IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JOHN G. BALLENGER, CHRISTOPHER J. )
BALLENGER., FREDERICK M. HENSCHEL, )
MICHAEL K. GAMMILL, JACQUELINE M. )
TWASTSTIJERNA and GLENN J. BALLENGER, )
Plaintiffs,
) Civil Action No. 19399
V. >
APPLIED DIGITAL SOLUTIONS, INC., a >
Missouri corporation and COMPUTER EQUITY )
CORPORATION, a Delaware corporation, >>
Defendants. >
MEMORANDUM OPINION
Date Submitted: April 19,2002
Date Decided: April 24,2002
Gregory V. Varallo, Peter B. Ladig, and Kelly C. Ashby, Esquires, of RICHARDS,
LAYTON & FINGER, Wilmington, Delaware; Of Counsel: Phillip M. Goldberg,
Esquire, of FOLEY & LARDNER, Chicago, Illinois, Attorneys for Plaintiffs.
P. Clarkson Collins, Jr., Esquire, of MORRIS, JAMES, HITCHENS & WILLIAMS,
Wilmington, Delaware; Of Counsel: Rodney F. Page, Stephen S. Kaye, and Amy C.
Shaw, Esquires, of BRYAN CAVE LLP, Washington, DC, Attorneys for
Defendants.
STRINE, Vice Chancellor
This opinion resolves several motions in this case arising out of a
merger between Computer Equity Corporation ("Compec") and defendant
Applied Digital Solutions, Inc. In the merger, Compec was sold to Applied
Digital. This litigation centers on whether Applied Digital complied with its
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
Gregory V. Varallo, Peter B. Ladig, and Kelly C. Ashby, Esquires, of RICHARDS, LAYTON &
merger between Computer Equity Corporation and defendant
In the merger, Compec was sold to Applied
paid to those selling stockholders as part of the initial merger consideration.
The parties to this action include plaintiffs John G. Ballenger,
owned 72% of Compec's shares before the consummation of the merger.
plaintiffs are at times referred to as the Stockholders' Representatives.
have brought this suit to remedy perceived breaches of the merger agreement
For example, in a separate registration rights agreement, Applied
VI of this opinion, I address Applied Digital's motion to dismiss Count III,
between July 1,200O and June 30,200l (the "First Eamout Period").
Applied Digital was required to calculate whether the First Eamout payment
it provide them with Eamout Financials indicating that no Eamout was due.
Applied Digital's failure to honor its duties under the registration rights
Compec for the First Eamout Period were materially overstated by,
Digital's publicly filed financial statements constitute an admission that it
motion for partial summary judgment is well-established and needs no
Digital's 2001 10-K and its position in this litigation is perhaps explainable
This shall include the provision of Applied Digital's best estimate of Compec's earnings for
In the event the dispute is not resolved within 30 days of Stockholders' Representative's
ADS shall provide full access to Stockholders' Accountants and otherwise fully cooperate in
If the parties are still unable to arrive at an acceptable resolution, either party may
"The defendants are not seeking arbitration.
ADS agrees that with regard to any shares of ADS Common Stock issued pursuant to this
either the Closing Stock Payment, the First Eamout Amount or the Second Eamout
$ 1.05is a liquidated damages
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