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EXHIBIT 8.1
PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
among
AMERICAN DIVERSIFIED SECURITIES, INC.
a Nevada corporation
and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, INC.,
a California corporation
November 24, 1997
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PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
This PLAN AND AGREEMENT OF MERGER AND REORGANIZATION (this
"Agreement") is entered into as of November 24, 1997 among American Diversified
Corporation, a Delaware corporation (the "Corporation"), American Diversified
Holdings, Inc., a Nevada corporation (the "Parent"), American Diversified
Securities, Inc., a Nevada corporation (the "Subsidiary") and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Rea, Inc., a California corporation (the "Company"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇,
Jr., an individual and the majority shareholder of the Company (the "Majority
Shareholder").
R E C I T A L S
A. WHEREAS, the Boards of Directors of the Corporation, the
Parent, the Subsidiary and the Company have approved the merger of the Company
with and into the Subsidiary pursuant to this Agreement (the "Merger") and the
transactions contemplated hereby upon the terms and subject to the conditions
set forth herein; and
B. WHEREAS, it is intended that Parent, the Subsidiary, the
Company and the Majority Shareholder will recognize no gain or loss for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder as a result of the consummation of the
Merger:
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1
DEFINITIONS
Unless otherwise defined herein or the context otherwise
requires, the terms defined in this Article 1 shall have the meanings herein
specified for all purposes of this Agreement, applicable to both the singular
and plural forms of any of the terms herein defined.
"Action" shall mean any legal action, suit, arbitration or other
legal, administrative or other legal, administrative or other governmental
investigation, inquiry or proceeding (whether federal, state, local or foreign).
"Advisers Act" shall mean the Investment Advisers Act of 1940, as
amended, and the rules and regulations of the SEC thereunder.
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"Affiliate" of a Person shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control with, the
indicated Person.
"Agreement" shall mean this Plan and Agreement of Merger and
Reorganization.
"Applicable Law" shall mean any domestic or foreign federal,
state or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree, policy,
guideline or other requirement applicable to the Subsidiary, the Majority
Shareholders, the Company, the Fund or any of their respective Affiliates,
properties, assets, officers, directors, employees or agents.
"Closing" and "Closing Date" shall have the respective meanings
assigned to such terms in Section 3.3(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rea, Inc., a California
corporation. After the Effective Time of the Merger, the term "Company" shall
also include the "Subsidiary" as the surviving corporation in the Merger.
"Company Balance Sheet" shall have the meaning assigned to such
term in Section 6.15.
"Company Financial Statements" shall have the meaning assigned to
such term in Section 6.15.
"Company Policies" shall have the meaning assigned to such term
in Section 6.20.
"Company Common Stock" shall mean the Company's authorized class
of common stock, no par value per share.
"Corporation" shall mean American Diversified Corporation, a
Delaware corporation that owns 90% of the Parent.
"Damages" shall mean any and all losses, liabilities,
obligations, costs, expenses, damages or judgments of any kind or nature
whatsoever (including reasonable attorneys', accountants' and experts, fees,
disbursements of counsel, and other costs and expenses incurred pursuing
indemnification claims under Article 13 hereof).
"Dealer Agreements" shall mean those agreements between the
Company and Persons registered as brokers or dealers with the SEC pursuant to
which such Persons agree to act as non-exclusive dealers in shares of the Fund.
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"Effective Time" shall have the meaning assigned to such term in
Section 2.2.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any Person which is (or at any
relevant time was) a member of a controlled group of corporations within the
meaning of Code Section 414(b), all trades or businesses under common control
within the meaning of Code Section 414(c), and all affiliated service groups
within the meaning of Code Section 414(m), of which the Company is (or at any
relevant time was) a member.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all the rules and regulations of the SEC thereunder.
"Fund" shall mean ▇▇▇-▇▇▇▇▇▇ Funds, Inc., a Maryland corporation.
"Fund Financial Statements" shall have the meaning assigned to
such term in Section 6.14.
"Fund Policies" shall have the meaning assigned to such term in
Section 6.12.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Entity" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including the SEC or any other government authority, agency,
department, board, commission or instrumentality of the United States, any
foreign government, any State of the United States or any political subdivision
thereof, and any court, tribunal or arbitrators) of competent jurisdiction, and
any governmental or non-governmental self-regulatory organization, agency or
authority (including the NASD and the Investment Management Regulatory
Organization Limited).
"Indebtedness" shall mean any obligation of the Company or the
Fund which under GAAP is required to be shown on the balance sheet of the
Company or the Fund, as applicable, as a liability.
"Intellectual Property Rights" shall have the meaning assigned to
such term in Section 6.19.
"Investment Advisory Agreement" shall mean that certain
Investment Advisory Agreement between the Company and the Fund dated as of July
15, 1988.
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"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, and all rules and regulations of the SEC thereunder.
"IRS" shall mean the United States Internal Revenue Service.
"Legal Requirement" shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"Lien" shall mean and include any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, or any other encumbrance whatsoever.
"Majority Shareholder" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rea, Jr., an
individual.
"Material Adverse Effect" shall mean a material adverse effect on
the business, financial condition, properties, profitability, prospects or
operations of the Company or the Fund, as applicable.
"Manager" shall mean the manager of the Company and the
Subsidiary pursuant to the Agreement.
"Merger Filing" shall have the meaning assigned to such term in
Section 2.2.
"Names" shall mean "Rea" and "▇▇▇-▇▇▇▇▇▇".
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"New Advisory Agreement" shall have the meaning assigned to such
term in Section 8.4.
"New Underwriting Agreement" shall have the meaning assigned to
such term in Section 8.4.
"Ordinary Course" shall mean, when used with reference to the
Company, the ordinary course of the Company's business, consistent with past
practices.
"Parent" shall mean American Diversified Holdings, Inc., a Nevada
corporation.
"Permits" shall have the meaning assigned to such term in Section
6.23.
"Person" shall mean all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures, Governmental
Entities and any other entities.
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"Radix Software" shall have the meaning assigned to such term in
Section 8.2.
"Recent Company Statement Date" shall have the meaning assigned
to such term in Section 6.15.
"Recent Fund Statement Date" shall have the meaning assigned to
such term in Section 6.14.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and all the rules and regulations of the SEC thereunder.
"Securities Laws" shall mean the Securities Act, the Exchange
Act, the Investment Company Act, the Advisers Act, and the rules and regulations
of the SEC promulgated thereunder.
"Shareholder" shall mean the holders of all of the issued and
outstanding shares of the Company's Common Stock, as set forth on Exhibit A,
attached hereto.
"Subsidiary" shall mean American Diversified Securities, Inc., a
Nevada corporation.
"Tax" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, unemployment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including, without
limitation, taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), employment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated tax or other
tax, assessment or charge of any kind whatsoever, including, without limitation,
any interest, fine penalty or addition thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim
for refund or information, or statement relating to Taxes, and any exhibit,
schedule, attachment or amendment thereto.
"U.S." shall mean the United States of America.
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ARTICLE 2
THE MERGER
SECTION 2.1 THE MERGER. At the Effective Time in accordance with the
Nevada law, the Company shall be merged with and into the Subsidiary and the
separate existence of the Company shall thereupon cease. The Subsidiary shall be
the surviving corporation in the Merger (hereinafter sometimes referred to as
the "Surviving Corporation").
SECTION 2.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as the Agreements and Articles of
Merger, in the forms set forth as Exhibit B-1 and B-2 hereto, are filed with the
Secretaries of State of the State of Nevada and the State of California (the
"Merger Filing"); such filing shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated by this Agreement
in accordance with Section 3.3.
ARTICLE 3
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company (a) each issued and outstanding share of
Common Stock of the Company ("Company Common Stock") held by the Majority
Shareholder shall, be converted into the right to receive, and become
exchangeable for, 237,500 shares of validly issued, fully paid and nonassessable
share of common stock of Parent ("Parent Common Stock"), as provided in this
Agreement; and (b) each issued and outstanding share of Company Common Stock
held by all shareholders of the Company other than the Majority Shareholder
shall be converted into the right to receive and become exchangeable for $3.25
in cash (an aggregate cash amount of $160,875).
SECTION 3.2 CANCELLATION OF COMPANY STOCK. All shares of Company Common
Stock held by the Subsidiary shall be canceled automatically and returned to the
status of authorized but unissued shares.
SECTION 3.3 CLOSING OF THE MERGER AND REORGANIZATION.
(a) The closing (the "Closing") of the merger and reorganization
transactions contemplated by this Agreement shall take place at the offices of
Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇, LLP, on the business day immediately after the
last of the conditions set forth in Article 11 hereof is fulfilled or waived, or
at such other time and place as Parent and the Company shall agree (the date on
which the Closing occurs being the "Closing Date").
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(b) Deliveries by the Company to the Subsidiary. On the Closing Date,
the Company will deliver to the Subsidiary the following:
(i) stock certificates duly endorsed in blank representing all issued
and outstanding shares of the Company's Common Stock;
(ii) a certificate from the appropriate Secretary of State or other
similar government official of the jurisdiction of incorporation as to the good
standing of the Company, as of a date within five (5) days of the Closing Date;
(iii) copies of the resolutions or consents of the Board of Directors
of Company approving the Merger and the other agreements and transactions
contemplated hereby, certified by the corporate secretary or assistant corporate
secretary of the Company, and certified copies of the resolutions or consents,
in form and substance reasonably satisfactory to the Subsidiary, certified by
the corporate secretary or assistant corporate secretary of the Company,
constituting Shareholder approval of the Merger, termination of the Shareholder
Agreement of the Company, and all other agreements and transactions contemplated
hereby by the Shareholders;
(iv) all of the documents, certificates and instruments required to be
delivered, or cause to be delivered by the Company pursuant to Section 11.1
hereof;
(v) a certificate of the corporate secretary or an assistant corporate
secretary of the Company certifying the name, title and true signature of each
officer of Company executing any of the other documents and certificates to be
delivered pursuant to or in connection with this Agreement, as applicable; and
(vi) such other documents as are required to be delivered prior to or
on the Closing Date pursuant to this Agreement or as may reasonably be requested
by the Subsidiary.
(c) Deliveries by Parent and/or the Subsidiary. On the Closing Date,
Parent and/or the Subsidiary will deliver to the Company the following:
(i) stock certificate(s) representing the shares of the Parent's
common stock issuable to the Majority Shareholder;
(ii) (a) certified or bank cashier's checks in the amount of $3.25 per
share payable to each of the Shareholders other than the Majority Shareholder
times the number of shares of Company Common Stock registered in the name(s) of
such Shareholders; and
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(iii) a copy of the charter of Parent and of Subsidiary certified as of
a date within five (5) days of the Closing Date by the Secretary of State of the
state of incorporation of each such corporation and certified by the corporate
secretary or an assistant corporate secretary of each such corporation as to the
absence of any amendments between the dates of certification by such official
and the Closing Date;
(iv) a certificate from the appropriate Secretary of State or other
similar government official of the jurisdiction of incorporation as to the good
standing of the Parent and of Subsidiary, as of a date within five (5) days of
the Closing Date;
(v) copies of the resolutions or consents of each of the Board of
Directors of the Subsidiary and Parent approving the Merger, the issuance of
Parent Common Stock issuable hereunder and the other agreements and transactions
contemplated hereby, as applicable, and, certified by the corporate secretary or
an assistant corporate secretary of the Subsidiary and/or Parent;
(vi) all of the documents, certificates and instruments required to be
delivered, or cause to be delivered by the Company pursuant to Section 11.2
hereof;
(vii) the opinion of Subsidiary counsel referred to in Section 11.2.4
hereof;
(viii) a certificate of the corporate secretary or an assistant
corporate secretary of the Subsidiary and/or Parent certifying the name, title
and true signature of each officer of the Subsidiary any of the Agreements and
the other documents and certificates to be delivered pursuant to or in
connection with this Agreement;
(ix) all Approvals from third parties as are required for the Subsidiary
to consummate the Merger and the other transactions contemplated by the
Agreements hereto; and
(x) such other documents as are required to be delivered prior to or on
the Closing Date pursuant to this Agreement or as may be reasonably requested by
Company.
ARTICLE 4
LIMITED LICENSE OF "REA" AND "▇▇▇-▇▇▇▇▇▇" NAMES
SECTION 4.1 LIMITED LICENSE OF "REA" AND "▇▇▇-▇▇▇▇▇▇" NAMES. The names
"Rea" and "▇▇▇-▇▇▇▇▇▇" (the "Names") are proprietary to Majority Shareholder.
Majority Shareholder hereby grants a limited license to the Subsidiary to use
the Names only in connection
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with series portfolio(s) of the Fund and only so long as such series investment
policies are based on the value-based principles of the published writings of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ as generally set forth in the Fund's current prospectus and so
long as Majority Shareholder remains employed by the Subsidiary or an affiliate.
If, at any time, Majority Shareholder's employment with the Subsidiary or an
affiliate shall cease, whether by resignation or termination, or in the
judgement of Majority Shareholder any such series of the Fund is no longer being
operated as set forth in the preceding sentence, on written demand by Majority
Shareholder, the Subsidiary will cause all or any such series of the Fund to
amend its governing instruments, including its Articles of Incorporation and
Bylaws, to delete the Names or any approximation thereof. It is recognized that
damages would not be an adequate remedy at law to enforce this provision; and
Majority Shareholder shall therefore have the right to enforce this provision by
all legal means, including the right of injunction.
ARTICLE 5
LIMITED LICENSE OF RADIX SOFTWARE
SECTION 5.1 LIMITED LICENSE OF RADIX SOFTWARE. The proprietary
investment research and analysis software known as "Radix" (the "Radix
Software") is owned by and is proprietary to Majority Shareholder. Majority
Shareholder hereby grants a limited license to the Subsidiary to use the Radix
Software, at no licensing fee cost to Subsidiary, in connection with the
Subsidiary's investment research and analysis activities for a term that shall
terminate upon the cessation of Majority Shareholder's employment by the
Subsidiary or an affiliate. Subsidiary shall pay the ongoing costs and expenses
associated with its use of Radix Software during the period of the license.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY AND THE FUND
The Company represents and warrants to, and covenant and agree
with, the Subsidiary that:
SECTION 6.1 ORGANIZATION, QUALIFICATION AND CORPORATE AUTHORITY OF THE
COMPANY. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and has all requisite
corporate power to own its property and to carry on its business as it is now
being conducted. The Company is duly licensed or qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
license or qualification is necessary under Applicable Law as a result of the
conduct of its business. The copies of the Articles of Incorporation and bylaws
of the Company which have been delivered to the Subsidiary prior to the
execution of this Agreement are true and correct
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and have not been amended or repealed.
SECTION 6.2 CAPITAL STOCK OF THE COMPANY. The Company's authorized
capital stock consists of 100,000 shares of Common Stock, of which 100,000
shares are issued and outstanding and held by the Shareholders as reflected in
Exhibit A, and no other shares are issued and outstanding. All of the Company's
issued and outstanding Common Stock has been duly authorized and is validly
issued, fully paid and nonassessable. There are no outstanding securities
convertible into or exchangeable for the capital stock of the Company or any
outstanding options, calls or other commitments for the issuance, sale or
delivery of any shares of the capital stock of the Company or of any securities
so convertible or exchangeable.
SECTION 6.3 ORGANIZATION, QUALIFICATION AND CORPORATE AUTHORITY OF THE
FUND. The Fund is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has all requisite
corporate power to own its property and to carry on its business as it is now
being conducted. The Fund is duly licensed or qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which such
license or qualification is necessary under Applicable Law as a result of the
conduct of its business. The copies of the Articles of Incorporation and bylaws
of the Fund which have been delivered to the Subsidiary prior to the execution
of this Agreement are true and correct and have not been amended or repealed.
SECTION 6.4 CAPITAL STOCK OF THE FUND. The Fund's authorized capital
stock consists of 20,000,000 shares of common stock, $1.00 par value per share.
All of the Fund's issued and outstanding shares of common stock has been duly
authorized and is validly issued, fully paid and nonassessable. All outstanding
shares of the Fund required to be registered under the Securities Act have been
sold pursuant to an effective registration statement filed thereunder. All
outstanding shares of the Fund required to be registered or qualified under
state securities laws were registered or qualified under those laws as required.
The Fund's records accurately reflect the number of the outstanding shares and
the record holders thereof.
SECTION 6.5 NO SUBSIDIARIES. Neither the Company nor the Fund has any
subsidiary nor owns or controls, or has any other equity investment or other
interest in, directly or indirectly, any corporation, joint venture,
partnership, association or other entity.
SECTION 6.6 INVESTMENT ADVISOR REGISTRATION. The Company is and has been
duly registered as an investment advisor under the Advisers Act since 1980 and
under California law since 1980. The Company is duly registered as an investment
advisor in the states and jurisdictions listed on Schedule 6.6, and all of such
registrations are current and in full force and effect. The Company is in good
standing as a registered investment advisor in each such state or jurisdiction.
The Company has previously delivered to the Subsidiary true and complete copies
of the Company's Form ADV filed with the SEC.
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SECTION 6.7 INVESTMENT ADVISORY BUSINESS.
(a) The Company is the investment advisor to the Fund pursuant to the
Investment Advisory Agreement, a true and complete copy of which has been
delivered to the Subsidiary, and such agreement is in full force and effect on
the date hereof. The Company does not provide investment advisory services to
any Person other than the Fund.
(b) Each Shareholder, director or employee of the Company who is
required to be registered as an investment adviser's agent or representative, a
principal or an associated person of an investment adviser or in any other
similarly designated position, with the SEC, the securities commission of any
state or any self-regulatory organization is duly registered as required and
each such registration is in full force and effect.
(c) Neither the Company nor any "affiliated person" thereof, as defined
in the Advisers Act, (i) is ineligible pursuant to Section 9(a) of the Advisers
Act to serve as an investment adviser (or in any other capacity contemplated by
the Advisers Act) to a registered investment company, or (ii) has engaged or is
engaging in any of the conduct specified in Section 9(b) of the Advisers Act or
Section 203(e) of the Advisers Act that would be reasonably expected to result
in SEC action to disqualify the Company as an investment adviser.
(d) The Company has no arrangements, understandings or intentions to
impose an "unfair burden", as that term is used in Section 15 of the Investment
Company Act, upon the Fund as a result of the transactions contemplated by this
Agreement.
(e) The Company has adopted a formal code of ethics and a written policy
against ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Such code and policy comply with Section 204 of the
Advisers Act.
(f) The Company is now, and at all times since 1990 has been, in
compliance with any net capital requirements imposed by federal and securities
laws to which it is subject.
SECTION 6.8 MATERIAL CONTRACTS OF THE COMPANY; NO DEFAULTS. Schedule 6.8
contains a true and complete list of each material contract, agreement,
operating lease, capital lease, permit, commitment, binding arrangement or
instrument to which the Company is a party or by which the Company is bound,
including, without limitation, the Investment Advisory Agreement and all Dealer
Agreements. There has not been any material default in any contract, agreement,
operating lease, capital lease, permit, commitment, binding arrangement or
instrument, and the Company has not waived any material right thereunder or with
respect thereto.
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SECTION 6.9 BROKER/DEALER REGISTRATION AND BUSINESS.
(a) The Company is and has been duly registered as a broker and a dealer
pursuant to Section 15 of the Exchange Act since 1990, and under California law
since 1990, which registrations are in full force and effect. With respect to
the registrations under the Exchange Act and under California law, neither the
applications for registration nor any amendment thereto contain any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein not misleading. The Company is a member in good
standing with the NASD. The Company has previously delivered to the Subsidiary a
true and complete copy of the Company's Form BD filed with the SEC and NASD.
(b) The Company is duly registered as a broker and a dealer in the
states and jurisdictions listed on Schedule 6.9 hereto, and all of such
registrations are current and in full force and effect. The Company is in good
standing as a registered broker and registered dealer in each such state or
jurisdiction.
(c) The Company has not effected any transaction as a broker or as a
dealer either as principal or as agent for any Person, including, without
limitation, the Fund, since October, 1995, other than as an
underwriter/distributor for the Fund.
(d) The Company has filed with the SEC all reports required by the
Exchange Act Rule 17a-5(a) for the three years prior to the Closing Date. All of
such reports are fairly stated in all material respects and were prepared in
accordance with Applicable Law.
(e) The Company is now, and at all times since 1990 has been, in
compliance with the net capital provisions of Rule 15c3-1 under the Exchange Act
and all other applicable rules and regulations of the SEC and the NASD.
(f) The Company is now, and at all times since 1990 has been, in
compliance with the net capital provisions required to be maintained by each
state or jurisdiction in which the Company is registered as a broker-dealer.
(g) There are no special restrictions or limitations imposed by the NASD
relating to the conduct of the Company's business except those which may be
contained in the Company's current membership agreement with the NASD.
SECTION 6.10 DEALER AGREEMENTS. No party with which the Company has
entered into a Dealer Agreement has indicated to the Company any intent to
terminate its Dealer Agreement with the Company, and the Company has no reason
to believe that any such party intends to terminate its Dealer Agreement,
including upon consummation of the Merger contemplated by this Agreement. The
Company has not encouraged any such party to terminate its Dealer Agreement with
the Company.
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SECTION 6.11 BUSINESS OF THE FUND.
(a) The Fund is registered as an open-end management investment company
under the Investment Company Act. The registration statements of the Fund under
the Securities Act and the Investment Company Act complied with the requirements
of the respective Acts and no such registration statement contained, as of its
effective date, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein not misleading. (b) The
Fund is being and has been operated fully in compliance with its investment
objectives, policies, limitations and restrictions, all as set forth in the
registration statement and governing instruments for the Fund.
(b) The Fund is being and has been operated fully in compliance with its
investment objectives, policies, limitations and restrictions, all as set forth
in the registration statement and governing instruments for the Fund.
(c) The Board of Directors of the Fund has been properly constituted and
complies, to the extent applicable, with the requirements of Section 10 of the
Investment Company Act. No member of the Board of Directors of the Fund is or
has been subject to any disability under Section 9 of the Investment Company
Act.
(d) The Fund has elected to be treated as a "regulated investment
company" under Subchapter M of the Code and has qualified as a regulated
investment company for each year during its existence. The Fund has complied
with all applicable provisions of law necessary to preserve and retain the
Fund's election and status as a regulated investment company.
(e) None of the information furnished by the Company for inclusion by
the Fund in its proxy materials for the three years prior to the Closing Date
have contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein not misleading.
(f) The Fund has duly adopted procedures pursuant to Rule 17e-1 under
the Advisers Act, to the extent applicable; and the Fund has complied, for a
period of at least [three] years prior to the date hereof, currently complies
and will comply with the requirements of Section 17(e) of the Investment Company
Act and Rule 17e-1 thereunder, to the extent applicable. The Fund has not
engaged in any transaction prohibited by Section 10(f) of the Investment Company
Act.
(g) The Fund has adopted a formal code of ethics and a written policy
against ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Such code and policy comply with Section 17(j) of the
Investment Company Act and Rule 17j-1 thereunder.
(h) The current prospectus and statement of additional information of
the Fund, and all current supplemental advertising or marketing material
relating to the Fund, comply with the Securities Act, the Investment Company
Act, all applicable state laws and any applicable rules of the NASD. No such
document or material contains any untrue statement of
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a material fact or omits to state any material fact necessary to make the
statements therein not misleading.
(i) All advertising or marketing materials relating to the
Fund required to be filed with the NASD or under any state securities law have
been so filed in a timely manner.
SECTION 6.12 FUND INSURANCE. There are in full force and effect one or
more policies of insurance issued by insurers of recognized responsibility,
including, without limitation, a fidelity bond underwritten by ICI Mutual
Insurance Company, insuring the Fund and its properties and business against
such losses and risks, and in such amounts, as are customary, or required by any
Governmental Entity, in the case of corporations of established reputation
engaged in the same or similar business and similarly situated (collectively,
"Fund Policies"). The Fund has no reason to believe that it will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those presently in effect.
SECTION 6.13 MATERIAL CONTRACTS OF THE FUND; NO DEFAULTS. Schedule 6.13
contains a true and complete list of each material contract, agreement,
operating lease, capital lease, permit, commitment, binding arrangement or
instrument to which the Fund is a party or by which the Fund is bound,
including, without limitation, administrative agreements, transfer agent
agreements, custody agreements, underwriting and distribution related agreements
(including copies of all plans adopted under Rule 12b-1 under the Investment
Company Act). There has not been any material default in any contract,
agreement, operating lease, capital lease, permit, commitment, binding
arrangement or instrument, and the Fund has not waived any material right
thereunder or with respect thereto.
SECTION 6.14 FUND FINANCIAL STATEMENTS. The audited balance sheet of the
Fund as of March 31, 1997 and the related financial statements for the year then
ended, as reported on by McGladrey & ▇▇▇▇▇▇, LLP, and the unaudited balance
sheet of the Fund as of September 30, 1997 (the "Recent Fund Statement Date")
and the related unaudited financial statements for the period then ended, as
prepared by McGladrey & ▇▇▇▇▇▇, LLP, and each balance sheet of the Fund, and the
related financial statements, as of a date or period subsequent to the Recent
Fund Statement Date, have been or will be prepared in accordance with GAAP
applied on a consistent basis, and present fairly the financial position and
results of operation of the Fund on the dates and for the periods stated therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments in accordance with GAAP) (collectively, the financial statements
referred to above being referred to as the "Fund Financial Statements").
SECTION 6.15 COMPANY FINANCIAL STATEMENTS. The audited balance sheet of
the company as of December 31, 1996 and the related financial statements for the
year then ended, as reported on by McGladrey & ▇▇▇▇▇▇ LLP, and the unaudited
balance sheet of the Company (the "Company Balance Sheet"), as of September 30,
1997 (the "Recent Company Statement Date") and the related unaudited financial
statements for the period then ended, as prepared by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, C.P.A.,
and each balance sheet of the Company, and the related financial statements,
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as of a date or period subsequent to the Recent Company Statement Date, have
been or will be prepared in accordance with GAAP applied on a consistent basis,
and present fairly the financial position and results of operation of the
Company on the dates and for the periods stated therein (subject, in the case of
unaudited interim statements, to normal year-end audit adjustments in accordance
with GAAP) (collectively, the financial statements referred to above being
referred to as the "Company Financial Statements").
SECTION 6.16 CONSENTS. Other than as listed in Schedule 6.16 hereto, no
approval, authorization, consent, license, clearance or order of, declaration or
notification to, or filing, registration or compliance with, any Governmental
Entity or any other Person is required in order to permit the Shareholders to
effect the Merger as contemplated hereby.
SECTION 6.17 NO UNDISCLOSED LIABILITIES. Except (a) to the extent set
forth or provided for in either the Fund Financial Statements and the notes
thereto or the Company Financial Statements or the notes thereto, (b) as set
forth in Schedule 6.17, or (c) for non-material current liabilities incurred
since the Recent Company Statement Date or the Recent Fund Statement Date in the
Ordinary Course, as of the date hereof neither the Fund nor the Company has any
liabilities, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether the amounts thereof are readily ascertainable or not,
or any unrealized or anticipated losses from any commitments of a contractual
nature, including Taxes with respect to or based upon the transactions or events
occurring at or prior to the Closing.
SECTION 6.18 PROPERTIES AND ASSETS; ENCUMBRANCES. The Company has good
and marketable title to all of its properties and assets including, without
limitation, the properties and assets listed in the Company Balance Sheet, free
and clear of all Liens. Each lease and sublease under which the Company is
lessee of any real or personal property is in full force and effect, and there
is not under any such lease any existing or claimed default by the Company. The
Company owns no real property.
SECTION 6.19 INTANGIBLE ASSETS. The Company and the Fund are validly
licensed or otherwise have the right to use, all trademarks, trademark rights,
trade names, trade name rights, service marks, service ▇▇▇▇ rights, copyrights
and other proprietary intellectual property rights, including computer programs
and software (collectively, "Intellectual Property Rights"), which are used in
the conduct of the business of the Company or the Fund, including but not
limited to the use of the name "▇▇▇-▇▇▇▇▇▇" by the Fund. No claims are pending
or overtly threatened that the Company or the Fund is infringing or otherwise
conflicting with the asserted rights of any Person with regard to any
Intellectual Property Rights, including but not limited to the use of the name
"▇▇▇-▇▇▇▇▇▇" by the Fund. No Person is infringing on the rights of the Company
or the Fund with respect to any Intellectual Property Right, No Person has
threatened any claim against the Company or the Fund in connection with the
involvement of such Person in the conception and development of Intellectual
Property Rights of the Company or the Fund.
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SECTION 6.20 COMPANY INSURANCE. There are in full force and effect one
or more policies of insurance or fidelity bonds issued by insurers of recognized
responsibility, insuring the Company and its properties and business against
such losses and risks, and in such amounts, as are customary, or required by any
Governmental Entity, in the case of corporations of established reputation
engaged in the same or similar business and similarly situated (collectively,
"Company Policies"). The Company has no reason to believe that it will be unable
to renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those presently in effect.
SECTION 6.21 JUDGMENTS; LITIGATION. There is no Action pending or
threatened against or affecting the Company or the Fund or their properties,
assets or business. The Company is not aware of any fact which might result in
or form the basis for any such Action. Neither the Company nor the Fund is in
default with respect to any order, writ, judgment, injunction, decree,
determination or award of any court or of any Governmental Entity.
SECTION 6.22 EMPLOYEE BENEFIT PLANS; EMPLOYEE RELATIONS. Except as set
forth in Schedule 6.22, neither the Company nor the Fund has any (a) bonus,
deferred compensation, pension, profit-sharing, stock option, employee stock
purchase or retirement plans or other employee benefit plans, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA, or
(b) collective bargaining agreements or any written employment agreements.
SECTION 6.23 PERMITS, LICENSES, ETC. The Company and the Fund have all
franchises, licenses, permits and other governmental approvals (including,
without limitation, registrations under the Securities Laws, the rules and
regulations of NASD and under California law) (collectively, the "Permits")
necessary to enable them to carry on their business as presently conducted.
There are no proceedings pending or, to the knowledge of the Company, no event
has occurred and no condition exists that is reasonably likely to form the basis
for any proceeding, which is reasonably likely to result in revocation,
cancellation or suspension of any Permit.
SECTION 6.24 TAX MATTERS. With respect to the Company and the Fund, (a)
all Tax Returns required by law to be filed have been filed, (b) all Taxes due
with respect to such Tax Returns have been paid, except Taxes as to which
adequate reserves have been provided in accordance with GAAP, (c) no
deficiencies for any Taxes have been proposed, assessed or asserted by any
taxing authority against either the Company or the Fund, (d) no adjustments to
the net operating loss carryovers and the tax basis in the amortizable
intangible assets of the Company or the Fund have been proposed, assessed or
asserted by the IRS, (e) no waivers of the time to assess any material Taxes are
outstanding nor are any written requests for such waivers pending, and (f) no
Tax Return is currently being or has been audited by any taxing authority.
SECTION 6.25 NO CONFLICT. Neither the execution, delivery and
performance of this Agreement by the Company, nor the consummation by the
Company of the transactions contemplated hereby, will (a) conflict with, or
result in a breach of, any of the terms, conditions
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or provisions of the Articles of Incorporation or bylaws of the Company, (b)
conflict with, result in a breach or violation of, give rise to a default under,
or result in the acceleration of performance under any mortgage, lease,
agreement, note, bond, indentures, guarantee, any Permit, or any Legal
Requirement to which the Company may be subject, or (c) give rise to an
imposition of any Lien upon any of the assets of the Company.
SECTION 6.26 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
6.26, since the Recent Company Statement Date or the Recent Fund Statement Date,
as applicable, (a) there has been no Material Adverse Effect, (b) there has not
been any material adverse change, or any event of which could reasonably be
expected to cause a Material Adverse Effect, and (c) each of the Company and the
Fund have conducted its business only in the ordinary Course.
SECTION 6.27 COMPLIANCE WITH LAW. The Company and the Fund are in
compliance with all Legal Requirements applicable to their business. The Company
and the Fund have made all required registrations and filings with and
submissions to all applicable Governmental Entities relating to their respective
operations as currently conducted and as proposed to be conducted. All such
registrations, filings and submissions were in compliance with all Legal
Requirements when filed, no material deficiencies have been asserted by any such
applicable Governmental Entities with respect to such registrations, filings or
submissions, and no facts or circumstances exist which would indicate that a
material deficiency may be asserted by any such authority with respect to any
such registration, filing or submission.
SECTION 6.28 BROKER FEES. No broker, finder or similar agent has been
employed by or on behalf of the Company or the Fund in connection with this
Agreement or the transactions contemplated hereby, and neither the Company nor
the Fund has entered into any agreement or understanding of any kind with any
Person or entity for the payment of any brokerage commission, finder's fee or
any similar compensation in connection with this Agreement or the transactions
contemplated hereby.
SECTION 6.29 DISCLOSURE. No representation or warranty of the Company in
this Agreement and no information contained in any Schedule or other writing
delivered pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
The Parent and Subsidiary hereby represent and warrant to, and
covenant and agree with, the Company that:
SECTION 7.1 EXECUTION AND DELIVERY. This Agreement has been duly
executed
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and delivered by Parent and Subsidiary and constitutes a legal, valid
and binding agreement of Subsidiary enforceable against such Parent and
Subsidiary in accordance with its terms.
SECTION 7.2 NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any term or provision
of, or (with or without notice or passage of time, or both) constitute a default
under, any indenture, mortgage, deed of trust, trust (constructive and other),
loan agreement or other agreement or instrument to which such Subsidiary is a
party or by which Parent and/or Subsidiary is bound, or violate any Legal
Requirement applicable to or binding upon Parent and/or Subsidiary.
SECTION 7.3 NO BROKERS. No broker, finder or similar agent has been
employed by or on behalf of Parent or Subsidiary in connection with this
Agreement or the transactions contemplated hereby, and Parent or Subsidiary has
not entered into any agreement or understanding of any kind with any person or
entity for the payment of any brokerage commission, finder's fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
SECTION 7.4 REGULATION S OFFERING. The Parent is effecting a public
offering of its preferred stock in Germany in full compliance with the
exemptions from Securities Laws provided under Regulation S under the Securities
Act and in full compliance with the securities laws of Germany and any other
country where the offering is being made.
ARTICLE 8
AFFIRMATIVE COVENANTS OF THE COMPANY
During the period commencing on the date hereof and continuing
through the Closing Date, the Company covenants and agrees that:
SECTION 8.1 QUALIFICATION. The Company shall maintain all qualifications
to transact business and remain in good standing in the State of California and
in the foreign jurisdictions where it is presently registered or qualified.
SECTION 8.2 ORDINARY COURSE. The Company shall conduct its business in,
and only in, the Ordinary Course and, to the extent consistent with such
business, the Company shall preserve intact its current business organization,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and going business value shall be
unimpaired at the Closing Date.
SECTION 8.3 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company shall comply
promptly with all requirements that Applicable Law may impose upon it and its
operations and
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with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, the Subsidiary in
connection with any such requirements imposed upon any Subsidiary, or upon any
of its Affiliates, in connection therewith or herewith.
SECTION 8.4 ADVISORY AGREEMENT AND UNDERWRITING AGREEMENT CONSENT. The
Company shall use its best efforts to (a) cause the Board of Directors of the
Fund to approve, and to solicit the shareholders of the Fund as promptly as
practicable to approve (including recommending that the shareholders approve), a
new investment advisory agreement for the Fund substantially in the form
attached hereto as Annex A (the "New Advisory Agreement"), to be effective on
the Closing Date, pursuant to the provisions of Section 15 of the Investment
Company Act and consistent with all requirements of the Investment Company Act
applicable thereto, and (b) to cause the Board of Directors of the Fund or the
shareholders of the Fund to approve a new underwriting agreement for the Fund
substantially in the form attached hereto as Annex B (the "New Underwriting
Agreement"), to be effective on the Closing Date; pursuant to the provisions of
Section 15 of the Investment Company Act applicable thereto. Without limiting
the generality of the foregoing, the Company shall use its best efforts to
prepare and file or cause to be prepared and filed with the SEC and all other
applicable governmental bodies and regulatory authorities, as promptly as
practicable, all proxy solicitation materials necessary or advisable for
solicitation of the approval of the shareholders of the Fund of the New Advisory
Agreement and the New Underwriting Agreement. All such proxy solicitation
materials shall comply in all material respects with all requirements of
Applicable Law, including, without limitation, the Exchange Act and the
Investment Company Act, and shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements contained therein not misleading. All costs and
expenses associated with such proxy solicitation shall be borne by the
Subsidiary as a post-closing allocation and shall not be charged to the Company
or the Fund.
SECTION 8.5 OTHER CONSENTS. The Company shall use its best efforts to
obtain any consent, authorization or approval of, or exemption by, any Person
required to be obtained or made by any party hereto in connection with the
transactions contemplated hereby or the taking of any action in connection with
the consummation thereof.
SECTION 8.6 MAINTAIN INSURANCE. The Company shall maintain its Company
Policies and the Fund shall maintain its Fund Policies in full force and effect
and shall not do, permit or willingly allow to be done any act by which any of
the Company Policies or the Fund Policies may be suspended, impaired or
canceled.
SECTION 8.7 PERMITS. The Company shall maintain in full force and
effect, and comply with, all Permits.
SECTION 8.8 TAX ASSESSMENTS AND AUDITS. The Company shall furnish
promptly to the Subsidiary a copy of all notices of proposed assessment or
similar notices or reports that
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are received from any taxing authority and which relate to the Company's
operations for periods ending on or prior to the Closing Date. The Company shall
promptly inform the Subsidiary, and permit the participation in and control by
the Subsidiary, of any investigation, audit or other proceeding by a
Governmental Entity in connection with any Taxes, assessment, governmental
charge or duty and shall not consent to any settlement or final determination in
any proceeding without the prior written consent of the Subsidiary.
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SECTION 8.9 SECTION 15(F). The Company shall use its best efforts to
assure the compliance with the conditions of Section 15(f) of the Investment
Company Act as it applies to the transactions contemplated by this Agreement.
SECTION 8.10 CONDITIONS TO CLOSING. The Company shall use its best
efforts to bring about the satisfaction of the conditions precedent to Closing
set forth in Section 11.1 of this Agreement.
SECTION 8.11 MATERIAL ADVERSE EFFECT. The Company shall promptly advise
the Subsidiary orally and, within three business days thereafter, in writing of
any change in the Company's or the Fund's business or condition that has had or
may have a Material Adverse Effect.
SECTION 8.12 ACCESS AND INFORMATION. The Company shall afford to the
Subsidiary and the Subsidiary's accountants, counsel and other representatives,
reasonable access to all of its properties, books, contracts, commitments,
records and personnel and, during such period, shall furnish promptly to the
Subsidiary all information concerning its business, properties and personnel as
the Subsidiary may reasonably request.
SECTION 8.13 FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Legal Requirements, to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing any further action is necessary or desirable to
carry out the purposes of this Agreement, the Company and the Subsidiary, as the
case may be, shall take or cause to be taken all such necessary or convenient
action and execute, and deliver and file, or cause to be executed, delivered and
filed, all necessary or convenient documentation.
ARTICLE 9
NEGATIVE COVENANTS OF THE COMPANY
During the period commencing on the date hereof and continuing
through the Closing Date, the Company covenants and agrees (except as expressly
contemplated by this Agreement or to the extent that the Subsidiary shall
otherwise expressly consent in writing) that:
SECTION 9.1 DISCHARGE. The Company shall not cancel, compromise, release
or discharge any claim of the Company upon or against any person or waive any
right of the Company of material value, or discharge any Lien upon any asset of
the Company or compromise any debt or other obligation of the Company to any
person other than Liens, debts or obligations with respect to current
liabilities of the Company.
SECTION 9.2 CHANGE IN BUSINESS. The Company shall not (a) amend its
Articles
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of Incorporation or bylaws, (b) acquire by merging or consolidating with, or
agreeing to merge or consolidate with, or purchase substantially all of the
stock or assets of, or otherwise acquire, any business or any corporation,
partnership, association or other business organization or division thereof, (c)
enter into any partnership or joint venture, (d) declare, set aside, make or pay
any dividend or other distribution in respect of its capital stock or purchase
or redeem, directly or indirectly, any shares of its capital stock, (e) issue or
sell any shares of its capital stock of any class or any options, warrants,
conversion or other rights to purchase any such shares or any securities
convertible into or exchangeable for such shares, or (f) liquidate or dissolve
or obligate itself to do.
SECTION 9.3 INDEBTEDNESS. The Company shall not incur any Indebtedness
other than non-material obligations in the ordinary course of business, sell any
debt securities or lend money to or guarantee the Indebtedness of any Person
other than any additional subordinated loans that may be required to maintain
the Company's compliance with the net capital rules under federal Securities
Laws.
SECTION 9.4 ACCOUNTING CHANGES. The Company shall not make any changes
in the accounting principles, methods, record or practices followed by it or
depreciation or amortization policies or rates heretofore adopted by it, and
maintain its books, records and accounts in accordance with GAAP applied on a
basis consistent with that of prior periods.
SECTION 9.5 DISPOSITION OF ASSETS. The Company shall not sell, transfer,
license, lease or otherwise dispose of, or suffer or cause the encumbrance by
any Lien upon any of its properties or assets, tangible or intangible, or any
interest therein.
SECTION 9.6 EMPLOYMENT MATTERS. The Company shall not (a) adopt or amend
in any material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other plan, agreement, trust, fund or arrangement for the benefit
of employees (whether or not legally binding) other than to comply with any
Legal Requirement or (b) pay, or make any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind, or
any severance or termination pay to, or enter into any employment or loan or
loan guarantee agreement with, any current or former officer, director, employee
or consultant of the Company other than any additional subordinated loans as are
referenced in Section 9.3.
SECTION 9.7 MATERIAL CONTRACTS. The Company shall not terminate or
modify, or commit or cause or suffer to be committed any act that will result in
breach or violation of any term of or (with or without notice or passage of
time, or both) constitute a default under or otherwise give any person a basis
for nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement, instrument, arrangement or
understanding, written or oral, disclosed in this Agreement or the Schedules
hereto. The Company shall not become a party to any contract or commitment other
than in the Ordinary
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Course, and shall meet all of its contractual obligations in accordance with
their respective terms.
SECTION 9.8 FUND QUALIFICATION. The Company shall not take any action
(a) that would prevent the Fund from qualifying as a "regulated investment
company" within the meaning of Section 851 of the Code, or (b) that would be
inconsistent with the Fund's prospectus as currently in effect and other
offering, advertising and marketing materials currently in use.
SECTION 9.9 COMPETING OFFERS; MERGER OR LIQUIDATION. The Company shall
not directly or indirectly, through any officer, director, agent, or otherwise,
solicit, initiate or encourage the submissions of bids, offers or proposals by,
any Person with respect to an acquisition of the Company or its assets or
capital stock or a merger or similar transaction, and shall not engage any
broker, financial adviser or consultant with an incentive to initiate or
encourage proposals or offers from other parties. Furthermore, the Company shall
not, directly or indirectly, through any officer, director, agent or otherwise,
engage in negotiations concerning any such transaction with, or provide
information to, any Person other than the Subsidiary and its representatives
with a view to engaging, or preparing to engage, that Person with respect to any
matters in this Section 9.9. The Company shall not commence any proceeding to
merge, consolidate or liquidate or dissolve or obligate itself to do so.
ARTICLE 10
COVENANTS OF CORPORATION, PARENT AND SUBSIDIARY
The Corporation, Parent and Subsidiary jointly and severally
covenant and agree (except as expressly contemplated by this Agreement or to the
extent that the Company shall otherwise expressly consent in writing) as
follows:
SECTION 10.1 SECTION 15(F)(1)(A). The Subsidiary agrees that, for a
period of not less than three years after the Closing Date, the Subsidiary shall
(unless otherwise permitted pursuant to any exemptive order or other relief
granted by the SEC) use its best efforts to ensure that no more than 25% of the
members of the Board of Directors of the Fund shall be "interested persons" (as
defined in the Investment Company Act) of the Company or any person that before
or after the Closing Date was or is an affiliated person of the Company within
the meaning of the Investment Company Act.
SECTION 10.2 SECTION 15(F)(1)(B). The Subsidiary agrees that, for a
period of not less than three years, the Subsidiary shall not take, recommend or
endorse any action that would constitute an "unfair burden," as that term is
used in Section 15 of the Investment Company Act, on the Fund.
SECTION 10.3 CAPITALIZATION AND OPERATIONS OF THE SUBSIDIARY. The Parent
shall have a minimum equity capitalization at the Closing Date of at least
$10,000,000 U.S., which shall be reflected on a balance sheet of a date not more
than 5 business days prior to the
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Closing Date and certified as true and accurate by the Parent as of the Closing
Date. Parent will cause Majority Shareholder to be elected a Director and
President, Chief Executive Officer, Chief Financial Officer and designated
Principal of the Subsidiary and Majority Shareholder shall have an initial
three-year employment agreement with the Parent and the Subsidiary,
substantially in the form of Annex C hereto. Subsidiary shall continue to be
operated as a registered broker-dealer and investment adviser including as an
underwriter and distributor of the Fund and shall be the principal operating
vehicle for the mutual fund and investment advisory business operations in the
U. S. of Parent and Subsidiary and any affiliates thereof.
SECTION 10.4 OPERATIONS OF THE COMPANY AND THE FUND. Promptly after the
Closing, Subsidiary will cause the name of the Fund to be changed to American
Diversified Funds, Inc. with a single portfolio to remain the ▇▇▇-▇▇▇▇▇▇
Balanced Fund. Subsidiary will further prepare and register with the SEC under
the Securities Act, two additional mutual fund series portfolios, one an
American Diversified Mini-Cap Fund for distribution in Europe and one an
American Diversified Germany Growth Fund for distribution in the U.S. Subsidiary
agrees to ensure that any series of the Fund using the Names shall not take or
endorse any action that would render the name or title of the Fund, or of any
security of which such series is the issuer, deceptive or misleading. Subsidiary
will continue to manage the ▇▇▇-▇▇▇▇▇▇ Balanced Fund for a period of at least
three (3) years from the Closing in accordance with the investment policies set
forth in the current Fund Prospectus and shall use its best efforts to increase
the marketing and sale of shares of the Fund to increase the Fund assets by
least $20 million within three months of closing.
SECTION 10.5 COVENANTS OF THE CORPORATION. The Corporation agrees to
take all action as shall be required to cause the Parent and Subsidiary to
complete the Merger and to perform and comply with all conditions to which they
are subject under this Agreement.
ARTICLE 11
CONDITIONS PRECEDENT TO CLOSING
SECTION 11.1 CONDITIONS OF SUBSIDIARY'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement, the obligations of the Subsidiary to
consummate the transactions contemplated hereby shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions:
11.1.1 New Advisory Agreement. The shareholders of the
Fund shall have approved the terms of the New Advisory Agreement in accordance
with provisions of Section 15 of the Investment Company Act.
11.1.2 New Underwriting Agreement. The Board of
Directors of the Fund or the shareholders of the Fund shall have approved the
terms of the New Underwriting Agreement in accordance with the provisions of
Section 15 of the Investment Company Act.
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11.1.3 NASD Broker/Dealer Approval. The NASD shall have
approved in writing the change in ownership of the Company contemplated by this
Agreement.
11.1.4 Adverse Proceedings. There shall not be
instituted, or pending or threatened, any Action before any Government Entity
(a) challenging the Merger or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (b) seeking to prohibit
the direct or indirect ownership or operation by the Subsidiary of all or a
material portion of the business or assets of the Company, or to compel the
Subsidiary or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or the Subsidiary.
11.1.5 No Errors, etc. The representations and
warranties of the Company in this Agreement shall be true and correct on and as
of the Closing Date with the same effect as if made on the Closing Date and the
Company shall have complied with all covenants and agreements and satisfied all
conditions on the Company's part to be performed or satisfied on or prior to the
Closing Date
11.1.6 Opinion of the Company's Counsel. Subsidiary
shall have received from Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇ LLP, counsel for the
Company, a written opinion dated the Closing Date and addressed to the
Subsidiary, in substantially the form attached as Exhibit C hereto.
11.1.7 Certificate of the Company. Subsidiary shall
have received from the Company a certificate dated the Closing Date in
substantially the form attached as Exhibit D hereto.
11.1.8 Other Consents. All consents from third parties,
including from any Governmental Entity, landlord or other Person, necessary for
the consummation of the transactions contemplated hereby shall have been
obtained.
11.1.9 Government Filings. All filings and approvals
required to have been made with or obtained from any Governmental Entity in
connection with the transactions contemplated hereby by the Company will have
been made or obtained.
11.1.10 Material Adverse Effect. No act, event or
condition shall have occurred after the date hereof which the Subsidiary, in its
reasonable discretion, determines has had or could have a Material Adverse
Effect.
11.1.11 Material Contracts. All material contracts listed
in Schedules 6.8 and 6.13 hereto, including, without limitation, the Dealer
Agreements, shall be in full force and effect on the Closing Date.
SECTION 11.2 CONDITIONS OF COMPANY'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement, the obligations of the Company to consummate
the transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of the
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following conditions:
11.2.1 Adverse Proceedings. There shall not be instituted and pending or
threatened any Action before any Governmental Entity (a) challenging the Merger
or otherwise seeking to restrain or prohibit the consummation of the
transactions contemplated hereby or (b) seeking to prohibit the direct or
indirect ownership or operation by the Subsidiary of all or a material portion
of the business or assets of the Company, or to compel the Subsidiary or the
Company to dispose of or hold separate all or a material portion of the business
or assets of the Company or the Subsidiary.
11.2.2 No Errors, etc. The representations and warranties of the Parent
and Subsidiary in this Agreement shall be true and correct on and as of the
Closing Date with the same effect as if made on the Closing Date and the Parent
and/or Subsidiary shall have complied with all covenants and agreements and
satisfied all conditions on person's part to be performed or satisfied on or
prior to the Closing Date.
11.2.3 Certificates of Corporation, Parent and Subsidiary. The Company
shall have received from the Corporation, Parent and Subsidiary certificates
dated the Closing Date in substantially the form attached as Exhibits E-1, E-2
and E-3 hereto.
11.2.4 Opinion of the Subsidiary's Counsel. Company shall have received
from counsel for the Subsidiary a written opinion dated the Closing Date and
addressed to the Company, in substantially the form attached as Exhibit F
hereto.
ARTICLE 12
TERMINATION, AMENDMENT AND WAIVER
SECTION 12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual consent of the Subsidiary and the
Company;
(b) by the Subsidiary if the Closing has not occurred
on or before March 1, 1998;
(c) by the Subsidiary if (i) at any time the Subsidiary
has reasonable grounds to believe, and does believe, that there has been a
material misrepresentation, breach of warranty or breach of covenant by the
Company under this Agreement or (ii) any of the conditions precedent to Closing
set forth in Section 11.1 of this Agreement have not been met on the Closing
Date; or
(d) by the Company if (i) at any time the Company has
reasonable
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grounds to believe, and does believe, that there has been a material
misrepresentation, breach of warranty or breach of covenant by the Subsidiary
▇▇▇▇▇▇ this Agreement or (ii) any of the conditions precedent to Closing set
forth in Section 11.2 of this Agreement have not been met on the Closing Date.
SECTION 12.2 EFFECT OF TERMINATION.
(a) Upon termination of this Agreement as provided in
Section 12.1(a), this Agreement shall forthwith become void and there shall be
no liability or obligation on the part of any party hereto or their respective
agents or other representatives.
(b) In the event of termination of this Agreement as
provided in Section 12.1(b), (c) or (d) hereof, such termination shall be
without prejudice to any rights that the terminating party or parties may have
against the breaching party or parties or any other Person under the terms of
this Agreement or otherwise.
SECTION 12.3 AMENDMENT. This Agreement may be amended at any time only
by a written instrument executed by the Corporation, Parent, Subsidiary, Company
and the Majority Shareholder.
SECTION 12.4 WAIVER. Any term or provision of this Agreement may be
waived in writing at any time by the party or parties entitled to the benefits
thereof. No failure to exercise and no delay in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude the exercise of any other
right, power or privilege. No waiver of any breach of any covenant or agreement
hereunder shall be deemed a waiver of any preceding or subsequent breach of the
same or any other covenant or agreement. The rights and remedies of each party
under this Agreement are in addition to all other rights and remedies, at law or
in equity, that such party may have against the other parties.
ARTICLE 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
SECTION 13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement or in
any writing delivered pursuant hereto or at the Closing shall survive the
Closing and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) for a period
of three years from the Closing and no claim may be made hereunder unless
written notice of the claim is given within a three year period.
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SECTION 13.2 INDEMNIFICATION.
(a) The Company covenants and agrees to defend,
indemnify and hold harmless each Subsidiary from and against any Damages arising
out of or resulting from: (i) any inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing; (ii) the failure of the Company to
perform or observe fully any covenant, agreement or provision to be performed or
observed by the Company pursuant to this Agreement; or (iii) any Action arising
out of or resulting from the conduct by the Company of its business or
operations, or the Company's occupancy or use of its properties or assets, on or
prior to the Closing Date.
(b) The Subsidiary covenants and agrees to defend,
indemnify and hold harmless the Company from and against any Damages arising out
of or resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by such Subsidiary in this Agreement or in any writing delivered
pursuant to this Agreement or at the Closing or (ii) the failure of such
Subsidiary to perform or observe fully any covenant, agreement or provision to
be performed or observed by such Subsidiary pursuant to this Agreement.
SECTION 13.3 THIRD PARTY CLAIMS.
(a) If any party entitled to be indemnified pursuant to
Section 13.2 (an "Indemnified Party") receives notice of the assertion by any
third party of any claim or of the commencement by any such third party of any
Action (any such claim or Action being referred to herein as an "Indemnifiable
Claim") with respect to which another party hereto (an "Indemnifying Party") is
or may be obligated to provide indemnification, the Indemnified Party shall
promptly notify the Indemnifying Party in writing (the "Claim Notice") of the
Indemnifiable Claim; provided, however, that the failure to provide such notice
shall not relieve or otherwise affect the obligation of the Indemnifying Party
to provide indemnification hereunder, except to the extent that any Damages
directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30) days
after receipt of the Claim Notice to undertake, conduct and control, through
counsel of its own choosing, and at its expense, the settlement or defense
thereof, and the Indemnified Party shall cooperate with the Indemnifying Party
in connection therewith; provided, however, that (i) the Indemnifying Party
shall permit the Indemnified Party to participate in such settlement or defense
through counsel chosen by the Indemnified Party (subject to the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld), provided
that the fees and expenses of such counsel shall not be borne by the
Indemnifying Party, and (ii) the Indemnifying Party shall not settle any
Indemnifiable Claim without the Indemnified Party's consent. So long as the
Indemnifying Party is vigorously contesting any such Indemnifiable Claim in good
faith, the Indemnified Party shall not pay or settle such claim without the
Indemnifying Party's consent, which consent shall not be unreasonably withheld.
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(c) If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after receipt of the Claim Notice that
it elects to undertake the defense of the Indemnifiable Claim described therein,
the Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided,
however, that the Indemnified Party shall notify the Indemnifying Party of any
compromise or settlement of any such Indemnifiable Claim.
(d) Anything contained in this Section 13.3 to the
contrary notwithstanding, the Company shall not be entitled to assume the
defense for any Indemnifiable Claim (and shall be liable for the reasonable fees
and expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief for
other than money damages against the Subsidiary or which the Subsidiary
determines, after conferring with its counsel, cannot be separated from any
related claim for money damages and which, if successful, would adversely affect
the business, properties or prospects of the Subsidiary.
SECTION 13.4 LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding any other provision of this
Agreement, an Indemnified Party shall have no right to indemnification under
this Article 13 unless an until the amount of Damages due the Indemnified Party,
together with all claims for Damages of all Indemnified Parties, equals or
exceeds $10,000.00 in the aggregate, in which event the Indemnified Parties
shall be indemnified for the entire amount of such Damages (including the first
$10,000.00).
SECTION 13.5 INDEMNIFICATION NON-EXCLUSIVE. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common law remedy any party may have for breach of
representation, warranty, covenant or agreement.
ARTICLE 14
GENERAL PROVISIONS
SECTION 14.1 NOTICES. All notices and other communications under
or in connection with this Agreement shall be in writing and shall be deemed
given (a) if delivered personally (including by overnight express or messenger),
upon delivery, (b) if delivered by registered or certified mail (return receipt
requested), upon the earlier of actual delivery or three days after being
mailed, or (c) if given by telecopy, upon confirmation of transmission by
telecopy, in each case to the parties at the following addresses:
(i) if to the Company or the Majority Shareholder:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., #▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rea, Jr.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to the Subsidiary:
American Diversified Securities, Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (619) 759- 3563
With a copy to:
[name of counsel]
(iii) If to the Parent:
American Diversified Holdings, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, #▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(iv) If to the Corporation:
American Diversified Corporation
_________________________________
_________________________________
Attention:
Telephone: ____________________________
Telecopy: ____________________________
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SECTION 14.2 SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.
SECTION 14.3 ENTIRE AGREEMENT. This Agreement, including the annexes and
schedules attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto in respect of its subject matter and
supersedes all prior and contemporaneous agreements and understandings, oral and
written, between the parties with respect to such subject matter.
SECTION 14.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefits of the Corporation, Parent, Subsidiary, Company
and the Majority Shareholder and their respective transferees, successors, heirs
and permitted assigns.
SECTION 14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 14.6 RECITALS, SCHEDULES AND ANNEXES. The recitals, schedules
and annexes to this Agreement are incorporated herein and, by this reference,
made a part hereof as if fully set forth at length herein.
SECTION 14.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of California.
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(PLAN AND AGREEMENT OF MERGER AND REORGANIZATION SIGNATURE PAGE)
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, all as of the date first above set forth.
CORPORATION:
AMERICAN DIVERSIFIED CORPORATION
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------
Its President
--------------------------------
PARENT:
AMERICAN DIVERSIFIED HOLDINGS, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------
Its President
--------------------------------
SUBSIDIARY:
AMERICAN DIVERSIFIED SECURITIES, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, Jr.
--------------------------------
Its President, CFO
--------------------------------
COMPANY:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ REA, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, Jr.
--------------------------------
MAJORITY SHAREHOLDER:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rea, Jr.
-------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, Jr.
33
