AGREEMENT AND PLAN OF MERGER
Dated as of October 18, 2000
by and among
APPLIED DIGITAL SOLUTIONS, INC.
PDS ACQUISITION CORP.
("Buyers")
PACIFIC DECISION SCIENCES CORPORATION
("Company")
and
H & K VASA FAMILY 1999 LIMITED PARTNERSHIP
H & K VASA FAMILY 2000 LIMITED PARTNERSHIP
XXXXX XXXXXX
XXXXX XXXXXXX
("Principal Stockholders")
Index of Defined Terms
----------------------
Allocation Section 4.05(d)(3)
Ancillary Document Section 9.01
Annual Financial Statements Section 2.04(a)
Arbiter Section 1.05(d)
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 Book 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 Balance Sheet Section 1.06(d)
First Payment Section 1.05
First Earnout Payment Section 1.05
GAAP Section 1.05(c)
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)
June 30 Balance Sheet Section 2.04(a)
Leased Real Property Section 2.06(c)
Litigation Section 2.09
Losses Section 9.02(a)
Major Customers Section 2.16
Major Suppliers Section 2.16
Market Value Section 1.03
Merger Consideration Section 1.05(a)
Notices Section 9.03(a)
Second Earnout Payment Section 1.05
Securities Act of 1933 Section 7.01(a)
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. INSURANCE
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. SEC FILINGS
3.09. 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. STOCKHOLDERS' REPRESENTATIVE
4.09. DISCLOSURE INFORMATION
4.10. CERTAIN MATTERS WITH RESPECT TO EMPLOYEES
4.11. POST-CLOSING OPERATIONS
4.12. ADS STOCK OPTIONS
ARTICLE V CONDITIONS TO BUYERS' OBLIGATIONS
5.01. REPRESENTATIONS, WARANTIES AND COVENANTS
5.02. NO PROHIBITION
5.03. CONSENTS
5.04. VASA EMPLOYMENT AND NON-COMPETE AGREEMENT
5.05. BANK ARRANGEMENTS
5.06. BENEFITS PLANS
5.07. BACK TAXES
5.08. PRIOR EMPLOYMENT AGREEMENTS
5.09. REQUIRED CASH
ARTICLE VI CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
6.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
6.02. NO PROHIBITION
6.03. VASA EMPLOYMENT AND NON-COMPETE AGREEMENT
6.04. CONSENTS
6.05. REGISTRATION RIGHTS AGREEMENTS
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
9.15. SEVERABILITY
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Agreement"), dated as of
October 18, 2000, by and among Applied Digital Solutions, Inc., a Missouri
corporation ("ADS"), PDS Acquisition Corp., a Delaware corporation ("PDS
Acquisition," together with ADS, the "Buyers"), Pacific Decision Sciences
Corporation, a California corporation (the "Company") H & K Vasa Family 1999
Limited Partnership (the "1999 Family Limited Partnership"), H & K Vasa Family
2000 Limited Partnership (the "2000 Family Limited Partnership"), Xxxxx Xxxxxx
("Xxxxxx") and Xxxxx Xxxxxxx ("Xxxxxxx") (each a " Principal Stockholder" and
collectively the "Principal Stockholders").
W I T N E S S E T H:
WHEREAS, the Principal Stockholders are the direct or indirect
owners of approximately 4,750,000 shares of the issued and outstanding shares of
common stock of the Company;
WHEREAS, the Company is engaged in the business of licensing
customer management software (the "Business");
WHEREAS, the parties hereto wish to provide for the terms and
conditions on which a merger of the Company into PDS Acquisition, would be
consummated and for the consideration described in this Agreement; and
WHEREAS, the parties intend the merger to qualify as a
tax-free 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), the Company shall be merged
with and into PDS Acquisition in accordance with Section 251 of the Delaware
General Corporation Law ("DGCL") and Sections 1101 and 1108 of the California
General Corporation Law (such merger is defined herein as the "Merger") and in
the following manner:
(i) The board of directors of each of ADS, PDS Acquisition
and the Company shall have adopted a resolution approving the Merger and this
Agreement;
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(ii) The holders of 100% of the issued and outstanding
shares of the Pacific Stock as defined herein below shall have consented to and
approved this Agreement and the Merger;
(iii) ADS, as the sole stockholder of PDS Acquisition,
shall approve this Agreement and the Merger by written consent, it being
understood by the sole stockholder of PDS Acquisition 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 Section 251 of the DGCL.
Following the Merger, the separate corporate existence of the
Company shall cease and PDS Acquisition 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
DGCL (the "Certificate of Merger") (the time specified in the Certificate of
Merger being the "Effective Time").
(c) At the Effective Time, the effect of the Merger shall be
as provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and PDS
Acquisition shall vest in the Surviving Company, and all liabilities and duties
of the Company and PDS Acquisition 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 October 25, 2000, or at such other time and/or place and/or
on such other date as the parties may mutually agree (the "Closing Date").
Notwithstanding the foregoing, for purposes of allocating profits and/or losses
of the Company only, the effective date for change of control shall be deemed
October 1, 2000.
(b) At the Closing, Buyers shall deliver to Stockholders:
(i) the Closing Payment (as defined in Section
1.05(a)(i));
(ii) the Buyers' Certificate referred to in Section 6.01;
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(iii) the Employment Agreement (as hereinafter defined);
(iv) the Registration Rights Agreement (as hereinafter
defined); and
(v) such other instruments and documents, in form and
substance reasonably acceptable to the Principal
Stockholders, as may be necessary to effect the
Closing.
(c) At the Closing, the Principal Stockholders shall deliver
to Buyers:
(i) the Principal Stockholders' Certificate referred to
in Section 5.01;
(ii) the Employment Agreement;
(iii) the corporate minute books and stock books for the
Company;
(iv) a certified copy of the Articles of Incorporation
of the Company, and a good standing certificate for
the Company issued by the Secretary of State of the
State of California;
(v) the Registration Rights Agreement; and
(vi) such other instruments and documents, in form and
substance reasonably acceptable to Buyers, as may be
necessary to effect the Closing.
1.03. Conversion of Stock.
(a) Stock of the Company. Each share of the common stock of
the Company ("Pacific 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 a number of shares
of ADS Stock (as hereinafter defined) that is equal to (i) the total number of
shares of ADS Stock to be delivered as the Merger Consideration as determined in
accordance with Section 1.05, divided by (ii) the total number of issued and
outstanding shares of Pacific Stock. No fractional shares of ADS Stock shall be
issued pursuant to this Section 1.03. In the event that any fractional shares
would result as a result of the above calculations, ADS shall, in each case,
round such fractional share to the next highest whole number.
(b) Shares of PDS Acquisition. Each share of common stock of
PDS Acquisition 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, the stockholders of the Company (the "Stockholders") shall cease to have
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any rights or claims against the Company as stockholders of the Company 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 PDS Acquisition 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 PDS Acquisition, as in effect immediately prior to the Effective
Time, shall be the bylaws of the Surviving Company.
1.05. Merger Consideration.
(a) Subject to adjustment as set forth hereinbelow, the
aggregate consideration paid by Buyers for Pacific Stock shall be payable in
cash and/or ADS Stock (the "Merger Consideration") as follows:
(i) On the Closing Date, ADS shall issue and deliver to
the Stockholders, as provided in Section 1.03(a), restricted shares of ADS
Common Stock ("ADS Stock") (the "Closing Payment") equal in value to
$26,898,336. ADS shall also, on behalf of the Company, issue and deliver to
Capital Alliance Corporation restricted shares of ADS Stock equal in value to
$1,120,764 in satisfaction of the Company's obligation to pay such fee. The per
share valuation price of such ADS Stock, in both cases, shall be based upon 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 "Closing Valuation Price").
(ii) On the earlier of (A) December 1, 2001, and (B) 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 October 1, 2000 and ending September 30, 2001 (the "First Earnout
Period") are completed and have been subjected to certain "Agreed Upon
Procedures" (as hereinafter defined), which ADS shall cause to occur as soon as
reasonably practicable, by independent accountants retained by ADS, ADS shall
deliver a second payment (the "First Earnout Payment"). The First Earnout
Payment shall be in the form of cash and/or ADS Stock, the proportional amount
of each to be determined by ADS, having a value of $9,662,947 plus an amount
equal to 4.0 times the EBITDA in excess of $3,675,880 (the "Projected EBITDA
Amount") for the First Earnout Period (the "First Earnout Amount"). ADS shall
also, on behalf of the Company, issue and deliver to Capital Alliance
Corporation restricted shares of ADS Stock equal in value to the Fee Percentage
of the First Earnout Amount. The per share valuation price of such ADS Stock
shall be based upon the average market closing price of ADS Stock for the 10
consecutive business days up to and including September 30, 2001 (if September
30, 2001 is not a business day, the last day of such period shall be the last
business day immediately prior to September 30, 2001), as published in The Wall
Street Journal, Eastern Edition (the "First Valuation Price").
As used herein, the "Fee Percentage" shall mean (A) 4% to the
extent the total of the First Earnout Payment, the Second Earnout Payment (as
hereinafter defined) and the amount of the fees to Capital Alliance Corporation
is equal to or less than $39,480, 900 and (B) 8% with respect to the amount, if
4
any, that the total of the First Earnout Payment, the Second Earnout Payment and
the amount payable to Capital Alliance Corporation pursuant to clause (A) of
this sentence exceeds $39,480,900.
In the event the Surviving Company's EBITDA for the First
Earnout Period is less than the Projected EBITDA Amount, the First Earnout
Amount, if any, shall be reduced by an amount equal to 4.0 times the shortfall
from the Projected EBITDA Amount.
(iii) On the earlier of (A) December 1, 2002, and (B) the
date 10 business days after the date on which the Earnout Financials of the
Surviving Company for the 12 month period commencing October 1, 2001 and ending
September 30, 2002 (the "Second Earnout Period") are completed and have been
subjected to certain Agreed Upon Procedures, which ADS shall cause to occur as
soon as reasonably practicable, by independent accountants retained by ADS, ADS
shall deliver a third payment (the "Second Earnout Payment"). The Second Earnout
Payment shall be in the form of cash and/or ADS Stock, the proportional amount
to be determined by ADS, having a value of $9,662,947 plus an amount equal to
4.0 times the EBITDA in excess of the Projected EBITDA Amount for the Second
Earnout Period (the "Second Earnout Amount"). ADS shall also, on behalf of the
Company, issue and deliver to Capital Alliance Corporation restricted shares of
ADS Stock equal in value to the Fee Percentage of the Second Earnout Amount. The
per share valuation price of such ADS Stock shall be based upon the average
closing market price of ADS Stock for the 10 consecutive business days up to and
including September 30, 2002 (if September 30, 2002 is not a business day, the
last day of such period shall be the last business day immediately prior to
September 30, 2002), as published in The Wall Street Journal, Eastern Edition
(the "Second Valuation Price").
In the event that the Surviving Company's EBITDA for the
Second Earnout Period is less than the Project EBITDA Amount, Buyers shall
reduce the Second Earnout Amount due, an amount equal to 4.0 times the shortfall
from the Projected EBITDA Amount.
In no event shall the amount of cash paid, if any, exceed
an amount greater than 40% of the aggregate consideration paid as Merger
Consideration.
(b) "EBITDA" for a given period shall mean earnings from
operations of the Surviving Company for such period before interest, taxes,
depreciation and amortization, determined in accordance with United States
generally accepted accounting principles on a basis consistent with the
Company's historical practices ("GAAP"), excluding the impact on EBITDA of (i)
any management fees, consulting fees or similar payments (including allocations
of overhead) imposed by ADS or its affiliates on the Surviving Company following
the Closing, (ii) any charges or expenses related to the transactions
contemplated herein, (iii) any acquisition or proposed acquisition of another
business and the subsequent operations thereof, (iv) the costs and expenses
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby and (v) fees paid for non-recurring or unusual professional
services that are outside of the ordinary course of business and were not
contemplated in the Company's projections, which services shall include, but not
be limited to, fees paid for accounting audits.
5
(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.
(d) After receipt of the Earnout Financials, any of the
Stockholders shall have 15 business days to object, in writing, to the Earnout
Financials or any of the Earnout Amounts as determined by ADS. Such writing
shall provide detail as to the nature and amount contested.
(i) If the Stockholders do 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 and shall become final and binding on
the parties.
(ii) If the Stockholders do 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 or the event the dispute
is not resolved within 30 days of Stockholders' written objection, the
Stockholders may designate a certified public accountant of their choice (the
"Stockholders' Accountants") to prepare and/or review the Earnout Financials.
ADS shall provide full access to Stockholders' Accountant and otherwise fully
cooperate in connection with its review of the preparation of any such reports
and the calculation of the Earnout Amount, provided, however, that in no event
shall the preparation of such reports by Stockholders' Accountant take more than
45 days from the designation by the Stockholders of the Stockholders' Accountant
unless ADS fails to provide such access. In any event, if the difference between
the amount determined by the Stockholders' Accountant and the Earnout Amount as
calculated is less than $20,000, Stockholders shall pay all costs of
Stockholders' Accountant.
In the event that, after the above process is complete, it is
determined that by the Stockholders' Accountants 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'
Accountant, be responsible for the incremental expense incurred, if any, of
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' Accountant. In the event that the Earnout Amount as calculated is
greater than $20,000, ADS shall pay all the costs of Stockholders' Accountant.
If the parties are unable to arrive at an acceptable
resolution, the parties shall submit the dispute to a nationally recognized
independent accounting firm that is mutually agreeable to the parties (such
accounting firm, the "Arbiter"), for resolution; provided such accounting firm
has not had a professional material relationship with either, any of the
Principal Stockholders or ADS, or any of its affiliates, within 2 years
preceding the appointment. 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
6
disputed Earnout Amount, which shall be conclusive and binding upon the parties.
In resolving any disputed item, the Arbiter 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
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 Earnout Financials.
1.06. Closing Balance Sheet; True-up Payment.
(a) As promptly as practicable but in any event within 90 days
following the Closing Date, ADS shall prepare, or cause to be prepared, and
deliver to the Stockholders' Representative (as hereinafter defined) an audited
balance sheet of the Company and the Subsidiaries as of the close of business on
the day immediately preceding 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 shall be prepared in accordance
with GAAP, determined as of 11:59 p.m. on the day immediately preceding the
Closing Date as if such date was the Company's normal year-end.
(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 15 days after the delivery to the
Stockholders' Representative of the Closing Balance Sheet, notifies 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 Arbiter for resolution. If the parties cannot
agree on the selection of such 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; provided such accounting firm has not
had a professional material relationship with either, any of the Principal
Stockholders or ADS, or any of its affiliates, within 2 years preceding the
appointment. Promptly, but no later than 20 days after its acceptance of its
7
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 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
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, 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 on June 30, 2000 Balance Sheet (as hereinafter defined) and
attached as Schedule 2.04(a). 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 ADS in accordance with the provisions of paragraph (e) of this Section 1.06.
(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 or if such shares of ADS Stock have been registered, by wire
transfer of immediately available funds to an account designated in writing by
ADS. 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 Stockholders' Representative may, pursuant to the first
sentence of paragraph (c) of this Section 1.06, notify ADS that he disputes any
of the amounts set forth in the Closing Balance Sheet, if 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 and their accountants
reasonable access to the books and records of the Company, to any other
8
information, including work papers of its accountants, and to any employees of
ADS and 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 access to the
books and records of the Stockholders' Representative, any other information,
including work papers of its accountants, 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
The Principal Stockholders jointly and severally represent and
warrant that the statements contained in this Article II 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 the Company
consists of 10,000,000 shares of common stock, without par value per share, of
which 5,719,500 are issued and outstanding. All of the shares comprising the
Pacific Stock are validly issued, fully paid and non-assessable and are owned
beneficially and of record by each of the Stockholders free and clear of all
liens, security interests, restrictions, options, proxies, voting trusts or
other encumbrances ("Encumbrances"). There are outstanding no securities
convertible into, exchangeable for, or carrying the right to acquire, equity
securities of the Company, or subscriptions, warrants, options, rights or other
arrangements or commitments obligating the Company to issue or dispose of any of
its equity securities or any ownership interest therein. All of the issued and
outstanding shares of Pacific Stock were issued in compliance with all
applicable state and federal securities law.
2.02. Organization; Subsidiaries.
(a) The Company 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. The Company 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 Company
Material Adverse Effect (as hereinafter defined). True and complete copies of
the charter documents and bylaws of the Company have previously been delivered
to Buyers. True and complete copies of the minute books of the Company have
previously been made available to Buyers. The term "Company Material Adverse
Effect" means any adverse change or effect that when taken individually or
together with all other adverse changes and effects, is or is reasonably likely
to be materially adverse to the business, operations, results of operations or
financial condition of the Company.
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(b) Schedule 2.02(b) sets forth a list, as of the date hereof,
of all irect 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,
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. This
Agreement has been duly and validly executed and delivered by each Principal
Stockholder and constitutes the valid and binding obligation of such Principal
Stockholder, enforceable against such Principal 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 Principal
Stockholder of this Agreement and the consummation by such Principal 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 Principal 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 Principal 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 Principal Stockholder or the Company or
(z) violate any provision of the charter documents or the bylaws of the Company,
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) The Stockholders have delivered to Buyers (i) the
unaudited balance sheets of the Company as of June 30, 2000 (the "June 30, 2000
Balance Sheet") and unaudited statement of operations and cash flows of the
Company for the year then ended, and (ii) audited balance sheets of the Company
as of June 30, 1999 and audited statement of operations and cash flows of the
Company for the year then ended, including the footnotes thereto (the "Annual
Financial Statements") (the financial statements listed in (i) and (ii),
collectively, the "Financial Statements"), copies of which are included in
Schedule 2.04(a). 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, except for the absence
of footnotes and normal year-end adjustments with respect to the unaudited
statements. All of 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 the Business. All related party
transactions have been accounted for by use of consistent accounting policies
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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
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) that are required
to be reflected in the Financial Statements, other than any liabilities,
commitments or obligations incurred after June 30, 2000 in the ordinary course
of business.
(c) The Stockholders have delivered to Buyers certain
financial information with regard to future sales, earnings as set forth in
Schedule 2.04 (c). The projections are based on assumptions that the Principal
Stockholders believed were reasonable based on the facts and circumstances known
to them as of the date of such projections; provided that the Principal
Stockholders make no representations or warranties regarding whether or not the
results of operations actually experienced by the Surviving Company shall be
consistent with or similar to such projections.
2.05. Absence of Certain Changes or Events. Except as set forth in
Schedule 2.05 or reflected in the June 30, 2000 Balance Sheet or permitted or
contemplated by this Agreement, since June 30, 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, 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 properties
or assets, except for the sale of inventory items or licensing or sale of
software in the ordinary course of business and except for the sale of any
tangible personal property 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. Since June 30, 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
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reflected on the June 30, 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), and (b) liens for taxes not yet due and payable or due but not
delinquent or being contested in good faith by appropriate proceedings. 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),
have been maintained consistent with the standards generally followed in the
industry and are sufficient to carry on the Business as presently conducted. To
the knowledge of the Principal Stockholders, all buildings, plants and other
structures owned or otherwise utilized by the Company are in good condition and
repair (except for ordinary wear and tear) in all material respects.
(c) Schedule 2.06(c) sets forth a list of all real property
leased by the Company (the "Leased Real Property"). The Stockholders have made
available 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) to the knowledge of the
Principal Stockholders, 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(c), (A) each
such lease or sublease is legal, valid, binding and enforceable against the
Company and, to the knowledge of the Principal Stockholders, the other party
thereto 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.
(d) Except as set forth on Schedule 2.06(d), (i) none of the
Principal Stockholders or the Company has received written notice of any pending
or 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 deed restrictions, 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,
(iii) none of the Stockholders or the Company has received written notice of a
material violation of the restrictions or laws described in the foregoing clause
(ii), and (iv) none of the structures or improvements on any of the Leased Real
Property encroaches upon real property of another person or entity, and no
structure or improvement of another person or entity encroaches upon any of the
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Leased Real Property, which would materially interfere with the use thereof in
the ordinary course of business.
2.07. Intellectual Property.
(a) Schedule 2.07(a) 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), owned by the Company and material to the business of the
Company ("Company Owned Intellectual Property"), and (ii) licenses of
Intellectual Property to the Company or by the Company to a third party that are
material to the business of the Company ("Company Licensed Intellectual
Property");
(b) to the knowledge of the Principal Stockholders, 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 against the Company that the conduct of the business of
the Company 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 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 the Principal Stockholders, 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 the Principal Stockholders, no person
is engaging in any activity that infringes upon the Company Owned Intellectual
Property;
(g) to the knowledge of the Principal Stockholders, 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 the Principal Stockholders, no party
to any license of the Company Licensed Intellectual property is in breach
thereof or default thereunder;
(i) to the knowledge of the Principal Stockholders, the
Software owned by the Company is free of all viruses, worms, trojan horses and
other material known contaminants, and does not contain any bugs, errors, or
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problems of a material nature that disrupt its operation or have an adverse
impact on the operation of other software programs or operating systems;
(j) no rights in the Software owned by the Company have been
transferred to any third party except to the customers of the Company; 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
United States and any foreign country, (iii) all rights under the copyright laws
of the United States and all other countries, including, without limitation, 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 or
licensed by or on behalf of such party and used, distributed, sold, licensed or
marketed by such party.
2.08. Commitments.
(a) Schedule 2.08(a) 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 $50,000.00;
(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
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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;
(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;
(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;
(xii) Commitments for the leasing of any personal
property;
(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;
(xiv) Commitments that involve in excess of
$50,000.00 in the aggregate or that may not be
terminated on less than 90 days' notice;
(xv) Commitments (other than those specified in any
of clauses (i) through (xiv) 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;
and
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(xvi) Commitments currently in negotiation by the
Company of a type which if entered into would
be required to be listed on Schedule 2.08(a) or
to be disclosed on any other Schedule hereto.
(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 Principal Stockholders, against the
respective counterparties to such Commitments. Complete copies (or, if oral,
full written descriptions) 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) there is no breach, violation or
default and no event which, with notice or lapse of time or both, would
constitute a breach, violation or default by the Company or to the knowledge of
the Principal Stockholders, the other parties to it, 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 Principal 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 the Company or, to the knowledge of the Principal
Stockholders, the other parties thereto.
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 the knowledge of the
Principal Stockholders, threatened, involving the Company, the 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 specifically applicable to the Company
including, without limitation, any actions brought by any regulatory authority.
2.10. Compliance with Laws . Except as set forth in Schedule 2.10,
none of the Principal Stockholders or 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. 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, certificate, or
authorization would not have a Company Material Adverse Effect.
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
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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 or
4201(c) of ERISA (the "Company Benefit Plans" ), the Company has made available
to 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 the Principal Stockholders, there exists no
condition or set of circumstances, in connection with which the Stockholders
could be subject to any liability under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable law, except as would not have a Company
Material Adverse Effect. 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 Company Material Adverse
Effect.
(c) The Company has made available to 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; (iii) copies of all plans, programs, agreements and other
arrangements of the Company which contain change in control provisions; and (iv)
copies, if any, of any stock option plans.
(d) Except as set forth in Schedule 2.11(d), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (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.
(e) Except as set forth in Schedule 2.11(e) or as required by
law, no Company Benefit Plan provides retiree medical or retiree life insurance
benefits to any person.
(f) Except where it would not have a Company Material Adverse
Effect, the Company (i) is in material compliance with all applicable federal,
state and local laws, rules and regulations (domestic and foreign) respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, in each case, with respect to employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
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(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for employees.
(g) No employees are currently represented by any labor union
for purposes of collective bargaining and to the knowledge of the Company, no
activities the purpose of which is to achieve such representation of all or some
of such employees are threatened or ongoing. No work stoppage or labor strike
against the Company by employees are pending or to the knowledge of the Company
threatened. The Company is not (i) involved in or, to the knowledge of the
Principal Stockholders, threatened with any labor dispute, grievance, or
litigation relating to labor matters involving any employees, including, without
limitation, violation of any federal, state or local labor, safety or employment
laws (domestic or foreign), charges of unfair labor practices or discrimination
complaints; (ii) engaged in any unfair labor practices within the meaning of the
National Labor Relations Act or the Railway Labor Act; or (iii) presently, nor
has it been in the past a party to, or bound by, any collective bargaining
agreement or union contract with respect to employees and no such agreement or
contract is currently being negotiated by the Company or any of its affiliates.
2.12. Environmental Matters.
(a) To the knowledge of the Principal Stockholders, 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 Company Material Adverse Effect.
(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 or
to the knowledge of the Principal Stockholders proceedings pending or threatened
in writing against or involving the Company, any Governmental Authority or third
party with respect to any environmental laws of licenses issued to the Company,
except as would not have a Company Material Adverse Effect.
2.13. Consents. Except as set forth in Schedule 2.13 or contemplated
by Article I, 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 Stockholders, the Company in connection with the
execution, delivery and performance by the Principal Stockholders of this
Agreement or the taking by the Stockholders 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. The unpaid Taxes of the Company (i) did not, as of June 30, 2000,
exceed the reserve for Tax liability (rather than for deferred Taxes established
to reflect timing differences between book and Tax income) set forth on the June
30, 2000 Balance Sheet and (ii) will not, as of the Closing Date, exceed such
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reserve as of the Closing Date which will be based on the reserve set forth on
the June 30, 2000 Balance Sheet, as adjusted for the Company's operations and
transactions through the Closing Date, calculated in accordance with the past
custom and practice of the Company in preparing its financial statements and Tax
Returns. All Taxes required to be withheld and paid over by the Company to any
relevant taxing authority in connection with payments to employees, independent
contractors, creditors, stockholders or to third parties have been so withheld
and paid over.
(b) Except as set forth in Schedule 2.14(b): to the knowledge
of the Principal Stockholders, (i) no Tax authority in a jurisdiction where the
Company does not file Tax Returns has made a written 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 in
writing against the Company that have not been satisfied; (iii) no audits or
examinations with respect to the Company are ongoing or have been threatened or
proposed in writing by the Internal Revenue 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; and (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 of which the
Company is presently a member. 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 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, 1994. The Company will not, in the absence of a
closing agreement provided for in the Treasury Regulations under Section 1503 of
the Code, trigger the recapture of any dual consolidated losses (as defined in
Section 1503 of the Code) 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
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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 (x) based upon,
measured by, or calculated with respect to, net
income or net receipts, proceeds or profits, or
(y) 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 (x) above.
(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 reflected in Section 1.05, neither the
Stockholders 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 suppliers of $25,000 or more in materials or services to the Business
during the 12-month period ended August 31, 2000 ("Major Suppliers") and (ii)
the customers of $25,000 or more in products or services of the Business during
such period (the "Major Customers"). Except as set forth on Schedule 2.16, no
Major Supplier or Major Customer has during the 12-month period ended August 31,
2000 decreased materially or, to the knowledge of the Principal Stockholders,
threatened to materially decrease or limit materially its provision of services
or supplies to the Business. To the knowledge of the Principal Stockholders,
there has been no termination, cancellation or limitation of, or any material
modification or change in, the business relationships of the Business with any
Major Supplier or Major Customer.
2.17. Insurance. All of the material assets of the Company and all
aspects of the Business that are of insurable character are covered by insurance
with reputable insurers against risks of liability, casualty and fire and other
20
losses and liabilities customarily obtained to cover comparable businesses and
assets in amounts, scope and coverage which are consistent with prudent industry
practice. The Company is not in default with respect to its obligations under
any material insurance policy maintained by it. Schedule 2.17 sets forth a list
of all insurance coverage carried by the Company, the carrier and the terms and
amount of coverage. All such policies and other instruments are 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 written
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 the consummation of the transactions contemplated by this
Agreement, by itself, will not result in any such termination or premium
increase.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer hereby jointly and severally represents and warrants that
the statements contained in this Article III 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 PDS Acquisition are corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation, and have all requisite corporate power and
authority to carry on their businesses as each is now being conducted, and to
execute, deliver and perform this Agreement and the Ancillary Documents (as
hereinafter defined) and to consummate the transactions contemplated hereby and
thereby. PDS Acquisition has been formed for the sole purpose of completing the
Merger and has not incurred any obligations, liabilities, or other commitments
except as set forth in this Agreement.
3.02. Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by each Buyer of this Agreement, the
Ancillary Documents and each of the documents referenced herein and the
consummation by each Buyer of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of each
Buyer. Each of this Agreement and the Ancillary Documents has been or will be
duly and validly executed and delivered by each Buyer and constitutes or will
constitute 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 Ancillary Documents and the
consummation by each Buyer of the transactions contemplated hereby or thereby
will not, with or without the giving of notice or the lapse of time, or both,
(i) violate, or require any consent under, any material contract or other
21
commitment of each Buyer, (ii) violate any provision of law, rule or regulation
to which either Buyer is subject, (iii) violate any order, judgment or decree
applicable to either Buyer or (iv) violate any provision of the Certificate of
Incorporation or the By-laws of either Buyer; except, in each case, for
violations which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby or thereby.
3.03. Capitalization.
(a) The total authorized capital stock of ADS consists of (i)
245,000,000 shares of common stock, $.001 par value per share, 86,105,405 shares
of which are issued and outstanding as of October 12, 2000, and (ii) 5,000,000
shares of preferred stock, 1 of which is issued and outstanding as of October
12, 2000.
(b) The total authorized capital stock of PDS Acquisition
consists of 1,000 shares of common stock with a par value of $0.01 per share,
1,000 shares of which, as of the date hereof, are issued and outstanding and are
owned by ADS.
3.04. Consents. Except 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
Buyers in connection with the execution, delivery and performance by Buyers of
this Agreement or the Ancillary Documents, or the taking by the Buyers of any
other action contemplated hereby or thereby.
3.05. Fees. Neither Buyer has paid or become obligated to pay any
fee or commission to any broker, finder or intermediary 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 Buyers or any of their material assets or liabilities.
Except as set forth in Schedule 3.06, neither Buyer is 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 Stock to
be issued and delivered hereunder will, when issued and delivered, be duly and
validly issued, fully paid, nonassessable and free of Encumbrances and
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. SEC Filings. All forms, reports and documents filed with the
Securities and Exchange Commission (the "Commission") 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
22
were made, not misleading. Except as set forth in Schedule 3.08, since June 30,
2000, ADS 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 material transaction except in the ordinary
course of business; (c) suffered any material adverse change in its business,
financial condition, assets, liabilities, operations or results of operations;
(d) increased the rate or term of compensation payable or to become payable to
its directors, officers or key employees or increased the rate or terms of any
bonus or other employee benefit plan covering any of its directors, officers or
key employees above the levels reflected in its last publicly filed proxy
statement, except in each case increases incurred in the ordinary course of
business in accordance with its customary practices (including normal periodic
performance reviews and related compensation and benefit increases); (e)
consummated or agreed to consummate, any sale, lease or any other transfer or
disposition of properties or assets, except for the sale of inventory items in
the ordinary course of business and except for the sale of any tangible personal
property that, in the reasonable judgement of ADS, 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 disclosed in any document previously filed by ADS with the
Commission, 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 amounts materially more favorable than those that have
been extended to such customer or distributor in the past. Since June 30, 2000,
ADS has been operating in all material respects in the ordinary course in a
manner consistent with past practice.
3.09. Compliance with Laws. Except as set forth in Schedule 3.09,
neither Buyer 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. 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, both
before and 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. The Principal Stockholders shall have a continuing
obligation to promptly notify Buyers in writing as to any matter hereafter
arising or discovered which becomes known to the Principal Stockholders prior to
the Closing (except for matters brought to the Principal Stockholders' attention
by Buyers 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 Principal Stockholders contained herein being false or inaccurate in any
23
material respect. No disclosure made by the Principal Stockholders following the
date hereof shall be deemed to amend or modify any representation or warranty
contained in this Agreement or the Schedules hereto.
4.03. Confidentiality. The Principal Stockholders shall have the
continuing obligation to not disclose to any third party, except as required by
law, any Confidential Information (as defined below) for a period of 5 years
after the Closing Date. "Confidential Information" shall mean any information
concerning the Company which is in the possession of the Principal Stockholders
on the date hereof or on the Closing Date relating to the Business, other than
information which (a) is or becomes available to the public (other than as a
result of the disclosure by the Principal Stockholders of such information in
contravention of the covenants set forth in this Section 4.03, or (b) is
required to be disclosed by law. 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 Principal
Stockholders will reasonably 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.
(a) Indemnification. The Principal Stockholders shall be
responsible for and indemnify and hold harmless Buyers and their affiliates,
including the Surviving Company, pursuant to Sections 9.02 through 9.04 from and
against any Losses arising with respect to a failure of any representation or
warranty made by the Principal Stockholders in Section 2.14. For purposes of
this Section 4.05(a) , whenever it is necessary to determine the liability for
Taxes of the Company for a portion of a taxable year or period that begins
before and ends after the Closing Date, 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, the Closing Date 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 the Closing Date 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, the
Closing, 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 the Closing Date and the relative number of
days in the portion of the taxable period subsequent to the Closing Date.
(b) Tax Returns; Filing and Payments.
(1) The Stockholders shall prepare (or cause to be
prepared), all Income Tax Returns of the Company for any taxable year or period
ending on or before the Closing Date which are not required to be filed on or
before the Closing Date, all at the expense of the Surviving Company. Buyers
shall cause such Income Tax Returns to be timely filed. The Stockholders shall,
24
consistent with the manner that payments must be made with respect to each of
such Income Tax Returns, upon written notice by Buyers, provide Buyers with
funds to timely pay the Tax liability shown on such Income Tax Return which is
described as being the responsibility of the Stockholders under Section 4.05(a),
and ADS shall pay or cause to be paid such amounts to the appropriate Tax
authority.
(2) ADS shall prepare (or cause to be prepared) and file
(or cause to be filed) all (i) Income Tax Returns of the Company for any Taxable
year or period commencing prior to the Closing Date and ending subsequent to the
Closing Date and (ii) other Tax Returns of the Company that are required to be
filed after the Closing Date. The Stockholders shall the right to review and
approve any Tax Returns of the Company that includes any portion of a taxable
period that occurs before the Closing Date if the Stockholders have any
responsibility for the Tax reported on such Tax Return pursuant to Section
4.05(a).
(3) The Tax Returns referred to in this Section 4.05(b)(1)
and (2), 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) and (2) above, the party preparing such
return shall provide the other party 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 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 Return set forth in Section 4.05.
(c) Termination of Tax Sharing Agreements; Powers of Attorney.
(1) Any Tax Sharing Agreement to which the Company is a
party 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) Between the date of this Agreement and the Closing
Date, the Principal Stockholders 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 ADS' express written consent
thereto, which consent shall not be unreasonably withheld or delayed.
25
(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
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.
(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 in connection with
the transactions contemplated by this Agreement. The Stockholders shall file, on
a timely basis, any Returns required to be filed in connection with such Taxes,
and Buyers shall cooperate with Stockholders in such preparation.
(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, manage and
be responsible for any audit, contest, or similar proceeding with respect to
Taxes for any Taxable year or period ending on or before the Closing Date and
shall have the right to settle or contest in their discretion any such audit,
contest or proceeding; provided, however, that (i) the Stockholders shall not
have the right to control any such proceeding unless they first acknowledge in
writing their obligation to fully indemnify Buyers for the Taxes at issue in the
proceeding; (ii) no settlement or disposition of any such proceeding or a
proceeding described in clause (iii) of this paragraph shall be made by one
party without the other party's consent (which consent shall not be unreasonably
withheld or delayed) if the same reasonably could be expected to affect either
Buyers' liability for Tax in any taxable period or portion of a taxable period
ending after the Closing Date or the Stockholders' liability under Section
4.05(a); and (iii) Buyers or the Stockholders shall control any Tax proceeding
relating to a taxable period that begins before, and ends after, the Closing
Date based upon which party would bear the burden of the greater portion of the
Tax.
(2) Except for proceedings the control of which is
determined pursuant to Section 4.05(f)(1) above, Buyers shall, at their own
26
expense, control, manage and solely be responsible for any audit, contest,
claim, proceeding or inquiry with respect to Income Taxes for any Taxable year
or period beginning after the Closing Date, and shall have the exclusive right
to settle or contest any such audit, contest, claim, proceeding or inquiry
without the consent of the Stockholders unless such settlement or contest could
result in a liability by the Stockholders under this Agreement.
4.06. Cooperation with Public Filings. The Principal Stockholders
shall reasonably cooperate with ADS 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 their reasonable best efforts to
assist ADS in having any registration statement declared effective by the
Commission as promptly as practicable and in maintaining the effectiveness of
any such registration statement, in all cases at the sole cost and expense of
ADS.
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 Company 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 Company, (C) to merge the
Surviving Company with or into another corporation or corporations, (D) to sell
or otherwise dispose of the stock of the Surviving Company, 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 Company.
(2) The Buyers intend to cause the Surviving Company to
continue a historic business of the Company or use a significant portion of the
Company'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 pursuant to the True-up, and
no person related to the Buyers within the meaning of Treas. Reg.
ss.1.368-1(e)(3) and no person acting as an intermediary for 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 PDS Acquisition.
27
(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, PDS Acquisition 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) PDS Acquisition is a direct subsidiary of ADS.
(b) Buyers agree that they will not take any action, and will
not cause the Surviving Company 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 shall report the Merger as a reorganization within the meaning
of Section 368(a) of the Code for all purposes, including Federal income tax
reporting purposes.
4.08. Stockholders' Representative.
(a) Upon the Effective Time and without further act of any
Stockholder, Vasa (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.
(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 in accordance with an
agreement by and between the Stockholders of even date herewith (the
"Stockholders' Agreement"). Each such successor Stockholders' Representative
shall have all the power, authority, rights and privileges hereby conferred upon
the original Stockholders' Representative, and the term "Stockholders'
Representative" as used herein shall be deemed to include such successor
Stockholders' Representative.
(c) In performing any of his 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
28
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 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.
4.09. Disclosure Information. The Stockholders shall allow ADS to
review all disclosure materials prior to such materials being sent to the
Stockholders of the Company and shall allow ADS to amend or supplement such
materials so as to comply with the Securities Act (as hereinafter defined) and
the securities laws of all applicable states.
4.10. Certain Matters With Respect to Employees.
(a) Following consummation of the Merger, ADS shall cause all
employees of the Company prior to consummation of the Merger initially to be
retained following the Merger. The terms and conditions of employment for all
employees will be substantially similar to the terms and conditions of their
employment prior to the Merger, including but not limited to the following: (i)
employees shall maintain credit for accrued but unused vacation time; (ii)
employees will participate on the same basis as similarly situated ADS employees
and maintain credit for prior years of service with the Company for purposes of
determining vacation time and other employee benefits with respect to benefits
offered by the Surviving Company; and (iii) except for the Principal
Stockholders, maintain the salary of the employees of the Surviving Company at
an amount not less than his or her salary prior to the Effective Time.
(b) Following consummation of the Merger, ADS will cause the
Surviving Company to provide fringe benefits (including but not limited to
health and disability insurance and other group insurance policies) to its
employees at a level substantially similar to the level provided by the Company
prior to the transaction, unless ADS provides benefits to its employees on
better terms or in greater amounts, in which case the employees of the Surviving
Company will be entitled to such greater benefits. If ADS determines to
discontinue policies and plans maintained by the Company and to include all or
any part of the employees of the Company in group insurance coverages provided
29
through ADS, ADS shall use its best efforts to cause such new coverages, insofar
as they relate to former employees of the Company, not to exclude pre-existing
conditions.
4.11. Post-Closing Operations. Provided and as long as the Surviving
Company is meeting or exceeding its Projected EBITDA Amounts, ADS agrees that it
shall not except as provided herein restrict the Surviving Company from making
its best efforts to maximize, to the extent reasonable in the exercise of its
sound business judgment, EBITDA of the Surviving Company through the end of the
Second Earnout Period. In connection with the foregoing, the Board of Directors
of the Surviving Company and ADS will take no action that has as one of its
purposes or objectives the reduction of EBITDA of the Surviving Company during
such periods. With respect to operational decisions and actions, the Board of
Directors of the Surviving Company and ADS will give good faith consideration to
the impact of such decisions on the earnout payments.
4.12. ADS Stock Options. Promptly after the Closing Date (but in any
event within thirty (30) days of the Closing Date), ADS will grant stock options
to purchase 100,000 shares of its ADS Stock to the employees of the Surviving
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 determined by the Stockholders'
Representative at his discretion. The exercise of such stock options shall not
be charged against Stockholder's EBITDA in any manner.
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 Principal
Stockholders. The Principal 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
Principal 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 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 Stockholders (the "Principal Stockholders' Certificate"), dated
as of the Closing Date and signed by the Principal Stockholders, certifying as
to the fulfillment of the condition set forth in this Section 5.01.
30
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 Buyers.
5.04. Vasa Employment and Non-Compete Agreement. Vasa shall have
executed an employment and non-compete agreement in the form of Exhibit 5.04
(the "Employment and Non-Compete Agreement"). The Employment and Non-Compete
Agreement shall replace and supercede any employment agreements by and between
Vasa and the Company (the "Prior Employment Agreements"). Vasa does also
expressly waive any rights, including but not limited to severance payments,
pursuant to such Prior Employment Agreements.
5.05. Banking Arrangements. The Principal 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.
5.06. Benefits Plans. The Principal Stockholders shall cause the
Company to terminate the 401K Plan and to indemnify Buyers from any and all
claims and/or expenses associated with such termination.
5.07. Back Taxes. The Principal Stockholders shall cause the Company
to pay any and all taxes that are due or past due as of the Closing Date.
5.08. Prior Employment Agreements. The Principal Stockholders shall
cause the Company to terminate any and all Prior Employment Agreements for
employees residing in the United States and to indemnify Buyers from any and all
claims that may result from such termination.
5.09. Required Cash. The Company shall have at Closing, in cash and
cash equivalents, no less than the amount of cash reflected on the Company's
August 31, 2000 balance sheet previously provided to ADS.
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 their agreements and covenants
31
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 Principal
Stockholders shall have received a certificate of Buyers, dated as of the
Closing Date and signed by an officer of Buyers (the "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 Stockholders
from consummating the transactions contemplated hereby.
6.03. Vasa Employment and Non-Compete Agreement. The Surviving
Company shall have executed an Employment and Non-Compete Agreement with Vasa.
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
Principal Stockholders.
6.05. Registration Rights Agreements. ADS shall have executed and
delivered a Registration Rights Agreement with the Principal Stockholders.
6.06 Guarantees; Release. ADS shall make every best effort to have
any personal guarantees the Principal Stockholders have given, released;
provided however, that such guaranty is disclosed by the Principal Stockholders
and was given to guaranty the performance of the Company pursuant to the
agreements listed in Schedule 2.08(a) of this Agreement. The Buyers do hereby
agree to indemnify and hold harmless Principal Stockholders from any claims,
demands and/or actions, based upon or arising out of such guarantees.
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 Stock being issued pursuant to Section 1.03
have not been and will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and it is the intention of the parties hereto
that the issuance of such securities be exempt from registration under the
Securities Act and the rules promulgated thereunder by the Commission; (ii) they
32
understand that that the shares of ADS 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 Securities Act or an
exemption from registration is available; (iii) they are acquiring the shares of
ADS 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 ADS 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. The Stockholders covenant that they
shall neither directly or indirectly sell, transfer, assign, exchange, pledge,
encumber or otherwise dispose of any shares of ADS 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 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
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, whether before or after
approval of the Merger by the Stockholders:
(a) by mutual written consent of the Company and ADS;
(b) by either ADS or the Company if: (i) the Effective Time
has not occurred by October 27, 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
33
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 contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote or written consent of the
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 Stockholders' 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' 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 6.01 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 5.01 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.
34
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, PDS
Acquisition or the Company, or their respective officers, directors or
stockholders; provided that, the provisions of Sections 4.03 and Article 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 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 there shall be no amendment or supplement which by law
requires further approval by the Stockholders without such further approval by
the Stockholders.
8.04. Extension; Waiver. At any time prior to the Effective Time,
ADS and PDS Acquisition, 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
9.01. Survival. The representations and warranties of the parties
hereto contained herein or in any agreement, certificate (including the
Principal 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 18-month anniversary of the Merger
Date, except that the representations and warranties set forth in Sections 2.01,
2.07, 2.12 and 2.14 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 has 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 event any representation or warranty to
which such claim relates shall survive with respect to such claim 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 Stockholders and any affiliate of Stockholders and each
35
of 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, the Principal
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 the Principal Stockholders 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 the Principal Stockholders
contained herein or in any Ancillary Document.
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
is prejudiced thereby. 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; provided, however, that
Stockholders shall not 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 no member of Buyers' Indemnified Group shall not
settle or otherwise dispose of any claim without the consent of the
Stockholders' Representative, 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
36
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 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 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 of interest between the
Indemnifying Party and Indemnified Party that make it reasonably necessary for
separate counsel to represent the Indemnified Party and the Indemnifying Party.
9.04. Other Indemnification Matters.
(a) The indemnification provided in this Article IX shall be
the sole and exclusive remedy for any inaccuracy or breach of any
representation, warranty or covenant made by Stockholders or Buyers in this
Agreement or in any Ancillary Document (except that the Stockholders shall be
entitled to specific performance and other equitable relief with respect to any
breach by ADS under the Registration Rights Agreement). 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.
(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, tax benefits and recoveries from third parties other than
insurance proceeds (whether pursuant to cross-claims, counterclaims or
otherwise) received by the Indemnitee or its affiliates in connection therewith.
(d) Notwithstanding anything herein to the contrary, if
Principal Stockholders shall have a payment obligation pursuant to this Article
IX, the Principal 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
37
dollar-for-dollar basis, or (iii) if ADS is in possession of any certificate
representing shares of ADS Stock issued pursuant to Section 1.05(a), allow ADS
to take 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 average closing price per share of common stock of ADS for
the 20 trading days immediately preceding the date on which ADS reclaims such
shares. If any future payment obligation pursuant to Section 1.05(a) shall be
reduced pursuant to clause (ii) above, the amount so reduced shall be deemed
"paid" for purposes of Section 1.05.
(e) Notwithstanding anything to the contrary contained herein,
no claim shall be asserted by the Indemnified Party for any Losses unless and
until the aggregate of all Losses incurred by that Indemnified Party
(collectively, in the case of the Stockholders) exceeds $250,000. Furthermore,
in no event whatsoever shall the aggregate liability of either of the
Indemnified Parties (collectively, in the case of the Stockholders) for all
Losses exceed an aggregate of an amount equal to no more than 80% of the Merger
Consideration received or entitled to be received by the Stockholders.
9.05. Interpretive Provisions.
(a) Whenever used in this Agreement, "to the Principal
Stockholders' knowledge" or "to the knowledge of the Principal Stockholders'
shall mean the actual knowledge of the Principal Stockholders and the knowledge
that either would have after due and reasonable inquiry.
(b) 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.
(c) 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 Effective Time.
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
heirs, 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
38
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.
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, the Company 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, as follows:
if to Stockholders to: Hark X. Xxxx, Stockholders'
Representative
00000 Xxxxx Xxxx
Xxxxx Xxx, XX 00000
with a copy to: Gardere & Xxxxx, L.L.P
3000 Thanksgiving Tower
0000 Xxx Xxxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
39
if to Buyers to them at: Applied Digital Solutions, Inc.
000 Xxxxx Xxxx Xxx, Xxxxx 000
Xxxx Xxxxx, XX 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, XX 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 Florida and of the United States of America, in
each case located in the County of Palm Beach 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 Florida or the United States of America, in each case located in the
County of Palm Beach, 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. Neither Buyers nor the Stockholders
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 parties.
9.15. Severability. If any provision of this Agreement is held to be
void, illegal or unenforceable under present or future laws, such provision
shall be fully severable and this Agreement shall be construed and enforced as
if such void, illegal or unenforceable provision never comprised a part hereof,
and the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected in any way by the void, illegal or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such severed provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such severed provision as may
be possible and be valid, legal and enforceable.
40
IN WITNESS WHEREOF, each of the Principal Stockholders hereto has
executed this Agreement and Buyers have caused their duly authorized
representatives to execute this Agreement on their behalf as of the date first
above written.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
PDS ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
PACIFIC DECISION
SCIENCES CORPORATION
By: /s/ Hark X. Xxxx
--------------------
Name: Hark X. Xxxx
Title: President
PRINCIPAL STOCKHOLDERS:
H & K VASA FAMILY 1999 LIMITED PARTNERSHIP
BY: H & K VASA MANAGEMENT, INC.
Its GENERAL PARTNER
By: /s/ Hark X. Xxxx
----------------------
Name: Hark X. Xxxx
Title: President
H & K VASA FAMILY 2000 LIMITED PARTNERSHIP
By: H & K VASA MANAGEMENT, INC.
Its GENERAL PARTNER
By: /s/ Hark X. Xxxx
-----------------------
Name: Hark X. Xxxx
Title: President
/s/ Xxxxx Xxxxxx
--------------------------
Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxxx
--------------------------
Xxxxx Xxxxxxx
41
