assets is bound, or (iv) cause, or give any person grounds to cause,
the maturity of any debt, liability or obligation of CyberGate or the
Subsidiaries to be accelerated, or the amount thereof to be increased.
2.7 Subsidiaries; Acquisitions; Dispositions.
(a) CyberGate does not directly or indirectly control, and has never
owned or controlled, any corporation except as set forth on Schedule 2.7(a)
(collectively, the "Subsidiaries").
(b) Each of the Subsidiaries is duly organized, validly existing and
in good standing under the laws of their respective states of incorporation as
set forth on Schedule 2.7(b). The Subsidiaries have all necessary corporate
powers to own their properties and to operate their businesses as now owned and
operated. Complete copies of the Articles of Incorporation, By-laws, minutes
and stock transfer records of each such Subsidiary have been delivered to ACSI.
(c) The authorized capital stock of each of the Subsidiaries is
disclosed on Schedule 2.7(c). All shares of capital stock of each of the
Subsidiaries have been validly
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issued, fully paid, are nonassessable and were issued in compliance with
applicable federal and state securities laws, and, except as disclosed in
Schedule 2.7(c), are wholly-owned by CyberGate free and clear of any
pre-emptive rights, claims, security interests, encumbrances or restrictions of
any kind. There are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments obligating any
Subsidiary to issue or to transfer from treasury any additional shares of
capital stock or any securities convertible into or which grant the holder the
right to acquire any capital stock of any Subsidiary.
(d) Schedule 2.7(d) lists the name of each business whose capital
stock or assets were acquired by CyberGate since its formation. CyberGate has
delivered to ACSI complete copies of all agreements which effect those
acquisitions or were executed in connection therewith.
(e) Schedule 2.7(e) lists each partnership, limited partnership,
limited liability company, joint venture or other business entity in which
CyberGate has an investment and describes the nature and extent of that
investment.
(f) Schedule 2.7(f) lists each Subsidiary, partnership, joint venture
or other business disposed of by CyberGate since its formation.
(g) Each of the Subsidiaries is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in every domestic
and foreign jurisdiction in which such Subsidiary is required to be so licensed
or qualified, except where the failure to be so licensed or qualified would not
have a material adverse effect on such Subsidiary, its business or assets.
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2.8 Financial Statements; Accounts Receivable; Liabilities. The
Shareholders have previously delivered to ACSI true and correct copies of the
audited consolidated balance sheets, including the accountants' reports thereon
and all notes thereto, of CyberGate as of December 31, 1995, and the related
audited consolidated statements of operations, including the accountants'
reports thereon and all notes thereto, of CyberGate for the year ended December
31, 1995, reported on and certified by Coopers & Xxxxxxx L.L.P., as independent
accountants, and the unaudited consolidated balance sheet of CyberGate as of
September 30, 1996, and the related unaudited consolidated statements of
income, for the nine months ended September 30, 1996, which unaudited financial
statements are attached hereto as Schedule 2.8(a) (collectively, the "Financial
Statements"). Except as disclosed on Schedule 2.8(b) hereto, the Financial
Statements (i) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, are correct and complete
and are in accordance with the books and records of CyberGate, (ii) present
fairly the financial position and condition of CyberGate and the related
results of operations as at the dates and for the periods then ended (subject,
in the case of the unaudited statements, to customary year-end adjustments,
which adjustments shall not be material) and (iii) contain no material
misstatements or omissions which under generally accepted accounting principals
would be required to be disclosed for financial statement purposes.
Subject to applicable allowances for bad debts shown on CyberGate's
balance sheet at September 30, 1996 included in the Financial Statements, as
such allowances are adjusted from the date thereof in the ordinary course of
business, all accounts and notes receivable reflected on the balance sheet are,
and all accounts and notes receivable subsequently
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accruing to the Closing Date will be, (a) representative of a billed receivable
for goods or services actually supplied or provided to CyberGate's customers,
(b) subject to no known defenses, set-offs or counterclaims, and (c) except as
set forth on Schedule 2.8(c) hereto, current and collectible.
2.9 Absence of Undisclosed Liabilities. Except as and to the extent
accrued or reserved for in the Financial Statements or as disclosed in
Schedules 2.9 or 2.12 hereto, CyberGate does not have any liabilities or
obligations, whether accrued, absolute or contingent, determined or
undetermined, known or unknown or whether due or to become due (including,
without limitation, obligations as a guarantor), which are not reflected in the
Financial Statements other than those incurred in the ordinary course of
business consistent with past practice since September 30, 1996.
2.10 Absence of Certain Changes or Events. Except as set forth in Schedules
2.10 and 2.12, since September 30, 1996 there has not been (a) any material
damage, destruction or casualty loss to the assets of CyberGate (which, for
purposes of this Section 2.10 shall be deemed to include the Subsidiaries)
which has not been repaired, replaced or corrected (whether covered by
insurance or not); (b) any material adverse change in the business, assets,
properties, operations, prospects or financial condition of CyberGate, or any
fact or condition which could cause such a change; (c) any entry into any
transaction, commitment or agreement (including, without limitation, any
borrowing) material to CyberGate, or outside the ordinary course of business;
(d) any redemption, repurchase or other acquisition for value by CyberGate of
its capital stock or any declaration, setting aside or payment of any dividend
or other distribution in cash, stock or property with respect to CyberGate's
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capital stock; (e) any increase in the rate or terms of compensation payable or
to become payable by CyberGate to its directors, officers or employees, or any
increase in the rate or change in the terms of any employment agreement or
compensatory arrangement, or any bonus, pension, insurance or other employee
benefit plan, or any payment or benefit made to or for any such director,
officer or employee; (f) any sale, transfer or other disposition of any
material asset of CyberGate to any party, including the Shareholders, except
for payment of third-party obligations incurred in the ordinary course of
business in accordance with CyberGate's regular payment practices; (g) any
termination or waiver of any rights of material value to the business of
CyberGate; (h) any failure by CyberGate to pay its accounts payable or other
obligations in the ordinary course of business consistent with past practices;
(i) any capital expenditure for additions to property or equipment by CyberGate
in excess of $25,000; (j) any split, combination, exchange or reclassification
of shares of capital stock of CyberGate; (k) any issuance or any agreement
executed with respect to the future issuance of capital stock of CyberGate or
of securities convertible into or rights to acquire any such capital stock; (l)
any change in any method of accounting or accounting practice, principle or
procedure; (m) any action or inaction which might cause CyberGate to incur any
material tax liability not in the ordinary course of business; (n) any pledge
of any of the assets or properties of CyberGate or any action or inaction which
would subject any such asset or property to any lien, security interest,
mortgage, pledge, claim, charge or other encumbrance; (o) the incurrence of any
material liability or obligation by CyberGate, except for liabilities incurred
in the ordinary course of business consistent with past practices; (p) any
actual, or to the Shareholders' or CyberGate's knowledge threatened,
termination or
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cancellation of, or modification or change in, any business relationship with
any customer of CyberGate or other agreement or arrangement involving or
related to CyberGate where such event or events, taken together, would have a
material, adverse effect on the business or assets of CyberGate; (q) any
cancellation of a material debt due to or a claim of CyberGate, other than by
payment or other satisfaction; (r) any failure of CyberGate to perform, or any
default by CyberGate under, any agreement, obligation or covenant to which
CyberGate is or was bound where such event or events, taken together, would
have a material, adverse effect on the business or assets of CyberGate; or (s)
any agreement whether in writing or otherwise, to take any action described in
this Section 2.10.
2.11 Real and Personal Property; Inventories. Schedule 2.11(a) hereto
correctly identifies each lease or rental of real property currently held or
paid by CyberGate and the Subsidiaries. Schedule 2.11(b) hereto correctly
identifies each parcel of real property, and each interest (other than such
leases or rentals) in real property, currently used by CyberGate and the
Subsidiaries in the conduct of their operations. Except as disclosed in
Schedule 2.11(c), each of the properties listed in Schedule 2.11(b) is held
free and clear of any mortgage, pledge, lien or other encumbrance. Except as
set forth in Schedule 2.11(d) hereto, (a) any structures described in Schedules
2.11(a) and 2.11(b), and CyberGate's or the Subsidiaries' use thereof, conform
in all material respects with all applicable ordinances, requirements,
regulations, zoning laws and restrictive covenants, and do not encroach on
property of others, and are not encroached upon by structures of others; and
(b) no claims, charges or notice of violations have been filed, served, made,
or to the best of the Shareholders' or CyberGate's knowledge threatened, orally
or in writing, against or relating
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to any such property or any of the operations conducted at any such property
(currently or in the past) as a result of (i) any violation or alleged
violation of any applicable ordinances, requirements, regulations, zoning laws
or restrictive covenants, or (ii) as a result of any encroachment on the
property of others. Schedule 2.11(e) hereto describes all material tangible and
intangible personal property and assets currently held by CyberGate and the
Subsidiaries. CyberGate and the Subsidiaries have good and marketable title to,
and are in possession of or have control over, all such tangible and intangible
personal property, none of which is held under or subject to any mortgage,
pledge, lien, lease, encumbrance, conditional sales contract or other security
arrangement, except to the extent described in Schedules 2.11(f) and 2.12
hereto. The real property and tangible and intangible personal property listed
on Schedules 2.11(a), 2.11(b) and 2.11(e) are all of the assets necessary for
CyberGate and the Subsidiaries to conduct their businesses as currently
conducted and each such item of real and tangible personal property is in good
condition and/or working order, reasonable wear and tear excepted.
2.12 Intellectual Property. Except as set forth on Schedule 2.12 hereto,
CyberGate and the Subsidiaries own or have a license or otherwise have the
right to use, in all jurisdictions in which they carry on business, all patents
(including all applications, renewals, reissues, extensions, divisions,
continuations and extensions thereof), trademarks (including both registered
and unregistered trademarks and applications therefor), service marks, trade
names, copyrights (including all registrations, renewals, modifications and
extensions thereof), know-how and trade secrets (including inventions,
computerized data and information, computer codes and programs, other software,
business records, files and data,
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discoveries, formulae, production outlines, product designs, technical
information, processes and techniques, testing and quality control processes
and techniques, drawings, designs and customer lists), used in the conduct of
their businesses as currently conducted (collectively, the "Intellectual
Property") without violating or conflicting with the rights of others in any
material manner. Schedule 2.12 hereto lists all patents, all registered and
material unregistered trademarks, service marks and trade names and all
registered copyrights, and all applications for any of the foregoing, that are
owned by CyberGate or any of the Subsidiaries. Except as set forth on Schedule
2.12 hereto, none of the Intellectual Property is subject to any encumbrance.
Except as disclosed on Schedule 2.12 hereto, neither CyberGate nor any of the
Subsidiaries are obligated to pay any material amount, whether as a royalty,
license fee or other payment, to any person in order to use any of the
Intellectual Property. Except as set forth on Schedule 2.12 hereto, there has
not been any material infringement or alleged infringement by CyberGate or any
of the Subsidiaries of the Intellectual Property rights of any person or any
infringement by any person of any of the Intellectual Property rights of
CyberGate or any of the Subsidiaries. Schedule 2.12 correctly states the
current status of CyberGate's pending applications before the United States
Patent and Trademark Office with respect to the names "CyberGate," "ValueWeb,"
"NetHelper" and "TargetNet."
2.13 Insurance. CyberGate keeps its businesses, operations and properties
and those of the Subsidiaries insured against loss or damage, with responsible
insurers, pursuant to the policies listed in Schedule 2.13. Schedule 2.13 is a
descriptive list of all insurance policies held by CyberGate concerning its
business, operations and properties and those of
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the Subsidiaries. These policies are in the respective amounts set forth in
Schedule 2.13. Except as disclosed on Schedule 2.13, all insurance policies of
CyberGate and the Subsidiaries provide claims made coverage. True, complete and
correct copies of each insurance policy listed on Schedule 2.13 have been
previously provided to ACSI. Each of the insurance policies referred to in
Schedule 2.13 is in full force and effect and the premiums with respect thereto
are fully paid through the dates indicated thereon. No insurer has denied
coverage or reserved rights for any claim made by CyberGate or any of the
Subsidiaries or any other individual or entity under any insurance policies
applicable to CyberGate or any of the Subsidiaries.
2.14 Contracts and Commitments.
2.14.1 Schedule 2.14.1 hereto lists each contract, commitment or
agreement, whether oral or written, which can or may provide for the payment by
or to CyberGate or any of the Subsidiaries of an amount in excess of $25,000
per annum, as well as any contract, commitment or agreement entered into by
CyberGate outside the ordinary course of business (collectively, the
"Contracts"). True and correct copies of all written contracts, and written
descriptions of all oral contracts, listed on the Schedules hereto have been
delivered to ACSI. All such Contracts are valid and binding obligations of
CyberGate or the Subsidiaries, enforceable in accordance with their respective
terms to the extent permitted by applicable law, and are in full force and
effect; and CyberGate and the Subsidiaries are in compliance therewith. None of
the Contracts relating to payments to CyberGate or the Subsidiaries for the
provision of services to its customers fail to provide to CyberGate or the
Subsidiaries consideration constituting a profit upon commercially
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reasonable terms and conditions, and none have, or may have, to the
Shareholders' and CyberGate's knowledge, a material adverse effect on
CyberGate's assets, properties, businesses, financial condition or prospects.
No allegation or notice of default has been received by CyberGate, any of the
Subsidiaries or any of the Shareholders with respect to the Contracts, and to
the Shareholders' and CyberGate's knowledge, no other party to any of the
Contracts is in default or breach thereof in any material respect.
2.14.2 Neither CyberGate nor any of the Subsidiaries has given any
power of attorney (whether revocable or irrevocable) to any individual or
entity.
2.14.3 Neither CyberGate nor the Subsidiaries is in default and
there is no basis for any valid claim of default, in any respect under any of
the Contracts.
2.14.4 Schedule 2.14.4 hereto sets forth a list of all current
warranties with respect to any products or services currently sold,
distributed, offered, or licensed by CyberGate and the Subsidiaries. Except as
set forth in Schedule 2.14.4, and other than those which are or may be provided
by applicable law, there are no express or implied warranties outstanding with
respect to any products or services created, sold, distributed, offered or
licensed by CyberGate and the Subsidiaries.
2.15 Litigation and Administrative Proceedings. Except as set
forth in Schedule 2.15 hereto and except for governmental or regulatory
proceedings generally applicable to those in the same business as CyberGate,
there is no claim, action, suit, proceeding or investigation in any court or
before any governmental or regulatory authority pending or, to the best of the
Shareholders' and CyberGate's knowledge, threatened against or affecting
CyberGate or any of the Subsidiaries or any of their respective assets or
properties or which
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seeks to enjoin or obtain damages in respect of the transactions contemplated
hereby. There is no basis, or reason to know of any basis, for any such claim,
action, suit, proceeding or investigation. No claim, action, suit, proceeding
or investigation set forth in Schedule 2.15 could, if adversely decided, have a
material adverse effect on the business, properties, condition (financial or
otherwise) or prospects of CyberGate and the Subsidiaries.
2.16 Tax Matters.
2.16.1 All Returns Filed. Except as set forth in
Schedule 2.16.1, all federal, state, local and foreign income, franchise,
sales, use, excise, real and personal property, employment (including FICA and
other payroll) and other tax returns, reports and declarations of every kind
and nature (collectively, "Returns") required to be filed by or on behalf of
CyberGate and the Subsidiaries on or before the Closing Date have been or will
be filed and such Returns are not materially inaccurate and disclose all taxes
(and other charges) expected to be due for the periods covered thereby. No
extension of time in which to file any such Returns is currently in effect and
there are no outstanding agreements or waivers extending the statutory period
of limitation applicable to any such Returns.
2.16.2 All Taxes Paid. Except as on Schedule 2.16.2, all
taxes (and other charges) shown on such Returns or otherwise required to be
paid, and any deficiency assessments, penalties, interest and other charges
with respect thereto, have been paid or reserved or accrued for in the
Financial Statements, and there is otherwise no current liability for any
unpaid taxes (or other charges) due which has not been paid or reserved or
accrued for in connection with such Returns or otherwise. There are no tax
liens (other than for
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taxes not yet due) on any of the assets or properties of CyberGate and, no
basis exists for the imposition of any such liens.
2.16.3 Examinations, Etc. Except as disclosed on
Schedule 2.16.3 hereto, none of the Returns of CyberGate for tax years that
remain open under any applicable statute of limitations have been examined by
the IRS or other pertinent tax authorities and no deficiencies have been
asserted or assessments made as a result of any such examinations (including
all penalties and interest). No issues have been raised by (or are currently
pending before) the IRS or any other taxing authority in connection with any of
the Returns which could reasonably be expected to have a material adverse
effect on the financial condition of CyberGate and the Subsidiaries, taken as a
whole, if decided adversely to CyberGate, nor are there any such issues which
have not been so raised but, if so raised by the IRS or any other taxing
authority in connection with any of the Returns could, in the aggregate,
reasonably be expected to have a material adverse effect on the financial
condition of CyberGate other than those disclosed on Schedule 2.16.3 hereto.
2.16.4 Section 341(f). CyberGate has not filed a consent
to the application of Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
2.16.5 Withholding. Except as disclosed on Schedule
2.16.5 hereto, CyberGate has withheld from its employees and others (and timely
remitted to the appropriate taxing authorities) proper and accurate amounts for
all periods in compliance with all tax withholding provisions of applicable
federal, state, foreign, local and other laws
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(including, without limitation, income, withholding, social security,
employment and other payroll taxes).
2.16.6 Foreign Person, Etc. No Shareholder is a
"foreign person" as defined in Section 1445(f)(3) of the Code. Neither CyberGate
nor any of the Subsidiaries has a permanent establishment in any foreign
country, as defined in the applicable tax treaty, if any, between the United
States and such foreign country. Neither CyberGate nor any of the Subsidiaries
is, and never has been, a United States real property holding corporation within
the meaning Section 897(c)(1)(A)(ii) of the Code and ACSI is not required to
withhold tax on the purchase of the Shares by reason of Section 1445 of the
Code. Neither CyberGate nor any of the Subsidiaries has participated in an
international boycott within the meaning of Section 999 of the Code. Neither
CyberGate nor any of the Subsidiaries has any foreign assets.
2.16.7 Parachute Payments. CyberGate has not made, has
not become obligated to make nor will, as a result of any event connected with
the acquisition of the Shares by ACSI or any other transaction contemplated
herein, make or become obligated to make any "excess parachute payment" as
defined in Section 280G of the Code.
2.16.8 Accounting; Tax Attributes. None of the assets or
properties of CyberGate (a) is tax-exempt use property within the meaning of
Section 168(h) of the Code, (b) directly or indirectly secures any debt, the
interest on which is tax-exempt under Section 103(a) of the Code, or (c) is
required to be treated as property owned by another under Section 168(f) of the
Code. Except as disclosed on Schedule 2.16.8 hereto, CyberGate has not agreed
to make, nor is it required to make, any adjustment under Section 481(a) of the
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Code. The basis of CyberGate in its assets is as set forth in its financial
and tax records. Except as set forth on Schedule 2.16.8 hereto, CyberGate is
not a party to or bound by any tax indemnity, tax sharing or tax allocation
agreement.
2.16.9 Prior Consolidated Groups. Except as disclosed on
Schedule 2.16.9 hereto, CyberGate is not, and has never been, an includible
corporation in an affiliated group of corporations within the meaning of
Section 1504 of the Code.
2.17 Compliance with Laws. Except for such violations as would not
individually or in the aggregate have a material, adverse effect on the
business or assets of CyberGate, neither CyberGate nor any of the Subsidiaries
has in the past been, nor is presently, in violation of, in respect of its
operations, real property, machinery, equipment, all other property,
practices and all other aspects of its businesses, any applicable law (whether
statutory or otherwise), rule, regulation, order, ordinance, judgment or decree
of any governmental authority (federal, state, local or otherwise)
(collectively, "Laws"). Except as disclosed in Schedule 2.17 hereto, CyberGate
has not received any notification of any asserted present or past failure of
CyberGate to comply with any of such Laws.
2.18 Environmental Compliance. Except as set forth on Schedule 2.18
hereto, no pollutants or other toxic, infectious or hazardous substances,
material or wastes (collectively, the "Substances"), including any solid,
liquid, gaseous or thermal irritant or contaminant, such as smoke, vapor, soot,
fumes, acids, alkalis, chemicals or wastes (including material to be recycled,
reconditioned or reclaimed), petroleum, petroleum derivatives and petroleum
products, asbestos and asbestos-containing material, radon gas, methane gas,
polychlorinated biphenyls ("PCBs") (including PCBs in the form of electrical
transformers, fluorescent light
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fixtures with ballasts, cooling oils or any other device or form) and any other
substance, material or waste, which Substances may be regulated or prohibited
by, or may support a cause of action, claim or proceeding under, any federal,
state or local environmental statute or ordinance or regulations promulgated
thereunder (including the Comprehensive Environmental Response, Compensation
and Liability Act, the Superfund Amendments and Reauthorization Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Hazardous Material Transportation Act, the Clean Air Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Occupational Safety and
Health Act, the Emergency Planning and Community Right-to-Know Act, and the
Federal Insecticide, Fungicide and Rodenticide Act), law, ordinance,
regulation, rule, requirement, published policy, or right or remedy existing
under common law or in equity (collectively, "Environmental Laws") have been,
or, prior to the Closing, shall have been, used, installed, located, spilled,
discharged, dispersed, released, stored, treated, generated, transported to or
from, disposed of or allowed to escape on any real property in which CyberGate
or the Subsidiaries has or has had an interest, including the soil and the
surface and subsurface waters of such locations in such a manner so as to
violate any of the Environmental Laws, or to give rise to liability or
potential liability under the Environmental Laws or to create a cause of action
under the Environmental Laws. No investigation, administrative order,
governmental notice of noncompliance or violation, remediation action, plan,
consent, order or agreement, civil or criminal litigation or settlement with
respect to Substances or underground storage tanks is or at the Closing Date
shall be proposed, threatened or in existence with respect to any real property
in which CyberGate or the Subsidiaries has or has
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had an interest. There are not currently and there have never been any above-
ground storage tanks or underground storage tanks located on any real property
in which CyberGate or the Subsidiaries has or has had an interest.
All real property in which CyberGate or the Subsidiaries has or has
had an interest, the operations of CyberGate and the Subsidiaries and, to
CyberGate's and the Shareholders' knowledge, all past operations on all such
real property have at all times been, and at the Closing Date shall be, in
compliance with all applicable Environmental Laws in all material respects. No
notice shall have been served on or delivered to CyberGate or the Subsidiaries
or shall exist with respect to any real property in which CyberGate or the
Subsidiaries has or has had an interest from any entity, governmental or
regulatory authority or individual claiming any violation of the Environmental
Laws, demanding payment or contribution for environmental damage or injury to
natural resources or requiring any environmental cleanup or assessment
activities, nor is such notice threatened.
2.19 Employee Benefits. Attached hereto as Schedule 2.19 is a written list
of all employee benefit plans relating to employee benefits with respect to
which CyberGate or the Subsidiaries has incurred or may incur any future or
contingent obligations, including without limitation all plans, agreements or
arrangements relating to stock purchase, stock ownership, stock options, stock
appreciation rights, bonuses, severance arrangements, health and welfare
benefits, vacation, sick leave, disability, insurance benefits and all other
employee benefits or fringe benefits, whether or not such plans constitute
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively
referred to as the "Plans"). Neither CyberGate nor any of
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the Subsidiaries has ever sponsored or contributed to, nor do any of them now
sponsor or contribute to, (a) any plans, agreements or arrangements relating to
deferred compensation, pensions, profit sharing, retirement income or other
similar benefits, including without limitation any "employee pension benefit
plans" within the meaning of Section 3(1) of ERISA, or (b) any "multiemployer
plans" within the meaning of Sections 3(37) or 4001(a)(3) of ERISA. Neither
CyberGate nor any of the Subsidiaries or Shareholders is now affiliated with,
nor has any of them ever been affiliated with, any entity such that CyberGate
or any of the Subsidiaries now has, or might have in the future, any
multiemployer plan withdrawal liability under Subtitle E of Part IV of ERISA.
CyberGate has made available to ACSI true and correct copies of each Plan,
along with any related amendments, trust agreements and summary plan
descriptions and the most recently dated Form 5500 annual reports and financial
statements, if any.
Each Plan is in full force and effect and has been administered and
operated in all respects in accordance with its terms and applicable law.
Neither CyberGate nor any of the Subsidiaries has engaged in, or assumed
any liability or responsibility for, any transaction in connection with which
any of them, directly or indirectly, would be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code.
Full payment has been made of all amounts which CyberGate or the
Subsidiaries were required under the terms of any of the Plans to have paid as
contributions to such Plans on or prior to the Closing Date.
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Other than for claims in the ordinary course of business for benefits
under the Plans, there are no actions, suits, claims or proceedings, pending or
threatened, nor does there exist any basis therefor, which may result in any
liability on the part of CyberGate or any Subsidiary with respect to any Plan
or related trust.
Except for continuation coverage under Sections 601 et seq. of ERISA, no
former employee of CyberGate or the Subsidiaries, or any affiliate thereof, nor
any dependent of any such former employee, is entitled to any medical or dental
benefits under any Plan.
CyberGate and the Subsidiaries have no remaining liability under any
terminated employee benefit plan previously sponsored by any of them, and the
termination of any and all such plans has been effected in compliance with the
requirements of the Code and ERISA.
2.20 Licenses and Permits. CyberGate and the Subsidiaries have all
governmental licenses and permits and other governmental authorizations and
approvals currently required for the conduct of their businesses as presently
conducted ("Permits"). Schedule 2.20 hereto includes a list of all Permits.
2.21 Relations with Suppliers and Customers. Neither CyberGate nor the
Subsidiaries are required to provide any bonding or other financial security
arrangements in connection with any transaction with any customer or supplier.
To the best knowledge of CyberGate and the Shareholders, no supplier of
CyberGate or the Subsidiaries will cease to do business with CyberGate or the
Subsidiaries after the consummation of the transactions contemplated hereby,
and no customer has notified CyberGate or the Subsidiaries that it will cease
to do business with CyberGate or the Subsidiaries after the consummation of the
transactions contemplated hereby, to the extent that the failure to continue
such business
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would have a material, adverse effect on CyberGate's or the Subsidiaries'
business or assets when taken as a whole.
2.22 Interest in Competitors, Suppliers, Customers, Etc. Except as
disclosed in Schedule 2.22 hereto, neither of the Shareholders nor any officer
or director of CyberGate nor any affiliate of any such Shareholder, officer or
director has any ownership interest (other than the ownership, as a passive
investment, of less than 2% of the equity securities or other ownership
interests of any entity) in any competitor, supplier or customer of CyberGate
or any individual piece of property with a value of at least $7,500 used in the
operation of the business of CyberGate.
2.23 Employment Matters. Schedule 2.23 hereto is a list of all written
employment contracts and all written pension, bonus, profit sharing, stock
option, life, health, retirement, welfare, or other agreements or arrangements
providing for employee remuneration or benefits to which CyberGate or the
Subsidiaries are a party or by which they are bound, and all these contracts
and arrangements are in full force and effect. There have been no claims of
defaults and there are no facts or conditions which if continued, or with the
giving of notice, will result in a default under these contracts or
arrangements.
2.24 Discrimination; Occupational Safety; Labor. No person or party
(including, but not limited to, governmental or regulatory authorities of any
kind) has any claim presently pending, or, to the best knowledge of CyberGate
and the Shareholders, a reasonable basis for any action or proceeding, against
CyberGate or the Subsidiaries arising out of any statute, ordinance or
regulation relating to discrimination in employment or employment practices or
occupational safety and health standards (including, but without
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limiting the foregoing, The Fair Labor Standards Act, as amended; Title VII of
the Civil Rights Act of 1964, as amended; 42 U.S.C. 1981 or the Age
Discrimination in Employment Act of 1967, as amended), which, if upheld, would
have an adverse effect on the assets, properties, business or condition,
financial or otherwise, of CyberGate and the Subsidiaries. There is no pending,
or to the best knowledge of the Shareholders and CyberGate threatened, federal
or state equal employment opportunity enforcement action or similar proceeding
or labor dispute, strike, or work stoppage affecting CyberGate's or the
Subsidiaries' businesses. Neither CyberGate nor the Subsidiaries have any
collective bargaining or similar agreements, nor do they have any obligation to
bargain with any labor organization as the representative of CyberGate's or the
Subsidiaries' employees, and there is neither pending, nor to the best
knowledge of the Shareholders and CyberGate, threatened, any labor dispute,
strike or work stoppage which affects or which may affect the business of
CyberGate or the Subsidiaries or which may interfere with the continued
operation of CyberGate or the Subsidiaries. No present or former employee of
CyberGate or the Subsidiaries has any claim against CyberGate for (a) overtime
pay, other than overtime pay for the current payroll period, (b) wages or
salary (excluding bonuses and amounts accruing under pension and profit sharing
plans) for any period other than the current payroll period, (c) vacation, time
off or pay in lieu of vacation or time off, other than that earned in respect
of the current fiscal year or carried over from prior years, or (d) any
violation of any statute, ordinance or regulation relating to minimum wages or
maximum hours of work.
2.25 Related Transactions. Except as set forth on Schedule 2.25, neither
CyberGate nor any of the Subsidiaries has made or entered into any loan,
contract, lease or
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commitment, whether oral or written, with any of the Shareholders or any
officer, director, employee, shareholder or partner of any of CyberGate, the
Subsidiaries or the Shareholders or with any affiliate or associate of any of
the foregoing, under which CyberGate or the Subsidiaries have continuing
obligations and except for normal compensation arrangements with CyberGate's
officers and employees, all of which are reasonable in amount and terminable by
CyberGate on 30 days' notice.
2.26 Brokers and Finders. Neither the Shareholders nor CyberGate (nor any
of their respective officers, directors, employees, affiliates, associates, or
family members) has employed any broker, finder or investment banker, or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with this Agreement or the transactions contemplated hereby.
2.27 Questionable Payments. None of CyberGate, the Subsidiaries or the
Shareholders, or any director, officer, agent, employee or other person
associated with or acting on behalf of CyberGate or the Subsidiaries has
directly or indirectly: (a) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (b) made any unlawful payment to government officials or
employees or to political parties or campaigns from corporate funds; (c)
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; (d) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; (e) made any false or fictitious entry on the
books or records of CyberGate or the Subsidiaries; (f) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment; or (g)
made any unlawful bribe or other unlawful payment of a similar or
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comparable nature to any person or entity, private or public, regardless of
form, to obtain favorable treatment in securing business or to obtain special
concessions or treatment. Neither CyberGate nor the Subsidiaries has any
foreign assets or foreign operations.
2.28 Books and Records. The books and records of CyberGate have been
maintained in accordance with generally accepted accounting principles, and
accurately reflect in all material respects the business, assets, properties,
rights, obligations, liabilities and operations of CyberGate and the
Subsidiaries.
2.29 Bank Accounts; Safe Deposit Boxes. Schedule 2.29 hereto sets forth
the names and locations of all banks in which CyberGate or the Subsidiaries has
an account or safe deposit box and the names of all persons authorized to draw
thereon or to have access thereto.
2.30 Full Disclosure. The Shareholders and CyberGate have disclosed in
writing in, or pursuant to, this Agreement all material facts relating to the
business, operations, assets or condition (financial or otherwise) of CyberGate
and the Subsidiaries. No representation or warranty to ACSI contained in this
Agreement, and no statement contained in the disclosure, the Schedules to this
Agreement, any certificate, list or other writing furnished to ACSI pursuant to
the provisions hereof, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements herein
or therein not misleading.
2.31 Effect of Certificates. All certificates of the Shareholders and/ or
CyberGate or CyberGate's officers delivered hereunder shall be deemed to be
additional representations and warranties of the Shareholders and CyberGate,
respectively.
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2.32 Acquisition for Investment. The Shareholders represent and warrant
that they have received and carefully reviewed ACSI's Form 10-KSB, as amended,
for the fiscal year ended June 30, 1996 (the "Annual Report"), ACSI's Proxy
Statement prepared for its annual meeting on November 15, 1996 (the "Proxy
Statement"), ACSI's quarterly report on Form 10-QSB for the quarter ended
September 30, 1996 (the "Quarterly Report"), and ACSI's Form 8-K dated December
10, 1996 (the "Form 8-K"; the Quarterly Report, the Annual Report, the Proxy
Statement, the Quarterly Report and the Form 8-K being hereinafter collectively
referred to as the "Reports"). The Shareholders further represent and warrant
that they have been advised that the ACSI Common Stock has not been registered
under the 1933 Act or applicable state securities laws and that such securities
are being offered and sold pursuant to exemptions from such laws and that
ACSI's reliance upon such exemptions is predicated in part on the Shareholders'
representations as contained herein. The Shareholders represent that they
understand that the shares of ACSI Common Stock to be received by them
hereunder will be "Restricted Securities" within the meaning of Rule 144
promulgated pursuant to the 1933 Act and that the certificates representing
such shares of ACSI Common Stock will bear restrictive legends to that effect.
The Shareholders represent and warrant that they are acquiring the ACSI Common
Stock for their own accounts and for investment and without the present
intention of reselling or redistributing the same (except in accordance with
clauses (A) or (B) below and Section 4.6 hereof). The Shareholders further
represent and agree that if, contrary to the foregoing intentions, either of
them should later desire to dispose of or transfer any of the ACSI Common Stock
in any manner, they shall not do so without first obtaining (A), at the request
of ACSI, an opinion of counsel
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satisfactory to ACSI that such proposed disposition or transfer lawfully may be
made without the registration of such ACSI Common Stock pursuant to the 1933
Act and applicable state securities laws, or (B) such registration. The
Shareholders represent and warrant that they are accredited investors within
the meaning of Rule 501 under the 1933 Act and that they can bear the economic
risk of a complete loss of their investment in ACSI Common Stock.
2.33 Export Law Compliance. Except as described in Schedule 2.33 hereto,
neither CyberGate nor any predecessor, division or Subsidiary currently
exports, or has in the past exported, any products or provided any services,
directly or indirectly to any foreign individual or entity.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACSI
As of the Closing Date, ACSI represents and warrants to the Shareholders as
follows:
3.1 Organization and Qualification. ACSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
3.2 Authority. ACSI has full power, capacity and authority (corporate or
otherwise) to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by ACSI, and no other corporate proceedings on the part of
ACSI are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has
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been duly and validly executed and delivered by ACSI, and constitutes a legal,
valid and binding agreement of ACSI.
3.3 Consents and Approvals. There is no authorization, consent, order or
approval of, or notice to or filing with, any individual or entity required to
be obtained or given in order for ACSI to consummate the transactions
contemplated hereby and fully perform its obligations hereunder, excluding,
however, any authorization, consent, order, approval or filing which shall have
been obtained or made by ACSI prior to the Closing or which the Shareholders
and/or CyberGate are required to obtain or give.
3.4 Absence of Conflicts. The execution, delivery and performance by ACSI
of this Agreement and the consummation by ACSI of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time, or
both, (i) violate any provision of law, statute, rule or regulation to which
ACSI is subject, (ii) violate any order, judgment or decree applicable to ACSI
or (iii) conflict with, or result in a material breach or default under, any
term or condition of the Amended and Restated Certificate of Incorporation or
By-Laws of ACSI or any material agreement or other material instrument to which
ACSI is a party or by which ACSI is bound.
3.5 Litigation and Administrative Proceedings. There is no claim, action,
suit, proceeding or investigation in any court or before any governmental or
regulatory authority pending or, to the best knowledge of ACSI, threatened
against or affecting ACSI which seeks to enjoin or obtain damages in respect of
the transactions contemplated hereby. To the best knowledge of ACSI, there is
no basis for any such claim, action, suit, proceeding or investigation.
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3.6 No Material Misstatements. ACSI has previously delivered the Reports
to the Shareholders. The Reports do not contain an untrue statement of a
material fact and do not omit to state any 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 materially misleading. Since the
respective dates of the Reports, there have been no changes, except as
contemplated therein, which would render the statements therein materially
untrue or cause the statements therein, in light of the circumstances under
which they were made, to be materially misleading.
3.7 Brokers and Finders. Except as declared in Schedule 3.7 hereto,
neither ACSI nor its officers, directors, employees, affiliates or associates
has employed any broker, finder or investment banker, or incurred any liability
for any brokerage fees, commissions or finders' fees in connection with this
Agreement or the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS OF SHAREHOLDERS AND CYBERGATE
The Shareholders and CyberGate covenant to ACSI, jointly and severally, as
follows:
4.1 Conduct of Business. Subsequent to the date hereof and prior to the
Closing Date, CyberGate and the Subsidiaries shall conduct their respective
businesses only in the ordinary course of business, except as otherwise
permitted by this Agreement or consented to by ACSI in writing. Without
limiting the generality of the foregoing covenant, each of CyberGate and the
Subsidiaries shall (a) maintain its Articles of Incorporation and By-laws in
their respective forms as they exist on the date of this Agreement, (b) at all
times keep full
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and complete books and records both consistently and in accordance with GAAP;
(c) maintain in full force and effect the insurance policies heretofore
maintained by CyberGate or the Subsidiaries (or policies providing
substantially the same coverage); (d) preserve its property in good condition;
(e) preserve its business organization intact and preserve for ACSI the
goodwill of customers, suppliers and others having business relationships with
CyberGate or the Subsidiaries; (f) conduct its business in substantial
compliance with all laws, regulations and ordinances applicable to its
business; (g) promptly advise ACSI in writing of any material adverse change in
its business or assets; and (h) furnish ACSI all interim financial statements
of CyberGate or the Subsidiaries as soon as they become available.
4.2 Negative Covenants. Subsequent to the date hereof and prior to the
Closing Date, none of CyberGate or any of the Subsidiaries will, except as
otherwise permitted by this Agreement or consented to by ACSI in writing, (a)
incur any trade accounts payable except in the ordinary course of business or
make any commitment to purchase quantities of any item in excess of quantities
normally purchased in the ordinary course of business; (b) increase its
indebtedness for borrowed money by more than $25,000 in the aggregate; (c)
except for encumbrances disclosed on Schedules 2.11(c) and 2.11(f), subject any
of its assets to encumbrances; (d) guarantee the obligations of any other
person; (e) merge or consolidate with, purchase substantially all of the assets
of, or otherwise acquire, any business or any proprietorship, firm,
association, corporation or other business organization or corporation; (f)
increase or decrease the rate of compensation of or pay any unusual
compensation to any officer or employee, or enter into any agreement to
increase or decrease the rate of
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compensation of or to pay any unusual compensation to any officer or employee;
(g) enter into any collective bargaining agreement, or create or modify any
pension or profit sharing plan, bonus, deferred compensation, death benefit, or
retirement plan, or any other employee benefit plan, or increase the level of
benefits under any such plan, or increase or decrease any severance or
termination pay benefit or any other fringe benefit; (h) make any
representation to anyone indicating any intention of ACSI to retain, institute,
or provide any employee benefit plans, or represent in any manner that any
officer or employee of CyberGate or any Subsidiaries will be employed by ACSI
after the Closing, provided, however, that CyberGate and ACSI shall jointly
meet with the employees of CyberGate and the Subsidiaries as soon as
practicable following execution of this Agreement to explain employment and
benefits to be offered by ACSI upon Closing; (i) issue any shares of its
capital stock, any security convertible into or exchangeable for such stock, or
any warrant, option or other right to purchase or acquire such security; (j)
declare or pay any dividend or make any distribution with respect to, or
purchase or redeem, shares of its capital stock; (k) sell or dispose of any of
its material assets other than in the ordinary course of business consistent
with past practices; (l) make any capital expenditures in excess of an
aggregate of $25,000.00 in the aggregate; (m) enter into any contract or
commitment of a type required to be disclosed on any Schedule to this
Agreement, other than contracts entered into in the ordinary course of business
consistent with past practices; or (n) enter into any contract or agreement,
oral or written, to do any of the foregoing.
4.3 Access. Between the date hereof and the Closing Date, each of
CyberGate and the Subsidiaries shall give to ACSI and its designees full
access, during normal business
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hours and upon reasonable notice, in such a manner as not to disrupt normal
business activities, to their respective premises, properties, material
contracts and books of accounts and records reasonably relevant to an
evaluation of their respective assets, liabilities and businesses. CyberGate
and the Subsidiaries will also cause their respective officers to furnish any
and all material financial, technical and operating data and other material
information pertaining to CyberGate's and the Subsidiaries' respective assets,
liabilities and businesses as is reasonably available and as ACSI shall from
time to time reasonably request for such purpose. ACSI will hold, and will
cause all of its directors, officers, employees and representatives to hold, in
complete confidence, all information so obtained and will use such information
only for the purpose of (a) evaluating the accuracy of the representations made
by CyberGate and the Shareholders herein, (b) determining whether the
conditions to Closing set forth in Article VIII have been satisfied, (c)
obtaining any approval or consent necessary for ACSI to consummate the
transactions contemplated hereby and (d) making any public or other
announcement which ACSI deems necessary or appropriate pursuant to the
provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations promulgated thereunder. If the
transactions contemplated herein are not consummated as contemplated herein,
ACSI will return all information and data to CyberGate and will not disclose
any such data or information to any other person, except as otherwise required
by law, including, but not limited to, the 1933 Act, the 1934 Act, and the
rules and regulations promulgated thereunder, or judicial or administrative
proceedings. Such obligation of confidentiality shall not extend to any
information which is shown to have been previously known to ACSI by any means
other than disclosure pursuant hereto, or
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generally known to others engaged in the same trade or business as ACSI, or
that is part of public knowledge, and shall not extend beyond the Closing Date.
4.4 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, the Shareholders and CyberGate will use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things, including, but not limited to, the matters set forth in Article VIII
hereof, necessary to consummate and make effective the transactions
contemplated by this Agreement consistent with the terms of this Agreement,
insofar as such matters are within the control of any of them.
4.5 Consents and Approvals. The Shareholders and CyberGate agree to use
all reasonable efforts to make all registrations, filings and applications, and
give all notices and obtain all governmental and other consents, approvals,
orders, qualifications and waivers necessary for the consummation of the
transactions contemplated by, or the performance by the Shareholders and
CyberGate of their obligations under, this Agreement, or which may become
reasonably necessary or desirable in connection with any of the foregoing, in
each case upon terms and conditions reasonably satisfactory to ACSI and its
counsel.
4.6 Disposition of ACSI Common Stock. Notwithstanding anything in this
Agreement, or in any other agreement delivered pursuant hereto, including, but
not limited to, the Registration Rights Agreement (as hereinafter defined), the
Shareholders agree that with the exception of (i) gratuitous transfers of
shares of ACSI Common Stock to an entity of which a Shareholder controls a
majority of the voting or other decision-making power thereof or the ability to
control the disposition of the assets held thereunder, (ii) the transfer of up
to 18,000 shares of ACSI Common Stock to Xxxxxx X. Xxxxxx, Xx., and (iii) the
transfer of
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up to 15,000 shares of ACSI Common Stock to individuals who are currently
employees of CyberGate or the Subsidiaries and up to 10,000 shares to employees
of entities controlled by Van Arnem (with such transfer in each case being
conditioned upon the transferee of such shares agreeing to be bound by the
provisions of this Section 4.6); they shall not make any sale or other transfer
of shares of ACSI Common Stock prior to the later of (a) 210 days from the
effective date of a registration statement relating to ACSI's next underwritten
public equity offering (the "Lock-up Date"), or (b) the effective date of a
registration statement filed for their benefit pursuant to the terms of the
Registration Rights Agreement (the "Effective Date") and that from the later of
the Lock-up Date and the Effective Date, and for a period of eighteen (18)
months thereafter, Xxxxxx shall sell or otherwise transfer for value no more
than 27,777 shares of ACSI Common Stock per month and Van Arnem shall sell or
otherwise transfer for value no more than 27,778 shares of ACSI Common Stock
per month (which amounts may be cumulated from month to month if less than the
maximum number of shares of ACSI Common Stock are sold during any month).
4.7 Further Assurances. After the Closing, Shareholders shall from time to
time, at the reasonable request of ACSI and at the cost and expense of ACSI,
execute and deliver such other documents and take such other actions as shall
be reasonably necessary or appropriate to consummate fully the transactions
contemplated hereby.
4.8 Exclusivity.
(a) For the period from the date hereof until December 31, 1996 (the
"Exclusivity Period"), neither CyberGate nor the Shareholders shall, nor shall
CyberGate or the Shareholders authorize or permit any of their respective
affiliates to, nor shall CyberGat
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or the Shareholders authorize or permit any officer, director or employee of
CyberGate or the Shareholders, or any investment banker, attorney or other
adviser or representative of, CyberGate, any of its affiliates or the
Shareholders to, (A) solicit or initiate, or encourage the submission of, or
respond to inquiries or proposals regarding, any takeover proposal (as defined
below) with respect to CyberGate or any issuance of equity or debt securities
by CyberGate ("proposed securities issuance"), (B) enter into any agreement,
arrangement or understanding with respect to any takeover proposal or proposed
securities issuance, or (C) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal or
proposed securities issuance, other than a transaction with ACSI; provided that
upon expiration of the Exclusivity Period (or any subsequent 7-day period
contemplated by this proviso) the Exclusivity Period shall be extended for an
additional 7 days unless either party has provided prior written notice to the
other party that it does not desire to so extend the Exclusivity Period.
(b) CyberGate or the Shareholders, as the case may be, will
immediately notify ACSI of the occurrence of any takeover proposal or any
proposed securities issuance.
(c) For purposes of this Agreement, "takeover proposal" means (A)
any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of a substantial amount of assets of CyberGate
or the Subsidiaries or of any voting securities of, or equity interest in,
CyberGate or the Subsidiaries (including, without limitation, from the
Shareholders) or which would require approval under any federal, state
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or local law, rule, regulation, judgment, injunction or other governmental rule
governing or relating to the current or contemplated business operations of
CyberGate or the Subsidiaries, or any merger, consolidation, business
combination, sale of a material portion of the assets, recapitalization,
liquidation, dissolution or similar transaction involving CyberGate or the
Subsidiaries or any other transaction, the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially delay
the transactions contemplated hereby or which would reasonably be expected to
dilute materially the benefits to ACSI of the transactions contemplated hereby
and (B) any inquiry, proposal or offer from any person relating to any direct
or indirect acquisition or purchase, by operation of law or otherwise of any
beneficial interest in equity securities of CyberGate or the Subsidiaries (or
interest therein) beneficially owned by the Shareholders or any of their
associates or affiliates.
ARTICLE V
COVENANTS OF ACSI
ACSI covenants to the Shareholders as follows:
5.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, ACSI will use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, including,
but not limited to, the matters set forth in Article VIII hereof, to consummate
and make effective the transactions contemplated by this Agreement, insofar as
such matters are within its control.
5.2 Consents and Approvals. ACSI agrees to use all reasonable efforts to
make all registrations, filings and applications, and give all notices and
obtain all governmental and other consents, approvals, orders, qualifications
and waivers necessary for the consummation
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of the transactions contemplated by, or the performance by ACSI of its
obligations under, this Agreement, or which may become reasonably necessary or
desirable in connection with any of the foregoing, in each case upon terms and
conditions reasonably satisfactory to the Shareholders and their counsel.
5.3 Retention of Records. After the Closing, ACSI will retain all of
CyberGate's books and records in its possession in accordance with ACSI's
policies for retention of its own books and records, and upon reasonable notice
and during ACSI's regular business hours and at reasonable intervals, will
provide the Shareholders, and their respective agents and representatives
designated in writing, access to CyberGate's books and records, concerning
periods prior to the Closing Date and the transactions contemplated hereby or
the disclosures, representations, warranties or covenants contained herein, in
ACSI's possession.
5.4 Release of Libra and Gemini. After the Closing, ACSI shall use its
reasonable efforts to obtain the release of Libra Global Services, Inc. ("LGS")
and Gemini Group Inc. ("Gemini") or any of its subsidiaries from any agreement
to which LGS or Gemini is a party and pursuant to which LGS or Gemini acts as a
guarantor or co-obligor if the benefits of such agreement following the Closing
run exclusively to CyberGate. The parties hereto specifically agree that ACSI
shall not be obligated to (i) pay any amount of money in order to obtain the
release or (ii) assume any obligation which is prohibited by any other
agreement to which ACSI is a party, in order to obtain such release. In the
event ACSI is unable to obtain the release of Gemini or Libra from any
agreement referred to in the first sentence of this Section 5.4, ACSI shall
indemnify Libra and Gemini for any payment actually made and all reasonable
expenses incurred by either of them pursuant to such agreement.
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5.5 Post-Closing Operating and Accounting Procedures. After the Closing,
ACSI shall use all reasonable efforts to maximize CyberGate's EBITDA. ACSI
shall fairly and accurately attribute to CyberGate only those expenses that,
according to GAAP, are related directly to CyberGate's activities and shall
credit CyberGate with all revenue, according to GAAP, for which CyberGate was
responsible.
5.6 Further Assurances. After the Closing, ACSI shall from time to time,
at the reasonable request of the Shareholders and at the cost and expense of
the Shareholders, execute and deliver such other documents and take such other
actions as shall be reasonably necessary or appropriate to consummate fully the
transactions contemplated hereby.
ARTICLE VI
MUTUAL COVENANTS
Each of the parties hereto covenants as follows:
6.1 Confidentiality. Except as otherwise required by law or judicial or
administrative proceedings, including proceedings between the parties with
respect to the transactions contemplated hereby, and then only to the extent
specifically required by such proceedings, and except for the purposes
enumerated in Section 4.3 hereof, each of the parties agrees not to (i)
disclose any information heretofore or hereafter obtained from the other party
with respect to the financial condition, results of operations or methods of
operation of CyberGate or ACSI (collectively, the "Confidential Information"),
to any individual or entity (other than its directors, officers, employees,
agents and representatives with a need to know such Confidential Information in
order to consummate the transactions contemplated hereby) or (ii) use any
Confidential Information for any purpose other than,
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with respect to ACSI's use of Confidential Information concerning CyberGate and
the Subsidiaries only, operating the acquired businesses after the Closing
Date.
6.2 Tax Reporting. The parties agree for tax purposes to report the
transactions contemplated by this Agreement, and to treat any subsequent
related transactions or items, in a manner consistent in all respects with the
terms and provisions of this Agreement.
6.3 Cooperation. The parties agree to cooperate for all other reasonable
purposes after the Closing, including with respect to any audit by any taxing
authority of any of the income tax or other tax returns of CyberGate.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival. All representations and warranties contained herein, or
made in writing by any party in connection herewith, shall survive the Closing
until January 31, 1998, subject to the other pertinent clauses of this
Agreement, including Section 7.2(d), and the Indemnification Escrow Agreement.
All covenants contained herein and all other obligations of the parties hereto
to be performed after the Closing shall survive until performed fully.
7.2 Indemnification.
(a) The Shareholders, severally with respect to their individual
representations, warranties, breaches and covenants, and CyberGate and the
Shareholders, jointly and severally with respect to CyberGate's
representations, warranties, breaches and covenants, agree to indemnify and
hold ACSI and its affiliates and the respective officers, directors, employees,
agents and representatives of each of the foregoing harmless from and
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against any and all costs, expenses, losses, claims, damages, penalties, fines,
liabilities and obligations whenever arising or incurred (including, without
limitation, amounts paid in settlement, costs of investigation and attorneys'
fees and expenses) (individually, a "Loss", and collectively, "Losses") arising
out of or relating to (i) any breach of any representation or warranty of
CyberGate or the Shareholders contained herein or any related Schedule, or set
forth in any closing certificate or other document delivered in connection with
the transactions contemplated by this Agreement; and (ii) any breach of any
covenant or obligation of CyberGate or the Shareholders contained in this
Agreement or in any other closing document. No due diligence or other
investigation of CyberGate, its properties, business or operations performed by
or on behalf of ACSI shall have the effect of limiting the Shareholders'
indemnification obligations as set forth herein.
(b) Without limitation as to the indemnification set forth in
subsection (a) hereof, but subject to the Basket (as hereinafter defined), each
of the Shareholders agrees, jointly and severally, to indemnify and hold ACSI
and its affiliates and the respective officers, directors, employees, agents
and representatives of each of the foregoing, harmless from and against (i) any
federal, state, local and foreign income, franchise, sales, use, excise, real
and personal property, employment (including but not limited to FICA and other
payroll) or any other tax liabilities or other charges of every kind and nature
(including, without limitation, any penalties and/or interest) of or incurred
by CyberGate or the Subsidiaries for any taxable year or other period the
Return for which was filed or due on or before the Closing Date which have not
been previously paid or accrued for in the Financial Statements; (ii) the
Shareholders' pro-rata share of any federal, state, local and foreign
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income, employment or other tax liabilities or charges incurred by CyberGate or
the Subsidiaries for any taxable year or other period beginning before and
ending after the Closing Date, to the extent in excess of the liability for
taxes (excluding any liability for deferred taxes established to reflect timing
differences between book and tax income) set forth or included in its most
recent balance sheet contained in the Financial Statements or as disclosed on
Schedule 2.16.2, and (iii) all federal, state, local and foreign income,
employment or other tax liabilities or charges of any corporation other than
CyberGate which was at any time prior to the Closing Date a member of an
"affiliated group" of corporations that included CyberGate. For purposes of
this Subsection 7.2(b), in the case of any taxable period beginning before and
ending after the Closing Date, for purposes of determining the amount of the
Shareholders' liability for taxes attributable to the portion of the taxable
period ending on or before the Closing Date: (A) in the case of sales, use,
payroll or excise taxes or taxes based upon or related to income, such portion
of the taxable period shall be deemed to be a separate taxable year and the
Shareholders' liability shall be determined by taking into account all items of
income, gain, loss, deduction or credit on a basis consistent with that
employed in preparing the federal income tax return of CyberGate for the
taxable year ending on the Closing Date and the relevant state or local tax
return for prior years, and (B) in the case of other taxes, the Shareholders'
liability shall equal a pro-rata portion of the liability for taxes for the
entire taxable period based on the ratio of the number of days from the
beginning of such taxable period through the Closing Date to the total number
of days included in such taxable period.
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(c) ACSI agrees to indemnify and hold the Shareholders harmless from
and against any Losses arising out of or relating to (i) any breach of any
representation or warranty of ACSI contained herein or in any related Schedule,
or set forth in any closing certificate or other document delivered in
connection with the transactions contemplated by this Agreement; and (ii) any
breach of any covenant or obligation of ACSI contained in this Agreement or in
any other closing document.
(d) Except as otherwise specifically set forth herein, the indemnity
provided in this Agreement shall not apply until, and to the extent, the
cumulative amount of all Losses and tax liabilities incurred by the party
seeking indemnification shall exceed $100,000 in the aggregate (the "Basket").
Notwithstanding the foregoing, (i) the Basket shall not apply to (A) the
indemnities provided in this Agreement for breach of any non-competition or
confidentiality obligation contained herein or in any other closing document,
(B) any failure of title to the Shares, (C) a breach of the representations and
warranties in Sections 2.2 and 2.3, or (D) any fraud, willful misconduct, gross
negligence or criminal action on the part of the parties hereto; and (ii) nor
shall the Basket apply to a breach of the representations and warranties
contained in Sections 2.9 and 2.16 with respect to which the indemnity provided
in this Agreement shall not apply until, and to the extent, the cumulative
amount of all Losses and tax liabilities incurred by the party seeking
indemnification pursuant to such sections shall exceed $37,500 in the
aggregate. The indemnity obligations of the Shareholders set forth above shall
be limited to the value of the Indemnification Shares held in escrow at the
time a claim for indemnification is made hereunder and ACSI shall have the
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right of set off, if any, for any claim for indemnification against the
Indemnification Shares pursuant to the terms of the Indemnification Escrow
Agreement.
7.3 Indemnification Procedure.
(a) An indemnified party (the "Indemnified Party") under this Article
VII shall give prompt written notice to each potentially liable person or
entity (the "Responsible Party") (when and to the extent that the Indemnified
Party has actual knowledge thereof) of an Indemnification Event (as defined
hereinafter); provided however, that the failure to so notify the Responsible
Party shall not relieve the Responsible Party of any indemnification obligation
hereunder unless such failure substantially prejudices the Responsible Party.
An "Indemnification Event" shall be any condition, event or occurrence, or the
commencement of any action, suit or proceeding, for which indemnification may
be sought hereunder, and, except as otherwise provided in subsection (b)
hereof, the Responsible Party, through counsel reasonably satisfactory to the
Indemnified Party, shall assume the defense thereof or other indemnification
obligation with respect thereto; provided, however, that any Indemnified Party
shall be entitled to participate in any such action, suit or proceeding with
counsel of its own choice but at its own expense; and provided further, that
any Indemnified Party shall be entitled to participate in any such action, suit
or proceeding with counsel of its own choice at the expense of the Responsible
Party if, in the good faith judgment of the Indemnified Party's counsel,
representation by the Responsible Party's counsel may present a conflict of
interests. In any event, if the Responsible Party fails to assume the defense
within a reasonable time, the Indemnified Party may assume such defense or
other indemnification obligation and the reasonable fees and expenses of its
attorneys will be covered by the
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indemnity provided for in this Article VII. No action, suit or proceeding for
which indemnification may be sought shall be compromised or settled in any
manner which might adversely affect the interests of either the Indemnified
Party or the Responsible Party without the prior written consent of such party
(which shall not be unreasonably withheld). Notwithstanding anything in this
Section 7.3 to the contrary, the Responsible Party shall not, without the
written consent of the Indemnified Party, settle or compromise any action, suit
or proceeding or consent to the entry of any judgment which does not include as
an unconditional term thereof the delivery by the claimant or plaintiff to the
Indemnified Party of a written release from all liability in respect of such
action, suit or proceeding. The Responsible Party shall pay all expenses,
including attorneys' fees, that may be incurred by any Indemnified Party in
enforcing the indemnity provided for in this Article VII.
(b) In the case of any proposed or actual assessment of tax liabilities
for which ACSI is entitled to indemnification from the Shareholders as provided
in Subsection 7.2(b), ACSI shall give written notice to the Shareholders as
provided in Subsection 7.3(a) hereof and shall contest such proposed or actual
assessment through the administrative review or appeal procedures available
under the relevant tax laws and regulations, provided, however, that the
Shareholders may, at their option, undertake such contest if the result of any
such contest would be to trigger the Shareholders' indemnification obligations
hereunder. ACSI and the Shareholders shall keep each other fully informed as to
the progress of such contest. If at any point prior to the termination of the
administrative review process, the Shareholders notify ACSI in writing that
they are willing to accept a settlement proposed by the relevant taxing
authority with respect to such proposed or actual
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assessment of tax liabilities, ACSI will settle the proposed or actual tax
assessment, and ACSI shall immediately be entitled to indemnification
hereunder. If the Shareholders never elect to request ACSI to settle and such
administrative review process is unsuccessful at eliminating the proposed tax,
ACSI shall be entitled to pay the tax (and any penalties and interest) and be
entitled to indemnification; provided, that if within ten (10) days of receipt
from ACSI of notice that it is paying the tax, the Shareholders notify ACSI of
their desire to contest the proposed or assessed tax deficiency in the courts,
the Shareholders shall be entitled to do so provided that (a) if the proposed
or actual tax deficiency is contested in tax court, the Shareholders shall pay
from their own sources any amount of taxes, penalties and interest determined
to be due that are in excess of that previously proposed by ACSI to be paid,
and (b) if the proposed or actual tax deficiency is contested by suit for
refund in any other court, ACSI shall be entitled to indemnification hereunder
and if the outcome of the contest determines that the tax paid should be
refunded, such refund shall be returned to ACSI or to the Shareholders if and
to the extent ACSI has previously been indemnified for such payment. Any
post-administrative review contest shall be conducted at the sole cost and
expense of the Shareholders.
7.4 Treatment as Adjustment of Purchase Price. Any indemnity payment
received by a party hereunder shall be treated as an adjustment of the Purchase
Price. However, in the event that the Internal Revenue Service or any other
taxing authority determines that such indemnity payment constitutes taxable
gain or income to the indemnified party, the indemnifying party shall increase
the amount otherwise required to be paid so that the
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indemnified party, receives, on an after-tax basis, an amount equal to the
amount it would have received had the indemnity not resulted in taxable gain or
income.
ARTICLE VIII
CLOSING DELIVERIES AND REQUIREMENTS
The following deliveries and conditions shall be made or satisfied at the
Closing unless waived in writing or subject to a post-Closing agreement:
8.1 Conditions Precedent to ACSI's Obligation to Close. ACSI's
obligations to consummate the transactions hereunder are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
compliance with which or the occurrence of which may be waived in writing, in
whole or in part, by ACSI prior to the Closing.
(a) At the Closing Date, the Shareholders shall have obtained clear
and unencumbered title to the Shares and shall transfer the same to ACSI.
(b) As of the Closing Date (i) all of the representations and
warranties made by CyberGate and the Shareholders herein and in any Schedule or
Exhibit hereto shall, in all material respects, be true and correct, (ii) all
of the obligations of CyberGate and the Shareholders to be performed on or
before the Closing Date shall have been performed, (iii) none of the events
specified in Section 2.10 shall have occurred, and (iv) ACSI shall have
received a certificate from each of the Shareholders and CyberGate, dated as of
the Closing Date, to the effect of the matters listed in subsections (i), (ii)
and (iii) of this subsection (a).
(c) CyberGate or the Shareholders, as the case may be, shall have
executed and delivered to ACSI each of the agreements, certificates and other
documents to be delivered to ACSI pursuant to Section 8.3 hereof.
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(d) All registrations, filings, applications, notices, transfers,
consents, approvals, orders, qualifications, waivers and other actions listed
on Schedule 2.5 hereto or otherwise required of any persons or governmental
authorities or private agencies in connection with the consummation of the
transactions contemplated by and the performance by CyberGate and the
Shareholders of their respective obligations under this Agreement shall have
been made or obtained and all applicable waiting periods shall have expired or
been terminated.
(e) As of the Closing Date, CyberGate shall have had an average of
at least $450,000 in total monthly revenues for each of the last two calendar
months immediately preceding such Closing Date and the President of CyberGate
shall have delivered a certificate to that effect to ACSI.
(f) As of the Closing Date, CyberGate shall have provided ACSI with
evidence, reasonably satisfactory to ACSI and its counsel, that the contracts
listed on Schedule 8.1(e) shall remain in full force and effect following the
consummation of the transactions contemplated hereby.
(g) As of the Closing Date, CyberGate shall have retired (i) all
shares of its capital stock, other than the Shares, (ii) cancelled without
payment any accrued, accumulated or declared and unpaid dividends associated
with any share of capital stock, and (iii) cancelled any option relating to the
purchase or sale of any shares of CyberGate's capital stock, whether issued by
CyberGate or either of the Shareholders, all upon such terms and conditions as
are acceptable to ACSI in the exercise of its sole discretion.
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(h) On or prior to the Closing Date CyberGate shall have acquired
the twenty percent (20%) of FloridaNet, Inc. not already owned by it from
Xxxxxx Xxxxxx, Xx. on such terms and conditions as are acceptable to ACSI in
the exercise of its sole discretion.
(i) Effective simultaneous with the Closing, each of CyberGate's
directors and officers shall resign.
(j) ACSI shall have obtained any required consents of the holders of
its 13% Senior Discount Notes due 2005 issued pursuant to that certain
Indenture, dated November 14, 1995, by and between ACSI and Chemical Bank, as
Trustee, as previously supplemented, and the holders of its 12-3/4% Senior
Discount Notes due 2006 issued pursuant to that certain Indenture, dated March
4, 1996, by and between ACSI and Chemical Bank, as Trustee, and such Indentures
shall have been supplemented as necessary.
(k) Pacific Atlantic Lease Management Corporation shall have
executed and delivered to CyberGate a non-exclusive assignment of CyberGate's
current accounting software (the "Software Assignment") which Software
Assignment shall provide for the payment of $100,000 over a three year period
at 8.25% per annum by CyberGate and be on such other terms and conditions as
are reasonably acceptable to ACSI.
(l) Acquisition Management Corporation ("AMC") and CyberGate shall
have entered into a Facilities Management Agreement (the "FMA") for
approximately 6,854 square feet of office space located at 0000 Xxxx Xxxxxxx
Xxxxxx Xxxxx, Xxxxxxxxx Xxxxx, Xxxxxxx, with an option, exercisable after 90
days upon 90 days' prior written notice, to acquire the remainder of the space
in the building, which Sublease shall provide for the payment of $12.00 per
square foot, plus pass-throughs, for a term of three years, shall
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provide CyberGate with indemnification from AMC should the FMA prove invalid or
unenforceable and shall be on such other terms and conditions as are reasonably
acceptable to ACSI.
(m) No action, suit or proceeding shall have been instituted by any
person or entity, or threatened by any governmental agency or body, before a
court or governmental body, to restrain or prevent the consummation of the
transactions contemplated by, or the performance by CyberGate, the Shareholders
or ACSI of their respective obligations under this Agreement or which seeks
other relief with respect to any of such transactions or which could reasonably
be expected to have a materially adverse effect on the business, results of
operations, assets, financial condition or prospects of CyberGate. At the
Closing Date, there shall be no injunction, restraining order or decree of any
nature of any court or governmental agency or body in effect which restrains or
prohibits the consummation of the transactions contemplated by this Agreement
or the Indemnification Escrow Agreement.
8.2 Conditions Precedent to Shareholders' Obligation to Close. The
Shareholders' obligations to consummate the transactions hereunder are subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, compliance with which or the occurrence of which may be waived in
writing, in whole or in part, by the Shareholders prior to the Closing.
(a) At the Closing Date, the Shareholders shall have obtained clear
and unencumbered title to the Shares.
(b) As of the Closing Date (i) all of the representations and
warranties made by ACSI herein and in any Schedule or Exhibit hereto shall, in
all material respects, be
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true and correct, (ii) all of the obligations of ACSI to be performed on or
before the Closing Date shall have been performed and (iii) the Shareholders
shall have received a certificate from ACSI, dated as of the Closing Date, as
to the effect of the matters listed in subsections (i) and (ii) of this
subsection (a).
(c) ACSI shall have executed and delivered to the Shareholders each
of the agreements, certificates and other documents to be delivered to the
Shareholders pursuant to Section 8.4 hereof.
(d) ACSI shall have obtained any required consents of the holders of
its 13% Senior Discount Notes due 2005 issued pursuant to that certain
Indenture, dated November 14, 1995, by and between ACSI and Chemical Bank, as
Trustee, as previously supplemented, and the holders of its 12-3/4% Senior
Discount Notes due 2006 issued pursuant to that certain Indenture, dated March
4, 1996, by and between ACSI and Chemical Bank, as Trustee, and such Indentures
shall have been supplemented as necessary.
(e) No action, suit or proceeding shall have been instituted by any
person or entity, or threatened by any governmental agency or body, before a
court or governmental body, to restrain or prevent the consummation of the
transactions contemplated by, or the performance by CyberGate, the Shareholders
or ACSI of their obligations under, this Agreement. At the Closing Date, there
shall be no injunction, restraining order or decree of any nature of any court
or governmental agency or body in effect which restrains or prohibits the
consummation of the transactions contemplated by this Agreement or the
Indemnification Escrow Agreement.
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8.3 Closing Deliveries of CyberGate and the Shareholders. At the
Closing, CyberGate or the Shareholders, as the case may be, shall deliver, or
cause to be delivered, the following documents:
(a) The Shareholders shall deliver to ACSI certificates representing
the Shares, with any required stock transfer stamps affixed, duly endorsed for
transfer or with stock powers duly executed in blank attached, in good form for
delivery. The Shareholders shall also duly execute and deliver to the Escrow
Agent, to be held in accordance with the Indemnification Escrow Agreement,
stock powers in blank, in good form for delivery, covering the Indemnification
Shares, including signature guarantees.
(b) The Shareholders and CyberGate shall deliver to ACSI evidence
reasonably satisfactory to ACSI and its counsel of all consents and approvals
required in connection with the performance by the Shareholders or CyberGate of
their respective obligations under this Agreement and the consummation by the
Shareholders and CyberGate of the transactions contemplated hereby.
(c) CyberGate and the Shareholders, after having agreed with ACSI on
a mutually acceptable Escrow Agent, shall execute and deliver the
Indemnification Escrow Agreement, with such changes therein as may be required
to by the Escrow Agent and not objected to by ACSI or the Shareholders, to ACSI
and the Escrow Agent. (d) CyberGate and the Shareholders shall deliver to ACSI
the written opinion, dated the Closing Date, of Gunster, Yoakley, Xxxxxx-Xxxxx
& Xxxxxxx, P.A., counsel to CyberGate and the Shareholders in form and
substance satisfactory to ACSI and its counsel.
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(e) The Shareholders shall have caused to be delivered to ACSI all of
CyberGate's books and records, including, without limitation. the stock
transfer and minute books and financial records.
(f) The Shareholders shall execute and deliver to ACSI the
Registration Rights Agreement attached hereto as Exhibit B (the "Registration
Rights Agreement").
(g) The Shareholders shall execute and deliver to ACSI the Employment
Agreement and Consulting Agreement attached hereto as Exhibits C and D,
respectively.
(h) Van Arnem shall cause the Software Assignment to be executed and
delivered to ACSI.
(i) Van Arnem shall cause the FMA to be executed and delivered to
ACSI.
(j) The Shareholders shall deliver to ACSI CyberGate's Articles of
Incorporation, as amended to the Closing Date, certified by the Secretary of
State of the State of Florida, CyberGate's By-laws, as amended to the Closing
Date, certified by CyberGate's secretary, resolutions of the Board of Directors
of CyberGate authorizing the execution and delivery of this Agreement and each
of the other agreements, instruments, certificates and other documents to be
delivered by CyberGate pursuant hereto, certified by CyberGate's secretary, and
good standing certificate from the State of Florida.
8.4 Closing Deliveries of ACSI. At the Closing, ACSI shall deliver, or
cause to be delivered, the following documents.
(a) ACSI shall deliver (i) 750,000 shares of ACSI Common Stock to the
Shareholders, as set forth in Section 1.3 hereof, and (ii) the 250,000 shares
of XXXX
00
00
Common Stock representing the Indemnification Shares to the Escrow Agent to be
held pursuant to the Indemnification Escrow Agreement.
(b) ACSI shall deliver to the Shareholders resolutions of the Board
of Directors of ACSI authorizing the execution and delivery of this Agreement
and each of the other agreements, instruments, certificates and other documents
to be delivered by ACSI pursuant hereto, certified by ACSI's secretary.
(c) ACSI shall deliver to the Shareholders the written opinion,
dated the Closing Date, of Xxxx & Xxxxxxx, counsel to ACSI in form and
substance satisfactory to the Shareholders and their counsel.
(d) ACSI, after having agreed with the Shareholders and CyberGate on
a mutually acceptable Escrow Agent, shall execute and deliver the
Indemnification Escrow Agreement, with such changes therein as may be required
by the Escrow Agent and not objected to by ACSI or the Shareholders, to the
Shareholders and the Escrow Agent.
(e) ACSI shall execute and deliver to the Shareholders the
Registration Rights Agreement.
(f) ACSI shall execute and deliver to the Shareholders the Employment
Agreement and Consulting Agreement attached hereto as Exhibits C and D,
respectively.
ARTICLE IX
TERMINATION
9.1 This Agreement may be terminated at any time prior to the Closing as
follows: (a) by mutual consent of ACSI, CyberGate and the Shareholders, or (b)
by any party hereto if the Closing has not occurred on or before December 31,
1996; provided, that no party
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shall be entitled to terminate pursuant to this Section 9.1(b) if its or his
own acts or failures to act has delayed the Closing beyond December 31, 1996.
ARTICLE X
MISCELLANEOUS
10.1 Amendment and Modification. Subject to applicable law, this Agreement
may only be amended, modified and supplemented by written agreement of all of
the parties hereto at any time on or after the Closing Date.
10.2 Waiver of Compliance. Any failure of the Shareholders or CyberGate,
on the one hand, or ACSI, on the other, to comply with any obligation herein
may be expressly waived hereunder, but such waiver shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure. Any
waiver must be in writing and duly executed by the appropriate parties.
10.3 Expenses. Except as otherwise set forth herein, the parties hereto
agree that all fees and expenses incurred by the Shareholders, on the one hand,
and ACSI on the other, in connection with this Agreement shall be borne by the
Shareholders and by ACSI, respectively, including, without limitation, all fees
of counsel and accountants.
10.4 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or by facsimile transmission (confirmed
by mail) or five days after mailed, certified or registered mail with postage
prepaid:
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(a) If to the Shareholders, to:
Xxxxxx X. Xxxxxx
0000 Xxxxxxxxx 00xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
with a copy to:
Xxxxxxxx X. Xxxxxx
Akerman, Senterfitt & Edison, P.A.
0 Xxxxxxxxx 0xx Xxxxxx
00xx Xxxxx
Xxxxx, Xxxxxxx 00000-0000
Xxxxxx X. Van Arnem
000 Xxxxx Xxxxx Xxxx.
XxxXxx Xxxxx, Xxxxxxx 00000
with a copy to:
Xxxx X. Xxxxxx
0000 Xxxx Xxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx Xxxxx, Xxxxxxx 00000
or to such other person or address as the Shareholders shall furnish to ACSI in
writing by notice given in the manner set forth in (a) above.
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(b) If to CyberGate, to:
CyberGate, Inc.
0000 Xxxx Xxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx Xxxxx, Xxxxxxx 00000
or to such other person or address as CyberGate shall furnish to ACSI in
writing by notice given in the manner set forth in (a) above.
(c) If to ACSI, to:
American Communications Services, Inc.
000 Xxxxxxxx Xxxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxxxx Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Executive Vice President - Legal and Regulatory
Affairs, General Counsel and Secretary
Facsimile: (000) 000-0000
with a copy to:
Xxxx & Xxxxxxx
00 Xxxx 00xx Xxxxxx
Xxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 10022-3219
Attention: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other person or address as ACSI shall furnish to the Shareholders in
writing by notice given in the manner set forth above.
10.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations
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hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties, provided, however, that the Shareholders
shall be permitted to make gratuitous transfers of the Adjustment Shares only
if (a) either, (i) the Shareholders deliver to ACSI of an opinion of counsel
satisfactory to ACSI that such transfer may lawfully be made without the
registration of such Adjustment Shares pursuant to the 1933 Act, or (ii) the
Adjustment Shares are registered under the 1933 Act, and (b) such transfers are
made in accordance with Section 4.6 hereof.
10.6 Publicity. Neither the Shareholders or CyberGate nor ACSI shall make
or issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public, other than ACSI announcing the execution
of the Agreement or the completion of the transactions contemplated hereby as
and at the times and in such detail as may be required or may be desirable
under the federal securities laws, without the prior written consent of the
other parties. This provision shall not apply, however, to any announcement or
written statement required to be made by law or the regulations of any federal
or state governmental agency or any stock exchange, except that the party
required to make such announcement shall, whenever practicable, consult with
the other party concerning the timing and content of such announcement before
such announcement is made.
10.7 Headings. The Article and Section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
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10.8 Severability. If any provision of this Agreement shall be determined
to be contrary to law and unenforceable by any court of law, the remaining
provisions shall be severable and enforceable in accordance with their terms.
10.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to its
conflicts of law doctrine. The parties hereto expressly submit themselves to
the non-exclusive jurisdictions of the State and Federal Courts of Florida for
the resolution of any disputes which may arise under or with respect to
compliance with this Agreement.
10.10 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.11 Third Parties. Except as specifically set forth or referred to
herein, nothing herein shall be construed to confer upon or give to any party
other than the parties hereto and their successors or permitted assigns, any
rights or remedies under or by reason of this Agreement.
10.12 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, and the other documents and certificates delivered pursuant
to the terms hereof, sets forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and
supersedes all prior agreements, covenants, representations or warranties,
whether oral or written, by any party hereto.
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Signature page to:
STOCK PURCHASE AGREEMENT By and Among
AMERICAN COMMUNICATIONS SERVICES, INC.
and XXXXXX X. VAN ARNEM and
XXXXXX X. XXXXXX and CYBERGATE, INC.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed, all as of the day and year first above written.
AMERICAN COMMUNICATIONS SERVICES, INC.
By:
-----------------------------------
Title:
CYBERGATE, INC.
By:
-----------------------------------
Title:
-----------------------------------
Xxxxxx X. Xxxxxx
-----------------------------------
Xxxxxx X. Van Arnem
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