Exhibit 2.8
AGREEMENT AND PLAN OF MERGER
Dated as of July 1, 2000
by and among
APPLIED DIGITAL SOLUTIONS, INC.
WEB SERVE ACQUISITION CORP.
("Buyers")
WEBNET SERVICES, INC.
("Company")
and
Steven P. Couture
Raymond D. Maggi
Jeffrey M. Couture
("Stockholders")
INDEX OF DEFINED TERMS
----------------------
Act Section 7.01
Allocation Section 4.05(d)(3)
Ancillary Document Section 9.01
Annual Financial Statements Section 2.04(a)
Arbiter Section 1.06(c)
Business Recitals
Buyers Preamble
Buyers' Certificate Section 6.01
Buyers' Indemnified Group Section 9.02(b)
Closing Section 1.02
Closing Balance Sheet Section 1.06(a)
Closing 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)
March 31, 2000 Balance Sheet Section 2.04(a)
Leased Real Property Section 2.06(d)
Litigation Section 2.09
Losses Section 9.02(a)
Major Customers Section 2.16
Major Suppliers Section 2.16
Management Fees Section 4.08
Market Value Section 1.03
Merger Consideration Section 1.05(a)
Notices Section 9.03(a)
Owned Real Property Section 2.06(c)
Products Section 2.17
Second Earnout Payment Section 1.05
Stockholders Group Section 2.14(f)(vii)
Stockholders Preamble
Stockholders' Indemnified Group Section 9.02(a)
Special Indemnifications 9.04(c)
Stock Recitals
Subsidiaries Section 2.02(b)
Surviving Company Section 1.01(a)
Tax Return Section 2.14(f)(iii)
Tax Sharing Agreement Section 4.05(c)(1)
Tax Section 2.14(f)(i)
Treasury Regulations Section 2.14(f)(vi)
True-Up Payments Section 1.06(d)
ARTICLE I THE MERGER
1.01. THE MERGER
1.02. THE CLOSING
1.03. CONVERSION OF STOCK; AT THE EFFECTIVE TIME
1.04. EFFECT OF CONVERSION
1.05. MERGER CONSIDERATION
1.06. CLOSING BALANCE SHEET; TRUE-UP PAYMENT
ARTICLE II REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
2.01. CAPITALIZATION
2.02. ORGANIZATION; SUBSIDIARIES
2.03. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT
2.04. FINANCIAL STATEMENTS
2.05. ABSENCE OF CERTAIN CHANGES OR EVENTS
2.06. ASSETS AND PROPERTIES
2.07. INTELLECTUAL PROPERTY
2.08. COMMITMENTS
2.09. LITIGATION
2.10. COMPLIANCE WITH LAWS
2.11. EMPLOYEE BENEFIT PLANS
2.12. ENVIRONMENTAL MATTERS
2.13. CONSENTS
2.14. TAXES
2.15. FEES
2.16. MAJOR CUSTOMERS AND SUPPLIERS
2.17. PRODUCTS
2.18. INSURANCE
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. TAX REORGANIZATION
3.09. SEC FILINGS
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. NON-COMPETITION AGREEMENT
4.08. MANAGEMENT FEES
ARTICLE V CONDITIONS TO BUYERS' OBLIGATIONS
5.01. REPRESENTATIONS, WARRANTIES AND COVENANTS
5.02. NO PROHIBITION
5.03. CONSENTS
5.04. EMPLOYMENT AGREEMENTS
5.05. NO MATERIAL ADVERSE CHANGE
5.06. BANK ARRANGEMENTS
5.07. LESSOR CONSENT
5.08. BANK LIEN RELEASE
5.09. STOCK OPTION PLANS
5.10. BENEFITS PLANS
5.11. BACK TAXES
5.12. SHAREHOLDER NOTES
ARTICLE VI CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
6.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYERS
6.02. NO PROHIBITION
6.03. EMPLOYMENT AGREEMENTS
ARTICLE VII STOCK CERTIFICATES; LEGEND
7.01. SECURITIES LAWS; LEGEND
ARTICLE VIII
intentionally deleted
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
AGREEMENT AND PLAN OF MERGER
----------------------------
Agreement and Plan of Merger (this "Agreement"), dated as
of July 1, 2000, by and among Applied Digital Solutions, Inc., a Missouri
corporation ("ADS"), Web Serve Acquisition Corp. a New York corporation
("Web Serve Acquisition," and together with ADS, the "Buyers"), WebNet
Services, Inc., a New York corporation (the "Company") and Steven P. Couture
("S. Couture"), Jeffrey M. Couture ("J. Couture") and Raymond D. Maggi
("Maggi") (each a "Stockholder" and collectively the "Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Stockholders are the owners of all shares of the
issued and outstanding shares of common stock of the Company;
WHEREAS, the Company is engaged in the business of system
integration (the "Business");
WHEREAS, the parties hereto wish to provide for the terms
and conditions on which a merger of the Company into Web Serve 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
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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
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merged with and into Web Serve Acquisition in accordance with Sections 906
and 907 of the New York Corporation Law ("New York Corporation Law") (such
merger is defined herein as the "Merger") and in the following manner:
(i) The board of directors of each of ADS, Web
Serve Acquisition and the Company shall have adopted a resolution approving
the Merger and this Agreement;
(ii) The Stockholders shall unanimously approve
this Agreement and the Merger, it being understood that such Stockholder's
execution of this Agreement shall constitute such Stockholder's irrevocable
written consent to and approval of the foregoing matters;
(iii) ADS, as the sole stockholder of Web Serve
Acquisition, shall approve this Agreement and the Merger by written consent,
it being understood by the sole stockholder of Web Serve Acquisition that
the execution of this Agreement shall constitute its irrevocable written
consent to and approval of the foregoing matters; and
(iv) The Agreement of Merger (as defined below)
shall be filed by the Surviving Company (as defined below) with the
Secretary of State of the State of New York in accordance with Sections 906
and 907 of the New York Corporation Law.
Following the Merger, the separate corporate existence of
the Company shall cease and Web Serve 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 Agreement of Merger filed with the Secretary of
State of the State of New York in such form as is required by (and attached
hereto as Exhibit 1.01(b)) and executed in accordance with the relevant
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provisions of the New York Corporation Law (the "Agreement of Merger") (the
time specified in the Agreement of Merger being the "Effective Time"). The
Effective Time shall occur on the Closing Date.
(c) At the Effective Time, the effect of the Merger shall
be as provided in the applicable provisions of the New York Corporation Law.
Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and
franchises of the Company shall vest in the Surviving Company, and all
liabilities and duties of Web Serve Acquisition shall become the liabilities
and duties of the Surviving Company.
1.02. The Closing.
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(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 & Mellor, P.C., commencing at 11:00
a.m. (Eastern time) on July 24, 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 July 1, 2000.
(b) At the Closing, Buyers shall deliver to Stockholders:
(i) the First Payment (as defined in Section 1.05(b));
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(ii) the Buyers' Certificate referred to in
Section 6.01;
----
(iii) the Employment Agreements; and
(iv) such other instruments and documents, in
form and substance reasonably acceptable
to Stockholders, as may be necessary to
effect the Closing.
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(c) At the Closing, the Stockholders shall deliver to Buyers:
(i) the Stockholders' Certificate referred to in
Section 5.01;
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(ii) the Employment Agreements;
(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 New York; and
(v) 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; At the Effective Time.
------------------------------------------
(a) Stock of the Company. Each share of the common stock
--------------------
of the Company ("WebNet Stock") issued and outstanding prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled and converted into the right to
receive the Merger Consideration as determined in accordance with Section
1.05.
- ----
(b) Shares of Web Serve Acquisition. Each share of common
-------------------------------
stock of Web Serve 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, stockholder shall cease to have either any rights or claims
against the Company as a stockholder of the Company except as provided in
Section 1.03(a).
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(b) Articles of Incorporation of the Surviving Company. At
--------------------------------------------------
the Effective Time, the Articles of Incorporation of Web Serve Acquisition
as in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Company.
(c) Bylaws of the Surviving Company. At the Effective
-------------------------------
Time, the Bylaws of Web Serve 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 in Section 1.05(b),
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the aggregate consideration to be paid by Buyers for the WebNet Stock shall
be payable in cash and/or ADS Stock (the "Merger Consideration"), as
hereinafter defined as follows:
3
(b) At the Closing Date, Stockholders shall receive
restricted shares of ADS Common Stock ("ADS Stock") equal in value to
$900,000. The per share valuation price of such ADS Stock shall be based
upon the average closing price for the 20 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"). In
- ------------------- ---------------
addition, the following payment provisions shall apply:
(i) On the earlier of (i) October 1, 2003, and
(ii) the date 10 business days after the date on which the financial
statements (the "Earnout Financials") of the Surviving Company for the 12
month period commencing July 1, 2002 and ending June 30, 2003 (the "First
Earnout Period") are completed and have been subjected to certain "Agreed
Upon Procedures" as hereinafter defined, by independent accountants retained
by ADS, ADS shall deliver a second payment (the "First Earnout Payment").
The date upon which the First Earnout Payment is required to be delivered by
ADS to the Stockholders shall be referred to herein as the "First Earnout
Date." 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 4.0 times the EBITDA for the First Earnout Period, minus $450,000
(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 20 consecutive business days ending the business day immediately prior
to the First Earnout Date, as published in The Wall Street Journal, Eastern
----------------------- -------
Edition (the "First Valuation Price").
- -------------------------------------
(ii) On the earlier of (i) October 1, 2004, and
(ii) the date 10 business days after the date on which the Earnout
Financials of the Surviving Company for the 12 month period commencing July
1, 2003 and ending June 30, 2004 (the "Second Earnout Period") are completed
and have been subjected to certain Agreed Upon Procedures, by independent
accountants retained by ADS, ADS shall deliver a third payment (the "Second
Earnout Payment"). The date upon which the Second Earnout Payment is
required to be delivered by ADS to the Stockholders shall be referred to
herein as the "Second Earnout Date". 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 4.0 times the EBITDA for the Second Earnout
Period, minus $450,000 (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 20 consecutive business days ending the
business day immediately prior to the Second Earnout Date, as published in
The Wall Street Journal, Eastern Edition (the "Second Valuation Price").
- ----------------------- ----------------------------------------------
(c) "EBITDA" for a given period shall mean earnings from
operations for such period before interest, taxes, depreciation and
amortization, determined in accordance with United States generally accepted
accounting practices ("GAAP"), plus any management fees imposed by ADS on
the Surviving Company following the Closing.
(d) "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.
(e) After receipt of the Earnout Financials, any of the
Stockholders shall have 15 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.
4
(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 either of the Earnout Amounts, the
parties shall promptly attempt to resolve such objections. In the event the
dispute is not resolved within 30 days of Stockholders' written objection,
the Stockholders may designate a certified public accountant of their choice
(the "Stockholders' Accountants") to prepare and/or review the Earnout
Financials except that all expenses in connection with the review by
Stockholders' Accountant shall be paid by the Stockholders. 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 30 days from the designation by the Stockholders
of the Stockholders' Accountant. 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 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 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.
If the parties are still unable to arrive at an acceptable
resolution, either party may submit the matter to binding arbitration and
such arbitration shall be commenced and conducted in accordance with then
applicable rules of commercial arbitration of the American Arbitration
Association in an arbitration commenced and held before a single arbitrator.
Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
The arbitration shall be held in Palm Beach County, Florida
and the costs of such arbitration shall be borne entirely by the losing party.
(f) Notwithstanding anything to the contrary in this
Merger Agreement the following provisions shall govern the payment of the
Earnout Amounts in the event of the termination of the employment of a
Stockholder pursuant to his respective Employment Agreement prior to the
completion of the Second Earnout Period.
(i) Without Cause. If the Surviving Company terminates
a Stockholder at any time prior to the end of the
First Earnout Period, the Stockholder who has been
terminated (the "Terminated Stockholder") shall
receive as additional payment for his Webnet Stock,
the First Earnout Payment based upon actual EBITDA
for all months prior to such termination, and an
amount equal to the
5
average monthly EBITDA for the previous 12 month
period, for each month after the termination,
until the end of the Second Earnout Period.
In the event that such termination occurs at any
time after the expiration of the First Earnout Period but
before the end of the Second Earnout Period, the
Terminated Stockholder shall receive in addition to the
payment of the amounts due in the First Earnout Period, if
any, an amount based upon actual EBITDA for all months in
the Second Earnout Period prior to such termination, and
an amount equal to the average monthly EBITDA for the
previous 12 month period, for each month after the
termination until the end of the Second Earnout Period.
(ii) For Cause or Voluntary Resignation by
Stockholder. In the event that a
Stockholder is terminated for Cause or
voluntarily resigns pursuant to his
Employment Agreement, then such
Stockholder's right to any existing or
future Earnout Payments shall terminate
except to the extent such Earnout
Payment is earned up to the Termination
Date as defined in the Employment
Agreement, subject to the right of
set-off by the Surviving Company for
damages, if any, in the event such
termination is for Cause. Calculation
for the payment of any Earnout Amounts
shall be determined as of the end of the
quarter in which such termination occurs.
(iii) In no event shall the termination of a
Stockholder pursuant to his Employment
Agreement modify either the timing
and/or method of payment of any Earnout
Amounts.
In the event that a Stockholder is terminated
after the payment of all Earnout Payments that may be due
pursuant to the Merger Agreement, the Stockholder shall
not be entitled to any further payments pursuant to
Section 1.05 of the Merger Agreement.
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 Stockholders an unaudited 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)).
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(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.
6
(c) The Closing Balance Sheet delivered by ADS to
Stockholders and the computation of the True-up Payment annexed thereto
shall be conclusive and binding upon the parties unless Stockholders, within
15 days after the delivery to Stockholders of the Closing Balance Sheet,
notify ADS in writing that Stockholders dispute 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 Stockholders to ADS pursuant to the second preceding sentence, 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. 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 Stockholders, 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 (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 (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so submitted.
ADS and the Stockholders 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 $___TBD___. If the Target Book Value exceeds the Closing Book
Value, the amount of such excess shall be the "True-up Payment." If the
True-up Payment is greater than zero, the amount thereof shall be paid by
Stockholders to the Company in accordance with the provisions of paragraph
(e) of this Section 1.06.
(e) Any amount payable as True-up Payment shall be paid by
wire transfer of immediately available funds to an account designated in
writing by ADS. Such payment shall be made on the third business day
following (i) the last day on which Stockholders may, pursuant to the first
sentence of paragraph (c) of this Section 1.06, notify ADS that they dispute
7
any of the amounts set forth in the Closing Balance Sheet, if Stockholders
shall not notify ADS of any dispute, or such earlier date as Stockholders
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 information, including work papers of its accountants, and to any
employees of the Company to the extent reasonably necessary for the
Stockholders to review the Closing Balance Sheet. Stockholders shall provide
ADS and its accountants reasonable access to the books and records of
Stockholders, any other information, including work papers of its
accountants, and to any employees of Stockholders 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 Stockholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
----------------------------------------------
The Stockholders jointly and severally represent and
warrant that the statements contained in this Section 2 are correct and
complete as of the date of this Agreement and will be correct and complete
as of the Closing Date as follows:
2.01. Capitalization. The authorized capital stock of the Company
--------------
consists of 200 shares of common stock, no par value per share, all of which
are issued and outstanding. All of the shares comprising the WebNet 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. The
delivery of the Stock to Buyers pursuant to Article I hereof will vest in
Buyers legal and valid title to the Stock, free and clear of all
Encumbrances (other than Encumbrances created or suffered by Buyers).
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. True and complete copies
of the
8
articles of incorporation and by-laws 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.
(b) Schedule 2.02(b) sets forth a list, as of the date
----------------
hereof, of all direct or indirect entities in which the Company has an
equity interest (the "Subsidiaries"). Except as set forth in Schedule 2.02(b),
----------------
the Company owns, 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. The
--------------------------------------------------
Stockholders are individuals with all requisite power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes the valid and
binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except to the extent that such enforceability
(i) may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights generally, and (ii) is
subject to general principles of equity. The execution, delivery and
performance by such Stockholder of this Agreement and the consummation by
such Stockholder of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (w) to such
Stockholder's knowledge, violate, or require any consent under, any
Commitment (as defined in Section 2.08), except as set forth in Schedule
-----
2.08(b), (x) violate any law, rule or regulation to which such Stockholder
- -------
or the Company are subject or require any authorization, consent, approval,
exemption or other action by or notice to any governmental authority, (y)
violate any order, judgment or decree applicable to such Stockholder or the
Company or (z) violate any provision of the charter documents or the bylaws
of 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.
9
2.04. Financial Statements.
--------------------
(a) The Stockholders have delivered to Buyers (i) the
unaudited pro forma consolidated balance sheet of the Company as of March
31, 2000 (the "March 31, 2000 Balance Sheet") and unaudited statement of
operations and cash flows of the Company for the three-month period then
ended, and (ii) unaudited balance sheet of the Company as of December 31,
1999 and December 31, 1998, and unaudited statement of operations and cash
flows of the Company for the twelve-month periods 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. The Financial
-------------
Statements fairly present in all material respects the financial position
and the results of operations and cash flows of the Company, for the
respective dates or periods (as the case may be) indicated therein and have
been prepared in conformity with GAAP consistently applied. All 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 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), other than any liabilities, commitments or obligations incurred
after March 31, 2000 in the ordinary course of business.
2.05. Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Schedule 2.05 or reflected in the March 31, 2000 Balance Sheet or permitted
- -------------
or contemplated by this Agreement, since March 31, 2000, the Company has not
(a) suffered any material damage, destruction or casualty loss to its
physical properties; (b) incurred or discharged any material obligation or
liability or entered into any other material transaction except in the
ordinary course of business; (c) suffered any material adverse change in the
business, financial condition, assets, liabilities, prospects, operations or
results of operations of the Company; (d) increased the rate or terms of
compensation payable or to become payable by the Company to its directors,
officers or key employees or increased the rate or terms of any bonus,
pension or other employee benefit plan covering any of its directors,
officers or key employees, except in each case increases occurring in the
ordinary course of business in accordance with its customary practices
(including normal periodic performance reviews and related compensation and
benefit increases) or as required by any pre-existing Commitment identified
in Schedule 2.08; (e) consummated, or agreed to consummate, any sale, lease
-------------
or other transfer or disposition of any 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 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
10
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 March 31, 2000, the Company has
been operated in all material respects in the ordinary course in a manner
consistent with past practice.
2.06. Assets and Properties.
---------------------
(a) The Company has good title to all of the material
tangible personal assets and properties which it purports to own (including
those reflected on the March 31, 2000 Balance Sheet, except for assets and
properties sold, consumed or otherwise disposed of in the ordinary course of
business since the date of the Balance Sheet, which are not individually or
in the aggregate material), free and clear of all Encumbrances, except
(a) as set forth in Schedule 2.06(a), (b) liens for taxes not yet due and
----------------
payable or due but not delinquent or being contested in good faith by
appropriate proceedings, and (c) except as set forth in Schedule 2.06(a),
----------------
the assets owned or leased by the Company constitute all the assets used in
and necessary to conduct the Business as currently conducted.
(b) All material tangible 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. 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 owned by the Company (the "Owned Real Property"). With respect to
the Owned Real Property, (i) the Company has good and marketable title in
fee simple to the Owned Real Property, free and clear of all Encumbrances
except as disclosed in Schedule 2.06(c), (ii) there are no outstanding
----------------
options or rights of first refusal in favor of any other party to purchase
the Owned Real Property or any portion thereof or interest therein, (iii)
there are no leases, subleases, licenses, options, rights, concessions or
other agreements, affecting any portion of the Owned Real Property, and (iv)
all existing water, sewer, gas, electricity, telephone and other utilities
required for the construction, use, occupancy, operation and maintenance of
the Owned Real Property are adequate in all material respects for the use,
occupancy, operation and maintenance thereof, as currently conducted or
currently exists.
(d) Schedule 2.06(d) sets forth a list of all real
----------------
property leased by the Company (the "Leased Real Property"). The
Stockholders have made 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) all existing water, sewer, gas, electricity, telephone and other
utilities required for the construction, use, occupancy, operation and
maintenance of the Leased Real Property are adequate in all material
respects for the use, occupancy, operation and maintenance thereof, as
currently conducted or currently exists. Except as set forth on
Schedule 2.06(d), (A) each such lease or sublease is legal, valid, binding and
- ----------------
enforceable and in full force and effect and (B) the consummation of the
transactions
11
contemplated by this Agreement will not cause a material breach or require
any third party consent under any such lease or sublease.
(e) Except as set forth on Schedule 2.06(e), (i) none of
----------------
the Stockholders, or the Company has received, notice of any pending or, to
the knowledge of the Stockholders, threatened condemnation or eminent domain
proceedings or their local equivalent with respect to the Owned Real
Property or the Leased Real Property, (ii) the Owned Real Property, 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 Owned Real Property or 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 Owned Real Property or the 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 sets forth a true and complete list of
-------------
all (i) Software, registered U.S. and foreign patents and patent
applications, registered U.S. and foreign trademark applications, registered
U.S. and foreign copyrights and copyright applications and other
Intellectual Property (as hereinafter defined), in each case owned or
controlled by the Company and material to the business of the Company
("Company Owned Intellectual Property"), and (ii) licenses of Intellectual
Property of Software to the Company or by the Company to a third party (as
hereinafter defined), in each case that are material to the business of the
Company ("Company Licensed Intellectual Property");
(b) to the knowledge of the 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 to 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;
12
(e) to the knowledge of the 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 Stockholders, no person is
engaging in any activity that infringes upon the Company Owned Intellectual
Property;
(g) to the knowledge of the 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 Stockholders, no party to any
license of the Company Licensed Intellectual property is in breach thereof
or default thereunder;
(i) the Software of the Company is free of all viruses,
worms, trojan horses and other material known contaminants, and does not
contain any bugs, errors, or 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 of the Company have been
transferred to any third party except to the customers of the Company to
whom the Company has the right to use all Software in the ordinary course of
business; and
(k) the Company has the right to use all software
development tools, library functions, compilers, and other third party
software that is material to the business of the Company, or that is
required to operate or modify the Software of the Company.
"Intellectual Property" means (i) patents, patent applications and
---------------------
statutory invention registrations, in each case in the United States and all
other countries, (ii) any trademarks, service marks, trade dress, logos,
trade names, corporate names, and other source identifiers, including any
registrations and applications for registration of any of the foregoing in
the United States and any foreign country, (iii) all rights under the
copyright laws of the United States and all other countries, including,
without limitations, all copyrightable works, copyrights, and registrations
and applications for registration thereof, and (iv) all confidential and
proprietary information, including trade secrets and know-how.
"Software" of a party means all material computer software owned,
--------
controlled or licensed by or on behalf of such party and used, manufactured,
distributed, sold, licensed or marketed by such party.
2.08. Commitments.
-----------
(a) Schedule 2.08 sets forth, as of the date hereof, each
-------------
contract or agreement, whether written or oral (including any and all
amendments thereto), to which the Company is a party, or by which the
Company is bound (collectively, the "Commitments") of the following types:
13
(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 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 relating to the lending or
borrowing of money, including loan
agreements, guarantees of any
liabilities, performance bonds, letters
of credit, bankers acceptances and
similar instruments or arrangements;
(vii) Commitments under which the Company
agrees to indemnify any person or
entity;
(viii) 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;
(ix) 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;
(x) Commitments in respect of any joint
venture, partnership or other similar
arrangement (including, without
limitation, any joint development
agreement);
14
(xi) Commitments relating to any governmental
or regulatory authority;
(xii) Commitments for the lease or sub-lease
of any real property;
(xiii) Commitments for the leasing of any real
property;
(xiv) 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;
(xv) Commitments that involve in excess of
$50,000.00 in the aggregate or that may
not be terminated on less than 90 days'
notice;
(xvi) Commitments (other than those specified
in any of clauses (i) through (xv) 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
(xvii) 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 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, or give rise to any
Encumbrance or right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration under, any Commitment
listed in Schedule 2.08(a), except for breaches, violations and defaults, or
----------------
Encumbrances or rights of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration which,
individually or in the aggregate, are not material and (ii) neither the
Company nor, to the knowledge of the Stockholders, any other party to any of
the Commitments listed in Schedule 2.08(a) is in material arrears in respect
----------------
of the performance or satisfaction of the terms and conditions on its part
to be performed or satisfied under any of such Commitments and no material
waiver or material indulgence has been granted by any of the parties
thereto.
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 Stockholders' knowledge,
threatened, involving the Company, the Business or any
15
assets or liabilities of any of the foregoing. Except as set forth in
Schedule 2.09, the Company is not subject to any outstanding orders,
- -------------
rulings, judgments, injunctions, writs, decrees or actions including,
without limitation, any actions brought by any regulatory authority.
2.10. Compliance with Laws. Except as set forth in Schedule 2.10,
-------------------- -------------
none of the 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.
2.11. Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) With respect to each employee benefit plan, program,
arrangement and contract (including, without limitation, any "Employee
--------
Benefit Plan", as defined in Section 3(3) of the Employee Retirement Income
- ------------
Security Act of 1974, as amended ("ERISA")), maintained or contributed to by
-----
the Company, or with respect to which the Company could incur liability
under Section 4069, 4201(c) of ERISA (the "Company Benefit Plans"), the
------------- ---------------------
Company has made available to the Buyers a true and correct copy of (i) the
most recent annual report (Form 5500) filed with the Internal Revenue
Service (the "IRS"), (ii) such Company Benefit Plan, (iii) each trust
---
agreement relating to such Company Benefit Plan, (iv) the most recent
summary plan described for each Company Benefit Plan for which a summary
plan described is required, (v) the most recent actuarial report or
valuation relating to a Company Benefit Plan subject to Title IV of ERISA,
if any, and (vi) the most recent determination letter, if any, issued by the
IRS with respect to any Company Benefit Plan qualified under Section 401 (a)
-------
of the Code.
(b) With respect to the Company Benefit Plans, no event
has occurred and, to the knowledge of the 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 the Buyers (i)
copies of all employment agreements with officers or key employees of the
Company or any of its subsidiaries; (ii) copies of all severance agreements,
programs and policies of the Company; and (iii) copies of all plans,
programs, agreements and other arrangements of the Company which contain
change in control provisions.
(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.
16
(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) 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) have withheld all amounts required by law or by agreement to
be withheld from the wages, salaries and other payments to employees; (iii)
are not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) are 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 or Stockholders by
employees are pending or to the knowledge of the Company threatened. The
Company is not (i) involved in or 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 Stockholders or any of their affiliates.
2.12. Environmental Matters.
---------------------
(a) To the knowledge of the 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 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, 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 Stockholders of this Agreement or the taking by the
Stockholders of any other action contemplated hereby.
17
2.14. Taxes.
-----
(a) Except as set forth in Schedule 2.14(a), all Tax
----------------
Returns required to be filed by or with respect to the Company have been
properly and timely filed and all such Tax Returns are complete and accurate
in all material respects. Except to the extent reserved or reflected against
on the March 31, 2000 Balance Sheet, all Taxes due with respect to such Tax
Returns or which are otherwise due and payable by the Company have been paid
in full. 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): (i) no Tax
----------------
authority in a jurisdiction where the Company does not file Tax Returns has
made a claim, assertion or threat that the Company is or may be subject to
Tax in such jurisdiction; (ii) no deficiencies for any Tax have been
threatened, proposed, asserted or assessed against the Company that have not
been satisfied; (iii) no audits or examinations with respect to the Company
are ongoing or have been threatened or proposed 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; (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. 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, 1991. The Company, nor any member of the Stockholders' Group will, 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) The Company is, and since its formation has been, and
will be until the Closing Date, properly qualified as an "S Corporation"
under Section 1361(a) of the Code, and the Company is, and since its
-------
formation has been, and will be until the Closing Date so properly qualified
for state and local Income Tax purposes pursuant to analogous state or local
provisions in the jurisdictions set forth in Schedule 2.14(c).
----------------
(e) There are no Tax liens on any assets of the Company,
except liens for Taxes not yet due and payable;
18
(f) As used in this Agreement:
(i) The term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable")
includes all federal, state, local and foreign
Income Tax, profits, franchise, gross receipts,
environmental, customs duty, capital stock,
communications services, severance, stamp,
payroll, sales, employment, unemployment,
disability, use, property, withholding, excise,
production, value added, occupancy and other
taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties
and additions imposed with respect to such
amounts and any interest in respect to such
penalties and additions, and includes any
liability for Taxes of another person by
contract, as a transferee or successor, under
Treasury Regulation Section 1.1502-6 or analogous
----------------
state, local, or foreign law provision, or
otherwise.
(ii) The term "Income Tax" means any federal,
state, local or foreign Tax or Taxes (i)
based upon, measured by, or calculated
with respect to, net income or net
receipts, proceeds or profits, or (ii)
based upon, measured by, or calculated
with respect to multiple bases
(including, but not limited to,
corporate franchise or occupation Taxes)
if such Tax may be based upon, measured
by, or calculated with respect to one or
more bases described in (i) above.
(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.
(vi) The term "Stockholders Group" means any
"affiliated group" (as defined in
Section 1504(a) of the Code without
-------
regard to the limitations contained in
Section 1504(b) of the Code) that
-------
includes the Stockholders or any
predecessor of or successor to the
Stockholders (or another such
predecessor or successor).
2.15. Fees. Except as set forth on Schedule 2.15, 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 last 12 months ("Major
19
Suppliers") and (ii) the customers of $25,000 or more in products or
services of the Business during the last 12 months (the "Major Customers").
Except as set forth on Schedule 2.16, no Major Supplier or Major Customer
-------------
has during the last 12 months decreased materially or, to the best knowledge
of the Stockholders, threatened to materially decrease or limit materially
its provision of services or supplies to the Business. To the best of the
Stockholders' knowledge, 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. Products. Except as set forth on Schedule 2.17, there are no
-------- -------------
statements, citations or decisions by any governmental or regulatory
authority stating that any product or service manufactured, sold, designed,
distributed or marketed at any time by the Company ("Products") is defective
or unsafe or fails to meet any standards promulgated by any governmental
authority. Except as set forth on Schedule 2.17, there is no (i) fact
-------------
relating to any Product that, to the knowledge of Stockholders, may impose
upon the Company a duty to recall any Product or a duty to warn customers of
a defect in any Product, (ii) material latent or overt design, manufacturing
or other defect in any Product or (iii) material liability for warranty
claims or returns with respect to any Product.
2.18. Insurance. All of the material assets of the Company and all
---------
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 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 2.18 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 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 will not
result in any such termination or premium increase.
20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
Each Buyer hereby jointly and severally represent and
warrant that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete
as of the Closing Date as follows:
3.01. Organization. ADS and Web Serve Acquisition are corporations
------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation, and has all requisite corporate power
and authority to carry on their business as it is now being conducted, and
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. Web Serve Acquisition has been formed for
the sole purpose of completing the Merger and has not incurred any
obligations, liabilities, or other commitments 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 and each
of the documents referenced herein and the consummation by each Buyer of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of each Buyer. This Agreement has been duly and
validly executed and delivered by each Buyer and constitutes the valid and
binding obligation of each Buyer, enforceable against each Buyer in
accordance with its terms, except to the extent that such enforceability (i)
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights generally, and (ii) is
subject to general principles of equity. The execution, delivery and
performance by each Buyer of this Agreement and the consummation by each
Buyer of the transactions contemplated hereby will not, with or without the
giving of notice or the lapse of time, or both, (i) violate, or require any
consent under, any material contract or other commitment of each Buyer, (ii)
violate any provision of law, rule or regulation to which each Buyer is
subject, (iii) violate any order, judgment or decree applicable to each
Buyer or (iv) violate any provision of the Certificate of Incorporation or
the By-laws of each Buyer; except, in each case, for violations which in the
aggregate would not materially hinder or impair the consummation of the
transactions contemplated hereby.
3.03. Capitalization.
--------------
(a) The total authorized capital stock of ADS consists of
(i) 80,000,000 shares of Common Stock, $.001 par value per share, 52,982,886
shares of which are issued and outstanding as of June 26, 2000, and (ii)
5,000 shares of Preferred Stock, 1 of which is issued and outstanding as of
June 26, 2000.
(b) The total authorized capital stock of Web Serve
Acquisition consists of 100 shares of common stock, no par value per share,
100 shares of which, as of the date hereof, are issued and outstanding and
are held by ADS.
21
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
the Buyers in connection with the execution, delivery and performance by the
Buyers of this Agreement, or the taking by the Buyers of any other action
contemplated hereby.
3.05. Fees. Neither ADS has not paid or become obligated to pay any
----
fee or commission to any broker, finder or intermediary (other than bonus
arrangements with employees of Buyers) in connection with the transactions
contemplated hereby.
3.06. Litigation. Except as set forth in Schedule 3.06, there is no
---------- -------------
claim, suit, action or proceeding in any court or before any governmental or
regulatory authority ("Litigation") pending or, to Buyers' knowledge,
threatened, against Buyers or any material assets or liabilities of any of
the foregoing. Except as set forth in Schedule 3.06, ADS is not subject to
-------------
any outstanding orders, rulings, judgments, injunctions, writs, decrees or
actions including, without limitation, any actions brought by any regulatory
authority.
3.07. Common Stock to be Received by Stockholders. The ADS Stock to
-------------------------------------------
be received by Stockholders will, when issued and delivered to the
Stockholders, be duly and validly issued, fully paid, nonaccessable and free
of preemptive rights or other restrictions (except those that may be imposed
by the rules and regulations by Nasdaq with regard to notice requirements)
other than those imposed pursuant to securities laws and those expressly
provided for in this Agreement.
3.08. Tax Reorganization. Neither ADS or Web Serve Acquisition has
------------------
taken or failed to take any action that would prevent the Merger from
constituting a reorganization within the meaning of Section 368(a) of the
Code, except as set forth herein.
3.09 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 were made, not misleading.
ARTICLE IV
COVENANTS
---------
4.01. Further Assurances. At any time or from time to time after
------------------
the Closing, each party shall, at the request of the other party, execute
and deliver any further instruments or documents and take all such further
action as such other party may reasonably request in order to evidence the
consummation of the transactions contemplated hereby.
4.02. Notice. The 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
22
Stockholders prior to the Closing (except for matters brought to
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 Stockholders contained herein being
false or inaccurate in any material respect. No disclosure made by
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 Stockholders shall have the continuing
---------------
obligation to not disclose any Confidential Information (as defined below)
after the Closing Date to any third party, except as required by law.
"Confidential Information" shall mean any information concerning the Company
which is in the possession of Stockholders (other than the Company) on the
date hereof or on the Closing Date relating to the Business, other than
information which is or becomes available to the public (other than as a
result of the disclosure by Stockholders (other than the Company) of such
information in contravention of the covenants set forth in this Section
4.03. Through and until the Closing Date, Buyers agree that none of the
- ----
Buyers nor any of Buyers' affiliates will disclose any Confidential
Information to any third party, except as required by law.
4.04. Cash Management; Intercompany Accounts. The Stockholders will
--------------------------------------
cooperate with ADS in making preparations for the Company to participate in
banking and financial programs of ADS.
4.05. Responsibility for Taxes; Returns; Audits.
-----------------------------------------
(a) Indemnification.
---------------
(1) The Stockholders shall be responsible for and
indemnify and hold harmless Buyers and their affiliates, including the
Company, from and against any Losses arising with respect to: (i) all Taxes
of the Company for any taxable year or period ending on or before the
Closing Date, (ii) for any taxable year or period beginning before and
ending after the Closing Date, all Taxes of the Company for the portion of
such taxable period ending on and including the Closing Date, and (iii) all
Taxes of Stockholders or any affiliate thereof (other than the Company). For
purposes of this Section 4.05(a), Stockholders' obligation to indemnify
-------
Buyers and their affiliates with respect to Taxes other than Income Taxes
shall apply only to the extent that the Losses incurred with respect to any
such Tax exceeds the reserves for such Tax on the March 31, 2000 Balance
Sheet, as such Balance Sheet may be adjusted to reflect solely (i) any
payments out of such reserves and (ii) the operations of the Company in the
ordinary course of business, subsequent to the date of such Balance Sheet
prior and to the Closing Date.
(2) 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
23
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 Date, 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 timely prepare (or cause
to be prepared), and shall timely file (or cause to be timely filed) 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. The Stockholders shall, 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 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.
(3) 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
Date, 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.
(4) 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.
24
(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) The Stockholders agree that between the date of
the Agreement and the Closing Date, it will not cause or permit the Company
to (i) make any change in the Company's Tax accounting methods, any new
election with respect to Taxes or any modification or revocation of any
existing election with respect to Taxes or (ii) settle or otherwise dispose
of any Tax audit, dispute, or other Tax proceeding, in each case without
Buyer's express written consent thereto.
(d) Assistance and Cooperation.
--------------------------
(1) From and after the Closing Date, to the extent
reasonably requested by the other party, the Stockholders and Buyers shall
assist and cooperate with each other in the preparation of any Tax Return
which the other party is responsible to file pursuant to Section 4.05(b)
-------
herein and 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.
25
(f) Contests.
--------
(1) Subject to the provisions of this Section 4.05(f)
-------
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 Income Taxes for any Taxable year or period ending on or before
the Closing Date and shall have the right to settle or contest in its
discretion any such audit, contest or proceeding; provided, however, that
(i) 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 shall be made without Buyers' consent
(which consent shall not be unreasonably withheld) if the same reasonably
could be expected to affect Buyers' liability for Tax in any taxable period
or portion of a taxable period ending after the Closing Date; (iii) Buyers
and Stockholders shall jointly control any Income Tax proceeding relating to
a taxable period that begins before, and ends after, the Closing Date; and
(iv) Buyers shall have the right to attend and participate in (but not
control) at its own expense, any proceeding to the extent that it relates to
Income Taxes, other than Income Taxes for which the Company filed a Tax
Return as part of the consolidated, combined, or unitary group of which the
Stockholders are the common parent.
(2) Except for proceedings the control of which is
determined pursuant to Section 4.05(f)(1) above, Buyers shall, at their own
-------
expense, control, manage and solely be responsible for any audit, contest,
claim, proceeding or inquiry with respect to Income Taxes for any Taxable
year or period ending 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 any other party.
4.06. Cooperation with Public Filings. The Stockholders shall
-------------------------------
cooperate, and shall cause the Surviving Company and the Surviving Company's
accountants to cooperate, with Buyers and its affiliates and advisors in the
preparation and filing of any public filings (and any related documentation
or filings) in a timely fashion and shall use, and cause the Company to use,
its reasonable best efforts to assist Buyers in having any such registration
statement declared effective by the Securities and Exchange Commission as
promptly as practicable and in maintaining the effectiveness of any such
registration statement. If Stockholders shall obtain knowledge of any
information pertaining to the Company that would require any amendment or
supplement to any registration statement, Stockholders shall so advise ADS
in writing and shall promptly furnish ADS with all information as shall be
required for such amendment or supplement and shall promptly take such
action as shall be required to amend or supplement any such registration
statement.
4.07. Non-Competition Agreement. The Stockholders agree that for
-------------------------
the later of (i) 3 years from the Closing Date and (ii) 12 months
immediately following the termination of their respective Employment
Agreements, that they shall not, without the prior written consent of the
Surviving Company, (a) solicit or do business with any prior existing
clients of the Company, ADS or any subsidiary of ADS anywhere in the world
(including, without limitation, anywhere in the United States of America) or
(b) directly or indirectly solicit for employment, including, without
limitation, recommending to any subsequent employer the solicitation for
employment
26
of, any employee of the Surviving Company or any Subsidiary. The
parties hereto acknowledge and agree that (x) Stockholders will receive
substantial and valuable benefits under this Agreement in consideration of
the covenants and agreements of Stockholders set forth in this Section 4.07,
----
(y) Buyers would not have executed and delivered this Agreement, or agreed
to consummate the transactions contemplated hereby upon the terms and
conditions set forth in this Agreement, if Stockholders have not entered
into the covenants and agreements set forth in this Section 4.07 and (z) the
----
parties intend that such agreements and covenants be enforceable and that it
would be grossly inequitable if a court or judicial tribunal were to not
enforce such covenants and agreements to the fullest extent provided herein.
"Competitive Activity" shall mean engaging in any of the following
activities: (i) serving as a director of any Competitor; (ii) directly or
indirectly (x) controlling any Competitor or (y) owning any equity or debt
interests in any Competitor (other than equity or debt interests which are
publicly traded and do not exceed five percent (5%) of the particular class
of interests then outstanding) (it being understood that, if any such
interests in any Competitor are owned by an investment vehicle or other
entity in which Stockholders own an equity interest, a portion of the
interests in such Competitor owned by such entity shall be attributed to
Stockholders, such portion determined by applying the percentage of the
equity interest in such entity owned by Stockholders to the interests in
such Competitor owned by such entity); (iii) directly or indirectly
soliciting, diverting, taking away, appropriating or otherwise interfering
with any of the customers or suppliers of the Business; or (iv) employment
by (including serving as an officer of), or providing consulting services
to, any Competitor. "Competitor" shall mean any entity that is engaged in a
business similar to the Business, without regard to size or is engaged in
owning, operating or acquiring directly or indirectly one or more entities
engaged in a business similar to the Business, without regard to size.
4.08. Management Fees. The Stockholders shall cause the Surviving
---------------
Company to pay Management Fees to ADS on a yearly basis of 2 1/2 % of the
Surviving Company's annual gross sales. Such Management Fees shall be
payable in 12 equal monthly payments based upon the previous calendar year's
gross sales, commencing as of June 1, 2000.
ARTICLE V
CONDITIONS TO BUYERS' OBLIGATIONS
---------------------------------
The obligation of Buyers to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction (or
waiver) on or prior to the Closing Date of all of the following conditions:
5.01. Representations, Warranties and Covenants of Stockholders.
---------------------------------------------------------
The Stockholders shall have complied in all material respects with their
agreements and covenants contained herein to be performed on or prior to the
Closing Date, and the representations and warranties of the Stockholders
contained herein in the aggregate shall be true in all material respects on
and as of the Closing Date with the same effect as though made on and as of
the Closing Date, except (a) as otherwise contemplated hereby, and (b) to
the extent that any such representations and warranties were made as of a
specified date and as to such representations and warranties the
27
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 ("Stockholders' Certificate"),
dated as of the Closing Date and signed by the Stockholders, certifying as
to the fulfillment of the condition set forth in this Section 5.01.
----
5.02. No Prohibition. No statute, rule or regulation or order of
--------------
any court or administrative agency shall be in effect that prohibits Buyers
from consummating the transactions contemplated hereby.
5.03. Consents. All other consents, approvals, authorizations,
--------
exemptions and waivers from governmental agencies and third parties that are
reasonably required for the consummation of the transactions contemplated
hereby, including those listed on Schedule 2.13, shall have been obtained in
-------------
form and substance reasonably satisfactory to the Buyers.
5.04. Employment Agreements. Each of the Stockholders shall have
---------------------
executed an employment agreement in the form of Exhibit 5.04 (the
----
"Employment Agreement"). Such Employment Agreement shall replace and
supercede any employment agreements by and between the Stockholders and the
Company ("Prior Employment Agreements") (IF ANY). The Stockholders do also
expressly waive any rights, including but not limited to severance payments,
pursuant to such Prior Employment Agreements.
5.05. No Material Adverse Change. Since March 31, 2000, the Company
--------------------------
has not suffered any material adverse change in the business, assets,
liabilities, and results of operations or prospects of the Company.
5.06. Banking Arrangements. The Stockholders shall cause the
--------------------
Company to execute and deliver any and all necessary documents and or
corporate resolutions deemed necessary to ADS pursuant to ADS's current
credit agreement, including but not limited to executing or causing the
execution and filing of the appropriate termination statements.
5.07. Lessor Consent. Notwithstanding any contrary provision set
--------------
forth in this Agreement, the Stockholders shall prior to the Closing obtain
and deliver to Buyers any required Lessor Consent for the transaction
contemplated by this Agreement.
5.08. Bank Lien Release. Notwithstanding any contrary provision set
-----------------
forth in this Agreement, the Stockholders shall obtain and deliver to Buyers
any UCC-1 lien releases required to remove any existing liens on the assets
of the Company. (we will need to provide for the pay-off of any loans that
may be outstanding pre-closing.)
5.09. Stock Option Plans. The Company shall terminate any and all
------------------
stock option plans and warrants and shall assume any liability that may
result therefrom including but not limited to the vesting of such options.
Further, the Stockholders shall deliver evidence of such termination in a
form acceptable to Buyers prior to Closing.
28
5.10. Benefits Plans. The Stockholders shall cause the Company to
--------------
terminate any and all Benefit Plans, including but not limited to any
Retirement Plans, or 401K Plans and to indemnify Buyers from any and all
claims and/or expenses associated with such termination.
5.11. Back Taxes. The Stockholders shall cause the Company to
----------
pay any and all taxes that are due or past due as of the Closing Date.
5.12. Shareholder Notes. The Stockholders shall cause the Company
-----------------
to pay any and all Shareholder notes either due to or due from Shareholders
and any related entities.
ARTICLE VI
CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
---------------------------------------
The obligation of Stockholders to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:
6.01. Representations, Warranties and Covenants of Buyers. Buyers
---------------------------------------------------
shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date,
and the representations and warranties of Buyers contained herein in the
aggregate shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date,
except (a) as otherwise contemplated hereby, and (b) to the extent that any
such representations and warranties were made as of a specified date and as
to such representations and warranties the same shall continue on the
Closing Date to have been true in all material respects as of the specified
date. For purposes of the preceding sentence, specific material adverse
effect and materiality qualifiers contained in individual representations
and warranties shall be disregarded. The Stockholders shall have received a
certificate of Buyers, dated as of the Closing Date and signed by an officer
of Buyers ("Buyers' Certificate"), certifying as to the fulfillment of the
condition set forth in this Section 6.01.
----
6.02. No Prohibition. No statute, rule or regulation or order of
--------------
any court or administrative agency shall be in effect that prohibits
Stockholders from consummating the transactions contemplated hereby.
6.03. Employment Agreements. The Surviving Company shall have
---------------------
executed an Employment Agreement with S. Couture, Maggi, and J Couture.
29
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 "Act"), and it is the intention of the parties hereto
that the issuance of such securities be exempt from registration under the
Act and the rules promulgated thereunder by the Securities and Exchange
Commission; (ii) they 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 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 common stock pursuant to Section 1.03; (v) they have been given
----
the opportunity to obtain information and documents relating to ADS and to
ask questions of and receive answers from representatives of ADS concerning
Buyers; and (vi) they are able to bear the economic risk of a total loss of
value of their interest in Buyers. Stockholders covenant that they shall
neither directly or indirectly sell, transfer, assign, exchange, pledge,
encumber or otherwise dispose of any shares of ADS 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
----------------------------
DELETED INTENTIONALLY
30
ARTICLE IX
MISCELLANEOUS
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9.01. Survival. The representations and warranties of the parties
--------
hereto contained herein or in any agreement, certificate (including the
Stockholders' Certificate and the Buyers' Certificate) or other document
executed at or prior to the Closing in connection herewith (an "Ancillary
Document") shall expire on the 36 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 have asserted a claim
in accordance with this Article IX for breach of any such representation or
warranty prior to the expiration of such period, in which 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 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, Stockholders shall
indemnify, defend and hold harmless Buyers and any affiliate of Buyers and
each of their respective directors, officers, employees, agents and
representatives, and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, "Buyers' Indemnified Group") from and
against all Losses incurred or suffered by Buyers' Indemnified Group to the
extent the Losses arise out of, or result from (i) the failure of any
representation or warranty made by Stockholders herein or in any Ancillary
Document to have been true when made and as of the Closing Date, (ii) the
breach of any covenant or agreement of Stockholders contained herein or in
any Ancillary Document, or (iii) any asset, property right, obligation, or
liability of the Company not primarily related to the Business including,
without limitation, any of the foregoing arising out of the discontinued
operation of the Company. Business including, without limitation, any of the
foregoing arising out of the discontinued operation of the Company.
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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 upon its written unconditional acknowledgment of its
obligation to indemnify the Indemnified Party with respect to such claim;
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 such
member of Buyers' Indemnified Group shall not settle or otherwise dispose of
such claim without the consent of Stockholders, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party makes such an
election, (x) it shall keep the Indemnified Party informed as to the status
of such matter and shall promptly send copies of all pleadings to the
Indemnified Party, (y) with respect to any issue involved in such claim, it
shall have the sole right, with respect to claims or portions of claims
seeking monetary damages only, to settle or otherwise dispose of such claim
on such terms as it, in its sole discretion, shall deem appropriate;
provided, however, that the consent of the Indemnified Party to the
settlement or disposition shall be required if such settlement or
disposition shall result in any 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 that make it
reasonably necessary for separate counsel to represent the Indemnified Party
and the Indemnifying Party.
32
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 or warranty made by Stockholders or Buyers in this Agreement
or in any Ancillary Document. All amounts payable by one party in
indemnification of the other (whether or not as provided in Section 9.04(d))
-------
shall be considered an adjustment to the Merger Consideration.
(b) Upon making any payment to an Indemnified Party for
any indemnification claim pursuant to this Article IX, the Indemnifying
Party shall be subrogated, to the extent of such payment, to any rights
which the Indemnified Party may have against any other parties with respect
to the subject matter underlying such indemnification claim.
(c) The amount of any Losses shall be computed net of any
insurance proceeds received by the Indemnitee or its Affiliates in
connection therewith.
(d) Notwithstanding anything herein to the contrary, if
Stockholders shall have indemnification obligations pursuant to this
Agreement, ADS may, at his option, (i) require that such payment be made in
cash by wire transfer of immediately available funds, (ii) reduce any future
payment obligation to Stockholders pursuant to Section 1.05 on a
----
dollar-for-dollar basis, or (iii) if ADS is in possession of any certificate
representing shares of ADS Stock issued pursuant to Section 1.05(b), 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(b) shall be reduced pursuant to clause (ii) above, the
-------
amount so reduced shall be deemed "paid" for purposes of Section 1.05.
----
9.05. Interpretive Provisions.
-----------------------
(a) Whenever used in this Agreement, "to Stockholders'
knowledge" or "to the knowledge of Stockholders" shall mean the actual
knowledge of the 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 Merger.
9.06. Entire Agreement. This Agreement (including the Schedules)
----------------
and the Ancillary Documents constitute the sole understanding of the parties
with respect to the subject matter hereof.
33
9.07. Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; provided, however, that this
Agreement may not be assigned by either party hereto without the prior
written consent of the other (except that Buyers may without the prior
written consent of Stockholders assign this Agreement to any affiliate of
Buyers so long as such assignee shall execute a counterpart of this
Agreement agreeing to be bound by the provisions hereof as "Buyers," and
agreeing to be jointly and severally liable with the assignor and any other
assignee for all of the obligations of the assignor hereunder), but no such
assignment of this Agreement or any of the rights or obligations hereunder
shall relieve Buyers of its obligations under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.08. Headings. The headings of the Articles, Sections and
--------
paragraphs of this Agreement are inserted for convenience only and shall not
be deemed to constitute part of this Agreement or to affect the construction
hereof.
9.09. Modification and Waiver. No amendment, modification or
-----------------------
alteration of the terms or provisions of this Agreement shall be binding
unless the same shall be in writing and duly executed by the parties hereto,
except that any of the terms or provisions of this Agreement may be waived
in writing at any time by the party which is entitled to the benefits of
such waived terms or provisions. No waiver of any of the provisions of this
Agreement shall be deemed to or shall constitute a waiver of any other
provision hereof (whether or not similar). No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof.
9.10. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
9.11. Expenses. Except as otherwise provided herein, Stockholders
--------
and Buyers shall pay all costs and expenses incurred by them or it or on
their or its behalf in connection with this Agreement and the transactions
contemplated hereby, including, without limiting the generality of the
foregoing, fees and expenses of their respective financial consultants,
accountants and counsel.
9.12. Notices. Any notice, request, instruction or other document
-------
to be given hereunder by any party hereto to any other party shall be in
writing and shall be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by electronic facsimile transmission, by
overnight courier or by registered or certified mail, postage prepaid,
if to Stockholders to: Steven P. Couture
20 Valley Pond Road
Katonah, NY 10536
34
Jeffrey M. Couture
19 Watergate Drive
Amawalk, NY 10501
Raymond D. Maggi
16 Lower Salem Road
South Salem, NY 10590
with a copy to: Ron Kreiger, Esquire
376 Broadway, Suite 10C
New York, NY 10013
Telephone: (212) 406-3346
Facsimile: (212) 406-3579
if to Buyers to them at: Applied Digital Solutions, Inc.
400 Royal Palm Way, Suite 410
Palm Beach, FL 33480
Attention: David I. Beckett, Esquire
Telephone: (561) 366-4800
Facsimile: (561) 366-0002
with a copy to: Merra, Kanakis, Creme & Mellor, P.C.
60 Main Street
Nashua, NH 03060
Attention: Paul D. Creme, Esquire
Telephone: (603) 886-5055
Facsimile: (603) 883-0750
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 Florida 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
35
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. The Stockholders shall not 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 ADS.
SIGNATURE PAGES TO FOLLOW
36
IN WITNESS WHEREOF, each of the individual parties hereto
has executed this Agreement and Buyers have caused their duly authorized
representatives to execute this Agreement on its behalf as of the date first
above written.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Garrett A. Sullivan
------------------------------------
Name: Garrett A. Sullivan
Title: President
WEB SERVE ACQUISITION CORP.
By: /s/ Garrett A. Sullivan
------------------------------------
Name: Garrett A. Sullivan
Title: President
WEBNET SERVICES, INC.
/s/ Steven P. Couture
---------------------------------------
By: Name: Steven P. Couture
Title: President
STOCKHOLDERS:
/s/ Steven P. Couture
---------------------------------------
Steven P. Couture
/s/ Raymond D. Maggi
---------------------------------------
Raymond D. Maggi
/s/ Jeffrey M. Couture
---------------------------------------
Jeffrey M. Couture
37