EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
BETWEEN
NUCLEUS, INC.
AND
YOUNG DATA SYSTEMS, INC. AND
▇▇▇▇ ▇▇▇▇▇ (PRINCIPAL SHAREHOLDER)
JUNE 15, 1999
TABLE OF CONTENTS
Page
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1. Definitions..............................................................1
2. Basic Transaction........................................................3
(a) The Merger..........................................................3
(b) The Closing.........................................................3
(c) Actions at the Closing..............................................3
(d) Effect of Merger....................................................3
(e) Procedure for Payment...............................................4
(f) Closing of Transfer Records.........................................4
3. Representations and Warranties of the Target and Principal Shareholder...4
(a) Organization, Qualification, and Corporate Power....................4
(b) Capitalization......................................................5
(c) Authorization of Transaction........................................5
(d) Noncontravention....................................................5
(e) Financial Statements................................................5
(f) Events Subsequent to Most Recent Fiscal Quarter End.................5
(g) Undisclosed Liabilities.............................................6
(h) Brokers' Fees.......................................................6
(i) Continuity of Business Enterprise...................................6
(j) Interests in Subsidiaries of the Target.............................6
(k) Absence of Certain Changes..........................................6
(l) Litigation; Liabilities.............................................6
(m) Compliance with Law.................................................7
(n) Taxes...............................................................7
(o) Material Contracts..................................................8
(p) Assets of the Target................................................8
(q) Affiliate Transactions..............................................8
(r) Customers...........................................................9
(s) Stock Ownership.....................................................9
4. Representations and Warranties of the Buyer..............................9
(a) Organization, Qualification and Corporate Power.....................9
(b) Capitalization......................................................9
(c) Authorization of Transaction.......................................10
(d) Noncontravention...................................................10
(e) Filings with the SEC...............................................10
(f) Financial Statements...............................................10
(g) Events Subsequent to Most Recent Fiscal Year End...................10
(h) Undisclosed Liabilities............................................10
(i) Brokers' Fees......................................................11
(j) Continuity of Business Enterprise..................................11
(k) Disclosure.........................................................11
5. Covenants...............................................................11
(a) General............................................................11
(b) Notices and Consents...............................................11
(c) Regulatory Matters and Approvals...................................11
(d) Operation of Target Business.......................................11
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(e) Full Buyer Access..................................................12
(f) Notice of Developments.............................................12
(g) Target Exclusivity.................................................12
(h) Restricted Stock; Compliance with the Securities Act...............12
(i) Current Report on Form 8-K.........................................13
(j) Continuity of Business Enterprise..................................13
(k) Liability for Certain Obligations..................................13
6. Conditions to Obligation to Close.......................................14
(a) Conditions to Obligation of the Buyer..............................14
(b) Conditions to Obligation of the Target.............................15
7. Termination.............................................................15
(a) Termination of Agreement...........................................15
(b) Effect of Termination..............................................16
8. Indemnification.........................................................16
(a) Indemnification by the Principal Shareholder.......................16
(b) Indemnification by Buyer...........................................16
(c) Method of Asserting Claims.........................................16
(d) Remedies Cumulative................................................18
9. Miscellaneous...........................................................18
(a) Survival of Representations, Warranties, Covenants.................18
(b) Press Releases and Public Announcements............................18
(c) No Third Party Beneficiaries.......................................18
(d) Entire Agreement...................................................18
(e) Succession and Assignment..........................................18
(f) Counterparts.......................................................18
(g) Headings...........................................................18
(h) Notices............................................................18
(i) Governing Law......................................................19
(j) Amendments and Waivers.............................................19
(k) Severability.......................................................19
(l) Expenses...........................................................19
(m) Construction.......................................................20
(n) Incorporation of Schedules.........................................20
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AGREEMENT AND PLAN OF MERGER
Agreement entered into as of June 15, 1999, by and between Nucleus, Inc., a
Nevada corporation (the "Buyer"), Young Data Systems, Inc., (the "Target"), and
▇▇▇▇ ▇▇▇▇▇ (the "Principal Shareholder"). The Buyer, the Target, and the
Principal Shareholder are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization pursuant to Section 368(a) of the Internal Revenue
Code of 1986, as amended. The Target Stockholders will receive capital stock in
the Buyer in exchange for their capital stock in the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
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"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns
beneficially.
"Buyer Common Share" means any share of the Common Stock, $.001 par value
per share, of the Buyer.
"Buyer Preferred Share" means any share of Preferred Stock of the Buyer.
"Buyer Warrant" means any warrant to purchase a Buyer-owned Share.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share which any stockholder who or
which has exercised his or its appraisal rights under Illinois General
Corporation Law holds of record.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Exchange Agent" has the meaning set forth in Section 2(e) below.
"Financial Statements" has the meaning set forth in Section 3(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Illinois Articles of Merger" has the meaning set forth in Section 2(c)
below.
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"Illinois General Corporation Law" means the Business Corporation Act of
1983 of the State of Illinois, as amended.
"IRS" means the Internal Revenue Service.
"Loss" or "Losses" shall mean any liability, loss, damage, claim, charge,
action, suit, proceeding, investigation, deficiency, tax, interest, penalty,
cost, expense (including without limitation, reasonable attorneys' fees);
including, without limitation, lost profits, and other incidental, consequential
and punitive damages.
"Knowledge" means actual knowledge without independent investigation.
"Material Adverse Effect" means (i) any event, change or effect, as the
case may be, to: (A) the business, properties, assets, liabilities, financial
condition or results of operations of the Target, (B) the validity or
enforceability of this Agreement, or (C) the ability of the Buyer to consummate
the transaction contemplated by this Agreement and (ii) any breach (other than
an insignificant breach) of the representation, contained in Section 3(k), and
which in any such case is in the amount of $25,000 or more.
"Merger" has the meaning set forth in Section 2(a) below.
"Most Recent Fiscal Quarter End" has the meaning set forth in Section 4(f)
below.
"Nevada Certificate of Merger" has the meaning set forth in Section 2(c)
below.
"Nevada General Corporation Law" means the General Corporation Law of the
State of Nevada as amended.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Public Report" has the meaning set forth in Section 4(e) below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
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"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value per share,
of the Target.
"Target Stockholder" means any Person who or which holds any Target Shares.
2. Basic Transaction.
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(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Buyer's general
counsel in Chicago, Illinois commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
(the "Closing Date"); provided, however, that the Closing Date shall be no later
than July 15, 1999.
(c) Actions at the Closing. At the Closing, (i) the Target will
deliver to the Exchange Agent the various certificates, instruments, and
documents referred to in Section 6(a) below, (ii) the Buyer will deliver to
the Exchange Agent the various certificates, instruments, and documents
referred to in Section 6(b) below, (iii) the Buyer and the Target will file
with the Secretary of State of the State of Nevada a Certificate of Merger
in a form customarily accepted by the Secretary of State of the State of
Nevada (the "Nevada Certificate of Merger"), (iv) the Buyer and the Target
will file with the Secretary of State of the State of Illinois Articles of
Merger in a form customarily accepted by the Secretary of State of the
State of Illinois (the "Illinois Articles of Merger"), and (v) the Buyer
will deliver to the Exchange Agent in the manner provided below in this
Section 2 certificates evidencing the Buyer Shares issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
and Articles of Merger with the Secretary of State of the State of Nevada
and the Secretary of State of the State of Illinois, respectively, or such
later time as specified in the Certificate of Merger and Articles of
Merger. The Merger shall have the effect set forth in the Nevada General
Corporation Law and the Illinois General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf
of either the Buyer or the Target in order to carry out and effectuate the
transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of
Incorporation of the Buyer in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation
without any modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Conversion of Target Shares. At and as of the Effective
Time, (A) each Target Share issued and outstanding Target Shares (other
than any Dissenting Share or Buyer-
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owned Share) shall be converted into the right to receive 1,250 Buyer
Shares (the ratio of 1,250 Buyer Shares to one Target Share is referred to
herein as the "Conversion Ratio"), and the Exchange Agent shall be directed
to promptly issue the certificates for such Buyer Shares to the Principal
Shareholder upon receipt of the Target Shares as set forth in Section
2(e)(ii), (B) each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Illinois General Corporation Law, and
(C) each Buyer-owned Share shall be canceled; provided, however, that the
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or other change in
the number of Target Shares outstanding. No Target Share shall be deemed to
be outstanding or to have any rights other than those set forth above in
this Section 2(d)(v) after the Effective Time.
(v) Buyer Shares. Each Buyer Share issued and outstanding at
and as of the Effective Time shall remain issued and outstanding.
(vi) Buyer Warrants. Each Buyer Warrant outstanding at and as
of the Effective Time shall remain outstanding and in full force and
effect.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Buyer will
furnish to ▇▇▇▇▇▇, Price, Kaufman, & Kammholz (the "Exchange Agent") stock
certificates (issued in the name of the Principal Shareholder or his
nominee) representing that number of Buyer Shares equal to the product of
(I) the Conversion Ratio times (II) the number of outstanding Target Shares
(other than any Dissenting Shares and Buyer-owned Shares) and (B) the Buyer
shall cause the Exchange Agent to mail a letter of transmittal (with
instructions for its use) to each record holder of outstanding Target
Shares for the holder to use in surrendering the certificates which
represented his or its Target Shares in exchange for a certificate
representing the number of Buyer Shares to which he or it is entitled.
(ii) The Buyer shall not pay any dividend or make any
distribution on Buyer Shares (with a record date at or after the Effective
Time) to any record holder of outstanding Target Shares until the holder
surrenders for exchange his or its certificates which represented Target
Shares. The Buyer instead shall hold the dividend or distribution in trust
for the benefit of the holder pending surrender and exchange. In no event,
however, will any holder of outstanding Target Shares be entitled to any
interest or earnings on the dividend or distribution pending receipt.
(iii) The Buyer shall pay all charges and expenses of the
Exchange Agent.
(f) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Target Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving
Corporation.
3. Representations and Warranties of the Target and Principal
Shareholder. The Target and Principal Shareholder represent and warrant to
the Buyer that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and shall be correct and complete
as of the Closing Date (as though made then and as though the Closing Date
were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement
and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. Each of the
Target and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Target and its Subsidiaries is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required except where
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the lack of such qualification would not have a material adverse effect on the
financial condition of the Target and its Subsidiaries taken as a whole or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Each of the Target and its Subsidiaries has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the
Target consists of 100 Target Shares, all of which Target Shares are issued and
outstanding. All of the issued and outstanding Target Shares have been duly
authorized and are validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Target.
(c) Authorization of Transaction. The Target has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Target, enforceable
in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries is
subject or any provision of the charter or bylaws of any of the Target and its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of the Target and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets) except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
financial condition of the Target and its Subsidiaries taken as a whole or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Other than in connection with the provisions of the Illinois General
Corporation Law, the Nevada General Corporation Law, the Securities Exchange
Act, the Securities Act, and the state securities laws, none of the Target and
its Subsidiaries needs to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the Target and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(e) Financial Statements. The Financial Statements of the Target
for the fiscal quarter ended March 31, 1999, and for the fiscal years ended
December 31, 1998 and 1997, and the balance sheet as of 6/9/99 (collectively,
the "Financial Statements") have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, and present fairly
the financial condition of the Target and its Subsidiaries as of the indicated
dates and the results of operations of the Target and its Subsidiaries for the
indicated periods; provided, however, that the interim statements are subject to
normal adjustments. The Target and Principal Shareholder have agreed to have the
financial statements for the periods ended December 31, 1998 and 1997 audited by
a certified public accountant (at their own expense), and have such audit
complete and an opinion rendered on those financial statements within 50
calendar days from the Closing Date.
(f) Events Subsequent to Most Recent Fiscal Quarter End. Since
June 9, 1999, there has not been any material adverse change in the financial
condition of the Target and its Subsidiaries taken as a whole.
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(g) Undisclosed Liabilities. None of the Target and its
Subsidiaries has any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of June 9, 1999 and (ii) liabilities which have arisen
after June 9, 1999 in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(h) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(i) Continuity of Business Enterprise. The Target operates at least
one significant historic business line, or owns at least a significant
portion of its historic business assets.
(j) Interests in Subsidiaries of the Target. Neither the Target
nor any of its Subsidiaries owns directly or indirectly any interest or
investment in the equity or debt for borrowed money of any Person or has
any obligation or made any commitment to acquire any such interest or make
any such investment.
(k) Absence of Certain Changes. Except as disclosed in the Target's
audited financial statements for the years ended December 31, 1998 and 1997, (a)
the Target and each of its Subsidiaries has conducted its business in all
material respects in the ordinary course of its business consistent with past
practice and there has not been any change in the financial condition, business,
results of operations or prospects of the Target and its Subsidiaries, or any
development or combination of developments that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect on the Target, and (b) since the end of the Target's fiscal year last
ended until the date hereof, there has not been (i) any declaration, setting
aside or payment of any dividend or other distribution in respect of the capital
stock of the Target; (ii) any change by the Target to its accounting policies,
practices or methods; (iii) any amendment or change to the terms of any
indebtedness material to the Target and its Subsidiaries taken as a whole; (iv)
other than in the Ordinary Course of Business consistent with past practice, any
incurrence or cancellation of any claim, obligation, commitment, or indebtedness
material to the Target and its Subsidiaries taken as a whole; (v) other than in
the Ordinary Course of Business consistent with past practice, any transfer,
lease, license, sale, mortgage, pledge, encumbrance or other disposition of
assets or properties material to the Target and its Subsidiaries taken as a
whole; (vi) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by the Target or its
Subsidiaries material to the Target and its Subsidiaries taken as a whole,
whether or not covered by insurance; (vii) other than in the Ordinary Course of
Business consistent with past practice or except as required by applicable law
or pursuant to a contractual obligation in effect as of the date of this
Agreement, (A) any execution, adoption or amendment of any agreement or
arrangement relating to compensation, bonus, severance or change of control
payments or benefits or any employee benefit plan or employment or consulting
agreement or (B) any grant of any stock options or other equity related award;
or (viii) any agreement or commitment entered into with respect to any of the
foregoing.
(l) Litigation; Liabilities.
(i) Except as disclosed in the Target's audited financial
statements for the years ended December 31, 1998 and 1997 up to the date
hereof, there are no civil, criminal or administrative actions, suits or
claims, proceedings (including condemnation proceedings), hearings or
investigations pending or, to the knowledge of the Target, threatened
against, or otherwise adversely affecting the Target or any of its
Subsidiaries or any of their respective assets or properties.
(ii) Neither the Target nor any of its Subsidiaries is subject
to any cease and desist or other order, judgment, injunction or decree
issued by, or is a party to any written agreement,
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consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or has adopted any board resolutions at the request of, any
Governmental Entity, that materially restricts the conduct of its business
(whether the type of business, the location thereof or otherwise), nor to
the knowledge of the Target, has any Governmental Entity proposed issuing
or requesting any of the foregoing.
(iii) Neither the Target nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise), except (i)
liabilities described in the Target's audited financial statements for the
years ended December 31, 1998 and 1997 or (ii) liabilities incurred since
the end of the Target's most recently completed fiscal year in the Ordinary
Course of Business consistent with past practices.
(m) Compliance with Law. The business of the Target and each of its
Subsidiaries is being conducted in accordance in all material respects with all
applicable statutes of law, ordinances, regulations, judgments, orders or
decrees of any Governmental Entity, and not in violation in any material respect
of any permits, franchises, licenses, authorizations or consents granted by any
Governmental Entity, and the Target and each of its Subsidiaries has obtained
all material permits, franchises, licenses, authorizations or consents necessary
for the conduct of its business.
(n) Taxes.
(i) All material Tax Returns required to be filed by the
Target or its Subsidiaries on or prior to the Effective Time or with
respect to taxable periods ending on or prior to the Effective Time have
been or will be prepared in good faith and timely filed with the
appropriate Governmental Entity on or prior to the Effective Time or by the
due date thereof including extensions.
(ii) All Taxes that are required to be paid have been or will
be fully paid through the Closing date. Taxes incurred as a result of the
Target's operations subsequent to the Closing Date will be the
responsibility of the Buyer. All Taxes required to be collected or withheld
from third parties' have, in all material respects, been collected or
withheld.
(iii) The Target and each of its Subsidiaries have not
waived any statute of limitations with respect to federal income Taxes or
agreed to any extension of time with respect to federal income or material
state Tax assessment or deficiency.
(iv) As of the date hereof, there are not pending or, to
the knowledge of the Target, threatened any audits, examinations,
investigations, or other proceedings in respect of Taxes or Tax matters
that (i) were raised by any Taxing authority in a written communication to
the Target or any Subsidiary and (ii) would, if determined adversely to the
Target, individually or in the aggregate, reasonably be expected to be
material to the Target and its Subsidiaries taken as a whole after taking
into account any reserves for Taxes set forth on the Target's audited
financial statements for the years ended December 31, 1998 and 1997.
(v) The Target has made available to Buyer true and correct
copies of the United States federal income and all material state income or
franchise Tax Returns filed by the Target and its Subsidiaries for each of
its fiscal years ended on or about December 31, 1996, 1997, and 1998.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the terms "Taxes" and "Taxable") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, license, premium,
environmental (including Taxes under Section 59A of the Code), capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
transfer, property, withholding, excise, production, occupation, windfall
profits, customs duties, social security (or similar), registration, value
added, alternative or add-on minimum, estimated, occupancy and other Taxes,
duties or governmental assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts
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and any interest in respect of such penalties and additions, and (ii) the term
"Tax Return" includes all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(o) Material Contracts. To the extent applicable, a complete and
accurate list of all of the following contracts (written or oral), plans,
arrangements, undertakings, commitments or agreements ("Target Contracts") to
which the Target or any of its Subsidiaries is a party or by which any of them
is bound as of the date of this Agreement have been set forth in the Disclosure
Schedule:
(i) each service, distribution, supply, inventory purchase,
franchise, license, sales, agency, or advertising contract involving annual
expenditures or liabilities in excess of $25,000 which is not cancelable
(without material penalty, cost, or other liability) within one year;
(ii) each promissory note, loan, agreement, indenture, evidence
of indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $25,000;
(iii) each lease under which either the Target or any of its
Subsidiaries is the lessee or real property requiring lease payments in
excess of $5,000 annually;
(iv) each joint venture, limited liability Target or partnership
agreement (i) pursuant to which any third party is entitled to develop any
property and/or facility on behalf of the Target or any of its Subsidiaries
material to the Target and its Subsidiaries taken as a whole or (ii)
establishing an entity through which the Target holds a direct or indirect
interest in any asset with a purchase price in excess of $25,000;
(v) each contract or agreement (written or oral) between any
Principal Shareholder, on the one hand, and the Target or any of its
Subsidiaries, on the other;
(vi) any contract that would constitute a "material contract"
(as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);
and
(vii) all arrangements between the Target and/or any of its
Subsidiaries, on the one hand, and any of their respective customers, on
the other, which arrangements prohibit, restrict, or which, upon the
happening of an event, would prohibit or restrict the Target or any of its
affiliates from doing business with any particular Person or type of
Person.
True and complete copies of the written Target Contracts, as amended to date,
that are identified in the Disclosure Schedule, have been delivered or made
available to Buyer.
To the knowledge of the Target, each Target Contract is a valid and
binding obligation of the Target, each Subsidiary of the Target which is a party
thereto and each other party thereto, and is in full force and effect, and the
Target and its Subsidiaries have performed and complied, in all material
respects, with all of the obligations required to be performed or complied with
by them under each Target Contract.
(p) Assets of the Target. The Target and its Subsidiaries have good
and marketable title or a valid right to use all of the real properties that are
necessary, and all of the personal assets and properties that are materially
necessary, for the conduct of the business of the Target or any of its
Subsidiaries, as currently conducted, free and clear of all liens, claims,
pledges, security interests and other rights of third parties (other than those
that do not materially interfere with or detract from the present use of the
asset subject thereto or affected thereby).
(q) Affiliate Transactions. Except as set forth in the Target's
audited financial statements for the years ended December 31, 1998 and 1997, but
prior to the date hereof, there are no transactions,
8
agreements, arrangements or understandings between the Target or any of its
Subsidiaries, on the one hand, and any affiliate of the Target (other than
wholly-owned Subsidiaries of the Target) or other Persons, on the other hand.
(r) Customers.
(i) Neither the Target, any of its Subsidiaries, nor any other
Person on behalf of the Target or any of its Subsidiaries is a party to, or
is obligated under, any contract or other arrangement (oral or written)
relating to the payment of any brokerage fees, finder's fees, or
commissions or other similar compensation in connection with or relating to
business between the Target and/or any of its Subsidiaries, on the one
hand, and any of their respective customers, on the other.
(ii) As of the date of this Agreement, to the knowledge of the
Target and its Subsidiaries, no material customer of the Target or any of
its Subsidiaries, as of the date hereof, has indicated that there is a
material possibility that such customer will cease dealing with the Target
or any of its Subsidiaries.
(iii) As of the date of this Agreement, to the knowledge of the
Target, since the end of the Target's fiscal year last ended, no material
customer of the Target or any of its Subsidiaries has requested, and
neither the Target nor any of its Subsidiaries has granted, any amendment
or change to the terms of payment by such customer, in respect of any
obligation or indebtedness to the Target or any of its Subsidiaries, other
than in the ordinary course of its business consistent with past practice.
(iv) As of the date of this Agreement, to the knowledge of the
Target, no material customer of the Target or any of its Subsidiaries is
insolvent or will be unable to pay its debts or obligations as they become
due and payable.
(s) Stock Ownership. The Principal Shareholder has good and valid
title to all of the issued and outstanding Target Shares, free and clear of all
liens, encumbrances, equities or claims.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4),
except as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 4.
(a) Organization, Qualification and Corporate Power. Each of the
Buyer and its subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Buyer and its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required except where the lack of such qualification would not
have a material adverse effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Each of the Buyer and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the
Buyer consists of (i) 900,000,000 Buyer Common Shares, of which 6,436,936 Buyer
Common Shares are issued and outstanding, and no Buyer Common Shares are held in
treasury, (ii) 8,000,000 Buyer Preferred Shares, none of which Buyer Preferred
Shares are issued or outstanding, and (iii) 367,050 Buyer Warrants. All of the
Buyer Common Shares to be issued in the Merger have been duly authorized and,
upon consummation of the
9
Merger, will be validly issued, fully paid, and nonassessable. There are no
other outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Buyer to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Buyer.
(c) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
the Charter or Bylaws of the Buyer or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Illinois General Corporation Law, the
Nevada General Corporation Law, the Securities Exchange Act, the Securities Act,
and the state securities laws, the Buyer does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(e) Filings with the SEC. The Buyer has made all filings with the
SEC that it has been required to make under the Securities Act and the
Securities Exchange Act (collectively, the "Public Reports"). Each of the Public
Reports has complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Buyer has
delivered to the Target a correct and complete copy of each Public Report
(together with all exhibits and schedules thereto and as amended to date).
(f) Financial Statements. The Buyer has filed Quarterly Reports on
Form 10-QSB for the fiscal quarter ended March 31, 1999 (the "Most Recent Fiscal
Quarter End"), and an Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, (the "Most Recent Fiscal Year End"). The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, and
present fairly the financial condition of the Buyer and its Subsidiaries as of
the indicated dates and the results of operations of the Buyer and its
Subsidiaries for the indicated periods; provided, however, that the interim
statements are subject to normal year-end adjustments.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the
Most Recent Fiscal Year End, there has not been any material adverse change in
the financial condition of the Buyer and its Subsidiaries taken as a whole.
(h) Undisclosed Liabilities. None of the Buyer and its Subsidiaries
has any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any
10
liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of the Most Recent Fiscal Year End (rather than in any
notes thereto) and (ii) liabilities which have arisen after the Most Recent
Fiscal Year End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(i) Brokers' Fees. The Buyer does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of the
Target and its Subsidiaries could become liable or obligated.
(j) Continuity of Business Enterprise. It is the present intention
of the Buyer to continue at least one significant historic business line of the
Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg. Section
1.368-1(d).
(k) Disclosure. The Buyer's filing on Form 8-K with the U.S.
Securities and Exchange Commission ("SEC") will comply with the Securities Act
and the Securities Exchange Act in all material respects. The Form 8-K will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided, however,
that the Buyer makes no representation or warranty with respect to any
information that the Target will supply specifically for use in the Form 8-K.
None of the information that the Buyer will supply specifically for use in the
Form 8-K will contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties shall use its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. The Target shall give any notices (and
will cause each of its Subsidiaries to give any notices) to third parties, and
shall use its best efforts to obtain (and shall cause each of its Subsidiaries
to use its reasonable best efforts to obtain) any third party consents, that the
Buyer reasonably may request in connection with the matters referred to in
Section 3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties shall
(and the Target shall cause each of its Subsidiaries to) give any notices to,
make any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(d) and Section 4(d) above, including
without limiting the generality of the foregoing the Securities Act, the
Securities Exchange Act, and state securities laws. The Buyer shall prepare and
file with the SEC a Current Report on Form 8-K under the Securities Exchange Act
relating to the transaction. The Buyer shall make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper, or advisable. The Target shall provide the Buyer, with whatever
information and assistance in connection with the foregoing filings that the
Buyer reasonably may request.
(d) Operation of Target Business. The Target shall not (and shall
not cause or permit any of its Subsidiaries to) engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries shall authorize
or effect any change in its Charter or Bylaws;
11
(ii) none of the Target and its Subsidiaries shall grant any
options, warrants, or other rights to purchase or obtain any of its capital
stock or issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants, and other
rights currently outstanding);
(iii) none of the Target and its Subsidiaries shall declare,
set aside, or pay any dividend or distribution with respect to its capital
stock (whether in cash or in kind), or redeem, repurchase, or otherwise
acquire any of its capital stock;
(iv) none of the Target and its Subsidiaries shall issue any
note, bond, or other debt security or create, incur, assume, or guarantee
any indebtedness for borrowed money or capitalized lease obligation outside
the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries shall impose any
Security Interest upon any of its assets outside the Ordinary Course of
Business;
(vi) none of the Target and its Subsidiaries shall make any
capital investment in, make any loan to, or acquire the securities or
assets of any other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries shall make any
change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries shall commit
to any of the foregoing.
(e) Full Buyer Access. The Target shall (and shall cause each of
its Subsidiaries to) permit representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The Buyer
will treat and hold as such any Confidential Information it receives from any of
the Target and its Subsidiaries in the course of the reviews contemplated by
this Section 5(g), shall not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, agrees to return to the Target all tangible embodiments (and
all copies) thereof which are in its possession.
(f) Notice of Developments. Each Party shall give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Target Exclusivity. The Target shall not (and shall not cause
or permit any of its Subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of all or substantially all of the capital stock or assets of any of the Target
and its Subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that the Target, its
Subsidiaries, and their directors and officers will remain free to participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing to the extent
their fiduciary duties may require. The Target shall notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
(h) Restricted Stock; Compliance with the Securities Act. The
Principal Shareholder acknowledges that the shares received in the transaction
are "restricted shares" as that term is defined in SEC
12
Rule 144 and that the Principal Shareholder will dispose of such shares only
after receiving an opinion from counsel acceptable to the Buyer that such
disposition is exempt from registration under the Securities Act or the rules
promulgated thereunder. The stock certificate(s) delivered to Principal
Shareholder pursuant to this Agreement shall contain the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. THE
SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE
MADE PURSUANT TO AN OPINION FROM COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) Current Report on Form 8-K. Buyer will use its commercially
reasonable efforts to file a Current Report on Form 8-K containing financial
results of the combined operations of the Target and Buyer covering a period of
at least 30 days following the Effective Date with the SEC within 45 days after
the last day of the first full month following the Effective Date; provided,
however, that Buyer may delay the filing of the Form 8-K for a reasonable period
of time if it determines, in good faith, that the filing would require
disclosure of information not otherwise then required to be disclosed and that
such disclosure would adversely affect any material business situation,
transaction or negotiation then proposed, contemplated or being engaged in by
Buyer.
(j) Continuity of Business Enterprise. The Buyer will continue at
least one significant historic business line of the Target, or use at least a
significant portion of the Target's historic business assets in a business.
(k) Liability for Certain Obligations. Buyer covenants to assume
the liability of, and make payment for, Principal Shareholder with respect to
the following debts incurred by Principal Shareholder on behalf of the Target:
(i) Chevy Chase Visa Gold
(ii) Advanta Mastercard
(iii) Bank One Platinum Visa
(iv) Vendors of supplies, materials and services to Target
(v) The landlord under the lease of the premises occupied by
Target
Subparagraphs (i) through (v) above, and the obligation of Target to
Principal Shareholder specified below are listed in the financial statements
dated March 31, 1999 and shall not be increased except as necessary in the
ordinary course of business of Target.
In connection with the foregoing and from the date hereof and for a period
of ninety (90) days thereafter, Target and Principal Shareholder represent and
warrant to Buyer that each shall not undertake any obligations or liabilities
for or on behalf of Target that is not in the ordinary course of business or
which is an extraordinary transaction.
13
In connection with the foregoing, Buyer represents and warrants to Target
and Principal Shareholder that it will use its reasonable best efforts to have
any personal liability of Principal Shareholder (and his wife) fully terminated
and of no force or effect whatsoever within ninety (90) days of the Effective
Date, and further to repay to (A) Principal Shareholder the then current balance
due for all loans or advances to Target by Principal Shareholder, and reflected
on the books and records of Target, which as of the date hereof is in the amount
of $12,895.33; and (B) ▇▇▇▇ ▇▇▇▇▇ the then current balance due for all loans or
advances to Target by ▇▇▇▇ ▇▇▇▇▇, and reflected on the books and records of
Target, which as of the date hereof is in the amount of $3,500.00.
In the event any such personal liability of Principal Shareholder has not been
fully terminated, or if the full amount due to Principal Shareholder or ▇▇▇▇
▇▇▇▇▇ has not been repaid in full, then in either such event Buyer shall
continue to use its reasonable best efforts to comply with the provisions of
this Paragraph 5(k) and the representations and warranties of Buyer herein shall
remain in full force and effect until all such liabilities are terminated and
Principal Shareholder and ▇▇▇▇ ▇▇▇▇▇ have been repaid in full.
6. Conditions to Obligation to Close.
----------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Target shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, to operate the former businesses, and to control the former
Subsidiaries of the Target, or (D) affect adversely the right of any of the
former Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Target shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in Section
6(a)(i)-(iii) are satisfied in all respects;
(v) the Target shall have delivered to Buyer (A) a Certificate
of Good Standing issued by the Secretary of State of the State of Illinois
dated not more than thirty (30) days prior to the Effective Date, and (B) a
certified copy of the resolutions approving this transaction and this
agreement by the directors and shareholders of Target;
(vi) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Buyer.
(vii) The Buyer shall have completed a satisfactory due
diligence investigation of the Target, acceptable to Buyer at its sole
discretion.
14
(viii) The Target shall have furnished audited financial
statements prepared in accordance with generally accepted accounting
principles (GAAP) to the Buyer as required by the Securities Exchange Act.
Additionally, the Target shall furnish its most recent fiscal quarter
financial statements prepared in accordance with GAAP to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the
Target to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Surviving
Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or
(D) affect adversely the right of any of the former Subsidiaries of
the Target to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(iv) the Buyer shall have delivered to the Target a certificate
to the effect that each of the conditions specified above in Section
6(b)(i)-(iii) are satisfied in all respects;
(v) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target.
The Target may waive any condition specified in this Section 6(b) if it executes
a writing so stating at or prior to the Closing.
7. Termination.
------------
(a) Termination of Agreement. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors as
provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Target at any time prior to the Effective Time (A) in the
event the Target has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Target of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before July 15, 1999, by reason of
the failure of any condition precedent under Section 6(b) hereof (unless
the failure
15
results primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Effective Time (A) in
the event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Target
has notified the Buyer of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before July 15, 1999, by reason of
the failure of any condition precedent under Section 6(a) hereof (unless
the failure results primarily from the Target breaching any representation,
warranty, or covenant contained in this Agreement); or
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5(e) above shall survive any
such termination.
8. Indemnification.
----------------
(a) Indemnification by the Principal Shareholder. Subject to the
other provisions of this Paragraph 8, the Principal Shareholder shall indemnify,
defend and hold harmless the Buyer and its successors, assigns, Affiliates,
directors, trustees, officers, agents and employees (collectively, the "Buyer
Indemnified Parties") from and against any and all Losses imposed on, incurred
or suffered by or asserted against any Buyer Indemnified Party, to the extent
resulting from, relating to or arising out of: (i) any material breach of or
material inaccuracy in any representation or warranty of the Principal
Shareholder, the Target or its Subsidiaries contained in this Agreement or in
any conveyance instrument, certificate or document delivered by the Principal
Shareholder, the Target or its Subsidiaries pursuant to this Agreement; or (ii)
any material breach of any covenant of the Principal Shareholder, the Target or
its Subsidiaries contained in this Agreement or in any other document, writing
or instrument delivered by the Principal Shareholder, the Target or its
Subsidiaries pursuant to this Agreement.
(b) Indemnification by Buyer. Subject to the other provisions of
this Paragraph 8, the Buyer shall indemnify, defend and hold harmless the
Principal Shareholder and his respective successors, assigns and Affiliates and
the directors, officers, agents and employees of any of them (collectively, the
"the Target Indemnified Parties" and, together with the Buyer Indemnified
Parties, the "Indemnified Parties") from and against any and all Losses imposed
on, incurred or suffered by or asserted against any Target Indemnified Party, to
the extent resulting from or arising out of: (i) any material breach or material
inaccuracy of any representation or warranty of the Buyer contained in this
Agreement or in any conveyance instrument, certificate or document delivered by
the Buyer pursuant to this Agreement, and (ii) any material breach of any
covenant of the Buyer contained in this Agreement or in any other document,
writing or instrument delivered by the Buyer pursuant to this Agreement.
(c) Method of Asserting Claims. As used in this Subparagraph (c),
an "Indemnified Party" shall refer to the Buyer Indemnified Parties or the
Target Indemnified Parties as applicable; the "Notifying Party" shall refer to
the party hereto whose Indemnified Parties are entitled to indemnification
hereunder; and the "Indemnifying Party" shall refer to the party hereto
obligated to indemnify such Notifying Party's Indemnified Parties.
(i) Promptly after any Indemnified Party has received notice
of or has Knowledge of any claim by a person or entity not a party to this
Agreement ("Third Person") or the commencement of any action or proceeding
by a Third Person (collectively, a "Third Person Claim"), the Indemnified
Party shall, if a claim with respect thereto is to be made against any
Indemnifying Party, give the Indemnifying Party written notice of such
Third Person Claim (for purposes of this Paragraph 8, the Target shall
receive all written notice and shall take all actions on behalf of its
16
Subsidiaries). In each such case the Indemnified Party agrees to give such
notice to the Indemnifying Party promptly; provided, however, that the
failure of the Indemnified Party to give such notice shall not excuse the
Indemnifying Party's obligation to indemnify except to the extent the
Indemnifying Party has suffered damage or prejudice by reason of the
Indemnified Party's failure to give or delay in giving such notice. The
Indemnifying Party shall have fifteen (15) business days after receipt of
such notice from the Indemnified Party to notify the Indemnified Party that
it acknowledges its obligation to indemnify in respect of such Third Person
Claim and whether it elects to conduct and control any legal or
administrative action or suit with respect to a Third Person Claim (the
"Election Notice"). If the Indemnifying Party does not give the Election
Notice, the Indemnified Party shall have the right to defend, contest,
settle, or compromise such action or suit in the exercise of its sole
discretion, at the expense of the Indemnifying Party. If the Indemnifying
Party gives the Election Notice, the Indemnifying Party shall have the
right to settle, compromise, undertake, conduct and control, through
counsel of its own choosing and at its sole expense, the conduct and
defense of such action or suit, and the Indemnified Party shall reasonably
cooperate with the Indemnifying Party in connection therewith (at the
expense of the Indemnifying Party); provided, however, that (i) the
Indemnifying Party shall not thereby consent to the imposition of any
injunction against the Indemnified Party without the written consent of the
Indemnified Party; (ii) the Indemnifying Party shall permit the Indemnified
Party to participate in such conduct or settlement through counsel chosen
by the Indemnified Party, but the fees and expenses of such counsel shall
be borne by the Indemnified Party except as provided in clause (iii) below;
and (iii) upon a final determination of such action or suit, the
Indemnifying Party shall promptly reimburse the Indemnified Party for the
full amount of any Losses resulting from such action or suit and all
reasonable expenses related to such Losses incurred by the Indemnified
Party, except fees and expenses of counsel for the Indemnified Party
incurred after the assumption of the conduct and control of such action or
suit by the Indemnifying Party. So long as the Indemnifying Party is
contesting any such action or suit in good faith, the Indemnified Party
shall not pay or settle any such action or suit without the written consent
of the Indemnifying Party. At any time after notice of any Third Person
Claim, the Indemnifying Party may request the Indemnified Party to agree in
writing to the payment or compromise of the Third Person Claim, whereupon
such action shall be taken unless the Indemnified Party determines that the
contest should be continued, and so notifies the Indemnifying Party in
writing within fifteen (15) days of such request from the Indemnifying
Party. In the event that the Indemnified Party determines that the contest
should be continued, the Indemnifying Party shall be liable pursuant to
this Subparagraph (c)(i) with respect to such claim only to the extent of
the lesser of (A) the amount which the other party to the contested Third
Person Claim had agreed to accept in complete payment or compromise as of
the time the Indemnifying Party made its request therefor to the
Indemnified Party plus other Losses incurred to such date with respect to
such claim, or (B) such amount for which the Indemnifying Party may be
liable with respect to such Third Person Claim by reason of the provisions
of this Subparagraph (c)(i);
(ii) If an Indemnified Party shall have any claim (whether
or not a Third Person Claim) pursuant to this Subparagraph (c), including,
but not limited to, a claim for Losses as the result of the Indemnifying
Party's failure to acknowledge its obligation to indemnify, the Indemnified
Party shall deliver to the Indemnifying Party written notice explaining the
nature and amount of such claim promptly after the Indemnified Party shall
know the amount of such claim. The Indemnified Party and Indemnifying Party
shall thereafter attempt in good faith for a period of not less than thirty
(30) days to agree upon whether the Indemnified Party is entitled to be
indemnified and held harmless under this Subparagraph (c) and the extent to
which it is entitled to be indemnified and held harmless hereunder. If the
parties cannot so agree within said period, the Indemnified Party may
thereafter commence litigation in a court of competent jurisdiction for a
determination of its claim. Upon resolution of any claim pursuant to this
Subparagraph (c), whether by agreement between the parties or the rendering
of a final judgment in any litigation, the Indemnifying Party shall within
ten (10) days of such resolution pay over and deliver to the Indemnified
Party funds in the amount of any claim as resolved, and any reasonably
documented fees, including reasonable attorneys' fees, incurred by the
Indemnified Party with respect to any such litigation.
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(d) Remedies Cumulative. Indemnified Parties shall be entitled to
such indemnification from time to time and shall be entitled to rely upon one or
more provisions of this Agreement without waiving their right to rely upon any
other provisions of this Agreement at the same time or any other time. The
amount of any Losses for which indemnification is provided under this Paragraph
8 shall be net of any amounts actually received by the Indemnified Party under
insurance policies or from other third parties with respect to such Losses.
Buyer and the Target agree to treat any Indemnity Payment made pursuant to this
Agreement as an adjustment to the Purchase Price for federal, state and local
income tax purposes.
9. Miscellaneous.
--------------
(a) Survival of Representations, Warranties, Covenants. All of the
representations and warranties of the Principal Shareholders, the Target and its
Subsidiaries and the Buyer contained in this Agreement or in any agreement or
instrument delivered in connection herewith shall survive the Closing and shall
continue in full force and effect until two (2) years following the Closing,
after which such representations and warranties shall terminate and have no
further force or effect, provided, however, that any representation, warranty or
covenant with respect to taxes shall survive until the expiration of the
applicable statute of limitations. The period during which any such
representation or warrant survives is the "Survival Period" for such
representation or warranty. Notwithstanding the foregoing, any representation or
warranty that would otherwise terminate shall survive with respect (and only
with respect) to Losses of which reasonably detailed notice is given pursuant to
this Agreement prior to the end of the applicable Survival Period. Unless
otherwise limited by the terms of this Agreement, covenants of the Principal
Shareholders, the Target and its Subsidiaries and the Buyer shall survive the
Closing indefinitely.
(b) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that the
provisions in Section 8 above concerning indemnification are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be
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deemed duly given if (and then two business days after) it is sent by registered
or certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
If to the Buyer: Nucleus, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇ Price
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
If to the Target: Young Data Systems
▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Illinois without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
(j) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by both of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties shall bear its own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
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(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Schedules. To the extent applicable, the
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
the date first above written.
NUCLEUS, INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
YOUNG DATA SYSTEMS, INC.
/s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------------------
By: ▇▇▇▇ ▇▇▇▇▇
Title: President
20