UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
Pacific Magtron International Corp.
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(Name of Issuer)
Common Stock, par value $0.001 per share
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(Title of Class of Securities)
694532102
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(CUSIP Number)
Copy to:
Wayne I. Danson
President and Chief Executive Officer Gary A. Miller
Advanced Communications Technologies, Inc. Eckert Seamans Cherin & Mellott, LLC
420 Lexington Avenue 1515 Market Street, Ninth Floor
New York, NY 10170 Philadelphia, PA 19102-1909
(646) 227-1600 (215) 851-8400
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 30, 2004
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(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. [ ]
SCHEDULE 13D
CUSIP No. 694532102
1. Name of Reporting Person: Advanced Communications Technologies, Inc.
I.R.S. Identification No.: 65-0738251
2. Check the Appropriate Box if a Member of a Group (a) |_|
(b) |_|
3. SEC Use Only
4. Source of Funds: WC
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant To Items
2(d) or 2(e) |_|
6. Citizenship or Place of Organization: Florida
Number of 7. Sole Voting Power: 6,454,300
Shares
Beneficially 8. Shared Voting Power: - 0 -
Owned by
Each 9. Sole Dispositive Power: 6,454,300
Reporting
Person 10.Shared Dispositive Power: - 0 -
With
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 6,454,300
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares
|_|
13. Percent of Class Represented by Amount in Row (11): 61.56%
14. Type of Reporting Person: CO
2
This statement amends Items 3, 4, 6 and 7 of the Schedule 13D of Advanced
Communications Technologies, Inc. (the "Reporting Person") filed on December 20,
2004 (the "Schedule 13D"). All capitalized terms used herein and not otherwise
defined shall have the meaning ascribed to such terms in the Schedule 13D.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On December 30, 2004, the Reporting Person completed its purchase from the
Sellers of 6,454,300 shares of Common Stock of the Company for the aggregate
purchase price of $500,000 pursuant to the terms of the Purchase Agreement
described in the Schedule 13D.
At the Closing, the Reporting Person delivered to the Sellers the Notes in
the aggregate principal amount of $500,000 as described in the Schedule 13D. The
Reporting Person expects to use funds out of its working capital to repay all
amounts due and owing under the Notes. The Reporting Person's payment
obligations under the Notes are secured by the PMIC Shares pursuant to the
Pledge Agreement, which was entered into at the Closing and which is described
in the Schedule 13D.
ITEM 4. PURPOSE OF TRANSACTION.
In April 2004, the Reporting Person formed Encompass Group Affiliates,
Inc. ("Encompass") as a Delaware corporation and wholly-owned subsidiary of the
Reporting Person for the purpose of Encompass becoming the Reporting Person's
principal operating unit. In June 2004, a wholly-owned subsidiary of Encompass,
Cyber-Test, Inc., a Delaware corporation ("Cyber-Test Delaware"), acquired the
business and assets of another entity named Cyber-Test, Inc., a Florida-based,
electronic equipment repair company. Upon consummation of the acquisition,
Cyber-Test Delaware became the core operating business of Encompass. Cyber-Test
Delaware provides original equipment manufacturers, retail stores, national
dealers and third-party warranty companies with service options for repair,
exchange, parts and warranty support for office equipment and computer
peripheral products, including facsimile machines, printers, scanners, PDAs,
laptop computers, monitors, and multi-function units, as well as the repair of
point of sale equipment. In June 2004, the Reporting Person, through Encompass,
also acquired licenses to certain assets of Hy-Tech Computer Systems, Inc.,
which is a wholly-owned subsidiary of Hy-Tech Technology Group, Inc., an
electronic equipment repair and sales company (the "HYTT Transaction"). In
connection with the HYTT Transaction, the Reporting Person hired Martin Nielson
as its Senior Vice President - Acquisitions and appointed him as a director of
the Reporting Person and as Chief Executive Officer of Encompass.
The Reporting Person seeks to expand the business of its subsidiaries into
vertically integrated technology and service businesses. The Reporting Person
believes that its acquisition of the PMIC Shares is consistent with this goal
and represents an expansion of the Reporting Person's investments in businesses
engaged in office equipment and computer peripheral product sale and repair
services.
In connection with the Closing under the Purchase Agreement, Theodore S.
Li resigned from his positions as Chief Executive Officer, President and
Treasurer of the Company and all positions held by him as director and/or
officer of the Company's subsidiaries. He remains Chief Financial Officer and
was appointed Chief Operating Officer of the Company. Mr. Li remains a member of
the Board of Directors of the Company. Hui Cynthia Lee has retained her position
of Senior Vice President, but resigned as Secretary and a director of the
Company and each position held by her with any subsidiary of the Company. Each
of Mr. Li and Ms. Lee entered into an employment agreement with the Company,
Encompass and the Reporting Person pursuant to which Mr. Li and Ms. Lee are now
employed by the Company. Each of Jey Hsin Yao, Hank C. Ta and Raymond Crouse
also resigned as directors of the Company and each other position any of them
held with the Company or any of its subsidiaries. Mr. Nielson was appointed as a
director, Chairman of the Board and Chief Executive Officer of the Company, John
E. Donahue was appointed as a director of the Company and Anthony Lee was
appointed Treasurer and Secretary of the Company. The Reporting Person
contemplates that it will recommend additional individuals to be appointed as
non-employee members of the Board of Directors of the Company, but such
individuals have not been determined as of the date of this report.
3
In connection with the Closing, the Company modified the terms of its
Series A Preferred Stock pursuant to the terms of the Series A Agreement
described in the Schedule 13D. To effect the changes to the Series A Preferred
Stock, the Company filed an Amended and Restated Certificate of Designation of
Preferences, Rights and Limitations of Series A Redeemable Convertible Preferred
Stock with the Nevada Secretary of State effective December 31, 2004.
Additionally, as part of the Series A Agreement, Stonestreet forfeited a Stock
Purchase Warrant, exercisable for 300,000 shares of the Company's Common Stock,
that was issued to Stonestreet in connection with the original issuance of the
Series A Preferred Stock.
The Reporting Person intends to propose to the Board of Directors of the
Company that the Company change its fiscal year end to June 30th from its
current fiscal year end of December 31st. The Reporting Person contemplates that
it will consolidate the Company's financial results with the financial results
of the Reporting Person and its other consolidated subsidiaries.
While the Reporting Person has not yet formulated any further specific
plans or proposals with respect to its relationship with the Company, it
anticipates that its investment will provide mutually advantageous opportunities
and that it will consider other transactions involving the Company and its
subsidiaries and their respective assets, including potential acquisitions of,
or mergers with, third parties that would further diversify the Reporting
Person's overall investments.
Except as set forth in this Item 4, the Reporting Person and the other
persons named in Item 2 of the Schedule 13D (based on information provided by
such individuals) have no specific present plans or proposals which relate to or
would result in any of the following (although the Reporting Person reserves the
right to develop such plans or proposals or any other plans relating to the
Company and to take action with respect thereto): (i) the acquisition by any
person of additional securities of the Company, or the disposition of securities
of the Company; (ii) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(iii) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries; (iv) any change in the present board of directors or
management of the Company, including any plans or proposals to change the number
or term of directors or to fill any existing vacancies on the board; (v) any
material change in the present capitalization or dividend policy of the Company;
(vi) any other material change in the Company's business or corporate structure;
(vii) changes in the Company's certificate of incorporation, bylaws, or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any person; (viii) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association; (ix) a class of equity securities of
the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act; or (x) any action similar to any of those
enumerated above.
4
The Reporting Person, without the consent of the Company, may purchase
additional shares of Common Stock in the open market or in private transactions
at any time. While the Reporting Person now owns a majority of the Company's
outstanding Common Stock, the Reporting Person currently intends for the Company
to remain a publicly held company.
Notwithstanding the foregoing, the following information is included
herein to disclose certain factors that could become applicable if a
determination were made by the Reporting Person at a future date to acquire a
substantial number of additional shares of Common Stock.
Shares of Common Stock are traded on the Over-the-Counter Bulletin Board.
If additional shares of Common Stock are purchased by the Reporting Person, such
purchase would reduce the number of such shares that might otherwise trade
publicly and may reduce the number of holders of such shares and, depending on
the number of such shares so purchased, could adversely affect the liquidity and
market value of the remaining such shares held by the public.
The Company is subject to the reporting requirements of the Exchange Act.
Such reporting requirements may be terminated upon application to the Securities
and Exchange Commission if there are fewer than 300 holders of record of such
shares. The termination of the registration of the Common Stock under the
Exchange Act would reduce the information required to be furnished by the
Company to its stockholders and would render inapplicable certain provisions of
the Exchange Act. If the Reporting Person was to acquire a substantial number of
shares of Common Stock, the ability of affiliates of the Company and of persons
holding such shares which are "restricted securities" of the Company to dispose
of such shares under Rule 144 promulgated under the Securities Act of 1933, as
amended, may be impaired or eliminated.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
The number of shares of Common Stock issued and outstanding and the
percentage calculations resulting therefrom in this Item 5 are based on
representations made by the Sellers in the Purchase Agreement. The Reporting
Person disclaims responsibility for the accuracy of the number of shares of
Common Stock issued and outstanding and the resulting percentage calculations.
5
The Reporting Person beneficially owns 6,454,300 shares of Common Stock,
which represent approximately 61.56% of the Common Stock issued and outstanding.
Except as indicated herein, neither the Reporting Person nor any other
person named in Item 2 to the Schedule 13D (based on information provided by
such individuals) presently beneficially owns any Common Stock. Except as
described herein, no transactions in Common Stock were effected during the past
60 days by the Reporting Person or any other person named in Item 2 of the
Schedule 13D (based on information provided by such individuals).
The 6,454,300 shares of Common Stock beneficially owned by the Reporting
Person are currently pledged to the Sellers under the Pledge Agreement described
in the Schedule 13D.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
The Sellers under the Purchase Agreement were Theodore S. Li and Hui
Cynthia Lee. The 6,454,300 shares of Common Stock beneficially owned by the
Reporting Person are currently pledged to the Sellers under the Pledge Agreement
described in the Schedule 13D.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
A. Stock Purchase Agreement, dated as of December 10, 2004, among
Advanced Communications Technologies, Inc., Theodore S. Li and Hui
Cynthia Lee (filed with the Schedule 13D).
B. 6% Secured Convertible Promissory Note, dated December 30, 2004,
issued to Theodore S. Li.
C. 6% Secured Convertible Promissory Note, dated December 30, 2004,
issued to Hui Cynthia Lee.
D. Custodial and Stock Pledge Agreement, dated December 30, 2004, among
Advanced Communications Technologies, Inc., Theodore S. Li and Hui
Cynthia Lee, and Quarles & Brady Streich Lang LLP.
E. Employment Agreement, dated December 30, 2004, among Pacific Magtron
International Corp., Advanced Communications Technologies, Inc.,
Encompass Group Affiliates, Inc., and Theodore S. Li.
6
F. Employment Agreement, dated December 30, 2004, among Pacific Magtron
International Corp., Advanced Communications Technologies, Inc.,
Encompass Group Affiliates, Inc., and Hui Cynthia Lee.
G. Agreement dated December 10, 2004, between Pacific Magtron
International Corp. and Stonestreet LP (filed with the Schedule
13D).
H. Amended and Restated Certificate of Designation of Preferences,
Rights and Limitations of Series A Redeemable Convertible Preferred
Stock of Pacific Magtron International Corp. (filed with the
Schedule 13D).
7
SIGNATURES.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC.
January 10, 2005 By: /s/ Wayne I. Danson
---------------------------- ------------------------------
Date Wayne I. Danson
President and Chief Financial Officer
8
Exhibit B
THIS SECURED CONVERTIBLE PROMISSORY NOTE, AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND REGULATION D THEREUNDER. THE SECURITIES ARE "RESTRICTED" AND MAY NOT
BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND
APPLICABLE STATE LAW OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS THEREOF AND THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR
OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE.
SECURED CONVERTIBLE PROMISSORY NOTE
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
6% Secured Convertible Promissory Note
Due December 29, 2005
No. 1 $166,889.00
This Secured Convertible Promissory Note (this "Note") is issued by
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC., a Florida corporation (the
"Company"), to THEODORE S. LI (together with his permitted successors and
assigns, the "Holder") pursuant to exemptions from registration under the
Securities Act of 1933, as amended. Capitalized terms not otherwise defined
herein shall have the meanings given such terms in that certain Stock Purchase
Agreement of even date herewith by and between the Company, the initial Holder
and the other parties named therein (the "Purchase Agreement").
ARTICLE I.
Section 1.01 Principal and Interest. For value received on December 30,
2004 (the "Issue Date"), the Company hereby promises to pay on December 29, 2005
(the "Maturity Date") to the order of the Holder in lawful money of the United
States of America and in immediately available funds the principal sum of One
Hundred Sixty-Six Thousand Eight Hundred Eight-Nine Dollars (US $166,889.00),
together with accrued and unpaid interest on the unpaid principal of this Note
at the annual simple rate of six percent (6%) (computed on the basis of a
365/6-day year and the actual days elapsed) from the Issue Date until all
amounts due and owing hereunder by the Company to the Holder have been paid in
full. Upon the occurrence and during the continuance of an Event of Default (as
defined below) interest on the unpaid principal amount of this Note shall accrue
at the annual simple rate of ten percent (10%) (computed on the basis of a
365/6-day year and the actual days elapsed).
Section 1.02 Optional Conversion. On or after the Issue Date, the Holder
shall be entitled, at its option, to convert, at any time and from time to time,
until payment in full of all amounts due and owing under this Note, all or any
part of the unpaid principal amount of the Note, into shares (the "Conversion
Shares") of the Company's common stock, no par value per share, ("Common
Stock"), at a price per share (the "Conversion Price") equal to $0.01, subject
to adjustment for stock splits, reverse stock splits and other recapitalizations
effected by the Company. To convert this Note, the Holder shall deliver written
notice thereof, substantially in the form of Exhibit "A" to this Note, with
appropriate insertions (the "Conversion Notice"), to the Company in accordance
with Section 6.01 hereof. The date set forth in the Conversion Notice shall be
deemed to be the date upon which the conversion shall be effective (the
"Conversion Date").
Section 1.03 Right of Repurchase/Redemption. At any time on or prior to
the Maturity Date, the Company shall, at its option, have the right to redeem,
upon three (3) business days prior written notice to the Holder (the "Redemption
Notice"), a portion or all of the outstanding amount due and owing under this
Note (the "Redemption Right"). The redemption price shall be one hundred ten
percent (110%) of the principal amount redeemed. Upon redemption, the Company
shall also pay all accrued and unpaid interest thereon. The third business day
after the Holder's receipt of the Redemption Notice shall be referred to herein
as the "Redemption Date." Once the Company has issued to the Holder a Redemption
Notice, the Holder may continue to execute conversions at any time, and from
time to time, on or prior to the business day immediately preceding the
Redemption Date. Notwithstanding the foregoing, payment by the Company on or
after the Maturity Date of all amounts due and owing hereunder shall not be
deemed an exercise by the Company of its Redemption Right.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. This Note may be amended
solely with the written consent of the Holder and the Company.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
the Company shall (i) make a general assignment for the benefit of creditors;
(ii) be adjudicated as bankrupt or insolvent; (iii) file a voluntary petition in
bankruptcy; (iv) have a petition or proceeding filed against it under any
bankruptcy or insolvency law or statute of the United States of America or any
state or jurisdiction thereof, which petition or proceeding is not dismissed
within ninety (90) days from the date of commencement thereof; or (v) have a
receiver, trustee, custodian, conservator or other person appointed by any court
to take charge of the Company's affairs, assets or business and such appointment
is not vacated or discharged within ninety (90) days thereafter.
2
Section 3.02 Remedy. Upon the occurrence of an Event of Default, the
Holder may declare the principal amount hereof, and all accrued and unpaid
interest, to be forthwith due and payable whereupon the same shall immediately
become due and payable.
ARTICLE IV.
Section 4.01 Re-issuance of Note. If and whenever the Holder elects to
convert a part of the Note pursuant to Section 1.02 hereof, the Company shall
reissue a new Note in the same form as this Note to reflect the new principal
amount.
Section 4.02 Termination of Conversion Rights. The Holder's right to
convert all or any portion of the unpaid principal amount under this Note into
Conversion Shares in accordance with Section 1.02 hereof shall terminate on the
date that all amounts due and owing hereunder are paid in full.
ARTICLE V.
Section 5.01 Security Interest. To secure the Company's payment
obligations hereunder, the Company hereby grants to the Holder a security
interest in and to those Shares delivered by the Holder pursuant to the Purchase
Agreement and the Pledge Agreement. Such security interest will be a first
priority lien provided there are no Encumbrances on the Shares on the Closing
Date.
ARTICLE VI.
Section 6.01 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Note
must be in writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon confirmation of receipt, when sent by
facsimile; (iii) three (3) business days after being sent by U.S. certified
mail, return receipt requested; or (iv) one (1) business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
if to the Company:
Advanced Communications Technologies, Inc.
420 Lexington Avenue, Suite 2739
New York, NY 10170
Attention: Wayne Danson, Chief Executive Officer
Facsimile: 646.227.1666
With a copy to:
Eckert Seamans Cherin & Mellott, LLC
1515 Market Street - 9th Floor
Philadelphia, PA 19102
Attention: Gary A. Miller, Esquire
Facsimile: 215.851.8383
3
if to the Holder:
Theodore S. Li
[Address]
------------------------
with a copy to:
Quarles & Brady Streich Lang LLP
Renaissance One
Two N. Central Avenue
Phoenix, Arizona 85004-2391
Attention: Christian J. Hoffmann, III, Esquire
Fax: 602-420-5008
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
Section 6.02 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflicts of laws that would defer to the
substantive law of another jurisdiction. The Company and the Holder irrevocably
consent to the jurisdiction of the United States federal courts and the state
courts located in the State of New York in any suit or proceeding based on or
arising under this Note and irrevocably agree that any and all claims arising
out of this Note or related to the transactions contemplated by this Note shall
be determined exclusively in such courts. The Company and the Holder irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company and the Holder further agree that service of process
mailed by first class mail shall be deemed in every respect effective service of
process in any such suit or proceeding. Nothing herein shall affect the right of
either the Company or the Holder to serve process in any other manner permitted
by law. The Company and the Holder agree that a final non-appealable judgment in
any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
Section 6.03 Severability. The invalidity of any of the provisions of this
Note shall not invalidate or otherwise affect any of the other provisions of
this Note, which shall remain in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company has executed this Note as of the date first written above.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
-----------------------------------------
Name: Wayne I. Danson
Title: President and Chief Financial Officer
5
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Note)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of the above Note into Shares of Common Stock of ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC., according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date:
------------------------------------------
Applicable Conversion Price:
------------------------------------------
Signature:
------------------------------------------
Name:
------------------------------------------
Address:
------------------------------------------
Amount to be converted: $
------------------------------------------
Amount of Note unconverted: $
------------------------------------------
Conversion Price per share: $
------------------------------------------
Number of shares of Common Stock to be
issued:
------------------------------------------
A-1
Exhibit C
THIS SECURED CONVERTIBLE PROMISSORY NOTE, AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND REGULATION D THEREUNDER. THE SECURITIES ARE "RESTRICTED" AND MAY NOT
BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND
APPLICABLE STATE LAW OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS THEREOF AND THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR
OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE.
SECURED CONVERTIBLE PROMISSORY NOTE
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
6% Secured Convertible Promissory Note
Due December 29, 2005
No. 2 $333,111.00
This Secured Convertible Promissory Note (this "Note") is issued by
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC., a Florida corporation (the
"Company"), to HUI CYNTHIA LEE (together with her permitted successors and
assigns, the "Holder") pursuant to exemptions from registration under the
Securities Act of 1933, as amended. Capitalized terms not otherwise defined
herein shall have the meanings given such terms in that certain Stock Purchase
Agreement of even date herewith by and between the Company, the initial Holder
and the other parties named therein (the "Purchase Agreement").
ARTICLE I.
Section 1.01 Principal and Interest. For value received on December 30,
2004 (the "Issue Date"), the Company hereby promises to pay on December 29, 2005
(the "Maturity Date") to the order of the Holder in lawful money of the United
States of America and in immediately available funds the principal sum of Three
Hundred Thirty Three Thousand One Hundred Eleven Dollars (US $333,111.00),
together with accrued and unpaid interest on the unpaid principal of this Note
at the annual simple rate of six percent (6%) (computed on the basis of a
365/6-day year and the actual days elapsed) from the Issue Date until all
amounts due and owing hereunder by the Company to the Holder have been paid in
full. Upon the occurrence and during the continuance of an Event of Default (as
defined below) interest on the unpaid principal amount of this Note shall accrue
at the annual simple rate of ten percent (10%) (computed on the basis of a
365/6-day year and the actual days elapsed).
Section 1.02 Optional Conversion. On or after the Issue Date, the Holder
shall be entitled, at its option, to convert, at any time and from time to time,
until payment in full of all amounts due and owing under this Note, all or any
part of the unpaid principal amount of the Note, into shares (the "Conversion
Shares") of the Company's common stock, no par value per share, ("Common
Stock"), at a price per share (the "Conversion Price") equal to $0.01, subject
to adjustment for stock splits, reverse stock splits and other recapitalizations
effected by the Company. To convert this Note, the Holder shall deliver written
notice thereof, substantially in the form of Exhibit "A" to this Note, with
appropriate insertions (the "Conversion Notice"), to the Company in accordance
with Section 6.01 hereof. The date set forth in the Conversion Notice shall be
deemed to be the date upon which the conversion shall be effective (the
"Conversion Date").
Section 1.03 Right of Repurchase/Redemption. At any time on or prior to
the Maturity Date, the Company shall, at its option, have the right to redeem,
upon three (3) business days prior written notice to the Holder (the "Redemption
Notice"), a portion or all of the outstanding amount due and owing under this
Note (the "Redemption Right"). In the event the Company exercises its Redemption
Right on or prior to July __, 2005, the redemption price shall be one hundred
five percent (105%) of the principal amount redeemed, thereafter the redemption
price shall be one hundred ten percent (110%) of the principal amount redeemed.
Upon redemption, the Company shall also pay all accrued and unpaid interest
thereon. The third business day after the Holder's receipt of the Redemption
Notice shall be referred to herein as the "Redemption Date." Once the Company
has issued to the Holder a Redemption Notice, the Holder may continue to execute
conversions at any time, and from time to time, on or prior to the business day
immediately preceding the Redemption Date. Notwithstanding the foregoing,
payment by the Company on or after the Maturity Date of all amounts due and
owing hereunder shall not be deemed an exercise by the Company of its Redemption
Right.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. This Note may be amended
solely with the written consent of the Holder and the Company.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows:
the Company shall (i) make a general assignment for the benefit of creditors;
(ii) be adjudicated as bankrupt or insolvent; (iii) file a voluntary petition in
bankruptcy; (iv) have a petition or proceeding filed against it under any
bankruptcy or insolvency law or statute of the United States of America or any
state or jurisdiction thereof, which petition or proceeding is not dismissed
within ninety (90) days from the date of commencement thereof; or (v) have a
receiver, trustee, custodian, conservator or other person appointed by any court
to take charge of the Company's affairs, assets or business and such appointment
is not vacated or discharged within ninety (90) days thereafter.
2
Section 3.02 Remedy. Upon the occurrence of an Event of Default, the
Holder may declare the principal amount hereof, and all accrued and unpaid
interest, to be forthwith due and payable whereupon the same shall immediately
become due and payable.
ARTICLE IV.
Section 4.01 Re-issuance of Note. If and whenever the Holder elects to
convert a part of the Note pursuant to Section 1.02 hereof, the Company shall
reissue a new Note in the same form as this Note to reflect the new principal
amount.
Section 4.02 Termination of Conversion Rights. The Holder's right to
convert all or any portion of the unpaid principal amount under this Note into
Conversion Shares in accordance with Section 1.02 hereof shall terminate on the
date that all amounts due and owing hereunder are paid in full.
ARTICLE V.
Section 5.01 Security Interest. To secure the Company's payment
obligations hereunder, the Company hereby grants to the Holder a security
interest in and to those Shares delivered by the Holder pursuant to the Purchase
Agreement and the Pledge Agreement. Such security interest will be a first
priority lien provided there are no Encumbrances on the Shares on the Closing
Date. ARTICLE VI.
Section 6.01 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this Note
must be in writing and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon confirmation of receipt, when sent by
facsimile; (iii) three (3) business days after being sent by U.S. certified
mail, return receipt requested; or (iv) one (1) business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
if to the Company:
Advanced Communications Technologies, Inc.
420 Lexington Avenue, Suite 2739
New York, NY 10170
Attention: Wayne Danson, Chief Executive Officer
Facsimile: 646.227.1666
With a copy to:
Eckert Seamans Cherin & Mellott, LLC
1515 Market Street - 9th Floor
Philadelphia, PA 19102
Attention: Gary A. Miller, Esquire
Facsimile: 215.851.8383
3
if to the Holder:
Hui Cynthia Lee
[Address]
------------------------
with a copy to:
Quarles & Brady Streich Lang LLP
Renaissance One
Two N. Central Avenue
Phoenix, Arizona 85004-2391
Attention: Christian J. Hoffmann, III, Esquire
Fax: 602-420-5008
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
Section 6.02 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflicts of laws that would defer to the
substantive law of another jurisdiction. The Company and the Holder irrevocably
consent to the jurisdiction of the United States federal courts and the state
courts located in the State of New York in any suit or proceeding based on or
arising under this Note and irrevocably agree that any and all claims arising
out of this Note or related to the transactions contemplated by this Note shall
be determined exclusively in such courts. The Company and the Holder irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company and the Holder further agree that service of process
mailed by first class mail shall be deemed in every respect effective service of
process in any such suit or proceeding. Nothing herein shall affect the right of
either the Company or the Holder to serve process in any other manner permitted
by law. The Company and the Holder agree that a final non-appealable judgment in
any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
Section 6.03 Severability. The invalidity of any of the provisions of this
Note shall not invalidate or otherwise affect any of the other provisions of
this Note, which shall remain in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company has executed this Note as of the date first written above.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
-------------------------------------------
Name: Wayne I. Danson
Title: President and Chief Financial Officer
5
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Note)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of the above Note into Shares of Common Stock of ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC., according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date:
------------------------------------------
Applicable Conversion Price:
------------------------------------------
Signature:
------------------------------------------
Name:
------------------------------------------
Address:
------------------------------------------
Amount to be converted: $
------------------------------------------
Amount of Note unconverted: $
------------------------------------------
Conversion Price per share: $
------------------------------------------
Number of shares of Common Stock to be
issued:
------------------------------------------
A-1
Exhibit D
CUSTODIAL AND STOCK PLEDGE AGREEMENT
THIS CUSTODIAL AND STOCK PLEDGE AGREEMENT ("Agreement"), dated as of
December 30, 2004, is by and among ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(referred to as the "Pledgor"), THEODORE S. LI and HUI CYNTHIA LEE (together,
the "Pledgees") and QUARLES & BRADY STREICH LANG LLP ("Custodian").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Background.
Pledgor and Pledgees are parties to that certain Stock Purchase Agreement,
dated December 10, 2004 (the "Purchase Agreement"), pursuant to which Pledgees
agreed to sell to Pledgor, and Pledgor agreed to purchase from Pledgees, all of
the outstanding shares of common stock of Pacific Magtron International Corp.
(the "Company") owned by Pledgees (the "Pledged Shares"). In exchange for the
Pledged Shares, Pledgor issued to Sellers promissory notes in aggregate
principal amount of $500,000 (each a "Note" and together the "Notes"). To secure
the payment obligations of Pledgor under the Notes (the "Obligations"), Pledgor
has agreed to grant to Pledgees a security interest in and to the Pledged
Shares. Pledgor and Pledgees agree that until such time all amounts due and
owing under the Notes are paid in full or until their earlier release in
accordance with the terms hereof, as the case may be, the certificates
representing the Pledged Shares shall be held in escrow by Custodian in
accordance with the terms hereof.
2. Pledge of Pledged Shares.
2.1 As security for the full and prompt payment of the Notes, Pledgor
hereby pledges to Pledgees all of the Pledged Shares and grants to Pledgees a
lien upon and a continuing security interest in the Pledged Shares, subject to
the terms and conditions of this Agreement. Such security interest will be a
first priority lien provided there are no Encumbrances on the Shares on the
Closing Date. Pledgor will execute and file a UCC-1 Financing Statements
respecting the Shares. Upon payment of each Note the applicable Pledgee hereby
authorizes the Pldgor to file a UCC-3 Financing Statement terminating the
applicable UCC-1 Financing Statement.
2.2 If Pledgor shall become entitled to receive or shall receive with
respect to the Pledged Shares (i) any additional shares of capital stock of the
Company; or (ii) any stock certificate, including without limitation, any
certificate representing a stock dividend or in connection with any increase or
reduction of capital, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split or other recapitalization; or (iii) any
option, warrant or right, whether as an addition to, in substitution of or in
exchange for any of the Pledged Shares, or otherwise; or (iv) any dividend or
other distribution payable in property, or securities issued by a person other
than the Company; then, in any such event, Pledgor shall receive and accept the
same, in trust, as trustee for Pledgees, and shall deliver them immediately to
Custodian, together with all necessary or appropriate endorsements of Pledgor.
Any cash distributions received by Pledgor in respect of the Pledged Shares may
be applied to reduce such of the Obligations as Pledgor may determine in its
sole discretion.
3. Delivery of Shares to Custodian.
Concurrently with the execution and delivery of this Agreement, Pledgor
hereby authorizes Pledgees to deliver, on behalf of Pledgor, to Custodian for
the account of Sellers, the certificates representing all of the Pledged Shares,
together with duly executed Stock Powers to Pledgees, in the form attached
hereto as Exhibit "A", with signature guaranteed, permitting transfer of the
Pledged Shares to Pledgees or its assignee, receipt of which is hereby
acknowledged by the Custodian, to be held and released in accordance with the
terms of this Agreement. Concurrently with the execution and delivery of this
Agreement, Pledgor is also delivering to Pledgees letters addressed to the
transfer agent of the Company (the "Transfer Agent"), informing the Transfer
Agent of the pledge of the Pledged Shares, instructing the Transfer Agent to
honor the Stock Powers delivered to Pledgees, and informing the Transfer Agent
that Pledgor's address on the records of the transfer agent, during the term of
this Agreement, shall be c/o Quarles & Brady Streich Lang LLP. Pledgor shall
thereafter deliver to Custodian (a) any other certificates for the Pledged
Shares as required by the terms of this Agreement, together with duly executed
stock powers relating to such certificates, with signatures guaranteed; and (b)
any documents or other evidence received of Pledgor's interest in any securities
issued as a dividend, stock split or otherwise because of or with respect to the
Pledged Shares or in exchange for the Pledged Shares, promptly after receiving
such evidence, accompanied by duly executed stock powers or other appropriate
instrument of transfer, with signatures guaranteed covering the same.
4. Rights of Pledgor in the Pledged Shares.
Unless and until an Event of Default (as that term is defined herein)
shall have occurred, Pledgor shall be entitled to exercise all voting and other
corporate rights in respect of the Pledged Shares (except for the right to
receive dividends and distributions payable in kind, which shall be delivered to
the Custodian), including, without limitation, all rights and privileges of
conversion, exchange and subscription, as though Pledgor were the absolute owner
of the Pledged Shares, subject to the pledge herein contained. Notwithstanding
the foregoing, Pledgor covenants and agrees that it shall not vote any of the
Pledged Shares in any way inconsistent with the provisions or intent of this
Agreement. All rights of Pledgor to vote and give consents, waivers and
ratifications, and to convert, exchange or subscribe (collectively referred to
as the "Corporate Rights"), shall cease if an Event of Default hereunder shall
occur. If an Event of Default shall occur, whether or not the Pledged Shares
shall have been registered in Pledgees' name, Pledgee then shall have the right
to exercise all Corporate Rights with respect to the Pledged Shares.
5. Representations and Warranties.
Pledgor represents and warrants to Pledgees that:
2
(a) this Agreement has been duly authorized, executed and delivered by
Pledgor;
(b) the execution, delivery and performance by Pledgor of Pledgor's
obligations under this Agreement does not and will not violate any provision of
law or any judgment, order or regulation of any court or of any public or
governmental agency or authority applicable to Pledgor or of the Articles of
Incorporation or Bylaws of the Pledgor;
(c) the execution, delivery and performance by Pledgor of Pledgor's
obligations under this Agreement does not and will not conflict with or
constitute a breach of or a default under any agreement, indenture or instrument
to which Pledgor is a party or by which Pledgor or any of Pledgor's property is
bound; and
(d) this Agreement constitutes the legal, valid and binding obligation of
Pledgor enforceable in accordance with its terms.
6. Covenants.
Pledgor covenants that until all of the Obligations have been satisfied in
full it shall not sell, convey or otherwise dispose of any of the Pledged Shares
or any interest in the Pledged Shares, or create, incur or permit to exist any
pledge, mortgage, lien, charge or encumbrance or any security interest
whatsoever in or with respect to any of the Pledged Shares, other than that
created by this Agreement, nor attempt to do any of the foregoing.
7. Release of Pledged Shares.
7.1 Custodian shall disburse the Pledged Shares at any time pursuant to
the joint written instructions of Pledgees and Pledgor (which may be executed
and/or transmitted in counterparts).
7.2 If, within ten (10) business days after a Maturity Date (as defined in
the respective Notes), Custodian shall not have received a notice from the
applicable Pledgee(s) that the Obligations to such Pledgee(s) have not been
satisfied in full and that such Pledgee(s) disputes Pledgor's right to receive
any Pledged Shares, Custodian shall deliver to Pledgor the Pro Rata Shares (as
defined below) of the Pledgee(s) to which the Maturity Date relates. In the
event Custodian receives such notice from the applicable Pledgee(s), Custodian
shall release the Pledged Shares solely in accordance with Section 9.2 below.
7.3 Upon delivery of all Pledged Shares by Custodian in accordance with
the terms hereof, this Agreement shall terminate and be of no further force or
effect.
8. Events of Default.
Any Event of Default under the Note shall be deemed an Event of Default
hereunder.
3
9. Pledgees' Remedies Upon Default.
9.1 At any time after the occurrence of an Event of Default, any Pledgee
may, at its option, deliver a certificate to the Custodian and Pledgor
specifying the nature of the Event of Default. If, within ten business days (10)
after its receipt of such certificate, the Custodian shall not have received
written notice from Pledgor that it disputes the occurrence of such Event of
Default then the Custodian shall release to such Pledgee(s) a certificate or
certificates representing a percentage of the Pledged Shares equal to the ratio
of the original principal amount of such Pledgee's Note to the aggregate
original principal amount of all the Notes (with respect to any Pledgee, the
"Pro Rata Shares"). In the event that Pledgor does deliver a timely notice to
the Custodian that it disputes such determination, then Custodian shall release
the Pledged Shares solely in accordance with Section 9.2 below.
9.2 In the event any dispute arises between Pledgor and any Pledgee,
Custodian shall release such Pledgee's Pro Rata Shares solely (i) upon its
receipt of the joint written instructions of the applicable Pledgee(s) and
Pledgor (which may be executed and/or transmitted in counterparts) or (ii) in
accordance with a final judgment or final court order from a court of competent
jurisdiction directing disposition of the applicable Pledged Shares (a "Court
Order"). A judgment or order under any provision of this Agreement shall not be
deemed to be final until the time within which an appeal may be taken therefrom
has expired and no appeal has been taken, or until the entry of a judgment or
order from which no appeal may be taken. Custodian shall be entitled to receive
and may conclusively rely on an opinion of counsel to the presenting party to
the effect that a Court Order as referred to in this Section is final and
nonappealable and from a court of competent jurisdiction.
10. Custodian
10.1 Custodian undertakes to perform only such duties as are expressly set
forth herein.
10.2 Custodian may rely and shall be protected in acting or refraining
from acting upon any notice, instruction or request furnished to it in writing
hereunder and reasonably believed by it to be genuine and to have been signed or
presented by the proper party or parties.
10.3 Custodian shall not be liable for any action taken by it in good
faith without gross negligence, and may consult with counsel of its own choice
and shall have full and complete authorization and protection for any reasonable
action taken or suffered by it hereunder in good faith and in accordance with
the written opinion of such counsel.
10.4 Custodian may resign and be discharged from its duties or obligations
hereunder by giving notice in writing of such resignation specifying a date (not
less than thirty (30) days after the giving of such notice) when such
resignation shall take effect, and by transferring all funds then held by it
pursuant to this Agreement to the successor custodian. Promptly after such
notice, Pledgor and Pledgees shall by mutual agreement appoint a successor
custodian, such custodian to hold the Pledged Shares upon the resignation date
specified in such notice. If a successor custodian is not appointed within
thirty (30) days, Custodian shall have the right to petition any court of
competent jurisdiction for the appointment of a successor custodian. Pledgor and
Pledgees may by mutual agreement at any time substitute a new custodian by
giving fifteen (15) days' notice thereof to the Custodian then acting. Custodian
shall continue to serve until its successor accepts the responsibility of
Custodian and receives delivery of the Pledged Shares.
4
10.5 Pledgor and Pledgees agree, jointly and severally, to indemnify
Custodian for, and to hold it harmless against, any loss, liability or expense
incurred by it, arising out of or in connection with its entering into this
Agreement and carrying out its duties hereunder, including the costs and
expenses of defending itself against any claim of liability in the premises,
other than as incurred by reason of its willful or reckless misconduct or bad
faith. The provisions of this section shall survive the resignation or removal
of Custodian and the termination of this Agreement.
10.6 Custodian's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by Pledgor, Pledgees and Custodians.
10.7 Custodian is hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case Custodian obeys or complies with any such order, judgment or
decree, Custodian shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
10.8 Custodian has acted as legal counsel for Pledgees, and may continue
to act as legal counsel for Pledgees, from time to time, notwithstanding its
duties as Custodian hereunder. Pledgor consents to Custodian acting in such
capacity as legal counsel for Pledgees and waives any claim that such
representation represents a conflict of interest on the part of Custodian.
Pledgor understands that Pledgees and Custodian are relying explicitly on the
foregoing provision in entering into this Agreement. Notwithstanding the
foregoing, Custodian shall not represent Pledgees in any proceeding resulting
from Custodian delivery of the Pledged Securities into court as contemplated in
Section 9.2 hereof.
10.9 Pledgees shall pay the fees and costs of the Custodian under this
Agreement.
11. Notices.
Notices, requests, instructions or other documents to be in given under
this Agreement shall be in writing and shall be deemed given and received, (i)
when sent if sent by facsimile, provided that the fax is promptly confirmed by
telephone confirmation thereof, (ii) when delivered, if delivered personally to
the intended recipient, and (iii) one business day later, if sent by overnight
delivery via a national courier service, and in each case, addressed to a party
at the following address for such party:
5
if to Pledgor:
Advanced Communications Technologies, Inc.
420 Lexington Avenue, Suite 2739
New York, NY 10170
Attention: Wayne Danson, Chief Executive Officer
Facsimile: 646.227.1666
With a copy to:
Eckert Seamans Cherin & Mellott, LLC
1515 Market Street - 9th Floor
Philadelphia, PA 19102
Attention: Gary A. Miller, Esquire
Facsimile: 215.851.8383
if to any Pledgee:
to the address set forth below such Pledgee's
name on the signature pages hereto
with copies to:
Quarles & Brady Streich Lang LLP
Renaissance One
Two N. Central Avenue
Phoenix, Arizona 85004-2391
Attention: Christian J. Hoffmann, III, Esquire
Fax: 602-420-5008
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
12. Miscellaneous.
12.1 No course of dealing between Pledgor and Pledgees, nor any failure or
delay in exercising any right, power or privilege hereunder shall operate as a
waiver of such right, power or privileges.
12.2 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PARTIES AGREE AND CONSENT TO
THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN NEW YORK
COUNTY, NEW YORK IN ANY ACTION OR PROCEEDING HEREUNDER, AND TO SERVICE OF
PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED (WHICH SHALL CONSTITUTE
"PERSONAL SERVICE"). The parties hereto hereby irrevocably waive, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this agreement.
6
12.3 This Agreement shall inure to the benefit of the successors and
assigns of each Pledgee. This Agreement shall be binding upon each of the
successors and assigns of Pledgor.
12.4 This Agreement contains or refers to the entire agreement of the
parties with respect to its subject matter, and supersedes any prior
arrangements or understandings between the parties with respect thereto. Any
waiver, modification, discharge or termination of this Agreement must be in
writing and signed by the parties necessary to the enforcement thereof.
7
IN WITNESS WHEREOF, and intending to be legally bound by this Agreement,
each of the parties hereto has caused this Agreement to be executed and
delivered as of December 30, 2005. PLEDGOR:
ATTEST: ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
-------------------------------------------- ------------------------
(Authorized Signature)
Name: Wayne I. Danson
----------------------
(Printed or Typed)
Title: President
---------------------
Date: December 30, 2004
----------------------
State of _____________________ :
ss
County of ___________________ :
On this _____ day of ______________2005, before me the subscriber, a
Notary Public in and for the State and County aforesaid personally appeared
___________________________, known or satisfactory identified to me, who
acknowledged that he/she was the ______________[title of office] of Advanced
Communications Technologies, Inc. and had executed the foregoing instrument in
such capacity in the name of and on behalf of such corporation for/ the purposes
stated therein.
Witness my hand and seal the day and year aforesaid.
[Notarial Seal]
----------------------
Notary Public
Signatures continue on next page
8
PLEDGEES:
ATTEST:
/s/ Theodore S. Li
-------------------------------------------- ---------------------------
Theodore S. Li
Address:
/s/ Hui Cynthia Lee
---------------------------
Hui Cynthia Lee
Address:
9
State of _____________________ :
ss
County of ___________________ :
On this _____ day of ____________2005, before me the subscriber, a Notary
Public in and for the State and County aforesaid personally appeared Theodore S.
Li known or satisfactory identified to me, who acknowledged that he had executed
the foregoing instrument for the purposes stated therein.
Witness my hand and seal the day and year aforesaid.
[Notarial Seal]
------------------------
Notary Public
10
State of _____________________ :
ss
County of ___________________ :
On this _____ day of ____________2005, before me the subscriber, a Notary
Public in and for the State and County aforesaid personally appeared Hui Cynthia
Lee known or satisfactory identified to me, who acknowledged that she had
executed the foregoing instrument for the purposes stated therein.
Witness my hand and seal the day and year aforesaid.
[Notarial Seal]
Notary Public
11
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. does hereby
sell, assign and transfer to , shares of the common stock of PACIFIC MAGTRON
INTERNATIONAL CORP., a _____________corporation, represented by Certificate(s)
No(s) _________________ inclusive, standing in the name of ADVANCED
COMMUNICATIONS TECHNOLOGIES, INC. on the books of PACIFIC MAGTRON INTERNATIONAL
CORP. ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
stock or bond(s) as the case may be, on the books of PACIFIC MAGTRON
INTERNATIONAL CORP., with full power of substitution in the premises.
ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC.
By: (SEAL)
--------------------------------------
Dated: , 200__
-----------------------------------
12
Exhibit E
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of this 30th day of
December 2004 ("Effective Date"), by and among Pacific Magtron International
Corp., a Nevada corporation ("PMIC"), Encompass Group Affiliates, Inc., a
Delaware corporation ("Encompass"), Advanced Communication Technologies, Inc., a
Florida corporation ("ACT"), and Theodore S. Li, an individual whose address is
________________________________ ("Executive"). For purposes hereof, the terms
PMIC, Encompass and ACT shall include each of their respective subsidiaries and
PMIC, Encompass and ACT shall be referred to collectively herein as the
"Company."
WITNESSETH
WHEREAS, Executive presently serves as a Director and as President, Chief
Executive Officer, Chief Financial Officer and Treasurer of PMIC;
WHEREAS, ACT, Executive and certain other shareholders of PMIC have
entered into a Stock Purchase Agreement, pursuant to which ACT will purchase all
of the shares of common stock of PMIC owned by Executive and each such other
shareholder (the "Stock Purchase"); and
WHEREAS, it is a condition to the Stock Purchase that Executive enter into
this Agreement with the Company effective as of the Effective Date.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment. PMIC hereby employs Executive, and Executive hereby accepts
employment with PMIC, as Chief Financial Officer and Chief Operating Officer, or
such other senior executive position as may be determined by the Board of
Directors of PMIC (the "Board") from time to time during the Employment Period
(as defined below). For purposes of this Agreement, "senior executive position"
shall mean a position of Vice President or a more senior position. In addition
to his duties set forth in this Section 1 and Section 3 below, Executive shall
at the request of the PMIC CEO (as defined below) or the Board serve as an
officer or director of PMIC or any subsidiary of PMIC, without additional
compensation and subject to any policy of the Compensation Committee of the
Board (the "PMIC Compensation Committee") with regard to directors' fees.
2. Term; Renewal. The term of this Agreement shall commence on the
Effective Date and expire on the third anniversary thereof (the "Employment
Period"), unless earlier terminated in accordance with its terms; provided,
however, that the Employment Period may, by written agreement between the
parties hereto, be extended for an additional one-year period.
1
3. Employment and Duties.
3.1 Duties and Responsibilities.
(a) Executive's area of responsibility during the Employment
Period shall be that of Chief Financial Officer and Chief Operating Officer of
PMIC. Executive shall directly report to the Chief Executive Officer of PMIC
(the "PMIC CEO"), or such other senior executive officer of Encompass or ACT, as
determined from time to time by the Company. The services to be rendered by
Executive pursuant to this Agreement shall consist of such services as defined
and directed by the Board or the PMIC CEO.
(b) During the Employment Period, Executive shall serve the
Company faithfully and to the best of his ability; shall devote his entire
working time, attention, energy and skill to his employment and the benefit and
business of the Company; and shall use his best efforts, skills and ability to
promote the Company's interests and to perform such duties as from time to time
may be reasonably assigned to him and are consistent with his titles and
positions with the Company.
(c) During the Employment Period, in addition to any other
duties or responsibilities the Company may give to Executive consistent with
Section 1, Executive shall, subject to Section 3.2 herein, be required to sign,
and shall sign, all certifications and such other documents or instruments
requested by the Board, the Chief Executive Officer of ACT, or the PMIC CEO in
connection with PMIC's and/or ACT's obligations under or to (i) the Securities
and Exchange Commission, (ii) any exchange or association on which the Company's
shares of capital stock are listed, (iii) any federal, state or local authority,
and/or (iv) any other governmental, quasi-governmental or non-governmental
entity or organization (foreign or domestic) that regulates or has authority
over PMIC and/or ACT. In addition, in the event Executive, in his current
position or in any position Executive accepts in the future, becomes obligated
to sign certifications and such other documents or instruments as may be
required by the rules and regulations promulgated by any of (i) through (iv)
above, Executive shall, subject to Section 3.2 herein, sign all such
certifications and other documents or instruments as required thereby.
3.2 Observance of Rules and Regulations. Executive agrees to observe
and comply with all applicable laws and regulations, as well as the rules and
regulations of the Company with respect to the performance of his duties.
4. Compensation; Benefits and Expenses.
4.1 Base Salary. As compensation for the services to be rendered
hereunder, during the Employment Period, the Company shall pay to Executive a
minimum annual base salary (the "Base Salary") of $120,000.00. The Base Salary
shall be payable in accordance with usual payroll practices of the Company.
Executive's Base Salary shall be reviewed annually by the PMIC Compensation
Committee during the Employment Period and may be increased, but not decreased,
from time to time by the PMIC Compensation Committee in its sole discretion.
2
4.2 Bonus.
(a) Within thirty (30) days after the Effective Date,
Executive shall receive a signing bonus in the amount of $225,000.
(b) Immediately following each fiscal year, the Company shall
set aside for the payment of PMIC executive bonuses, an amount equal to ten
percent (10%) of net income of PMIC during such fiscal year (the "PMIC Bonus
Pool"). For each fiscal year or portion thereof after the Effective Date and
during the Employment Period, the Company shall pay to Executive an annual
performance bonus, in cash, equal to a portion of the PMIC Bonus Pool, as
determined by the PMIC Compensation Committee, in its sole discretion (the "PMIC
Performance Bonus").
For purposes hereof, "net income" shall mean, with respect to PMIC, for any
fiscal year, the net income (loss) of PMIC for such fiscal year, determined in
accordance with generally accepted accounting principles, consistently applied;
provided, however, that there shall be excluded from net income (a) the net
income (loss) of any person in which PMIC has a joint interest with a third
party, except to the extent such net income is actually paid to PMIC by dividend
or other distribution during such fiscal year, (b) the net income (or loss) of
any person accrued prior to the date it becomes a subsidiary of PMIC or is
merged into or becomes consolidated with PMIC or its assets are purchased by
PMIC, and (c) the net income (if positive) of any subsidiary of PMIC to the
extent that the declaration or payment of dividends or similar distributions of
such net income by such subsidiary (i) is not at that time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order statute, rule or governmental regulation or (ii) would be subject
to any taxes payable on such dividends or distributions.
(c) In addition to the PMIC Performance Bonus, Executive may
receive, and ACT may grant to Executive, restricted shares of common stock of
ACT, with a vesting schedule and other terms established by the Compensation
Committee of the Board of Directors of ACT (the "ACT Compensation Committee"),
in its sole discretion (the "Incentive Bonus").
(d) Executive acknowledges that the amount of the PMIC Performance
Bonus and the amount of the Incentive Bonus shall at all times be determined by
the PMIC Compensation Committee and the ACT Compensation Committee,
respectively, in their respective sole discretion. The Company shall pay each of
the Performance Bonus and the Incentive Bonus to Executive within thirty (30)
days after the Company's audited results for the applicable fiscal year are
delivered to the Company.
4.3 Earn-Out.
(a) Earn-Out Shares. In the event Pacific Magtron, Inc. ("PMI"),
Pacific Magtron (GA), Inc. ("PMI-GA"), and LiveWarehouse, Inc. ("LW") achieve
the Milestones (as defined in Section 4.3(b) below) for any year during the
three (3) year period commencing January 1, 2005 and expiring December 31, 2007,
Executive shall have the right to receive on March 31 of the immediately
following calendar year, the applicable ratable portion of 66,666,666 shares of
restricted common stock of ACT (priced at $.01 per share, or $666,666 in the
aggregate), to be earned at the end of each such year at the rate of 25% for
each of the first and second years and 50% for the third year (the "Shares");
provided, that in the event the Milestones are not achieved in any year, except
as provided below, such ratable portion of Shares shall be forfeited entirely,
without any ability to re-earn such Shares in a future year; provided further,
that in the event Executive's employment with the Company is terminated for
"cause" by the Company (as contemplated by Section 6.1 of this Agreement) prior
to the expiration of the initial Employment Period, all of the Shares earned or
3
to be earned by Executive shall be forfeited. In the event that Executive's
employment with the Company is terminated prior to the expiration of the initial
Employment Period for any reason other than "cause," Executive shall be
permitted to receive the Shares earned by him prior to such termination, but
shall in no event be entitled to receive Shares to be earned after the
Termination Date (as defined in Section 6.1 below). Notwithstanding the
foregoing, the number of Shares and the price per Share shall be adjusted
accordingly for stock splits, reverse stock splits and other recapitalizations
effected by ACT, so that Executive retains the right, after accounting for such
adjustment, to receive the same percentage of ACT's outstanding shares of Common
Stock as Executive would have had the right to receive had such adjustment not
been so effected.
Upon earning the Shares at the end of each year, if applicable, the Shares will
be placed in escrow with a mutually agreeable escrow agent to be held and
released in accordance with the terms of an escrow agreement in substantially
the form of Exhibit "A" hereto; provided, however, that in the event that the
employment of Executive is terminated by the Company prior to the expiration of
the initial Employment Period without cause (as contemplated by Section 6.2 of
this Agreement), Executive terminates this Agreement for Good Reason (as
contemplated by Section 6.3 of this Agreement), or this Agreement is terminated
due to Executive's death or Disability (as defined below), Executive shall
receive any Shares earned by him no later than the later of (a) the immediately
following March 31 or (b) thirty (30) days after the Termination Date. Upon
release from escrow, the Shares will include piggyback registration rights,
subject to customary underwriters' cutbacks.
Upon receipt of the Shares, Executive will acquire the Shares for his own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended. Executive is an "accredited
investor," as such term is defined in Rule 501(a) promulgated pursuant to the
Securities Act of 1933, as amended. Executive acknowledges that Executive has
had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning
the financial and other affairs of the Company, and to the extent deemed
necessary in light of such personal knowledge of the Company's affairs,
Executive has asked such questions and received answers to the full satisfaction
of Executive. Executive understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares or the fairness of suitability of
the investment in the Shares nor have such authorities passed upon or endorsed
the merits of the offering of the Shares.
Notwithstanding the foregoing, in the event that the Milestones are not achieved
in a given year, the Board of Directors of ACT shall have the right, in its sole
and absolute discretion, to grant to Executive all or a portion of the Shares
that could have been earned by Executive during such year.
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(b) Milestones. Revenue and EBITDA (earnings before interest, taxes,
depreciation and amortization) herein shall be defined according to generally
accepted accounting principles and no allocation from PMIC, ACT or Encompass
overhead shall be included in the calculation of EBITDA. The Milestones for the
combined Revenues and EBITDA of PMI, PMI-GA and LW are:
Calendar Year End Revenues EBITDA
----------------- -------- ------
December 31, 2005 $70,000,000 $490,000
December 31, 2006 $82,000,000 $738,000
December 31, 2007 $95,000,000 $950,000
Notwithstanding anything contained herein to the contrary, the
determination of the Milestones shall be based on unaudited pro forma financial
statements of PMI, PMI-GA and LW, prepared by the management of PMIC and
approved by Executive, the Chief Executive Officer of ACT and the ACT
Compensation Committee.
4.4 Other Benefits. Executive shall also be eligible to participate
in any life and health insurance programs and any incentive, savings and
retirement plans that the Company makes available to all of its executives of
similar seniority. Executive shall also be eligible to receive discretionary
performance based bonuses as approved and authorized by the ACT Compensation
Committee, including any incentive stock programs approved by ACT's
shareholders.
4.5 Business Expenses. Executive will be reimbursed, in accordance
with the Company's expense reimbursement policy, for business expenses that have
been pre-approved by the Board or the PMIC CEO upon presentation of vouchers or
other documents reasonably necessary to verify the expenditures and sufficient,
in form and substance, to satisfy Internal Revenue Service requirements for such
expenses.
4.6 Vacation. Executive shall be entitled to take up to four (4)
weeks of vacation per calendar year, which shall be taken in accordance with the
Company's vacation policy in effect from time to time for executives of
comparable seniority.
5. No Competitive Activities; Confidentiality; Invention
5.1 General Restriction. During the Employment Period and for a
period of two (2) years thereafter (the "Restricted Period"), Executive
covenants and agrees that, except on behalf of the Company, he will not,
directly or indirectly:
(a) Competing Business. Own, manage, operate, control,
participate in the ownership, management, operation or control of, be employed
by, or provide services as a consultant to, any individual or business that is
involved in business activities that are the same as, similar to or in
competition with, directly or indirectly, any business activities conducted, or
actively being planned, by Encompass and/or PMIC during the Restricted Period
and anywhere in the United States and Canada (it being acknowledged that
Encompass' and/or PMIC's businesses are international in scope). The ownership
of less than one percent (1%) of the outstanding stock of any public corporation
shall not be deemed a violation of this provision.
5
(b) Soliciting Customers. Attempt in any manner to contact or
solicit any individual, firm, corporation or other entity (i) that is or has
been, a customer of Encompass and/or PMIC at any time during the Restricted
Period, (ii) to which a proposal has been made by Encompass and/or PMIC during
the Restricted Period or (iii) appearing Encompass' and/or PMIC's new business
target list on the date of Executive's termination (as such list has been
prepared and maintained in accordance with Encompass' and/or PMIC's past
practice), for the purpose of providing services or products similar to the
services and products provided by Encompass and/or PMIC, or engaging in any
activity which could be, directly or indirectly, competitive with the business
of Encompass and/or PMIC.
(c) Interfering with Other Relations. Persuade or attempt to
persuade any supplier, vendor, licensor or other entity or individual doing
business with Encompass and/or PMIC to discontinue or reduce its business with
Encompass and/or PMIC or otherwise interfere in any way with the business
relationships and activities of Encompass and/or PMIC.
(d) Employees. Attempt in any manner to solicit any individual, who
is at the time of such attempted solicitation, or was at any time during the one
(1) year period preceding the termination of Executive's employment, an employee
or consultant of Encompass and/or PMIC, to terminate his or her employment or
relationship with Encompass and/or PMIC, or engage such individual, as an
employee or consultant. Cooperate with any other person in persuading, enticing
or aiding, or attempting to persuade, entice or aid, any employee of or
consultant to Encompass and/or PMIC to terminate his or her employment or
business relationship with Encompass and/or PMIC, or to become employed as an
employee or retained as a consultant by any person other than Encompass and/or
PMIC.
In the event of a voluntary or involuntary filing under Chapter 7 of the United
States Bankruptcy Code by PMIC and Encompass that is not dismissed within ninety
(90) days, Executive shall no longer be bound by the restrictions contained in
this Section 5.1.
5.2 Confidentiality Agreement. Executive shall not, either during
the Employment Period or at any time thereafter, use or disclose to any third
person any Confidential Information (as defined below) of the Company, other
than at the direction of the Company, or pursuant to a court order or subpoena,
provided that Executive will give notice of such court order or subpoena to the
Company prior to such disclosure. Upon the termination of Executive's employment
with the Company for any reason, Executive shall return any notes, records,
charts, formulae or other materials (whether in hard copy or computer readable
form) containing Confidential Information (as defined below), and will not make
or retain any copies of such materials. Without limiting the generality of the
foregoing, the parties acknowledge that the Company from time to time may be
subject to agreements with its customers, suppliers or licensors to maintain the
confidence of such other persons' confidential information. The terms of such
agreements may require that the Company's employees, including Executive, be
bound by such agreements, and Executive shall be deemed so bound upon notice to
6
him of the terms of such agreements. The term "Confidential Information" as used
herein shall mean any confidential or proprietary information of the Company
whether of a technical, engineering, operational, financial or economic nature,
including, without limitation, all prices, discounts, terms and conditions of
sale, trade secrets, know-how, customers, inventions, business affairs or
practices, systems, products, product specifications, designs, plans,
manufacturing and other processes, data, ideas, details and other information of
the Company. Confidential Information shall not include information which can be
proven by Executive to have been developed by his own work as of the Effective
Date completely independent of its disclosure by the Company or which is in the
public domain, provided such information did not become available to the general
public as a result of Executive's breach of this Section 5.2.
5.3 Disclosure of Innovations. Executive shall make prompt and full
written disclosure to the Company and solely the Company of all writings,
inventions, processes, methods, plans, developments, improvements, procedures,
techniques and other innovations of any kind that Executive may make, develop or
reduce to practice, alone or jointly with others, at any time during the
Employment Period, whether during working hours or at any other time and whether
at the request or upon the suggestion of the Company or otherwise, and whether
or not they are eligible for patent, copyright, trademark, trade secret or other
legal protection (collectively, "Innovations"). Examples of Innovations shall
include, but are not limited to, discoveries, research, formulas, tools,
know-how, marketing plans, new product plans, production processes, advertising,
packaging and marketing techniques and improvements to computer hardware or
software. The written disclosures provided for herein shall be made to the PMIC
CEO or the Board.
5.4 Assignment of Ownership of Innovations. All Innovations shall be
the sole and exclusive property of the Company. Executive hereby assigns all
rights, title or interest in and to the Innovations to the Company. At the
Company's request and expense, during the Employment Period and at any time
thereafter, Executive will assist and cooperate with the Company in all respects
and will execute documents and give testimony to obtain, maintain, perfect and
enforce for the Company any and all patent, copyright, trademark, trade secret
and other legal protections for the Innovations.
5.5 Remedies. Executive acknowledges that the restrictions contained
in the foregoing Sections 5.1 through 5.4, in view of the nature of the business
in which the Company is engaged, are reasonable and necessary in order to
protect the legitimate interests of the Company, and that the legal remedies for
a breach of any of the provisions of this Section 5 will be inadequate and that
such provisions may be enforced by restraining order, injunction, specific
performance or other equitable relief. Such equitable remedies shall be
cumulative and in addition to any other remedies which the injured party or
parties may have under applicable law, equity, this Agreement or otherwise.
Executive shall not, in any action or proceeding to enforce any of the
provisions of this Section 5, assert the claim or defense that an adequate
remedy at law exists. The prevailing party shall be entitled to recover its
legal fees and expenses in any action or proceeding for breach of this Section
5.
5.6 Company Property. All Confidential Information; all Innovations;
and all correspondence, files, documents, advertising, sales, manufacturers' and
other materials or articles or other information of any kind, in any media, form
or format furnished to Executive by the Company, which may not deemed
confidential, shall be and remain the sole property of the Company ("Company
Property"). Upon termination of Executive's employment or at the Company's
request, whichever is earlier, Executive shall immediately deliver to the
Company all such Company Property.
7
5.7 Public Policy/Severability. The parties do not wish to impose
any undue or unnecessary hardship upon Executive following his departure from
employment with PMIC and/or Encompass, as the case may be. The parties have
attempted to limit the provisions of this Section 5 to achieve such a result,
and the parties expressly intend that all provisions of this Section 5 be
construed to achieve such result. If, contrary to the effort and intent of the
parties, any covenant or other obligation contained in this Section 5 shall be
found not to be reasonably necessary for the protection of the Company, to be
unreasonable as to duration, scope or nature of restrictions, or to impose an
undue hardship on Executive, then it is the desire of the parties that such
covenant or obligation not be rendered invalid thereby, but rather that the
duration, scope or nature of the restrictions be deemed reduced or modified,
with retroactive effect, to render such covenant or obligation reasonable, valid
and enforceable. The parties further agree that in the event a court, despite
the efforts and intent of the parties, declares any portion of the covenants or
obligations in this Section 5 invalid, the remaining provisions of this Section
5 shall nonetheless remain valid and enforceable.
6. Termination.
6.1 Termination For Cause. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated immediately for "cause," at
which time the Company shall have no further obligations or liabilities to
Executive whether under this Agreement or otherwise and Executive's right to
further compensation and benefits hereunder (including, but not limited to,
unearned Shares) shall immediately cease, other than payment to Executive of
Base Salary accrued, and reimbursement of expenses incurred in accordance with
Section 4.5, prior to the effective date of termination of this Agreement (the
"Termination Date"). As used herein and throughout this Agreement, the term
"cause" shall mean (i) any act or omission by Executive that constitutes
malfeasance or misfeasance in the course of Executive's duties hereunder, or in
the objectively reasonable judgment of the Chief Executive Officer of ACT, the
Board of Directors of ACT, the Board or the PMIC CEO, Executive has been grossly
negligent (including habitual neglect of duties), or insubordinate in carrying
out his duties hereunder, (ii) a material breach of this Agreement by Executive
that is not cured within twenty (20) days of receipt of written notice thereof,
(iii) Executive's breach of a fiduciary duty owed to the Company or its
affiliates, or (iv) Executive's conviction of, or pleading nolo contendere to, a
criminal offense or crime constituting a misdemeanor or felony, or conviction in
respect to any act involving fraud, dishonesty or moral turpitude (other than
minor traffic infractions or similar minor offenses).
6.2 Termination without Cause.
(a) Without Cause. This Agreement may be terminated by the
Company without cause and for any reason or no reason prior to the expiration of
the Employment Period upon thirty (30) days' prior written notice from the
Company to the Executive.
8
(b) Severance. In the event that the Company terminates
Executive's employment without cause, the Company shall pay to Executive (i)
Base Salary accrued, Shares earned in accordance with Section 4.3, and expenses
incurred in accordance with Section 4.5, prior to the Termination Date, (ii) any
unpaid bonus owed to Executive for a prior fiscal year, (iii) other benefits
earned by Executive in accordance with Section 4.4 ((i), (ii) and (iii),
collectively, the "Accrued Payments"), which Accrued Payments shall be paid to
Executive in accordance with Section 4.1, Section 4.2, Section 4.3 and Section
4.5, as applicable, (iv) any accrued vacation under Section 4.6, and (v) an
additional amount of Base Salary which would have been payable to Executive
during the six (6) month period immediately following the Termination Date (the
"Severance Payment"), which Severance Payment shall be payable in cash to
Executive in equal monthly installments on the first business day of each
calendar month during the six (6) month period immediately following the
Termination Date. Except as provided in the preceding sentence, the Company
shall have no further obligations or liabilities to Executive whether under this
Agreement or otherwise and Executive's right to further compensation and
benefits hereunder (including, but not limited to, unearned Shares) shall
immediately cease.
6.3 Termination for Good Reason.
(a) Good Reason. Executive may terminate this Agreement for
Good Reason at any time within ninety (90) days after the Executive first has
actual knowledge of the occurrence of such Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean any of the following: (i) the
assignment to Executive of any duties that are not consistent with the duties
set forth in Sections 1 and 3 of this Agreement or any other action by the
Company that results in a material diminution in any of the Executive's
positions with the Company or in the Executive's authority, duties or
responsibilities and to which Executive has not consented (excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company within ten (10) days after receipt of
notice thereof given by Executive); (ii) any failure by the Company to comply
with any of the provisions of Section 4 of this Agreement provided such failure
is for an amount in excess of $10,000 and not cured within five (5) days after
receipt of notice thereof given by Executive or is an isolated, insubstantial
and inadvertent failure which is not remedied by the Company within ten (10)
days after receipt of notice thereof given by the Executive; (iii) the Company's
requiring Executive, without Executive's consent and full agreement, to be based
at any office other than at PMIC's headquarters located in Milpitas, California;
and (iv) any failure by the Company to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Encompass, ACT or PMIC to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
(b) Severance. In the event that Executive terminates this
Agreement for Good Reason, the Company shall pay to Executive the Severance
Payment in accordance with Section 6.2(b) of this Agreement. Except as provided
in the preceding sentence, the Company shall have no further obligations or
liabilities to Executive whether under this Agreement or otherwise and
Executive's right to further compensation and benefits hereunder (including, but
not limited to, unearned Shares) shall immediately cease.
9
6.4 Termination of Other Positions. Upon the Termination Date,
Executive hereby resigns as Chief Financial Officer and Chief Operating Officer
of PMIC and from any and all other positions as officer and/or director
Executive may then hold with the Company, and as fiduciary of any benefit plan
of the Company. Executive shall promptly execute any further reasonable
documentation as requested by the Company and, if Executive is to receive any
payments from the Company, execution of such further documentation shall be a
condition thereof.
7. Disability or Death.
7.1 Disability. If, during the Employment Period, Executive becomes
disabled or incapacitated as determined under the Company's Long Term Disability
Policy ("Permanently Disabled"), the Company shall have the right at any time
thereafter (but in no event less than 120 days after the event causing such
disability or incapacity), so long as Executive is then still Permanently
Disabled, to terminate this Agreement upon thirty (30) days' prior written
notice to Executive. In the event the Company does not have a Long Term
Disability Policy at the time of the event causing the Executive to become
Permanently Disabled, "Permanently Disabled" shall mean Executive's inability to
fully perform his duties and responsibilities hereunder to the full extent
required by the Company by reason of illness, injury or incapacity for 120
consecutive days or for more than six (6) months during any twelve (12) month
period. If the Company elects to terminate this Agreement in the event that
Executive becomes Permanently Disabled, the Company shall have no further
obligations or liabilities to Executive, whether under this Agreement or
otherwise (including, but not limited to, unearned Shares), other than payment
to Executive of the Accrued Payments, which Accrued Payments shall be paid to
Executive in accordance with Section 4.1, Section 4.2, Section 4.4 and Section
4.5, as applicable.
7.2 Death. If Executive dies during the Employment Period, this
Agreement shall automatically terminate as of the date of Executive's death, and
the Company shall have no further obligations or liabilities to Executive,
whether under this Agreement or otherwise (including, but not limited to,
unearned Shares), other than payment to Executive's estate of the Accrued
Payments, which Accrued Payments shall be paid to Executive in accordance with
Section 4.1, Section 4.2, Section 4.3 and Section 4.5, as applicable.
8. Dispute Resolution. If there shall be any dispute between the Company
and Executive (i) in the event of any termination of Executive's employment by
the Company, or (ii) otherwise arising out of this Agreement, such dispute shall
be resolved in accordance with the dispute resolution procedures set forth in
Exhibit B attached to this Agreement, the provisions of which are incorporated
as a part of this Agreement, and the parties of this Agreement agree that such
dispute resolution procedures will be the exclusive method for resolution of
disputes under this Agreement; provided, however, that (a) the Company or
Executive may seek preliminary judicial relief if, in such party's judgment,
such action is necessary to avoid irreparable injury during the pendency of such
procedures, and (b) nothing in Exhibit B will prevent either party from
exercising the rights of termination set forth in this Agreement. IT IS
EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS AGREEMENT, WHICH INCORPORATES BINDING
ARBITRATION, THE COMPANY AND EXECUTIVE AGREE TO WAIVE COURT OR JURY TRIAL
10
9. Indemnification. Each of the Company and Executive shall indemnify the
other for any losses, damages, liabilities, judgments, claims, costs, penalties
and expenses incurred by such other party (including, without limitation, costs
and reasonable attorneys' fees and costs), resulting from the indemnifying
party's failure to perform any of their respective obligations contained in this
Agreement.
10. Governing Law. This Agreement shall be governed by the internal laws
of the State of Delaware, without regard to its or any other jurisdiction's
conflict of laws principles. Any action to enforce any term hereof shall be
brought exclusively within the state or federal courts of Delaware to which
jurisdiction and venue all parties hereby submit themselves.
11. Binding Effect. Except as otherwise herein expressly provided, this
Agreement shall be binding upon, and shall inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors and assigns.
12. Assignment. Any assignee of the Company shall have the right to
enforce the restrictive covenants set forth in this Agreement, and the Company
shall have the right to assign this Agreement, including the right to enforce
such covenants to any successor or assign of the Company. Executive shall not
assign this Agreement or his rights and obligations hereunder.
13. Notices. All notices, designations, consents, offers, acceptances,
waivers or any other communication provided for herein, or required hereunder,
shall be sufficient if in writing and if sent by registered or certified mail,
return receipt requested, overnight courier, or delivered by hand or confirmed
facsimile transmission to (i) Executive at his last known address on the books
of the Company or (ii) the Company at its principal place of business.
14. Additional Documents. Each of the parties hereto agrees to execute and
deliver, without cost or expense to any other party, any and all such further
instruments or documents and to take any and all such further action reasonably
requested by such other of the parties hereto as may be necessary or convenient
in order to effectuate this Agreement and the intents and purposes thereof.
15. Counterparts. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and such counterparts may
be delivered by facsimile transmission, which facsimile copies shall be deemed
originals.
16. Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties and supersedes any and all prior
agreements, discussions, negotiations, commitments and understandings among the
parties hereto with respect to the subject matter hereof, including, without
limitation, that certain expired Letter of Intent, dated May 18, 2004, by and
among Executive, the Company and the other parties named therein. There are no
representations, agreements, arrangements or understandings, oral or written,
between or among the parties concerning the subject matter hereto, which are not
fully expressed herein or in any supplemental written agreements of even or
subsequent date hereof.
11
17. Severability. If any provision of this Agreement, or the application
thereof to any person or circumstances, shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
18. Modification. This Agreement cannot be changed, modified or discharged
orally, but only if consented to in writing by both parties.
19. Contract Headings. All headings of the Sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a part
of this Agreement, and shall in no way affect the interpretation of any of the
provisions of this Agreement.
20. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
21. Representation of Executive. Executive, with the full knowledge that
the Company is relying thereon, represents and warrants that he has not made any
commitment inconsistent with the provisions hereof and that he is not under any
disability which would prevent him from entering into this Agreement and
performing all of his obligations hereunder.
22. Joint Participation in Drafting. Each party to this Agreement
participated in the drafting of this Agreement. As such, the language used
herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any party to this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation
By: /s/ Martin Nielson
--------------------------------------
Name: Martin Nielson
Title: Chief Executive Officer
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
--------------------------------------
Name: Wayne I. Danson
Title: President
ENCOMPASS GROUP AFFILIATES, INC., a
Delaware corporation
By: /s/ Martin Nielson
--------------------------------------
Name: Martin Nielson
Title: Chief Executive Officer
EXECUTIVE:
/s/ Theodore S. Li
------------------------------------------
THEODORE S. LI
13
EXHIBIT A
DISPUTE RESOLUTION PROCEDURES
1. If a controversy arises that is covered by Section 8 of the Agreement,
then not later than twelve (12) months from the date of the event that is the
subject of dispute Executive or the Company may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds of the notice ("Notice of Controversy");
provided that, in any event, the other party will have at least thirty (30) days
from and after the date of the Notice of Controversy to serve a written notice
of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim will
specify the claim or claims in reasonably specific detail. If the Notice of
Controversy or the Notice of Counterclaim, as the case may be, is not served
within the applicable period, the claim set forth therein will be deemed to have
been waived, abandoned and rendered unenforceable.
2. For a three (3) week period following receipt of the Notice of
Controversy or the Notice of Counterclaim, as the case may be, the parties will
make a good faith effort to resolve the dispute through negotiation ("Period of
Negotiation"). Neither party will take any action during the Period of
Negotiation to initiate arbitration proceedings.
3. If the parties agree during the Period of Negotiation to mediate the
dispute, then the Period of Negotiation will be extended by an amount of time to
be agreed upon by the parties to permit such mediation. In no event, however,
may the Period of Negotiation be extended by more than five weeks or, stated
differently, in no event may the Period of Negotiation be extended to encompass
more than a total of eight weeks.
4. If the parties agree to mediate the dispute but are thereafter unable
to agree within a week on the format and procedures for the mediation, then the
effort to mediate will cease, and the period of Negotiation will terminate four
weeks from the Notice of Controversy or the Notice of Counterclaim, as the case
may be.
5. Following the termination of the Period of Negotiation, the dispute,
including the main claim and counterclaim, if any, will be settled by
arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss.1 et seq.
("FAA"), and judgment upon the award may be entered in any court having
jurisdiction. The format and procedures of the arbitration are set forth below
(referred to below as the "Arbitration Agreement").
6. A notice of intention to arbitrate ("Notice of Arbitration") will be
served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy or the Notice of Counterclaim, as
the case may be, will be deemed to have been waived, abandoned and rendered
unenforceable.
7. The arbitration, including the Notice of Arbitration, will be governed
by the Commercial Rules of the American Arbitration Association ("AAA") in
effect on the date of the Notice of Arbitration, except that the terms of this
Arbitration Agreement will control in the event of any difference or conflict
between such Rules and the terms of this Arbitration Agreement.
8. The arbitrator will reach a decision on the merits on the basis of
applicable legal principles as embodied in the law of the State of Delaware. The
arbitration hearing will take place in Delaware.
9. There will be one arbitrator, regardless of the amount in controversy.
The arbitrator selected, in order to be eligible to serve, will be a lawyer in
Delaware with at least fifteen (15) years experience specializing in either
general commercial litigation or general corporate and commercial matters. In
the event the parties cannot agree on a mutually acceptable single arbitrator
from the list submitted by the AAA, the AAA will appoint the arbitrator who will
meet the foregoing criteria.
10. At the time of appointment and as a condition of the appointment, the
arbitrator will be apprised of the time limitations and other provisions of this
Arbitration Agreement and will indicate such dispute resolver's agreement to the
Tribunal Administrator to comply with such provisions and time limitations.
11. During the thirty (30) day period following appointment of the
arbitrator, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven (7) days of the request.
12. Following the thirty-day period of document production, there will be
a forty-five (45) day period during which limited depositions will be
permissible. Neither party will take more than five (5) depositions, and no
deposition will exceed three (3) hours of direct testimony.
13. Disputes as to discovery or prehearing matters of a procedural nature
will be promptly submitted to the arbitrator pursuant to telephone conference
call or otherwise. The arbitrator will make every effort to render a ruling on
such interim matters at the time of the hearing (or conference call) or within
five (5) business days thereafter.
14. Following the period of depositions, the arbitration hearing will
promptly commence. The arbitrator will make every effort to commence the hearing
within thirty (30) days of the conclusion of the deposition period and, in
addition, will make every effort to conduct the hearing on consecutive business
days to conclusion.
15. An award will be rendered, at the latest, within nine (9) months of
the date of the Notice of Arbitration and within thirty (30) days of the close
of the arbitration hearing. The award will set forth the grounds for the
decision (findings of fact and conclusions of law) in reasonably specific
detail. The award will be final and nonappealable except as provided in the FAA
and except that a court of competent jurisdiction will have the power to review
whether, as a matter of law, based upon the findings of fact by the arbitrator,
the award should be confirmed or should be modified or vacated in order to
correct any errors of law made by the arbitrator. Such judicial review will be
limited to issues of law, and the parties agree that the findings of fact made
by the arbitrator will be final and binding on the parties and will serve as the
facts to be relied upon by the court in determining the extent to which the
award should be confirmed, modified or vacated.
Except for consequential damages arising from Executive's breach of
Section 5 of the Agreement, which shall not be limited, the award may only be
made for compensatory damages, and if any other damages (whether exemplary,
punitive, consequential, statutory or other) are included, the award will be
vacated and remanded, or modified or corrected, as appropriate to promote this
damage limitation.
Notwithstanding the foregoing, nothing contained herein shall limit the
Company's ability to seek a permanent injunction for Executive's breach of
Section 5 of the Agreement.
Exhibit F
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of this 30th day of
December 2004 ("Effective Date"), by and among Pacific Magtron International
Corp., a Nevada corporation ("PMIC"), Encompass Group Affiliates, Inc., a
Delaware corporation ("Encompass"), and Advanced Communications Technologies,
Inc., a Florida corporation ("ACT"), and Hui Cynthia Lee, an individual whose
address is _______________________________ ("Executive"). For purposes hereof,
the terms PMIC, Encompass and ACT shall include each of their respective
subsidiaries and PMIC, Encompass and ACT shall be referred to collectively
herein as the ("Company").
WITNESSETH
WHEREAS, Executive presently serves as a Director and as Secretary of PMIC
and is a shareholder of PMIC;
WHEREAS, ACT, Executive and certain other shareholders of PMIC have
entered into a Stock Purchase Agreement, pursuant to which ACT will purchase all
of the shares of common stock of PMIC owned by Executive and each such other
shareholder (the "Stock Purchase"); and
WHEREAS, it is a condition to the Stock Purchase that Executive enter into
this Agreement with the Company effective as of the Effective Date.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment. PMIC hereby employs Executive, and Executive hereby accepts
employment with PMIC, as Senior Vice President, or such other senior executive
position as may be determined by the Board of Directors of PMIC (the "Board")
from time to time during the Employment Period (as defined below). For purposes
of this Agreement, "senior executive position" shall mean a position of Vice
President or a more senior position.
2. Term; Renewal. The term of this Agreement shall commence on the
Effective Date and expire on the second anniversary thereof (the "Employment
Period"), unless earlier terminated in accordance with its terms; provided,
however, that the Employment Period may, by written agreement between the
parties hereto, be extended for an additional one-year period.
3. Employment and Duties.
3.1 Duties and Responsibilities.
(a) Executive's area of responsibility during the Employment
Period shall be that of Senior Vice President of PMIC. Executive shall directly
report to the Chief Executive Officer of PMIC (the "PMIC CEO"), or such other
senior executive officer of ACT or Encompass, as determined from time to time by
the Board or the PMIC CEO. The services to be rendered by Executive pursuant to
this Agreement shall consist of such services as defined and directed by the
Board or the PMIC CEO.
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(b) During the Employment Period, Executive shall serve the
Company faithfully and to the best of her ability; shall devote her entire
working time, attention, energy and skill to her employment and the benefit and
business of the Company; and shall use her best efforts, skills and ability to
promote the Company's interests and to perform such duties as from time to time
may be reasonably assigned to her and are consistent with her titles and
positions with the Company.
(c) During the Employment Period, in addition to any other
duties or responsibilities the Company may give to Executive consistent with
Section 1, Executive shall subject to Section 3.2 below be required to sign, and
shall sign, all certifications and such other documents or instruments requested
by the Board, the Chief Executive Officer of ACT, the Chief Executive Officer of
Encompass, or the PMIC CEO in connection with PMIC's and/or ACT's obligations
under or to (i) the Securities and Exchange Commission, (ii) any exchange or
association on which the Company's shares of capital stock are listed, (iii) any
federal, state or local authority, and/or (iv) any other governmental,
quasi-governmental or non-governmental entity or organization (foreign or
domestic) that regulates or has authority over PMIC and/or ACT. In addition, in
the event Executive, in her current position or in any position Executive
accepts in the future, becomes obligated to sign certifications and such other
documents or instruments as may be required by the rules and regulations
promulgated by any of (i) through (iv) above, Executive shall, subject to
Section 3.2 below, sign all such certifications and other documents or
instruments as required thereby.
3.2 Observance of Rules and Regulations. Executive agrees to observe
and comply with all applicable laws and regulations, as well as the rules and
regulations of the Company with respect to the performance of her duties.
4. Compensation; Benefits and Expenses.
4.1 Base Salary. As compensation for the services to be rendered
hereunder, during the Employment Period, the Company shall pay to Executive a
minimum annual base salary (the "Base Salary") of $120,000.00. The Base Salary
shall be payable in accordance with usual payroll practices of the Company.
Executive's Base Salary shall be reviewed annually by the Compensation Committee
of the Board (the "PMIC Compensation Committee") during the Employment Period
and may be increased, but not decreased, from time to time by the PMIC
Compensation Committee in its sole discretion.
4.2 Bonus.
(a) Within thirty (30) days after the Effective Date,
Executive shall receive a signing bonus in the amount of $225,000.
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(b) Immediately following each fiscal year, PMIC shall set
aside for the payment of PMIC executive bonuses, an amount equal to ten percent
(10%) of net income of PMIC during such fiscal year (the "PMIC Bonus Pool"). For
each fiscal year or portion thereof after the Effective Date and during the
Employment Period, PMIC shall pay to Executive an annual performance bonus, in
cash, equal to a portion of the PMIC Bonus Pool, as determined by the PMIC
Compensation Committee, in its sole discretion (the "PMIC Performance Bonus").
For purposes hereof, "net income" shall mean, with respect to PMIC, for any
fiscal year, the net income (loss) of PMIC for such fiscal year, determined in
accordance with generally accepted accounting principles, consistently applied;
provided, however, that there shall be excluded from net income (a) the net
income (loss) of any person in which PMIC has a joint interest with a third
party, except to the extent such net income is actually paid to PMIC by dividend
or other distribution during such fiscal year, (b) the net income (or loss) of
any person accrued prior to the date it becomes a subsidiary of PMIC or is
merged into or becomes consolidated with PMIC or its assets are purchased by
PMIC, and (c) the net income (if positive) of any subsidiary of PMIC to the
extent that the declaration or payment of dividends or similar distributions of
such net income by such subsidiary (i) is not at that time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order statute, rule or governmental regulation or (ii) would be subject
to any taxes payable on such dividends or distributions.
(c) In addition to the PMIC Performance Bonus, Executive may
receive, and ACT may grant to Executive, restricted shares of common stock of
ACT, with a vesting schedule and other terms established by the Compensation
Committee of the Board of Directors of ACT (the "ACT Compensation Committee"),
in its sole discretion (the "Incentive Bonus").
(d) Executive acknowledges that the amount of the PMIC
Performance Bonus and the amount of the Incentive Bonus shall at all times be
determined by the PMIC Compensation Committee and the ACT Compensation
Committee, respectively, in their respective sole discretion. PMIC shall pay
each of the Performance Bonus and the Incentive Bonus to Executive within thirty
(30) days after the Company's audited results for the applicable fiscal year are
delivered to the Company.
4.3 Earn-Out.
(a) Earn-Out Shares. In the event Pacific Magtron, Inc.
("PMI"), Pacific Magtron (GA), Inc. ("PMI-GA"), and LiveWarehouse, Inc. ("LW")
achieve the Milestones (as defined in Section 4.3 below) for any year during the
two (2) year period commencing January 1, 2005 and expiring December 31, 2006,
Executive shall have the right to receive on March 31 of the immediately
following calendar year, the applicable ratable portion of 33,333,333 shares of
restricted common stock of ACT (priced at $.01 per share, or $333,333 in the
aggregate), to be earned at the end of each such year at the rate of 50% for
3
each year (the "Shares"); provided, that in the event the Milestones are not
achieved in any year, except as provided below, such ratable portion of Shares
shall be forfeited entirely, without any ability to re-earn such Shares in a
future year; provided further, that in the event Executive's employment with
PMIC is terminated for "cause" by PMIC (as contemplated by Section 6.1 of this
Agreement) prior to the expiration of the initial Employment Period, all of the
Shares earned or to be earned by Executive shall be forfeited. In the event that
Executive's employment with PMIC is terminated prior to the expiration of the
initial Employment Period for any reason other than "cause," Executive shall be
permitted to receive the Shares earned by her prior to such termination, but
shall in no event be entitled to receive Shares to be earned after the
Termination Date (as defined in Section 6.1 below). Notwithstanding the
foregoing, the number of Shares and the price per Share shall be adjusted
accordingly for stock splits, reverse stock splits and other recapitalizations
effected by ACT, so that Executive retains the right to receive, after
accounting for such adjustment, the same percentage of ACT's outstanding shares
of Common Stock as Executive would have had the right to receive had such
adjustment not been so effected.
Upon earning the Shares at the end of each year, if applicable, the Shares will
be placed in escrow with a mutually agreeable escrow agent to be held and
released in accordance with the terms of an escrow agreement in substantially
the form of Exhibit "A" hereto; provided, however, that in the event that the
employment of Executive is terminated by PMIC prior to the expiration of the
initial Employment Period without cause (as contemplated by Section 6.2 of this
Agreement), Executive terminates this Agreement for Good Reason (as contemplated
by Section 6.3 of this Agreement), or this Agreement is terminated due to
Executive's death or Disability (as defined below), Executive shall receive any
Shares earned by her no later than the later of (a) the immediately following
March 31 or (b) thirty (30) days after the Termination Date. Upon release from
escrow, the Shares will include piggyback registration rights, subject to
customary underwriters' cutbacks.
Upon receipt of the Shares, Executive will acquire the Shares for her own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended. Executive is an "accredited
investor," as such term is defined in Rule 501(a) promulgated pursuant to the
Securities Act of 1933, as amended. Executive acknowledges that Executive has
had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning
the financial and other affairs of the Company, and to the extent deemed
necessary in light of such personal knowledge of the Company's affairs,
Executive has asked such questions and received answers to the full satisfaction
of Executive. Executive understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares or the fairness of suitability of
the investment in the Shares nor have such authorities passed upon or endorsed
the merits of the offering of the Shares.
Notwithstanding the foregoing, in the event that the Milestones are not achieved
in a given year, the Board of Directors of ACT shall have the right, in its sole
and absolute discretion, to grant to Executive all or a portion of the Shares
that could have been earned by Executive during such year.
(b) Milestones. Revenue and EBITDA (earnings before interest,
depreciation, taxes and amortization) herein shall be defined according to
generally accepted accounting principles and no allocation from PMIC, ACT or
Encompass overhead shall be included in the calculation of EBITDA. The
Milestones for the combined Revenues and EBITDA of PMI, PMI-GA and LW are:
4
Calendar Year End Revenues EBITDA
----------------- -------- ------
December 31, 2005 $70,000,000 $490,000
December 31, 2006 $82,000,000 $738,000
Notwithstanding anything contained herein to the contrary, the
determination of the Milestones shall be based on unaudited pro forma financial
statements of PMI, PMI-GA and LW, prepared by the management of PMIC and
approved by Executive, the Chief Executive Officer of ACT and the ACT
Compensation Committee.
4.4 Other Benefits. Executive shall also be eligible to participate
in any life and health insurance programs and any incentive, savings and
retirement plans that the Company makes available to all of its executives of
similar seniority. Executive shall also be eligible to receive discretionary
performance based bonuses as approved and authorized by the ACT Compensation
Committee, including any incentive stock programs approved by ACT's
shareholders.
4.5 Business Expenses. Executive will be reimbursed, in accordance
with the Company's expense reimbursement policy, for business expenses that have
been pre-approved by the Board or the PMIC CEO upon presentation of vouchers or
other documents reasonably necessary to verify the expenditures and sufficient,
in form and substance, to satisfy Internal Revenue Service requirements for such
expenses.
4.6 Vacation. Executive shall be entitled to take up to four (4)
weeks of vacation per calendar year, which shall be taken in accordance with the
Company's vacation policy in effect from time to time for executives of
comparable seniority.
5. No Competitive Activities; Confidentiality; Invention
5.1 General Restriction. During the Employment Period and for a
period of two (2) years thereafter (the "Restricted Period"), Executive
covenants and agrees that, except on behalf of the Company, she will not,
directly or indirectly:
(a) Competing Business. Own, manage, operate, control,
participate in the ownership, management, operation or control of, be employed
by, or provide services as a consultant to, any individual or business that is
involved in business activities that are the same as, similar to or in
competition with, directly or indirectly, any business activities conducted, or
actively being planned, by Encompass and/or PMIC during the Restricted Period
anywhere in the United States and Canada (it being acknowledged that Encompass'
and/or PMIC's businesses are international in scope). The ownership of less than
one percent (1%) of the outstanding stock of any public corporation shall not be
deemed a violation of this provision.
(b) Soliciting Customers. Attempt in any manner to contact or
solicit any individual, firm, corporation or other entity (i) that is or has
been, a customer of Encompass and/or PMIC at any time during the Restricted
Period, (ii) to which a proposal has been made by Encompass and/or PMIC during
the Restricted Period or (iii) appearing on Encompass' and/or PMIC's new
business target list on the date of Executive's termination (as such list has
been prepared and maintained in accordance with Encompass' and/or PMIC's past
practice), for the purpose of providing services or products similar to the
services and products provided by Encompass and/or PMIC, or engaging in any
activity which could be, directly or indirectly, competitive with the business
of Encompass and/or PMIC.
5
(c) Interfering with Other Relations. Persuade or attempt to
persuade any supplier, vendor, licensor or other entity or individual doing
business with Encompass and/or PMIC to discontinue or reduce its business with
Encompass and/or PMIC or otherwise interfere in any way with the business
relationships and activities of Encompass and/or PMIC.
(d) Employees. Attempt in any manner to solicit any
individual, who is at the time of such attempted solicitation, or was at any
time during the one (1) year period preceding the termination of Executive's
employment, an employee or consultant of Encompass and/or PMIC, to terminate his
or her employment or relationship with Encompass and/or PMIC, or engage such
individual, as an employee or consultant. Cooperate with any other person in
persuading, enticing or aiding, or attempting to persuade, entice or aid, any
employee of or consultant to Encompass and/or PMIC to terminate his or her
employment or business relationship with Encompass and/or PMIC, or to become
employed as an employee or retained as a consultant by any person other than
Encompass and/or PMIC.
In the event of a voluntary or involuntary filing under Chapter 7 of the United
States Bankruptcy Code by PMIC and Encompass that is not dismissed within ninety
(90) days, Executive shall no longer be bound by the restrictions contained in
this Section 5.1.
5.2 Confidentiality Agreement. Executive shall not, either during
the Employment Period or at any time thereafter, use or disclose to any third
person any Confidential Information (as defined below) of the Company, other
than at the direction of the Company, or pursuant to a court order or subpoena,
provided that Executive will give notice of such court order or subpoena to the
Company prior to such disclosure. Upon the termination of Executive's employment
with the Company for any reason, Executive shall return any notes, records,
charts, formulae or other materials (whether in hard copy or computer readable
form) containing Confidential Information (as defined below), and will not make
or retain any copies of such materials. Without limiting the generality of the
foregoing, the parties acknowledge that the Company from time to time may be
subject to agreements with its customers, suppliers or licensors to maintain the
confidence of such other persons' confidential information. The terms of such
agreements may require that the Company's employees, including Executive, be
bound by such agreements, and Executive shall be deemed so bound upon notice to
her of the terms of such agreements. The term "Confidential Information" as used
herein shall mean any confidential or proprietary information of the Company
whether of a technical, engineering, operational, financial or economic nature,
including, without limitation, all prices, discounts, terms and conditions of
sale, trade secrets, know-how, customers, inventions, business affairs or
practices, systems, products, product specifications, designs, plans,
manufacturing and other processes, data, ideas, details and other information of
6
the Company. Confidential Information shall not include information which can be
proven by Executive to have been developed by her own work as of the Effective
Date completely independent of its disclosure by the Company or which is in the
public domain, provided such information did not become available to the general
public as a result of Executive's breach of this Section 5.2.
5.3 Disclosure of Innovations. Executive shall make prompt and full
written disclosure to the Company and solely the Company of all writings,
inventions, processes, methods, plans, developments, improvements, procedures,
techniques and other innovations of any kind that Executive may make, develop or
reduce to practice, alone or jointly with others, at any time during the
Employment Period, whether during working hours or at any other time and whether
at the request or upon the suggestion of the Company or otherwise, and whether
or not they are eligible for patent, copyright, trademark, trade secret or other
legal protection (collectively, "Innovations"). Examples of Innovations shall
include, but are not limited to, discoveries, research, formulas, tools,
know-how, marketing plans, new product plans, production processes, advertising,
packaging and marketing techniques and improvements to computer hardware or
software. The written disclosures provided for herein shall be made to the PMIC
CEO or the Board.
5.4 Assignment of Ownership of Innovations. All Innovations shall be
the sole and exclusive property of the Company. Executive hereby assigns all
rights, title or interest in and to the Innovations to the Company. At the
Company's request and expense, during the Employment Period and at any time
thereafter, Executive will assist and cooperate with the Company in all respects
and will execute documents and give testimony to obtain, maintain, perfect and
enforce for the Company any and all patent, copyright, trademark, trade secret
and other legal protections for the Innovations.
5.5 Remedies. Executive acknowledges that the restrictions contained
in the foregoing Sections 5.1 through 5.4, in view of the nature of the business
in which the Company is engaged, are reasonable and necessary in order to
protect the legitimate interests of the Company, and that the legal remedies for
a breach of any of the provisions of this Section 5 will be inadequate and that
such provisions may be enforced by restraining order, injunction, specific
performance or other equitable relief. Such equitable remedies shall be
cumulative and in addition to any other remedies which the injured party or
parties may have under applicable law, equity, this Agreement or otherwise.
Executive shall not, in any action or proceeding to enforce any of the
provisions of this Section 5, assert the claim or defense that an adequate
remedy at law exists. The prevailing party shall be entitled to recover its
legal fees and expenses in any action or proceeding for breach of this Section
5.
5.6 Company Property. All Confidential Information; all Innovations;
and all correspondence, files, documents, advertising, sales, manufacturers' and
other materials or articles or other information of any kind, in any media, form
or format furnished to Executive by the Company, which may not deemed
confidential, shall be and remain the sole property of the Company ("Company
Property"). Upon termination of Executive's employment or at the Company's
request, whichever is earlier, Executive shall immediately deliver to the
Company all such Company Property.
5.7 Public Policy/Severability. The parties do not wish to impose
any undue or unnecessary hardship upon Executive following her departure from
employment with PMIC and/or Encompass, as the case may be. The parties have
7
attempted to limit the provisions of this Section 5 to achieve such a result,
and the parties expressly intend that all provisions of this Section 5 be
construed to achieve such result. If, contrary to the effort and intent of the
parties, any covenant or other obligation contained in this Section 5 shall be
found not to be reasonably necessary for the protection of the Company, to be
unreasonable as to duration, scope or nature of restrictions, or to impose an
undue hardship on Executive, then it is the desire of the parties that such
covenant or obligation not be rendered invalid thereby, but rather that the
duration, scope or nature of the restrictions be deemed reduced or modified,
with retroactive effect, to render such covenant or obligation reasonable, valid
and enforceable. The parties further agree that in the event a court, despite
the efforts and intent of the parties, declares any portion of the covenants or
obligations in this Section 5 invalid, the remaining provisions of this Section
5 shall nonetheless remain valid and enforceable.
6. Termination.
6.1 Termination For Cause. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated immediately for "cause," at
which time the Company shall have no further obligations or liabilities to
Executive whether under this Agreement or otherwise and Executive's right to
further compensation and benefits hereunder (including, but not limited to,
unearned Shares) shall immediately cease, other than payment to Executive of
Base Salary accrued, and reimbursement of expenses incurred in accordance with
Section 4.5, prior to the effective date of termination of this Agreement (the
"Termination Date"). As used herein and throughout this Agreement, the term
"cause" shall mean (i) any act or omission by Executive that constitutes
malfeasance or misfeasance in the course of Executive's duties hereunder, or in
the objectively reasonable judgment of the Chief Executive Officer of ACT, the
Board of Directors of ACT, the Board or the PMIC CEO, Executive has been grossly
negligent (including habitual neglect of duties), incompetent or insubordinate
in carrying out her duties hereunder, (ii) a material breach of this Agreement
by Executive that is not cured within twenty (20) days of receipt of written
notice thereof, (iii) Executive's breach of a fiduciary duty owed to PMIC or its
affiliates, or (iv) Executive's conviction of, or pleading nolo contendere to, a
criminal offense or crime constituting a misdemeanor or felony, or conviction in
respect to any act involving fraud, dishonesty or moral turpitude (other than
minor traffic infractions or similar minor offenses).
6.2 Termination without Cause.
(a) Without Cause. This Agreement may be terminated by PMIC
without cause and for any reason or no reason prior to the expiration of the
Employment Period upon thirty (30) days' prior written notice from PMIC to the
Executive.
(b) Severance. In the event that PMIC terminates Executive's
employment without cause, PMIC shall pay to Executive (i) Base Salary accrued,
Shares earned in accordance with Section 4.3, and expenses incurred in
accordance with Section 4.5, prior to the Termination Date, (ii) any unpaid
bonus owed to Executive for a prior fiscal year, (iii) other benefits earned by
Executive in accordance with Section 4.4 ((i), (ii) and (iii), collectively, the
8
"Accrued Payments"), which Accrued Payments shall be paid to Executive in
accordance with Section 4.1, Section 4.2, Section 4.3 and Section 4.5, as
applicable, (iv) any accrued vacation under Section 4.6, and (v) an additional
amount of Base Salary which would have been payable to Executive during the six
(6) month period immediately following the Termination Date (the "Severance
Payment"), which Severance Payment shall be payable in cash to Executive in
equal monthly installments on the first business day of each calendar month
during the six (6) month period immediately following the Termination Date.
Except as provided in the preceding sentence, the Company shall have no further
obligations or liabilities to Executive whether under this Agreement or
otherwise and Executive's right to further compensation and benefits hereunder
(including, but not limited to, unearned Shares) shall immediately cease.
6.3 Termination for Good Reason.
(a) Good Reason. Executive may terminate this Agreement for
Good Reason at any time within ninety (90) days after the Executive first has
actual knowledge of the occurrence of such Good Reason. For purposes of this
Agreement, the term "Good Reason" shall mean any of the following: (i) the
assignment to Executive of any duties that are not consistent with the duties
set forth in Sections 1 and 3 of this Agreement or any other action by the
Company that results in a material diminution in any of the Executive's
positions with the Company or in the Executive's authority, duties or
responsibilities and to which Executive has not consented (excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company within ten (10) days after receipt of
notice thereof given by Executive); (ii) any failure by the Company to comply
with any of the provisions of Section 4 of this Agreement provided such failure
is for an amount in excess of $10,000 and not cured within five (5) days after
receipt of notice thereof given by Executive or is an isolated, insubstantial
and inadvertent failure which is not remedied by the Company within ten (10)
days after receipt of notice thereof given by the Executive; (iii) the Company's
requiring Executive, without Executive's consent and full agreement, to be based
at any office other than at PMIC's headquarters located in Milpitas, California;
and (iv) any failure by the Company to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Encompass, ACT or PMIC to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
(b) Severance. In the event that Executive terminates this
Agreement for Good Reason, the Company shall pay to Executive the Severance
Payment in accordance with Section 6.2(b) of this Agreement. Except as provided
in the preceding sentence, the Company shall have no further obligations or
liabilities to Executive whether under this Agreement or otherwise and
Executive's right to further compensation and benefits hereunder (including, but
not limited to, unearned Shares) shall immediately cease.
6.4 Termination of Other Positions. Upon the Termination Date,
Executive hereby resigns as Senior Vice President of PMIC and from any and all
other positions as officer and/or director Executive may then hold with the
Company, and as fiduciary of any benefit plan of the Company. Executive shall
promptly execute any further documentation as requested by PMIC and, if
Executive is to receive any payments from PMIC, execution of such further
documentation shall be a condition thereof.
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7. Disability or Death.
7.1 Disability. If, during the Employment Period, Executive becomes
disabled or incapacitated as determined under PMIC's Long Term Disability Policy
("Permanently Disabled"), the Company shall have the right at any time
thereafter (but in no event less than 120 days after the event causing such
disability or incapacity), so long as Executive is then still Permanently
Disabled, to terminate this Agreement upon thirty (30) days' prior written
notice to Executive. In the event PMIC does not have a Long Term Disability
Policy at the time of the event causing the Executive to become Permanently
Disabled, "Permanently Disabled" shall mean Executive's inability to fully
perform her duties and responsibilities hereunder to the full extent required by
PMIC by reason of illness, injury or incapacity for 120 consecutive days or for
more than six (6) months during any twelve (12) month period. If PMIC elects to
terminate this Agreement in the event that Executive becomes Permanently
Disabled, the Company shall have no further obligations or liabilities to
Executive, whether under this Agreement or otherwise (including, but not limited
to, unearned Shares), other than payment to Executive of the Accrued Payments,
which Accrued Payments shall be paid to Executive in accordance with Section
4.1, Section 4.2, Section 4.4 and Section 4.5, as applicable.
7.2 Death. If Executive dies during the Employment Period, this
Agreement shall automatically terminate as of the date of Executive's death, and
the Company shall have no further obligations or liabilities to Executive,
whether under this Agreement or otherwise (including, but not limited to,
unearned Shares), other than payment by PMIC to Executive's estate of the
Accrued Payments, which Accrued Payments shall be paid to Executive in
accordance with Section 4.1, Section 4.2, Section 4.3 and Section 4.5, as
applicable.
8. Dispute Resolution. If there shall be any dispute between the Company
and Executive (i) in the event of any termination of Executive's employment by
the Company, or (ii) otherwise arising out of this Agreement, such dispute shall
be resolved in accordance with the dispute resolution procedures set forth in
Exhibit B attached to this Agreement, the provisions of which are incorporated
as a part of this Agreement, and the parties of this Agreement agree that such
dispute resolution procedures will be the exclusive method for resolution of
disputes under this Agreement; provided, however, that (a) the Company or
Executive may seek preliminary judicial relief if, in such party's judgment,
such action is necessary to avoid irreparable injury during the pendency of such
procedures, and (b) nothing in Exhibit B will prevent either party from
exercising the rights of termination set forth in this Agreement. IT IS
EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS AGREEMENT, WHICH INCORPORATES BINDING
ARBITRATION, THE COMPANY AND EXECUTIVE AGREE TO WAIVE COURT OR JURY TRIAL.
9. Indemnification. Each of the Company and Executive shall indemnify the
other for any losses, damages, liabilities, judgments, claims, costs, penalties
and expenses incurred by such other party (including, without limitation, costs
and reasonable attorneys' fees and costs), resulting from the indemnifying
party's failure to perform any of their respective obligations contained in this
Agreement.
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10. Governing Law. This Agreement shall be governed by the internal laws
of the State of Delaware, without regard to its or any other jurisdiction's
conflict of laws principles. Any action to enforce any term hereof shall be
brought exclusively within the state or federal courts of Delaware to which
jurisdiction and venue all parties hereby submit themselves.
11. Binding Effect. Except as otherwise herein expressly provided, this
Agreement shall be binding upon, and shall inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors and assigns.
12. Assignment. Any assignee of the Company shall have the right to
enforce the restrictive covenants set forth in this Agreement, and the Company
shall have the right to assign this Agreement, including the right to enforce
such covenants to any successor or assign of the Company. Executive shall not
assign this Agreement or her rights and respective obligations hereunder.
13. Notices. All notices, designations, consents, offers, acceptances,
waivers or any other communication provided for herein, or required hereunder,
shall be sufficient if in writing and if sent by registered or certified mail,
return receipt requested, overnight courier, or delivered by hand or confirmed
facsimile transmission to (i) Executive at her last known address on the books
of PMIC or (ii) PMIC at its principal place of business.
14. Additional Documents. Each of the parties hereto agrees to execute and
deliver, without cost or expense to any other party, any and all such further
instruments or documents and to take any and all such further action reasonably
requested by such other of the parties hereto as may be necessary or convenient
in order to effectuate this Agreement and the intents and purposes thereof.
15. Counterparts. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and such counterparts may
be delivered by facsimile transmission, which facsimile copies shall be deemed
originals.
16. Entire Agreement. This Agreement contains the sole and entire
agreement and understanding of the parties and supersedes any and all prior
agreements, discussions, negotiations, commitments and understandings among the
parties hereto with respect to the subject matter hereof, including, without
limitation, that certain expired Letter of Intent, dated May 18, 2004, by and
among Executive, the Company and the other parties named therein. There are no
representations, agreements, arrangements or understandings, oral or written,
between or among the parties concerning the subject matter hereto, which are not
fully expressed herein or in any supplemental written agreements of even or
subsequent date hereof.
17. Severability. If any provision of this Agreement, or the application
thereof to any person or circumstances, shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
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18. Modification. This Agreement cannot be changed, modified or discharged
orally, but only if consented to in writing by both parties.
19. Contract Headings. All headings of the Sections of this Agreement have
been inserted for convenience of reference only, are not to be considered a part
of this Agreement, and shall in no way affect the interpretation of any of the
provisions of this Agreement.
20. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
21. Representation of Executive. Executive, with the full knowledge that
the Company is relying thereon, represents and warrants that she has not made
any commitment inconsistent with the provisions hereof and that she is not under
any disability which would prevent him from entering into this Agreement and
performing all of her obligations hereunder.
22. Joint Participation in Drafting. Each party to this Agreement
participated in the drafting of this Agreement. As such, the language used
herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any party to this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation
By: /s/ Martin Nielson
------------------------------------------
Name: Martin Nielson
Title: Chief Executive Officer
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
------------------------------------------
Name: Wayne I. Danson
Title: President
ENCOMPASS GROUP AFFILIATES, INC., a
Delaware corporation
By: /s/ Martin Nielson
------------------------------------------
Name: Martin Nielson
Title: Chief Executive Officer
EXECUTIVE:
/s/ Hui Cynthia Lee
----------------------------------------------
HUI CYNTHIA LEE
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EXHIBIT A
DISPUTE RESOLUTION PROCEDURES
1. If a controversy arises that is covered by Section 8 of the Agreement,
then not later than twelve (12) months from the date of the event that is the
subject of dispute Executive or the Company may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds of the notice ("Notice of Controversy");
provided that, in any event, the other party will have at least thirty (30) days
from and after the date of the Notice of Controversy to serve a written notice
of any counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim will
specify the claim or claims in reasonably specific detail. If the Notice of
Controversy or the Notice of Counterclaim, as the case may be, is not served
within the applicable period, the claim set forth therein will be deemed to have
been waived, abandoned and rendered unenforceable.
2. For a three (3) week period following receipt of the Notice of
Controversy or the Notice of Counterclaim, as the case may be, the parties will
make a good faith effort to resolve the dispute through negotiation ("Period of
Negotiation"). Neither party will take any action during the Period of
Negotiation to initiate arbitration proceedings.
3. If the parties agree during the Period of Negotiation to mediate the
dispute, then the Period of Negotiation will be extended by an amount of time to
be agreed upon by the parties to permit such mediation. In no event, however,
may the Period of Negotiation be extended by more than five weeks or, stated
differently, in no event may the Period of Negotiation be extended to encompass
more than a total of eight weeks.
4. If the parties agree to mediate the dispute but are thereafter unable
to agree within a week on the format and procedures for the mediation, then the
effort to mediate will cease, and the period of Negotiation will terminate four
weeks from the Notice of Controversy or the Notice of Counterclaim, as the case
may be.
5. Following the termination of the Period of Negotiation, the dispute,
including the main claim and counterclaim, if any, will be settled by
arbitration, governed by the Federal Arbitration Act, 9 U.S.C. ss.1 et seq.
("FAA"), and judgment upon the award may be entered in any court having
jurisdiction. The format and procedures of the arbitration are set forth below
(referred to below as the "Arbitration Agreement").
6. A notice of intention to arbitrate ("Notice of Arbitration") will be
served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy or the Notice of Counterclaim, as
the case may be, will be deemed to have been waived, abandoned and rendered
unenforceable.
7. The arbitration, including the Notice of Arbitration, will be governed
by the Commercial Rules of the American Arbitration Association ("AAA") in
effect on the date of the Notice of Arbitration, except that the terms of this
Arbitration Agreement will control in the event of any difference or conflict
between such Rules and the terms of this Arbitration Agreement.
8. The arbitrator will reach a decision on the merits on the basis of
applicable legal principles as embodied in the law of the State of Delaware. The
arbitration hearing will take place in Delaware.
9. There will be one arbitrator, regardless of the amount in controversy.
The arbitrator selected, in order to be eligible to serve, will be a lawyer in
Delaware with at least fifteen (15) years experience specializing in either
general commercial litigation or general corporate and commercial matters. In
the event the parties cannot agree on a mutually acceptable single arbitrator
from the list submitted by the AAA, the AAA will appoint the arbitrator who will
meet the foregoing criteria.
10. At the time of appointment and as a condition of the appointment, the
arbitrator will be apprised of the time limitations and other provisions of this
Arbitration Agreement and will indicate such dispute resolver's agreement to the
Tribunal Administrator to comply with such provisions and time limitations.
11. During the thirty (30) day period following appointment of the
arbitrator, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven (7) days of the request.
12. Following the thirty-day period of document production, there will be
a forty-five (45) day period during which limited depositions will be
permissible. Neither party will take more than five (5) depositions, and no
deposition will exceed three (3) hours of direct testimony.
13. Disputes as to discovery or prehearing matters of a procedural nature
will be promptly submitted to the arbitrator pursuant to telephone conference
call or otherwise. The arbitrator will make every effort to render a ruling on
such interim matters at the time of the hearing (or conference call) or within
five (5) business days thereafter.
14. Following the period of depositions, the arbitration hearing will
promptly commence. The arbitrator will make every effort to commence the hearing
within thirty (30) days of the conclusion of the deposition period and, in
addition, will make every effort to conduct the hearing on consecutive business
days to conclusion.
15. An award will be rendered, at the latest, within nine (9) months of
the date of the Notice of Arbitration and within thirty (30) days of the close
of the arbitration hearing. The award will set forth the grounds for the
decision (findings of fact and conclusions of law) in reasonably specific
detail. The award will be final and nonappealable except as provided in the FAA
and except that a court of competent jurisdiction will have the power to review
whether, as a matter of law, based upon the findings of fact by the arbitrator,
the award should be confirmed or should be modified or vacated in order to
correct any errors of law made by the arbitrator. Such judicial review will be
limited to issues of law, and the parties agree that the findings of fact made
by the arbitrator will be final and binding on the parties and will serve as the
facts to be relied upon by the court in determining the extent to which the
award should be confirmed, modified or vacated.
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Except for consequential damages arising from Executive's breach of
Section 5 of the Agreement, which shall not be limited, the award may only be
made for compensatory damages, and if any other damages (whether exemplary,
punitive, consequential, statutory or other) are included, the award will be
vacated and remanded, or modified or corrected, as appropriate to promote this
damage limitation.
Notwithstanding the foregoing, nothing contained herein shall limit the
Company's ability to seek a permanent injunction for Executive's breach of
Section 5 of the Agreement.
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