<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 13, 1997
(July 31, 1997)
KATZ DIGITAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27934 13-3377693
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
Twenty-One Penn Plaza
New York, New York 10001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 594-4800
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KATZ DIGITAL TECHNOLOGIES, INC.
INDEX TO FORM 8-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AUGUST 13, 1997
ITEMS IN FORM 8-K
Page
Facing page
Item 2. Acquisition or Disposition of Assets. 3
Item 7. Financial Statements and Exhibits. 5
Signatures
Exhibit Index
2
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 31, 1997, Advanced Digital Services, Inc. ("ADSI") was merged
with and into Katz Digital Acquisition, Inc., a wholly-owned subsidiary of the
Registrant ("KDAI"), pursuant to a Plan and Agreement of Merger (the "Merger
Agreement") by and among the Registrant, ADSI, the former shareholders of ADSI
(the "ADSI Shareholders") and KDAI (the "Merger"). ADSI, based in New York, New
York, provides digital prepress printing services to leading advertising
agencies, publishers and other businesses. Upon effectiveness of the Merger,
KDAI, the surviving corporation (the "Survivor Corporation"), assumed the name
"Advanced Digital Services, Inc." and succeeded to, and will continue to own
and operate, the business and assets of ADSI.
As aggregate consideration for the Merger, the ADSI Shareholders
received cash in the amount of $500,000, 301,818 shares of the Registrant's
common stock (the "Merger Shares"), and promissory notes in the aggregate
principal amount of $250,000, with interest payable thereon at an annual rate of
7% and becoming due and payable July 1, 2002 (the "Notes"). Such Merger
consideration is subject to adjustment based on the collectibility of certain
accounts receivable of ADSI and variations from certain amounts of ADSI's
net worth on July 31, 1997, or the revenues generated by the Survivor
Corporation during the first twelve month period following the Merger, all as
more fully specified in the Merger Agreement. The Notes and the certificates
representing the Merger Shares will be held in escrow pending the final
determination of the Merger consideration.
The Registrant utilized a portion of its cash balances to fund the
cash portion of the Merger consideration.
The Merger consideration was determined by arms-length negotiations
between the management of the Registrant and the ADSI Shareholders. The number
of the Merger Shares (which are subject to adjustment as described above) was
determined by dividing $835,673 by the average closing price of the Registrant's
Common Stock for twenty (20) consecutive trading days on the NASDAQ National
Market ending three (3) business days prior to the date of consummation of the
Merger.
Concurrently with the Merger, each of the ADSI Shareholders, who were
also the former principal officers of ADSI, entered into employment agreements
with the Survivor Corporation to become Vice Presidents for five year terms, as
well as agreements imposing certain non-competition and confidentiality
restrictions. Such employment and non-competition agreements are included in
this Report as exhibits thereto.
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The ADSI Shareholders have agreed not to sell or otherwise transfer the
Merger Shares until February 1, 1999. The Registrant has undertaken to use its
best efforts to prepare and file a Registration Statement with the Securities
and Exchange Commission to allow for the resale of the Merger Shares after such
date pursuant to the Securities Act of 1933, as amended.
Certain of the assets owned by ADSI prior to the Merger included
machinery, equipment and other physical property that was used for digital
prepress printing services. The Registrant intends to continue to use these
assets for such purposes.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
It is impracticable at this time to include herein the financial
statements of ADSI for the periods specified in Item 310(c)(3) of Regulation
S-B. The required financial statements of ADSI will be filed under cover of Form
8-KA as soon as practicable, but not later than October 13, 1997, which is sixty
(60) days after the date by which this Report on Form 8-K must be filed.
(b) PRO FORMA FINANCIAL INFORMATION.
It is impracticable at this time to include herein the pro forma
financial information of the Registrant reflecting the Merger. The required pro
forma information will be filed under cover of Form 8-KA as soon as practicable,
but not later than October 13, 1997, which is sixty (60) days after the date by
which this Report on Form 8-K must be filed.
(c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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2.1* Plan and Agreement of Merger by and among the
Registrant, Advanced Digital Services, Inc., the former
shareholders of Advanced Digital Services, Inc. and
Katz Digital Acquisition, Inc., a wholly owned
subsidiary of the Registrant, with schedules thereto.
2.2* Employment Agreement dated July 31, 1997 by and between
Advanced Digital Services, Inc. and David Katz.
2.3* Employment Agreement dated July 31, 1997 by and between
Advanced Digital Services, Inc. and Gary Ritkes.
2.4* Non-Competition Agreement dated July 31, 1997 by and
between the Registrant and David Katz.
2.5* Non-Competition Agreement dated July 31, 1997 by and
between the Registrant and Gary Ritkes.
- ------------------
</TABLE>
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 13, 1997
KATZ DIGITAL TECHNOLOGIES, INC.
By:/s/ Donald L. Flamm
-------------------------------------
Donald L. Flamm
Vice President and Chief Financial
Officer
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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2.1* Plan and Agreement of Merger by and among the Registrant,
Advanced Digital Services, Inc., the former shareholders of
Advanced Digital Services, Inc. and Katz Digital
Acquisition, Inc., a wholly owned subsidiary of the
Registrant, with schedules thereto.
2.2* Employment Agreement dated July 31, 1997 by and between
Advanced Digital Services, Inc. and David Katz.
2.3* Employment Agreement dated July 31, 1997 by and between
Advanced Digital Services, Inc. and Gary Ritkes.
2.4* Non-Competition Agreement dated July 31, 1997 by and between
the Registrant and David Katz.
2.5* Non-Competition Agreement dated July 31, 1997 by and between
the Registrant and Gary Ritkes.
- ------------------
</TABLE>
* Filed herewith
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Exhibit 2.1
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PLAN AND AGREEMENT OF MERGER
BETWEEN AND AMONG
KATZ DIGITAL TECHNOLOGIES, INC.,
AND
KATZ DIGITAL ACQUISITION INC.,
AND
ADVANCED DIGITAL SERVICES, INC.,
AND
THE SHAREHOLDERS OF ADVANCED DIGITAL SERVICES, INC.,
FOR THE MERGER OF
ADVANCED DIGITAL SERVICES, INC. INTO KATZ DIGITAL ACQUISITION INC.
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INDEX TO SCHEDULES
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Schedule 1.16 Certificate of Merger
Schedule 1.31 Escrow Agreement
Schedule 1.51 Promissory Note
Schedule 1.54 List of distributees of KDTI Shares
Schedule 4.2(ii) Opinion of the ADSI Stockholders' Counsel
Schedule 4.3(iv) Opinion of KDTI-NY's Counsel
Schedule 6.2 Stockholders and Capitalization of ADSI
Schedule 6.3.2 Changes to ADSI since Balance Sheet Date
Schedule 6.4 Location of Books and Records
Schedule 6.5.1 Real Property Encumbrances
Schedule 6.5.2 Title to Assets; Encumbrances
Schedule 6.5.3 Machinery and Equipment; Encumbrances
Schedule 6.6 Contracts
Schedule 6.7 Litigation
Schedule 6.8 Tax Liabilities
Schedule 6.9 Indebtedness for Borrowed Money
Schedule 6.10 Intellectual Property
Schedule 6.13 Insurance
Schedule 6.14 Suppliers and Customers
Schedule 6.16 Personnel
Schedule 6.17 Changes since the Balance Sheet Date
Schedule 6.18 Valid Agreements; Restrictive Documents (ADSI)
Schedule 6.19 Approvals for ADSI
Schedule 6.21 Environmental Conditions
Schedule 6.24 Brokers (ADSI)
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TABLE OF CONTENTS
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ARTICLE 1: DEFINITIONS............................................................................2
1.1 ACCOUNTANTS............................................................................2
1.2 ACCOUNTS RECEIVABLE....................................................................2
1.3 ADSI BUSINESS..........................................................................2
1.4 ADSI NET REVENUES......................................................................3
1.6 ADSI SHARES............................................................................3
1.7 ADSI STOCKHOLDERS......................................................................3
1.8 ADSI STOCKHOLDERS' AGENT...............................................................3
1.9 ADVANCED DIGITAL COMPANIES.............................................................3
1.10 ADVANCED DIGITAL SOLUTIONS.............................................................3
1.11 AUDITED FINANCIAL STATEMENTS...........................................................3
1.12 BALANCE SHEET DATE.....................................................................4
1.13 BLUE SKY FILING........................................................................4
1.14 BLUE SKY LAWS..........................................................................4
1.15 CASH ..................................................................................4
1.16 CERTIFICATE OF MERGER..................................................................4
1.17 CLOSING................................................................................5
1.18 CLOSING ADSI NET WORTH.................................................................5
1.19 CLOSING DATE...........................................................................5
1.20 CLOSING FINANCIAL STATEMENTS...........................................................5
1.21 CLOSING INTERIM PERIOD FINANCIAL STATEMENTS............................................5
1.22 CLOSING YEAR END FINANCIAL STATEMENTS..................................................5
1.23 COMMISSION.............................................................................5
1.24 COMMON STOCK...........................................................................5
1.25 CONTROLLED COMPANY.....................................................................6
1.26 DAVID KATZ STUDIO......................................................................6
1.27 DETERMINATION DATE.....................................................................6
1.28 DETERMINING ACCOUNTANT.................................................................6
1.29 EFFECTIVE DATE.........................................................................6
1.30 ENVIRONMENTAL LAWS.....................................................................6
1.31 ESCROW AGREEMENT.......................................................................7
1.32 ESCROWEE...............................................................................7
1.33 EXCLUDED LIABILITIES...................................................................7
1.34 FINAL ADSI NET WORTH...................................................................7
1.35 FINAL FINANCIAL STATEMENTS.............................................................7
1.36 FINANCIAL STATEMENTS...................................................................7
1.37 FIRST ANNUAL PERIOD....................................................................8
1.38 GAAP...................................................................................8
1.39 HAZARDOUS MATERIALS....................................................................8
1.40 INTELLECTUAL PROPERTY..................................................................8
1.41 LEASE..................................................................................8
1.42 LEASE ASSIGNMENT DOCUMENTS.............................................................9
1.43 LEASED PREMISES........................................................................9
1.44 LIABILITIES............................................................................9
1.45 MERGER DOCUMENTS.......................................................................9
1.46 NET SALES REVENUES.....................................................................9
1.47 NET WORTH ADJUSTMENT...................................................................9
</TABLE>
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<TABLE>
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1.48 OTHER DOCUMENTS........................................................................9
1.49 PERSON................................................................................10
1.50 PRESENT ACCOUNTANTS...................................................................10
1.51 PROMISSORY NOTES......................................................................10
1.52 REGISTER; REGISTERED; REGISTRATION....................................................10
1.53 REVIEWED FINANCIAL STATEMENTS.........................................................10
1.54 SHARE CERTIFICATES....................................................................10
1.55 SHARE PRICE...........................................................................11
1.56 SHARES................................................................................11
1.57 UNAUDITED FINANCIAL STATEMENTS........................................................11
1.58 UNCOLLECTED ACCOUNTS RECEIVABLE.......................................................11
ARTICLE 2: MERGER OF ADSI WITH AND INTO KDTI-NY..................................................11
2.1 MERGER OF ADSI WITH AND INTO KDTI-NY..................................................11
2.2 EXCLUDED LIABILITIES..................................................................12
ARTICLE 3: CONSIDERATION FOR MERGER..............................................................12
3.1 CONSIDERATION TO ADSI SHAREHOLDERS UPON MERGER........................................12
3.1.1. CALCULATION OF CONSIDERATION................................12
3.1.2. ESCROW......................................................13
3.2 POST CLOSING ADJUSTMENTS TO MERGER CONSIDERATION......................................13
3.2.1. PREPARATION OF AUDITED AND REVIEWED
FINANCIAL STATEMENTS..................................................................13
3.2.2. ADJUSTMENTS TO MERGER CONSIDERATION BASED
UPON NET WORTH ADJUSTMENT.............................................................15
3.2.3. COLLECTION OF ACCOUNTS RECEIVABLE...........................16
3.2.4. OTHER ADJUSTMENTS TO THE MERGER
CONSIDERATION.........................................................................16
3.2.5. ACCOUNTANTS' DETERMINATION OF ADSI NET
REVENUES..............................................................................18
3.2.6. TERMINATION OF EMPLOYMENT...................................19
3.2.7. LIMITATION ON ADJUSTMENTS...................................19
ARTICLE 4: THE CLOSING...........................................................................19
4.1 CLOSING...............................................................................19
4.2 DELIVERIES BY ADSI STOCKHOLDERS AT CLOSING............................................20
4.3 DELIVERIES BY KDTI AND KDTI-NY AT CLOSING.............................................20
4.4 DELIVERY OF ESCROW AGREEMENT AT CLOSING...............................................21
ARTICLE 5: REGISTRATION OF SHARES................................................................22
5.1 AGREEMENT TO REGISTER.................................................................22
5.2 LOCK UP AGREEMENT.....................................................................22
5.3 PREPARATION AND FILING................................................................22
5.4 PREPARATION; REASONABLE INVESTIGATION.................................................23
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF ADSI STOCKHOLDERS...................................24
6.1 EXISTENCE AND GOOD STANDING...........................................................24
6.2 CAPITAL STOCK.........................................................................24
6.3 FINANCIAL STATEMENTS..................................................................25
6.3.1. FINANCIAL STATEMENTS DELIVERED BY ADSI......................25
6.3.2. ABSENCE OF ADVERSE CHANGES..................................26
</TABLE>
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6.4 BOOKS AND RECORDS.....................................................................26
6.5 REAL PROPERTY; PERSONAL PROPERTY; MACHINERY AND EQUIPMENT.............................26
6.5.1. LEASEHOLD AND OTHER REAL PROPERTY INTERESTS.................26
6.5.2. TITLE TO ACQUIRED ASSETS....................................27
6.5.3. MACHINERY AND EQUIPMENT. ...................................27
SUFFICIENCY OF ASSETS.................................................................28
6.6 CONTRACTS.............................................................................28
6.7 LITIGATION............................................................................29
6.8 TAXES.................................................................................29
6.9 LIABILITIES...........................................................................30
6.10 INTELLECTUAL PROPERTY.................................................................31
6.11 COMPLIANCE WITH LAWS..................................................................31
6.12 LICENSES..............................................................................32
6.13 INSURANCE.............................................................................32
6.14 SUPPLIER AND CUSTOMER RELATIONS.......................................................32
6.15 EMPLOYMENT RELATIONS..................................................................33
6.16 PERSONNEL; COMPLIANCE WITH ERISA......................................................34
6.16.1. ADSI'S PERSONNEL............................................34
6.16.2. EMPLOYEE BENEFIT PLANS......................................34
6.17 NO CHANGES SINCE THE BALANCE SHEET DATE...............................................34
6.18 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS...............................................35
6.19 REQUIRED APPROVALS, NOTICES AND CONSENTS..............................................37
6.20 DISCLOSURE............................................................................37
6.21 ENVIRONMENTAL CONDITIONS..............................................................37
6.22 HEALTH AND SAFETY CONDITIONS..........................................................39
6.23 COPIES OF DOCUMENTS...................................................................39
6.24 NO BROKERS............................................................................39
ARTICLE 7: REPRESENTATIONS OF KDTI AND KDTI-NY ..................................................40
7.1 EXISTENCE AND GOOD STANDING...........................................................40
7.2 SHARES................................................................................40
7.3 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS...............................................40
7.4 REQUIRED APPROVALS, NOTICES AND CONSENTS..............................................42
7.5 NO BROKERS............................................................................42
ARTICLE 8: POST CLOSING COVENANTS................................................................42
8.1 GENERAL...............................................................................42
8.2 COOPERATION IN PREPARATION OF SECURITIES LAW FILINGS..................................43
8.3 GUARANTEES BY DAVID...................................................................43
ARTICLE 9: SURVIVAL OF REPRESENTATIONS; INDEMNITIES..............................................43
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE ADSI STOCKHOLDERS...................43
9.2 OBLIGATIONS OF THE ADSI STOCKHOLDERS TO INDEMNIFY.....................................44
9.2.1. GENERAL INDEMNITY...........................................44
9.2.2. LIMITATION ON INDEMNIFICATION OBLIGATION....................45
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF KDTI AND KDTI-NY........................45
9.3.1. OBLIGATION OF KDTI AND KDTI-NY TO INDEMNIFY.................45
9.3.2. LIMITATION ON INDEMNIFICATION OBLIGATION....................47
9.4 NOTICE AND OPPORTUNITY TO DEFEND......................................................47
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9.4.1. NOTICE OF ASSERTED LIABILITY................................47
9.4.2. OPPORTUNITY TO DEFEND.......................................47
9.4.3. SETTLEMENT..................................................49
ARTICLE 10: MISCELLANEOUS.........................................................................49
10.1 EXPENSES..............................................................................49
10.2 GOVERNING LAW.........................................................................49
10.3 INTERCHANGEABILITY OF SCHEDULES.......................................................50
10.4 CAPTIONS..............................................................................50
10.5 NOTICES...............................................................................50
10.6 PARTIES IN INTEREST...................................................................50
10.7 SEVERABILITY..........................................................................51
10.8 COUNTERPARTS..........................................................................51
10.9 ENTIRE AGREEMENT; AMENDMENTS..........................................................51
</TABLE>
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INDEX TO SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.16 Certificate of Merger
Schedule 1.31 Escrow Agreement
Schedule 1.51 Promissory Note
Schedule 1.54 List of distributees of KDTI Shares
Schedule 4.2(ii) Opinion of the ADSI Stockholders' Counsel
Schedule 4.3(iv) Opinion of KDTI-NY's Counsel
Schedule 6.2 Stockholders and Capitalization of ADSI
Schedule 6.3.2 Changes to ADSI since Balance Sheet Date
Schedule 6.4 Location of Books and Records
Schedule 6.5.1 Real Property Encumbrances
Schedule 6.5.2 Title to Assets; Encumbrances
Schedule 6.5.3 Machinery and Equipment; Encumbrances
Schedule 6.6 Contracts
Schedule 6.7 Litigation
Schedule 6.8 Tax Liabilities
Schedule 6.9 Indebtedness for Borrowed Money
Schedule 6.10 Intellectual Property
Schedule 6.13 Insurance
Schedule 6.14 Suppliers and Customers
Schedule 6.16 Personnel
Schedule 6.17 Changes since the Balance Sheet Date
Schedule 6.18 Valid Agreements; Restrictive Documents (ADSI)
Schedule 6.19 Approvals for ADSI
Schedule 6.21 Environmental Conditions
Schedule 6.24 Brokers (ADSI)
</TABLE>
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PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER dated as of July 31, 1997 ("Agreement")
between and among KATZ DIGITAL TECHNOLOGIES, INC., a Delaware corporation,
having an address at Twenty-One Penn Plaza, New York, New York 10001 (hereafter
referred to as "KDTI"); KATZ DIGITAL ACQUISITION INC., a New York corporation,
having an address at Twenty-One Penn Plaza, New York, New York 10001 (hereafter
referred to as "KDTI-NY"); ADVANCED DIGITAL SERVICES, INC., a New York
corporation, having an address at 208 West 30th Street, New York, New York 10001
(hereafter referred to as "ADSI"); DAVID KATZ, an individual residing at 21 E.
36th Street, New York, New York 10016 (hereafter referred to as "DAVID"); and
GARY RITKES, an individual residing at 198 Bergen Avenue, Bergenfield, New
Jersey 07621 (hereafter referred to as "GARY").
W I T N E S S E T H :
WHEREAS, KDTI-NY is a wholly owned subsidiary of KDTI; and WHEREAS, the
parties to this Plan and Agreement of Merger have
agreed to the merger of ADSI with and into KDTI-NY so that KDTI-NY is the
corporation surviving such merger, on the terms provided for herein (the
"MERGER"); and
WHEREAS, the Merger is intended to comply with the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended;
NOW, THEREFORE, in consideration of the agreements herein set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
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ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article 1. Certain
additional defined terms are set forth elsewhere in this Agreement.
1.1 ACCOUNTANTS
"Accountants" shall mean the independent public accountants then regularly
retained by KDTI. All determinations to be made by the Accountants pursuant to
the terms of this Agreement shall be made, where stated, using GAAP.
1.2 ACCOUNTS RECEIVABLE
"Accounts Receivable" means ADSI's accounts receivable, less allowance for bad
debts.
1.3 ADSI BUSINESS
"ADSI Business" means ADSI's business and operations reflected in the Financial
Statements as conducted through the date hereof, including all property,
equipment, machinery, computer hardware and software, inventory, accounts,
receivables, contract rights, leases, Intellectual Property, customer lists,
account records, pricing information, sales literature, promotional literature
and all other books and records, files, invoices, supplier lists, blueprints,
specifications, designs, drawings, prototypes, contracts, prepaid items and
deposits, work in process, cash and cash equivalents and other assets, of every
kind, character and description, whether tangible or intangible, whether real,
personal or mixed, and wherever situated, owned, leased or licensed by ADSI, or
by the Advanced Digital Companies prior to the date hereof and employed or held
in connection with the business or operations of ADSI.
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1.4 ADSI NET REVENUES
"ADSI Net Revenues" shall mean (i) one hundred percent (100%) of the Net Sales
Revenues of KDTI-NY (as successor to ADSI) and KDTI during the First Annual
Period generated and contracted for solely by David, Gary or another KDTI-NY (as
successor to ADSI) employee, plus (ii) fifty percent (50%) of the Net Sales
Revenues of KDTI-NY (as successor to ADSI) and KDTI during the First Annual
Period generated and contracted for by David, Gary or another KDTI-NY (as
successor to ADSI) employee in conjunction with KDTI employees.
1.5 ADSI NET WORTH
"ADSI Net Worth" means Cash plus Accounts Receivable less Liabilities, plus
Twenty-Two Thousand Five Hundred ($22,500.00) Dollars.
1.6 ADSI SHARES
"ADSI Shares" means all of the issued and outstanding shares of capital stock of
ADSI.
1.7 ADSI STOCKHOLDERS
"ADSI Stockholders" means David and Gary.
1.8 ADSI STOCKHOLDERS' AGENT
"ADSI Stockholders' Agent" means David acting as agent on behalf of the ADSI
Stockholders.
1.9 ADVANCED DIGITAL COMPANIES
"Advanced Digital Companies" means ADSI, Advanced Digital Solutions, and David
Katz Studio.
1.10 ADVANCED DIGITAL SOLUTIONS
"Advanced Digital Solutions" means Advanced Digital Solutions, Inc., a New York
corporation.
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1.11 AUDITED FINANCIAL STATEMENTS
"Audited Financial Statements" means ADSI's balance sheet, statement of income
and retained earnings, and statements of cash flow and related footnotes thereto
as and for the twelve (12) month period ending June 30, 1997, audited by the
Present Accountants.
1.12 BALANCE SHEET DATE
"Balance Sheet Date" means June 30, 1997.
1.13 BLUE SKY FILING
"Blue Sky Filing" means the filing of any application, registration, statement
or other document with the governmental agency of any state, the District of
Columbia, or any territory or other jurisdiction in the United States necessary
to qualify the sale of the Shares in such state in or through the public
securities markets.
1.14 BLUE SKY LAWS
"Blue Sky Laws" means the laws of any state, the District of Columbia, or any
territory or other jurisdiction in the United States governing the purchase
and/or sale of securities in such state or other jurisdiction.
1.15 CASH
"Cash" means ADSI's cash and cash equivalents.
1.16 CERTIFICATE OF MERGER
"Certificate of Merger" means the Certificate of Merger in the form annexed
hereto as Schedule 1.16, to effect the merger of ADSI with and into KDTI-NY
under the law of New York.
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1.17 CLOSING
"Closing" means the closing of the Merger pursuant to Section 4 of
this Agreement.
1.18 CLOSING ADSI NET WORTH
"Closing ADSI Net Worth" means the ADSI Net Worth shown on the Closing Interim
Period Financial Statements.
1.19 CLOSING DATE
"Closing Date" means July 31, 1997.
1.20 CLOSING FINANCIAL STATEMENTS
"Closing Financial Statements" means the Closing Year End Financial Statements
and the Closing Interim Period Financial Statements.
1.21 CLOSING INTERIM PERIOD FINANCIAL STATEMENTS
"Closing Interim Period Financial Statements" means ADSI's unaudited balance
sheet as of July 25, 1997, prepared by ADSI.
1.22 CLOSING YEAR END FINANCIAL STATEMENTS
"Closing Year End Financial Statements" means ADSI's unaudited balance sheet,
statement of income and retained earnings, and statement of cash flow and
related footnotes thereto as of and for the twelve (12) month period ending June
30, 1997, prepared by ADSI.
1.23 COMMISSION
"Commission" means the United States Securities and Exchange Commission.
1.24 COMMON STOCK "Common Stock" means the shares of common stock par value
$.001 per share of KDTI.
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1.25 CONTROLLED COMPANY
"Controlled Company" means (i) any corporation, partnership, company, firm,
entity or proprietorship which controls or is owned or controlled by or under
common control with ADSI and (ii) any other corporation, partnership, company,
firm, entity or proprietorship which is owned or controlled by David or Gary and
which is engaged in a line of business which is similar to or competes with the
ADSI Business or acts as a supplier or customer of ADSI.
1.26 DAVID KATZ STUDIO
"David Katz Studio" means David Katz Studio, Inc., a New York corporation.
1.27 DETERMINATION DATE
"Determination Date" means the date on which the ADSI Net Revenues for the First
Annual Period are finally determined in accordance with the provisions of this
Agreement.
1.28 DETERMINING ACCOUNTANT
"Determining Accountant" shall mean an accountant selected by the Accountants
and the Present Accountants in accordance with this Agreement, or in the event
of such two accountants' inability to select a determining accountant, a
Determining Accountant shall be selected by a Judge of the Supreme Court of the
State of New York, County of New York, upon petition by either KDTI or the ADSI
Stockholders' Agent.
1.29 EFFECTIVE DATE
"Effective Date" means the date on which the Certificate of Merger effecting the
merger of ADSI with and into KDTI-NY is filed by the Department of State of New
York.
1.30 ENVIRONMENTAL LAWS
"Environmental Laws" means any federal, state, local or municipal laws, rules,
orders, regulations, statutes, ordinances, codes, decrees, requirements of any
governmental authority, or requirements of
6
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law (including, without limitation, common law) relating in any manner to
contamination, pollution, or protection of human health or the environment.
1.31 ESCROW AGREEMENT
"Escrow Agreement" means the agreement in the form annexed hereto as SCHEDULE
1.31.
1.32 ESCROWEE
"Escrowee" means the firm of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass
LLP, attorneys for KDTI and KDTI-NY.
1.33 EXCLUDED LIABILITIES
"Excluded Liabilities" means all inter-company accounts, liabilities, and
credits and debits among and between ADSI on the one hand and any of the other
Advanced Digital Companies or any Controlled Company on the other hand, or among
and between ADSI on the one hand and the ADSI Stockholders on the other hand,
other than accrued expenses, not in excess of $140,100, for distribution on
account of profit sharing or retirement plans.
1.34 FINAL ADSI NET WORTH
"Final ADSI Net Worth" means the ADSI Net Worth shown on the Reviewed Financial
Statements, after any adjustments or changes required upon the resolution of any
disagreements, as provided in Section 3.2.1.
1.35 FINAL FINANCIAL STATEMENTS
"Final Financial Statements" means the Audited Financial Statements and the
Reviewed Financial Statements.
1.36 FINANCIAL STATEMENTS
"Financial Statements" has the meaning set forth in Section 6.3.1 of this
Agreement.
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1.37 FIRST ANNUAL PERIOD
"First Annual Period" means the twelve (12) month period commencing on August 1,
1997 through and including July 31, 1998.
1.38 GAAP
"GAAP" means generally accepted accounting principles, consistently applied.
1.39 HAZARDOUS MATERIALS
"Hazardous Materials" means any and all hazardous or toxic substances, wastes,
materials or chemical, petroleum, including crude oil or any fraction thereof)
and petroleum products, asbestos and asbestos-containing materials, pollutants,
contaminants, ethylene glycol, diethylene glycol, polychlorinated biphenyl and
any and all other materials and substances regulated pursuant to any
Environmental Laws or that could result in the imposition of liability under any
Environmental Laws.
1.40 INTELLECTUAL PROPERTY
"Intellectual Property" means United States and foreign patents, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademarks, copyrights, service marks, trademark registrations and
applications (whether pending or abandoned), service mark registrations and
applications, copyright registrations and applications (whether pending or
abandoned), job or shop rights, rights to inventions and all other items of
intellectual property or other intangible property used in the ADSI Business.
1.41 LEASE
"Lease" shall refer to the lease dated March 15, 1995, as amended by the First
Amendment to Lease, between David Katz Studio as Tenant and Miranda Realty
Associates as Landlord providing for the lease of the premises located at 208
West 30th Street, New York, New York.
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1.42 LEASE ASSIGNMENT DOCUMENTS
"Lease Assignment Documents" means the documents evidencing the assignment of
the Lease to KDTI-NY, as tenant.
1.43 LEASED PREMISES
"Leased Premises" means the premises covered by the Lease and occupied by ADSI
by sublease from David Katz Studio.
1.44 LIABILITIES
"Liabilities" means ADSI's liabilities, other than liabilities with respect to
capital leases or liabilities secured by a security interest in capital assets.
1.45 MERGER DOCUMENTS
"Merger Documents" means such documents, including, but not limited to, the
Certificate of Merger, as shall be necessary so that when filed by the
Department of State of New York, the Merger will be effective.
1.46 NET SALES REVENUES
"Net Sales Revenues" means gross revenues less returns, discounts, allowances
and fifty percent (50%) of the amount of gross revenues generated during the
first six months of the First Annual Period for which payment has not been
received prior to the end of such First Annual Period.
1.47 NET WORTH ADJUSTMENT
"Net Worth Adjustment" means the amount, if any, by which the Final ADSI Net
Worth is greater or less than the Closing ADSI Net Worth.
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1.48 OTHER DOCUMENTS
"Other Documents" means all Schedules and Exhibits to this Agreement and all
other instruments, agreements and documents executed or to be executed by any
party hereto in connection with the transactions contemplated hereby.
1.49 PERSON
"Person" means and includes an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or a
department or agency thereof.
1.50 PRESENT ACCOUNTANTS
"Present Accountants" means the firm of Rosenberg Rich Baker Berman & Company,
Bridgewater, New Jersey.
1.51 PROMISSORY NOTES
"Promissory Notes" means the promissory notes, each in the form attached hereto
as SCHEDULE 1.51.
1.52 REGISTER; REGISTERED; REGISTRATION
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement with the
Commission, in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and/or the Securities and Exchange Act of 1934, as amended,
and applicable rules and regulations under either such Act.
1.53 REVIEWED FINANCIAL STATEMENTS
"Reviewed Financial Statements" means ADSI's balance sheet, statement of income
and retained earnings, and statements of cash flow and related footnotes thereto
for the period from July 1, 1997 through and including July 30, 1997, reviewed
by the Present Accountants, and which shall be based upon and prepared in a
manner which is consistent with the Audited Financial Statements.
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1.54 SHARE CERTIFICATES
"Share Certificates" means the certificates representing the Shares, issued to
the persons and in the amounts identified on SCHEDULE 1.54, which shall bear the
following legend:
The shares of stock represented by this Certificate have not been
registered under the United States Securities Act of 1933, as amended
(the "Act") and may be transferred only if (i) registered under the Act
and if the requirements of any state having jurisdiction are complied
with or (ii) the transfer is exempt from such registration and state
requirements and counsel reasonably acceptable to the Corporation has
delivered to the Corporation a written opinion reasonably acceptable to
the Corporation setting forth the basis for such exemption.
1.55 SHARE PRICE
"Share Price" shall mean the average closing price of the Common Stock for
twenty (20) consecutive trading days on the Nasdaq NMS stock market ending three
(3) business days prior to the Closing Date.
1.56 SHARES
"Shares" shall have the meaning ascribed thereto in Section 3.1.1(i) of this
Agreement.
1.57 UNAUDITED FINANCIAL STATEMENTS
"Unaudited Financial Statements" means ADSI's balance sheet, statement of income
and retained earnings, prepared by ADSI, for:
(i) the twelve (12) month period ending June 30, 1996;
(ii) the three (3) month period ending September 30, 1996;
(iii) the six (6) month period ended December 31, 1996;
(iv) the twelve (12) month period ending December 31, 1996;
(v) the nine (9) month period ending March 31, 1997;
(vi) the six (6) month period ended June 30, 1996;
(vii) the six (6) month period ended June 30, 1997.
1.58 UNCOLLECTED ACCOUNTS RECEIVABLE
"Uncollected Accounts Receivable" shall have the meaning ascribed thereto in
Section 3.2.3(i) of this Agreement.
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ARTICLE 2: MERGER OF ADSI WITH AND INTO KDTI-NY
2.1 MERGER OF ADSI WITH AND INTO KDTI-NY
Subject to the terms and conditions set forth in this Agreement,
ADSI, KDTI and KDTI-NY hereby agree that on the Effective Date ADSI shall be
merged with and into KDTI-NY so that KDTI-NY is the surviving corporation, and
the separate corporate existence of ADSI ceases, in accordance with the
applicable provisions of the laws of the State of New York. Upon effectiveness
of the Merger, the issued capital shares of KDTI-NY shall remain issued, but all
ADSI Shares shall be cancelled (whether or not certificates therefor are
surrendered for cancellation) and the holders thereof shall be entitled to
receive the consideration in respect thereof as provided by Article 3 of this
Agreement. Concurrently with the effectiveness of the Merger, the corporate name
of KDTI-NY shall change to Advanced Digital Services, Inc., but for purposes of
this Agreement the corporation surviving the Merger shall continue to be
referred to as KDTI-NY.
2.2 EXCLUDED LIABILITIES
Concurrently with the Closing, all Excluded Liabilities shall be
terminated and released.
2.3 CERTAIN ASSETS
Immediately after the Effective Date, none of the Advanced Digital
Companies (other than ADSI) nor any Controlled Company shall have or control any
assets related to or necessary or useful in the conduct of the ADSI Business.
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ARTICLE 3: CONSIDERATION FOR MERGER
3.1 CONSIDERATION TO ADSI SHAREHOLDERS UPON MERGER
3.1.1. CALCULATION OF CONSIDERATION.
i. On the Effective Date, the ADSI Shares shall, by virtue of
the Merger, automatically and without any action on the part
of the holders thereof, become and be converted into the right
to receive the following (collectively referred to as the
"MERGER CONSIDERATION"):
(1) $500,000.00 (hereafter such sum is referred to
as the "CASH COMPONENT"), payable on the
Effective Date in immediately available funds;
and
(2) $250,000 (such sum, as adjusted pursuant to
Section 3.2 below, is hereafter referred to as
the "NOTE AMOUNT") payable in accordance with
the Promissory Note; and
(3) that number of shares of Common Stock as shall
be determined by dividing $835,673 (such
amount, as adjusted pursuant to Section 3.2
below, is referred to as the "SHARE AMOUNT")
by the Share Price (hereafter such number of
Shares is referred to as the "SHARES"), issued
to David and Gary in the respective amounts
set forth on Schedule 1.54 annexed hereto.
ii. The amount of the Merger Consideration is subject to
adjustment as hereinafter provided.
3.1.2. ESCROW. At Closing the Promissory Note and the Share
Certificates shall be deposited in escrow with the Escrowee.
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3.2 POST CLOSING ADJUSTMENTS TO MERGER CONSIDERATION.
3.2.1. PREPARATION OF AUDITED AND REVIEWED FINANCIAL STATEMENTS. The
ADSI Stockholders shall cooperate with KDTI in causing the Final
Financial Statements to be prepared promptly after the Closing by the
Present Accountants; the charges of the Present Accountants incurred
after the Closing for such work shall be paid by KDTI. The Final
Financial Statements shall be prepared in accordance with GAAP. All
determinations by the Present Accountants shall be subject to review by
the Accountants and any disputes will be resolved by the Determining
Accountant in the manner set forth herein. In the event that KDTI does
not agree with the Final Financial Statements, KDTI shall give written
notice to the ADSI Stockholders' Agent within thirty (30) days after
KDTI's receipt of the Final Financial Statements that same have not
been calculated in accordance with GAAP. Such notice shall provide
specific reasons for the disagreement. In such event, KDTI and the ADSI
Stockholders' Agent shall each comply with the further provisions of
this Paragraph. If no such written notice is received, then the Final
Financial Statements shall be deemed to be accepted. If such notice is
given, then KDTI and the ADSI Stockholders' Agent shall try to resolve
the disagreement regarding the Final Financial Statements. If no
agreement is reached between them within twenty (20) business days
after the date on which KDTI gave its notice of disagreement, then the
Determining Accountant shall be appointed by the Accountants and the
Present Accountants within seven (7) business days thereafter with
instructions to resolve the disagreement and provide a report of its
determination of the amounts in dispute within thirty (30) business
days of its appointment. The Determining Accountant shall also make any
other changes to the Final Financial Statements that are necessary or
appropriate for a consistent presentation thereof in light of its
determination of the issues presented for
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resolution. Such decision of the Determining Accountant shall be
binding upon the ADSI Stockholders, KDTI, and KDTI-NY. If the
Determining Accountant determines that the Final ADSI Net Worth equals
or exceeds, or is not less than ninety-seven and one-half percent
(97.5%) of, the Closing ADSI Net Worth, KDTI shall pay the cost of the
Determining Accountant; otherwise, the ADSI Stockholders shall pay the
cost of the Determining Accountant.
3.2.2. ADJUSTMENTS TO MERGER CONSIDERATION BASED UPON NET WORTH
ADJUSTMENT. Upon completion of the calculation of the Final ADSI Net
Worth, the Merger Consideration shall be adjusted dollar for dollar by
the Net Worth Adjustment, if any, in the manner set forth in this
Section 3.2.2.
i. If the Final ADSI Net Worth is less than the Closing ADSI
Net Worth, the Merger Consideration shall be reduced by such
Net Worth Adjustment, first by reducing the Promissory Note,
and then by reducing the number of Shares. KDTI-NY and KDTI
shall execute and deliver to the Escrowee a new Promissory
Note, the principal amount of which shall be equal to the
difference between the Note Amount and the Net Worth
Adjustment, retroactive to the Closing Date, and the Escrowee
shall cancel the Promissory Note delivered to it at Closing
and deliver it to KDTI. If the Net Worth Adjustment exceeds
the Note Amount, the number of Shares shall be recalculated to
be the number equal to (A) the Share Amount less the remaining
Net Worth Adjustment divided by (B) the Share Price, and KDTI
shall issue new Share Certificates for such recalculated
number of Shares (allocated among the persons designated to
receive such Shares pro-rata) and deliver them to the
Escrowee, and the Escrowee shall mark the Share Certificates
held in escrow cancelled and deliver them to KDTI or its
transfer agent.
ii. If the Final ADSI Net Worth is greater than the Closing
ADSI Net Worth, the Merger Consideration shall be increased by
such Net Worth Adjustment, allocated among the Cash Component,
the Note Amount and the Share Amount in the following
proportions: thirty one percent (31%) to the Cash Component;
fifty three percent (53%) to the Share Amount; and sixteen
percent (16%) to the Promissory Note (retroactive to the
Closing Date), and KDTI shall deliver to the ADSI
Stockholders' Agent the additional amount of the Cash
Component and certificates representing the additional Shares,
allocated between David and Gary in the same
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proportion as the Shares delivered at Closing, execute and
deliver to the Escrowee a new Promissory Note in the new Note
Amount, and the Escrowee shall cancel the Promissory Note
delivered to it at Closing and deliver it to KDTI. The number
of additional Shares shall be equal to (A) the portion of the
Net Worth Adjustment allocated to the Share Amount divided by
(B) the Share Price.
iii. If the Final ADSI Net Worth is less than One Hundred
Fifty Thousand ($150,000.00) Dollars, or if the Final
Financial Statements are not delivered to KDTI within sixty
(60) days after the Closing, KDTI and KDTI-NY shall have the
right, by notice to the ADSI Stockholders' Agent, to require
the ADSI Stockholders to accept all of the shares of KDTI-NY
in exchange for all of the Merger Consideration, including the
Cash Component, the Shares and cancellation of the Note, and
within five (5) business days after such notice: KDTI shall
deliver to the ADSI Stockholders' Agent certificates
representing all of the issued and outstanding shares of
capital stock of KDTI-NY divided between David and Gary in the
same proportion as their ownership of the ADSI Shares, the
Escrowee shall deliver the Promissory Note (marked cancelled)
to KDTI and arrange for cancellation of the Share Certificates
and deliver the cancelled Share Certificates to KDTI, and
David and Gary shall refund to KDTI the Cash Component paid to
them at Closing, all of which shall occur at the offices of
the Escrowee.
3.2.3. COLLECTION OF ACCOUNTS RECEIVABLE.
i. Following the delivery of the Reviewed Financial
Statements, to the extent that the Accounts Receivable
included in the Reviewed Financial Statements have not been
collected in full, the Promissory Note and the Shares shall
remain in escrow to secure payment of the uncollected Accounts
Receivable, and if any of the Accounts Receivable included in
the Reviewed Financial Statements remain uncollected ninety
(90) days after the Closing Date ("Uncollected Accounts
Receivable"), the Merger Consideration shall be reduced by the
amount of such Uncollected Accounts Receivable by reducing the
Promissory Note and then the Shares in the same manner as is
described in Section 3.2.2 (i).
ii. If the total Accounts Receivable actually collected as of
ninety (90) days after the Closing Date is greater than the
Accounts Receivable stated in the Reviewed Financial
Statements, the Merger Consideration shall be increased by the
amount of such excess, allocated among the Cash Component, the
Note Amount and the Share Amount in the same manner as is
described in Section 3.2.2(ii).
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3.2.4. OTHER ADJUSTMENTS TO THE MERGER CONSIDERATION.
The Merger Consideration shall be (a) increased by the amount, if any, of
Uncollected Accounts Receivable that are collected after the expiration of the
ninety (90) day period referred to in Section 3.2.3(i) but before the end of the
First Annual Period; and (b) reduced by fifty cents ($0.50) for each one dollar
($1.00) that ADSI Net Revenues during the First Annual Period are less than Two
Million Two Hundred Thousand ($2,200,000) Dollars. If the adjustments provided
in clauses (a) and (b) of this Subsection 3.2.4 result in an increase in the
Merger Consideration, such increase shall be allocated among the Cash Component,
the Note Amount and the Share Amount in the same manner as is described in
Section 3.2.2(ii). If the adjustments provided in clauses (a) and (b) of this
Subsection 3.2.4 result in a reduction of the Merger Consideration, such
reduction shall be made first by reducing the amount due under the Promissory
Note and then by reducing the number of Shares (but not by a number which would
reduce the Share Amount to an amount which is less than fifty percent (50%) of
the total Merger Consideration as adjusted by this Section 3.2), and finally by
refund of the Cash Component. The Promissory Note and the Share Certificates
shall continue to be held by the Escrowee pursuant to the Escrow Agreement until
the Determination Date. Reduction of the Merger Consideration under this
paragraph 3.2.4 shall be effected as follows:
i. first, by reducing the principal amount of the Promissory
Note, and the Escrowee shall cancel the Promissory Note held
by it in escrow and deliver it to KDTI, retroactive to the
Closing Date, and KDTI shall execute and deliver to the ADSI
Stockholders' Agent a new Promissory Note (retroactive to the
Closing Date, and subject to any other reductions to the
Promissory Note made pursuant to the other provisions of this
Section 3.2), unless the Note Amount is reduced to zero in
which event no new Promissory Note shall be issued and
ii. the Escrowee shall return the Share Certificates to
KDTI-NY for cancellation and KDTI shall issue new Share
Certificates for such number of the Shares as shall be
determined by dividing (A) the balance of the Share Amount (as
reduced pursuant to this Section 3.2.4 and any other
reductions made pursuant to the other provisions of this
Section 3.2) by (B) the Share Price, allocated among the
persons designated
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in SCHEDULE 1.56 to receive such Shares pro-rata, and
delivering them to the ADSI Stockholders' Agent, provided,
however, in no event shall the Share Amount as so adjusted be
less than fifty percent (50%) of the Merger Consideration as
adjusted by this Section 3.2, and
iii. any balance shall be paid within five (5) business days
to KDTI by David and Gary.
Following the Determination Date and the making of any adjustments required by
this Section 3.2, the Promissory Note (if not cancelled pursuant to the
provisions of this Section 3.2) and the Shares, as adjusted, and any remaining
stock powers delivered to the Escrowee pursuant to Section 4.2(ix), shall be
delivered to the ADSI Stockholders' Agent.
3.2.5. ACCOUNTANTS' DETERMINATION OF ADSI NET REVENUES
The determination of ADSI Net Revenues for purposes of Section 3.2.4 shall be
made by the Accountants within sixty (60) days after the end of the First Annual
Period, in accordance with GAAP and this Agreement, and such determination by
the Accountants shall be subject to review by the Present Accountants, or such
other firm of independent certified public accountants selected by the ADSI
Stockholders' Agent. Any disputes will be resolved by the Determining Accountant
in the manner set forth herein. In the event that the ADSI Stockholders' Agent
does not agree with the determination of ADSI Net Revenues, the ADSI
Stockholders' Agent shall give written notice to KDTI within thirty (30) days
after receipt of the Accountants' determination of the ADSI Net Revenues that it
contends that ADSI Net Revenues have not been calculated in accordance with
GAAP. Such notice shall provide specific reasons for the disagreement. In such
event, KDTI and the ADSI Stockholders' Agent shall each comply with the further
provisions of this Paragraph. If no such written notice is received, then the
Accountants' determination of ADSI Net Revenues shall be deemed to be accepted.
If such notice is given, then KDTI and the ADSI Stockholders' Agent shall try to
resolve the disagreement. If no agreement is reached between them within ten
(10)
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business days after the date on which the ADSI Stockholders' Agent gave its
notice of disagreement, then the Determining Accountant shall be appointed by
the Accountants and the Present Accountants within seven (7) business days
thereafter with instructions to resolve the disagreement and provide a report of
its determination of ADSI Net Revenues within thirty (30) business days of its
appointment. The Determining Accountant shall also make any other changes to the
Financial Statements that are necessary or appropriate for a consistent
presentation thereof in light of its determination of the issues presented for
resolution. Such decision of the Determining Accountant shall be binding upon
the ADSI Stockholders, KDTI, and KDTI-NY. If the Determining Accountant
determines that the ADSI Net Revenues equal or exceed, or are not less than
ninety seven and one-half percent (97.5%) of, the ADSI Net Revenues initially
determined by the Accountants, the ADSI Stockholders shall pay the cost of the
Determining Accountant; otherwise, KDTI shall pay the cost of the Determining
Accountant.
3.2.6. TERMINATION OF EMPLOYMENT.
If David's and Gary's employment is terminated during the First Annual Period by
KDTI or KDTI-NY, other than for cause or by resignation of David and Gary,
respectively, then ADSI Net Revenues on the date of such termination shall be
deemed to be equal to Two Million Two Hundred Thousand ($2,200,000.00) Dollars.
3.2.7. LIMITATION ON ADJUSTMENTS
Adjustments made to the Merger Consideration under this Section 3.2 shall be
made in a manner so that the Share Amount shall at all times be not less than
fifty percent (50%) of the total Merger Consideration as adjusted. No fractional
Share or scrip shall be issued in connection with any issuance of Shares, or
adjustment thereto, but in lieu thereof, KDTI shall pay, in cash or by check, to
each Person who, but for the provisions of the preceding clause, would have been
entitled to
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receive a fraction of a Share, an amount equal to the product of (i) the Share
Price and (ii) such fraction.
ARTICLE 4: THE CLOSING
4.1 CLOSING
The Closing is taking place as of the opening of business on the date
hereof at the offices of KDTI's counsel, Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP, 750 Lexington Avenue, New York, New York 10022.
4.2 DELIVERIES BY ADSI STOCKHOLDERS AT CLOSING.
At the Closing, the ADSI Stockholders are delivering, or causing to be
delivered, to KDTI and KDTI-NY:
i. the Closing Financial Statements, certified by an
authorized officer of ADSI as being true and correct in all
material respects;
ii. the opinion of McCarter & English, as counsel for ADSI and
the ADSI Stockholders, in the form annexed hereto as SCHEDULE
4.2(II);
iii. a Certificate executed by the ADSI Stockholders stating
the Closing ADSI Net Worth, and that Cash as of the Closing
Date was not less than $150,000.00;
iv. a copy of ADSI's Certificate of Incorporation, including
all amendments, certified by the office of the Secretary of
State of New York and a certificate from the office of the
Secretary of State of New York and each state in which ADSI
has qualified as a foreign corporation to do business, to the
effect that such corporation is in good standing in each such
state, and that it owes no taxes;
v. a copy of ADSI's By Laws certified by an officer of the
corporation as being a true and complete copy thereof;
vi. the ADSI Shares;
vii. the resignation of the current officers and directors of
ADSI;
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viii. the Merger Documents executed on behalf of ADSI for
filing by the Department of State of New York;
ix. stock powers signed by David and Gary in blank in form for
transfer with respect to the Share Certificates to enable
adjustments, if any, to the number of Shares to be made as
required by Section 3.2 of this Agreement;
x. any Lease Assignment documents to which ADSI is a party;
and
xi. such other documents or instruments as may be necessary in
order to consummate the transactions described in this
Agreement.
4.3 DELIVERIES BY KDTI AND KDTI-NY AT CLOSING. At the Closing, KDTI and KDTI-NY
are:
i. delivering the Cash Component, paid by wire transfer to the
account designated by the ADSI Stockholders to KDTI;
ii. delivering the executed Promissory Notes to the Escrowee;
iii. delivering the Share Certificates to the Escrowee;
iv. delivering to the ADSI Stockholders' Agent the opinion of
Messrs. Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP,
counsel to KDTI and KDTI-NY, in the form annexed hereto as
SCHEDULE 4.3(IV);
v. delivering the Merger Documents executed on behalf of
KDTI-NY for filing by the Department of State of New York;
vi. delivering to the ADSI Stockholders' Agent a copy of
KDTI's and KDTI-NY's respective Certificates of Incorporation,
including all amendments, certified, as to KDTI, by the office
of the Secretary of State of Delaware; and a certificate from
the office of the Secretary of State of Delaware to the effect
that KDTI is in good standing and owes no taxes in Delaware;
vii. delivering to the ADSI Stockholders' Agent a copy of
KDTI's and KDTI-NY's respective By Laws, certified by an
officer of the respective corporations as being true and
correct as of the Closing Date;
viii. delivering any Lease Assignment Documents to which KDTI
or KDTI-NY is a party; and
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ix. executing and delivering such other documents or
instruments as may be necessary in order to consummate the
transactions described in this Agreement.
4.4 DELIVERY OF ESCROW AGREEMENT AT CLOSING.
At the Closing, the Escrowee, KDTI, KDTI-NY, David, Gary, and the
ADSI Stockholders' Agent are executing and delivering the Escrow Agreement to
one another.
ARTICLE 5: REGISTRATION OF SHARES
5.1 AGREEMENT TO REGISTER
Within eighteen (18) months after the Closing, KDTI agrees to use its
best efforts to file a Registration Statement with the Commission and to have
such Registration Statement declared effective, to permit, when such
Registration Statement is declared effective, the sale of the Shares in the
public securities markets. KDTI may satisfy its obligation under this paragraph
by arranging for "piggy-back" registration of the Shares as part of the
registration by KDTI of any of its securities under the Securities Act of 1933
(other than pursuant to a Registration Statement on Forms S-8, S-4 or similar or
successor forms). KDTI may include in the Registration Statement filed pursuant
to this Article 5 any authorized but unissued shares of Common Stock for sale by
KDTI or any issued and outstanding securities for sale by others.
5.2 LOCK UP AGREEMENT
David and Gary each agrees that he will not sell, assign, pledge or
otherwise transfer or engage in short-selling or hedging transactions with
respect to the Shares until the expiration of eighteen (18) months following the
Closing Date (the "Lock-up Period").
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5.3 PREPARATION AND FILING
KDTI shall, at its sole expense, as expeditiously as practicable, use
its best efforts to:
(i) prepare and file with the Commission a Registration
Statement necessary to permit the sale of the Shares in the
public securities markets when such Registration Statement
becomes effective, and such amendments and supplements to the
Registration Statement and the prospectus as may be necessary
to have the Registration Statement declared effective;
(ii) furnish to then holders of the Shares (the "Holders")
such number of copies of the prospectus included in the
Registration Statement and such other documents as each may
reasonably request in order to facilitate the sale of the
Shares in the public securities markets;
(iii) register or qualify the Shares under the Blue Sky Laws
of each state governing the purchase and/or sale of securities
as the Holders may reasonably request (provided, however, that
KDTI will not be required to (1) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph or (2) subject
itself to taxation in any such jurisdiction);
(iv) notify each Holder promptly, and confirm such advice
in writing:
(A) when the Registration Statement or any amendment
thereto has been filed and when it has become
effective;
(B) of the issuance by the Commission of any stop
order suspending the effectiveness of the
Registration Statement or the initiation of any
proceedings for that purpose; and
(C) of the qualification of the Shares for sale under
the securities or Blue Sky Laws of any jurisdiction
affecting such qualification;
(v) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration
Statement;
(vi) cause all of the Shares covered by the Registration
Statement to be listed on each securities exchange, or
designated for inclusion in each automated interdealer
quotation system on which the Common Stock is listed or
included; and
(vii) provide and cause to be maintained a transfer agent for
all Shares covered by the Registration Statement from and
after a date not later than the effective date of the
Registration Statement.
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5.4 PREPARATION; REASONABLE INVESTIGATION
In connection with the preparation and filing of the Registration
Statement and any amendments thereto and any Blue Sky Filing, KDTI will give the
Holders and their respective counsel and accountants the opportunity to review
the Registration Statement, each prospectus included therein or filed with the
Commission, each document incorporated by reference therein and each amendment
thereof or supplement thereto and any Blue Sky Filing in order to verify the
accuracy of any factual information concerning the Holders whose Shares are
being registered or qualified, and will give each of them such access to its
books and records and such opportunities to discuss the business of KDTI with
its Accountants as shall be necessary to conduct a reasonable investigation
within the meaning of the Securities Act. KDTI shall pay for all registration
and filing fees, printing expenses and fees and disbursements of KDTI's counsel
and its Accountants in connection with the preparation and filing of the
Registration Statement or any Blue Sky Filing pursuant to this Article 5;
provided, however, that the Holders shall pay the fees and expenses of their own
counsel or other advisers in connection with the Holders' own review of such
registration and qualification of the Shares, selling commissions and stock
transfer taxes.
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF ADSI STOCKHOLDERS
The ADSI Stockholders, jointly and severally, represent, warrant
and covenant to KDTI-NY and KDTI the following:
6.1 EXISTENCE AND GOOD STANDING
ADSI 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 own, lease and operate all its
properties and to carry on its business as now being conducted. ADSI is duly
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qualified and in good standing in each jurisdiction in which failure to qualify
would have an adverse effect on the conduct of the ADSI Business or on the use
by KDTI-NY of ADSI's assets.
6.2 CAPITAL STOCK
The stockholders and capitalization of ADSI are set forth on SCHEDULE
6.2. All such outstanding shares have been duly authorized and validly issued
and are fully paid and non-assessable, and have not been issued in violation of
any preemptive rights of stockholders. No other class of capital stock of ADSI
is authorized or outstanding. There are no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of ADSI except as set forth on SCHEDULE 6.2.
The ADSI Stockholders own the ADSI Shares free and clear of any liabilities,
liens, security interests, pledges, or encumbrances.
6.3 FINANCIAL STATEMENTS
6.3.1. FINANCIAL STATEMENTS DELIVERED BY ADSI. ADSI has furnished to
KDTI-NY, or will furnish to KDTI-NY by the Closing Date, the following
financial statements and tax returns (the "Financial Statements"):
i. federal and state tax returns of ADSI for the fiscal years
ended June 30, 1995 and June 30, 1996;
ii. the Unaudited Financial Statements;
iii. the Closing Financial Statements.
The Financial Statements including the footnotes thereto are true and
correct in all material respects, and, except for the tax returns
referred to in clause (i) of this Subsection 6.3.1, have been prepared
on the same basis as the Audited Financial Statements will be prepared,
and, except for the tax returns referred to in clause (i) of this
Subsection 6.3.1, all adjustments
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consist only of normal recurring adjustments necessary for a fair
presentation of the results of operations and financial conditions for
the period covered by such Financial Statement. Each of the balance
sheets fairly presents the financial condition of ADSI at the date
thereof and, except as indicated therein, reflects all known claims
against and all debts and liabilities of ADSI, fixed or contingent, as
at the date thereof, required to be shown thereon and the related
statements of operations and cash flows for the period indicated fairly
present the results of operations and financial condition for the
periods indicated. The balance sheets included in the Closing Interim
Period Financial Statements and the Reviewed Financial Statements,
respectively, do not include any Excluded Liabilities.
6.3.2. ABSENCE OF ADVERSE CHANGES. Since the Balance Sheet Date, except
as set forth on SCHEDULE 6.3.2 or on the Closing Interim Period
Financial Statements, there has been (a) no adverse change in the
assets or liabilities, or in the business or financial condition, or in
the results of operations of ADSI, and (b) no fact or condition exists
or is contemplated or threatened which might cause such an adverse
change in the future.
6.4 BOOKS AND RECORDS
All accounts, books, ledgers, minute books and official and other
records of ADSI of whatsoever kind have been fully, properly and accurately kept
and completed in all material respects, and there are no material inaccuracies
or discrepancies of any kind contained or reflected therein, and taken as a
whole they give and reflect a true and fair view of the financial position of
ADSI. ADSI does not own or possess any records, systems, controls, data or
information material or necessary to the conduct of its business which is
recorded, stored, maintained, operated or otherwise wholly or partly dependent
on or held by any means (including all means of access thereto and therefrom)
that are not under the exclusive ownership and direct control of ADSI, other
than financial records which
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are maintained at the locations identified on SCHEDULE 6.4 annexed hereto, and
which are readily available to KDTI and KDTI-NY.
6.5 REAL PROPERTY; PERSONAL PROPERTY; MACHINERY AND EQUIPMENT
6.5.1. LEASEHOLD AND OTHER REAL PROPERTY INTERESTS. ADSI does not own
or have any leasehold or other interest in any real property which is
necessary to conduct the development, production, marketing and sale of
the products and services offered as part of the ADSI Business other
than the Leased Premises demised under the Lease. Except as set forth
on SCHEDULE 6.5.1, the real property and the buildings in which the
Leased Premises are located are to the best knowledge, information and
belief of the ADSI Stockholders, not subject to any mortgage, easement,
restriction, or other claim or encumbrance of any nature whatsoever
that would adversely affect the use or usefulness of such Leased
Premises. The Leased Premises are in good condition and repair
consistent with their present use and are available for immediate use
by KDTI-NY. None of the ADSI Stockholders or the Advanced Digital
Companies have received any written notice that the Leased Premises are
presently in violation of any environmental, zoning or other laws.
6.5.2. TITLE TO ACQUIRED ASSETS. Except as set forth in SCHEDULE 6.5.2,
ADSI has good and marketable title or holds a valid, existing,
enforceable lease or license to its assets, subject to no encumbrance,
lien, charge or other restriction of any kind or character.
6.5.3. MACHINERY AND EQUIPMENT. Except as set forth in SCHEDULE 6.5.3
the machinery and equipment used, owned or leased by ADSI, as reflected
in the Closing Interim Period Financial Statements, are, in the
aggregate, in good condition or repair. Except as set forth in SCHEDULE
6.5.3, (i) all capital or operating leases under which ADSI leases
equipment; and (ii) each contract for the purchase of as yet
undelivered equipment is in full force and effect
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and constitutes a legal, valid and binding obligation of ADSI, and to
the best knowledge, information and belief of the ADSI Stockholders, is
a legal, valid and binding obligation of the other party thereto,
enforceable by ADSI in accordance with its terms. Except as disclosed
on SCHEDULE 6.5.3, there are no existing defaults by ADSI under any
such lease beyond applicable notice and grace periods or which have not
been waived by the respective lessor, and the Advanced Digital
Companies enjoy quiet possession of their respective leaseholds.
6.5.4. SUFFICIENCY OF ASSETS. The assets owned, leased or controlled by
ADSI constitute all of the assets used in connection with the ADSI
Business and are available for immediate use by KDTI-NY.
6.6 CONTRACTS
Except as set forth in SCHEDULE 6.6 or any other schedule annexed
hereto, ADSI is not a party to or bound by any agreement, contract or commitment
relating to any bonus, deferred compensation, pension, profit sharing, stock
option, retirement or other employee benefit plan; any loan or advance to, or
investment in, any other Person or any agreement relating to the making of any
such loan, advance or investment; any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other Person (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business); any management service, employment, consulting or any other similar
type of contract; any agreement, contract or commitment limiting the freedom of
ADSI to engage in any line of business or to compete with any other Person; any
agreement, contract or commitment which involves the payment by ADSI of
Twenty-Five Thousand ($25,000) Dollars or more, in the aggregate, and is not
cancelable without penalty within thirty (30) days; any collective bargaining
agreement; any agreement with any officer or director of any of the Advanced
Digital
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Companies; any secrecy or confidentiality agreement with any Person, including
any employee of or consultant to ADSI; any licensing or franchise agreement; or
any contract with customers or other third parties for the delivery of goods or
performance of services which involves payment by ADSI of more than Twenty Five
Thousand ($25,000.00) Dollars.
Except as set forth on SCHEDULE 6.6, there exists no default or event
of default by ADSI, or occurrence, condition, or act (including this
transaction) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder such that the assets of ADSI would, in the aggregate, be
adversely affected. Except as set forth on SCHEDULE 6.6, ADSI has not violated
any material terms or conditions of any contract or agreement which would permit
termination or modification of any such contract or agreement where such
violation would, in the aggregate, adversely affect the assets of ADSI, and all
of the covenants to be performed by any other party thereto have been
substantially performed, and there are no outstanding claims of breach or
indemnification or notice of default or termination of any such agreements,
contracts or commitments.
6.7 LITIGATION
Except as set forth in SCHEDULE 6.7, there is no action, suit,
proceeding at law or in equity by any Person, or any arbitration or any
administrative or other proceeding by or before any governmental or other
instrumentality or agency, pending or, to the best knowledge, information and
belief of the ADSI Stockholders, threatened in writing, against or affecting any
of the Advanced Digital Companies or any of their respective properties or
rights or the operation of its business, and the ADSI Stockholders do not know
of any valid basis for any such action, proceeding or investigation. Except as
disclosed on SCHEDULE 6.7, neither the Advanced Digital Companies nor any
Controlled Company, and none of the ADSI Stockholders is subject to any
judgment, order or decree
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entered in any lawsuit or proceeding which affects the business of ADSI or which
would prevent or interfere with the consummation of the transactions
contemplated hereby.
6.8 TAXES
Except as set forth in SCHEDULE 6.8 to this Agreement, ADSI has filed,
or caused to be filed, within the times and within the manner prescribed by law,
all federal, state, local and foreign tax returns and tax reports which are
required to be filed by, or with respect to, its business. Such returns and
reports reflect accurately taxable income and all liability for taxes of ADSI
for the periods covered thereby. Except as set forth in SCHEDULE 6.8, all
federal, state, local and foreign income, profits, franchise, sales, use,
occupancy, excise, payroll, and other taxes and assessments (including interest
and penalties) payable by, or due from, ADSI (whether in its own right or as
transferee of the assets of, or successor to, any Person) have been fully paid
or adequately disclosed and fully provided for in the books and financial
statements of ADSI, and to the best knowledge, information and belief of the
ADSI Stockholders, no other tax of any nature whatsoever, interest or penalty,
will be payable by ADSI with respect to any tax return filed through the Closing
Date. Except as set forth in SCHEDULE 6.8, the federal, state and local taxable
income and tax liability of ADSI has never been finally determined for any
fiscal period; and no audit or examination of any return of ADSI by any taxing
authority is currently in progress and no notice of any proposed audit or
examination has been received by ADSI or any ADSI Stockholder; and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of ADSI.
6.9 LIABILITIES
To the best knowledge, information and belief of the ADSI Stockholders,
there are no outstanding claims, liabilities or indebtedness, contingent or
otherwise against ADSI, except as set forth in the Financial Statements or
referred to in the footnotes thereto, other than (i) liabilities
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incurred subsequent to the Balance Sheet Date in the ordinary course of business
and consistent with past practice and other liabilities which in the aggregate,
are not material to the business prospects, operation, properties, income or
condition (financial or otherwise) of ADSI, or (ii) liabilities set forth on any
Schedule hereto or which are not required to be set forth on any Schedule hereto
because such liabilities are specifically excluded from disclosure on the
Schedules provided for by the provisions of this Agreement or are not material
to the financial condition of ADSI. SCHEDULE 6.9 sets forth a list of all
current arrangements of the Advanced Digital Companies for borrowed money and
all outstanding balances as of the date hereof with respect thereto but
excluding accounts payable, wages payable and operating expenses payable. None
of the Advanced Digital Companies is in default in respect of the terms or
conditions of any such indebtedness.
6.10 INTELLECTUAL PROPERTY
SCHEDULE 6.10 contains an accurate and complete list of all
Intellectual Property owned or used or anticipated to be used by the Advanced
Digital Companies in the development, production, marketing and sale of the
products and services offered as part of the ADSI Business. Except as set forth
on SCHEDULE 6.10, to the knowledge of the ADSI Stockholders, no claim of
infringement or misappropriation of Intellectual Property has been made against
any of the Advanced Digital Companies and, in operating their respective
businesses, to the knowledge of the ADSI Stockholders, the Advanced Digital
Companies do not infringe or misappropriate any Intellectual Property of any
third party.
6.11 COMPLIANCE WITH LAWS
To the knowledge of the ADSI Stockholders, ADSI is in compliance with
all applicable foreign, federal, state and local laws, regulations and orders
and all other applicable requirements of any governmental, regulatory or
administrative agency or authority or court or other tribunal having
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jurisdiction, the violation of which, in the aggregate, would have a material
adverse effect on the ADSI Business. ADSI is not now charged with, and ADSI, to
the best knowledge of the ADSI Stockholders, is not now under individual
investigation with respect to, any violation of any law, regulation, or order
affecting its business, and ADSI has filed all reports required to be filed with
any governmental, regulatory or administrative agency, except for such reports
which the failure to file would not have a material adverse effect on ADSI.
6.12 LICENSES
To the knowledge of the ADSI Stockholders, ADSI has all licenses and
permits and other governmental certificates, authorizations and approvals
(collectively, "LICENSES") required by any governmental or regulatory body for
the development, production, marketing and sale of the products and services
offered as part of the ADSI Business and the use of its properties as presently
operated or used, except where the failure to have such Licenses would not have
an adverse effect on the financial condition, results of operations, assets,
properties or business of ADSI. To the knowledge of the ADSI Stockholders, all
of such Licenses are in full force and effect and to the knowledge, information
and belief of any of the ADSI Stockholders, no action or claim is pending to
revoke or terminate any of the Licenses or declare any License invalid.
6.13 INSURANCE
SCHEDULE 6.13 is a schedule of all insurance policies (including life
insurance) or binders maintained by ADSI. To the knowledge of the ADSI
Stockholders, all such policies are in full force and effect and all premiums
that have become due have been currently paid. The coverage under such policies
for occurrences prior to the Closing shall not be adversely affected by reason
of the transactions contemplated hereby. Neither the ADSI Stockholders nor ADSI
has received notice of cancellation or non-renewal of any such policy or binder.
Neither the ADSI Stockholders nor ADSI
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has received any notice from any of its insurance carriers that any premiums
will be materially increased in the future or that any insurance coverage listed
on SCHEDULE 6.13 will not be available in the future on substantially the same
terms now in effect.
6.14 SUPPLIER AND CUSTOMER RELATIONS
There has not been, and the ADSI Stockholders do not have any knowledge
that would lead them to anticipate, any material adverse change in relations
with the suppliers or customers as a result of the transactions contemplated by
this Agreement. SCHEDULE 6.14 lists the ten largest suppliers and customers of
ADSI, as at the date hereof. None of the Advanced Digital Companies, other than
ADSI, has any customer that is also a customer of ADSI. Except as set forth on
SCHEDULE 6.14, to the knowledge of the ADSI Stockholders, none of these current
suppliers and, except as disclosed in writing to KDTI, none of these current
customers has advised ADSI or any ADSI Stockholder, orally or in writing,
formally or informally, that it is terminating or considering terminating, or is
materially dissatisfied with its business relationship with ADSI, as a whole or
in respect of any particular product or service, or that any of these current
customers is contemplating reducing or discontinuing its purchases from ADSI, or
that any of these suppliers is contemplating reducing or discontinuing its
services or sales to ADSI.
6.15 EMPLOYMENT RELATIONS
To the knowledge of the ADSI Stockholders, ADSI has not committed any
unfair labor practices in connection with the ADSI business and there is no
unfair labor practice complaint pending against ADSI before any applicable
government entity; there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving ADSI; no representation
question exists respecting the employees of ADSI; no grievance which might have
an adverse effect on ADSI Business, nor any arbitration proceeding arising out
of or under any collective bargaining
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agreement with ADSI is pending and no claim therefor has been asserted. Except
as set forth in SCHEDULE 6.15, ADSI is not a party to any collective bargaining
agreement, and no collective bargaining agreement is currently being negotiated
by ADSI; and ADSI has not experienced any work stoppage or any other labor
difficulty during the last three (3) years. To the knowledge of the ADSI
Stockholders, there has not been, and ADSI does not anticipate, any adverse
change in relations with employees as a result of the transactions contemplated
by this Agreement.
6.16 PERSONNEL; COMPLIANCE WITH ERISA
6.16.1. ADSI'S PERSONNEL. SCHEDULE 6.16 contains a true and complete
list of all persons employed (and their latest rates of compensation)
or retained as independent contractors by ADSI as of June 30, 1997.
SCHEDULE 6.16 also lists all sales agents or sales representatives as
of June 30, 1997. No employees of ADSI are entitled to any accrued
vacation pay, sick leave or non-statutory severance benefits. KDTI-NY
shall not be liable for the payment of any statutory severance benefit
payable to any current employee of ADSI if the employment of such
employee is terminated by KDTI-NY.
6.16.2. EMPLOYEE BENEFIT PLANS. With respect to any employee benefit
plan, program, arrangement or 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 ADSI, ADSI has made available to KDTI
and KDTI-NY a true, correct and complete copy of (i) such employee
benefit plan, (ii) each trust agreement relating to such employee
benefit plan, (iii) the most recent summary plan of the employee
benefit plan, if any, and (iv) Internal Revenue Service determination
letters for all such employee benefit plans. Forms 5500 for all such
employee benefit plans have been timely and properly filed, or a valid
extension for filing has been obtained, and all employees
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excluded from participating in any such employee benefit plans were
properly excludable by ADSI.
6.17 NO CHANGES SINCE THE BALANCE SHEET DATE
Since June 30, 1997, except as specifically stated on SCHEDULE 6.3.2 or
reflected on the Closing Interim Period Financial Statements, ADSI has not
incurred any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), except in the ordinary course of ADSI's business;
permitted any of its assets to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except as
will be released at Closing; sold, transferred or otherwise disposed of any
assets except in the ordinary course of ADSI's business; made any capital
expenditure or commitment therefor involving the expenditure of more than Five
Thousand ($5,000.00) Dollars; made any bonus or profit sharing distribution or
payment of any kind; granted any increase in the rate of wages, salaries,
bonuses or other remuneration of any employee who after giving effect to such
increase or prior thereto receives compensation at an annual rate of Twenty-Five
Thousand US ($25,000.00) Dollars or more, or except in the ordinary course of
ADSI's business any other employees; canceled or waived any claims or rights of
substantial value; made any change in any method of accounting or auditing
practice; otherwise conducted its business or entered into any transaction,
except in the usual and ordinary manner and in the ordinary course of its
business; amended or terminated any agreement which is material to the business
of ADSI; renewed, extended or modified any lease of real property or except in
the ordinary course of business any lease of personal property; or agreed,
whether or not in writing, to do any of the foregoing; and there has been no
adverse change in the financial condition or results of operations of ADSI,
except as set forth on SCHEDULE 6.17 annexed hereto, which changes, in the
aggregate, have no material effect upon the business or condition, financial or
otherwise, or the results of operation of ADSI.
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6.18 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS
ADSI has corporate authority, and each of the ADSI Stockholders has the
full legal right and capacity, to execute, deliver and perform their respective
obligations under this Agreement and the Other Documents to which it or he is a
party, and all of the foregoing and the Merger have been duly authorized by all
necessary shareholder and corporate action of ADSI. This Agreement and the Other
Documents to which ADSI or an ADSI Stockholder is a party have been duly
executed and delivered by ADSI and the ADSI Stockholders and constitute the
valid and binding obligation of ADSI and the ADSI Stockholders, respectively,
enforceable against ADSI and the ADSI Stockholders, respectively, in accordance
with their respective terms, except as the enforcement thereof may be limited by
bankruptcy, reorganization, moratorium, insolvency and other laws of general
applicability relating to or affecting creditors' rights or general principles
of equity. Except as set forth in SCHEDULE 6.18, or in any other Schedule or
Exhibit to this Agreement, neither ADSI nor any ADSI Stockholder is subject to,
or a party to, any charter, by-law, mortgage, lien, lease, license, permit,
contract, instrument, law, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially adversely affects the
ADSI Business or the condition of any of its Assets, or which would prevent
consummation of the transactions contemplated by this Agreement or compliance by
ADSI or the ADSI Stockholders with the terms, conditions and provisions of this
Agreement and the Other Documents. Except as set forth in SCHEDULE 6.18, the
execution, delivery and performance of this Agreement and the Other Documents
and the consummation of the transactions contemplated thereby will not violate,
conflict with or result in the breach of any provision of the charter documents
or by-laws of ADSI; violate, conflict with or result in the breach or material
modification of any of the terms of, or constitute (or with notice or lapse of
time or both constitute) a default under, or otherwise give any other
contracting party the right to accelerate or
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terminate, any obligation, contract, agreement, lien, judgment, decree or other
instrument to which ADSI or any ADSI Stockholder is a party or by or to which it
or his or any of its or his respective assets or properties may be bound or
subject, and which acceleration or termination would have a material adverse
effect on ADSI or the ADSI Business; violate any order, writ, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon ADSI or upon any of its assets and
which violation would have a material adverse effect on ADSI or the conduct of
the ADSI Business; or violate any statute, law or regulation of the U.S. or New
York and which violation would have a material adverse effect on ADSI or the
conduct of the ADSI Business.
6.19 REQUIRED APPROVALS, NOTICES AND CONSENTS
Except as set forth on SCHEDULE 6.19, or elsewhere in this Agreement,
no consent or approval of, other action by, or notice to, any governmental body
or agency, domestic or foreign, or any third party is required in connection
with the execution and delivery by ADSI and the ADSI Stockholders of this
Agreement and the Other Documents or the consummation by ADSI and the ADSI
Stockholders of the transactions contemplated thereby.
6.20 DISCLOSURE
This Agreement, the Financial Statements, or any Schedule hereto, or
any certificate, document or statement in writing to be delivered as required
under this Agreement by or on behalf of ADSI does not contain, or will not
contain, any untrue statement of a material fact, or omits, or will omit, any
statement of a material fact required to be stated or necessary in order to make
the statements contained herein or therein not misleading. To the knowledge of
the ADSI Stockholders, there is no fact which materially adversely affects the
business or financial condition of ADSI which
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has not been, or will not be, set forth in this Agreement or any Schedule
hereto, or in the certificates, documents or statements in writing to be
delivered at the Closing.
6.21 ENVIRONMENTAL CONDITIONS
SCHEDULE 6.21 sets forth the following, in each instance to the
knowledge of the ADSI Stockholders:
(i) all treatment, storage and disposal facilities for
Hazardous Materials which are currently owned or used by ADSI;
all hazardous waste disposal sites which are or have been
owned or used by ADSI in connection with the ADSI Business;
and all underground storage tanks which are or were owned or
used by ADSI in connection with the assets of ADSI. As to each
such facility, site or underground storage tank, SCHEDULE 6.21
describes the time period used and the type of hazardous waste
treated, stored or disposed of and, in the case of the
underground storage tanks, the type of material stored;
(ii) all sites at which hazardous wastes from the operation of
the ADSI Business have been disposed and, as to each such
site, SCHEDULE 6.21 describes the time period used and the
type of waste disposed; and
(iii) all internal environmental audits conducted by ADSI or
by the ADSI Stockholders with respect to ADSI since June 1995
relating to the ADSI Business.
To the knowledge of the ADSI Stockholders, except as disclosed on
SCHEDULE 6.21 in connection with, or in any way related to the ADSI Business:
(i) ADSI holds, and is in substantial compliance with, all
permits, licenses, registrations or other authorizations
required under applicable Environmental Laws, and is, and has
been, otherwise in substantial compliance with all applicable
Environmental Laws. There is no condition of ADSI or their
respective assets that could prevent or interfere with
continued compliance with Environmental Laws by ADSI.
(ii) None of the ADSI Stockholders or ADSI has received any
written notice of any Environmental Claim, and none of the
ADSI Stockholders or ADSI is aware, without any duty of
inquiry, of any threatened Environmental Claim. For purposes
of this Agreement, Environmental Claim means any written
notice, claim, demand, action, suit, complaint, proceeding or
other communication by any person alleging liability or
potential liability (including, without limitation, liability
or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages,
property damage, personal injury, fines or penalties) arising
out of,
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relating to, based on, or resulting from (i) the presence,
discharge, emission, release or threatened release of any
Hazardous Materials, at any location, or (ii) circumstances
forming the basis of any violation or alleged violation by the
Advanced Digital Companies of any Environmental Laws,
including, but not limited to, any violations or alleged
violations by ADSI of any permit, license, registration or
other authorization required under applicable Environmental
Laws.
(iii) ADSI has not entered into, agreed to, or is subject to
any judgment, decree, order or other similar requirement of
any governmental authority under any Environmental Laws,
including, without limitation, relating to compliance or to
investigation, cleanup, remediation or removal of Hazardous
Materials;
(iv) Hazardous Materials have not been generated, transported,
treated, stored, disposed of, released or threatened to be
released at, on, from or under any of the properties included
among the assets of ADSI in violation of, or in a manner or to
a location that could give rise to liability of ADSI under any
Environmental Laws;
(v) There are no past or present actions, activities, events,
conditions or circumstances, including, without limitation,
the presence, release, threatened release, emission,
discharge, generation, treatment, storage or disposal of
Hazardous Materials in respect of ADSI at any location, that
are reasonably likely to give rise to liability under any
Environmental Laws or any contract or agreement;
(vi) No approval is required under any Environmental Law for
the Merger.
6.22 HEALTH AND SAFETY CONDITIONS
ADSI has not conducted any internal health and safety audits, or
industrial hygiene surveys. To the actual knowledge of the ADSI Stockholders,
ADSI is in substantial compliance with the requirements of the Occupational
Safety and Health Act and all other federal, state and local occupational health
and safety laws, rules and regulations.
6.23 COPIES OF DOCUMENTS
The ADSI Stockholders have caused to be made available for inspection
and copying by KDTI or its officers or advisers, true, complete and correct
copies of all documents referred to in this Article 6 or in any Schedule
furnished pursuant to this Article 6.
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6.24 NO BROKERS
Except as listed on SCHEDULE 6.24 hereto, no broker, finder, agent or
similar intermediary has acted on behalf of the ADSI Stockholders or ADSI in
connection with this Agreement or the transactions contemplated hereby, and
there are no brokerage commissions, finder's fees or similar fees or commissions
payable in connection therewith based on any agreement, arrangement or
understanding with any of the ADSI Stockholders or ADSI, or any action taken by
any of them, except as listed on SCHEDULE 6.24 hereto.
ARTICLE 7: REPRESENTATIONS OF KDTI AND KDTI-NY
KDTI and KDTI-NY, jointly and severally, represent, warrant and
covenant to the ADSI Stockholders as follows:
7.1 EXISTENCE AND GOOD STANDING
KDTI and KDTI-NY are each corporations duly organized, validly existing
and in good standing under the laws of their respective states of incorporation
and each has all requisite corporate power and authority to own, lease and
operate all its properties and to carry on its business as now being conducted.
Neither KDTI-NY nor KDTI is required to qualify to do business in any
jurisdiction such that failure to qualify would have an adverse effect on the
conduct of its business.
7.2 SHARES
The Shares, when delivered at Closing or subsequent thereto, as
the case may be, will have been duly authorized and validly issued and
be fully paid and non-assessable.
7.3 VALID AGREEMENTS; RESTRICTIVE DOCUMENTS
KDTI and KDTI-NY each have the full corporate authority to execute,
deliver and perform their respective obligations under this Agreement and the
Other Documents and the Merger and all
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of the transactions contemplated thereby. The Merger has been duly authorized by
all necessary shareholder and corporate action of KDTI and KDTI-NY. This
Agreement and the Other Documents to which KDTI or KDTI-NY is a party have been
duly and validly authorized, executed and delivered by KDTI and KDTI-NY and
constitute a valid and binding agreement of each of them enforceable against it
in accordance with their terms, except as the enforcement thereof may be limited
by bankruptcy, reorganization, moratorium, insolvency and other laws of general
applicability relating to or affecting creditors' rights or general principles
of equity. KDTI-NY and KDTI are not subject to, or a party to, any mortgage,
lien, lease, license, permit, agreement, contract, instrument, law, rule,
ordinance, regulation, order, judgment or decree, or any other restriction of
any kind or character, which would prevent consummation of the transactions
contemplated by this Agreement and the Other Documents or compliance by KDTI-NY
or KDTI with the terms, conditions and provisions of this Agreement and the
Other Documents. The execution, delivery and performance of this Agreement and
the Other Documents and the consummation of the transactions contemplated
thereby will not (i) violate, conflict with or result in the breach or material
modification of any of the terms of, or constitute (or with notice or lapse of
time or both constitute) a default under, or otherwise give any other
contracting party the right to accelerate or terminate, any obligation,
contract, agreement, lien, judgment, decree or other instrument to which KDTI or
KDTI-NY is a party or by or to which KDTI or KDTI-NY may be bound or subject,
except where such acceleration or termination will not result in an adverse
effect on KDTI and KDTI-NY in the aggregate or on KDTI's or KDTI-NY's conduct of
its business; (ii) violate any order, writ, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body against, or
binding upon, KDTI or KDTI-NY or their assets, except where such violation will
not result in an adverse effect on KDTI and KDTI-NY in the aggregate or on
KDTI's conduct of its business as it is presently conducted or shall be
conducted
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<PAGE> 50
immediately following the Closing; or (iii) violate any statute, law or
regulation of Delaware, except where such violation will not result in an
adverse effect on KDTI and KDTI-NY in the aggregate or on KDTI's conduct of its
business as it is presently conducted.
7.4 REQUIRED APPROVALS, NOTICES AND CONSENTS
Except for the filing of the Certificate of Merger by the Department of
State of New York or as set forth elsewhere in this Agreement, no consent or
approval of, other action by, or notice to, any governmental body or agency,
domestic or foreign, or any third party is required in connection with the
execution and delivery by KDTI or KDTI-NY of this Agreement and the Other
Documents or the consummation by KDTI or KDTI-NY of the transactions
contemplated thereby.
7.5 NO BROKERS
No broker, finder, agent or similar intermediary has acted on behalf of
KDTI or KDTI-NY in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with KDTI-NY, or any action taken by
KDTI-NY.
ARTICLE 8: POST CLOSING COVENANTS
8.1 GENERAL
In case at any time after the Closing any further action is necessary
to carry out the purposes of this Agreement, each of the parties will take such
further action (including the execution and delivery of such further instruments
and documents) as any other party reasonably may request, all at the sole cost
and expense of the requesting party (unless the requesting party is entitled to
indemnification therefor under SECTION 9 hereof). The ADSI Stockholders
acknowledge and agree
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<PAGE> 51
that from and after the Closing KDTI and KDTI-NY will be entitled to possession
of all documents, books, records (including tax records), agreements and
financial data of any sort relating to ADSI and the ADSI Business.
8.2 COOPERATION IN PREPARATION OF SECURITIES LAW FILINGS
The ADSI Stockholders agree to cooperate to request the Present
Accountants to cooperate with KDTI-NY and its accountants in the provision of
such information and documents as may be reasonably required in order to
complete any filings required under the United States securities laws relating
to the acquisition transactions described in this Agreement.
8.3 GUARANTEES BY DAVID
In the event that David has not been released from any personal
guarantee of any lease of equipment by ADSI as of the Closing Date, KDTI and
KDTI-NY shall indemnify David and hold him harmless against any claim,
obligation or liability whatsoever arising at any time under any such guarantee.
ARTICLE 9: SURVIVAL OF REPRESENTATIONS; INDEMNITIES
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE ADSI STOCKHOLDERS
The representations and warranties of the ADSI Stockholders and the
indemnification obligations under Section 9.2 shall survive the execution and
delivery of this Agreement and the Other Documents and the Closing hereunder for
a period of three (3) years following the Closing under this Agreement,
provided, however, that the covenants contained in SECTIONS 3.2.2, 3.2.3 AND
3.2.4 and the representations and warranties made in SECTION 6.2 (including,
without limitation, the shareholders of ADSI as set forth on Schedule 6.2),
SECTION 6.8, and SECTION 6.21 and the obligation to indemnify for Securities
Claims, as that term is defined in SECTION 9.2.1, shall survive the
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<PAGE> 52
execution of this Agreement and the Other Documents and the Closing hereunder
until the date of expiration of the relevant federal, state or other statute of
limitations; provided further, however, that as to matters as to which any
Indemnitee has given a proper Claims Notice under SECTION 9.4 on or prior to the
expiration of the applicable survival period aforesaid, the right to
indemnification with respect thereto shall survive the expiration of any such
period until such claim is finally resolved and any obligations with respect
thereto are fully satisfied.
9.2 OBLIGATIONS OF THE ADSI STOCKHOLDERS TO INDEMNIFY
9.2.1. GENERAL INDEMNITY. Subject to Section 9.1, the ADSI
Stockholders, jointly and severally, agree to indemnify, defend and
hold harmless KDTI-NY and KDTI, and their respective officers,
directors, employees and agents, and any of their successors and
assigns from and against any and all losses, liabilities, damages,
deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or expenses (including, without limitation,
interest, penalties and reasonable attorneys' fees and disbursements)
("CLAIMS"), whether such Claims are incurred in KDTI-NY's or KDTI's
disputes with the ADSI Stockholders or involving third-party claims
against KDTI-NY or KDTI, based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation or
warranty of the ADSI Stockholders contained in this Agreement and/or
any of the Other Documents. In addition, the ADSI Stockholders and the
Holders of the Shares being registered shall indemnify and hold
harmless KDTI, each director of KDTI, each officer of KDTI who shall
sign the Registration Statement and any Person who controls KDTI within
the meaning of the Securities Act, against any and all Claims to which
any of the foregoing Persons may become subject under the Securities
Act or otherwise, insofar as such Claims arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact
contained
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<PAGE> 53
in, or omission or alleged omission of a material fact from, the
Registration Statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or any
document incident to the registration or qualification of the Shares in
reliance upon and in conformity with information furnished to KDTI by
such Holder solely for use in the preparation thereof ("SECURITIES
CLAIMS").
9.2.2. LIMITATION ON INDEMNIFICATION OBLIGATION. No indemnification
shall be required to be made by the ADSI Stockholders for the first
$75,000.00 of valid Claims; their liability is limited to the amount of
Claims in excess of $75,000.00, provided, however that Securities
Claims, any Claim based upon a breach of the representations and
warranties made in Section 6.2 (including, without limitation, the
shareholders of ADSI as set forth on Schedule 6.2), and any claim for
adjustment of the Purchase Price under SECTION 3.2 shall not be subject
to, or included in calculating, the limitation contained in this
Paragraph 9.2.2.
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF KDTI AND KDTI-NY
KDTI's and KDTI-NY's representations and warranties and the
indemnification obligations under Section 9.4 shall survive the execution and
delivery of this Agreement and the Other Documents and the Closing hereunder for
a period of three (3) years following the Closing Date, provided however, that
the representations and warranty made in Section 7.2 and the obligation to
indemnify for KDTI's Securities Claims as that term is defined in SECTION 9.3.1,
shall survive the execution of this Agreement and the Other Documents and the
Closing hereunder until the date of expiration of the relevant federal, state or
other statute of limitations; and provided further however, that as to matters
as to which any Indemnitee has given a proper Claims Notice under Section 9.4 on
or prior to the expiration of the applicable period aforesaid, the right to
indemnification with respect
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<PAGE> 54
thereto shall survive the expiration of any such period until such claim is
finally resolved and any obligations with respect thereto are fully satisfied.
9.3.1. OBLIGATION OF KDTI AND KDTI-NY TO INDEMNIFY. Subject to Section
9.3, KDTI and KDTI-NY agree to indemnify, defend and hold harmless the
ADSI Stockholders from and against any and all Claims based upon,
arising out of or otherwise in respect of any inaccuracy in or any
breach of any representation or warranty of KDTI-NY contained in this
Agreement or in any document or other papers delivered by KDTI-NY in
connection with this Agreement and/or the Other Documents. In addition,
KDTI and KDTI-NY shall indemnify and hold harmless the ADSI
Stockholders, within the meaning of the Securities Act, against any and
all Claims to which any of the foregoing Persons may become subject
under the Securities Act or otherwise, insofar as such Claims arise out
of or are based upon an untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
preliminary prospectus or final prospectus contained therein, any
document incorporated by reference therein or any amendment or
supplement thereto, or any document prepared and/or furnished by KDTI
incident to the registration or qualification of the Shares, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or, with respect to any
prospectus, necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, or any
violation by KDTI of the Securities Act or state securities or Blue Sky
Laws applicable to it and relating to action or inaction required of
KDTI in connection with such registration or qualification under such
state securities or Blue Sky Laws ("KDTI'S SECURITIES CLAIMS");
provided, however, that KDTI shall not be liable in any such case to
the extent that such Claims arise out of or are
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<PAGE> 55
based upon an untrue statement or alleged untrue statement of a
material fact contained in, or omission or alleged omission of a
material fact from, the Registration Statement, said preliminary
prospectus or said prospectus or said amendment or supplement or any
document incident to the registration or qualification of the Shares in
reliance upon and in conformity with information furnished to it by an
ADSI Stockholder or any other Holder of such Shares or their respective
agents solely for use in the preparation thereof.
9.3.2. LIMITATION ON INDEMNIFICATION OBLIGATION. No indemnification
shall be required to be made by KDTI or KDTI-NY for the first
$75,000.00 of valid Claims; their liability is limited to the amount of
Claims in excess of $75,000.00, provided, however that KDTI's
Securities Claims shall not be subject to, or included in calculating,
the limitation contained in this Paragraph 9.3.2.
9.4 NOTICE AND OPPORTUNITY TO DEFEND
9.4.1. NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any
party hereto (the "INDEMNITEE") of notice of any demand, claim or
circumstances which, with the lapse of time, would or might give rise
to a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "ASSERTED LIABILITY") that may
result in any Claims, the Indemnitee shall promptly give notice thereof
(the "CLAIMS NOTICE") to the party obligated to provide indemnification
pursuant to SECTION 9.2 OR 9.3 (the "INDEMNIFYING PARTY"). The Claims
Notice shall describe the Asserted Liability in reasonable detail,
shall contain supporting documentation (if applicable), and shall
indicate the amount (estimated, if necessary and to the extent
feasible) of the Claims that have been or may be suffered by the
Indemnitee. No indemnification obligation shall be imposed upon an
Indemnifying Party unless a proper Claims Notice is given to that
Indemnifying Party on
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<PAGE> 56
or before the last day of the survival period for the representation,
warranty, or covenant, the alleged breach of which forms the basis for
the Claim.
9.4.2. OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to
compromise or defend, at its own expense and by its own counsel, any
Asserted Liability. If the Indemnifying Party elects to compromise or
defend such Asserted Liability, it shall within thirty (30) days (or
sooner, if the nature of the Asserted Liability so requires) notify the
Indemnitee of its intent to do so, and the Indemnitee shall cooperate,
at the expense of the Indemnifying Party, in the compromise of, or
defense against, such Asserted Liability. If the Indemnifying Party
elects not to compromise or defend the Asserted Liability, fails to
notify the Indemnitee of its election as herein provided or contests
its obligation to indemnify under this Agreement, the Indemnitee may
pay, compromise or defend such Asserted Liability at the expense
of the Indemnifying Party. Subject to the limitations contained in
Section 9.4.3 on the obligations of the Indemnifying Party in respect
of proposed settlements, the Indemnitee shall have the right to employ
its own counsel with respect to any Asserted Liability, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee
unless (a) the employment of such counsel at the expense of the
Indemnifying Party shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such action, or
(b) such Indemnifying Party shall not have, as provided above, promptly
employed counsel reasonably satisfactory to the Indemnitee to take
charge of the defense of such action. The Indemnitee, at its own cost,
may employ separate counsel to assert, based on an opinion of counsel,
one or more legal defenses available to it which are different from or
additional to those available to such Indemnifying Party; the
Indemnifying Party shall not have the right to direct the defense of
such action on behalf of the Indemnitee in respect of such different
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<PAGE> 57
or additional defenses. If the Indemnifying Party chooses to defend any
claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are
necessary or appropriate for such defense.
9.4.3. SETTLEMENT.
Notwithstanding the provisions of SECTION 9.4.2, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any
claim for which indemnification has been sought and is available
hereunder, over the objection of the other; provided, however, that
consent to settlement or compromise shall not be unreasonably withheld
or delayed. If, however, the Indemnitee refuses to consent to a bona
fide offer of settlement which the Indemnifying Party wishes to accept,
the Indemnitee may continue to pursue such matter, free of any
participation by the Indemnifying Party, at the sole expense of the
Indemnitee. In such event, the obligation of the Indemnifying Party to
the Indemnitee shall be equal to the lesser of (i) the amount of the
offer of settlement which the Indemnitee refused to accept plus the
costs and expenses of the Indemnitee prior to the date the Indemnifying
Party notified the Indemnitee of the offer of settlement, and (ii) the
actual out-of-pocket amount the Indemnitee is obligated to pay as a
result of the Indemnitee's continuing to pursue such matter.
ARTICLE 10: MISCELLANEOUS
10.1 EXPENSES
Except as otherwise provided herein, the parties hereto shall pay all
of their own expenses relating to the transactions contemplated by this
Agreement and the Other Documents, including, without limitation, the fees and
expenses of their respective counsel and financial advisers.
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10.2 GOVERNING LAW
The interpretation and construction of the Documents, and all matters
relating hereto, shall be governed by the law of the State of New York, without
reference to its conflict of laws provisions.
10.3 INTERCHANGEABILITY OF SCHEDULES
Any information contained on any Schedule to this Agreement or in the
Financial Statements shall be deemed to be contained on each and every other
Schedule to this Agreement.
10.4 CAPTIONS
The article and section captions used herein are for reference purposes
only, and shall not in any way affect the meaning or interpretation of this
Agreement.
10.5 NOTICES
Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal delivery, if
delivered by hand and followed by notice by mail or facsimile transmission; (b)
one day after the date of delivery by Federal Express or other nationally
recognized courier service that provides a delivery receipt, if delivered by
priority overnight delivery between any two points within the United States; or
(c) five days after deposit in the mails, if mailed by certified or registered
mail (return receipt requested) between any two points within the United States,
and in each case of mailing, postage prepaid, addressed to a party at its
address first set forth above, with copies to Messrs. Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP, 750 Lexington Avenue, New York, New York
10022-1200, Attention: Murray L. Skala, Esq., and to McCarter & English, 4
Gateway Center, 100 Mulberry Street, Newark, New Jersey 07102, Attn.: Peter
Twombly, Esq., or such other address as shall be furnished in writing by like
notice by any such party.
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10.6 PARTIES IN INTEREST
This Agreement and the Other Documents may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement and the Other Documents shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns. Each party hereto
intends that this Agreement shall not benefit or create any right or cause of
action in or on behalf of any Person other than the parties hereto and their
respective successors and assigns.
10.7 SEVERABILITY
In the event any provision of this Agreement or the Other Documents is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement or such Other Documents shall
nevertheless be binding upon the parties with the same effect as though the void
or unenforceable part had been severed and deleted.
10.8 COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
10.9 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, and the Other Documents, contain the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. This
Agreement may not be changed orally, but only by an agreement in writing signed
by all parties.
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IN WITNESS WHEREOF, the individual parties have executed and the
corporate parties have each caused its corporate name to be hereunto subscribed
by their respective duly authorized officers on the date first written above.
KATZ DIGITAL TECHNOLOGIES, INC. KATZ DIGITAL ACQUISITION INC.
By: /s/ Donald L. Flamm By: /s/ Donald L. Flamm
------------------------------ ------------------------------
Name: Donald L. Flamm Name: Donald L. Flamm
Title: Vice President Title: Vice President and
Chief Financial Officer Chief Financial Officer
/s/ David Katz /s/ Gary Ritkes
- ----------------------------------- ------------------------------------
David Katz Gary Ritkes
ADVANCED DIGITAL SERVICES, INC.
By: /s/ David Katz
-------------------------------
Name: David Katz
Title: President
52
<PAGE> 61
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 1.16 Certificate of Merger
Schedule 1.31 Escrow Agreement
Schedule 1.51 Promissory Note
Schedule 1.54 List of distributees of KDTI Shares
Schedule 4.2(ii) Opinion of the ADSI Stockholders' Counsel
Schedule 4.3(iv) Opinion of KDTI-NY's Counsel
Schedule 6.2 Stockholders and Capitalization of ADSI
Schedule 6.3.2 Changes to ADSI since Balance Sheet Date
Schedule 6.4 Location of Books and Records
Schedule 6.5.1 Real Property Encumbrances
Schedule 6.5.2 Title to Assets; Encumbrances
Schedule 6.5.3 Machinery and Equipment; Encumbrances
Schedule 6.6 Contracts
Schedule 6.7 Litigation
Schedule 6.8 Tax Liabilities
Schedule 6.9 Indebtedness for Borrowed Money
Schedule 6.10 Intellectual Property
Schedule 6.13 Insurance
Schedule 6.14 Suppliers and Customers
Schedule 6.16 Personnel
Schedule 6.17 Changes since the Balance Sheet Date
Schedule 6.18 Valid Agreements; Restrictive Documents (ADSI)
Schedule 6.19 Approvals for ADSI
Schedule 6.21 Environmental Conditions
Schedule 6.24 Brokers (ADSI)
</TABLE>
<PAGE> 62
SCHEDULE 1.16
CERTIFICATE OF MERGER
of
ADVANCED DIGITAL SERVICES, INC.
(a New York corporation)
and
KATZ DIGITAL ACQUISITION INC.
(a New York corporation)
into
KATZ DIGITAL ACQUISITION INC.
(a New York corporation)
Under Section 904 of the Business Corporation Law
It is hereby certified, on behalf of each of the constituent
corporations herein named, in connection with the merger thereof (the "Merger"),
as follows:
FIRST: The names of the domestic constituent corporations are Katz
Digital Acquisition Inc., whose certificate of incorporation was filed by the
Department of State on July 25, 1997, and Advanced Digital Services, Inc., whose
certificate of incorporation was filed by the Department of State on July 6,
1995.
SECOND: The name of the surviving corporation is Katz Digital
Acquisition Inc., except that the name of such surviving corporation will
change, concurrently with the effectiveness of the Merger, to Advanced Digital
Services, Inc.
THIRD: To effect the change of name of the surviving corporation
referred to in Article SECOND, the certificate of incorporation of the surviving
corporation is hereby amended, concurrently with the effectiveness of the
Merger, by deleting Article FIRST thereof in its entirety and by inserting in
lieu thereof the following:
<PAGE> 63
FIRST: The name of the corporation is Advanced Digital
Services, Inc.
FOURTH: As to each constituent corporation, the Plan and Agreement of
Merger sets forth the designation and number of outstanding shares of each class
and series, the specification of the classes and series entitled to vote on the
Plan and Agreement of Merger, and the specification of each class and series
entitled to vote as a class on the Plan and Agreement of Merger, as follows:
<TABLE>
<CAPTION>
Katz Digital Acquisition Inc.
(a New York corporation)
<S> <C> <C>
Designation of each Designation of
outstanding class Number of outstanding class and series
and series of shares shares of each class entitled to vote
Common Stock 100 Voting
Advanced Digital Services, Inc.
(a New York corporation)
Designation of each Designation of
outstanding class Number of outstanding class and series
and series of shares shares of each class entitled to vote
Common Stock 66 Voting
</TABLE>
FIFTH: The Merger was authorized in respect of each constituent
corporation as follows:
(a) the Board of Directors of each constituent corporation has
duly adopted a Plan and Agreement of Merger setting forth the terms and
conditions of the Merger; and
2
<PAGE> 64
(b) such Plan and Agreement of Merger was duly adopted by the
written consent of the holders of all the outstanding shares of each such
corporation.
IN WITNESS WHEREOF, the undersigned have subscribed this Certificate on
this 31st day of July 1997, and do hereby affirm, under the penalties of
perjury, that the statements contained herein are true.
3
<PAGE> 65
KATZ DIGITAL ACQUISITION INC.
(a New York corporation)
By: ________________________________
Name: GARY KATZ
Title: Chairman of the Board
and
By: ________________________________
Name: GEOFFREY A. BARSKY
Title: Secretary
ADVANCED DIGITAL SERVICES, INC.
(a New York corporation)
By: ________________________________
Name: DAVID KATZ
Title: President
and
By: ________________________________
Name: GARY RITKES
Title: Secretary
4
<PAGE> 66
SCHEDULE 1.31
ESCROW AGREEMENT
ESCROW AGREEMENT, dated July 31, 1997, among KATZ DIGITAL TECHNOLOGIES,
INC., a Delaware corporation ("KDTI"); ADVANCED DIGITAL SERVICES, INC., a New
York corporation formerly known as Katz Digital Acquisition Inc. ("KDTI-NY"),
both corporations having an address at Twenty-One Penn Plaza, New York, New York
10001; DAVID KATZ (the "ADSI STOCKHOLDERS' AGENT"), having an address at 21 East
36th Street, New York, New York 10016 as agent for the former stockholders of
ADVANCED DIGITAL SERVICES, INC., a New York corporation ("ADSI"), which merged
with and into KDTI-NY; and FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS LLP,
as Escrowee, having an address at 750 Lexington Avenue, New York, New York
10022-1200 (the "ESCROWEE").
RECITAL:
The former stockholders of ADSI are parties to and identified in a Plan
and Agreement of Merger dated July 31, 1997 with ADSI, KDTI and KDTI-NY (the
"Merger Agreement") pursuant to which ADSI has merged with and into KDTI-NY so
that KDTI-NY is the surviving corporation of the merger. Capitalized terms used
herein but not defined herein have the meanings assigned to them in the Merger
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Establishment of the Escrow. Simultaneously with the execution and
delivery of this Agreement, KDTI-NY is depositing with the Escrowee the (i)
Promissory Note and (ii) Share Certificates in accordance with the Merger
Agreement. Such Promissory Note and Share Certificates are sometimes herein
called the "Escrowed Items." The Escrowee will hold and dispose of the Escrowed
Items in accordance with the terms hereof and the Merger Agreement.
2. Distribution of Escrowed Items.
2.1. Delivery of Escrowed Items. The Escrowee shall make
delivery of that portion of the Escrowed Items which KDTI, KDTI-NY or ADSI
Stockholders' Agent, as the case may be, shall be entitled to receive under the
Merger Agreement as follows:
i. Escrowee will take the actions required by Section 3.2.2 of the
Merger Agreement ten (10) days following receipt by the Escrowee of
notice from KDTI consisting of a certificate executed by the Chief
Executive Officer or Chief Financial Officer of KDTI that the
determination of the Net Worth Adjustment has been made, or that no Net
Worth Adjustment will be made, and setting forth the adjustments in the
Note Amount and Share Amount, if any;
<PAGE> 67
ii. Escrowee will take the actions required by Section 3.2.3 of the
Merger Agreement ten (10) days following receipt by the Escrowee of
notice from KDTI consisting of a certificate executed by the Chief
Executive Officer or Chief Financial Officer of KDTI that the final
determination of the uncollected Accounts Receivable has been made, and
setting forth the adjustments in the Note Amount and Share Amount, if
any;
iii. Escrowee will take the actions required by Section 3.2.4 of the
Merger Agreement twenty (20) days following receipt by the Escrowee of
notice from KDTI consisting of a certificate executed by the Chief
Executive Officer or Chief Financial Officer of KDTI that the final
determination of the ADSI Net Revenues has been made, and setting forth
the adjustments in the Note Amount and Share Amount, if any;
iv. Escrowee will take action as directed by joint written instructions
from KDTI and the ADSI Stockholders' Agent promptly following receipt
by the Escrowee of such instructions; and
v. Escrowee will take action as directed by a final order of a court of
competent jurisdiction; provided, that such order is not subject to
further appeal or other appellate review.
Any notice by KDTI to Escrowee under Paragraphs (i), (ii), or (iii) above shall
be accompanied by an affidavit of an employee of KDTI that a copy of the notice
has been sent to the ADSI Stockholders' Agent and its counsel (identified in the
Merger Agreement) in accordance with the notice provisions of this Escrow
Agreement. Escrowee shall not release any Escrowed Item under Paragraphs (i),
(ii) or (iii) above if it receives prior to expiration of the twenty (20) day
period referred to therein an affidavit from the ADSI Stockholders' Agent
stating that the ADSI Stockholders' Agent objects to release of the Escrowed
Item and stating the grounds for such objection under the relevant Section of
the Merger Agreement.
2.2. New Share Certificate or New Promissory Note. To the
extent that the Share Certificates and/or the Promissory Note are to be
exchanged for new Share Certificates for a lesser or greater number of Shares
(the "New Share Certificates") and/or a new Promissory Note in a lesser or
greater principal amount (the "New Promissory Note"), to effect the distribution
of the Escrowed Items as required by the Merger Agreement, KDTI and KDTI-NY
will, promptly after demand therefor by notice from the Escrowee, deliver to the
Escrowee the New Share Certificate and/or the New Promissory Note in exchange
for the Escrowed Items being replaced, whereupon such New Share Certificate
and/or New Promissory Note shall constitute the Escrowed Item(s).
3. Termination. This Agreement shall terminate upon the distribution of
all of the Escrowed Items held by the Escrowee pursuant to this Agreement and
the payment to Escrowee pursuant to Section 6 hereof of all fees and charges
incurred by the Escrowee in
2
<PAGE> 68
the performance of its duties hereunder, except that the indemnity provided in
favor of the Escrowee pursuant to Section 4 hereof shall continue without
limitation hereunder, notwithstanding the termination of this Escrow Agreement
in any or all other respects.
4. Duties of the Escrowee.
4.1. Duties Limited. The Escrowee shall perform only the
duties expressly set forth herein, and shall refer to the Merger Agreement in
performing its duties hereunder. The Escrowee shall not have any duty or
responsibility with respect to the condition, use, suitability or value of any
of the Escrowed Items, other than with respect to the custody and delivery
thereof to the extent herein expressly provided.
4.2. Reliance. The Escrowee may rely upon, and shall be
protected in acting or refraining from acting upon, any written notice,
instruction or request furnished to it hereunder and believed by it to be
genuine and to have been signed or presented by the proper party or parties.
4.3. Good Faith. The Escrowee shall not be liable for any
action taken by it hereunder except for the Escrowee's gross negligence or
willful misconduct. KDTI and the ADSI Stockholders' Agent shall indemnify the
Escrowee and hold it harmless against any loss, liability or expense incurred
without bad faith or gross negligence on its part, arising out of or in
connection with this Agreement, including the costs and expenses incurred in
defending any such claim of liability. The Escrowee may consult with its own
counsel, and shall have full and complete authorization and protection for any
action taken or suffered in good faith and in accordance with the opinion of
such counsel.
5. Resignation and Termination of the Escrowee.
5.1. Resignation. The Escrowee may resign at any time by
giving thirty (30) days' notice of such resignation to KDTI and the ADSI
Stockholders' Agent. Thereafter, the Escrowee shall have no further obligation
hereunder except to hold the Escrowed Items as depositary and to turn over the
Escrowed Items to a successor escrowee; provided that the Escrowee may at any
time after such resignation deposit the Escrowed Items into a court sitting
within New York County and thereafter have no further duty or obligation
hereunder. In such event, the Escrowee shall not take any action until KDTI and
the ADSI Stockholders' Agent have designated a successor escrowee.
5.2. Termination. KDTI and the ADSI Stockholders' Agent
together may terminate the appointment of the Escrowee hereunder upon notice
specifying the date upon which such termination shall take effect. In the event
of such termination, KDTI and the ADSI Stockholders' Agent shall, within eighty
(80) days after notice to the Escrowee, jointly appoint a successor escrowee.
3
<PAGE> 69
5.3 Turn Over of Escrowed Items. Upon appointment of a
successor escrowee, such successor escrowee and the parties hereto (other than
the Escrowee) shall execute an escrow agreement identical to this agreement,
except for the date thereof, which shall be the effective date of appointment of
such successor escrowee, and such successor escrowee shall thereupon assume all
the powers, rights, duties and obligations of the Escrowee hereunder. The
Escrowee shall thereupon turn over the Escrowed Items to such successor Escrowee
and shall thereafter have no further obligation hereunder.
6. Fees and Expenses. KDTI and KDTI-NY shall pay the reasonable
compensation of the Escrowee for the Escrowee's services hereunder and all
expenses, disbursements and advances (including reasonable attorneys' fees)
incurred in carrying out the Escrowee's duties hereunder.
7. Miscellaneous.
7.1. Notices. Any notice or other communications required or
permitted hereunder shall be in writing and shall be deemed effective (a) upon
personal delivery, if delivered by hand and followed by notice by mail,
overnight courier or delivery service or facsimile transmission; (b) one day
after the date of delivery by Federal Express or other nationally recognized
courier service that provides a delivery receipt, if delivered by priority
overnight delivery between any two points within the United States; or (c) three
(3) days after deposit in the mails, if mailed by certified or registered mail
(return receipt requested) between any two points within the United States, and
in each case of mailing, postage prepaid, addressed as follows:
(i) if to KDTI or KDTI-NY, to:
Katz Digital Technologies, Inc.
21 Penn Plaza
New York, New York 10001
Attention: Mr. Gary Katz, Chairman
with a copy to the Escrowee
(ii) if to the ADSI Stockholders' Agent, to:
David Katz
21 East 36th Street
New York, New York 10016
4
<PAGE> 70
with a copy to:
McCarter & English
4 Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Attention: Peter Twombly, Esq
(iii) if to the Escrowee, to:
Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass, LLP
750 Lexington Avenue
New York, New York 10022-1200
Attention: Murray L. Skala, Esq.
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notice.
7.2 Escrowee Acting As Counsel. The ADSI Stockholders' Agent
acknowledges that the Escrowee has acted as the counsel for KDTI and KDTI-NY in
connection with the Merger Agreement, the transactions described therein and
this Escrow Agreement and hereby consents on its own behalf and on behalf of the
Stockholders of ADSI to the Escrowee representing KDTI and KDTI-NY in any
proceeding arising out of any dispute under the Merger Agreement, this Escrow
Agreement, any of the transactions or agreements contemplated hereby or thereby,
or otherwise.
7.3. Part of Merger Agreement. This Agreement is entered into
and delivered pursuant to the Merger Agreement and is to be construed in
accordance with the provisions of the Merger Agreement and the terms of the
other documents referred to in the Merger Agreement.
7.4. Waivers and Amendments. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, except as expressly set forth herein, nor
shall any waiver on the part of any party or any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder.
7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without
reference to its conflict of laws provisions.
5
<PAGE> 71
7.6. Joinder, Interpleader. KDTI, KDTI-NY and the ADSI
Stockholders' Agent (i) consent to being joined as a party to any suit, action
or other proceeding relating to the escrow herein provided, and consent to
personal jurisdiction of the court in which such proceeding is being brought and
(ii) agree that the Escrowee may join in or interplead in any such proceeding,
whether or not the Escrowee is initially a party thereto.
7.7. Assignment. This Agreement shall be binding upon the
successors and permitted assigns of the parties. Except as otherwise provided
herein, no assignment of any rights or delegation of any obligations provided
for herein may be made by any party without the express written consent of all
other parties hereto.
7.8. Further Assurances. Each of the parties shall execute
such documents and other papers and take such further actions as may be
reasonable required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
7.9. Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
7.10. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.11. Headings. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6
<PAGE> 72
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
KATZ DIGITAL TECHNOLOGIES, INC.
By: ________________________________
Gary Katz
Chairman and Chief Executive Officer
ADVANCED DIGITAL SERVICES, INC. (formerly
known as KATZ DIGITAL ACQUISITION INC.)
By: ________________________________
Gary Katz
President
ADSI STOCKHOLDERS' AGENT:
________________________________
Name:
FEDER, KASZOVITZ, ISAACSON, WEBER,
SKALA & BASS, LLP
As Escrowee
By: ________________________________
Name:
A Member of the Firm
7
<PAGE> 73
SCHEDULE 1.51
KATZ DIGITAL ACQUISITION INC.
NON-NEGOTIABLE PROMISSORY NOTE
$125,000.00 July 31, 1997
KATZ DIGITAL ACQUISITION INC., a New York corporation with its
principal place of business at Twenty-One Penn Plaza, New York, New York 10001,
which is, simultaneously with the issuance of this Note, changing its name to
Advanced Digital Services, Inc. (hereafter referred to as the "MAKER"), hereby
promises to pay to the order of (hereinafter called the
"STOCKHOLDER") at or such other place as the
STOCKHOLDER may from time to time designate in writing, the principal sum of ONE
HUNDRED TWENTY-FIVE THOUSAND AND NO/100 ($125,000.00) DOLLARS, or such other
principal sum as may be determined under the provisions of the Plan and
Agreement of Merger among MAKER, STOCKHOLDER, ,
KATZ DIGITAL TECHNOLOGIES, INC., a Delaware corporation, and ADVANCED DIGITAL
SERVICES, INC., a New York corporation, dated as of July 31, 1997 (the "Merger
Agreement"; hereafter the principal amount of this Note as finally determined
under the Merger Agreement shall be referred to as the "Final Principal
Amount"), plus interest calculated on the unpaid principal balance of the Final
Principal Amount until this Note is paid in full at an annual rate equal to
seven (7%) percent. Interest shall be calculated on the basis of a 365 day year.
All payments shall be made in lawful money of the United States of America.
Anything to the contrary herein provided not withstanding, the interest rate
provided for herein shall not in any event exceed that permitted by applicable
law. All capitalized terms used herein but not herein defined shall have the
meanings assigned to them in the Merger Agreement.
REPAYMENT - The principal amount of this Note, and interest accrued
thereon shall be paid in twenty (20) quarterly installments, on the first day of
January, April, July and October, commencing October 1, 1997, until July 1,
2002, when the entire amount due under this Note shall be paid in full.
ADJUSTMENTS - The principal amount of this Note is subject to
adjustment pursuant to the terms of the Merger Agreement. The date upon which
the determination of whether or not the principal amount of this Note is
adjusted becomes final pursuant to the terms of the Merger Agreement is referred
to herein as the "Determination Date". In the event the principal amount of this
Note is reduced or increased pursuant to the terms of the Merger Agreement, all
adjustments of principal and interest shall be made retroactively to the date of
this Note. If the principal amount of this Note is reduced pursuant to the
Merger Agreement, then the payments paid prior to the Determination Date shall
be reallocated between principal and interest, and if the principal amount of
this Note is increased, such additional amounts shall be paid to the Stockholder
as shall be necessary so that the amounts payable to him under the substitute
Note
<PAGE> 74
shall be paid to him not later than the date which is fifteen (15) days
after the Determination Date, and all other payments of principal and interest
payable after the Determination Date shall be payable quarterly on the dates set
forth above and in accordance with the substitute Note delivered pursuant to
the Merger Agreement.
JURISDICTION - This Note shall be governed by and construed under the
laws of the State of New York. Any action brought to enforce this Note shall be
brought in the State of New York, and MAKER hereby consents to the personal
jurisdiction of the federal and state courts located in the State of New York,
and agrees that unless applicable law requires a different method, service of
process in any such action may be made by first class mail upon the MAKER at its
address set forth in the beginning of this Note or at such other address as
MAKER shall advise the holder of this Note by written notice to the address at
which payments due under this Note are to be sent pursuant to the first
paragraph of this Note.
NOTICES - All notices required to be made hereunder shall be made and
be effective according to the notice provisions of the Merger Agreement.
IN WITNESS WHEREOF, the MAKER has caused this Note to be signed and
delivered by its duly authorized officer as of the date first set forth above.
KATZ DIGITAL ACQUISITION INC.
By:__________________________
Name:
Title:
KATZ DIGITAL TECHNOLOGIES, INC., a Delaware corporation, hereby
irrevocably and unconditionally guarantees the payment in full of all amounts
when due under this Note.
KATZ DIGITAL TECHNOLOGIES, INC.
By: ________________________________
Name:
Title:
<PAGE> 75
SCHEDULE 1.54
DISTRIBUTEES
<TABLE>
<CAPTION>
Distributee Number of Shares
- ----------- ----------------
<S> <C>
David Katz 150,909
Gary Ritkes 150,909
</TABLE>
<PAGE> 76
SCHEDULE 4.2(ii)
[LETTERHEAD OF MC CARTER & ENGLISH]
July 31, 1997
Katz Digital Technologies, Inc.
Katz Digital Acquisition Inc.
21 Penn Plaza
360 West 31st Street
New York, New York 10001
Gentlemen:
We have acted as counsel to Advanced Digital Services, Inc., a New York
corporation ("ADSI"), and each of David Katz ("David") and Gary Ritkes ("Gary";
and, together with David, the "ADSI Stockholders"), in connection with that
certain Plan and Agreement of Merger dated as of July 31, 1997, among Katz
Digital Technologies, Inc., a Delaware corporation ("KDTI"), Katz Digital
Acquisition Inc., a New York corporation ("KDTI-NY"), ADSI and the ADSI
Stockholders governing the merger of ADSI with and into KDTI-NY (together with
the schedules thereto, the "Merger Agreement"). Capitalized terms used herein
without definition shall have the meanings set forth in the Merger Agreement or
in the Accord (as defined below) unless otherwise defined herein.
For purposes of rendering this opinion, we have examined and relied
upon executed originals or copies of executed originals of only the following
documents and agreements (hereinafter collectively referred to, together with
all exhibits and schedules thereto, as the "Transaction Documents"):
1. the Merger Agreement;
2. the Escrow Agreement;
3. the Certificate of Merger;
4. Employment Agreements between David and KDTI-NY and
between Gary and KDTI-NY (collectively, the "Employment
Agreements"); and
<PAGE> 77
McCARTER & ENGLISH
Katz Digital Technologies, Inc.
Katz Digital Acquisition, Inc.
July 31, 1997
Page 2
5. Non-Competition Agreements among David, KDTI and
KDTI-NY and among Gary, KDTI and KDTI-NY (collectively,
the "Non-Competition Agreements").
We have also reviewed such other documents and made such other
investigations and examinations as to matters of law as we have deemed necessary
in order to render the opinions expressed herein. As to matters of fact, we have
relied, without independent verification, upon certificates of the Office of the
Secretary of State of the State of New York and of officers of ADSI and upon the
factual representations made by ADSI and the ADSI Stockholders in the Merger
Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The Law (as defined in the
Accord) covered by the opinions expressed herein is limited to the federal laws
of the United States and the New York Business Corporation Law. The opinions set
forth below are subject to the General Qualifications, as defined in the Accord.
In addition, we have assumed that each of Gary and David has legal
capacity to execute and deliver the Transaction Documents to which each is a
party and that each corporate party to any document or instrument referred to in
this opinion, other than ADSI, has all requisite power and authority, and that
each party other than ADSI and the ADSI Stockholders, has taken all necessary
action, to execute and deliver the documents and instruments delivered by such
party and to consummate the transactions contemplated thereby, and that said
documents and instruments are binding on such party.
This opinion is limited to the matters stated herein, and no opinion is
to be implied or may be inferred beyond the matters expressly stated.
Based on the foregoing, and subject to the qualifications, assumptions
and limitations stated herein, it is our opinion that:
1. ADSI is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York.
<PAGE> 78
McCARTER & ENGLISH
Katz Digital Technologies, Inc.
Katz Digital Acquisition, Inc.
July 31, 1997
Page 3
2. ADSI has an authorized capitalization consisting of 200 shares of
common stock, no par value per share, of which 33 shares are owned of record
and, to our Actual Knowledge, beneficially by David and 33 shares are owned of
record and, to our Actual Knowledge, beneficially by Gary. No other class of
capital stock of ADSI is authorized or outstanding. We have no Actual Knowledge
of any outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character providing
for the purchase, issuance or sale of any shares of the capital stock of ADSI.
3. Other than as disclosed in the Merger Agreement, we have no Actual
Knowledge that the ADSI Shares are subject to any encumbrance, lien, claim,
charge or restriction of any kind or character.
4. Other than as disclosed in the Merger Agreement, we have no Actual
Knowledge of any action, suit, proceeding at law or in equity by any Person, or
any arbitration or any administrative or other proceeding by or before any
governmental or other instrumentality or agency which is pending or threatened
against ADSI or against the ADSI Stockholders which, if adversely determined,
would have a material adverse affect on the operation of ADSI's Business, and we
have no Actual Knowledge of any basis for any such action, suit, proceeding or
investigation. Except as disclosed in the Merger Agreement, we have no Actual
Knowledge of any judgment, order or decree entered in any lawsuit or proceeding
to which ADSI or any ADSI Stockholder is subject which would have a material
adverse affect on ADSI's business or which would prevent or interfere with the
consummation of the transactions contemplated by the Transaction Documents.
5. We have no Actual Knowledge that ADSI is not in compliance with all
applicable foreign, federal, state and local laws, regulations and orders and
all other applicable requirements of any governmental, regulatory or
administrative agency or authority or court or other tribunal having
jurisdiction, the violation of which, individually or in the aggregate, would
have a material adverse effect on ADSI's business or its financial condition.
6. ADSI has corporate power and authority to execute, deliver and
perform the Merger Agreement and the Other Documents to which it is a party and
the transactions contemplated thereby, all of which have been duly authorized by
all necessary shareholder and corporate action of ADSI. The Merger Agreement and
the Other Documents to which ADSI is a party have been duly
<PAGE> 79
[MC CARTER & ENGLISH LETTERHEAD]
Katz Digital Technologies, Inc.
Katz Digital Acquisition, Inc.
July 31, 1997
Page 4
executed and delivered by ADSI and each constitutes the valid and binding
obligation of ADSI enforceable against ADSI in accordance with its terms. Other
than as disclosed in the Merger Agreement, we have no Actual Knowledge that ADSI
is subject to, or a party to, any charter, by-law, mortgage, lien, lease,
license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, which would prevent consummation of the transactions contemplated by
the Transaction Documents to which it is a party or compliance by ADSI with the
terms, conditions and provisions of the Transaction Documents to which it is a
party.
7. Each of David and Gary has duly executed and delivered the
Transaction Documents to which he is a party, which constitute the valid and
binding obligation of each of them, enforceable against each of them in
accordance with its terms. We have no Actual Knowledge that David or Gary is
subject to, or a party to, any charter, by-law, mortgage, lien, lease, license,
permit, agreement, contract, instrument, law, rule, ordinance, regulation,
order, judgment or decree, or any other restriction of any kind or character,
which would prevent consummation of the transactions contemplated by the
Transaction Documents to which either of them is a party or compliance by David
or Gary with the terms of the Transaction Documents to which either one of them
is a party.
8. Other than as disclosed in the Merger Agreement, the execution,
delivery and performance of the Merger Agreement and the Other Documents and the
consummation of the transactions contemplated thereby will not:
(i) violate, conflict with or result in the breach of
any provision of the Certificate of Incorporation or by-laws
of ADSI;
(ii) to our Actual Knowledge, violate, conflict with or result
in the breach or material modification of any of the terms of, or
constitute (or with notice or lapse of time or both constitute) a
default under, or otherwise give any other contracting party the right
to accelerate or terminate, any obligation, contract, agreement, lien,
judgment, decree or other instrument to which ADSI or any ADSI
Stockholder is a party or by or to which it or he or his respective
assets or properties may be bound or subject;
<PAGE> 80
McCARTER & ENGLISH
Katz Digital Technologies, Inc.
Katz Digital Acquisition, Inc.
July 31, 1997
Page 5
(iii) to our Actual Knowledge, violate any order, writ,
judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, ADSI or any
of its assets or any ADSI Stockholder; or
(iv) violate any statute, law or regulation of the United
States of America or the State of New York.
9. Other than as disclosed in the Merger Agreement, to our Actual
Knowledge, other than the filing of the Certificate of Merger with the Office of
the New York Secretary of State, no consent or approval of, other action by, or
notice to, any governmental body or agency, domestic or foreign, or any third
party is required in connection with the execution and delivery by ADSI or the
ADSI Stockholders of the Merger Agreement and the Other Documents to which they
are a party or the consummation by ADSI or the ADSI Stockholders of the
transactions contemplated thereby.
This opinion may be relied upon by you only in connection with the
transactions contemplated by the Transaction Documents and may not be disclosed
to any other person or for any purpose other than in connection with the
transactions and documents referred to herein and is not to be used, circulated,
quoted or otherwise referred to without the prior written consent of this firm.
Very truly yours,
McCARTER & ENGLISH
By: /s/ Peter S. Twombly
----------------------
Peter S. Twombly
A Member of the Firm
<PAGE> 81
SCHEDULE 4.3(iv)
[LETTERHEAD OF FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS LLP]
July 31, 1997
Mr. David Katz
Mr. Gary Ritkes
208 West 30th Street
New York, New York 10001
Gentlemen:
We have acted as counsel to Katz Digital Technologies, Inc., a Delaware
corporation ("KDTI") and Katz Digital Acquisition, Inc., a New York corporation
("KDTI-NY"), in connection with that certain Agreement and Plan of Merger dated
as of July 31, 1997, among KDTI, KDTI-NY, Advanced Digital Services, Inc., a New
York corporation ("ADSI"), and David Katz and Gary Ritkes (the "ADSI
Stockholders"), governing the merger of ADSI with and into KDTI-NY (the "Merger
Agreement"). Capitalized terms used herein without definition shall have the
meanings set forth in the Merger Agreement unless otherwise defined herein.
For purposes of rendering this opinion, we have examined and relied
upon originals or copies of the following documents and agreements (hereinafter
collectively referred to, together with all exhibits and schedules thereto, as
the "Transaction Documents"):
1. the Merger Agreement;
2. the Promissory Note;
3. the Share Certificates;
4. the Certificate of Merger;
5. the Escrow Agreement;
6. Employment Agreements between each of you and KDTI-NY,
payment of which is guaranteed by KDTI;
7. the Non-Competition Agreements among each of you and KDTI
and KDTI-NY.
We have also reviewed such other documents and made such other
investigations and examinations as to matters of law and fact as we have deemed
necessary in order to render the opinions expressed herein. As to matters of
fact, we have relied, without independent verification,
<PAGE> 82
Mr. David Katz
Mr. Gary Ritkes
July 31, 1997
Page 2
upon Certificates of the offices of the Secretary of State of New York and
Delaware and of officers of KDTI and KDTI-NY and upon the factual
representations made by KDTI and KDTI-NY in the Merger Agreement.
This opinion letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The Law (as defined in the
Accord) covered by the opinions expressed herein is limited to the federal laws
of the United States and the New York Business Corporation Law and the General
Corporation Law of Delaware. The opinions set forth below are subject to the
General Qualifications, as defined in the Accord.
The opinions expressed herein are subject to the following
qualifications and assumptions:
(a) The opinions expressed herein are limited by and subject
to the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws of general application from
time to time in effect affecting the enforcement of creditors' rights
and remedies, and by statutes, rules or procedures and applicable case
law limiting the availability of or prescribing procedural requirements
for the exercise of creditors' rights and remedies. We express no
opinion as to the availability of equitable relief, including, without
limitation, specific performance of any agreement or injunctive relief
in any situation arising out of the transactions to which the opinions
expressed herein relate.
(b) We have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as
copies, whether certified or not, and we have assumed that such
documents are valid and binding on all parties thereto.
(c) We have assumed that each party to any document or
instrument referred to in this opinion, other than KDTI and KDTI-NY,
has all requisite power and authority in the case of a corporation, and
capacity, in the case of an individual, and has taken all necessary
action, to execute and deliver the documents and instruments delivered
by such party and to consummate the transactions contemplated thereby,
and that said documents and instruments are binding on such party.
<PAGE> 83
Mr. David Katz
Mr. Gary Ritkes
July 31, 1997
Page 3
(d) We have assumed that you and your counsel have
communicated to us all factual matters of which you or they have Actual
Knowledge and which the person having such knowledge knows, or
reasonably should know, would affect our opinion.
This opinion is limited to the matters stated herein, and no opinion is
to be implied or may be inferred beyond the matters expressly stated.
Based on the foregoing, and subject to the qualifications, assumptions
and limitations stated herein, it is our opinion that:
1. KDTI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. KDTI-NY is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
2. KDTI and KDTI-NY each has the corporate power and authority to
execute, deliver and perform the Merger Agreement and the Transaction Documents
and the transactions contemplated thereby and has duly authorized the execution,
delivery and performance of the Merger Agreement and the Transaction Documents.
The Merger Agreement and the Transaction Documents are the legal, valid and
binding obligations of KDTI and KDTI-NY, enforceable in accordance with their
terms.
3. The execution, delivery and contemplated performance by KDTI and
KDTI-NY of the Merger Agreement and the Transaction Documents to which each is a
party will not: (i) violate, breach or constitute a default under their
respective Certificates of Incorporation or By-Laws; (ii) violate any statute,
law or regulation of the United States of America, or New York or Delaware,
(iii) to our Actual Knowledge, violate, breach or constitute (or with notice or
lapse of time or both constitute) a default under any agreement to which either
is a party, which violation, breach or default would have a material adverse
effect on their ability to execute, deliver or perform the Merger Agreement and
the Transaction Documents to which each is a party; (iv) to our actual
knowledge, violate any order, writ, judgment, injunction, award or decree of any
court, arbitrator or governmental or regulatory body against, or binding upon
KDTI or KDTI-NY or any of their respective assets.
4. The issuance and delivery of the Shares in accordance with the
Merger Agreement and the Other Documents have been duly authorized by all
required corporate action of KDTI; and upon delivery in accordance with the
Merger Agreement, the Shares will have been validly issued, and be fully paid
and non-assessable and, to our knowledge, not subject to any liens, charges,
<PAGE> 84
Mr. David Katz
Mr. Gary Ritkes
July 31, 1997
Page 4
restrictions, claims or encumbrances other than those set forth in the Merger
Agreement or the Other Documents.
5. Other than as disclosed in the Merger Agreement, to our Actual
Knowledge, other than the filing of the Certificate of Merger with the Office of
the New York Secretary of State, no consent or approval of, other action by, or
notice to, any governmental body or agency, domestic or foreign, or any third
party is required in connection with the execution and delivery by KDTI or
KDTI-NY of the Merger Agreement and the Other Documents to which each is a party
or the consummation by KDTI or KDTI-NY of the transactions contemplated thereby.
No person except the addressee named herein may rely on this opinion
for any purpose. This opinion may not be disclosed to any other person or for
any purpose other than in connection with the transactions and documents
referred to herein and is not to be used, circulated, quoted or otherwise
referred to without the prior written consent of this firm. We assume no
obligation to advise the addressee of this opinion of any changes concerning the
above, whether or not deemed material, which may hereafter come or be brought to
our attention.
Very truly yours,
FEDER, KASZOVITZ, ISAACSON, WEBER,
SKALA & BASS, LLP
By: /s/ Geoffrey A. Bass
----------------------------
Geoffrey A. Bass
a Member of the Firm
<PAGE> 85
SCHEDULES 6.2 - 6.24
DISCLOSURE SCHEDULES
OF
ADVANCED DIGITAL SERVICES, INC.
---------------------------
Delivered Pursuant to the Plan and
Agreement of Merger ("Agreement") Dated as of July 31, 1997
between and among Katz Digital Technologies, Inc.,
Katz Digital Acquisition Inc., Advanced Digital Services, Inc.,
David Katz and Gary Ritkes
---------------------------
ANY INFORMATION SET FORTH IN ANY SCHEDULE HEREIN SHALL BE CONSIDERED TO
HAVE BEEN SET FORTH IN EACH OTHER SCHEDULE TO THE AGREEMENT, AND ANY INFORMATION
DISCLOSED IN ANY SECTION OF THIS DISCLOSURE SCHEDULE SHALL BE CONSIDERED TO HAVE
BEEN SET FORTH IN EVERY OTHER SECTION OF THIS DISCLOSURE SCHEDULE WHICH CALLS
FOR THE SAME DISCLOSURE.
DATED: July 31, 1997
<PAGE> 86
INDEX OF SCHEDULES
Capitalized terms used herein without definition shall have the meaning
given them in the Plan and Agreement of Merger dated as of July 31, 1997,
between and among Katz Digital Technologies, Inc., Katz Digital Acquisition
Inc., Advanced Digital Services, Inc., David Katz and Gary Ritkes.
Schedule 6.2 Stockholders and Capitalization
Schedule 6.3.2 Changes to ADSI
Schedule 6.4 Location of Books and Records
Schedule 6.5.1 Real Property Encumbrances
Schedule 6.5.2 Title to Assets; Encumbrances
Schedule 6.5.3 Machinery and Equipment
Schedule 6.6 Contracts
Schedule 6.7 Litigation
Schedule 6.8 Tax Liabilities
Schedule 6.9 Liabilities
Schedule 6.10 Intellectual Property
Schedule 6.13 Insurance
Schedule 6.14 Suppliers and Customers
Schedule 6.16 Personnel
Schedule 6.17 Changes Since Balance Sheet Date
Schedule 6.18 Valid Agreements; Restricted Documents
Schedule 6.19 Approvals
Schedule 6.21 Environmental Conditions
Schedule 6.24 Brokers
-2-
<PAGE> 87
SCHEDULE 6.2
STOCKHOLDERS AND CAPITALIZATION
Advanced Digital Services, Inc.
(66 shares of Common Stock, no par value per share, issued and outstanding)
David Katz 33 shares (50%)
Gary Ritkes 33 shares (50%)
-3-
<PAGE> 88
SCHEDULE 6.3.2
CHANGES TO ADSI
None
-4-
<PAGE> 89
SCHEDULE 6.4
LOCATION OF BOOKS AND RECORDS
1. Advanced Digital Services, Inc.
208 West 30th Street
New York, NY 10001
2. PrimePay
165 Passaic Avenue
3rd Floor
Fairfield, NJ 07004
3. Rosenberg Rich Baker Berman & Company
380 Foothill Rd.
P.O. Box 6483
Bridgewater, NJ 08807
-5-
<PAGE> 90
SCHEDULE 6.5.1
SCHEDULES OF LEASES
By Lease Agreement dated March 15, 1995 (the "Lease"), David Katz Studio, Inc.
leases from Miranda Realty the commercial office space at 208 West 30th Street,
New York, NY. David Katz Studio, Inc., by oral agreement, subleases the space to
ADSI. By Amendment dated July 30, 1997, the Lease provides an early termination
option exercisable upon fifteen days prior notice and payment of a termination
fee. By Consent to Assignment dated July 30, 1997, the Landlord has consented to
assignment of the Lease, as amended, by David Katz Studio, Inc. to Katz Digital
Acquisition Inc.
-6-
<PAGE> 91
SCHEDULE 6.5.2
TITLE TO ASSETS: ENCUMBRANCES
1. THE FOLLOWING EQUIPMENT LEASES RELATING TO EQUIPMENT USED BY ADSI REQUIRE
CONSENT OF THE LESSOR/VENDOR IN CONNECTION WITH THE USE OF SUCH EQUIPMENT
BY ADSI AND/OR IN CONNECTION WITH THE MERGER, WHICH CONSENTS HAVE NOT BEEN
OBTAINED:
a. Equipment Lease dated Sept. 19, 1995 between Advanced Digital
Solutions and Quantum Lease Associates, Ltd., now known as Colonial
Pacific Leasing relating to Power MAC computer equipment.
b. Equipment Lease Agreement dated August 1995 between Advanced Digital
Solutions, Inc. and Fuji Photo Film USA, Inc. relating to Advanced
Digital Solution's use of Fuji Color Art Set and purchase of certain
minimum quantities of film and color art products and supplies from
Fuji.
c. Telephone Equipment Lease dated August 17, 1995 between Advanced
Digital Solutions, Inc. and TIE National Leasing Corp.
d. Master Lease Agreement dated August 12, 1996 between Advanced
Digital Services, Inc. and General Electric Capital Corp. relating
to lease of linotype mark 40 EX with nova remarketed rip.
e. Master Lease Agreement dated June 16, 1995 between Advanced Digital
Solutions, Inc. and General Electric Capital Corp. relating to
computer and prepress equipment.
-7-
<PAGE> 92
SCHEDULE 6.5.2
TITLE TO ASSETS: ENCUMBRANCES
2. THE FOLLOWING UCC-1 FINANCING STATEMENTS REFLECT LIENS AGAINST EQUIPMENT
USED BY ADSI WHICH HAVE NOT BEEN DISCHARGED AND REMAIN IN FORCE AND
EFFECT:
a. Advanced Digital Services, Inc. (Debtor)
New York Secretary of State
File No. Date Filed Description of Collateral:
102207 5/22/96 Fuji (Teaneck NFD-7 #960417)
168431 8/23/96 GE (Linotype - Hell Mark 40 -
Master Lease 8/12/96 #7001863)
City Register, New York County
File No. Date Filed Description of Collateral:
96PN22531 5/23/96 Fuji (Teaneck NFD-7 #960417)
95PN45201 10/24/95 Fuji (CA600PIII #5462393)
Fuji (CA680PIII #5481854)
96PN38204 8/29/96 GE (Linotype - Hell Mark 40 -
Master Lease 8/12/96 #7001863)
95PN37245 8/29/95 Fuji (P.C 55401092 AL53 Light
Source #9753137)
b. Advanced Digital Solutions, Inc. (Debtor)
New York Secretary of State
File No. Date Filed Description of Collateral:
121436 6/14/95 Scitex (Smart 340 Scanner,
Dolev 450, Starlite Software,
SciNet Span & Realist 5015)
139098 7/10/95 GE (Master Lease 6/16/95 -
Smart 340 Scanner, Dolev 450,
Starlite Software, SciNet Span
& Realist 5015)
192505 9/22/95 GE (Release of SciNet Span
from Financing Statement
139098)
156314 8/2/95 Fuji (FG680AEII Film
Processor, #565JA1614-FG-MTE
Auto Mix #5695J1881)
171924 8/23/95 Fuji (CA600P Processor
#7242772 - CA680T
Thermoprinter #5481944)
-8-
<PAGE> 93
SCHEDULE 6.5.2
TITLE TO ASSETS: ENCUMBRANCES
015787 1/25/96 Quantum (Power A\Mac 8500
#XB5350FB3FT)
City Register, New York County
File No. Date Filed Description of Collateral:
95PN37091 8/28/95 Fuji (CA600P Processor
#7242772 - CA680T
Thermoprinter #5481944)
95PN26325 6/19/95 Scitex (Smart 340 Scanner,
Dolev 450, Starlite Software,
SciNet Span & Realist 5015)
95PN33059 8/3/95 Fuji (FG680AEII Film
Processor, #565JA1614-FG-MTE
Auto Mix #5695J1881)
95PN46458 10/31/95 Quantum (Power A\Mac 8500
#XB5350FB3FT)
95PN28935 7/6/95 GE (Master Lease 6/16/95 -
Smart 340 Scanner, Dolev 450,
Starlite Software, SciNet Span
& Realist 5015)
95PN41086 9/22/95 GE (Release of SciNet Span)
95PN37245 8/29/95 Fuji (P/C 55401092 AL53 Light
Source #9753137)
95PN45201 11/24/95 Fuji (CA600PIII #5462393,
CA80TIII #5481854)
-9-
<PAGE> 94
SCHEDULE 6.5.3
MACHINERY AND EQUIPMENT
See Schedule 6.5.2
-10-
<PAGE> 95
SCHEDULE 6.6
CONTRACTS
1. CONTRACTS AND LEASE AGREEMENTS:
a. Equipment Lease dated Sept. 19, 1995 between Advanced Digital
Solutions and Quantum Lease Associates, Ltd., now known as Colonial
Pacific Leasing, relating to Power MAC computer equipment.
b. Equipment Lease Agreement dated August 1995 between Advanced Digital
Solutions and Fuji Photo Film USA, Inc. relating to Advanced Digital
Solution's use of Fuji Color Art Set and purchase of certain minimum
quantities of film and color art products and supplies from Fuji.
c. Telephone Equipment Lease dated August 17, 1995 between Advanced
Digital Solutions and TIE National Leasing Corp.
d. Master Lease Agreement dated August 12, 1996 between Advanced
Digital Services, Inc. and General Electric Capital Corp. relating
to lease of linotype mark 40 EX with nova remarketed rip.
e. Master Lease Agreement dated June 16, 1995 between Advanced Digital
Solutions and General Electric Capital Corp. relating to computer
and prepress equipment.
f. Maintenance and Service Contract dated December 21, 1995 between
Advanced Digital Solutions, Inc. and Scitex America Corp. for
service and maintenance on certain computer and imaging equipment
located at 208 West 30th Street, New York, NY.
g. Lease Agreement dated March 15, 1995 between David Katz Studio, Inc.
and Miranda Realty for lease of the commercial office space at 208
West 30th Street, New York, NY.
2. AGREEMENTS AS TO WHICH A DEFAULT EXISTS:
See Schedule 6.5.2
3. EMPLOYEE MEDICAL BENEFIT PLAN:
Provider: Oxford Health Plans
-11-
<PAGE> 96
4. EMPLOYEE PROFIT-SHARING PLAN:
Sponsor: Merrill Lynch, Pierce, Fenner & Smith Incorporated
5. EMPLOYEE MONEY PURCHASE PLAN:
Sponsor: Merrill Lynch, Pierce, Fenner & Smith Incorporated
-12-
<PAGE> 97
SCHEDULE 6.7
LITIGATION
None
-13-
<PAGE> 98
SCHEDULE 6.8
TAX LIABILITIES
None
-14-
<PAGE> 99
SCHEDULE 6.9
LIABILITIES
None
-15-
<PAGE> 100
SCHEDULE 6.10
INTELLECTUAL PROPERTY
1. ADSI Corporate Logo.
-16-
<PAGE> 101
SCHEDULE 6.13
INSURANCE
NAME OF INSURER: Aetna Casualty & Surety Company
NAME OF INSURED: Advanced Digital Services, Inc.
208 West 30th Street
New York, NY 10001
POLICY NUMBER: BQ0025585732
PROPERTY COVERED: 208 West 30th Street, New York, NY 10001
Building #1 Construction: Fire Resistive
Occupancy: Graphic Design
Coverage on: Business Pers. Property
COVERAGE DESCRIPTION:
Commercial Package
Commercial package also includes coverage on Electronic Data
Processing, Commercial General Liability
-17-
<PAGE> 102
SCHEDULE 6.13
INSURANCE
NAME OF INSURER: Aetna Casualty & Surety Company
NAME OF INSURED: Advanced Digital Services, Inc.
208 West 30th Street
New York, NY 10001
POLICY NUMBER: 074C0025585732 TWA
DESCRIPTION: Workers Compensation Coverage
-18-
<PAGE> 103
SCHEDULE 6.13
INSURANCE
NAME OF INSURER: Farmington Casualty Company
NAME OF INSURED: Advanced Digital Services, Inc.
Advanced Digital Solutions, Inc.
David Katz Studio, Inc.
POLICY NO: BQ0025585732
COVERAGE DESCRIPTION:
Commercial Package
Commercial Property Coverage:
208 West 30th Street
New York, NY 10001
Coverage on: Business Pers Property
Loss Payee/Add'l Insured:
Tie National Leasing
115 W. College Drive
Marshall, MN 56258
<TABLE>
<S> <C>
Special Causes of Loss: $52,000
Deductible: 500
Money & Securities - on premise
Maximum Amount: 10,000
Deductible: 500
Money & Securities - in transit
Maximum Amount: 2,000
Deductible: 500
</TABLE>
Coverage on: Business Inc. Incl. Ex. Exp. 12 Months
Electronic Data Processing
Description of equipment: Leased Computer Equipment
Valued at $13,800
Loss Payee: Colonial Pacific Leasing
15325 S/E 30th Place
Suite 100
Bellevue, WA 98007
-19-
<PAGE> 104
SCHEDULE 6.13
INSURANCE
Description of equipment: Leased equipment valued at $23,920
Loss Payee/Add'l Insured: G.E. Capital Corporation
55 Federal Road
Danbury, CT 06810
Description of equipment: Scitex Equipment
Location of Property: 208 West 30th Street
New York, NY 10001
Loss Payee/Add'l Insured: G.E. Capital Corporation
55 Federal Road
Danbury, CT 06810
<TABLE>
<CAPTION>
<S> <C>
Policy Coverages: Limits:
EDP Hardware 407,442
Deductible 250
EDP Media 25,000
Deductible 250
EDP Bus. Income & Extra Expense 15,000
Flood Coverage 447,442
Deductible 250
Earth Movement Exclusion
Commercial General Liability
Policy Coverages: Limits:
General Aggregate
Aggregate Limit 2,000,000
Products/Compl. Ops. Aggregate
Aggregate Limit 2,000,000
Personal & Advertising Injury
Lt. per Pers/Organization 1,000,000
Each Occurrence CSL 1,000,000
Fire Damage Liability
Limit per Fire 300,000
Medical Expense
Limit per person 5,000
Hired-Borrowed/Non-Owned Auto 1,000,000
Board Form Nuclear Exclusion
Pollution Liability Exclusion
</TABLE>
-20-
<PAGE> 105
SCHEDULE 6.13
INSURANCE
Workers Compensation Coverage
State in which coverage applies: New York
<TABLE>
<CAPTION>
Policy Coverages: Limits:
<S> <C>
Employers Liability
Limit per accident 100,000
Disease Per Policy Limit 500,000
Disease Ea. Employee Limit 100,000
</TABLE>
-21-
<PAGE> 106
SCHEDULE 6.14
SUPPLIERS AND CUSTOMERS
1. 10 LARGEST CUSTOMERS:
(1) Toybiz Inc.
(2) Time Warner Inc.
(3) Cline Davis & Mann Inc.
(4) Sandler/AC Graphics
(5) Leibler Bronfman Lubalin
(6) Macy's/Federated Inc.
(7) GRP Records Inc.
(8) Eagle Affiliated Inc.
(9) Steuben
(10) Schieffelin & Somerset
2. 10 LARGEST SUPPLIERS:
(1) Phillips & Jacobs
(Primne Source)
(2) Imaging Consortium
(3) Carl Waltzer Inc.
(4) Arkin Medo Inc.
(5) Laumont Labs
(6) Plaza Artist Materials
(7) Color by Pergament
(8) Darbert Offset Inc.
(9) Kanter Graphics
(10) Redwood Press
-22-
<PAGE> 107
SCHEDULE 6.16
PERSONNEL
<TABLE>
<CAPTION>
Name Annual Pay Rate
- ---- ---------------
<S> <C>
Adam L. Torres $42,000.00
David Joseph 40,000.00
David Katz 100,000.00
Gary Ritkes 100,000.00
Gregory Rogan 45,000.00
O'Neil Dial 45,000.00
Peggy Henderson 42,000.00
Rena McCarroll 50,000.00
Sondra Brenman 46,500.00
Stanley Blasse 54,600.00
Sean Barry 50,000.00
Richard Caposino 38,480.00
Donna Kennedy 36,400.00
Marcos Espinal 32,032.00
Paula Scalzo 22,880.00
Mark Rogan 21,840.00
Jose Rodriquez 17,680.00
</TABLE>
-23-
<PAGE> 108
SCHEDULE 6.17
CHANGES SINCE BALANCE SHEET DATE
Prior to the Effective Date of the Merger, ADSI received title to equipment
theretofore owned by Advanced Digital Solutions, Inc.
and leased to ADSI.
-24-
<PAGE> 109
SCHEDULE 6.18
VALID AGREEMENTS; RESTRICTED DOCUMENTS
1. See Schedules 6.5.2 and 6.19.
-25-
<PAGE> 110
SCHEDULE 6.19
APPROVALS
1. Equipment Lease dated Sept. 19, 1995 between Advanced Digital Solutions
and Quantum Lease Associates, Ltd., now known as Colonial Pacific Leasing,
relating to computer equipment.
2. Master Lease Agreement dated August 12, 1996 between Advanced Digital
Services, Inc. and General Electric Capital Corp. relating to lease of
linotype mark 40 EX with nova remarketed rip.
3. Master Lease Agreement dated June 16, 1995 between Advanced Digital
Solutions and General Electric Capital Corp. relating to computer and
printing equipment.
4. Telephone Equipment Lease dated August 17, 1995 between Advanced Digital
Solutions and TIE National Leasing Corp.
5. Maintenance and Service Contract dated December 21, 1995 between Advanced
Digital Solutions, Inc. and Scitex America Corp. for service and
maintenance on certain computer and imaging equipment located at 208 West
30th Street, New York, NY.
6. Equipment Lease Agreement dated August 1995 between Advanced Digital
Solutions, Inc. and Fuji Photo Film USA, Inc. relating to Advanced Digital
Solution's use of Fuji Color Art Set and purchase of certain minimum
quantities of film and color art products and supplies from Fuji.
7. Filing of Certificate of Merger with the New York Department of State.
-26-
<PAGE> 111
SCHEDULE 6.21
ENVIRONMENTAL CONDITIONS
ADSI utilizes and holds at the Leased Premises in the ordinary course of
business materials which may constitute "Hazardous Materials" which are
generally used in businesses similar to the ADSI Business. ADSI disposes of such
materials in a lawful manner.
-27-
<PAGE> 112
SCHEDULE 6.24
BROKERS
None
-28-
<PAGE> 1
Exhibit 2.2
<PAGE> 2
EMPLOYMENT AGREEMENT dated July 31, 1997 by and
between ADVANCED DIGITAL SERVICES, INC., a New York
corporation, formerly known as Katz Digital
Acquisition Inc. (the "Company"), and DAVID KATZ (the
"Employee").
---------------------------
The parties hereto desire to provide for the Employee's employment by the
Company in accordance with the terms and provisions set forth below:
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
The Company agrees to employ the Employee, and the Employee agrees to work
for the Company as its Vice President - Manufacturing for a period of five (5)
years commencing on the date hereof unless sooner terminated in accordance with
Section 8 hereof. Such period, together with the period of any extension or
renewal of such employment, is referred to herein as the "Employment Period."
2. DUTIES.
During the Employment Period: (i) the Employee shall serve as the Vice
President Manufacturing of the Company and perform such duties for the Company
or an Affiliate (as hereinafter defined) as shall, from time to time, be
reasonably assigned to the Employee by the President or the Board of Directors
of the Company consistent with his position and abilities; and (ii) the Employee
shall also serve as Vice President - Manufacturing of Katz Digital Technologies,
Inc., a Delaware corporation ("KDTI").
3. DEVOTION OF TIME.
During the Employment Period, the Employee shall: (i) expend substantially
all of his working time for the Company; (ii) devote his best efforts, energy
and skill to the services of the Company and the promotion of its interests; and
(iii) not, directly or indirectly, engage, participate or invest in, or render
any services for, any other business enterprise or activity engaged in a
business competitive to the business of the Company; provided, however, that,
the foregoing notwithstanding, the Employee may invest in or own securities of
any corporation or other entity provided that such securities are listed on a
registered securities exchange or actively traded in the over-the-counter market
and the number or amount or such securities represents not more than 1% of the
total number or amount of such securities then outstanding.
<PAGE> 3
4. COMPENSATION.
a. In consideration for the services to be performed by the Employee
during the Employment Period hereunder, the Company shall compensate
the Employee at an annual base salary from the date hereof at the
annual rate of $257,197.75 per annum (the "Base Salary"), payable in
accordance with the Company's customary payroll practices.
Commencing with the second anniversary of the date of this
Agreement, the Base Salary shall be increased at the rate of four
percent (4%) per annum, or such higher increases as may be approved
by the Board of Directors of the Company and its parent corporation
KDTI in their discretion.
b. In addition, the Employee shall be entitled to receive the Bonus
Payments provided for in the 1998 Katz Digital Technologies, Inc.
Target Bonus Plan, a copy of which is annexed hereto as Exhibit A,
and the terms of which are incorporated herein by reference.
c. Upon execution of this Agreement, the Employee is receiving an
option to purchase 120,000 shares of common stock of the Company's
parent corporation KDTI upon the terms and conditions contained in
the Stock Option Agreement attached hereto as Exhibit B.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES; ADDITIONAL BENEFITS.
a. Employee shall be reimbursed for expenses incurred by him in
connection with the ownership or lease of an automobile of the make
and type approved by the Company, which expenses shall not exceed
$650 per month.
b. The Company shall pay directly, or reimburse the Employee for, all
other reasonable and necessary business expenses and disbursements
incurred by him for and on behalf of the Company in the performance
of his duties under this Agreement, including reimbursement for car
expenses, such as gas, insurance, one parking space and a cellular
phone used for Company business. For such purposes, the Employee
shall submit to the Company itemized reports of such expenses in
accordance with the Company's policies.
c. Employee shall be entitled to paid vacations during the Employment
Period in accordance with the Company's then prevalent practices for
executive employees.
d. Employee shall be entitled to participate in, and to receive
benefits under, any employee benefit plans of the Company
(including, without limitation, pension, profit sharing, group life
insurance and group medical insurance plans) as may exist from time
to time for its executive employees.
2
<PAGE> 4
6. EMPLOYEE KNOWLEDGE.
a. Employee hereby agrees to communicate and make known to the Company
all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable, which relate to the business of the
Company; whether acquired by him before or during the Employment
Period; provided, however, that nothing herein shall be construed as
requiring any such communication where the method, development,
invention and/or improvement is lawfully protected from disclosure
as the trade secret of a third party or by any other lawful bar to
such communications existing prior to the commencement of employment
hereunder.
b. Employee hereby agrees to keep all such records in connection with
the Employee's employment as the Company may from time to time
reasonably direct, and all such records shall be the sole and
exclusive property of the Company.
c. It is expressly agreed between the Employee and the Company that any
invention the Employee developed entirely on his own time without
using the Company's equipment, supplies, facilities or trade secret
information belong to the Employee except for those inventions that
either: (a) relate at the time of conception or reduction to
practice of the invention to the Company's business or actual or
demonstrably anticipated research or development of the Company; or
(b) result from any work performed by the Employee for the Company.
7. CONFIDENTIALITY.
a. ACKNOWLEDGEMENTS BY EMPLOYEE. The Employee acknowledges that his
position with the Company will require the performance of services
which are special, unique, extraordinary and of an intellectual
character and places and will continue to place him in a position of
confidence and trust with the Customers of the Company. The Employee
further acknowledges that his performance of services for the
Company necessarily requires the disclosure to the Employee of
confidential information and trade secrets of the Company. The
Employee also acknowledges that he has developed prior to the date
hereof, as an employee and stockholder of Advanced Digital Services,
Inc., a New York corporation ("ADSI-NY") which merged with and into
the Company pursuant to a Plan and Agreement of Merger dated July
31, 1997 among ADSI-NY, KDTI, the Company, under its former name
Katz Digital Acquisition Inc., and the shareholders of ADSI-NY (the
"Merger Agreement") concurrently with the execution and delivery of
this Agreement, a personal acquaintance and relationship with
Customers of ADSI-NY and that he will continue to develop such
relationships with such Customers as an employee of the Company. The
Employee also acknowledges that in the course of his employment by
the Company he will develop a personal acquaintanceship and
relationship with other
3
<PAGE> 5
Customers of KDTI and its Affiliates. The Employee further
acknowledges that he has and will acquire a knowledge of such
Customers' affairs and requirements which may constitute a primary
contact of the Company or KDTI and its Affiliates with such
Customers, and that therefore, the Company's and KDTI's and its
other Affiliates relationships with its Customers may be placed in
the Employee's hands in confidence and trust. The Employee therefore
agrees that it is reasonable and necessary for the protection of the
goodwill and business of the Company that the Employee make the
covenants contained herein.
b. DEFINITIONS Capitalized terms used in this Section 7 shall, unless
the context otherwise requires, have the meanings specified below.
i. The term "Customer" means (i) anyone who is a customer of any
of the KDTI Companies at the time of the alleged prohibited
conduct or at any time during the two (2) year period
immediately preceding the alleged prohibited conduct; (ii) any
customer of Advanced Digital Solutions, Inc., a New York
corporation, or David Katz Studio, Inc., a New York
corporation; or (iii) any prospective customers to whom any of
the KDTI Companies makes a presentation (or similar offering
of services) within a period of 360 days immediately preceding
the alleged prohibited conduct or, if the alleged prohibited
conduct occurs after the termination of the Employment Period,
within a period of 360 days immediately preceding such
termination.
ii. The term "Affiliate" means any corporation, partnership,
company, firm, entity or proprietorship which, directly or
indirectly, controls or is controlled by or under common
control with KDTI, and includes the Company.
iii. The term "KDTI Companies" means KDTI, the Company and any
other Affiliate.
c. CONFIDENTIAL INFORMATION. The Employee shall keep secret and retain
in strictest confidence, and shall not use for the benefit of
itself, himself or others, except in connection with the business
and affairs of the KDTI Companies, all confidential matters relating
to the business of the KDTI Companies, including, but not limited
to, "know-how," trade secrets, customer lists, subscription lists,
pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, information
pertaining to Customers and their requirements, business acquisition
plans, new personnel acquisition plans, formulae, methods of
manufacture, technical processes, designs and design projects,
inventions and research projects and other business affairs relating
to the business and affairs of the KDTI Companies, learned by the
Employee at any time and shall never disclose such matters to anyone
outside of the KDTI Companies, except (i) as required in the course
of performing duties for the KDTI Companies, (ii) with KDTI's
express written consent; or (iii) with respect to such information
which is generally known to the public or becomes known to the
public though no fault of the Employee or
4
<PAGE> 6
which is generally known to businesses engaged in the type of
business in which any of the KDTI Companies is engaged.
d. ENFORCEMENT THROUGH INJUNCTION. Employee acknowledges that the type
and periods of restriction imposed in this Section 7 are fair and
reasonable and are reasonably required for the protection of the
KDTI Companies. The Employee acknowledge that a breach of the
provisions of this Agreement would irreparably damage the KDTI
Companies, and that once such a breach has occurred, there may be no
accurate way of determining the amount of damage or loss suffered by
the KDTI Companies. The Employee therefore agrees that the terms of
this Agreement may be enforced through preliminary or final
injunctive relief or other equitable remedy, without any of the KDTI
Companies having to (i) prove irreparable injury or likelihood of
success, (ii) prevail on the balancing of the equities test or other
legal criteria, or (iii) post a bond, and without limiting any other
damages or remedies to which any of the KDTI Companies may be
entitled, including termination of any salary or other payments
required under this Agreement other than the payments provided by
Section 8 (d).
e. BLUE LINING. If any of the provisions of this Agreement relating to
time, geographical area, services products, devices and/or
information are deemed by a court of competent jurisdiction to be
overly broad or for any other reason unenforceable, the parties
agree that such restrictions herein as to time, geographical area,
services, products, devices and/or information shall be reduced to
such time, geographical area, services, products, devices and/or
information as such court shall hold to be reasonable and legally
enforceable. In addition, if any court determines that any of the
restrictive covenants contained in this Agreement or any part
thereof, is invalid or unenforceable, the remainder of the
restrictive covenants shall not thereby be affected and shall be
given full effect without regard to the invalid portions.
i. The Employee acknowledges that the business of the KDTI
Companies extends beyond the geographic area of the State of
New York and accordingly, it is reasonable that the
restrictive covenants set forth below are not limited by
specific geographic area but by the location of the Customers.
The Employee further acknowledges that the Company and the
Employee intend to and hereby confer jurisdiction to enforce
the covenants contained in this Agreement upon the courts of
any state within the geographical scope of such covenants. In
the event that the courts of one or more of such states shall
hold such covenants wholly unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the
parties hereto that such determination not bar or in any way
affect the right of any of the KDTI Companies to the relief
provided above in the courts of any other states within the
geographical scope of such covenants, as to breaches of such
covenants in such other respective states, the above covenants
as they relate to each state being, for this purpose,
severable into diverse and independent
5
<PAGE> 7
covenants. Notwithstanding the foregoing, no action will be
commenced in more than one jurisdiction at a time unless one
or more of the provisions of this Agreement can only be
enforced if an action is brought in another jurisdiction or
jurisdictions.
8. EARLIER TERMINATION.
a. Employee's employment hereunder shall automatically be terminated
upon the death of the Employee or Employee's voluntarily leaving the
employ of the Company and, in addition, may be terminated, at the
sole discretion of the Company, as follows:
i. upon thirty (30) days' prior written notice by the Company, in
the event of the Employee's disability as set forth in Section
8(b) below; or
ii. upon thirty (30) days' prior written notice by the Company, in
the event that the Company terminates the Employee's
employment hereunder for cause as set forth in Section 8(c)
below, and the failure of the Employee to cure the condition
constituting such cause if the same is curable within such
thirty (30) day period after such notice has been given by the
Company.
b. Employee shall be deemed disabled hereunder, if in the opinion of
the Board of Directors of the Company, as confirmed by competent
medical advice in writing, he shall become physically or mentally
unable to perform his duties for the Company hereunder and such
incapacity shall have continued for any period of ninety (90) days
in any consecutive twelve (12) months.
c. For purposes hereof, "cause" shall mean, and be limited to, the
following: (a) Employee's willful malfeasance or gross negligence in
performance of his duties as an employee of the Company; (b) the
material breach of any covenant made by Employee hereunder, under
the terms of the Merger Agreement or under the terms of the Non
Competition Agreement between and among the Employee, the Company
and KDTI; or (c) a dishonest act or omission by Employee which
either (i) results in his personal enrichment at the expense of the
Company, or (ii) results in his conviction of, or plea of nolo
contendere to, a felony or other serious crime, not including a
motor vehicle offense; (d) a breach of Employee's fiduciary duties
to the Company; or (e) a conviction of any federal or state
securities' laws.
d. If the Employee's employment hereunder is terminated for any reason
or no reason, then the Employee shall be entitled to receive the
severance payment set forth below (subject to any withholding or
other payroll tax payable by the Employee and which is required by
law to be withheld by the Company) payable within ten (10) days
after such termination occurs:
6
<PAGE> 8
i. if such termination occurs on or before the first anniversary
of the date hereof, the Company shall pay the Employee the sum
of $218,375.00 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the date hereof and ending on the
date immediately prior to the first anniversary of the date
hereof, and the denominator of which is twelve;
ii. if such termination occurs on or before the second anniversary
of the date hereof, the Company shall pay the Employee the sum
of $163,781.25 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the first anniversary of the date
hereof and ending on the date immediately prior to the second
anniversary of the date hereof, and the denominator of which
is twelve;
iii. if such termination occurs on or before the third anniversary
of the date hereof, the Company shall pay the Employee the sum
of $109,187.50 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the second anniversary of the date
hereof and ending on the date immediately prior to the third
anniversary of the date hereof, and the denominator of which
is twelve;
iv. if such termination occurs on or before the fourth anniversary
of the date hereof, the Company shall pay the Employee the sum
of $54,593.75 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the third anniversary of the date
hereof and ending on the date immediately prior to the fourth
anniversary of the date hereof, and the denominator of which
is twelve;
v. if such termination occurs on or before the fifth anniversary
of the date hereof, the Company shall pay the Employee an
amount equal to the product of $54,593.75 multiplied by a
fraction, the numerator of which is the number of months
(measured by each one month period commencing as of the date
hereof) remaining during the one year period commencing on the
fourth anniversary of the date hereof and ending on the date
immediately prior to the fifth anniversary of the date hereof,
and the denominator of which is twelve.
7
<PAGE> 9
9. ASSIGNMENT.
This Agreement, as it relates to the employment of the Employee, is a
personal contract and the rights and interests of the Employee hereunder may not
be sold, transferred, assigned, pledged or hypothecated, except as otherwise set
forth herein. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, including without limitation, any
corporation or other entity into which the Company is merged or which acquires
all of the outstanding shares of the Company's capital stock, or all or
substantially all of the assets of the Company.
10. RIGHT TO PAYMENTS.
Employee shall not under any circumstances have any option or right to
require payments hereunder otherwise than in accordance with the terms hereof.
To the extent permitted by law, the Employee shall not have any power of
anticipation, alienation or assignment of payments contemplated hereunder, and
all rights and benefits of the Employee shall be for the sole personal benefit
of the Employee, and no other person shall acquire any right, title or interest
hereunder by reason of any sale, assignment, transfer, claim or judgment or
bankruptcy proceedings against the Employee.
11. NOTICES.
Any notice or other communications required or permitted hereunder shall
be in writing and shall be deemed effective (a) upon personal delivery, if
delivered by hand and followed by notice by mail, overnight courier or delivery
service or facsimile transmission; (b) one day after the date of delivery by
Federal Express or other nationally recognized courier service that provides a
delivery receipt, if delivered by priority overnight delivery between any two
points within the United States; or (c) three (3) days after deposit in the
mails, if mailed by certified or registered mail (return receipt requested)
between any two points within the United States, and in each case of mailing,
postage prepaid, addressed as follows: (i) if to Employee, at 21 E. 36th Street,
New York, New York 10016 and (ii) if to the Company, at Twenty-One Penn Plaza,
New York, NY 10001, or at such other address as any such party shall designate
by written notice to the other party.
12. WAIVER.
The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and not in any way affect or render invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried out as if such
invalid or unenforceable provisions were not embodied therein.
8
<PAGE> 10
13. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and there are no representations,
warranties or commitments except as set forth herein. This Agreement supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto relating to the
transactions contemplated by this Agreement; provided, however, that it is the
intention of the parties that this Agreement shall be interpreted and applied in
conjunction with the terms of any option, warrant or other right now in
existence or hereinafter granted to the Employee to acquire shares of capital
stock of the Company. In the event of any conflict, however, the terms of this
Agreement shall govern and prevail. This Agreement may be amended only in
writing executed by the parties hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
ADVANCED DIGITAL SERVICES, INC., a New York corporation,
formerly known as KATZ DIGITAL ACQUISITION INC.
By: /s/ Donald L. Flamm
----------------------------
Name: Donald L. Flamm
Title: Vice President
EMPLOYEE:
/s/ David Katz
-------------------------------
DAVID KATZ
By its execution below, Katz Digital Technologies, Inc. hereby guarantees
payment by the Company when due of all salary and other payments due to Employee
under the foregoing Employment Agreement.
KATZ DIGITAL TECHNOLOGIES, INC.
By: /s/ Donald L. Flamm
----------------------------
Name: Donald L. Flamm
Title: Vice President & Chief Financial Officer
Date: July 31, 1997
9
<PAGE> 11
EXHIBIT A
TO EMPLOYMENT AGREEMENT
1998 KATZ DIGITAL TECHNOLOGIES, INC.
TARGET BONUS PLAN
Bonus compensation to the Employee under the proposed 1998 Katz Digital
Technologies, Inc., a Delaware corporation ("KDTI") Executive Bonus Plan (the
"Bonus Plan") will be based upon Earnings Before Tax of KDTI ("EBT") as set
forth below.
1. Definitions:
a. "Compensation Base" means $200,000.00.
b. "Bonus Payment" payable with respect to a Target Year
means the result obtained by multiplying the Bonus
Percentage by the Compensation Base.
c. "Bonus Percentage" means the following:
i. if the EBT Percentage Increase is less than 15%,
the Bonus Percentage equals zero (0);
ii. if the EBT Percentage Increase is 15% or more but less than
30%, the Bonus Percentage equals a percentage between 17.5%
and 29.99%, prorated according to the amount by which the EBT
Percentage Increase is between 15% and 30%;
iii. if the EBT Percentage Increase is 30% or more but less than
45%, the Bonus Percentage equals a percentage between 30% and
34.99%, prorated according to the amount by which the EBT
Percentage Increase is between 30% and 45%;
iv. if the EBT Percentage Increase is 45% or more but less 60%,
the Bonus Percentage equals a percentage between 35% and
44.99% prorated according to the amount by which the EBT
Percentage Increase is between 45% and 60%;
v. if the EBT Percentage Increase is 60% or more, the Bonus
Percentage equals 45%.
d. "Calculation Year" means the fiscal year of KDTI
immediately preceding a Target Year.
e. "Calculation Year EBT" means the EBT for the Calculation
Year.
<PAGE> 12
f. "Cause" has the same meaning as is provided in the Employee's
Employment Agreement.
g. "EBT" means Earnings Before Provision for Income Taxes of KDTI as of
the end of the relevant fiscal year on a consolidated basis, as
stated in the financial statements audited by and reported on by the
firm of certified public accountants (the "Accountants") retained by
KDTI (the "Audited Financial Statements").
h. "EBT Percentage Increase" means the percentage obtained by a
fraction
(A) the numerator of which is the amount, greater than zero,
equal to the result obtained by subtracting the Calculation
Year EBT from the Target Year EBT, and
(B) the denominator of which is the Calculation Year EBT.
i. "Payment Date" with respect to a Bonus Payment means the date which
is thirty (30) days after delivery by the Accountants of the Audited
Financial Statements for the Target Year for which the Bonus Payment
is payable.
j. "Target Year" means the fiscal year of KDTI ended December 31, 1998,
and each fiscal year thereafter during the period in which the
Employee's employment under his Employment Agreement continues.
k. "Target Year EBT" means the EBT for the Target Year.
2. Eligibility:
In order for an Employee to be eligible to receive a Bonus Payment under the
Plan with respect to a Target Year the following conditions must be satisfied:
(A) the Employee must be employed by KDTI under his Employment Agreement
as of the Payment Date for the Bonus Payment, or
(B) if the Employee is not so employed as of such Payment Date, his
employment was terminated by KDTI without cause after the end of such
Target Year.
Payment:
The Bonus Payment with respect to each Target Year shall be determined by the
Accountants and will be paid not later than the Payment Date.
2
<PAGE> 13
EXHIBIT B
STOCK OPTION AGREEMENT
This Agreement, dated as of July 31, 1997, is made between KATZ DIGITAL
TECHNOLOGIES, INC., a Delaware corporation, having its principal offices at
Twenty-One Penn Plaza, New York, New York 10001 (the "Company"), and
_______________, having an address at Twenty-One Penn Plaza, New York, New York
10001 (the "Optionee").
W I T N E S S E T H :
1. Grant of Option. The Company hereby grants to the Optionee, subject to the
terms and conditions herein set forth in Schedule 1 annexed hereto (the
"SCHEDULE"), the right and option (the "Option") to purchase from the Company,
all or any part of an aggregate of One Hundred and Twenty Thousand (120,000)
shares of Common Stock, par value $.001 per share, of the Company (the "OPTION
SHARES") at the purchase price of $2.7688 per share, such Option to be
exercisable as hereinafter provided.
2. Terms and Conditions. This Option, and the exercise of this Option, is
subject to the terms and conditions set forth herein.
3. Certain Definitions. The following terms in this Agreement shall have the
meanings set forth below:
i. "Accountants" shall mean the independent public accountants
then regularly retained by KDTI.
ii. "ADSI" means Advanced Digital Services, Inc., a New York
corporation, which is the survivor of the merger of Advanced
Digital Services, Inc., a New York corporation into Katz
Digital Acquisition Inc., a New York corporation, which
thereafter changed its name to Advanced Digital Services, Inc.
iii. "ADSI Net Revenues" during an Annual Period means (i) one
hundred percent (100%) of Net Sales of the KDTI Companies
generated and contracted for solely by David, Gary or another
ADSI employee, and (ii) fifty percent (50%) of Net Sales of
the KDTI Companies generated and contracted for by David, Gary
or another ADSI employee in conjunction with KDTI employees.
iv. "Affiliate" means any corporation, partnership, company, firm,
entity or proprietorship which controls or is controlled by or
under common control with the Company, and includes ADSI.
<PAGE> 14
v. "Annual Period" means each full twelve (12) calendar month
period commencing on August 1, 1997, and thereafter through
and until July 31, 2000.
vi. "Bad Debt Adjustment" means, with respect to the first Annual
Period, fifty (50%) percent of the amount of gross revenues
generated during the period commencing on August 1, 1997 and
ending on January 31, 1998 that are not collected on or prior
to July 31, 1998; with respect to the second Annual Period,
fifty (50%) percent of the amount of gross revenues generated
during the period commencing on February 1, 1998 and ending on
January 31, 1999 that are not collected on or prior to July
31, 1999; and with respect to the third Annual Period, fifty
(50%) percent of the amount of gross revenues generated during
the period commencing on February 1, 1999 and ending on
January 31, 2000 that are not collected on or prior to July
31, 2000.
vii. "Determination Procedure" means the following procedure by
which ADSI Net Revenues will be determined: The Accountants
shall determine ADSI Net Revenues in accordance with GAAP and
this Agreement, and such determination by the Accountants
shall be subject to review by the Optionee's Accountants. Any
disputes will be resolved by the Determining Accountant in the
manner set forth herein. In the event that the Optionee does
not agree with the Accountant's determination of ADSI Net
Revenues, the Optionee shall give written notice to the
Company within thirty (30) days after receipt of the
Accountants' determination of the ADSI Net Revenues that
Optionee contends that ADSI Net Revenues have not been
calculated in accordance with GAAP. Such notice shall provide
specific reasons for the disagreement. In such event, the
Company and the Optionee shall each comply with the further
provisions of this Paragraph. If no such written notice is
received, then the Accountants' determination of ADSI Net
Revenues shall be deemed to be accepted. If such notice is
given, then the Company and the Optionee shall try to resolve
the disagreement. If no agreement is reached between them
within ten (10) business days after the date on which the
Optionee gave its notice of disagreement, then the Determining
Accountant shall be appointed with instructions to resolve the
disagreement and provide a report of its determination of ADSI
Net Revenues within thirty (30) business days of its
appointment. Such decision of the Determining Accountant shall
be binding upon the Optionee and the Company. If the
Determining Accountant determines that the ADSI Net Revenues
equal or exceed, or are not less than ninety seven and
one-half percent (97.5%) of, the ADSI Net Revenues initially
determined by the Accountants, the
2
<PAGE> 15
Optionee shall pay the cost of the Determining Accountant;
otherwise, the Company shall pay the cost of the Determining
Accountant.
viii. "Determining Accountant" means an accountant selected by the
Accountants and the Optionee's Accountants, or in the event of
such two accountants' inability to select a determining
accountant, a Determining Accountant shall be selected by a
Judge of the Supreme Court of the State of New York, County of
New York, upon petition by either the Optionee or the Company.
ix. "GAAP" means generally accepted accounting principles,
consistently applied.
x. "KDTI Companies" means the Company, ADSI and any other
Affiliate of the Company.
xi. "Net Sales" means gross revenues, less returns, discounts,
allowances and the Bad Debt Adjustment.
xii. "Optionee's Accountant" means a firm of independent certified
public accountants retained by the Optionee.
4. Exercisability of Option. This Option be exercisable by the Optionee only
during the thirty (30) day period commencing July 1, 2007 and ending July 30,
2007, but the right to exercise the Option shall be accelerated as follows:
i. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the first
Annual Period equal or exceed $2,600,000.00;
ii. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the second
Annual Period equal or exceed $3,000,000.00; and
iii. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the third
Annual Period equal or exceed $3,500,000.00.
To the extent that the right to exercise the Options is accelerated pursuant to
the foregoing, such Options shall be exercisable by the Optionee at any time
during the period the Optionee continues to be employed by the Company or a
subsidiary corporation of the Company.
3
<PAGE> 16
5. Expiration of Option. This Option shall not be exercisable after 5:00 p.m.
E.S.T. on July 31, 2007.
6. Non-Assignability of Option. This Option shall not be given, granted, sold,
exchanged, transferred, pledged, assigned or otherwise encumbered or disposed of
by the Optionee, otherwise than by Will or the laws of descent and distribution,
and, during the lifetime or existence of the Optionee, shall not be exercisable
by any other person, but only by the Optionee.
7. Method of Exercise of Option. The Optionee shall notify the Company by
written notice sent by registered or certified mail, return receipt requested,
addressed to its principal office, or by hand delivery to such office, properly
receipted, as to the number of Option Shares the Optionee desires to purchase
under this Agreement, which written notice shall be accompanied by the
Optionee's check payable to the order of the Company for the full option price
of such shares of Stock. As soon as practicable after the receipt of such
written notice the Company shall, at its principal office, tender to the
Optionee a certificate or certificates issued in the Optionee's name evidencing
the Option Shares purchased by the Optionee hereunder. Any Option granted under
this Agreement shall be exercisable in whole or in part commencing on the date
such exercise is permitted under the terms of this Agreement prior to
expiration.
8. Investment Representation. The Optionee represents that at the time of any
exercise of this Option, unless the Option Shares are registered under the
Securities Act of 1933, as amended, that such Option Shares will be acquired for
investment and not for resale or with a view to the distribution thereof. Unless
prior to the exercise of the Option the shares issuable upon such exercise have
been registered with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act") (i) the notice of
exercise shall be accompanied by a representation or agreement of the individual
exercising the Option to the Company to the effect that such shares are being
acquired for investment and not with a view to the resale or distribution
thereof or such other documentation as may be required by the Company unless in
the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with the Securities Act, and (ii) upon
exercise of this Option and the issuance of any of the Option Shares thereunder,
all certificates representing Option Shares shall bear on the face thereof
substantially the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN EXEMPTION FROM
REGISTRATION AND AN OPINION OF COUNSEL TO KATZ DIGITAL TECHNOLOGIES, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
4
<PAGE> 17
9. Adjustments upon Changes in Capitalization.
a. In the event that the outstanding Common Stock of the Company is
hereafter changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares,
stock dividends or the like, an appropriate adjustment shall be made in
the number of Option Shares and option price per share subject to this
Option. If the Company shall be acquired, reorganized, consolidated or
merged with another corporation, or if all of or substantially all of the
assets of the Company shall be sold or exchanged, the Optionee shall be
entitled to receive upon the exercise of this Option the same number and
kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the happening of
such event as if the Optionee had been, immediately prior to such event,
the holder of the number of shares covered by this Agreement.
b. Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the Option granted under this Agreement.
If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
10. Definitions. For purposes of the Agreement, the terms "parent corporation"
and "subsidiary corporation" shall have the same meanings a set forth in
Sections 425(e) and 425(f) of the Code, respectively, and the masculine shall
include the feminine and the neuter as the context requires.
11. Death or Termination of Employment or Services. If the employment or
services of the Optionee by the Company or a subsidiary corporation of the
Company shall terminate for any reason, whether by termination or expiration of
any employment agreement between the Optionee and the Company, or voluntarily by
the Optionee, then this Option shall expire forthwith (the date on which such
termination of the Optionee's employment or services occurs is referred to as
the "Employment Termination Date"). Notwithstanding the foregoing, if such
employment or services shall be terminated without cause by the Company or any
subsidiary corporation of the Company, or by reason of death or disability of
the Optionee, then this Option shall not expire upon the Employment Termination
Date, but shall be exercisable until the date which is three (3) months after
the Employment Termination Date, and then only to purchase those number of
Option Shares that the Optionee was entitled to purchase upon exercise of this
Option prior to the Employment Termination Date, and this Option may not be
exercised at any time after the date which is three (3) months after the
Employment Termination Date; in the event of death of the Employee, the Option
may be exercised in accordance with the foregoing by the estate of the employee
or by a person who acquired the right to exercise such Options by bequest or
inheritance or by reason of the death of such employee. Provided, however, that
nothing in this Section 11 shall give any person the right to purchase Option
Shares which could not be purchased by the Optionee prior to the termination of
the Optionee's employment with the Company or
5
<PAGE> 18
such subsidiary. The word "cause" is used with the meaning ascribed thereto in
the Employment Agreement dated the date hereof between the Company's subsidiary,
ADSI, as Employer, and the Optionee as Employee.
12. Use of Proceeds. The proceeds from the sale of shares pursuant to Options
granted under this Agreement shall constitute general funds of the Company.
13. No Rights as Stockholder. The Optionee shall have no rights as a stockholder
in respect to the Option Shares as to which this Option shall not have been
exercised and payment made as herein provided.
14. Not a Contract of Employment. Nothing contained in this Agreement shall be
deemed to confer upon the Optionee any right to remain in the employ or service
of the Company or a subsidiary corporation of the Company.
15. Binding Effect. Except as herein otherwise expressly provided, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their legal representatives, successors and assigns.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the New York.
17. Notices. Any notice hereunder shall be delivered by hand or by registered or
certified mail, return receipt requested, to a party at its address set forth
above, subject to the right of either party to designate at any time hereafter,
in writing, some other address.
18. Counterparts. This Agreement may be exercised in counterparts, each of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Company and the Optionee has caused this
Agreement to be executed by an appropriate officer, both as of the day and year
first written.
KATZ DIGITAL TECHNOLOGIES, INC.
By:________________________________
Name: Donald L. Flamm
Title: Vice President, Chief Financial Officer
OPTIONEE:
_____________________________
6
<PAGE> 1
Exhibit 2.3
<PAGE> 2
EMPLOYMENT AGREEMENT dated July 31, 1997 by
and between ADVANCED DIGITAL SERVICES, INC.,
a New York corporation, formerly known as
Katz Digital Acquisition Inc. (the
"Company"), and GARY RITKES (the
"Employee").
The parties hereto desire to provide for the Employee's employment by the
Company in accordance with the terms and provisions set forth below:
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
The Company agrees to employ the Employee, and the Employee agrees to work
for the Company as its Vice President - Sales and Marketing for a period of five
(5) years commencing on the date hereof unless sooner terminated in accordance
with Section 8 hereof. Such period, together with the period of any extension or
renewal of such employment, is referred to herein as the "Employment Period."
2. DUTIES.
During the Employment Period: (i) the Employee shall serve as the Vice
President - Sales and Marketing of the Company and perform such duties for the
Company or an Affiliate (as hereinafter defined) as shall, from time to time, be
reasonably assigned to the Employee by the President or the Board of Directors
of the Company consistent with his position and abilities; and (ii) the Employee
shall also serve as Vice President - Sales and Marketing of Katz Digital
Technologies, Inc., a Delaware corporation ("KDTI").
3. DEVOTION OF TIME.
During the Employment Period, the Employee shall: (i) expend substantially
all of his working time for the Company; (ii) devote his best efforts, energy
and skill to the services of the Company and the promotion of its interests; and
(iii) not, directly or indirectly, engage, participate or invest in, or render
any services for, any other business enterprise or activity engaged in a
business competitive to the business of the Company; provided, however, that,
the foregoing notwithstanding, the Employee may invest in or own securities of
any corporation or other entity provided that such securities are listed on a
registered securities exchange or actively traded in the over-the-counter market
and the number or amount or such securities represents not more than 1% of the
total number or amount of such securities then outstanding.
<PAGE> 3
4. COMPENSATION.
a. In consideration for the services to be performed by the Employee
during the Employment Period hereunder, the Company shall compensate
the Employee at an annual base salary from the date hereof at the
annual rate of $255,209.75 per annum (the "Base Salary"), payable in
accordance with the Company's customary payroll practices.
Commencing with the second anniversary of the date of this
Agreement, the Base Salary shall be increased at the rate of four
percent (4%) per annum, or such higher increases as may be approved
by the Board of Directors of the Company and its parent corporation
KDTI in their discretion.
b. In addition, the Employee shall be entitled to receive the Bonus
Payments provided for in the 1998 Katz Digital Technologies, Inc.
Target Bonus Plan, a copy of which is annexed hereto as Exhibit A,
and the terms of which are incorporated herein by reference.
c. Upon execution of this Agreement, the Employee is receiving an
option to purchase 120,000 shares of common stock of the Company's
parent corporation KDTI upon the terms and conditions contained in
the Stock Option Agreement attached hereto as Exhibit B.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES; ADDITIONAL
BENEFITS.
a. Employee shall be reimbursed for expenses incurred by him in
connection with the ownership or lease of an automobile of the make
and type approved by the Company, which expenses shall not exceed
$650 per month.
b. The Company shall pay directly, or reimburse the Employee for, all
other reasonable and necessary business expenses and disbursements
incurred by him for and on behalf of the Company in the performance
of his duties under this Agreement, including reimbursement for car
expenses, such as gas, insurance, one parking space and a cellular
phone used for Company business. For such purposes, the Employee
shall submit to the Company itemized reports of such expenses in
accordance with the Company's policies.
c. Employee shall be entitled to paid vacations during the Employment
Period in accordance with the Company's then prevalent practices for
executive employees.
d. Employee shall be entitled to participate in, and to receive
benefits under, any employee benefit plans of the Company
(including, without limitation, pension, profit sharing, group life
insurance and group medical insurance plans) as may exist from time
to time for its executive employees.
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<PAGE> 4
6. EMPLOYEE KNOWLEDGE.
a. Employee hereby agrees to communicate and make known to the Company
all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable, which relate to the business of the
Company; whether acquired by him before or during the Employment
Period; provided, however, that nothing herein shall be construed as
requiring any such communication where the method, development,
invention and/or improvement is lawfully protected from disclosure
as the trade secret of a third party or by any other lawful bar to
such communications existing prior to the commencement of employment
hereunder.
b. Employee hereby agrees to keep all such records in connection with
the Employee's employment as the Company may from time to time
reasonably direct, and all such records shall be the sole and
exclusive property of the Company.
c. It is expressly agreed between the Employee and the Company that any
invention the Employee developed entirely on his own time without
using the Company's equipment, supplies, facilities or trade secret
information belong to the Employee except for those inventions that
either: (a) relate at the time of conception or reduction to
practice of the invention to the Company's business or actual or
demonstrably anticipated research or development of the Company; or
(b) result from any work performed by the Employee for the Company.
7. CONFIDENTIALITY.
a. ACKNOWLEDGEMENTS BY EMPLOYEE. The Employee acknowledges that his
position with the Company will require the performance of services
which are special, unique, extraordinary and of an intellectual
character and places and will continue to place him in a position of
confidence and trust with the Customers of the Company. The Employee
further acknowledges that his performance of services for the
Company necessarily requires the disclosure to the Employee of
confidential information and trade secrets of the Company. The
Employee also acknowledges that he has developed prior to the date
hereof, as an employee and stockholder of Advanced Digital Services,
Inc., a New York corporation ("ADSI-NY") which merged with and into
the Company pursuant to a Plan and Agreement of Merger dated July
31, 1997 among ADSI-NY, KDTI, the Company, under its former name
Katz Digital Acquisition Inc., and the shareholders of ADSI-NY (the
"Merger Agreement") concurrently with the execution and delivery of
this Agreement, a personal acquaintance and relationship with
Customers of ADSI-NY and that he will continue to develop such
relationships with such Customers as an employee of the Company. The
Employee also acknowledges that in the course of his employment by
the Company he will develop a personal acquaintanceship and
relationship with other
3
<PAGE> 5
Customers of KDTI and its Affiliates. The Employee further
acknowledges that he has and will acquire a knowledge of such
Customers' affairs and requirements which may constitute a primary
contact of the Company or KDTI and its Affiliates with such
Customers, and that therefore, the Company's and KDTI's and its
other Affiliates relationships with its Customers may be placed in
the Employee's hands in confidence and trust. The Employee therefore
agrees that it is reasonable and necessary for the protection of the
goodwill and business of the Company that the Employee make the
covenants contained herein.
b. DEFINITIONS Capitalized terms used in this Section 7 shall, unless
the context otherwise requires, have the meanings specified below.
i. The term "Customer" means (i) anyone who is a customer of any
of the KDTI Companies at the time of the alleged prohibited
conduct or at any time during the two (2) year period
immediately preceding the alleged prohibited conduct; (ii) any
customer of Advanced Digital Solutions, Inc., a New York
corporation, or David Katz Studio, Inc., a New York
corporation; or (iii) any prospective customers to whom any of
the KDTI Companies makes a presentation (or similar offering
of services) within a period of 360 days immediately preceding
the alleged prohibited conduct or, if the alleged prohibited
conduct occurs after the termination of the Employment Period,
within a period of 360 days immediately preceding such
termination.
ii. The term "Affiliate" means any corporation, partnership,
company, firm, entity or proprietorship which, directly or
indirectly, controls or is controlled by or under common
control with KDTI, and includes the Company.
iii. The term "KDTI Companies" means KDTI, the Company and any
other Affiliate.
c. CONFIDENTIAL INFORMATION. The Employee shall keep secret and retain
in strictest confidence, and shall not use for the benefit of
itself, himself or others, except in connection with the business
and affairs of the KDTI Companies, all confidential matters relating
to the business of the KDTI Companies, including, but not limited
to, "know-how," trade secrets, customer lists, subscription lists,
pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, information
pertaining to Customers and their requirements, business acquisition
plans, new personnel acquisition plans, formulae, methods of
manufacture, technical processes, designs and design projects,
inventions and research projects and other business affairs relating
to the business and affairs of the KDTI Companies, learned by the
Employee at any time and shall never disclose such matters to anyone
outside of the KDTI Companies, except (i) as required in the course
of performing duties for the KDTI Companies, (ii) with KDTI's
express written consent; or (iii) with respect to such information
which is generally known to the public or becomes known to the
public though no fault of the Employee or
4
<PAGE> 6
which is generally known to businesses engaged in the type of
business in which any of the KDTI Companies is engaged.
d. ENFORCEMENT THROUGH INJUNCTION. Employee acknowledges that the type
and periods of restriction imposed in this Section 7 are fair and
reasonable and are reasonably required for the protection of the
KDTI Companies. The Employee acknowledge that a breach of the
provisions of this Agreement would irreparably damage the KDTI
Companies, and that once such a breach has occurred, there may be no
accurate way of determining the amount of damage or loss suffered by
the KDTI Companies. The Employee therefore agrees that the terms of
this Agreement may be enforced through preliminary or final
injunctive relief or other equitable remedy, without any of the KDTI
Companies having to (i) prove irreparable injury or likelihood of
success, (ii) prevail on the balancing of the equities test or other
legal criteria, or (iii) post a bond, and without limiting any other
damages or remedies to which any of the KDTI Companies may be
entitled, including termination of any salary or other payments
required under this Agreement other than the payments provided by
Section 8 (d).
e. BLUE LINING. If any of the provisions of this Agreement relating to
time, geographical area, services products, devices and/or
information are deemed by a court of competent jurisdiction to be
overly broad or for any other reason unenforceable, the parties
agree that such restrictions herein as to time, geographical area,
services, products, devices and/or information shall be reduced to
such time, geographical area, services, products, devices and/or
information as such court shall hold to be reasonable and legally
enforceable. In addition, if any court determines that any of the
restrictive covenants contained in this Agreement or any part
thereof, is invalid or unenforceable, the remainder of the
restrictive covenants shall not thereby be affected and shall be
given full effect without regard to the invalid portions.
i. The Employee acknowledges that the business of the KDTI
Companies extends beyond the geographic area of the State of
New York and accordingly, it is reasonable that the
restrictive covenants set forth below are not limited by
specific geographic area but by the location of the Customers.
The Employee further acknowledges that the Company and the
Employee intend to and hereby confer jurisdiction to enforce
the covenants contained in this Agreement upon the courts of
any state within the geographical scope of such covenants. In
the event that the courts of one or more of such states shall
hold such covenants wholly unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the
parties hereto that such determination not bar or in any way
affect the right of any of the KDTI Companies to the relief
provided above in the courts of any other states within the
geographical scope of such covenants, as to breaches of such
covenants in such other respective states, the above covenants
as they relate to each state being, for this purpose,
severable into diverse and independent
5
<PAGE> 7
covenants. Notwithstanding the foregoing, no action will be
commenced in more than one jurisdiction at a time unless one
or more of the provisions of this Agreement can only be
enforced if an action is brought in another jurisdiction or
jurisdictions.
8. EARLIER TERMINATION.
a. Employee's employment hereunder shall automatically be terminated
upon the death of the Employee or Employee's voluntarily leaving the
employ of the Company and, in addition, may be terminated, at the
sole discretion of the Company, as follows:
i. upon thirty (30) days' prior written notice by the Company, in
the event of the Employee's disability as set forth in Section
8(b) below; or
ii. upon thirty (30) days' prior written notice by the Company, in
the event that the Company terminates the Employee's
employment hereunder for cause as set forth in Section 8(c)
below, and the failure of the Employee to cure the condition
constituting such cause if the same is curable within such
thirty (30) day period after such notice has been given by the
Company.
b. Employee shall be deemed disabled hereunder, if in the opinion of
the Board of Directors of the Company, as confirmed by competent
medical advice in writing, he shall become physically or mentally
unable to perform his duties for the Company hereunder and such
incapacity shall have continued for any period of ninety (90) days
in any consecutive twelve (12) months.
c. For purposes hereof, "cause" shall mean, and be limited to, the
following: (a) Employee's willful malfeasance or gross negligence in
performance of his duties as an employee of the Company; (b) the
material breach of any covenant made by Employee hereunder, under
the terms of the Merger Agreement or under the terms of the Non
Competition Agreement between and among the Employee, the Company
and KDTI; or (c) a dishonest act or omission by Employee which
either (i) results in his personal enrichment at the expense of the
Company, or (ii) results in his conviction of, or plea of nolo
contendere to, a felony or other serious crime, not including a
motor vehicle offense; (d) a breach of Employee's fiduciary duties
to the Company; or (e) a conviction of any federal or state
securities' laws.
d. If the Employee's employment hereunder is terminated for any reason
or no reason, then the Employee shall be entitled to receive the
severance payment set forth below (subject to any withholding or
other payroll tax payable by the Employee and which is required by
law to be withheld by the Company) payable within ten (10) days
after such termination occurs:
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<PAGE> 8
i. if such termination occurs on or before the first anniversary
of the date hereof, the Company shall pay the Employee the sum
of $218,375.00 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the date hereof and ending on the
date immediately prior to the first anniversary of the date
hereof, and the denominator of which is twelve;
ii. if such termination occurs on or before the second anniversary
of the date hereof, the Company shall pay the Employee the sum
of $163,781.25 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the first anniversary of the date
hereof and ending on the date immediately prior to the second
anniversary of the date hereof, and the denominator of which
is twelve;
iii. if such termination occurs on or before the third anniversary
of the date hereof, the Company shall pay the Employee the sum
of $109,187.50 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the second anniversary of the date
hereof and ending on the date immediately prior to the third
anniversary of the date hereof, and the denominator of which
is twelve;
iv. if such termination occurs on or before the fourth anniversary
of the date hereof, the Company shall pay the Employee the sum
of $54,593.75 plus an amount equal to the product of
$54,593.75 multiplied by a fraction, the numerator of which is
the number of months (measured by each one month period
commencing as of the date hereof) remaining during the one
year period commencing on the third anniversary of the date
hereof and ending on the date immediately prior to the fourth
anniversary of the date hereof, and the denominator of which
is twelve;
v. if such termination occurs on or before the fifth anniversary
of the date hereof, the Company shall pay the Employee an
amount equal to the product of $54,593.75 multiplied by a
fraction, the numerator of which is the number of months
(measured by each one month period commencing as of the date
hereof) remaining during the one year period commencing on the
fourth anniversary of the date hereof and ending on the date
immediately prior to the fifth anniversary of the date hereof,
and the denominator of which is twelve.
7
<PAGE> 9
9. ASSIGNMENT.
This Agreement, as it relates to the employment of the Employee, is a
personal contract and the rights and interests of the Employee hereunder may not
be sold, transferred, assigned, pledged or hypothecated, except as otherwise set
forth herein. This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, including without limitation, any
corporation or other entity into which the Company is merged or which acquires
all of the outstanding shares of the Company's capital stock, or all or
substantially all of the assets of the Company.
10. RIGHT TO PAYMENTS.
Employee shall not under any circumstances have any option or right to
require payments hereunder otherwise than in accordance with the terms hereof.
To the extent permitted by law, the Employee shall not have any power of
anticipation, alienation or assignment of payments contemplated hereunder, and
all rights and benefits of the Employee shall be for the sole personal benefit
of the Employee, and no other person shall acquire any right, title or interest
hereunder by reason of any sale, assignment, transfer, claim or judgment or
bankruptcy proceedings against the Employee.
11. NOTICES.
Any notice or other communications required or permitted hereunder shall
be in writing and shall be deemed effective (a) upon personal delivery, if
delivered by hand and followed by notice by mail, overnight courier or delivery
service or facsimile transmission; (b) one day after the date of delivery by
Federal Express or other nationally recognized courier service that provides a
delivery receipt, if delivered by priority overnight delivery between any two
points within the United States; or (c) three (3) days after deposit in the
mails, if mailed by certified or registered mail (return receipt requested)
between any two points within the United States, and in each case of mailing,
postage prepaid, addressed as follows: (i) if to Employee, at 198 Bergen Avenue,
Bergenfield, New Jersey 07621 and (ii) if to the Company, at Twenty-One Penn
Plaza, New York, NY 10001, or at such other address as any such party shall
designate by written notice to the other party.
12. WAIVER.
The waiver by either party of a breach of any provision of this Agreement
shall not operate or be construed as a Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and not in any way affect or render invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried out as if such
invalid or unenforceable provisions were not embodied therein.
8
<PAGE> 10
13. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and there are no representations,
warranties or commitments except as set forth herein. This Agreement supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto relating to the
transactions contemplated by this Agreement; provided, however, that it is the
intention of the parties that this Agreement shall be interpreted and applied in
conjunction with the terms of any option, warrant or other right now in
existence or hereinafter granted to the Employee to acquire shares of capital
stock of the Company. In the event of any conflict, however, the terms of this
Agreement shall govern and prevail. This Agreement may be amended only in
writing executed by the parties hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
ADVANCED DIGITAL SERVICES, INC., a New York corporation,
formerly known as KATZ DIGITAL ACQUISITION INC.
By: /s/ Donald L. Flamm
-------------------------------------------------
Name: DONALD L. FLAMM
Title: VICE PRESIDENT
EMPLOYEE:
/s/ Gary Ritkes
----------------------------------------------
GARY RITKES
By its execution below, Katz Digital Technologies, Inc. hereby guarantees
payment by the Company when due of all salary and other payments due to Employee
under the foregoing Employment Agreement.
KATZ DIGITAL TECHNOLOGIES, INC.
By: /s/ Donald L. Flamm
-------------------------------------------------
Name: DONALD L. FLAMM
Title: VICE PRESIDENT & CHIEF FINANCIAL OFFICER
Date: July 31, 1997
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<PAGE> 11
EXHIBIT A
TO EMPLOYMENT AGREEMENT
1998 KATZ DIGITAL TECHNOLOGIES, INC.
TARGET BONUS PLAN
Bonus compensation to the Employee under the proposed 1998 Katz Digital
Technologies, Inc., a Delaware corporation ("KDTI") Executive Bonus Plan (the
"Bonus Plan") will be based upon Earnings Before Tax of KDTI ("EBT") as set
forth below.
1. Definitions:
a. "Compensation Base" means $200,000.00.
b. "Bonus Payment" payable with respect to a Target Year
means the result obtained by multiplying the Bonus
Percentage by the Compensation Base.
c. "Bonus Percentage" means the following:
i. if the EBT Percentage Increase is less than 15%,
the Bonus Percentage equals zero (0);
ii. if the EBT Percentage Increase is 15% or more but less than
30%, the Bonus Percentage equals a percentage between 17.5%
and 29.99%, prorated according to the amount by which the EBT
Percentage Increase is between 15% and 30%;
iii. if the EBT Percentage Increase is 30% or more but less than
45%, the Bonus Percentage equals a percentage between 30% and
34.99%, prorated according to the amount by which the EBT
Percentage Increase is between 30% and 45%;
iv. if the EBT Percentage Increase is 45% or more but less 60%,
the Bonus Percentage equals a percentage between 35% and
44.99% prorated according to the amount by which the EBT
Percentage Increase is between 45% and 60%;
v. if the EBT Percentage Increase is 60% or more, the Bonus
Percentage equals 45%.
d. "Calculation Year" means the fiscal year of KDTI
immediately preceding a Target Year.
e. "Calculation Year EBT" means the EBT for the Calculation
Year.
<PAGE> 12
f. "Cause" has the same meaning as is provided in the Employee's
Employment Agreement.
g. "EBT" means Earnings Before Provision for Income Taxes of KDTI as of
the end of the relevant fiscal year on a consolidated basis, as
stated in the financial statements audited by and reported on by the
firm of certified public accountants (the "Accountants") retained by
KDTI (the "Audited Financial Statements").
h. "EBT Percentage Increase" means the percentage obtained by a
fraction
(A) the numerator of which is the amount, greater than zero,
equal to the result obtained by subtracting the Calculation
Year EBT from the Target Year EBT, and
(B) the denominator of which is the Calculation Year EBT.
i. "Payment Date" with respect to a Bonus Payment means the date which
is thirty (30) days after delivery by the Accountants of the Audited
Financial Statements for the Target Year for which the Bonus Payment
is payable.
j. "Target Year" means the fiscal year of KDTI ended December 31, 1998,
and each fiscal year thereafter during the period in which the
Employee's employment under his Employment Agreement continues.
k. "Target Year EBT" means the EBT for the Target Year.
2. Eligibility:
In order for an Employee to be eligible to receive a Bonus Payment under the
Plan with respect to a Target Year the following conditions must be satisfied:
(A) the Employee must be employed by KDTI under his Employment Agreement
as of the Payment Date for the Bonus Payment, or
(B) if the Employee is not so employed as of such Payment Date, his
employment was terminated by KDTI without cause after the end of such
Target Year.
Payment:
The Bonus Payment with respect to each Target Year shall be determined by the
Accountants and will be paid not later than the Payment Date.
2
<PAGE> 13
EXHIBIT B
STOCK OPTION AGREEMENT
This Agreement, dated as of July 31, 1997, is made between KATZ DIGITAL
TECHNOLOGIES, INC., a Delaware corporation, having its principal offices at
Twenty-One Penn Plaza, New York, New York 10001 (the "Company"), and
_______________, having an address at Twenty-One Penn Plaza, New York, New York
10001 (the
"Optionee").
W I T N E S S E T H :
1. Grant of Option. The Company hereby grants to the Optionee, subject to the
terms and conditions herein set forth in Schedule 1 annexed hereto (the
"SCHEDULE"), the right and option (the "Option") to purchase from the Company,
all or any part of an aggregate of One Hundred and Twenty Thousand (120,000)
shares of Common Stock, par value $.001 per share, of the Company (the "OPTION
SHARES") at the purchase price of $2.7688 per share, such Option to be
exercisable as hereinafter provided.
2. Terms and Conditions. This Option, and the exercise of this Option, is
subject to the terms and conditions set forth herein.
3. Certain Definitions. The following terms in this Agreement shall have the
meanings set forth below:
i. "Accountants" shall mean the independent public accountants
then regularly retained by KDTI.
ii. "ADSI" means Advanced Digital Services, Inc., a New York
corporation, which is the survivor of the merger of Advanced
Digital Services, Inc., a New York corporation into Katz
Digital Acquisition Inc., a New York corporation, which
thereafter changed its name to Advanced Digital Services, Inc.
iii. "ADSI Net Revenues" during an Annual Period means (i) one
hundred percent (100%) of Net Sales of the KDTI Companies
generated and contracted for solely by David, Gary or another
ADSI employee, and (ii) fifty percent (50%) of Net Sales of
the KDTI Companies generated and contracted for by David, Gary
or another ADSI employee in conjunction with KDTI employees.
iv. "Affiliate" means any corporation, partnership, company, firm,
entity or proprietorship which controls or is controlled by or
under common control with the Company, and includes ADSI.
<PAGE> 14
v. "Annual Period" means each full twelve (12) calendar month
period commencing on August 1, 1997, and thereafter through
and until July 31, 2000.
vi. "Bad Debt Adjustment" means, with respect to the first Annual
Period, fifty (50%) percent of the amount of gross revenues
generated during the period commencing on August 1, 1997 and
ending on January 31, 1998 that are not collected on or prior
to July 31, 1998; with respect to the second Annual Period,
fifty (50%) percent of the amount of gross revenues generated
during the period commencing on February 1, 1998 and ending on
January 31, 1999 that are not collected on or prior to July
31, 1999; and with respect to the third Annual Period, fifty
(50%) percent of the amount of gross revenues generated during
the period commencing on February 1, 1999 and ending on
January 31, 2000 that are not collected on or prior to July
31, 2000.
vii. "Determination Procedure" means the following procedure by
which ADSI Net Revenues will be determined: The Accountants
shall determine ADSI Net Revenues in accordance with GAAP and
this Agreement, and such determination by the Accountants
shall be subject to review by the Optionee's Accountants. Any
disputes will be resolved by the Determining Accountant in the
manner set forth herein. In the event that the Optionee does
not agree with the Accountant's determination of ADSI Net
Revenues, the Optionee shall give written notice to the
Company within thirty (30) days after receipt of the
Accountants' determination of the ADSI Net Revenues that
Optionee contends that ADSI Net Revenues have not been
calculated in accordance with GAAP. Such notice shall provide
specific reasons for the disagreement. In such event, the
Company and the Optionee shall each comply with the further
provisions of this Paragraph. If no such written notice is
received, then the Accountants' determination of ADSI Net
Revenues shall be deemed to be accepted. If such notice is
given, then the Company and the Optionee shall try to resolve
the disagreement. If no agreement is reached between them
within ten (10) business days after the date on which the
Optionee gave its notice of disagreement, then the Determining
Accountant shall be appointed with instructions to resolve the
disagreement and provide a report of its determination of ADSI
Net Revenues within thirty (30) business days of its
appointment. Such decision of the Determining Accountant shall
be binding upon the Optionee and the Company. If the
Determining Accountant determines that the ADSI Net Revenues
equal or exceed, or are not less than ninety seven and
one-half percent (97.5%) of, the ADSI Net Revenues initially
determined by the Accountants, the
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<PAGE> 15
Optionee shall pay the cost of the Determining Accountant;
otherwise, the Company shall pay the cost of the Determining
Accountant.
viii. "Determining Accountant" means an accountant selected by the
Accountants and the Optionee's Accountants, or in the event of
such two accountants' inability to select a determining
accountant, a Determining Accountant shall be selected by a
Judge of the Supreme Court of the State of New York, County of
New York, upon petition by either the Optionee or the Company.
ix. "GAAP" means generally accepted accounting principles,
consistently applied.
x. "KDTI Companies" means the Company, ADSI and any other
Affiliate of the Company.
xi. "Net Sales" means gross revenues, less returns, discounts,
allowances and the Bad Debt Adjustment.
xii. "Optionee's Accountant" means a firm of independent certified
public accountants retained by the Optionee.
4. Exercisability of Option. This Option be exercisable by the Optionee only
during the thirty (30) day period commencing July 1, 2007 and ending July 30,
2007, but the right to exercise the Option shall be accelerated as follows:
i. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the first
Annual Period equal or exceed $2,600,000.00;
ii. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the second
Annual Period equal or exceed $3,000,000.00; and
iii. One-third (1/3) of the aggregate Option Shares shall be
exercisable if ADSI Net Revenues generated during the third
Annual Period equal or exceed $3,500,000.00.
To the extent that the right to exercise the Options is accelerated pursuant to
the foregoing, such Options shall be exercisable by the Optionee at any time
during the period the Optionee continues to be employed by the Company or a
subsidiary corporation of the Company.
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<PAGE> 16
5. Expiration of Option. This Option shall not be exercisable after 5:00 p.m.
E.S.T. on July 31, 2007.
6. Non-Assignability of Option. This Option shall not be given, granted, sold,
exchanged, transferred, pledged, assigned or otherwise encumbered or disposed of
by the Optionee, otherwise than by Will or the laws of descent and distribution,
and, during the lifetime or existence of the Optionee, shall not be exercisable
by any other person, but only by the Optionee.
7. Method of Exercise of Option. The Optionee shall notify the Company by
written notice sent by registered or certified mail, return receipt requested,
addressed to its principal office, or by hand delivery to such office, properly
receipted, as to the number of Option Shares the Optionee desires to purchase
under this Agreement, which written notice shall be accompanied by the
Optionee's check payable to the order of the Company for the full option price
of such shares of Stock. As soon as practicable after the receipt of such
written notice the Company shall, at its principal office, tender to the
Optionee a certificate or certificates issued in the Optionee's name evidencing
the Option Shares purchased by the Optionee hereunder. Any Option granted under
this Agreement shall be exercisable in whole or in part commencing on the date
such exercise is permitted under the terms of this Agreement prior to
expiration.
8. Investment Representation. The Optionee represents that at the time of any
exercise of this Option, unless the Option Shares are registered under the
Securities Act of 1933, as amended, that such Option Shares will be acquired for
investment and not for resale or with a view to the distribution thereof. Unless
prior to the exercise of the Option the shares issuable upon such exercise have
been registered with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act") (i) the notice of
exercise shall be accompanied by a representation or agreement of the individual
exercising the Option to the Company to the effect that such shares are being
acquired for investment and not with a view to the resale or distribution
thereof or such other documentation as may be required by the Company unless in
the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with the Securities Act, and (ii) upon
exercise of this Option and the issuance of any of the Option Shares thereunder,
all certificates representing Option Shares shall bear on the face thereof
substantially the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN EXEMPTION FROM
REGISTRATION AND AN OPINION OF COUNSEL TO KATZ DIGITAL TECHNOLOGIES, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
4
<PAGE> 17
9. Adjustments upon Changes in Capitalization.
a. In the event that the outstanding Common Stock of the Company is
hereafter changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares,
stock dividends or the like, an appropriate adjustment shall be made in
the number of Option Shares and option price per share subject to this
Option. If the Company shall be acquired, reorganized, consolidated or
merged with another corporation, or if all of or substantially all of the
assets of the Company shall be sold or exchanged, the Optionee shall be
entitled to receive upon the exercise of this Option the same number and
kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the happening of
such event as if the Optionee had been, immediately prior to such event,
the holder of the number of shares covered by this Agreement.
b. Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the Option granted under this Agreement.
If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
10. Definitions. For purposes of the Agreement, the terms "parent corporation"
and "subsidiary corporation" shall have the same meanings a set forth in
Sections 425(e) and 425(f) of the Code, respectively, and the masculine shall
include the feminine and the neuter as the context requires.
11. Death or Termination of Employment or Services. If the employment or
services of the Optionee by the Company or a subsidiary corporation of the
Company shall terminate for any reason, whether by termination or expiration of
any employment agreement between the Optionee and the Company, or voluntarily by
the Optionee, then this Option shall expire forthwith (the date on which such
termination of the Optionee's employment or services occurs is referred to as
the "Employment Termination Date"). Notwithstanding the foregoing, if such
employment or services shall be terminated without cause by the Company or any
subsidiary corporation of the Company, or by reason of death or disability of
the Optionee, then this Option shall not expire upon the Employment Termination
Date, but shall be exercisable until the date which is three (3) months after
the Employment Termination Date, and then only to purchase those number of
Option Shares that the Optionee was entitled to purchase upon exercise of this
Option prior to the Employment Termination Date, and this Option may not be
exercised at any time after the date which is three (3) months after the
Employment Termination Date; in the event of death of the Employee, the Option
may be exercised in accordance with the foregoing by the estate of the employee
or by a person who acquired the right to exercise such Options by bequest or
inheritance or by reason of the death of such employee. Provided, however, that
nothing in this Section 11 shall give any person the right to purchase Option
Shares which could not be purchased by the Optionee prior to the termination of
the Optionee's employment with the Company or
5
<PAGE> 18
such subsidiary. The word "cause" is used with the meaning ascribed thereto in
the Employment Agreement dated the date hereof between the Company's subsidiary,
ADSI, as Employer, and the Optionee as Employee.
12. Use of Proceeds. The proceeds from the sale of shares pursuant to Options
granted under this Agreement shall constitute general funds of the Company.
13. No Rights as Stockholder. The Optionee shall have no rights as a stockholder
in respect to the Option Shares as to which this Option shall not have been
exercised and payment made as herein provided.
14. Not a Contract of Employment. Nothing contained in this Agreement shall be
deemed to confer upon the Optionee any right to remain in the employ or service
of the Company or a subsidiary corporation of the Company.
15. Binding Effect. Except as herein otherwise expressly provided, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their legal representatives, successors and assigns.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the New York.
17. Notices. Any notice hereunder shall be delivered by hand or by registered or
certified mail, return receipt requested, to a party at its address set forth
above, subject to the right of either party to designate at any time hereafter,
in writing, some other address.
18. Counterparts. This Agreement may be exercised in counterparts, each of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Company and the Optionee has caused this
Agreement to be executed by an appropriate officer, both as of the day and year
first written.
KATZ DIGITAL TECHNOLOGIES, INC.
By:________________________________
Name: Donald L. Flamm
Title: Vice President, Chief Financial Officer
OPTIONEE:
_____________________________
6
<PAGE> 1
Exhibit 2.4
<PAGE> 2
NON-COMPETITION AGREEMENT dated July 31,
1997 by and between KATZ DIGITAL
TECHNOLOGIES, INC. a Delaware corporation
("KDTI"), ADVANCED DIGITAL SERVICES, INC., a
New York corporation, formerly known as Katz
Digital Acquisition Inc. (the "Company") and
DAVID KATZ ("Obligor").
R E C I T A L :
Concurrently with the execution and delivery of this Agreement, Advanced Digital
Services, Inc., a New York corporation ("ADSI-NY"), of which the Obligor was a
shareholder, merged with and into the Company, a wholly-owned subsidiary of
KDTI, pursuant to a Plan and Agreement of Merger dated July 31, 1997 (the
"Merger Agreement"). Obligor is also entering into an Employment Agreement with
the Company concurrently herewith.
NOW THEREFORE, in consideration for the agreements herein set forth, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by Obligor, the parties hereby agree to be bound by the
terms and conditions of this Agreement.
1. DEFINITIONS
Capitalized terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Section 1.
a. The term "ADSI Customers" means customers of any of the Advanced
Digital Companies on the date hereof or at any time within the two
(2) year period prior to the date hereof.
b. The term "Advanced Digital Companies" means ADSI-NY, Advanced
Digital Solutions, Inc., a New York, corporation and David Katz
Studio, Inc., a New York corporation.
c. The term "Affiliate" means any corporation, partnership, company,
firm, entity or proprietorship which, directly or indirectly,
controls or is controlled by or under common control with KDTI, and
includes the Company.
d. The term "Confidential Information" means confidential matters
relating to the business of the KDTI Companies, including, but not
limited to, "know-how," trade secrets, customer lists, subscription
lists, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans,
<PAGE> 3
information pertaining to the Customers and their requirements,
business acquisition plans, new personnel acquisition plans,
formulae, methods of manufacture, technical processes, designs and
design projects, inventions and research projects and other business
affairs relating to the business of the KDTI Companies;
e. The term "Customer" means (i) anyone who is a customer of any of the
KDTI Companies at the time of the alleged prohibited conduct or at
any time during the two (2) year period immediately preceding the
alleged prohibited conduct; (ii) any ADSI Customer; or (iii) any
prospective customers to whom any of the KDTI Companies makes a
presentation (or similar offering of services) within a period of
360 days immediately preceding the alleged prohibited conduct.
f. The term "KDTI Companies" means KDTI, the Company and any other
Affiliate.
g. The term "Local Customer" means a Customer that has an office or
facility or operates its business primarily within the Restricted
Area.
h. The term "Restricted Period" means the period commencing on the date
hereof and ending on July 31, 2007.
i. The term "Restricted Area" means the geographic area lying within a
fifty (50) mile radius of 360 West 31st Street, New York, New York.
2. COVENANTS AGAINST COMPETITION.
Obligor hereby covenants and agrees that during the Restricted Period he
will not, directly or indirectly, by himself, or through any other person, firm,
company, entity or enterprise:
(i) render any services of the type rendered by any of the KDTI Companies
to or for a Local Customer unless such services are rendered as an
employee of or consultant to one of the KDTI Companies;
(ii) attempt in any manner to solicit, directly or indirectly, from any
Customer (except on behalf of the KDTI Companies) business of the type
performed by any of the KDTI Companies, or persuade any Customer to cease
doing business or to reduce the amount of business which any such Customer
has done or contemplates doing with any of the KDTI Companies;
(iii) engage within or from the Restricted Area in any business activity
competitive with (i) the business of ADSI-NY immediately prior to its
merger with and into the Company or (ii) any other business conducted by
any of the KDTI Companies during the Restricted Period;
2
<PAGE> 4
(iv) employ or attempt to employ or assist anyone else to employ any
person (except on behalf of the KDTI Companies) who is then, or at any
time during the preceding twelve months was, in the employ of any of the
KDTI Companies; or
(v) solicit, directly or indirectly, or affect to the detriment of any of
the KDTI Companies, any relationship of any of the KDTI Companies with any
Customer or any supplier, service bureau, vendor or employee of any of the
KDTI Companies, or cause any Customer, supplier, or vendor of any of the
KDTI Companies to refrain from entrusting additional business to any of
the KDTI Companies.
3. CONFIDENTIAL INFORMATION
The Obligor shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others, except in connection with
the business and affairs of the KDTI Companies, all Confidential Information
learned by the Obligor heretofore and hereafter, and shall never disclose such
matters to anyone outside of the KDTI Companies, except (i) as required in the
course of performing duties for the KDTI Companies, (ii) with KDTI's express
written consent; or (iii) with respect to such information which is generally
known to the public or becomes known to the public though no fault of the
Obligor.
4. PAYMENTS TO OBLIGOR
a. In consideration for Obligor's performance of his obligations under
this Agreement, the Company agrees to pay Obligor, and KDTI
guarantees the payment of, the sum of Fifty Nine Thousand One
Hundred Eighty Seven and 50/100 Dollars ($59,187.50) per annum
during the first five (5) years of the Restricted Period, payable in
equal monthly installments.
b. In the event of a breach by Obligor of its obligations under this
Agreement, which is not cured within ten (10) business days after
receipt of notice of default from KDTI, the Company shall have the
right to suspend any further payments to Obligor under this
Agreement without limiting any other damages or remedies, including
specific performance or injunctive or other equitable relief to
which any of the KDTI Companies may be entitled.
c. This Agreement shall terminate and be of no further force and effect
in the event that KDTI causes the shares of the Company to be
transferred to the Obligor and the other former shareholder of
ADSI-NY pursuant to Section 3.2.2 (iii) of the Merger Agreement. The
provisions of Section 3 of this Agreement shall survive, however,
with respect to Confidential Information regarding the Customers
(other than the ADSI Customers and the customers of the Company as
of the date the shares of the Company are so transferred) and their
requirements, business acquisition plans, new personnel acquisition
plans, formulae, methods of manufacture, technical processes,
designs and design projects, inventions and
3
<PAGE> 5
research projects and other business affairs relating to the
business of the KDTI Companies (other than the business of ADSI-NY
transferred to the Company as a result of the merger of ADSI-NY with
and into the Company) learned by the Obligor heretofore and
hereafter.
5. ENFORCEMENT THROUGH INJUNCTION
Obligor acknowledges that the type and periods of restriction imposed in
Sections 2 and 3 are fair and reasonable and are reasonably required for the
protection of the KDTI Companies and the goodwill, business and assets of the
KDTI Companies, including the goodwill, business and assets of the ADSI-NY
transferred to the Company as a result of the merger of ADSI-NY with and into
the Company. The Obligor acknowledges that a breach of the provisions of this
Agreement would irreparably damage the KDTI Companies, and that once such a
breach has occurred, there may be no accurate way of determining the amount of
damage or loss suffered by the KDTI Companies. The Obligor therefore agrees that
the terms of this Agreement may be enforced through preliminary or final
injunctive relief or other equitable remedy, without any of the KDTI Companies
having to (i) prove irreparable injury or likelihood of success, (ii) prevail on
the balancing of the equities test or other legal criteria, or (iii) post a
bond, and without limiting any other damages or remedies to which any of the
KDTI Companies may be entitled, including termination of the payments required
under Section 4 of this Agreement.
6. BLUE LINING
a. If any of the provisions of this Agreement relating to time,
geographical area, services, products, devices and/or information
are deemed by a court of competent jurisdiction to be overly broad
or for any other reason unenforceable, the parties agree that such
restrictions herein as to time, geographical area, services
products, devices and/or information shall be reduced to such time,
geographical area, services, products, devices and/or information as
such court shall hold to be reasonable and legally enforceable. In
addition, if any court determines that any of the restrictive
covenants contained in this Agreement or any part thereof, is
invalid or unenforceable, the remainder of the restrictive covenants
shall not thereby be affected and shall be given full effect without
regard to the invalid portions.
b. The Obligor acknowledges that KDTI, the Company and the Obligor
intend to and hereby confer jurisdiction to enforce the covenants
contained in this Agreement upon the courts of any state within the
geographical scope of such covenants. In the event that the courts
of one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such scope or otherwise,
it is the intention of the parties hereto that such determination
not bar or in any way affect the right of any of the KDTI Companies
to the relief provided above in the courts of any other states
within the geographical scope of such covenants, as to breaches of
such covenants in such other respective states, the above covenants
as they
4
<PAGE> 6
relate to each state being, for this purpose, severable into diverse
and independent covenants. Notwithstanding the foregoing, no action
will be commenced in more than one jurisdiction at a time unless one
or more of the provisions of this Agreement can only be enforced if
an action is brought in another jurisdiction or jurisdictions.
c. The Obligor acknowledges that the business of the KDTI Companies
extends beyond the geographic area of the State of New York and
accordingly, it is reasonable that the restrictive covenants set
forth above are not limited by specific geographic area but by the
location of the Customers.
7. MISCELLANEOUS
a. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors,
administrators, successors and assigns.
b. Any notice or other communications required or permitted hereunder
shall be in writing and shall be deemed effective (a) upon personal
delivery, if delivered by hand and followed by notice by mail,
overnight courier or delivery service or facsimile transmission; (b)
one day after the date of delivery by Federal Express or other
nationally recognized courier service that provides a delivery
receipt, if delivered by priority overnight delivery between any two
points within the United States; or (c) three (3) days after deposit
in the mails, if mailed by certified or registered mail (return
receipt requested) between any two points within the United States,
and in each case of mailing, postage prepaid, addressed as follows:
(i) if to Obligor, at 21 East 36th Street, New York, NY 10016, and
(ii) if to KDTI or the Company, at Twenty-One Penn Plaza, 360 West
31st Street, New York, NY 10001, or at such other address as any
such party shall designate by written notice to the other party.
c. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and
to be performed entirely within New York.
d. This Agreement may not be changed orally, but only by an agreement
in writing signed by any of the KDTI Companies and the Obligor.
5
<PAGE> 7
IN WITNESS WHEREOF, the individual parties have executed and the corporate
parties have each caused its corporate name to be hereunto subscribed by its
duly authorized officer on the date first written above.
KATZ DIGITAL TECHNOLOGIES, INC., a Delaware corporation
By: /s/ DONALD L. FLAMM
---------------------------------------------
DONALD L. FLAMM
VICE PRESIDENT & CHIEF FINANCIAL OFFICER
ADVANCED DIGITAL SERVICES, INC., a New York corporation, formerly known as KATZ
DIGITAL ACQUISITION INC.
By: /s/ DONALD L. FLAMM
---------------------------------------------
DONALD L. FLAMM
VICE PRESIDENT
OBLIGOR:
/s/ DAVID KATZ
--------------------------------------
DAVID KATZ
6
<PAGE> 1
Exhibit 2.5
<PAGE> 2
NON-COMPETITION AGREEMENT dated July 31,
1997 by and between KATZ DIGITAL
TECHNOLOGIES, INC. a Delaware corporation
("KDTI"), ADVANCED DIGITAL SERVICES, INC., a
New York corporation, formerly known as Katz
Digital Acquisition Inc. (the "Company") and
GARY RITKES ("Obligor").
R E C I T A L :
Concurrently with the execution and delivery of this Agreement, Advanced Digital
Services, Inc., a New York corporation ("ADSI-NY"), of which the Obligor was a
shareholder, merged with and into the Company, a wholly-owned subsidiary of
KDTI, pursuant to a Plan and Agreement of Merger dated July 31, 1997 (the
"Merger Agreement"). Obligor is also entering into an Employment Agreement with
the Company concurrently herewith.
NOW THEREFORE, in consideration for the agreements herein set forth, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by Obligor, the parties hereby agree to be bound by the
terms and conditions of this Agreement.
1. DEFINITIONS
Capitalized terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Section 1.
a. The term "ADSI Customers" means customers of any of the
Advanced Digital Companies on the date hereof or at any time
within the two (2) year period prior to the date hereof.
b. The term "Advanced Digital Companies" means ADSI-NY, Advanced
Digital Solutions, Inc., a New York, corporation and GARY
RITKES Studio, Inc., a New York corporation.
c. The term "Affiliate" means any corporation, partnership,
company, firm, entity or proprietorship which, directly or
indirectly, controls or is controlled by or under common
control with KDTI, and includes the Company.
d. The term "Confidential Information" means confidential matters
relating to the business of the KDTI Companies, including, but
not limited to, "know-how," trade secrets, customer lists,
subscription lists, pricing policies, operational methods,
marketing plans or strategies, product development techniques
or plans,
<PAGE> 3
information pertaining to the Customers and their
requirements, business acquisition plans, new personnel
acquisition plans, formulae, methods of manufacture, technical
processes, designs and design projects, inventions and
research projects and other business affairs relating to the
business of the KDTI Companies;
e. The term "Customer" means (i) anyone who is a customer of any
of the KDTI Companies at the time of the alleged prohibited
conduct or at any time during the two (2) year period
immediately preceding the alleged prohibited conduct; (ii) any
ADSI Customer; or (iii) any prospective customers to whom any
of the KDTI Companies makes a presentation (or similar
offering of services) within a period of 360 days immediately
preceding the alleged prohibited conduct.
f. The term "KDTI Companies" means KDTI, the Company and any
other Affiliate.
g. The term "Local Customer" means a Customer that has an office
or facility or operates its business primarily within the
Restricted Area.
h. The term "Restricted Period" means the period commencing on
the date hereof and ending on July 31, 2007.
i. The term "Restricted Area" means the geographic area lying
within a fifty (50) mile radius of 360 West 31st Street, New
York, New York.
2. COVENANTS AGAINST COMPETITION.
Obligor hereby covenants and agrees that during the Restricted Period
he will not, directly or indirectly, by himself, or through any other person,
firm, company, entity or enterprise:
(i) render any services of the type rendered by any of the KDTI
Companies to or for a Local Customer unless such services are rendered
as an employee of or consultant to one of the KDTI Companies;
(ii) attempt in any manner to solicit, directly or indirectly, from any
Customer (except on behalf of the KDTI Companies) business of the type
performed by any of the KDTI Companies, or persuade any Customer to
cease doing business or to reduce the amount of business which any such
Customer has done or contemplates doing with any of the KDTI Companies;
(iii) engage within or from the Restricted Area in any business
activity competitive with (i) the business of ADSI-NY immediately prior
to its merger with and into the Company or (ii) any other business
conducted by any of the KDTI Companies during the Restricted Period;
2
<PAGE> 4
(iv) employ or attempt to employ or assist anyone else to employ any
person (except on behalf of the KDTI Companies) who is then, or at any
time during the preceding twelve months was, in the employ of any of
the KDTI Companies; or
(v) solicit, directly or indirectly, or affect to the detriment of any
of the KDTI Companies, any relationship of any of the KDTI Companies
with any Customer or any supplier, service bureau, vendor or employee
of any of the KDTI Companies, or cause any Customer, supplier, or
vendor of any of the KDTI Companies to refrain from entrusting
additional business to any of the KDTI Companies.
3. CONFIDENTIAL INFORMATION
The Obligor shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others, except in connection with
the business and affairs of the KDTI Companies, all Confidential Information
learned by the Obligor heretofore and hereafter, and shall never disclose such
matters to anyone outside of the KDTI Companies, except (i) as required in the
course of performing duties for the KDTI Companies, (ii) with KDTI's express
written consent; or (iii) with respect to such information which is generally
known to the public or becomes known to the public though no fault of the
Obligor.
4. PAYMENTS TO OBLIGOR
a. In consideration for Obligor's performance of his obligations
under this Agreement, the Company agrees to pay Obligor, and
KDTI guarantees the payment of, the sum of Fifty Nine Thousand
One Hundred Eighty Seven and 50/100 Dollars ($59,187.50) per
annum during the first five (5) years of the Restricted
Period, payable in equal monthly installments.
b. In the event of a breach by Obligor of its obligations under
this Agreement, which is not cured within ten (10) business
days after receipt of notice of default from KDTI, the Company
shall have the right to suspend any further payments to
Obligor under this Agreement without limiting any other
damages or remedies, including specific performance or
injunctive or other equitable relief to which any of the KDTI
Companies may be entitled.
c. This Agreement shall terminate and be of no further force and
effect in the event that KDTI causes the shares of the Company
to be transferred to the Obligor and the other former
shareholder of ADSI-NY pursuant to Section 3.2.2 (iii) of the
Merger Agreement. The provisions of Section 3 of this
Agreement shall survive, however, with respect to Confidential
Information regarding the Customers (other than the ADSI
Customers and the customers of the Company as of the date the
shares of the Company are so transferred) and their
requirements, business acquisition plans, new personnel
acquisition plans, formulae, methods of manufacture, technical
processes, designs and design projects, inventions and
3
<PAGE> 5
research projects and other business affairs relating to the
business of the KDTI Companies (other than the business of
ADSI-NY transferred to the Company as a result of the merger
of ADSI-NY with and into the Company) learned by the Obligor
heretofore and hereafter.
5. ENFORCEMENT THROUGH INJUNCTION
Obligor acknowledges that the type and periods of restriction imposed
in Sections 2 and 3 are fair and reasonable and are reasonably required for the
protection of the KDTI Companies and the goodwill, business and assets of the
KDTI Companies, including the goodwill, business and assets of the ADSI-NY
transferred to the Company as a result of the merger of ADSI-NY with and into
the Company. The Obligor acknowledges that a breach of the provisions of this
Agreement would irreparably damage the KDTI Companies, and that once such a
breach has occurred, there may be no accurate way of determining the amount of
damage or loss suffered by the KDTI Companies. The Obligor therefore agrees that
the terms of this Agreement may be enforced through preliminary or final
injunctive relief or other equitable remedy, without any of the KDTI Companies
having to (i) prove irreparable injury or likelihood of success, (ii) prevail on
the balancing of the equities test or other legal criteria, or (iii) post a
bond, and without limiting any other damages or remedies to which any of the
KDTI Companies may be entitled, including termination of the payments required
under Section 4 of this Agreement.
6. BLUE LINING
a. If any of the provisions of this Agreement relating to time,
geographical area, services, products, devices and/or
information are deemed by a court of competent jurisdiction to
be overly broad or for any other reason unenforceable, the
parties agree that such restrictions herein as to time,
geographical area, services products, devices and/or
information shall be reduced to such time, geographical area,
services, products, devices and/or information as such court
shall hold to be reasonable and legally enforceable. In
addition, if any court determines that any of the restrictive
covenants contained in this Agreement or any part thereof, is
invalid or unenforceable, the remainder of the restrictive
covenants shall not thereby be affected and shall be given
full effect without regard to the invalid portions.
b. The Obligor acknowledges that KDTI, the Company and the
Obligor intend to and hereby confer jurisdiction to enforce
the covenants contained in this Agreement upon the courts of
any state within the geographical scope of such covenants. In
the event that the courts of one or more of such states shall
hold such covenants wholly unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the
parties hereto that such determination not bar or in any way
affect the right of any of the KDTI Companies to the relief
provided above in the courts of any other states within the
geographical scope of such covenants, as to breaches of such
covenants in such other respective states, the above covenants
as they
4
<PAGE> 6
relate to each state being, for this purpose, severable into
diverse and independent covenants. Notwithstanding the
foregoing, no action will be commenced in more than one
jurisdiction at a time unless one or more of the provisions of
this Agreement can only be enforced if an action is brought in
another jurisdiction or jurisdictions.
c. The Obligor acknowledges that the business of the KDTI
Companies extends beyond the geographic area of the State of
New York and accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by
specific geographic area but by the location of the Customers.
7. MISCELLANEOUS
a. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
b. Any notice or other communications required or permitted
hereunder shall be in writing and shall be deemed effective
(a) upon personal delivery, if delivered by hand and followed
by notice by mail, overnight courier or delivery service or
facsimile transmission; (b) one day after the date of delivery
by Federal Express or other nationally recognized courier
service that provides a delivery receipt, if delivered by
priority overnight delivery between any two points within the
United States; or (c) three (3) days after deposit in the
mails, if mailed by certified or registered mail (return
receipt requested) between any two points within the United
States, and in each case of mailing, postage prepaid,
addressed as follows: (i) if to Obligor, at 198 Bergen Avenue,
Bergenfield, New Jersey 07621 and (ii) if to KDTI or the
Company, at Twenty-One Penn Plaza, 360 West 31st Street, New
York, NY 10001, or at such other address as any such party
shall designate by written notice to the other party.
c. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within New
York.
d. This Agreement may not be changed orally, but only by an
agreement in writing signed by any of the KDTI Companies and
the Obligor.
5
<PAGE> 7
IN WITNESS WHEREOF, the individual parties have executed and the
corporate parties have each caused its corporate name to be hereunto subscribed
by its duly authorized officer on the date first written above.
KATZ DIGITAL TECHNOLOGIES, INC., a Delaware corporation
By: /s/ DONALD L. FLAMM
---------------------------------------------
DONALD L. FLAMM
VICE PRESIDENT & CHIEF FINANCIAL OFFICER
ADVANCED DIGITAL SERVICES, INC., a New York corporation, formerly known as KATZ
DIGITAL ACQUISITION INC.
By: /s/ DONALD L. FLAMM
---------------------------------------------
DONALD L. FLAMM
VICE PRESIDENT
OBLIGOR:
/s/ GARY RITKES
--------------------------------------
GARY RITKES
6
