AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 30,
2000, by and among Applied Digital Solutions, Inc., a Missouri corporation
("ADS"), Compec Acquisition Corp., a Delaware corporation ("Compec Acquisition
Corp." together with ADS, "Buyers"), and Computer Equity Corporation, a Delaware
corporation ("Compec"), and Xxxx X. Xxxxxxxxx ("X. Xxxxxxxxx"), Xxxxxxxxxxx X.
Xxxxxxxxx ("X. Xxxxxxxxx") and Xxxxxxxxx X. Xxxxxxxx ("Xxxxxxxx") and (each a
"Principal Stockholder" and collectively the "Principal Stockholders").
W I T N E S S E T H:
WHEREAS, Compec, and its wholly owned subsidiaries, BALVA Financial
Corp., a Virginia corporation ("Balva"), Government Telecommunications, Inc., a
Maryland corporation ("GTI"), Federal Services, Inc., a Delaware corporation
("FSI"), Federal Convention Contractors, Inc., a Delaware corporation ("FCC")
and Digital Highway, Inc., a Virginia corporation ("DHI", and together with
Compec, Balva, GTI, FSI and FCC, the "Company"), are primarily engaged in the
business of providing telecommunication services to governments and other
entities (the "Business");
WHEREAS, the parties hereto wish to provide for the terms and
conditions on which a merger of Compec into Compec Acquisition Corp. would be
consummated and for the consideration described in this Agreement; and
WHEREAS, the parties intend the merger to qualify as a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
THE MERGER
1.01. The Merger.
(a) Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.01(b)), Compec shall be merged with
and into Compec Acquisition Corp. in accordance with the General Corporation Law
of the State of Delaware ("Delaware Corporation Law") (such merger is defined
herein as the "Merger") and in the following manner:
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(i) The board of directors of each of ADS, Compec
Acquisition Corp. and Compec shall have adopted a resolution approving and
declaring the advisability of the Merger and this Agreement;
(ii) The stockholders of Compec (the "Compec Stockholders"
or the "Stockholders") shall approve this Agreement and the Merger by the
requisite corporate vote or consent;
(iii) ADS, as the sole stockholder of Compec Acquisition
Corp., shall approve this Agreement and the Merger by written consent, it being
understood by the sole stockholder of Compec Acquisition Corp. that the
execution of this Agreement shall constitute its irrevocable written consent to
and approval of the foregoing matters; and
(iv) The Certificate of Merger (as defined below) shall be
filed by the Surviving Company (as defined below) with the Secretary of State of
the State of Delaware in accordance with the Delaware Corporation Law.
Following the Merger, the separate corporate existence of
Compec shall cease and Compec Acquisition Corp. shall continue as the surviving
corporation (the "Surviving Company").
(b) The Merger shall become effective on the day and at the
time specified in the Certificate of Merger filed with the Secretary of State of
the State of Delaware in such form as is required by (and attached hereto as
Exhibit 1.01(b)) and executed in accordance with the relevant provisions of the
Delaware Corporation Law (the "Certificate of Merger") (the time specified in
the Certificate of Merger being the "Effective Time"). The Effective Time shall
occur on the Closing Date.
(c) At the Effective Time, the effect of the Merger shall be
as provided in the applicable provisions of the Delaware Corporation Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Compec shall vest in the Surviving Company, and all liabilities and duties of
Compec Acquisition Corp. shall become the liabilities and duties of the
Surviving Company.
1.02. The Closing.
(a) Subject to the terms of this Agreement, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the law
offices of Merra, Kanakis, Creme & Xxxxxx, P.C., commencing at 11:00 a.m.
(Eastern time) on June 30, 2000, or at such other time and/or place and/or on
such other date as the parties may mutually agree such date to be not later than
the date that all third party consents are received (the "Closing Date").
Notwithstanding the foregoing, for purposes of allocating in financial
statements profits and/or losses of the Company only, the effective date for
change of control shall be deemed to be June 1, 2000.
(b) At the Closing, Buyers shall pay and deliver to the Compec
Stockholders or the agent on behalf of the Compec Stockholders:
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(i) the Closing Cash Payment (as defined in Section
1.05(a)(ii));
(ii) the Closing Stock Payment (as defined in Section
1.05(a)(i));
(iii) the Buyers' Certificate referred to in Section 5.01;
(iv) the Employment Agreements;
(v) a certified copy of the certificate of incorporation
of ADS and a good standing certificate for ADS issued by the Secretary of State
of the State of Missouri; and
(vi) such other instruments and documents, in form and
substance reasonably acceptable to the Stockholders' Representative, as may be
necessary to effect the Closing.
(c) At the Closing, the Stockholders' Representative shall
deliver to Buyers:
(i) the Stockholders' Certificate referred to in Section
6.01;
(ii) the Employment Agreements;
(iii) the corporate minute books and stock books for the
Company;
(iv) a certified copy of the certificate of incorporation
of Compec and a good standing certificate for Compec issued by the Secretary of
State of the State of Delaware;
(v) certified copies of the certificates of incorporation
and good standing certificates for each of the Compec wholly owned subsidiaries
issued by each respective state of incorporation; and
1.03. Conversion of Stock; At the Effective Time.
(a) Compec Stock. Each share of common stock, par value $0.01
per share, of Compec (the "Compec Stock") issued and outstanding prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and converted into the right to receive the
Merger Consideration as determined in accordance with Section 1.05.
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(b) Shares of Compec Acquisition Corp. Each share of common
stock of Compec Acquisition Corp. issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and represent one share of common
stock of the Surviving Company.
1.04. Effect of Conversion.
(a) No Further Rights or Transfers. At and after the Effective
Time, each Compec Stockholder shall cease to have either any rights or claims
against Compec as a stockholder of Compec except as provided in Section 1.03(a).
(b) Certificate of Incorporation of the Surviving Company. At
the Effective Time, the Certificate of Incorporation of Compec Acquisition Corp.
as in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Company.
(c) Bylaws of the Surviving Company. At the Effective Time,
the Bylaws of Compec Acquisition Corp., as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Company.
1.05. Merger Consideration.
(a) The "Merger Consideration" subject to adjustment as set
forth in Section 1.06, shall consist of the Closing Stock Payment, the Closing
Cash Payment, the First Earnout Payment and the Second Earnout Payment, each
such amount divided by the number of shares of Compec Stock issued and
outstanding as of the Closing Date, and each as hereinafter defined as follows:
(i) The "Closing Stock Payment" shall mean such number of
shares of ADS Common Stock equal in value to $15,662,000, minus such number of
shares that are payable by Compec to its broker as set forth on Schedule 2.15.
The per share valuation price (the "Closing Valuation Price") of the ADS Common
Stock shall be equal to the average closing price for the 10 consecutive
business days ending the business day immediately prior to the Closing Date, as
published in The Wall Street Journal, Eastern Edition. The Buyers shall pay the
Closing Stock Payment to the Compec Stockholders on the Closing Date.
(ii) The "Closing Cash Payment" shall mean (x) such amount
of cash equal to the amount of reconciled cash and cash equivalents held by the
Company on the Closing Date, as reflected on the Company's balance sheet at
Closing, minus (y) $400,000. In no event shall ADS pay the Closing Cash Payment
from assets held by the Company prior to the Closing Date. The Buyers shall pay
the Closing Cash Payment to the Compec Stockholders on the Closing Date.
(iii) On the earlier of (i) September 30, 2001, and (ii)
the date 10 business days after the date on which the financial statements (the
"Earnout Financials") of the Surviving Company for the 12 month period
commencing July 1, 2000 and ending June 30, 2001 (the "First Earnout Period")
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are completed and have been subjected to certain "Agreed Upon Procedures" as
hereinafter defined, by independent accountants retained by ADS, ADS shall
deliver a second payment (the "First Earnout Payment"). The date upon which the
First Earnout Payment is required to be delivered by ADS to the Compec
Stockholders shall be referred to herein as the "First Earnout Date." If the
EBITDA for the First Earnout Period is at least $2,932,000, the First Earnout
Payment shall be an amount equal to $5,131,000 plus an additional amount equal
to 3.5 times the EBITDA for the First Earnout Period in excess of $2,932,000. If
the EBITDA for the First Earnout Period is less than $2,932,000, the First
Earnout Payment shall be an amount equal to $5,131,000 minus an amount equal to
3.5 times the amount that the EBITDA for the First Earnout Period is less than
$2,932,000. If the EBITDA is $1,466,000 or less, then the First Earnout Payment
shall be zero. The amount of the First Earnout Payment shall be referred to
herein as the "First Earnout Amount". The First Earnout Payment shall be in the
form of cash and/or ADS Common Stock (subject to the limitations provided in
Section 1.05(a)(v)). The per share valuation price (the "First Valuation Price")
of such ADS Common Stock shall be equal to the average market closing price of
ADS Common Stock for the 10 consecutive business days up to and including the
day immediately prior to the First Earnout Date, as published in The Wall Street
Journal, Eastern Edition.
(iv) On the earlier of (i) September 30, 2002, and (ii)
the date 10 business days after the date on which the financial statements (the
"Earnout Financials") of the Surviving Company for the 12 month period
commencing July 1, 2001 and ending June 30, 2002 (the "Second Earnout Period")
are completed and have been subjected to certain Agreed Upon Procedures by
independent accountants retained by ADS, ADS shall deliver a third payment (the
"Second Earnout Payment"). The date upon which the Second Earnout Payment is
required to be delivered by ADS to the Compec Stockholders shall be referred to
herein as the "Second Earnout Date." If the EBITDA for the Second Earnout Period
is at least $2,932,000, the Second Earnout Payment shall be equal to $5,131,000
plus an additional amount equal to 3.5 times the EBITDA for the Second Earnout
Period in excess of $2,932,000. If the EBITDA for the Second Earnout Period is
less than $2,932,000, the Second Earnout Payment shall be an amount equal to
$5,131,000 minus an amount equal to 3.5 times the amount that the EBITDA for the
Second Earnout Period is less than $2,932,000. If the EBITDA is $1,466,000 or
less, then the Second Earnout Payment shall be zero. The amount of the Second
Earnout Payment shall be referred to herein as the "Second Earnout Amount". The
Second Earnout Payment shall be in the form of cash and/or ADS Common Stock
(subject to the limitations provided in Section 1.05(a)(v)). The per share
valuation price (the "Second Valuation Price"; and Second Valuation Price, the
Closing Valuation Price and the First Valuation Price are sometimes referred to
herein as the "Valuation Price") of such ADS Common Stock shall be equal to the
average market closing price of ADS Common Stock for the 10 consecutive business
days up to and including the day immediately prior to the Second Earnout Date,
as published in The Wall Street Journal, Eastern Edition.
(v) The aggregate amount of the First Earnout Payment and
the Second Earnout Payment (over the portion of such payments that are required
to be treated as imputed interest under Section 1272 of the Code), which may be
paid in cash shall not exceed an amount equal to (A) the value of the Closing
Stock Payment paid pursuant to Section 1.05(a) determined as of the Closing Date
minus (B) the Closing Cash Payment, and ADS Common Stock shall not be returned
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to ADS under Section 1.05(f) except to the extent that payment of such excess
cash or the return of such ADS Common Stock will not cause the Compec
Stockholders to fail to preserve a substantial part of the value of their
proprietary interest in the Surviving Company by reason of receipt of ADS Common
Stock pursuant to the Merger. For purposes of the foregoing, preservation of a
substantial part of the value of such proprietary interest shall be considered
to mean 50% of the value of the Compec Stock immediately prior to Merger.
(b) "EBITDA" for a given period shall mean earnings of the
Surviving Company for such period before reduction for interest, taxes,
depreciation and amortization, determined in accordance with United States
generally accepted accounting practices ("GAAP"), plus cost increases incurred
by the Company in connection with any changes in the Company's business or
operations as a result of the Merger contemplated by this Agreement or as
required by ADS, including but not limited to the imposition of any management
fees.
(c) "Agreed Upon Procedures" shall mean that the Earnout
Financials will be prepared from the books and records of the Surviving Company
in accordance with GAAP, consistently applied and in accordance with Compec's
accounting policies prior to the Merger.
(d) After receipt of the Earnout Financials, the Stockholders'
Representative shall have 90 days to object, in writing, to the Earnout
Financials or any of the Earnout Amounts as determined by ADS. Such writing
shall provide reasonable detail as to the nature and amount contested.
(i) If the Stockholders' Representative does not so
object, the Earnout Financials and the Earnout Amounts, as the case may be, if
any, as originally prepared and determined under this Section shall become final
and binding on the parties.
(ii) If the Stockholders' Representative does so object to
the Earnout Financials or any portion thereof or either of the Earnout Amounts,
the parties shall promptly attempt to resolve such objections. In the event the
dispute is not resolved within 30 days of Stockholders' Representative's written
objection, the Stockholders' Representative may designate a certified public
accountant of its choice (the "Stockholders' Accountants") to prepare and/or
review the Earnout Financials. ADS shall provide full access to Stockholders'
Accountants and otherwise fully cooperate in connection with its review of the
preparation of any such reports and the calculation of the Earnout Amount, and,
assuming such access and cooperation, in no event shall the preparation and/or
review of such reports by Stockholders' Accountants take more than 90 days from
the designation by the Stockholders' Representative of the Stockholders'
Accountants, in writing.
In the event that, after the above process is complete, it is
determined by the Stockholders' Accountants that the Earnout Financials or the
calculation of the Earnout Amount, was correct as initially calculated,
Stockholders shall also, in addition to paying for the costs of Stockholders'
Accountants, be responsible for the incremental expense incurred, if any, of
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ADS's accountant; provided, however, if it is determined by the Stockholders'
Accountants that the Earnout Amount or the calculation of the Earnout Amount,
was not correct as initially calculated, ADS shall pay all costs of
Stockholders' Accountants.
If the parties are still unable to arrive at an acceptable
resolution, either party may submit the matter to binding arbitration and such
arbitration shall be commenced and conducted in accordance with then applicable
rules of commercial arbitration of the American Arbitration Association in an
arbitration commenced and held before a single arbitrator. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in Washington, D.C.
The costs of such arbitration shall be borne entirely by the
losing party.
(e) Price Protection. ADS agrees that with regard to any
shares of ADS Common Stock issued pursuant to this Agreement as Merger
Consideration, if, on the effective date of the Registration Statement
registering any such shares of ADS Common Stock (the "Effective Date"), the
closing price of ADS Common Stock, as published in The Wall Street Journal,
Eastern Edition (the "Effective Date Price"), is less than the applicable
Valuation Price, ADS shall convey to the Stockholders a number of additional
shares of ADS Common Stock equal to (A) the number of shares equal to either (i)
the Closing Stock Payment, (ii) the First Earnout Amount or (iii) the Second
Earnout Amount, as the case may be, in each case multiplied by a fraction, the
numerator of which is the applicable Valuation Price and denominator of which is
the applicable Effective Date Price, minus (B) the number of shares issued at
either (i) the Closing, (ii) the First Earnout Date or (iii) the Second Earnout
Date, as the case may be. Shares of ADS Common Stock issued pursuant to this
section shall be issued on the Effective Date with the registration rights set
forth in the Registration Rights Agreement. (By way of example, if ADS issues
3,132,400 unregistered shares at $5 at Closing on June 30, 2000 for a
transaction price of $15,662,000 and the per share price of ADS's Common Stock
as of the market close on the Effective Date is $2. ADS shall issue 4,698,600
additional shares to the Stockholders).
(f) Share Appreciation. The Stockholders agree that with
regard to any shares of ADS Common Stock issued to the Stockholders pursuant to
this Agreement as Merger Consideration, if the applicable Effective Date Price
is greater than the applicable Valuation Price, the Stockholders shall convey to
ADS a number of shares of ADS Common Stock equal to twenty-five percent (25%)
of: (A) the number of shares issued at (i) the Closing, (ii) the First Earnout
Date or (iii) the Second Earnout Date, as the case may be, minus (B) the number
of shares equal to the (i) Closing Stock Payment, (ii) the First Earnout Amount
or (iii) the Second Earnout Amount, as the case may be, multiplied by a
fraction, the numerator of which is the applicable Valuation Price and
denominator of which is the applicable Effective Date Price. (By way of example,
if ADS issues 3,132,400 unregistered shares at $5 at Closing on June 30, 2000
for a transaction price of $15,662,000 and the per share price of ADS's Common
Stock as of the market close on the Effective Date is $10. ADS shall receive
back from the Stockholders, 25% of the $5 increase in the share price valuation
that would be equal to 391,550 shares of ADS Common Stock).
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(g) Failure to File a Registration Statement. In addition to
the foregoing, if ADS does not file a Registration Statement on or prior to the
date that is 90 days after the Closing Date, then the Merger Consideration shall
be increased by 5,000,000 shares of ADS Common Stock. Such shares to be
delivered by ADS to the Stockholders within 5 business days thereafter (without
regard to any of the Stockholders' indemnity obligations set forth in Article
IX). Shares of ADS Common Stock issued pursuant to this section shall be issued
with the registration rights set forth in the Registration Rights Agreement.
1.06. Closing Balance Sheet; True-Up Payment.
(a) As promptly as practicable but in any event within 60 days
following the Closing Date, ADS shall prepare, or cause to be prepared, and
deliver to the Stockholders' Representative an unaudited consolidated balance
sheet of the Company as of the close of business on the Closing Date (the
"Closing Balance Sheet"). There shall be attached to the Closing Balance Sheet
an annex setting forth in reasonable detail the computation of the True-Up
Payment (as defined in Section 1.06(d)).
(b) The Closing Balance Sheet and the May 31, 2000 Balance
Sheet shall be prepared in accordance with GAAP, consistently applied.
(c) The Closing Balance Sheet delivered by ADS to the
Stockholders' Representative and the computation of the True-Up Payment annexed
thereto shall be conclusive and binding upon the parties unless the
Stockholders' Representative, within 30 days after the delivery to the
Stockholders' Representative of the Closing Balance Sheet, notify ADS in writing
that the Stockholders' Representative disputes any of the amounts set forth
therein, specifying the nature of the dispute and the basis therefor. The
parties shall in good faith attempt to resolve any dispute, in which event the
Closing Balance Sheet and the computation of the True-Up Payment, as amended to
the extent necessary to reflect the resolution of the dispute, shall be
conclusive and binding upon the parties. If the parties do not reach agreement
resolving the dispute within 10 days after notice is given by the Stockholders'
Representative to ADS pursuant to the second preceding sentence, the parties
shall submit the dispute to the department specializing in resolution dispute of
a nationally recognized independent accounting firm that is mutually agreeable
to the parties, (such accounting firm, the "Arbiter"), for resolution. If the
parties cannot agree on the selection of such an independent accounting firm to
act as Arbiter, the parties shall request the American Arbitration Association
to appoint such a firm, and such appointment shall be conclusive and binding
upon the parties. Promptly, but no later than 20 days after its acceptance of
its appointment as Arbiter, the Arbiter shall determine, based solely on
presentations by ADS and the Stockholders' Representative, and not by
independent review, only those issues in dispute and shall render a report as to
the dispute and the resulting computation of the Closing Balance Sheet and the
True-Up Payment, if any, which shall be conclusive and binding upon the parties.
In resolving any disputed item, the Arbiter (x) shall be bound by the provisions
of paragraph (b) of this Section 1.04 and (y) may not assign a value to any item
greater than the greatest value for such item claimed by either party or less
than the smallest value for such item claimed by either party. The fees, costs
and expenses of the Arbiter (i) shall be borne by the Stockholders in the
proportion that the aggregate dollar amount of such disputed items so submitted
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that are unsuccessfully disputed by the Stockholders' Representative (as finally
determined by the Arbiter) bears to the aggregate dollar amount of such items so
submitted and (ii) shall be borne by ADS in the proportion that the aggregate
dollar amount of such disputed items so submitted that are successfully disputed
by the Stockholders' Representative (as finally determined by the Arbiter) bears
to the aggregate dollar amount of such items so submitted. ADS and the
Stockholders' Representative each shall make available to the other (upon the
request of the other) their respective work papers generated in connection with
the preparation or review of the Closing Balance Sheet.
(d) As used herein, (i) the term "Final Closing Balance Sheet"
shall mean the Closing Balance Sheet which has become conclusive and binding
upon the parties pursuant to paragraph (c) of this Section 1.06, (ii) the term
"Closing Book Value" shall mean the amount obtained by subtracting the total
liabilities of the Company, as set forth in the Final Closing Balance Sheet,
from the total assets of the Company, as set forth in the Final Closing Balance
Sheet minus the Closing Cash Payment, and (iii) the term "Target Book Value"
shall mean the amount obtained by subtracting the total liabilities of the
Company from the total assets of the Company as set forth in the May 31, 2000
Balance Sheet minus the Closing Cash Payment (as hereinafter defined) and
attached as Schedule 2.04. If the Target Book Value exceeds the Closing Book
Value, the amount of such excess shall be the "True-Up Payment." If the True-Up
Payment is greater than zero, the amount thereof shall be paid by Stockholders
to the Company in accordance with the provisions of paragraph (e) of this
Section 1.06.(By way of example, if at May 31, 2000, the Company's total assets
and liabilities under GAAP were $14,5000,000 and $5,700,000respectively, and the
Closing Cash payment is $7,000,000, then the Target Book Value at May 31, 2000
would be 1,800,000 If on the Closing Date, the Company's total assets and
liabilities under GAAP are $15,000,000. and $5,500,000.repectively, and the
Closing Cash Payment is $7,000,000, then the Closing Book Value would be
$2,500,000. In this example, the Closing Book Value exceeds the target Book
Value and the True-Up Payment would be zero.
(e) Any amount payable as True-Up Payment shall be paid in the
restricted shares of ADS Stock received from ADS at Closing, equal in value to
the True-Up Payment. The valuation of the ADS Stock shall be based upon the
Closing Valuation Price. Such payment shall be made on the third business day
following (i) the last day on which the Stockholders' Representative may,
pursuant to the first sentence of paragraph (c) of this Section 1.06, notify ADS
that they dispute any of the amounts set forth in the Closing Balance Sheet, if
the Stockholders' Representative shall not notify ADS of any dispute, or such
earlier date as the Stockholders' Representative shall advise ADS of the absence
of any dispute, or (ii) the date mutual agreement is reached as to the amount of
the True-Up Payment, if any, in the event of a dispute that is settled by the
parties without resort to the Arbiter, or (iii) the receipt of the report of the
Arbiter in the event of a dispute which is settled by the Arbiter, as
applicable.
(f) ADS shall provide the Stockholders' Representative and
their accountants reasonable access to the books and records of the Company, to
any other information, including work papers of its accountants, and to any
employees of the Company to the extent reasonably necessary for the
Stockholders' Representative to review the Closing Balance Sheet. The
Stockholders' Representative shall provide ADS and its accountants reasonable
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access to the books and records of the Company, any other information, including
work papers of its accountants, and to any employees of ADS to the extent
reasonably necessary for ADS in connection with the preparation of the Closing
Balance Sheet and in connection with any objections to the Closing Balance Sheet
raised by the Stockholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRINCIPAL STOCKHOLDERS
(For purposes of this Section any reference to Stockholders shall be deemed to
only refer to the Principal Stockholders)
Each Stockholder, severally and not jointly, represents and warrants
that the statements contained in this Section 2 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date as follows:
2.01. Capitalization. The authorized capital stock of Compec
consists of 10,000,000 shares of common stock, $0.01 par value per share, of
which such number of shares set forth on Schedule 2.01 are issued and
outstanding. Such Stockholder owns beneficially and of record the number of
shares of Compec Stock set forth opposite such Stockholder's name on Schedule
2.01 hereto, free and clear of all liens, security interests, restrictions,
options, proxies, voting trusts or other encumbrances ("Encumbrances"). All of
the shares comprising the Compec Stock are validly issued, fully paid and
non-assessable. Except as set forth on Schedule 2.01, there are outstanding no
securities convertible into, exchangeable for, or carrying the right to acquire,
equity securities of Compec, or subscriptions, warrants, options, rights or
other arrangements or commitments obligating Compec to issue or dispose of any
of its equity securities or any ownership interest therein. All of the issued
and outstanding shares of capital stock of the Company were issued in compliance
with all applicable state and federal securities laws.
2.02. Organization; Subsidiaries.
(a) Each of Compec and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as it is now being conducted. Each of Compec
and its Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in all jurisdictions where the nature of the property
owned or leased by it, or the nature of the business conducted by it, makes such
qualification necessary and the absence of such qualification would,
individually or in the aggregate, have a material adverse effect on the business
or financial condition of the Company taken as a whole. True and complete copies
of the certificate of incorporation, bylaws and the minute books of Compec and
its Subsidiaries have previously been made available to Buyers.
(b) Schedule 2.02(b) sets forth a list, as of the date hereof,
of all direct or indirect entities in which the Company has an equity interest
(the "Subsidiaries"). Except as set forth in Schedule 2.02(b), the Company owns,
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either directly or indirectly, all of the capital stock of the Subsidiaries free
and clear of any Encumbrance. All of the issued and outstanding shares of
capital stock of the Subsidiaries are validly issued, fully paid and
non-assessable. Except as set forth in Schedule 2.02(b), there are outstanding
no securities convertible into, exchangeable for, or carrying the right to
acquire, equity securities of any of the Subsidiaries, or subscriptions,
warrants, options, rights or other arrangements or commitments obligating any
Subsidiary to issue or acquire any of its equity securities or any ownership
interest therein.
2.03. Corporate Power and Authority; Effect of Agreement. Such
Stockholder is an individual with capacity to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by such Stockholder and,
assuming this Agreement is a valid and binding obligation of the Buyers
enforceable against the Buyers, constitutes the valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms, except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally, and (ii) is subject to general
principles of equity. The execution, delivery and performance by such
Stockholder of this Agreement and the consummation by such Stockholder of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (w) to such Stockholder's knowledge, violate, or
require any consent under, any Commitment (as defined in Section 2.08), except
as set forth in Schedule 2.08(b), (x) violate any law, rule or regulation to
which such Stockholder or the Company are subject or require any authorization,
consent, approval, exemption or other action by or notice to any governmental
authority, (y) violate any order, judgment or decree applicable to such
Stockholder or the Company or (z) violate any provision of the charter documents
or the bylaws of Compec or any Subsidiary, except, in each case, for violations
which in the aggregate would not materially hinder or impair the consummation of
the transactions contemplated hereby.
2.04. Financial Statements.
(a) Schedule 2.04 sets forth (i) the audited consolidated
balance sheet of the Company as of February 29, 2000 and the audited statement
of operations and cash flows of the Company for the fiscal year then ended,
including the footnotes thereto (the "Audited Financials"), and (ii) the
unaudited consolidated balance sheet of the Company as of May 31, 2000 (the "May
31, 2000 Balance Sheet", and together with the Audited Financials, the
"Financial Statements"). The Financial Statements fairly present in all material
respects the financial position and the results of operations and cash flows of
the Company, for the respective dates or periods (as the case may be) indicated
therein and have been prepared in conformity with GAAP consistently applied. All
the assets, liabilities, income, costs and expenses reflected in the Financial
Statements are related to the Business and arose out of and were incurred in the
ordinary course of business. All related party transactions have been accounted
for by use of consistent accounting policies and methodologies that would not
affect the comparability of such financial information in any material way.
(b) Except as specifically reflected in the Financial
Statements or Schedule 2.04(b) or elsewhere in the Schedules or as contemplated
11
by this Agreement, the Company does not have any liabilities, commitments or
obligations of any kind whatsoever (whether secured or unsecured and whether
accrued, absolute, contingent, direct, indirect or otherwise), other than any
liabilities, commitments or obligations (i) incurred after May 31, 2000 in the
ordinary course of business.
2.05. Absence of Certain Changes or Events. Except as set forth in
Schedule 2.05 or reflected in the May 31, 2000 Balance Sheet or permitted or
contemplated by this Agreement, since May 31, 2000, the Company has not (a)
suffered any material damage, destruction or casualty loss to its physical
properties; (b) incurred or discharged any material obligation or liability or
entered into any other material transaction except in the ordinary course of
business; (c) suffered any material adverse change in the business, financial
condition, assets, liabilities, prospects, operations or results of operations
of the Company; (d) increased the rate or terms of compensation payable or to
become payable by the Company to its directors, officers or key employees or
increased the rate or terms of any bonus, pension or other employee benefit plan
covering any of its directors, officers or key employees, except in each case
increases occurring in the ordinary course of business in accordance with its
customary practices (including normal periodic performance reviews and related
compensation and benefit increases) or as required by any pre-existing
Commitment identified in Schedule 2.08; (e) consummated, or agreed to
consummate, any sale, lease or other transfer or disposition of any material
properties or assets except for the sale of any assets in the ordinary course of
business and except for the sale of any assets that, in the reasonable judgment
of the Company, has become uneconomic, obsolete or worn out; (f) incurred,
assumed or guaranteed any indebtedness for borrowed money; (g) granted any
mortgage, pledge, lien or encumbrance on any of its material properties or
assets; (h) entered into, amended or terminated any material Commitment, or
waived any material rights thereunder except in the ordinary course of business;
or (i) made any grant of credit to any customer or distributor on terms or in
amounts materially more favorable than those that have been extended to such
customer or distributor in the past, except in the ordinary course of business.
Since May 31, 2000, the Company has been operated in all material respects in
the ordinary course in a manner consistent with past practice.
2.06. Assets and Properties.
(a) The Company has good title to all of the material tangible
personal assets and properties which it purports to own (including those
reflected on the May 31, 2000 Balance Sheet, except for assets and properties
sold, consumed or otherwise disposed of in the ordinary course of business since
the date of the Balance Sheet, which are not individually or in the aggregate
material), free and clear of all Encumbrances, except (a) as set forth in
Schedule 2.06(a), (b) liens for taxes not yet due and payable or due but not
delinquent or liens being contested in good faith by appropriate proceedings,
and (c) except as set forth in Schedule 2.06(a), the assets owned or leased by
the Company constitute all the assets used in and necessary to conduct the
Business as currently conducted.
(b) All material tangible personal property and assets owned
or utilized by the Company are in good operating condition and repair (except
for ordinary wear and tear), free from any defects (except such minor defects as
do not interfere with the use thereof in the conduct of the normal operations),
12
have been maintained consistent with the standards generally followed in the
industry and are sufficient to carry on the Business as presently conducted.
(c) The Company does not own any real property.
(d) Schedule 2.06(d) sets forth a list of all real property
leased by the Company (the "Leased Real Property"). The Stockholders have made
or will make available within thirty (30) days of the Closing Date to Buyers
true and complete copies of all leases and subleases relating to the Leased Real
Property. With respect to the Leased Real Property, (i) the Company has good and
valid leasehold estates in the Leased Real Property, free and clear of all
Encumbrances, and (ii) all existing water, sewer, gas, electricity, telephone
and other utilities required for the construction, use, occupancy, operation and
maintenance of the Leased Real Property are adequate in all material respects
for the use, occupancy, operation and maintenance thereof, as currently
conducted or currently exists. Except as set forth on Schedule 2.06(d), to such
Stockholder's knowledge, (A) each such lease or sublease is legal, valid,
binding and enforceable and in full force and effect and (B) the consummation of
the transactions contemplated by this Agreement will not cause a material breach
or require any third party consent under any such lease or sublease.
(e) Except as set forth on Schedule 2.06(e), (i) neither such
Stockholders nor the Company has received notice of any pending or, to the
knowledge of such Stockholder, threatened condemnation or eminent domain
proceedings or their local equivalent with respect to the Leased Real Property,
(ii) the Leased Real Property, the use and occupancy thereof by the Company, and
the conduct of the Business thereon and therein does not violate any applicable
law consisting of building codes, zoning, subdivision or other land use or
similar laws the violation of which would materially adversely affect the use,
value or occupancy of any such property or the conduct of the Business thereon
and (iii) neither such Stockholder nor the Company has received written notice
of a material violation of the restrictions or laws described in the foregoing
clause (ii).
2.07. Intellectual Property.
(a) Schedule 2.07 sets forth a true and complete list of all
(i) Software, registered U.S. and foreign patents and patent applications,
registered U.S. and foreign trademark applications, registered U.S. and foreign
copyrights and copyright applications and other Intellectual Property (as
hereinafter defined), in each case owned by the Company and material to the
business of the Company ("Company Owned Intellectual Property"), and (ii)
licenses of Software to the Company or by the Company to a third party (as
hereinafter defined), in each case that are material to the business of the
Company ("Company Licensed Intellectual Property");
(b) to the knowledge of such Stockholder, the conduct of the
business of the Company as currently conducted does not infringe or
misappropriate the Intellectual Property rights of any third party, and no claim
has been asserted to the Company that the conduct of the business of the Company
13
as currently conducted infringes or may, infringe or misappropriate the
Intellectual Property rights of any third party;
(c) with respect to each item of the Company Owned
Intellectual Property, the Company is the sole owner of the entire right, title
and interest in and to such Intellectual Property and without limitation of the
foregoing is entitled to use such Intellectual Property in the continued
operation of its business;
(d) with respect to each item of the Company Licensed
Intellectual Property, the Company has the right to use such Company Licensed
Intellectual Property in the continued operation of its business in accordance
with the terms of the license agreement governing such Company Licensed
Intellectual Property;
(e) to the knowledge of such Stockholder, the Company Owned
Intellectual Property is valid and enforceable, and has not been adjudged
invalid or unenforceable in whole or part;
(f) to the knowledge of such Stockholder, no person is
engaging in any activity that infringes upon the Company Owned Intellectual
Property;
(g) to the knowledge of such Stockholder, each license of the
Company Licensed Intellectual Property is valid and enforceable, is binding on
all parties to such license, and is in full force and effect;
(h) to the knowledge of such Stockholder, no party to any
license of the Company Licensed Intellectual property is in material breach
thereof or default thereunder;
(i) to the knowledge of such Stockholder, the Software of the
Company is free of all material viruses, worms, trojan horses and other material
known contaminants, and does not contain any material bugs, errors, or problems
of a material nature that disrupt its operation or have a material adverse
impact on the operation of other software programs or operating systems;
(j) no rights in the Software of the Company have been
transferred to any third party except to the customers of the Company to whom
the Company has granted the right to use such Software in the ordinary course of
business; and
(k) the Company has the right to use all software development
tools, library functions, compilers, and other third party software that is
material to the business of the Company, or that is required to operate or
modify the Software of the Company.
"Intellectual Property" means (i) patents, patent applications and
statutory invention registrations, in each case in the United States and all
other countries, (ii) any trademarks, service marks, trade dress, logos, trade
names, corporate names, and other source identifiers, including any
registrations and applications for registration of any of the foregoing in the
14
United States and any foreign country, (iii) all rights under the copyright laws
of the United States and all other countries, including, without limitations,
all copyrightable works, copyrights, and registrations and applications for
registration thereof, and (iv) all confidential and proprietary information,
including trade secrets and know-how.
"Software" of a party means all material computer software owned,
controlled or licensed by or on behalf of such party and used, manufactured,
distributed, sold, licensed or marketed by such party.
2.08. Commitments.
(a) Schedule 2.08 sets forth, as of the date hereof, each
contract or agreement, whether written or oral (including any and all amendments
thereto), to which the Company is a party, or by which the Company is bound
(collectively, the "Commitments") of the following types:
(i) Commitments for the sale of any real or personal
(tangible or intangible) properties other than in the ordinary course of
business, or for the grant of any option or preferential rights to purchase any
such properties;
(ii) Commitments for the construction, modification or
repair of any building, structure or facility or for the incurrence of any
capital expenditures or for the acquisition of fixed assets, providing for
aggregate payments in excess of $50,000;
(iii) Commitments relating to the acquisition by the
Company or a Subsidiary of any operating business or the capital stock of any
other person or entity that have not been consummated or that have been
consummated but contain representations, covenants, guaranties, indemnities or
other obligations that remain in effect;
(iv) Commitments pursuant to which any party is required
to purchase or sell a stated portion of its requirements or output to another
party or perform a stated amount of service for, on behalf of, or upon the
referral of another party;
(v) Commitments relating to any Litigation as defined
hereinafter in Section 2.09.
(vi) Commitments under which the Company agrees to
indemnify any person or entity other than in the ordinary course of business;
(vii) Commitments containing covenants of the Company not
to compete, do business in any line of business or in any geographical area or
with any person or entity, or to disclose certain information, or covenants of
any person or entity not to compete with the Company in any line of business or
in any geographical area or disclose information concerning the Company;
15
(viii) Commitments pursuant to which the Company (A)
leases, subleases, licenses or otherwise has the right to use any personal
property or (B) is the lessor of any personal property;
(ix) Commitments in respect of any joint venture,
partnership or other similar arrangement (including, without limitation, any
joint development agreement);
(x) Commitments relating to any governmental or regulatory
authority;
(xi) Commitments for the lease or sub-lease of any real
property from or to any other person;
(xii) Commitments that involve in excess of $50,000 in the
aggregate or that may not be terminated on less than 90 days' notice;
(xiii) Commitments relating to outstanding letters of
credit or performance bonds or creating any obligation or liability as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person or entity, except as endorser or maker
of checks or letters of credit endorsed or made in the ordinary course of
business; and
(xiv) Commitments (other than those specified in any of
clauses (i) through (xiii) of this paragraph (a)) which relate to or affect the
Business or any of the assets or properties of the Company in any way that are
material to the Business.
(b) Except as set forth in Schedule 2.08(b), all of the
Commitments referred to in the preceding paragraph (a) are valid, binding, in
full force and effect and enforceable in accordance with their terms against the
Company, and to the knowledge of the Stockholders, against the respective
counterparties to such Commitments. Complete copies (or, if oral, full written
descriptions of material terms) of all Commitments required to be so listed,
including all amendments thereto, and complete copies of all standard form
Commitments used in the conduct of the Business, have been delivered to Buyers.
Except as set forth in Schedule 2.08(b), (i) neither the Company, nor to the
knowledge of such Stockholder has any other party committed a breach, violation
or default and, to the knowledge of such Stockholder, no event which, with
notice or lapse of time or both, would constitute a breach, violation or
default, or give rise to any Encumbrance or right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or acceleration
under, any Commitment listed in Schedule 2.08(a), except for breaches,
violations and defaults, or Encumbrances or rights of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or acceleration
which, individually or in the aggregate, are not material and (ii) neither the
Company nor, to the knowledge of the Stockholders, any other party to any of the
Commitments listed in Schedule 2.08(a) is in material arrears in respect of the
performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Commitments and no material waiver or
material indulgence has been granted by any of the parties thereto.
16
2.09. Litigation. Except as set forth in Schedule 2.09, there is no
claim, suit, action or proceeding in any court or before any governmental or
regulatory authority ("Litigation") pending or, to such Stockholders' knowledge,
threatened, involving the Company, its business or any assets or liabilities of
any of the foregoing. Except as set forth in Schedule 2.09, the Company is not
subject to any outstanding orders, rulings, judgments, injunctions, writs,
decrees or actions including, without limitation, any actions brought by any
regulatory authority.
2.10. Compliance with Laws. Except as set forth in Schedule 2.10,
neither such Stockholder nor the Company has received any written notice of any
violation of any applicable laws, rules, regulations and orders relating to the
operation, conduct or ownership of the Business, except where any such violation
would not individually or in the aggregate have a material adverse effect on the
Company. The Company has all permits, licenses, certificates and authorizations
of governmental and regulatory authorities necessary for the conduct of their
business as presently conducted, except where the failure to have any such
permit, license, certificate or authorization would not have a material adverse
effect on the Company.
2.11. Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), maintained or contributed to by the Company, or
with respect to which the Company could incur liability under Section 4069,
4201(a) of ERISA (the "Company Benefit Plans"), the Company has made available
to the Buyers a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS"), (ii) such Company
Benefit Plan, (iii) each trust agreement relating to such Company Benefit Plan,
(iv) the most recent summary plan described for each Company Benefit Plan for
which a summary plan described is required, (v) the most recent actuarial report
or valuation relating to a Company Benefit Plan subject to Title IV of ERISA, if
any, and (vi) the most recent determination letter, if any, issued by the IRS
with respect to any Company Benefit Plan qualified under Section 401 (a) of the
Code.
(b) With respect to the Company Benefit Plans, no event has
occurred and, to the knowledge of such Stockholder, there exists no condition or
set of circumstances, in connection with which such Stockholder could be subject
to any liability under the terms of such Company Benefit Plans, ERISA, the Code
or any other Law applicable to such Company Benefit Plans except as would not
have a material adverse effect on the Company. The Company has no actual or
contingent liability under Title IV of ERISA (other than the payment of premiums
to the Pension Benefit Guaranty Corporation) except as would not have a material
adverse effect on the Company.
(c) The Company has made available to the Buyers (i) copies of
all employment agreements with officers or key employees of the Company or any
of its subsidiaries; (ii) copies of all severance agreements, programs and
policies of the Company; and (iii) copies of all plans, programs, agreements and
other arrangements of the Company which contain change in control provisions.
Except as set forth in Schedule 2.11(a), neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
17
(i) result in any material payment (including, without limitation, severance,
unemployment compensation, "golden parachute" or otherwise) becoming due to any
director, officer or employee of the Company under any Company Benefit Plan or
otherwise, (ii) materially increase any benefits otherwise payable under any
Company Benefit Plan or (iii) result in any acceleration of the time of payment
or vesting of any material benefits.
(d) Except as set forth in Schedule 2.11(d) or as required by
Law, no Company Benefit Plan provides retiree medical or retiree life insurance
benefits to any person.
2.12. Environmental Matters.
(a) To the knowledge of such Stockholder, the Company is and
has at all times been in compliance with all environmental laws governing the
Company and its business, operations, properties and assets, except as would not
have a material adverse effect on the Company.
(b) There are no judgments and no material non-compliance
orders, warning letters, notices of violation, claims, suits, actions,
penalties, fines, or administrative or judicial investigations of any nature
pending or threatened in writing against the Company, with respect to any
environmental laws or licenses issued to the Company, except as would not have a
material adverse effect on the Company.
2.13. Consents. Except under Xxxx-Xxxxx-Xxxxxx Antitrust Improvement
Acts of 1976 ("HSR Act") and as set forth in Schedule 2.13, no consent, approval
or authorization of, or exemption by, or filing with, any governmental authority
or third party is required to be obtained or made by such Stockholder or the
Company in connection with the execution, delivery and performance by such
Stockholder of this Agreement or the taking by such Stockholder of any other
action contemplated hereby.
2.14. Taxes.
(a) Except as set forth in Schedule 2.14(a), all Tax Returns
required to be filed by or with respect to the Company have been properly and
timely filed and all such Tax Returns are complete and accurate in all material
respects. Except to the extent provided for on the May 31, 2000 Balance Sheet,
all Taxes required to have been paid by the Company have been paid in full. All
Taxes required to have been withheld by the Company in connection with payments
to employees, independent contractors, creditors, stockholders or to third
parties have been so withheld and to the extent required, have been paid to the
relevant Tax authority.
(b) Except as set forth in Schedule 2.14(b): (i) no Tax
authority in a jurisdiction where the Company does not file Tax Returns has made
a claim, assertion or threat that the Company is or may be subject to Tax in
such jurisdiction; (ii) no deficiencies for any Tax have been threatened,
proposed, asserted or assessed against the Company that have not been satisfied
or otherwise settled with the relevant taxing authority; (iii) the Company has
received no written notice that any audits or examinations with respect to the
Company are ongoing or have been threatened or proposed by the Internal Revenue
18
Service or the appropriate state, local or foreign Tax authority; (iv) no
waivers or extensions of statutes of limitation with respect to Taxes have been
given by or requested with respect to the Company; (v) there are no tax rulings,
requests for rulings, or closing agreements relating to the Company that could
affect the liability for Taxes of the Company for any period (or portion of a
period) after the Closing; (vi) no power of attorney has been granted by the
Company with respect to any matter relating to Taxes of the Company that is
currently in force.
(c) The Company is not a party to or liable under any Tax
Sharing Agreement with respect to Taxes of any consolidated, combined or unitary
group other than the consolidated, combined or unitary group consisting of the
Company. Except as set forth in Schedule 2.14(c), the Company has not, with
respect to any taxable period for which the applicable statute of limitations on
assessment of Tax has not run, filed a combined, consolidated or unitary Tax
Return with respect to any affiliated group. Schedule 2.14(c) sets forth a
complete list of all states, territories and jurisdictions (foreign and
domestic) in which the Company has filed Income Tax Returns for taxable periods
ending on or after December 31, 1991. The Company has not claimed any dual
consolidated losses (as defined in Section 1503 of the Code) on any Tax Return
that will be recaptured by virtue of the transactions contemplated by this
Agreement.
(d) There are no Tax liens on any assets of the Company,
except liens for Taxes not yet due and payable;
(e) As used in this Agreement:
(i) The term "Tax" (including, with correlative meaning,
the terms "Taxes" and "Taxable") includes all federal, state, local and foreign
Income Tax, profits, franchise, gross receipts, environmental, customs duty,
capital stock, communications services, severance, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect to such penalties and
additions, and includes any liability for Taxes of another person by contract,
as a transferee or successor, under Treasury Regulation ss. 1.1502-6 or
analogous state, local, or foreign law provision, or otherwise.
(ii) The term "Income Tax" means any federal, state, local
or foreign Tax or Taxes (i) based upon, measured by, or calculated with respect
to, net income or net receipts, proceeds or profits, or (ii) based upon,
measured by, or calculated with respect to multiple bases (including, but not
limited to, corporate franchise or occupation Taxes) if such Tax may be based
upon, measured by, or calculated with respect to one or more bases described in
(i) above.
19
(iii) The term "Tax Return" includes all returns and
reports (including elections, declarations, disclosures, schedules, estimates
and information returns) required to be supplied to a Tax authority relating to
Taxes.
(iv) The term "Income Tax Return" includes all Tax Returns
relating to Income Taxes.
(v) The term "Treasury Regulations" means the regulations
prescribed under the Code.
2.15. Fees. Except as set forth on Schedule 2.15, neither such
Stockholder nor the Company have paid or become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated hereby.
2.16. Major Customers and Suppliers. Schedule 2.16 sets forth a list
of (i) the top 5 suppliers of materials or services to the Company's business
during the last 12 months ("Major Suppliers") and (ii) the top 5 customers of
products or services of the Company's business during the last 12 months (the
"Major Customers"). Except as set forth on Schedule 2.16, no Major Supplier or
Major Customer has during the last 12 months decreased materially or, to the
knowledge of such Stockholder, threatened to materially decrease or limit
materially its provision of services or supplies to the business. To such
Stockholder's knowledge, there has been no termination, cancellation or material
limitation of, or any material modification or change in, the business
relationships with any Major Supplier or Major Customer.
2.17. Products. Except as set forth on Schedule 2.17, to the
knowledge of such Stockholder, there are no statements, citations or decisions
by any governmental or regulatory authority stating that any product or service
manufactured, sold, designed, distributed or marketed at any time by the Company
("Products") is defective or unsafe or fails to meet any standards promulgated
by any governmental authority. Except as set forth on Schedule 2.17, there is no
(i) fact relating to any Product that, to the knowledge of the Company, may
impose upon the Company a duty to recall any Product or a duty to warn customers
of a defect in any Product, (ii) material latent or overt design, manufacturing
or other defect in any Product or (iii) material liability for warranty claims
or returns with respect to any Product.
2.18. Insurance. All of the material assets of the Company and all
material aspects of its business that are of insurable character are covered by
insurance with reputable insurers against risks of liability, casualty and fire
and other losses and liabilities, in each case in amounts, scope, and coverage
which are customarily obtained to cover comparable businesses and assets. The
Company is not in default with respect to its obligations under any material
insurance policy maintained by it. Schedule 2.18 sets forth a list of all
insurance coverage carried by the Company, the carrier and the amount of
coverage. All such policies and other instruments are, to such Stockholder's
knowledge, in full force and effect and all premiums with respect thereto have
been paid. The Company has not failed to give any notice or present any claim
under any such insurance policy in due and timely fashion or as required by any
of such insurance policies, and the Company has not otherwise, through any act,
omission or non-disclosure, jeopardized or impaired full recovery of any claim
under such policies, and there are no claims by the Company under any of such
policies to which any insurance company is denying liability or defending under
a reservation of rights or similar clause. The Company has not received notice
of any pending or threatened termination of any of such policies or any premium
increases for the current policy period with respect to any of such policies and
20
the consummation of the transactions contemplated by this Agreement will not
result in any such termination or premium increase.
2.19. Investment Representations. Each Principal Stockholder
understands and acknowledges that the ADS Common Stock being acquired pursuant
to this Agreement is not registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities law, and that such
ADS Common Stock may not be transferred or sold except pursuant to the
registration provisions of the Securities Act or pursuant to an applicable
exemption therefrom and pursuant to applicable state securities laws and
regulations, and that the ADS Common Stock will bear appropriate legends to that
effect. The ADS Common Stock is being acquired for such Stockholder's own
account, for investment and not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act or the
securities laws of any state applicable to such Principal Stockholder. Such
Principal Stockholder, either alone or with his or her purchaser representative
who is unaffiliated with and are not compensated by ADS, is knowledgeable in and
experienced with respect to investments in general, and experienced in
evaluating and investing in businesses such as ADS. Such Principal Stockholder
has received all the information he or she has requested with respect to
Company, ADS, this Agreement and the transactions contemplated hereby, and has
been given the opportunity to ask questions of and receive answers from officers
of Company and ADS with respect to the terms and conditions of this Agreement
and the transactions contemplated by this Agreement and to obtain such
additional information which Company and ADS possess or can acquire without
unreasonable effort or expense that is necessary to verify the information that
was otherwise provided. By reason of such knowledge and experience and the
receipt of such information, such Principal Stockholder, either alone or with
his purchaser representative, is capable of evaluating the merits and risks of,
and making an informed business decision with regard to, an investment in ADS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer hereby jointly and severally represent and warrant that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date as
follows:
3.01. Organization. ADS and Compec Acquisition Corp. are
corporations duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and each has all requisite
corporate power and authority to carry on their business as it is now being
conducted, and to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. Compec Acquisition Corp. is a direct,
wholly-owned subsidiary of ADS which has been formed for the sole purpose of
completing the Merger and has not incurred any obligations, liabilities, or
other commitments nor engaged in any other business or activity of any type or
kind whatsoever, nor entered into any agreement or arrangement with any person
whatsoever as set forth in this Agreement. Complete and correct copies of the
certificate of incorporation and bylaws of ADS and Compec Acquisition Corp., as
21
amended to date, have been made available to the Stockholders' Representative.
Such organizational documents are in full force and effect and have not been
amended or modified in any respect. ADS is not in violation of any provision of
its organizational documents. Compec Acquisition Corp. is not in violation of
any provision of its organizational documents.
3.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by each Buyer of this Agreement and each of
the documents referenced herein and the consummation by each Buyer of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of each Buyer. This Agreement has been duly and
validly executed and delivered by each Buyer and constitutes the valid and
binding obligation of each Buyer, enforceable against each Buyer in accordance
with its terms, except to the extent that such enforceability (i) may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally, and (ii) is subject to general
principles of equity. The execution, delivery and performance by each Buyer of
this Agreement and the consummation by each Buyer of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time, or both, (i) violate, or require any consent, authorization, approval,
execution, or other action or notice under, any material contract or other
commitment of each Buyer, (ii) violate any provision of law, rule or regulation
to which each Buyer is subject, (iii) violate any order, judgment or decree
applicable to each Buyer or (iv) violate any provision of the Certificate of
Incorporation or the By-laws of each Buyer; except, in each case, for violations
which in the aggregate would not materially hinder or impair the consummation of
the transactions contemplated hereby.
3.03. Capitalization.
(a) The total authorized capital stock of ADS consists of (i)
80,000,000 shares of common stock, $.001 par value per share, 52,982,886 shares
of which are issued and outstanding as of June 26, 2000, and (ii) 5,000 shares
of preferred stock, 1 of which is issued and outstanding as of June 26, 2000.
Except as set forth in Schedule 3.03(a) there have been no options issued
pursuant to ADS's option plans, since May 31, 2000, no shares of ADS Common
Stock or other voting securities of ADS have been issued or reserved for
issuance. Except as set forth in the SEC Documents, there are outstanding no
securities convertible into, exchangeable for, or carrying the right to acquire,
equity securities of ADS, or subscriptions, warrants, options, rights or other
arrangements or commitments obligating ADS to issue or dispose of any of its
equity securities or any ownership interest therein. Any shares of ADS Common
Stock to be issued pursuant to options to purchase ADS Common Stock set forth in
Schedule 4.15 have been duly authorized.
(b) The total authorized capital stock of Compec Acquisition
Corp. consists of 1,000 shares of common stock, no par value per share, 100
shares of which, as of the date hereof, are issued and outstanding and are held
by ADS. Such shares are duly authorized, validly issued, fully paid and
nonassessable, and are owned free and clear of all Encumbrances.
3.04. Consents. Except under the HSR Act and as required by ADS'
primary lender, no consent, approval or authorization of, or exemption by, or
filing with, any governmental authority or third party is required to be
obtained or made by the Buyers in connection with the execution, delivery and
22
performance by the Buyers of this Agreement, or the taking by the Buyers of any
other action contemplated hereby.
3.05. Fees. Neither ADS has not paid or become obligated to pay any
fee or commission to any broker, finder or intermediary (other than bonus
arrangements with employees of Buyers) in connection with the transactions
contemplated hereby.
3.06. Litigation. Except as set forth in Schedule 3.06, there is no
claim, suit, action or proceeding in any court or before any governmental or
regulatory authority ("Litigation") pending or, to Buyers' knowledge,
threatened, against any Buyer or any material assets or liabilities of any of
the foregoing. Except as set forth in Schedule 3.06, ADS is not subject to any
outstanding orders, rulings, judgments, injunctions, writs, decrees or actions
including, without limitation, any actions brought by any regulatory authority.
3.07. Common Stock to be Received by Stockholders. The ADS Common
Stock to be received by the Stockholders will, when issued and delivered to the
Stockholders, be duly and validly issued, fully paid, nonaccessable and free of
preemptive rights or other restrictions (except those that may be imposed by the
rules and regulations by Nasdaq with regard to notice requirements) other than
those imposed pursuant to securities laws and those expressly provided for in
this Agreement.
3.08. [Reserved].
3.09. SEC Filings. ADS has timely filed with the Securities and
Exchange Commission (the "SEC") all forms, reports, schedules, registration
statements, definitive proxy statements and other documents (collectively, the
"SEC Documents") required to be filed prior to the date hereof, and no
subsidiary of ADS has filed, or been required to file, any SEC Document with the
SEC, in each case, pursuant to the Securities Act of 1933, as amended (the
"Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
the rules and regulations thereunder. As of their respective filing dates, each
SEC Document filed before the date hereof complied in all material respects with
the requirements of the Exchange Act, and the applicable rules and regulations
of the SEC thereunder. All forms, reports and documents filed with the SEC, by
ADS, did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of ADS, including the notes thereto, included in the SEC Documents
(the "ADS Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) and present
fairly the consolidated financial position of ADS at the dates thereof and of
its consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). Since March 31, 2000, there has been no change in any of the
significant accounting (including tax accounting) policies, practices or
procedures of ADS or any subsidiary of ADS, except changes resulting from
changes in accounting pronouncements of Financial Accounting Standards Boards or
23
changes in applicable laws or rules or regulations thereunder. Since March 31,
2000, there has been no occurrence or non-occurrence of any fact, event or
circumstance which with notice or lapse of time would be reasonably likely to
require ADS or any of its affiliates to file a Form 8-K with the SEC that have
not been filed.
3.10. Compliance with Laws. Except as set forth in Schedule 3.10,
none of the Buyers has received any written notice of any violation of any
applicable laws, rules, regulations and orders relating to the operation,
conduct or ownership of its business. The Buyers have all permits, licenses,
certificates and authorizations of governmental and regulatory authorities
necessary for the conduct of their business as presently conducted.
ARTICLE IV
COVENANTS
4.01. Further Assurances. At any time or from time to time after the
Closing, each party shall, at the request of the other party, execute and
deliver any further instruments or documents and take all such further action as
such other party may reasonably request in order to evidence the consummation of
the transactions contemplated hereby.
4.02. Notice. Each party hereto shall have a continuing obligation
to promptly notify the other parties in writing as to any matter hereafter
arising or discovered which becomes known to such other party prior to the
Closing (except for matters brought to such party's attention by such other
party in writing) which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in any Schedule to this
Agreement or otherwise would have resulted in any representation or warranty of
the Stockholders contained herein being false or inaccurate in any material
respect. No disclosure made by the Stockholders following the date hereof shall
be deemed to modify or amend any representation or warranty contained in this
Agreement or the Schedules thereto except as set forth in Section 4.11.
4.03. Confidentiality. The Stockholders shall have the continuing
obligation to not disclose any Confidential Information (as defined below) after
the Closing Date to any third party, except as required by law. "Confidential
Information" shall mean any information concerning the Company which is in the
possession of the Stockholders on the date hereof or on the Closing Date
relating to the Business, other than information which is or becomes available
to the public (other than as a result of the disclosure by the Stockholders of
such information in contravention of the covenants set forth in this Section
4.03). Through and until the Closing Date, Buyers agree that none of the Buyers
nor any of Buyers' affiliates will disclose any Confidential Information to any
third party, except as required by law.
4.04. Cash Management; Intercompany Accounts. The Stockholders will
cooperate with ADS in making preparations for the Company to participate in
banking and financial programs of ADS.
4.05. Responsibility for Taxes; Returns; Audits.
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(a) Indemnification.
(1) The Stockholders shall be responsible for and
indemnify and hold harmless Buyers and their affiliates, including the Company,
from and against any Losses arising with respect to all Taxes of the Company for
any taxable year or period (i) ending on or before May 31, 2000, and (ii)
beginning before and ending after May 31, 2000, to the extent allocable to the
portion of such taxable period ending on and including May 31, 2000. Buyers
shall immediately upon refund or crediting of any Tax overpayment for any such
year or period or portion thereof distribute the amount of any Tax overpayment
to the Stockholders, to the extent attributable to such period and not reflected
on the May 31, 2000 Balance Sheet. For purposes of this Section 4.05(a), the
Stockholders' obligation to indemnify Buyers and their affiliates for a Loss
with respect to a Tax shall apply only to the extent that such Tax incurred with
respect to any such period exceeds the reserves for such Tax on the May 31, 2000
Balance Sheet, provided that such reserves shall be reduced to reflect any
payments of Taxes against which reserves were reflected on the May 31, 2000
Balance Sheet and increased to reflect Taxes incurred in the operations of the
Company in the ordinary course of business, subsequent to the date of such
Balance Sheet prior to May 31, 2000.
(2) For purposes of this Section 4.05(a), whenever it is
necessary to determine the amount of any liability for (or refund of) Taxes of
the Company for a portion of a Taxable year or period that begins before and
ends after the May 31, 2000, the determination of such Taxes for the portion of
the year or period ending on, and the portion of the year or period beginning
after, May 31, 2000 shall be determined (i) in the case of Income Taxes, based
upon an interim closing of the books of the Company (as appropriate) as of the
close of business on May 31, 2000 and (ii) in the case of Taxes other than
Income Taxes, (a) with respect to sales, transfer, excise, gains, and other
Taxes based upon transfers or transactions, based upon whether the relevant
transaction occurred on or prior to, or subsequent to, May 31, 2000, and (b) in
the case of all other Taxes (including real and personal property Taxes) based
upon the relative number of days in the portion of the taxable period up to and
including May 31, 2000 and the relative number of days in the portion of the
taxable period subsequent to May 31, 2000.
(b) Tax Returns; Filing and Payments.
(1) ADS shall timely prepare (or cause to be prepared),
and shall timely file (or cause to be timely filed) all Tax Returns of the
Company for any taxable year or period which are not filed or required to be
filed on or before the Closing date. ADS shall pay or cause the Surviving
Company to pay any Tax required to be paid with respect to the period covered by
returns as reflected thereon provided that such payment obligation under this
Section 4.05(b) shall not prevent any claim for indemnification under Section
9.02(b).
(2) The Buyers shall not amend or cause to be amended any
Tax Return of the Company for taxable periods (a) ending on or before May 31,
2000 or (b) beginning before May 31, 2000 and ending on or after such date,
25
without the prior written consent of the Stockholders' Representative. Buyers
shall, upon request by the Stockholders' Representative and at the sole expense
of the Stockholders, cooperate in the preparation of and submission to the
proper tax authority of any amended Tax Return for any such period which is
required to cause the Tax Return for such period to be consistent with a
position adopted by the Buyers in a subsequent taxable period, or to be
consistent with adjustments to the Tax Returns of the Company for any other
taxable period proposed by tax authorities. Any tax consequences or payments
required as a result of such amended Tax Return shall be allocated pursuant to
Section 4.05(a).
(3) The Tax Returns referred to in Section 4.05(b)(1),
shall, to the extent not otherwise required by law, be prepared in a manner
consistent with the Company's (as appropriate) past practice (including any Tax
elections and methods of accounting). With respect to any Tax Return referred to
in Sections 4.05(b)(1) above, ADS shall provide the Stockholders' Representative
a draft of such Tax Return and Tax information (including, without limitation,
work papers and schedules) for review of such Tax Return in a timely manner no
later than thirty (30) days prior to the due date (taking into account valid
extensions) for the filing of such Tax Return. The parties shall consult in good
faith with regard to the form and content of such Tax Returns, provided that, in
the event of any disagreement, the Returns shall be filed in the form set forth
by the party with responsibility for the preparation of the Tax Returns.
Stockholders' Representative shall be entitled to direct the adoption of any
legally permissible filing position on such Tax Return.
(c) Termination of Tax Sharing Agreements; Powers of Attorney.
(1) Any Tax Sharing Agreement to which the Company is a
party (other than this Agreement) shall be terminated as of the Closing Date,
and the Company shall have no further obligations thereunder. For purposes of
this Agreement, the term "Tax Sharing Agreement" includes any agreement or
arrangement, whether or not written, providing for the sharing or allocation of
liability for Taxes of the parties thereto.
(2) All powers of attorney granted by the Company with
respect to Taxes shall be revoked as of the Closing Date.
(3) The Stockholders agree that between the date of the
Agreement and the Closing Date, it will not cause or permit the Company to (i)
make any change in the Company's Tax accounting methods, any new election with
respect to Taxes or any modification or revocation of any existing election with
respect to Taxes or (ii) settle or otherwise dispose of any Tax audit, dispute,
or other Tax proceeding, in each case without Buyers' express written consent
thereto.
(d) Assistance and Cooperation.
(1) From and after the Closing Date, to the extent
reasonably requested by the other party, the Stockholders and Buyers shall
assist and cooperate with each other in the preparation of any Tax Return which
the other party is responsible to file pursuant to Section 4.05(b) herein and
26
shall assist and cooperate with the other party in preparing for any audits or
disputes relating to Taxes for which the other party is responsible pursuant to
this Agreement. From and after the Closing Date, the Stockholders and Buyers
shall, pursuant to the other party's reasonable request, make available to the
other party all information, records and documents reasonably available to that
party which are necessary for the preparation of any Tax Return or resolution of
any audit or dispute. In all such cases, the party seeking assistance or
cooperation shall bear the expenses of the other party incurred in connection
with respect thereto.
(2) From and after the Closing Date, the Stockholders and
Buyers shall provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of the Company for taxable periods for
which the other is liable under this Agreement, and shall furnish the other with
copies of all correspondence received from any taxing authority in connection
with any tax audit or information request with respect to any such taxable
period. The Stockholders Representative shall have the right to attend and
participate in any such audit.
(e) Certain Taxes. The Stockholders shall bear, and shall
indemnify and hold harmless Buyers and their affiliates (including the Surviving
Company) from and against, all sales, transfer, stamp, documentary, real estate
transfer, real estate gains, and other similar Taxes incurred by the
Stockholders and/or the Company in connection with the transactions contemplated
by this Agreement.
(f) Contests.
(1) Subject to the provisions of this Section 4.05(f), the
Stockholders shall have the right, at their own expense, to control and manage
any contest or similar proceeding with respect to Taxes of the Company for any
taxable year or period ending on or before May 31, 2000 and shall have the right
to settle or contest in their discretion any such contest or proceeding;
provided, however, that (i) the Stockholders shall not have the right to control
and manage any such proceeding unless they first acknowledge in writing their
obligation to fully indemnify Buyers for the Taxes at issue in the proceeding to
the extent such Taxes exceed the reserves for Taxes shown on the May 31, 2000
Balance Sheet; (ii) no settlement or disposition of any such proceeding shall be
made without Buyers' consent (which consent shall not be unreasonably withheld)
if the same reasonably could be expected to affect Buyers' liability for Tax in
any taxable period or portion of a taxable period ending after May 31, 2000;
(iii) Buyers and the Stockholders shall jointly control any Income Tax
proceeding relating to a taxable period that begins before, and ends after, May
31, 2000; and (iv) Buyers shall have the right to attend and participate in (but
not control) at their own expense, any proceeding to the extent that it relates
to Taxes of the Company.
(2) Except for proceedings the control of which is
determined pursuant to Section 4.05(f)(1) above, Buyers shall, at their own
expense, control, manage and solely be responsible for any audit, contest,
claim, proceeding or inquiry with respect to Taxes for any taxable year or
period ending after May 31, 2000, and shall have the exclusive right to settle
27
or contest any such audit, contest, claim, proceeding or inquiry without the
consent of any other party.
4.06. Cooperation with Public Filings. The Stockholders shall
cooperate, and shall cause the Surviving Company and the Surviving Company's
accountants to cooperate, with Buyers and its affiliates and advisors in the
preparation and filing of any public filings (and any related documentation or
filings) in a timely fashion and shall use, and cause the Company to use, its
reasonable best efforts to assist Buyers in having any such registration
statement declared effective by the Securities and Exchange Commission as
promptly as practicable and in maintaining the effectiveness of any such
registration statement. If the Stockholders shall obtain knowledge of any
information pertaining to the Company that would require any amendment or
supplement to any registration statement, the Stockholders shall so advise ADS
in writing and shall promptly furnish ADS with all information as shall be
required for such amendment or supplement and shall promptly take such action as
shall be required to amend or supplement any such registration statement.
4.07. Tax Reorganization.
(a) Each party to this Agreement hereby agrees to take all
reasonable actions to cause the Merger to qualify as a reorganization within the
meaning of Section 368(a) of the Code and will immediately notify each of the
other parties of any circumstance or condition of which it is or becomes aware
of which might cause the Merger to fail to so qualify. The Buyers represent that
they have not taken any action that would cause the Merger to fail to so qualify
as a reorganization within the meaning of Section 368(a) of the Code, and are
not aware of any circumstances which would cause the Merger to fail to so
qualify. In support of the qualification of the transaction thereunder, Buyers
further represent that on the Closing Date:
(1) None of the Buyers has any plan or intention (A) to
cause the Surviving Corporation or any permitted transferee therefrom to sell or
dispose of any of the assets or properties of the Company acquired in the Merger
except for dispositions in the ordinary course of business or transfers
permitted by Treas. Reg. ss.1.368-2(k)(1), (B) to liquidate the Surviving
Corporation, (C) to merge the Surviving Corporation with or into another
corporation or corporations, (D) to sell or otherwise dispose of the stock of
the Surviving Corporation except for transfers of stock to a corporation
"controlled" (within the meaning of section 368 of the Code) by Buyer as
permitted by Section 368(a)(2)(C), or (E) to cause the Surviving Corporation to
issue additional shares of stock that would result in Buyer losing "control"
(within the meaning of Section 368 of the Code) of the Surviving Corporation.
(2) The Buyers intend to cause the Surviving Corporation
to continue a historic business of the Surviving Corporation or use a
significant portion of the Surviving Corporation's historic business assets in a
business within the meaning of Treas. Reg. ss.1.368-1(d).
(3) None of the Buyers has any plan or intention to
reacquire any of the ADS Common Stock except as modifications to the Merger
Consideration provided herein issued in the Merger, and no person related to the
28
Buyers within the meaning of Treas. Reg. ss.1.368-1(e)(3) and no person acting
as an intermediary (other than the Broker retained by the Stockholders) for the
Buyers or such a related person has a plan or intention to acquire any of the
ADS Common Stock issued in the Merger.
(4) Immediately prior to the Merger, ADS will own all of
the outstanding stock of Compec Acquisition Corp.
(5) Except for obligations incurred in connection with its
incorporation or organization or the negotiation and consummation of this
Agreement and the transactions contemplated hereby, Compec Acquisition Corp. has
neither incurred any obligation or liability nor engaged in any business or
activity of any type or kind whatsoever or entered into any agreement or
arrangement with any person.
(6) Compec Acquisition Corp. is a direct subsidiary of
ADS.
(b) The Buyers agree that they will not take any action, and
will not cause the Surviving Corporation to take any action, which would cause
the Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code. Buyers will not use assets of the Company acquired in the
Merger to pay the Closing Cash Payment.
4.08. Access to Information. Each party shall afford to the other
party and its accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(a) all of its properties, books, contracts, agreements and records, and (b) all
other information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as may be reasonably requested, subject
to any applicable contractual confidentiality obligations (which the parties
shall use their respective commercially reasonable efforts to cause to be
waived) provided however such right shall be limited to the books and records of
Compec Acquisition Corp. No information or knowledge obtained in any
investigation pursuant to this Section 4.08 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
4.09. Consents. Each of the Company and ADS shall use its reasonable
efforts to obtain the consents, waivers and approvals under any of the
Commitments as may be required in connection with the Merger (all of such
consents, waivers and approvals are set forth in Company Schedules) so as to
preserve all rights of, and benefits to the Company thereunder.
4.10. Reasonable Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use commercially
reasonable efforts to promptly take, or cause to be taken, all actions, and to
promptly do, or cause to be done, all things necessary under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
29
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
4.11. Company Schedules. Between the date hereof and the Effective
Time, it is understood and agreed that, from time to time prior to the Closing,
the Stockholders' Representative or the Company may amend or supplement the
Schedules with respect to any matter that is required to be set forth or
described in such a Schedule or that is necessary to complete or correct any
information in any representation or warranty of such party contained in this
Agreement; provided that the disclosure provided in any such amended,
supplemented or revised Schedule shall in no way affect or be deemed to limit
ADS's condition set forth in Section 6.01.
4.12. ADS Stock Options. Promptly after the Closing Date (but in any
event within 30 days of the Closing Date), ADS will grant stock options to
purchase 200,000 shares of its Common Stock to the employees of the Company
pursuant to a Stock Option Agreement in the form set forth in Schedule 4.12(a).
The persons to whom such options shall be granted and the number of options to
be granted to each person shall be as set forth on Schedule 4.12(b).
4.13. Stockholders' Representative.
(a) Upon the Effective Time and without further act of any
Stockholder, Xxxx Xxxxxxxxx, Xxxxx Xxxxxxxxx and Xxxx Xxxxxxxx (collectively,
the "Stockholders' Representative") shall be appointed as agent and
attorney-in-fact for each Stockholder, for and on behalf of each such
Stockholder, with full power of substitution, and with full power and authority
to represent the Stockholders and their successors with respect to all matters
arising under this Agreement, and all actions taken by the Stockholders'
Representative hereunder shall be binding upon such Stockholders and their
successors as if expressly ratified and confirmed in writing by each of them.
Without limiting the generality of the foregoing, the Stockholders'
Representative shall have full power and authority, on behalf of all the
Stockholders and their successors, to interpret all the terms and provisions of
this Agreement, to dispute or fail to dispute any "Claim of Damages" made by an
Indemnified Party, to assert Claims of Damages against any Indemnifying Party,
to negotiate and compromise any dispute which may arise under this Agreement, to
sign any releases or other documents with respect to any such dispute, and to
authorize delivery of any payments to be made with respect thereto. All
determinations of the Stockholders' Representative shall be decided by a
majority thereof in the event there is more than one Stockholders'
Representative.
(b) The Stockholders' Representative, or any successor
hereafter appointed, may resign and shall be discharged of his duties hereunder
upon the appointment of a successor Stockholders' Representative as hereinafter
provided. In case of such resignation, or in the event of the death or inability
to act of the Representative, a successor shall be named from among the
Stockholders by a majority of the members of the Board of Directors of who
served on such board prior to the Merger. Each such successor Stockholders'
Representative shall have all the power, authority, rights and privileges hereby
conferred upon the original Stockholders' Representative, and the term
30
"Stockholders' Representative" as used herein shall be deemed to include such
successor Stockholders' Representative.
(c) In performing any of their duties under this Agreement, or
upon the claimed failure to perform his duties hereunder, the Stockholders'
Representative shall not be liable to the Stockholders or anyone else for any
damages, losses or expenses which they may incur as a result of any act, or
failure to act under this Agreement; provided, however, that the Stockholders'
Representative shall be liable for damages arising out of actions or omissions
that both (i) were taken or omitted not in good faith and (ii) constituted
willful default or gross negligence under this Agreement. Accordingly, the
Stockholders' Representative shall not incur any such liability with respect to
(i) any action taken or omitted to be taken in good faith upon advice of his
counsel given with respect to any questions relating to the duties and
responsibilities of the Stockholders' Representative hereunder; or (ii) any
action taken or omitted to be taken in reliance upon any document, including any
written notice or instructions provided for in this Agreement, not only as to
its due execution and to the validity and effectiveness of its provisions, but
also as to the truth and accuracy of any information contained therein, which
the Stockholders' Representative shall in good faith believe to be genuine, to
have been signed or presented by the purported proper person or persons and to
conform with the provisions of this Agreement. The limitation of liability
provisions of this Section shall survive the termination of this Agreement and
the resignation of the Stockholders' Representative. The Compec Stockholders
shall severally indemnify the Stockholders' Representative and hold him harmless
against any loss, liability or expense (including any expenses of legal counsel
retained by the Stockholders' Representative) incurred without willful default,
gross negligence or bad faith on the part of the Stockholders' Representative
and arising out of or in connection with the acceptance or administration of his
duties hereunder.
4.14. Disclosure Information. The Principal Stockholders shall allow
ADS to review all disclosure materials prior to such materials being sent to the
stockholders of Compec and shall allow ADS to amend or supplement such materials
so as to comply with the Securities Act and the securities laws of all
applicable states.
ARTICLE V
CONDITIONS TO BUYERS' OBLIGATIONS
The obligation of Buyers to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver) on or prior to
the Closing Date of all of the following conditions:
5.01. Representations, Warranties and Covenants of Stockholders. The
Stockholders shall have complied in all material respects with their agreements
and covenants contained herein to be performed on or prior to the Closing Date,
and the representations and warranties of the Stockholders contained herein in
the aggregate shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date, except
(a) as otherwise contemplated hereby, and (b) to the extent that any such
31
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall continue on the Closing Date to
have been true in all material respects as of the specified date. For purposes
of the preceding sentence, specific material adverse effect and materiality
qualifiers contained in individual representations and warranties shall be
disregarded. Buyers shall have received a certificate of the Stockholders'
Representative ("Stockholders' Certificate"), dated as of the Closing Date and
signed by the Stockholders' Representative, certifying as to the fulfillment of
the condition set forth in this Section 5.01.
5.02. No Prohibition. No statute, rule or regulation or order of any
court or administrative agency shall be in effect that prohibits Buyers from
consummating the transactions contemplated hereby.
5.03. Consents. All other consents, approvals, authorizations,
exemptions and waivers from governmental agencies and third parties that are
reasonably required for the consummation of the transactions contemplated
hereby, including those listed on Schedule 2.13, shall have been obtained in
form and substance reasonably satisfactory to the Buyers.
5.04. Employment Agreements. Each of the employees listed on
Schedule 5.04 shall have executed an employment agreement in the form of Exhibit
5.04 (the "Employment Agreement"). Such Employment Agreement shall replace and
supercede any employment agreements by and between such employee and the Company
("Prior Employment Agreements"), if any. The Stockholders do also expressly
waive any rights, including but not limited to severance payments, pursuant to
such Prior Employment Agreements.
5.05. No Material Adverse Change. Since May 31, 2000, the Company
has not suffered any material adverse change in the business, assets,
liabilities, and results of operations or prospects of the Company.
5.06. Banking Arrangements. The Stockholders shall cause the Company
to execute and deliver any and all necessary documents and or corporate
resolutions deemed necessary to ADS pursuant to ADS's current credit agreement,
including but not limited to executing or causing the execution and filing of
the appropriate termination statements.
5.07. Stock Option Plans. The Company shall terminate any and all
stock option plans and warrants and shall assume any liability that may result
therefrom including but not limited to the vesting of such options. Further, the
Stockholders shall deliver evidence of such termination in a form acceptable to
Buyers prior to Closing.
5.08. Legal Opinion. The Buyers shall have received a legal opinion
from Xxxx Xxxxxxx, counsel to Compec, in substantially the form attached hereto
as Exhibit 5.08.
32
ARTICLE VI
CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
The obligation of the Stockholders to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction (or waiver)
on or prior to the Closing Date of all of the following conditions:
6.01. Representations, Warranties and Covenants of Buyers. Buyers
shall have complied in all material respects with its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and the
representations and warranties of Buyers contained herein in the aggregate shall
be true in all material respects on and as of the Closing Date with the same
effect as though made on and as of the Closing Date, except (a) as otherwise
contemplated hereby, and (b) to the extent that any such representations and
warranties were made as of a specified date and as to such representations and
warranties the same shall continue on the Closing Date to have been true in all
material respects as of the specified date. For purposes of the preceding
sentence, specific material adverse effect and materiality qualifiers contained
in individual representations and warranties shall be disregarded. The
Stockholders' Representative shall have received a certificate of Buyers, dated
as of the Closing Date and signed by an officer of Buyers ("Buyers'
Certificate"), certifying as to the fulfillment of the condition set forth in
this Section 6.01.
6.02. No Prohibition. No statute, rule or regulation or order of any
court or administrative agency shall be in effect that prohibits the
Stockholders from consummating the transactions contemplated hereby.
6.03. Employment Agreements. The Surviving Company shall have
executed an Employment Agreement with Xxxx X. Xxxxxxxxx, Xxxxxxxxxxx
X.Xxxxxxxxx, Xxxxxxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxxx and Xxxxx X. Xxxxxxxxxx.
6.04. Consents. All other consents, approvals, authorizations,
exemptions and waivers from governmental agencies and third parties that are
reasonably required for the consummation of the transactions contemplated
hereby, shall have been obtained in form and substance reasonably satisfactory
to the Stockholders' Representative.
6.05. No Material Adverse Change. Since March 31, 2000, ADS has not
suffered any material adverse change in the business, assets, liabilities, and
results of operations or prospects of the ADS.
6.06. Legal Opinion. The Stockholders' Representative shall have
received a legal opinion from Merra, Kanakis, Creme & Xxxxxx, P.C., counsel to
ADS and Compec Acquisition Corp., in substantially the form attached hereto as
Exhibit 6.06.
33
ARTICLE VII
STOCK CERTIFICATES; LEGEND
7.01. Securities Laws; Legend.
(a) The Stockholders represent and warrant that: (i) they
understand that the shares of ADS Common Stock being issued pursuant to Section
1.03 have not been and will not be registered under the Act, and it is the
intention of the parties hereto that the issuance of such securities be exempt
from registration under the Act and the rules promulgated thereunder by the SEC;
(ii) they understand that that the shares of ADS Common Stock being issued
pursuant to Section 1.03 may not be sold, transferred, assigned, exchanged,
pledged, encumbered or otherwise disposed of unless they are registered under
the Act or an exemption from registration is available; (iii) they are acquiring
the shares of ADS Common Stock being issued pursuant to Section 1.03 for
investment for their own account and not with a view to the distribution
thereof; (iv) they have, or together with their advisers, if any, have, such
knowledge and experience in financial and business matters that they are, or
together with their advisers, if any, are, and will be capable of evaluating the
merits and risks relating to their acquisition of shares of common stock
pursuant to Section 1.03; (v) they have been given the opportunity to obtain
information and documents relating to ADS and to ask questions of and receive
answers from representatives of ADS concerning Buyers; and (vi) they are able to
bear the economic risk of a total loss of value of their interest in Buyers.
Stockholders covenant that they shall neither directly or indirectly sell,
transfer, assign, exchange, pledge, encumber or otherwise dispose of any shares
of ADS Common Stock obtained pursuant to Section 1.03 until such shares have
been registered, or such sale, transfer, assignment, exchange, pledge,
encumbrance or other disposition is exempt from registration.
(b) The certificates representing shares of ADS Common Stock
issued pursuant to Section 1.03 shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any securities regulatory authority of any state, and may not
be sold, transferred, assigned, exchanged, pledged, encumbered
or otherwise disposed of except in compliance with all
applicable securities laws and pursuant to a registration
statement or an exemption therefrom.
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
8.01. Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time of the Merger, whether before
or after approval of the Merger by the stockholders of the Compec:
(a) by mutual written consent of the Company and ADS;
34
(b) by either ADS or the Company if: (i) the Effective Time
has not occurred by July 28, 2000 (provided that the right to terminate this
Agreement under this clause 8.01(b)(i) shall not be available to any party whose
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date); (ii) any
"Governmental Authority", the consent of which is a condition to the obligations
of ADS and Company to consummate the Merger, shall have determined not to grant
its consent and all appeals of such determination shall have been taken and have
been unsuccessful; or (iii) there shall be any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
"Governmental Entity" that would make consummation of the Merger illegal;
(c) by either the Company or ADS if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action (an
"Order"), in any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, which Order is final and nonappealable;
(d) by either the Company or ADS if the required approval of
the stockholders of Compec contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote or written consent
of the Compec stockholders (provided that the right to terminate this Agreement
under this Section 8.01(d) shall not be available to the Company where the
failure to obtain the Compec stockholder approval shall have been caused by the
action or failure to act of the Company in breach of this Agreement);
(e) by ADS if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit ADS's or the
Company's ownership or operation of any portion of the business of the Company
or (ii) compel ADS or the Company to dispose of or hold separate, as a result of
the Merger, any portion of the business or assets of the Company or ADS;
(f) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement on the part of ADS set forth in
this Agreement, or if any representation or warranty of ADS shall have become
untrue, in either case such that the conditions set forth in Section 6.02(a) or
Section 6.02(b) would not then be satisfied; provided that if such inaccuracy in
ADS's representations and warranties or breach by ADS is curable by ADS through
the exercise of its commercially reasonable efforts, then the Company may only
terminate this Agreement under this Section 8.01(f) if the breach is not cured
within 10 days following the date of written notice from Company of such breach
(but no cure period shall be required for a breach which by its nature cannot be
cured); or
(g) by ADS if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 6.03(a) or
35
Section 6.03(b) would not then be satisfied; provided, that if such inaccuracy
in Company's representations and warranties or breach by Company is curable by
Company through the exercise of its commercially reasonable efforts, then ADS
may only terminate this Agreement under this Section 8.01(g) if the breach is
not cured within 10 days the date of written notice from ADS of such breach (but
no cure period shall be required for a breach which by its nature cannot be
cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.01, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.02. Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of ADS, Compec
Acquisition Corp. or the Company, or their respective officers, directors or
stockholders; provided that, the provisions of Sections 4.03 and Articles VIII
and IX of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.03. Amendment. Except as is otherwise required by applicable law
after the stockholders of the Compec approve this Agreement, this Agreement may
be amended by the parties hereto at any time only by execution of an instrument
in writing signed on behalf of each of the parties hereto, except that following
approval by the stockholders of Compec there shall be no amendment or supplement
which by law requires further approval by such stockholders without such further
approval by the stockholders of the Compec.
8.04. Extension; Waiver. At any time prior to the Effective Time,
ADS and Compec Acquisition Corp., on the one hand, and the Company, on the
other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
MISCELLANEOUS
For purposes of this Section, Buyers shall look only to the Principal
Stockholders for purposes of seeking indemnification pursuant to this Section.
9.01. Survival. The representations and warranties of the parties
hereto contained herein or in any agreement, certificate (including the
Stockholders' Certificate and the Buyers' Certificate) or other document
executed at or prior to the Closing in connection herewith (an "Ancillary
Document") shall expire on the date 18 months following the Effective Time,
36
except that the representations and warranties set forth in Sections 2.01, 2.07,
2.12, 2.14, 3.03 and 4.07 of this Agreement shall survive the Closing Date until
the expiration of the applicable statute of limitations (including any
extensions thereof). After the expiration of such periods, any claim by a party
hereto based upon any such representation or warranty shall be of no further
force and effect, except to the extent a party have asserted a claim in
accordance with this Article IX for breach of any such representation or
warranty prior to the expiration of such period, in which such claim shall
survive until such claim is resolved as provided in this Article IX. The
covenants and agreements of the parties hereto shall survive the Closing until
performed in accordance with their terms.
9.02. Agreement to Indemnify.
(a) From and after the Closing Date, Buyers shall indemnify,
defend and hold harmless the Stockholders and any affiliate of the Stockholders
and each of the Stockholders' respective agents and representatives, and
Stockholders' heirs, executors, successors and assigns (collectively,
"Stockholders' Indemnified Group") from and against any liability, loss, damage,
claim (including third-party claims, whether or not meritorious), cost or
expense (including, without limitation, reasonable attorneys' fees and
disbursements) (collectively, "Losses") incurred or suffered by Stockholders'
Indemnified Group to the extent the Losses arise out of, or result from (i) the
failure of any representation or warranty made by Buyers herein or in any
Ancillary Document to have been true when made and as of the Closing Date, or
(ii) the breach of any covenant or agreement of Buyers contained herein or in
any Ancillary Document.
(b) From and after the Closing Date, Stockholders shall
indemnify, defend and hold harmless Buyers and any affiliate of Buyers and each
of their respective directors, officers, employees, agents and representatives,
and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, "Buyers' Indemnified Group") from and against all Losses incurred
or suffered by Buyers' Indemnified Group to the extent the Losses arise out of,
or result from (i) the failure of any representation or warranty made by
Stockholders herein or in any Ancillary Document to have been true when made and
as of the Closing Date, (ii) the breach of any covenant or agreement of the
Stockholders contained herein or in any Ancillary Document, or (iii) any claim
made by a Stockholder pursuant to Section 262 of the Delaware General
Corporation Law.
9.03. Indemnification Procedure.
(a) The party seeking indemnification under this Agreement
(the "Indemnified Party") shall promptly notify the party from which
indemnification is being sought (the "Indemnifying Party") of the facts and
circumstances upon which the Indemnified Party intends to base a claim for
indemnification hereunder ("Indemnification Notices"). The Indemnification
Notice shall in all events be considered prompt if given (a) no later than 30
days after the Indemnified Party learns of the facts upon which it will claim
such indemnification or (b) if earlier, in sufficient time to allow the
Indemnifying Party to exercise its rights pursuant to this Section 9.03;
provided, however, that the failure to provide such Notice of claims promptly
(so long as a notice of claims is given before the date on which the applicable
representation or warranty ceases to survive) shall not affect the obligations
of the Indemnifying Party hereunder except to the extent the Indemnifying Party
37
is prejudiced thereby. Except as specifically described in Section 4.05, the
Indemnifying Party shall have the right, at its own cost, to participate jointly
in the defense of any third-party claim, demand, lawsuit or other proceeding in
connection with which the Indemnified Party has claimed indemnification
hereunder, and may elect to take over the defense of such claim within 10 days
following notice thereof upon its written unconditional acknowledgment of its
obligation to indemnify the Indemnified Party with respect to such claim;
provided, however, that Stockholders shall be permitted to take over the defense
of any claim brought by any customer or supplier of the Business against any
member of Buyers' Indemnified Group for which indemnification is available
pursuant to this Article IX, and such member of Buyers' Indemnified Group shall
defend such claim; provided, further, that such member of Buyers' Indemnified
Group shall not settle or otherwise dispose of such claim without the consent of
Stockholders, which consent shall not be unreasonably withheld or delayed. If
the Indemnifying Party makes such an election, (x) it shall keep the Indemnified
Party informed as to the status of such matter and shall promptly send copies of
all pleadings to the Indemnified Party, (y) with respect to any issue involved
in such claim, it shall have the sole right, with respect to claims or portions
of claims seeking monetary damages only, to settle or otherwise dispose of such
claim on such terms as it, in its sole discretion, shall deem appropriate;
provided, however, that the consent of the Indemnified Party to the settlement
or disposition shall be required if such settlement or disposition shall result
in any indemnifiable liability to, equitable relief against or adverse business
effect on the Indemnified Party, which consent shall not be unreasonably
withheld or delayed, and (z) the Indemnified Party shall have the right to
participate jointly in the defense of such claim, but shall do so at its own
cost not subject to reimbursement under Section 9.02. If the Indemnifying Party
does not elect to take over the defense of a third-party claim, the Indemnified
Party shall have the right to contest, compromise or settle such claim in the
exercise of its reasonable judgment; provided, however, that the consent of the
Indemnifying Party to any compromise or settlement of such claim shall be
required if such compromise or settlement shall result in any liability to,
equitable relief against or adverse business effect on the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed.
(b) Notwithstanding the provisions of Section 9.03(a), with
respect to any third-party claim or demand that the Indemnifying Party is
defending, the Indemnified Party shall have the right to retain separate counsel
to represent it and the Indemnifying Party shall pay the fees and expenses of
such separate counsel if there are conflicts that make it reasonably necessary
for separate counsel to represent the Indemnified Party and the Indemnifying
Party.
9.04. Other Indemnification Matters.
(a) Except as specifically described in Section 4.05 of this
Agreement, the indemnification provided in this Article IX shall be the sole and
exclusive remedy for any inaccuracy or breach of any representation or warranty
made by Stockholders or Buyers in this Agreement or in any Ancillary Document.
All amounts payable by one party in indemnification of the other (whether or not
as provided in Section 9.04(d)) shall be considered an adjustment to the Merger
Consideration.
38
(b) Upon making any payment to an Indemnified Party for any
indemnification claim pursuant to this Article IX, the Indemnifying Party shall
be subrogated, to the extent of such payment, to any rights which the
Indemnified Party may have against any other parties with respect to the subject
matter underlying such indemnification claim.
(c) The amount of any Losses shall be computed net of any
insurance proceeds received by the Indemnified Party or its affiliates in
connection therewith.
(d) Notwithstanding anything herein to the contrary, if
Stockholders shall have indemnification obligations pursuant to this Agreement,
Stockholders may, at their option, (i) make such payment in cash by wire
transfer of immediately available funds, (ii) reduce any future payment
obligation to Stockholders pursuant to Section 1.05 on a dollar-for-dollar
basis, or (iii) if ADS is in possession of any certificate representing shares
of ADS Common Stock issued pursuant to Section 1.05(b), give back the number of
shares represented by such certificate having an aggregate market value equal to
the indemnification obligation of Stockholders. For purposes of clause (iii)
above, "market value" for a share of common stock of ADS shall be the Closing
Valuation Price. If any future payment obligation pursuant to Section 1.05(b)
shall be reduced pursuant to clause (ii) above, the amount so reduced shall be
deemed "paid" for purposes of Section 1.05.
(e) The indemnification obligations of the Stockholders shall
be limited to an aggregate amount equal to the Merger Consideration received by
the Principal Stockholders, less the Closing Cash Payment received by the
Principal Stockholders. The Stockholders shall have no liability for Losses
unless and until the aggregate amount of all Losses for all claims asserted by
the Buyer's Indemnified Group exceeds $600,000 (the "Deductible"); provided,
however, after exceeding such amount, only Losses in excess of such amount shall
be recoverable by such Buyer's Indemnified Group. Notwithstanding anything else
provided hereinabove to the contrary (a) any indemnification obligation pursuant
to Section 9.02(b)(iii)and (b) any indemnification obligation pursuant to
Section 4.05(b) shall not be subject to Deductible and shall be recoverable on a
dollar for dollar basis.
(f) Any indemnification paid by an Indemnifying Party with
respect to Losses calculated for purposes of Section 9.01(a) will be reduced by
any offsetting net federal, state, local or foreign tax benefit to the
Indemnified Party with respect to such Losses.
(g) Notwithstanding the foregoing, the indemnification
obligations of any Indemnifying Party shall not be applicable to any Losses
suffered or incurred by an Indemnified Party that resulted from a breach of a
representation and warranty that was known to exist by the Indemnified Party
prior to the Closing.
39
9.05. Interpretive Provisions.
(a) Whenever used in this Agreement, "to the Company's
knowledge" or "to the knowledge of the Company" shall mean the actual knowledge
each Stockholder would have after due and reasonably inquiry of each of the
Principal Stockholders.
(b) Whenever used in this Agreement, "to such Stockholder's
knowledge" or "to the knowledge of such Stockholder" shall mean the actual
knowledge of such Stockholder.
(c) The words "hereof," "herein," "hereby" and "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision thereof.
(d) For purposes of this Agreement, the Company shall be
deemed to be an affiliate of Stockholders prior to the Closing and an affiliate
of ADS after the Merger.
9.06. Entire Agreement. This Agreement (including the Schedules) and
the Ancillary Documents constitute the sole understanding of the parties with
respect to the subject matter hereof.
9.07. Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided, however, that this
Agreement may not be assigned by either party hereto without the prior written
consent of the other (except that Buyers may without the prior written consent
of Stockholders assign this Agreement to any affiliate of Buyers so long as such
assignee shall execute a counterpart of this Agreement agreeing to be bound by
the provisions hereof as "Buyers," and agreeing to be jointly and severally
liable with the assignor and any other assignee for all of the obligations of
the assignor hereunder), but no such assignment of this Agreement or any of the
rights or obligations hereunder shall relieve Buyers of its obligations under
this Agreement. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, express or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.08. Headings. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
9.09. Modification and Waiver. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
40
9.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
9.11. Expenses. Except as otherwise provided herein, Stockholders
and Buyers shall pay all costs and expenses incurred by them or it or on their
or its behalf in connection with this Agreement and the transactions
contemplated hereby, including, without limiting the generality of the
foregoing, fees and expenses of their respective financial consultants,
accountants and counsel.
9.12. Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, by overnight courier
or by registered or certified mail, postage prepaid,
if to Stockholders to: Xxxx X. Xxxxxxxxx
00000 Xxxxxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Xxxxxxxxxxx X. Xxxxxxxxx
00 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Xxxxxxxxx X. Xxxxxxxx
0000 Xxxxxxxxxxx Xxxxxx
Xxx. 000 X
Xxxxx Xxxxx, Xxxxxxxx 00000
with a copy to:
Xxxx Xxxxxxx
0000 Xxxxxxxxxxxxx Xxxxx
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
41
if to Buyers to them at: Applied Digital Solutions, Inc.
000 Xxxxx Xxxx Xxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: Merra, Kanakis, Creme & Xxxxxx, P.C.
00 Xxxx Xxxxxx
Xxxxxx, Xxx Xxxxxxxxx 00000
Attention: Xxxx X. Creme, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address for a party as shall be specified by like notice.
9.13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America, in
each case located in the State of Delaware for any Litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any Litigation relating thereto except in such courts), and
further agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in this Agreement shall be
effective service of process for any Litigation brought against it in any such
court. Each of the parties hereto hereby irrevocably and unconditionally waives
any objection to the laying of venue of any Litigation arising out of this
Agreement or the transactions contemplated hereby in the courts of the State of
Delaware or the United States of America, in each case located in the State of
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such Litigation brought in any
such court has been brought in an inconvenient forum.
9.14 Public Announcements. None of the Stockholders nor Buyers
shall make any public statements, including, without limitation, any press
releases, with respect to this Agreement and the transactions contemplated
hereby without the prior written consent of the other party except as may be
required by law. If a public statement is required to be made by law, the
parties shall consult with each other in advance as to the contents and timing
thereof.
SIGNATURE PAGES TO FOLLOW
42
IN WITNESS WHEREOF, each of the individual parties hereto has executed
this Agreement and Buyers have caused their duly authorized representatives to
execute this Agreement on its behalf as of the date first above written.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
COMPEC ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
COMPUTER EQUITY CORPORATION
By: /s/ Xxxxxxxxxxx X. Xxxxxxxxx
--------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxxx
Title: Director
STOCKHOLDERS
/s/ Xxxx X. Xxxxxxxxx
------------------------------------
Xxxx X. Xxxxxxxxx
/s/ Xxxxxxxxxxx X. Xxxxxxxxx
------------------------------------
Xxxxxxxxxxx X. Xxxxxxxxx
/s/ Xxxxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxxxx X. Xxxxxxxx
43
AGREEMENT AND PLAN OF MERGER
Dated as of June 30, 2000
by and among
APPLIED DIGITAL SOLUTIONS, INC.
COMPEC ACQUISITION CORP.
("Buyers")
COMPUTER EQUITY CORPORATION
("Company")
and
Xxxx X. Xxxxxxxxx
Xxxxxxxxxxx X. Xxxxxxxxx
Xxxxxxxxx X. Xxxxxxxx
("Principal Stockholders")
Index of Defined Terms
Act Section 7.01
Allocation Section 4.05(d)(3)
Ancillary Document Section 9.01
Annual Financial Statements Section 2.04(a)
Arbiter Section 1.06(c)
Business Recitals
Buyers Preamble
Buyers' Certificate Section 6.01
Buyers' Indemnified Group Section 9.02(b)
Closing Section 1.02
Closing Balance Sheet Section 1.06(a)
Closing Cash Value Section 1.06(d)
Code Section 2.11(l); Section 2.14(f)(v)
Commitments Section 2.08(a)
Company Recitals
Company Benefit Plan Section 2.11(a)
Company Material Adverse Effect Section 2.02(a)
Competitive Activity Section 4.07
Competitor Section 4.07
Confidential Information Section 4.03
EBITDA Section 1.05(c)
Encumbrances Section 2.01
ERISA Section 2.11(l)
Financial Statements Section 2.04(a)
Final Closing Statement Section 1.06(d)
First Payment Section 1.05
First Earnout Payment Section 1.05
GAAP Section 1.05(c)
HSR Act Section 3.04
Income Tax Return Section 2.14(f)(iv)
Income Tax Section 2.14(f)(ii)
Indemnified Party Section 9.03(a)
Indemnifying Party Section 9.03(a)
Intellectual Property Section 2.07(j)
May 31 Balance Sheet Section 2.04(a)
Leased Real Property Section 2.06(d)
Litigation Section 2.09
Losses Section 9.02(a)
Major Customers Section 2.16
Major Suppliers Section 2.16
Management Fees Section 4.08
Market Value Section 1.03
Merger Consideration Section 1.05(a)
Notices Section 9.03(a)
Owned Real Property Section 2.06(c)
Products Section 2.17
Second Earnout Payment Section 1.05
Stockholders Group Section 2.14(f)(vii)
Stockholders Preamble
Stockholders' Indemnified Group Section 9.02(a)
Special Indemnifications 9.04(c)
Stock Recitals
Subsidiaries Section 2.02(b)
Surviving Company Section 1.01(a)
Tax Return Section 2.14(f)(iii)
Tax Sharing Agreement Section 4.05(c)(1)
Tax Section 2.14(f)(i)
Treasury Regulations Section 2.14(f)(vi)
True-Up Payments Section 1.06(d)
ARTICLE I THE MERGER
1.01. THE MERGER
1.02. THE CLOSING
1.03. CONVERSION OF STOCK; AT THE EFFECTIVE TIME
1.04. EFFECT OF CONVERSION
1.05. MERGER CONSIDERATION
1.06. CLOSING BALANCE SHEET; TRUE-UP PAYMENT
ARTICLE II REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
2.01. CAPITALIZATION
2.02. ORGANIZATION; SUBSIDIARIES
2.03. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT
2.04. FINANCIAL STATEMENTS
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS
2.06. ASSETS AND PROPERTIES
2.07. INTELLECTUAL PROPERTY
2.08. COMMITMENTS
2.09. LITIGATION
2.10. COMPLIANCE WITH LAWS
2.11. EMPLOYEE BENEFIT PLANS
2.12. ENVIRONMENTAL MATTERS
2.13. CONSENTS
2.14. TAXES
2.15. FEES
2.16. MAJOR CUSTOMERS AND SUPPLIERS
2.17. PRODUCTS
2.18. INSURANCE
2.19 INVESTMENT REPRESENTATIONS
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYERS
3.01. ORGANIZATION
3.02. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT
3.03. CAPITALIZATION
3.04. CONSENTS
3.05. FEES
3.06. LITIGATION
3.07. COMMON STOCK TO BE RECEIVED BY STOCKHOLDERS
3.08. [RESERVED]
3.09. SEC FILINGS
3.10. COMPLIANCE WITH LAWS
ARTICLE IV COVENANTS
4.01. FURTHER ASSURANCES
4.02. NOTICE
4.03. CONFIDENTIALITY
4.04. CASH MANAGEMENT; INTERCOMPANY ACCOUNTS
4.05. RESPONSIBILITY FOR TAXES; RETURNS; AUDITS
4.06. COOPERATION WITH PUBLIC FILINGS
4.07. TAX REORGANIZATION
4.08. ACCESS TO INFORMATION
4.09. CONSENTS
4.10. REASONABLE EFFORTS
4.11. COMPANY SCHEDULES
4.12. ADS STOCK OPTIONS
4.13. STOCKHOLDERS' REPRESENTATIVE
4.14. DISCLOSURE INFORMATION
ARTICLE V CONDITIONS TO BUYERS' OBLIGATIONS
5.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDERS
5.02. NO PROHIBITION
5.03. CONSENTS
5.04. EMPLOYMENT AGREEMENTS
5.05. NO MATERIAL ADVERSE CHANGE
5.06. BANK ARRANGEMENTS
5.07. STOCK OPTION PLANS
5.08. LEGAL OPINION
ARTICLE VI CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
6.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
6.02. NO PROHIBITION
6.03. EMPLOYMENT AGREEMENTS
6.04. CONSENTS
6.05. NO MATERIAL ADVERSE CHANGE
6.06. LEGAL OPINION
ARTICLE VII STOCK CERTIFICATES; LEGEND
7.01. SECURITIES LAWS; LEGEND
ARTICLE VIII TERMINATION PRIOR TO CLOSING
8.01. TERMINATION
8.02. EFFECT OF TERMINATION
8.03. AMENDMENT
8.04. EXTENSION; WAIVER
ARTICLE IX MISCELLANEOUS
9.01. SURVIVAL
9.02. AGREEMENT TO INDEMNIFY
9.03. INDEMNIFICATION PROCEDURE
9.04. OTHER INDEMNIFICATION MATTERS
9.05. INTERPRETIVE PROVISIONS
9.06. ENTIRE AGREEMENT
9.07. SUCCESSORS AND ASSIGNS
9.08. HEADINGS
9.09. MODIFICATION AND WAIVER
9.10. COUNTERPARTS
9.11. EXPENSES
9.12. NOTICES
9.13. GOVERNING LAW
9.14. PUBLIC ANNOUNCEMENTS
