SHARE EXCHANGE AGREEMENT
BY AND AMONG
MICRO INTERCONNECT TECHNOLOGY, INC.,
THE STOCKHOLDERS OF
LANBO FINANCIAL INVESTMENT COMPANY GROUP LIMITED,
LANBO FINANCIAL INVESTMENT COMPANY GROUP LIMITED
AND
XXXXXXX REVERSE MERGER FUND, LLC
DATED AS OF SEPTEMBER 29, 2004
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "Agreement") is made and entered into
as of September 29, 2004, by and among Micro Interconnect Technology, Inc., a
Nevada corporation (the "Buyer"), Xxxxxxx Reverse Merger Fund, LLC ("KRM Fund"),
Lanbo Financial Investment Company Group Limited, a corporation incorporated
under the laws of the British Virgin Islands ("Company"), and each of the
persons listed under the caption "Stockholders" on the signature page hereof,
such persons being all of the stockholders of Company. The Stockholders shall be
referred to herein collectively as the "Stockholders" and individually as the
"Stockholder".
RECITALS
A. Stockholders own all of the Shares (as defined in Section 1.1) of the
Company.
B. KRM Fund owns the majority of the outstanding shares of common stock of
Buyer.
C. Buyer desires to purchase all of the Shares from the Stockholders, and
the Stockholders desire to sell the Shares to Buyer, on the terms and conditions
hereinafter set forth.
D. As a condition and inducement to Buyer's and KRM Fund's willingness to
enter into this Agreement, the Stockholders will, at Closing (as defined in
Section 1.2) enter into a voting agreement in substantially the form attached
hereto as Exhibit A (the "Voting Agreement").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase. At the Closing and subject to and upon the terms
and conditions of this Agreement, the Stockholders agree to sell, transfer and
assign to Buyer, and Buyer agrees to purchase from the Stockholders, all of the
shares of Company Common Stock (as defined in Section 3.3) owned by the
Stockholders as specifically set forth on Schedule 1.1 hereto ("Shares"). As of
Closing, the Shares shall constitute all of the issued and outstanding shares of
Company Common Stock. The sale and purchase of Shares contemplated hereunder
shall be referred to herein as the "Transaction".
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Article IX hereof, the closing of the Transaction (the "Closing") shall take
place at the offices of Xxxxxxx Xxxxxxxxx LLP, 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000,
Xxx Xxxx, Xxx Xxxx 00000 at a time and date to be specified by the parties,
which shall be no later than the third business day after the satisfaction or
waiver of the conditions set forth in Article VII, or at such other time, date
and location as the parties hereto agree in writing (the "Closing Date").
1.3 Purchase Price. The aggregate purchase price for the Shares ("Purchase
Price") shall be Nineteen Million Two Hundred Eighty Five Thousand Seven Hundred
Fourteen (19,285,714) shares of common stock of Buyer ("Buyer's Shares").
1.4 Allocation of Buyer's Shares. At the Closing, the Buyer's Shares shall
be issued to the respective Stockholders: (i) in proportion to their respective
ownership of the Shares as described in Schedule 1.1 hereto, and (ii) in
accordance with the provisions of Section 1.10 hereof.
1.5 Delivery of Certificates Representing the Shares. At Closing, the
Stockholders shall deliver the certificate(s) representing the Shares, duly
endorsed to Buyer or accompanied by stock powers duly endorsed to Buyer, with
medallion signature guarantees, or other similar confirmations as Buyer may
agree to, and with (i) all such other documents as may be required to vest in
Buyer good and marketable title to the Shares free and clear of any and all
Liens (as defined in Section 2.3 hereof), except for those Liens set forth on
Schedule 1.1 hereof, and (ii) all necessary stock transfer and any other
required documentary stamps. The Company shall recognize and record the
transfers described in this Section 1.5 on its transfer books.
1.6 Issuance of Certificates Representing Buyer's Shares. At Closing,
subject to the provisions of Section 1.10 hereof, Buyer shall cause the Buyer's
Shares to be issued to the Stockholders as provided in Section 1.4 above. The
Buyer's Shares, when issued, shall be restricted shares and may not be sold,
transferred or otherwise disposed of by the Stockholders without registration
under the Securities Act of 1933, as amended ("Securities Act") or an available
exemption from registration under the Securities Act. The certificates
representing the Buyer's Shares will contain the appropriate restrictive
legends. The Buyer shall cause Interwest Transfer (the "Transfer Agent") to
recognize and record the issuances described in this Section 1.6 on its transfer
books, and Buyer shall issue appropriate stop-transfer instructions to the
Transfer Agent with respect to the Buyer's Shares.
1.7 Tax Consequences. It is intended by the parties hereto that the
Transaction shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
regulations promulgated under the Code.
1.8 Taking of Necessary Action; Further Action. If, at any time after the
Closing, any further action is necessary or desirable to carry out the purposes
of this Agreement and to vest Buyer with full right, title and possession to the
Shares, the Stockholders will take all such lawful and necessary action.
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1.9 Transaction Deposit. In the event the Company fails to perform and
satisfy its obligations to deliver to Buyer the Financial Data (as defined
below), on or before the Compliance Date (as defined below), the Company shall
pay to Buyer $50,000 ("Deposit") on or before the Compliance Date. Upon payment
of the Deposit by Company in accordance with this Section 1.9, the original
Compliance Date shall be extended by thirty (30) days. The Deposit shall be held
by Buyer in accordance with Sections 6.14 and 9.2 of this Agreement.
For purposes of this Agreement, (i) the term "Compliance Date" shall mean
the date which is thirty (30) days after the date of this Agreement, subject to
extension as provided for in this Section 1.9, and (ii) the term "Financial
Data" shall mean the Company U.S. GAAP Financial Statements (as defined in
Section 6.1), the Company Proforma Financial Statements (as defined in Section
6.2), the Questionnaires (as defined in Section 6.3), the Accountant Undertaking
(as defined in Section 6.4), the Former Accountant Consents (as defined in
Section 6.5), and the Transaction Form 8-K (as defined in Section 6.6).
1.10 Escrow Shares. Notwithstanding anything contained herein to the
contrary, in lieu of delivering to the Stockholders certificates for the full
number of Buyer's Shares provided for in Section 1.4, Buyer shall deliver or
cause to be delivered to Xxxxxxx Xxxxxxxxx LLP, as escrow agent (the "Escrow
Agent") for deposit into escrow pursuant to an escrow agreement substantially in
the form attached hereto as Exhibit C (the "Escrow Agreement"), in the
aggregate, certificates registered in the respective names of the Stockholders
representing 16,240,602 Buyer's Shares (the "Escrow Shares"), as specifically
set forth in Schedule 1.1 hereto. The certificates representing the Escrow
Shares, each accompanied by stock powers duly endorsed in blank, with each
Stockholder's signature medallion guaranteed by a national bank shall be held in
the escrow account and disposed of by the Escrow Agent in accordance with the
terms and provisions of the Escrow Agreement. Upon payment of the Stockholders'
note obligations set forth on Schedule 1.1 and satisfaction of the Liens related
to such note obligations, all Escrow Shares shall be released to the
Stockholders in whose name the shares are registered. In the event the
Stockholders' note obligations set forth in Schedule 1.1 are not paid in a
timely manner, the Escrow Shares shall be delivered to Buyer for immediate
surrender and cancellation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS WITH RESPECT TO STOCKHOLDERS
Each Stockholder for himself only, and not with respect to any other
Stockholder, hereby represents and warrants to, and covenants with, Buyer with
respect to such Stockholder as follows:
2.1 Ownership of Stock. Each Stockholder is both the record and beneficial
owner of the number of Shares set forth beside such Stockholder's name on
Schedule 1.1 hereto, provided that the beneficial owners of any Shares held
under or pursuant to any voting trust shall be set forth in Schedule 1.1. Each
Stockholder is not the record or beneficial owner of any other Shares.
The information set forth on Schedule 1.1 with respect to each Stockholder is
accurate and complete.
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2.2 Authority of Stockholders. Each Stockholder has full power and
authority and is competent to (i) execute, deliver and perform this Agreement,
and each ancillary document which each Stockholder has executed or delivered or
is to execute or deliver pursuant to this Agreement, and (ii) carry out each
Stockholder's obligations hereunder and thereunder. The execution, delivery and
performance by each Stockholder of this Agreement and each ancillary document
does not and will not conflict with, result in a breach of, or constitute a
default or require a consent or action under, any agreement or other instrument
to or by which such Stockholder is a party or is bound or to which any of the
properties or assets of such Stockholder are subject, or any Legal Requirement
(as defined herein) to which such Stockholder is subject, or result in the
creation of any Lien (as defined in Section 2.3) on the Shares. This Agreement,
and each Stockholder's ancillary document to be executed and delivered by such
Stockholder at the Closing, has been or will be at Closing duly executed and
delivered by such Stockholder (and each ancillary document to be executed and
delivered by such Stockholder at or after the Closing will be duly executed and
delivered by such Stockholder), and this Agreement constitutes, and each
ancillary document, when executed and delivered by such Stockholder will
constitute, such Stockholder's legal, valid and binding obligation, enforceable
against such Stockholder in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and public policy. For purposes of this Agreement, (x) the term "Governmental
Action/Filing" shall mean any franchise, license, certificate of compliance,
authorization, consent, order, permit, approval, consent or other action of, or
any filing, registration or qualification with, any federal, state, municipal,
foreign or other governmental, administrative or judicial body, agency or
authority, and (y) the term "Legal Requirements" means any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Entity (as defined
in Section 3.5(b)), and all requirements set forth in applicable Contracts (as
defined in Section 3.21(a)).
2.3 Title To Shares. Each Stockholder has and shall transfer to Buyer at
the Closing, good and marketable title to the Shares shown as owned of record by
such Stockholder on Schedule 1.1 to this Agreement, free and clear of all liens,
claims, charges, encumbrances, pledges, mortgages, security interests, options,
rights to acquire, proxies, voting trusts or similar agreements, restrictions on
transfer or adverse claims of any nature whatsoever ("Liens"), except for those
Liens specifically set forth on Schedule 1.1 hereto. Each Stockholder has not
and will not, directly or indirectly, assign or otherwise transfer his right to
receive all or any portion of any amount which may become payable pursuant to
this Agreement or any ancillary document or any interest therein.
2.4 Repayment of Affiliate Obligations. At the Closing Date, all amounts
owed to the Company or any Subsidiary by each Stockholder (regardless of whether
such amounts are due and payable) shall have been paid in full, except for
amounts owed by each Stockholder to the Company as set forth in Schedule 1.1.
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2.5 Acquisition of Buyer's Shares for Investment.
(a) Each Stockholder is acquiring Buyer's Shares for investment for
Stockholder's own account and not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and such Stockholders have no
present intention of selling, granting any participation in, or otherwise
distributing the same. Each Stockholder further represents that he does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of Buyer's Shares.
(b) Each Stockholder understands that Buyer's Shares are not
registered under the Securities Act, that the sale and the issuance of Buyer's
Shares is intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that Buyer's reliance on such exemption is
predicated on the Stockholder's representations set forth herein. Each
Stockholder represents and warrants that: (i) he is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D under the Act, (ii) he can
bear the economic risk of his respective investments, and (iii) he posses such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in Buyer's Shares.
(c) Stockholders acknowledge that neither the United States Securities
and Exchange Commission ("SEC"), nor the securities regulatory body of any state
has received, considered or passed upon the accuracy or adequacy of the
information and representations made in this Agreement.
(d) Stockholders acknowledge that they have carefully reviewed such
information as each of them deemed necessary to evaluate an investment in
Buyer's Shares. To the full satisfaction of each Stockholder, he has been
furnished all materials that he has requested relating to Buyer and the issuance
of Buyer's Shares hereunder, and each Stockholder has been afforded the
opportunity to ask questions of Buyer's representatives to obtain any
information necessary to verify the accuracy of any representations or
information made or given to the Stockholders. Notwithstanding the foregoing,
nothing herein shall derogate from or otherwise modify the representations and
warranties of Buyer set forth in this Agreement, on which each of the
Stockholders has relied in making an exchange of his Shares for Buyer's Shares.
(e) Each Stockholder understands that Buyer's Shares may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering Buyer's Shares or any available exemption from
registration under the Securities Act, the Buyer's Shares must be held
indefinitely. Each Stockholder further acknowledges that Buyer's Shares may not
be sold pursuant to Rule 144 promulgated under the Securities Act unless all of
the conditions of Rule 144 are satisfied (including, without limitation, Buyer's
compliance with the reporting requirements under the Exchange Act.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY WITH RESPECT TO COMPANY
The Company hereby represents and warrants to, and covenants with, Buyer,
as follows:
3.1 Organization and Qualification.
(a) Company is a corporation duly incorporated or organized, validly
existing and in good standing under the laws of the British Virgin Islands and
has the requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being or
currently planned by Company to be conducted. Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being or currently planned by Company to be conducted,
except where the failure to have such Approvals could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect (as
defined in Section 11.2 on Company and its Subsidiaries, taken as a whole.
Complete and correct copies of the articles of incorporation or organization and
by-laws (or other comparable governing instruments with different names)
(collectively referred to herein as "Charter Documents") of Company, as amended
and currently in effect, have been heretofore delivered to Buyer. Company is not
in violation of any of the provisions of the Company's Charter Documents.
(b) Company is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Company and its Subsidiaries, taken as a whole.
(c) The minute books of Company contain true, complete and accurate
records of all meetings and consents in lieu of meetings of its Board of
Directors (and any committees thereof), similar governing bodies and
stockholders ("Corporate Records"), since the time of Company's organization.
Copies of such Corporate Records of Company have been heretofore delivered to
Buyer.
(d) The stock ownership records of Company contain true, complete and
accurate records of the ownership of the Company Stock at the close of business
on the business day prior to the date hereof ("Stock Records"). Copies of such
Stock Records of Company have been heretofore delivered to Buyer. Company has
heretofore delivered to Buyer a certificate from the Company's registered agent
in the British Virgin Islands ("BVI") which shall certify the register of the
directors and members of the Company as of the date immediately prior to this
Agreement as filed with Registrar of Companies in the BVI.
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3.2 Subsidiaries. Set forth in Schedule 3.2 hereto is a true and complete
list of all Subsidiaries stating, with respect to each Subsidiary, its
jurisdiction of incorporation or organization, date of incorporation or
organization, capitalization and equity ownership. Each Subsidiary is a
corporation duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as they are now being
conducted, and no Subsidiary is required to qualify to do business as a foreign
corporation in any other jurisdiction. All of the outstanding shares of capital
stock of each Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable, have not been issued in violation of any
preemptive or other right of stockholders (or any other Person) or of any Legal
Requirements, and are owned beneficially and of record by Company as specified
on Schedule 3.2, free and clear of any Lien. Complete and correct copies of the
Charter Documents of each Subsidiary, as amended and currently in effect, have
heretofore been delivered to Buyer. No Subsidiary is in violation of any of the
provisions of its Charter Documents.
Except as described in Schedule 3.2 hereto, neither Company nor any
Subsidiary owns, directly or indirectly, any ownership, equity, profits or
voting interest in any Person (other than Subsidiaries) or has any agreement or
commitment to purchase any such interest, and Company and its Subsidiaries have
not agreed and are not obligated to make nor are bound by any written, oral or
other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or any date hereafter, under which any of them may be obligated
to make any future investment in or capital contribution to any other entity.
For purposes of this Agreement, (i) the term "Subsidiary" shall mean any
Person in which the Company or any Subsidiary directly or indirectly, owns
beneficially securities or interests representing more than 50% of (x) the
aggregate equity or profit interests, or (y) the combined voting power of voting
interests ordinarily entitled to vote for management or otherwise, and (ii) the
term "Person" shall mean and include an individual, a corporation, a partnership
(general or limited), a joint venture, an association, a limited liability
company, a trust or any other organization or entity, including a government or
political subdivision or an agency or instrumentality thereof.
3.3 Capitalization.
(a) The authorized capital stock of Company consists of 10,800,000
shares of stock, par value $1.00 per share ("Company Stock"). At the close of
business on the business day prior to the date hereof, (i) 6,840,000 shares of
Company Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable; (ii) no shares of Company Stock were reserved for
issuance upon the exercise of outstanding options to purchase Company Stock
granted to certain employees of Company or other parties ("Company Stock
Options"), (iii) no shares of Company Stock were reserved for issuance upon the
exercise of outstanding warrants to purchase Company Stock ("Company Warrants"),
and (iv) no shares of Company Stock were reserved for issuance upon the
conversion of any outstanding convertible notes, debentures or securities
("Convertible Securities"). All shares of Company Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. Except as described in Schedule 3.3 hereto, there
are no commitments or agreements of any character to which Company is bound
obligating Company to accelerate the vesting of any Company Stock Option as a
result of the Transactions, or to otherwise issue or grant any Company Stock
Options, Company Warrants or Convertible Securities. All outstanding shares of
Company Stock have been issued and granted in compliance with (i) all applicable
securities laws and (in all material respects) other applicable laws and
regulations, and (ii) all requirements set forth in any applicable Contracts.
There are no Company Stock Options, Company Warrants and Convertible Securities
issued or outstanding.
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(b) Except as set forth in Schedule 3.3 hereto, there are no equity
securities, partnership interests or similar ownership interests of any class of
any equity security of Company or any Subsidiary, or any securities exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Schedule 3.3, Schedule 3.17 or in Section
3.3(a) hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any Subsidiary is a party or by which it is bound obligating Company or any
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
or repurchase, redeem or otherwise acquire, or cause the repurchase, redemption
or acquisition of, any shares of capital stock, partnership interests or similar
ownership interests of Company or any Subsidiary or obligating Company or any
Subsidiary to grant, extend, accelerate the vesting of or enter into any such
subscription, option, warrant, equity security, call, right, commitment or
agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 3.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Company or any Subsidiary is a party, by which Company or any
Subsidiary is bound with respect to any equity security of any class of Company
or any Subsidiary, or by which any equity security of any class of Company or
any Subsidiary are subject.
3.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by Company of the transactions contemplated
hereby (including the Transaction) have been duly and validly authorized by all
necessary corporate action on the part of Company (including the approval by its
Board of Directors and by the Stockholders), and no other corporate proceedings
on the part of Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery thereof by Buyer and Stockholders,
constitutes the legal and binding obligation of Company, enforceable against
Company in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
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3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company and
the execution and delivery of the Voting Agreement by the Stockholders do not,
and the performance of this Agreement by the Company and the performance of the
Voting Agreements by the Stockholders shall not, (i) conflict with or violate
the Company's Charter Documents, (ii) subject to obtaining the adoption of this
Agreement and the Transaction by the Stockholders of Company, conflict with or
violate any Legal Requirements to which the Company is bound, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or materially impair Company's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Company pursuant to, any Contracts, except, with respect to clauses
(ii) or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually and in the aggregate, have a Material
Adverse Effect on Company and its Subsidiaries, taken as a whole.
(b) The execution and delivery of this Agreement by Company and the
Stockholders do not, and the performance of their obligations hereunder will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any court, administrative agency, commission, governmental
or regulatory authority, domestic or foreign (a "Governmental Entity"), except
(i) for applicable requirements, if any, of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities laws
("Blue Sky Laws"), and the rules and regulations thereunder, and appropriate
documents with the relevant authorities of other jurisdictions in which Company
is qualified to do business, (ii) consents, approvals, authorizations, permits,
filings and notices to be obtained or made prior to Closing, and (iii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company and its
Subsidiaries, taken as a whole, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
3.6 Compliance. Company has complied with, is not in violation of, any
Legal Requirements with respect to the conduct of its business, or the ownership
or operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Company or its Subsidiaries. The businesses
and activities of Company and each Subsidiary have not been and are not being
conducted in violation of any Legal Requirements. Neither Company nor any
Subsidiary is in default or violation of any term, condition or provision of any
applicable Charter Documents or Contracts, except with respect to such defaults
or violations under Contracts which would not reasonably be expected to have a
Material Adverse Effect on the Company or its Subsidiaries, taken as a whole.
Except as set forth on Schedule 3.6, no notice of non-compliance with any Legal
Requirements has been received by Company or any Subsidiary. None of the
Stockholders is in violation of any term of any contract or covenant (either
with Company or a Subsidiary or another entity) relating to employment, patents,
proprietary information disclosure, non-competition or non-solicitation.
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3.7 Financial Statements; Filings.
(a) Company has made available to Buyer a correct and complete copy of
each report and statement filed by Company and each Subsidiary with any
Governmental Entity for the 36 months prior to the date of this Agreement (the
"Company Reports"), which are all the forms, reports and documents required to
be filed by Company and each Subsidiary with any Governmental Entity for the 36
months prior to the date of this Agreement. As of their respective dates, the
Company Reports (i) were prepared in accordance and complied in all material
respects with the requirements of the applicable Governmental Entity, and the
rules and regulations of such Governmental Entities applicable to such Company
Reports, and (ii) did not at the time they were filed (and if amended or
superseded by a filing prior to the date of this Agreement then on the date of
such filing and as so amended or superceded) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent set forth in
the preceding sentence, Company makes no representation or warranty whatsoever
concerning the Company Reports as of any time other than the time they were
filed.
(b) Company has provided to Buyer a correct and complete copy of the
audited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary and will provide the Company U.S. GAAP
Financial Statements (as defined in Section 6.1), each prepared in accordance
with such accounting standards as specified in such financial statements applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the financial position of Company and Subsidiaries at the respective
dates thereof and the results of its operations and cash flows for the periods
indicated.
(c) Company has provided to Buyer a correct and complete copy of the
unaudited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary for the most recent interim period
ended, complied as to form in all material respects with, prepared in accordance
with the published rules and regulations of any applicable Governmental Entity
and with such accounting standards as specified in such financial statements
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the financial position of Company and Subsidiaries at the respective
dates thereof and the results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to have a
Material Adverse Effect on Company.
(d) Company has previously furnished to Buyer a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
applicable Governmental Entities but which are required to be filed with respect
to Company or any Subsidiary, to agreements, documents or other instruments
which previously had been filed by Company or any Subsidiary with the applicable
Governmental Entities pursuant to applicable rules and regulations. The books of
account and other financial records of Company and each Subsidiary have been
maintained in accordance with good business practice.
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3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, Company and each Subsidiary have no liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the financial statements prepared in accordance with
the generally accepted accounting principles of the United States ("U.S. GAAP")
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Company or Subsidiary, except
liabilities provided for in or otherwise disclosed in the interim balance sheets
contained in the Company U.S. GAAP Financial Statements.
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto, since December 31, 2003, there has not been: (i) any Material
Adverse Effect on Company or any Subsidiary, (ii) any declaration, setting aside
or payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of Company's or any Subsidiary's capital stock, or
any purchase, redemption or other acquisition of any of Company's or any
Subsidiary's capital stock or any other securities of Company or any Subsidiary
or any options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of Company's
capital stock, other than the reincorporation of the Company in the British
Virgin Islands, (iv) any granting by Company or Subsidiary of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Company or any Subsidiary of any bonus, except for bonuses
made in the ordinary course of business consistent with past practice, or any
granting by Company or any Subsidiary of any increase in severance or
termination pay or any entry by Company or any Subsidiary into any currently
effective employment, severance, termination or indemnification agreement or any
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving Company or a
Subsidiary of the nature contemplated hereby, (v) entry by Company or any
Subsidiary into any material licensing or other agreement with regard to the
acquisition or disposition of any Intellectual Property (as defined in Section
3.20 hereof) other than licenses in the ordinary course of business consistent
with past practice or any amendment or consent with respect to any licensing
agreement filed or required to be filed by Company or any Subsidiary with
respect to any Governmental Entity, (vi) any material change by Company or any
Subsidiary in its accounting methods, principles or practices, (vii) any change
in the auditors of Company or any Subsidiary, (vii) any issuance of capital
stock of Company or any of its Subsidiaries, or (viii) any revaluation by
Company or any Subsidiary of any of their respective assets, including, without
limitation, writing down the value of capitalized inventory or writing off notes
or accounts receivable or any sale of assets of Company or a Subsidiary other
than in the ordinary course of business.
3.10 Litigation. Except as disclosed in Schedule 3.10 hereto or the
Company U.S. GAAP Financial Statements delivered to Buyer, there are no claims,
suits, actions or, to the best knowledge of Company, proceedings pending or
threatened against Company or any Subsidiary, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Company and its Subsidiaries taken as a whole
or have a Material Adverse Effect on the ability of the parties hereto to
consummate the Transaction.
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3.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document) covering any active or former employee, director or
consultant of Company or any Subsidiary, or any trade or business (whether or
not incorporated) which is under common control with Company or any Subsidiary,
with respect to which Company or any Subsidiary has liability (collectively, the
"Plans") has been maintained and administered in all material respects in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Plans, and
all liabilities with respect to the Plans have been properly reflected in the
financial statements of Company and it Subsidiaries. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought, or to the knowledge of Stockholders is
threatened, against or with respect to any such Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Stockholders,
threatened by any governmental agency with respect to any Plans. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Plans have been timely made or accrued. Company does not
have any plan or commitment to establish any new Plan, to modify any Plan
(except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Buyer in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Closing in accordance with its terms, without liability to Buyer, Company or any
Subsidiary (other than ordinary administration expenses and expenses for
benefits accrued but not yet paid).
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any Stockholder, director or employee of Company
or any Subsidiary under any Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Plan, or (iii) result in the acceleration
of the time of payment or vesting of any such benefits.
3.12 Labor Matters. Company and its Subsidiary are not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Company or a Subsidiary. To the extent Company or its
Subsidiaries are a party to any collective bargaining agreement or other labor
union contract, Company and its Subsidiaries are not in material violation or
breach of any such agreements.
3.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or a
Subsidiary or to which Company or a Subsidiary is a party which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Company or a Subsidiary, any acquisition of property by
Company or a Subsidiary or the conduct of business by Company or a Subsidiary as
currently conducted other than such effects, individually or in the aggregate,
which have not had and could not reasonably be expected to have a Material
Adverse Effect on Company or a Subsidiary.
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3.14 Title to Property.
(a) All real property owned by Company and Subsidiary (including
improvements and fixtures thereon, easements and rights of way) (the "Real
Property") is shown or reflected on the Company U.S. GAAP Financial Statements.
Company and Subsidiary have good, valid and marketable fee simple title to the
Real Property, and except as set forth in the Company U.S. GAAP Financial
Statements or on Schedule 3.14 hereto, all of the Real Property is held free and
clear of all Liens, rights of way, easements, restrictions, exceptions,
variances, reservations, covenants or other title defects or limitations of any
kind, other than liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby.
Schedule 3.14 hereto is a list of all options or other contracts under which any
Company or Subsidiary has a right to acquire any interest in real property.
(b) All leases of real property held by Company and each Subsidiary
and all personal property and other property and assets of Company and each
Subsidiary (other than Real Property) owned, used or held for use in connection
with the business of Company and Subsidiaries (the "Personal Property") are
shown or reflected on the Company U.S. GAAP Financial Statements. Company and
each Subsidiary own and have good and marketable title to the Personal Property,
and all such assets and properties are in each case held free and clear of all
Liens, except for Liens disclosed in the Company U.S. GAAP Financial Statements
or in Schedule 3.14 hereto, none of which Liens has or will have, individually
or in the aggregate, a Material Adverse Effect on such property or on the
present or contemplated use of such property in the businesses of Company or its
Subsidiaries, taken as a whole.
(c) All leases pursuant to which Company or a Subsidiary leases from
others material real or personal property are valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or event of default of Company or a Subsidiary or, to
Company's knowledge, any other party (or any event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such validity and effectiveness or the existence of such default or event of
default could not reasonably be expected to have a Material Adverse Effect on
Company or its Subsidiaries, taken as a whole.
3.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.
(b) Tax Returns and Audits. Except as set forth in Schedule 3.15
hereto:
(i) Company and each Subsidiary has timely filed all federal, state,
local and foreign returns, estimates, information statements and reports
relating to Taxes ("Returns") required to be filed by Company or a Subsidiary
with any Tax authority prior to the date hereof, except such Returns which are
not material to Company or a Subsidiary. All such Returns are true, correct and
complete in all material respects. Company and each Subsidiary have paid all
Taxes shown to be due on such Returns or are contesting in good faith such
Taxes.
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(ii) All Taxes that Company or a Subsidiary is required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the proper governmental authorities to the extent due and payable.
(iii) Company and each Subsidiary have not been delinquent in the
payment of any material Tax (unless being contested in good faith) nor is there
any material Tax deficiency outstanding, proposed or assessed against Company or
any Subsidiary, nor has Company or any Subsidiary executed any unexpired waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of Company or any
Subsidiary by any Tax authority is presently in progress, nor has Company or any
Subsidiary been notified of any request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by Company or any
Subsidiary has been proposed in writing, formally or informally, by any Tax
authority to the Company or any Subsidiary or any representative thereof.
(vi) Company and its Subsidiaries have no liability for any material
unpaid Taxes which have not been accrued for or reserved on Company's or
Subsidiary's balance sheets included in the audited financial statements for the
most recent fiscal year ended, whether asserted or unasserted, contingent or
otherwise, which is material to Company or a Subsidiary, other than any
liability for unpaid Taxes that may have accrued since the end of the most
recent fiscal year in connection with the operation of the business of Company
or its Subsidiaries in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company or its Subsidiaries.
(vii) Company has not taken any action and does not know of any
fact, agreement, plan or other circumstance that is reasonably likely to prevent
the Transaction from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
3.16 Environmental Matters.
(a) Except as disclosed in Schedule 3.16 hereto and except for such
matters that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect on the Company or its Subsidiaries, taken as a
whole, to Company's knowledge: (i) Company and each Subsidiary has complied with
all applicable Environmental Laws; (ii) the properties currently owned or
operated by Company and each Subsidiary (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Company and each
Subsidiary were not knowingly contaminated with Hazardous Substances during the
period of ownership or operation by Company or a Subsidiary; (iv) Company and
its Subsidiaries are not subject to liability for any Hazardous Substance
disposal or contamination on any third party property; (v) Company and its
Subsidiaries have not knowingly been associated with any release or threat of
release of any Hazardous Substance; (vi) Company and its Subsidiaries have not
received any notice, demand, letter, claim or request for information alleging
that Company or a Subsidiary may be in violation of or liable under any
Environmental Law; and (vii) Company and its Subsidiaries are not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
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(b) As used in this Agreement, the term "Environmental Law" means any
law, regulation, order, decree, permit, authorization, opinion, common law or
agency requirement applicable to the properties or operations of Company or its
Subsidiaries relating to: (A) the protection, investigation or restoration of
the environment, health and safety, or natural resources; (B) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance or
(C) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property.
(c) As used in this Agreement, the term "Hazardous Substance" means
any substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity having jurisdiction over
the properties or operations of the Company or its Subsidiaries pursuant to any
Environmental Law.
3.17 Brokers; Third Party Expenses. Company and its Subsidiaries have not
incurred, nor will they incur, directly or indirectly, any liability for
brokerage, finders' fees, agent's commissions, financial advisory fees or any
similar charges in connection with this Agreement or any transactions
contemplated hereby, except for: (i) a certain agreement by and between Aidi
Financial Investment, LLC ("Aidi") and the Company dated October 15, 2003 ("Aidi
Agreement"), and (ii) a certain agreement between Du Yaru and a Subsidiary of
the Company dated March 3, 2003 ("Yaru Agreement"). The Aidi Agreement and Yaru
Agreement were superceded, amended and combined by a certain agreement between
Aidi and the Company dated September 27, 2004 ("Combined Aidi Agreement"). A
true, complete and accurate copy of the Aidi Agreement, Yaru Agreement and
Combined Aidi Agreement in the English language have been heretofore delivered
to Buyer. Schedule 3.17 sets forth the persons and the number of Buyer's Shares
("Service Provider Shares") that will be issued to each person immediately
following the Closing of this Transaction as payment for services rendered by
Aidi, Du Yaru and other service providers to Company, its Subsidiaries or the
Stockholders in connection with this Agreement or any transactions contemplated
hereby. Except as disclosed on Schedule 3.17, no shares of common or preferred
stock, options, warrants or other securities of either Company or Buyer have or
will be granted, issued or paid to any third party by Company, any Subsidiary or
Stockholders as a result of this Transaction or as compensation for services
rendered in connection with this Transaction.
3.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
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"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof ("Patents"); (ii) inventions
(whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto
throughout the world; (iv) domain names, uniform resource locators
("URLs") and other names and locators associated with the Internet
("Domain Names"); (v) industrial designs and any registrations and
applications therefor; (vi) trade names, logos, common law trademarks
and service marks, trademark and service xxxx registrations and
applications therefor (collectively, "Trademarks"); (vii) all
databases and data collections and all rights therein; (viii) all
moral and economic rights of authors and inventors, however
denominated, and (ix) any similar or equivalent rights to any of the
foregoing (as applicable).
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or licensed to, Company or a Subsidiary, other than
mass produced, publicly available computer software.
"Registered Intellectual Property" means all Intellectual Property
that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or a
Subsidiary.
"Company Products" means all current versions of products or service
offerings of Company and its Subsidiaries.
(a) No Company Intellectual Property or Company Product is subject to
any material proceeding or outstanding decree, order, judgment, contract,
license, agreement or stipulation restricting in any manner the use, transfer or
licensing thereof by Company or a Subsidiary, or which may affect the validity,
use or enforceability of such Company Intellectual Property or Company Product,
which in any such case could reasonably be expected to have a Material Adverse
Effect on Company and its Subsidiaries, taken as a whole.
(b) Except as disclosed on Schedule 3.18 hereto, Company or its
Subsidiaries own and have good and exclusive title to, each material item of
Company Intellectual Property owned by it free and clear of any Liens (excluding
non-exclusive licenses and related restrictions granted in the ordinary course);
and Company or its Subsidiaries are the exclusive owner of, or have a valid and
subsisting license to use, all material Trademarks used in connection with the
operation or conduct of the business of Company and its Subsidiaries including
the sale of any products or the provision of any services by Company and its
Subsidiaries.
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(c) The operation of the business of Company and its Subsidiaries as
such business currently is conducted, including (i) the design, development,
manufacture, distribution, reproduction, marketing or sale of the products or
services of Company and its Subsidiaries (including Company Products) and (ii)
Company's or a Subsidiary's use of any product, device or process, to the
Company's knowledge and except as could not reasonably be expected to have a
Material Adverse Effect, has not and does not and will not infringe or
misappropriate the Intellectual Property of any third party or constitute unfair
competition or trade practices under the laws of any jurisdiction.
3.19 Agreements, Contracts and Commitments.
(a) The Company has delivered to Buyer a complete and accurate list of
all Material Contracts (as hereinafter defined), specifying the parties thereto.
For purposes of this Agreement, (i) the term "Contracts" shall mean all
contracts, agreements, leases, mortgages, indentures, note, bond, liens,
license, permit, franchise, arbitration awards, judgments, decrees, orders,
understandings and binding commitments, or other instrument or obligation
(including without limitation outstanding offers or proposals) of any kind,
whether written or oral, to which Company or any Subsidiary is a party or by or
to which any of the properties or assets of Company or any Subsidiary may be
bound, subject or affected (including without limitation notes or other
instruments payable to Company or any Subsidiary) and (ii) the term "Material
Contracts" shall mean (x) each Contract (I) providing for payments (past,
present or future) to Company or any Subsidiary in excess of $250,000 in the
aggregate or (II) under which or in respect of which Company or any Subsidiary
presently has any liability or obligation of any nature whatsoever (absolute,
contingent or otherwise) in excess of $250,000, (y) each Contract which
otherwise is or may be material to the businesses, operations, assets, condition
(financial or otherwise) or prospects of Company and its Subsidiaries, taken as
a whole, and (z) without limitation of subclause (x) or subclause (y), each of
the following Contracts:
(1) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from Company, any Subsidiary, or any officer, director or 5% or more
stockholder ("Insider") of Company or any Subsidiary;
(2) any guaranty, direct or indirect, by Company or any
Subsidiary or any Insider of Company or any Subsidiary of any obligation for
borrowings, or otherwise, involving more than $250,000, excluding endorsements
made for collection in the ordinary course of business;
(3) any Contract (x) providing for the grant to any
preferential rights to purchase or lease any asset of Company or any Subsidiary
other than in the ordinary course of business, or (y) providing for any right
(exclusive or non-exclusive) to sell or distribute, or otherwise relating to the
sale or distribution of, any product or service of Company or any Subsidiary;
(4) any obligation to register any shares of the capital stock
or other securities of Company or any Subsidiary with any Governmental Entity;
17
(5) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(6) any collective bargaining agreement with any labor union;
(7) any lease or similar arrangement for the use by Company or
any Subsidiary of personal property involving more than $250,000;
(8) any Contract granting or purporting to grant, or otherwise
in any way relating to, any mineral rights or any other interest (including,
without limitation, a leasehold interest) in real property; and
(9) any Contract to which any Insider of Company or any
Subsidiary is a party.
(b) Each Material Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Material Contracts (or written summaries in the case of oral
Material Contracts) and of all outstanding offers or proposals of Company and
each Subsidiary have been heretofore delivered to Buyer.
(c) Neither Company nor any Subsidiary nor any other party thereto is
in breach of or in default under, and no event has occurred which with notice or
lapse of time or both would become a breach of or default under, any Material
Contract, and no party to any Contract has given any notice of any claim of any
such breach, default or event, which, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Company and its
Subsidiaries. Each Material Contract that has not expired by its terms is in
full force and effect, except where such failure to be in full force and effect
is not reasonably likely to have a Material Adverse Effect on Company and its
Subsidiaries, taken as a whole.
3.20 Insurance. Company and its Subsidiaries maintain insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors (collectively, the "Insurance
Policies") of Company and its Subsidiaries which Company reasonably believes are
adequate in amount and scope for the business in which they are engaged.
3.21 Governmental Actions/Filings. Company and each Subsidiary have been
granted and hold, and have made, all Governmental Actions/Filings (including,
without limitation, the Governmental Actions/Filings required for (i) emission
or discharge of effluents and pollutants into the air and the water and (ii) the
manufacture and sale of all products manufactured and sold by it) necessary to
the conduct by Company or each Subsidiary of its businesses (as presently
conducted) or used or held for use by Company or any Subsidiary, and true,
complete and correct copies of which have heretofore been delivered to Buyer.
Each such Governmental Action/Filing is in full force and effect, and Company
and each Subsidiary is in compliance with all of its obligations with respect
thereto. No event has occurred and is continuing which requires or permits, or
after notice or lapse of time or both would require or permit, and consummation
of the transactions contemplated by this Agreement or any ancillary documents
will not require or permit (with or without notice or lapse of time, or both),
any modification or termination of any such Governmental Actions/Filings. Except
as set forth in Schedule 3.21, no Governmental Action/Filing is necessary to be
obtained, secured or made by Company or any Subsidiary to enable it to continue
to conduct its businesses and operations and use its properties after the
Closing in a manner which is consistent with current practice.
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3.22 Interested Party Transactions. Except as set forth in Schedule 3.22
hereto, no employee, officer, director or Stockholder of Company or any
Subsidiary or a member of his or her immediate family is indebted to Company or
any Subsidiary, nor is Company or any Subsidiary indebted (or committed to make
loans or extend or guarantee credit) to any of them, other than (i) for payment
of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of Company or an Subsidiary, and (iii) for other employee
benefits made generally available to all employees. Except as set forth in
Schedule 3.22, none of such individuals has any direct or indirect ownership
interest in any Person with whom Company or any Subsidiary is affiliated or with
whom Company or any Subsidiary has a contractual relationship, or any Person
that competes with Company or any Subsidiary, except that each employee,
Stockholder, officer or director of Company or any Subsidiary and members of
their respective immediate families may own less than 5% of the outstanding
stock in publicly traded companies that may compete with Company or any
Subsidiary.
3.23 Board Approval. The board of directors of Company or similar
governing body (including any required committee or subgroup of thereof) has, as
of the date of this Agreement, unanimously (i) declared the advisability of the
Transaction and approved, subject to the approval of Stockholders (if required),
this Agreement and the transactions contemplated hereby, (ii) determined that
the Transaction is in the best interests of the Stockholders and is on terms
that are fair to such Stockholders, and (iii) recommended that the Stockholders
approve and adopt this Agreement and approve the Transaction (if required).
3.24 Investment Company Act. Company is not an "investment company" or an
"affiliated person" of or "promoter" or "principal underwriter" or an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, nor is Company otherwise subject to regulation thereunder.
Company is not a "holding company" as that term is defined in, and is not
otherwise subject to regulation under, the Public Utility Holding Company Act of
1935.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to, and covenants with, Company, as follows:
4.1 Organization and Qualification.
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Buyer to be conducted. Buyer is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being or currently planned by Buyer to be
conducted, except where the failure to have such Approvals could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Buyer. Complete and correct copies of the Charter Documents of
Buyer, as amended and currently in effect, have heretofore been delivered to
Company. Buyer is not in violation of any of the provisions of the Buyer's
Charter Documents.
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(b) Buyer is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Buyer.
(c) The minute books of Buyer contain true, complete and accurate
records of all meetings and consents in lieu of meetings of its Board of
Directors (and any committees thereof), similar governing bodies and
stockholders ("Corporate Records"), since the time of KRM Fund's purchase of its
majority interest in Buyer. Copies of such Corporate Records of Buyer have been
heretofore delivered to Company.
(d) The stock ownership records of Buyer contain true, complete and
accurate records of the ownership of the Buyer Common Stock at the close of
business on the business day prior to the date hereof ("Stock Records"). Copies
of such Stock Records of Buyer been heretofore delivered to Company.
4.2 Subsidiaries. Buyer has no Subsidiaries and does not own, directly or
indirectly, any ownership, equity, profits or voting interest in any Person or
has any agreement or commitment to purchase any such interest, and Buyer has not
agreed and is not obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
4.3 Capitalization.
(a) The authorized capital stock of Buyer consists of 50,000,000
shares of common stock, par value $0.001 per share ("Buyer Common Stock") and
10,000,000 shares of preferred stock, par value $0.001 per share ("Buyer
Preferred Stock"). At the close of business on the business day prior to the
date hereof, (i) 2,500,000 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; and
(ii) no shares of Buyer Preferred Stock were issued and outstanding. All
outstanding shares of Buyer Common Stock have been issued and granted in
compliance with (i) all applicable securities laws and (in all material
respects) other applicable Legal Requirements, and (ii) all requirements set
forth in applicable Buyer Contracts (as hereinafter defined).
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(b) There are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of Buyer, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. There are no subscriptions, options,
warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Buyer is a party or by which it is bound
obligating Buyer to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Buyer or obligating Buyer to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 4.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Buyer is a party or by which it is bound with respect to any equity
security of any class of Buyer.
4.4 Authority Relative to this Agreement. Buyer has full corporate power
and authority to: (i) execute, deliver and perform this Agreement, and each
ancillary document which Buyer has executed or delivered or is to execute or
deliver pursuant to this Agreement, and (ii) carry out Buyer's obligations
hereunder and thereunder and, to consummate the transactions contemplated hereby
(including the Transaction). The execution and delivery of this Agreement and
the consummation by Buyer of the transactions contemplated hereby (including the
Transaction) have been duly and validly authorized by all necessary corporate
action on the part of Buyer (including the approval by its Board of Directors),
and no other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and,
assuming the due authorization, execution and delivery thereof by Company and
Stockholders, constitutes the legal and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and public policy.
4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Buyer and the
execution and delivery of the Voting Agreement by Buyer do not, and the
performance of this Agreement by Buyer and the performance of the Voting
Agreement by Buyer shall not: (i) conflict with or violate Buyer's Charter
Documents, (ii) conflict with or violate any Legal Requirements to which the
Buyer is bound, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or materially impair Buyer's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Buyer pursuant to, any Buyer
Contracts, except, with respect to clauses (ii) or (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
individually and in the aggregate, have a Material Adverse Effect on Buyer.
21
(b) The execution and delivery of this Agreement by Buyer does not,
and the performance of its obligations hereunder will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, and the rules and regulations
thereunder, and appropriate documents with the relevant authorities of other
jurisdictions in which Buyer is qualified to do business, (ii) consents,
approvals, authorizations, permits, filings and notices to be obtained or made
prior to Closing, and (iii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Buyer, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
4.6 Compliance. To Buyer's knowledge, Buyer has complied with, is not in
violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Buyer. To Buyer's
knowledge, the businesses and activities of Buyer have not been and are not
being conducted in violation of any Legal Requirements. Buyer is not in default
or violation of any term, condition or provision of its Charter Documents or
Buyer Contracts, except with respect to such defaults or violations under Buyer
Contracts which would not reasonably be expected to have a Material Adverse
Effect on Buyer. To Buyer's knowledge, no notice of non-compliance with any
Legal Requirements has been received by Buyer.
4.7 SEC Filings; Financial Statements.
(a) Buyer has made available to Company through the SEC web site a
correct and complete copy of each report, registration statement and definitive
proxy statement filed by Buyer with the SEC for the 36 months prior to the date
of this Agreement (the "Buyer SEC Reports"). Buyer is, and as of the date
immediately prior to the Closing Date, shall be current in all filings required
by the SEC. As of their respective dates, the Buyer SEC Reports and all filings
required to be made with the SEC from the date hereof through the Closing Date
(other than any filings required to be made with the SEC with respect to or in
connection with this Transaction): (i) were prepared in accordance and complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Buyer SEC Reports, and (ii) did not, or will not,
at the time they were filed (and if amended or superseded by a filing prior to
the date of this Agreement then on the date of such filing and as so amended or
superceded) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent set forth in the preceding sentences, Buyer
makes no representation or warranty whatsoever concerning the Buyer SEC Reports
as of any time other than the time they were filed.
22
(b) Each set of financial statements (including, in each case, any
related notes thereto) contained in Buyer SEC Reports and all filings required
to be made with the SEC from the date hereof through the Closing Date (other
than any filings required to be made with the SEC with respect to or in
connection with this Transaction) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form
10-QSB of the Exchange Act) and each fairly presents in all material respects
the financial position of Buyer at the respective dates thereof and the results
of its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal adjustments
which were not or are not expected to have a Material Adverse Effect on Buyer
taken as a whole.
(c) Buyer has previously furnished to Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Buyer with the SEC pursuant to
the Securities Act or the Exchange Act.
4.8 No Undisclosed Liabilities. Except as set forth in Schedule 4.8
hereto, Buyer has no liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the financial statements prepared in accordance with U.S. GAAP, except (i)
liabilities provided for in or otherwise disclosed in Buyer SEC Reports filed
prior to the date hereof or in filings made with the SEC from the date hereof
through the Closing Date, (ii) liabilities incurred since December 31, 2003 in
the ordinary course of business, none of which would have a Material Adverse
Effect on Buyer, and (iii) those liabilities and obligations specifically set
forth in Section 6.14.
4.9 Absence of Certain Changes or Events. Except as set forth in Schedule
4.9 hereto, in Buyer SEC Reports, or in any filings made with the SEC from the
date hereof through the Closing Date, since December 31, 2003, there has not
been: (i) any Material Adverse Effect on Buyer, (ii) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of, any of Buyer's capital stock, or any purchase,
redemption or other acquisition of any of Buyer's capital stock or any other
securities of Buyer or any options, warrants, calls or rights to acquire any
such shares or other securities, (iii) any split, combination or
reclassification of any of Buyer's capital stock, (iv) any granting by Buyer of
any increase in compensation or fringe benefits, except for normal increases of
cash compensation in the ordinary course of business consistent with past
practice, or any payment by Buyer of any bonus, except for bonuses made in the
ordinary course of business consistent with past practice, or any granting by
Buyer of any increase in severance or termination pay or any entry by Buyer into
any currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving
Buyer of the nature contemplated hereby, (v) entry by Buyer into any licensing
or other agreement with regard to the acquisition or disposition of any
Intellectual Property other than licenses in the ordinary course of business
consistent with past practice or any amendment or consent with respect to any
material licensing agreement filed or required to be filed by Buyer with respect
to any Governmental Entity, (vi) any material change by Buyer in its accounting
methods, principles or practices, except as required by concurrent changes in
U.S. GAAP, (vii) any change in the auditors of Buyer, (vii) any issuance of
capital stock of Buyer, or (viii) any revaluation by Buyer of any of their
respective assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale of
assets of Buyer other than in the ordinary course of business.
23
4.10 Litigation. Except as set forth on Schedule 4.10 hereto, in Buyer SEC
Reports, or in any filings made with the SEC from the date hereof through the
Closing Date, there are no claims, suits, actions or proceedings pending or, to
Buyer's knowledge, threatened against Buyer, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator.
4.11 Employee Benefit Plans. Except as disclosed on Schedule 4.11 hereto,
in Buyer SEC Reports, or in any filings made with the SEC from the date hereof
through the Closing Date, Buyer does not maintain, and has no liability under,
any Plan, and neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or employee of Buyer, or
(ii) result in the acceleration of the time of payment or vesting of any such
benefits.
4.12 Labor Matters. Buyer is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Buyer,
nor does Buyer know of any activities or proceedings of any labor union to
organize any such employees. Buyer has no employees.
4.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Buyer or to which
Buyer is a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Buyer, any
acquisition of property by Buyer or the conduct of business by Buyer as
currently conducted other than such effects, individually or in the aggregate,
which have not had and could not reasonably be expected to have, a Material
Adverse Effect on Buyer.
4.14 Title to Property. Buyer does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Buyer has
a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
4.15 Taxes. Except as set forth in Schedule 4.15 hereto, to Buyer's
knowledge:
(a) Buyer has timely filed all Returns required to be filed by Buyer
with any Tax authority prior to the date hereof. All such Returns are true,
correct and complete in all material respects. Buyer has paid all Taxes shown to
be due on such Returns or are contesting in good faith such Taxes.
(b) All Taxes that Buyer is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
proper governmental authorities to the extent due and payable.
24
(c) Buyer has not been delinquent in the payment of any Tax (unless
being contested in good faith) nor is there any Tax deficiency outstanding,
proposed or assessed against Buyer, nor has Buyer executed any unexpired waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Buyer by any Tax
authority is presently in progress, nor has Buyer been notified of any request
for such an audit or other examination.
(e) No adjustment relating to any Returns filed by Buyer has been
proposed in writing, formally or informally, by any Tax authority to Buyer or
any representative thereof.
(f) Buyer has no liability for any unpaid Taxes which have not been
accrued for or reserved on Buyer's balance sheets included in the audited
financial statements for the most recent fiscal year ended, whether asserted or
unasserted, contingent or otherwise, other than any liability for unpaid Taxes
that may have accrued since the end of the most recent fiscal year in connection
with the operation of the business of Buyer in the ordinary course of business.
(g) Buyer has not taken any action and does not know of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent the
Transaction from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
4.16 Environmental Matters. Except as disclosed in Schedule 4.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Buyer's knowledge: (i)
Buyer has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Buyer (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Buyer were not
knowingly contaminated with Hazardous Substances during the period of ownership
or operation by Buyer; (iv) Buyer is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Buyer has
not knowingly been associated with any release or threat of release of any
Hazardous Substance; (vi) Buyer has not received any notice, demand, letter,
claim or request for information alleging that Buyer may be in violation of or
liable under any Environmental Law; and (vii) Buyer is not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
4.17 Brokers. Except for Buyer's obligations under the Financial Advisory
Agreement (as defined in Section 6.13), Buyer has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agent's commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.18 Intellectual Property. Buyer does not own, license or otherwise have
any right, title or interest in any Intellectual Property or Registered
Intellectual Property.
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4.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement and any agreements
with Transfer Agent, and except as set forth on Schedule 4.19, in Buyer SEC
Reports or in any filings made with the SEC from the date hereof through the
Closing Date, there are no contracts, agreements, leases, mortgages, indentures,
note, bond, liens, license, permit, franchise, arbitration awards, judgments,
decrees, orders, understandings and binding commitments, or other instrument or
obligation (including without limitation outstanding offers or proposals) of any
kind, whether written or oral, to which Buyer is a party or by or to which any
of the properties or assets of Buyer may be bound, subject or affected, which
either (a) creates or imposes any liability, or (b) may not be cancelled by
Buyer on 30 days' or less prior notice ("Buyer Contracts").
(b) Each Buyer Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Buyer Contracts (or written summaries in the case of oral Buyer
Contracts) have been heretofore delivered to Company.
(c) Neither Buyer nor any other party thereto is in breach of or in
default under, and no event has occurred which with notice or lapse of time or
both would become a breach of or default under, any Buyer Contract, and no party
to any Buyer Contract has given any notice of any claim of any such breach,
default or event. Each Buyer Contract that has not expired by its terms is in
full force and effect.
4.20 Insurance. Buyer does not maintain any Insurance Policies.
4.21 Governmental Actions/Filings. Buyer has been granted and holds, and
has made, all Governmental Actions/Filings necessary to the conduct by Buyer of
its businesses (as presently conducted) or used or held for use by Buyer, and
true, complete and correct copies of which have heretofore been delivered to
Company. Each such Governmental Action/Filing is in full force and effect, and
Buyer is in compliance with all of its obligations with respect thereto. No
event has occurred and is continuing which requires or permits, or after notice
or lapse of time or both would require or permit, and consummation of the
transactions contemplated by this Agreement or the ancillary documents will not
require or permit (with or without notice or lapse of time, or both), any
modification or termination of any such Governmental Actions/Filings. Except as
set forth in Schedule 4.21, to Buyer's knowledge, no Governmental Action/Filing
is necessary to be obtained, secured or made by Buyer to enable it to continue
to conduct its businesses and operations and use its properties after the
Closing in a manner which is consistent with current practice.
4.22 Interested Party Transactions. Except as set forth in Schedule 4.22
hereto, in the Buyer's SEC Reports, or in any filings made with the SEC from the
date hereof through the Closing Date, to Buyer's knowledge, no employee,
officer, director or stockholder of Buyer or a member of his or her immediate
family is indebted to Buyer, nor is Buyer indebted (or committed to make loans
or extend or guarantee credit) to any of them, other than (i) for payment of
compensation for services rendered, or (ii) reimbursement for reasonable
expenses incurred on behalf of Buyer. Except as set forth in Schedule 4.22
hereto, in the Buyer's SEC Reports, or in any filings made with the SEC from the
date hereof through the Closing Date, none of such individuals has any direct or
indirect ownership interest in any Person with whom Buyer is affiliated or with
whom Buyer has a contractual relationship, or any Person that competes with
Buyer, except that each employee, stockholder, officer or director of Buyer and
members of their respective immediate families may own less than 5% of the
outstanding stock in publicly traded companies that may compete with Buyer.
Except as set forth in Schedule 4.22, in the Buyer's SEC Reports, or in any
filings made with the SEC from the date hereof through the Closing Date, no
officer, director or stockholder or any member of their immediate families is,
directly or indirectly, interested in any Buyer Contract (other than such
contracts as relate to any such individual ownership of capital stock or other
securities of Buyer).
26
4.23 Indebtedness; Buyer Assets. Except as set forth on Schedule 4.23,
Buyer has no indebtedness for borrowed money. Immediately prior to the Closing,
Buyer will have no assets, except for cash reserves earmarked for the payment of
accounts payable and accrued expenses of Buyer with respect to the period prior
to Closing and which remain unpaid, which Buyer shall be responsible for payment
following the Closing pursuant to Section 6.13 hereof ("Cash Reserves").
4.24 Over-the-Counter Bulletin Board Quotation; Exchange Act Registration.
Buyer Common Stock is quoted on the Over-the-Counter Bulletin Board ("OTC BB").
There is no action or proceeding pending or, to Buyer's knowledge, threatened
against Buyer by NASDAQ or NASD, Inc. ("NASD") with respect to any intention by
such entities to prohibit or terminate the quotation of Buyer Common Stock on
the OTC BB. Buyer has filed Form 8-A12G with the SEC to effect the registration
of Buyer Common Stock pursuant to Section 12(g) of the Exchange Act.
4.25 Board Approval. The Board of Directors of Buyer (including any
required committee or subgroup of the Board of Directors of Buyer) has, as of
the date of this Agreement, unanimously declared the advisability of the
Transaction and approved this Agreement and the transactions contemplated hereby
and has determined that the Transaction is in the best interests of the
stockholders of Buyer and is on terms that are fair to such stockholders.
4.26 Officers and Directors. During the past five year period, to Buyer's
knowledge, no current officer or director of Buyer has been the subject of:
(a) a petition under the Federal bankruptcy laws or any other
insolvency or moratorium law or has a receiver, fiscal agent or similar officer
been appointed by a court for such person, or any partnership in which such
person was a general partner at or within two years before the time of such
filing, or any corporation or business association of which such person was an
executive officer at or within two years before the time of such filing;
(b) a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations which do not relate to
driving while intoxicated or driving under the influence);
(c) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
27
(i) Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States
Commodity Futures Trading Commission or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation of
Federal, state or other securities laws or commodities laws;
(d) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal, state or local authority barring,
suspending or otherwise limiting for more than 60 days the right of any such
person to engage in any activity described in the preceding sub-paragraph, or to
be associated with persons engaged in any such activity;
(e) a finding by a court of competent jurisdiction in a civil action
or by the SEC to have violated any securities law, regulation or decree and the
judgment in such civil action or finding by the SEC has not been subsequently
reversed, suspended or vacated; or
(f) a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
4.27 Investment Company Act. Buyer is not an "investment company" or an
"affiliated person" of or "promoter" or "principal underwriter" or an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, nor is Buyer otherwise subject to regulation thereunder. Buyer
is not a "holding company" as that term is defined in, and is not otherwise
subject to regulation under, the Public Utility Holding Company Act of 1935.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business by Company and Buyer. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of Company, Company's
Subsidiaries and Buyer shall, except to the extent that the other party shall
otherwise consent in writing, carry on its business in the usual, regular and
ordinary course consistent with past practices, in substantially the same manner
as heretofore conducted and in compliance with all applicable laws and
regulations (except where noncompliance would not have a Material Adverse
Effect), pay its debts and taxes when due subject to good faith disputes over
such debts or taxes, pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and policies
to (i) preserve substantially intact its present business organization, (ii)
keep available the services of its present officers and employees and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others with which it has significant business dealings. In
addition, except as required or permitted by the terms of this Agreement,
without the prior written consent of the other parties, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Closing, each of Company,
Company's Subsidiaries and Buyer shall not do any of the following:
28
(a) Waive any stock repurchase rights, accelerate, amend or (except as
specifically provided for herein) change the period of exercisability of options
or restricted stock, or reprice options granted under any employee, consultant,
director or other stock plans or authorize cash payments in exchange for any
options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to applicable law, written agreements outstanding, or policies
existing on the date hereof and as previously or concurrently disclosed in
writing or made available to the other party, or adopt any new severance plan,
or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof;
(c) Transfer or license to any person or otherwise extend, amend or
modify any material rights to any Intellectual Property of Company, Company's
Subsidiaries or Buyer, as applicable, or enter into grants to transfer or
license to any person future patent rights, other than in the ordinary course of
business consistent with past practices provided that in no event shall Company,
Company's Subsidiaries or Buyer license on an exclusive basis or sell any
Intellectual Property of Company, Company's Subsidiaries or Buyer, as
applicable;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Except as set forth in Schedule 5.1(e) hereof, purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock of
Company, Company's Subsidiaries and Buyer, as applicable, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber, or
agree to any of the foregoing with respect to, any shares of capital stock or
any securities convertible into or exchangeable for shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into or exchangeable for shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible or exchangeable securities;
(g) Amend its Charter Documents;
29
(h) Except as disclosed in Schedule 5.1(h) hereto and as contemplated
by this Agreement, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of Buyer, Company or Company's Subsidiaries, as applicable, or enter
into any joint ventures, strategic partnerships or alliances or other
arrangements that provide for exclusivity of territory or otherwise restrict
such party's ability to compete or to offer or sell any products or services;
(i) Except as contemplated by this Agreement, sell, lease, license,
encumber or otherwise dispose of any properties or assets, except sales of
inventory in the ordinary course of business consistent with past practice and,
except for the sale, lease or disposition (other than through licensing) of
property or assets which are not material, individually or in the aggregate, to
the business of such party;
(j) Except as disclosed in Schedule 5.1(j) hereto, or in accordance
with currently existing loans, credit lines or similar arrangements, incur any
indebtedness for borrowed money in excess of $50,000 in the aggregate or
guarantee any such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of Buyer, Company, or Company's Subsidiaries, as applicable, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing;
(k) Except as disclosed in Schedule 5.1(k) hereto, adopt or amend any
employee benefit plan, policy or arrangement, any employee stock purchase or
employee stock option plan, or enter into any employment contract or collective
bargaining agreement (other than offer letters and letter agreements entered
into in the ordinary course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants, except in the ordinary course of
business consistent with past practices;
(l) Except as disclosed in Schedule 5.1(1) hereto, (i) pay, discharge,
settle or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), or litigation (whether or not
commenced prior to the date of this Agreement) other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practices or in accordance with their terms, or liabilities
recognized or disclosed in the most recent financial statements (or the notes
thereto) of Company and its Subsidiaries or of Buyer included in Buyer SEC
Reports, as applicable, or incurred since the date of such financial statements,
or (ii) waive the benefits of, agree to modify in any manner, terminate, release
any person from or knowingly fail to enforce any confidentiality or similar
agreement to which Company or its Subsidiaries is a party or of which Company or
its Subsidiaries is a beneficiary or to which Buyer is a party or of which Buyer
is a beneficiary, as applicable;
30
(m) Except in the ordinary course of business consistent with past
practices, modify, amend or terminate any material Contract of Company,
Company's Subsidiaries or Buyer, as applicable, or other material contract or
material agreement to which Company, Company's Subsidiaries or Buyer is a party
or waive, delay the exercise of, release or assign any material rights or claims
thereunder;
(n) Except as required by U.S. GAAP, revalue any of its assets or make
any change in accounting methods, principles or practices;
(o) Except as set forth in Schedule 5.1(o) hereto, incur or enter into
any agreement, contract or commitment requiring such party to pay in excess of
$50,000 in any 12 month period;
(p) Engage in any action that could reasonably be expected to cause
the Transaction to fail to qualify as a "reorganization" under Section 368(a) of
the Code;
(q) Except as contemplated by Article V herein or as set forth in
Schedule 5.1(q) hereto, settle any litigation;
(r) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(s) Form, establish or acquire any Subsidiary;
(t) Permit any Person to exercise any of its discretionary rights
under any Plan to provide for the automatic acceleration of any outstanding
options, the termination of any outstanding repurchase rights or the termination
of any cancellation rights issued pursuant to such plans; or
(u) Agree in writing or otherwise agree, commit or resolve to take any
of the actions described in Section 5.1 (a) through (t) above.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Company U.S. GAAP Financial Statements. On or before the Compliance
Date, Company shall deliver to Buyer audited financial statements for Company
and each of its Subsidiaries, on a consolidated basis, for the last three fiscal
years ended and unaudited financials statements for Company and each of its
Subsidiaries, on a consolidated basis, for the current fiscal year through the
most recent interim period ended, which financial statements shall comply in all
material respects with the published rules and regulations of the SEC, shall be
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved, shall be in the English language, and shall fairly present
in all material respects the financial position of Company and each of its
Subsidiaries at the respective dates thereof and the results of its operations
and cash flows for the periods indicated ("Company U.S. GAAP Financial
Statements"). The Company U.S. GAAP Financial Statements for the last three
fiscal years shall have been audited by, and the interim financials statements
shall have been reviewed by, L.L. Bradford & Company, LLC ("Accountant").
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6.2 Company Proforma Financial Statements. On or before the Compliance
Date, Company shall deliver to Buyer audited financial statements for the
Company, the Company's Subsidiaries and Buyer, on a consolidated basis, giving
effect to the Transaction, for the last three fiscal years, and unaudited
financial statements for the Company, the Company's Subsidiaries and Buyer, on a
consolidated basis, giving effect to the Transaction, for the most recent period
ended, together with any proforma financial information and any other financial
information which are required to be included in a Form 8-K or any other report
or form required to be filed with the SEC at or after Closing, with respect to
the Transaction, all prepared in all material respects with the published rules
and regulations of the SEC and in accordance with U.S. GAAP applied on a
consistent basis throughout the periods involved ("Company Proforma Financial
Statements"). The Company Proforma Financial Statements for the last three
fiscal years shall have been audited by, and the interim financial statements
shall have been reviewed by, the Accountant and shall be in a format acceptable
for inclusion on the Transaction 8-K (as defined herein) and for XXXXX filing.
6.3 Board of Directors of Buyer. At Closing, the current board of
directors of Buyer shall deliver duly adopted resolutions to: (a) set the size
of Buyer's board of directors to seven (7) members effective as of the Closing;
and (b) elect the following persons to the Buyer's board of directors effective
as of the Closing: (i) Lu Pingji, Xxxx Xxxxxxxx, Du Yaru and Xiao Genxiang, each
of whom shall management members of Buyer's board of directors ("Management
Members"); (ii) one member designated by KRM Fund, which person shall be an
independent director and a financial expert, qualified and available to serve on
Buyer's audit and compensation committee, and otherwise acceptable to the
Stockholders ("Buyer Designated Member"); and (iii) Xxxxx Xxx and one other
person, each of whom shall have been or will be selected by the Stockholders and
shall be independent directors ("Independent Members"); and (c) accepting the
resignations of the current officers and directors of the Buyer effective as of
the Closing ("Resolutions"). At Closing, the current officers and director of
Buyer shall deliver their resignations, as appropriate, as officers and
directors of Buyer to be effective upon the Closing (the "Resignations"). On or
before the Compliance Date, the Company and Stockholders shall deliver or cause
to be delivered to Buyer completed and signed director and officer
questionnaires ("Questionnaires") in the English language for each of the
Management Members and Independent Members. The foregoing designations of the
Management Members and Independent Members (and the officers to be appointed by
Buyer following Closing) shall be subject to Buyer's receipt of the completed
and signed Questionnaires and a third party investigation reports and background
checks, which shall be acceptable to Buyer in its sole reasonable discretion
("D&O Information"). Buyer's board of directors shall at all times satisfy the
applicable requirements for board composition and corporate governance under the
Xxxxxxxx-Xxxxx Act of 2002 (the "SOX Act"), the rules and regulations
promulgated by the SEC and other governmental agencies, and the rules of the
exchange on which Buyer's securities are listed or quoted. The Stockholders
shall execute and deliver at Closing the Voting Agreement which shall provide,
among other things, that the Stockholders will vote their Buyer's Shares to
elect Buyer Designated Member to Buyer's board of directors for a period of one
year following the Closing.
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6.4 Undertaking by Company Accountant. On or before the Compliance Date,
the Company shall obtain, and deliver to Buyer, an undertaking from the
Accountant, in a form and substance satisfactory to Buyer, providing that: (i)
the Accountant has agreed to an engagement with Buyer to serve as its certified
public accountants following the Closing for purposes of auditing and reviewing
the financial statements of the Buyer, the Company and the Company's
Subsidiaries to comply with the Buyer's ongoing reporting requirements under the
Exchange Act including, without limitation, the filing of Forms 10-Q and 10-K,
(ii) the transaction contemplated hereunder will not disqualify or otherwise
prohibit the Accountant from rendering the foregoing engagement services or from
undertaking such services in a timely manner, (iii) the Accountant is duly
registered with the U.S. Public Company Accounting Oversight Board ("PCAOB"),
(iv) the Accountant shall provide its consent to the use of their audited
financial statements and accompanying reports for the Buyer, the Company and the
Company's Subsidiaries, as applicable, in any regulatory filing by the Buyer
prior to or following the Closing, and (v) consenting to the use of its name and
the disclosure of its engagement by Buyer in the Change of Accountant Form 8-K
(as defined in Section 6.5) ("Accountant Undertaking"). A signed copy of the
engagement letter between Buyer and Accountant shall be attached to the
Accountant Undertaking.
6.5 Consent by Former Accountants; Change of Accountants. On or prior to
the Compliance Date, the Company shall obtain, and deliver to Buyer, the written
consent from the former accountants of the Company and the Company's
Subsidiaries, in a form and substance satisfactory to Buyer, to the use of their
audited financial statements and accompanying reports for the Company and the
Company's Subsidiaries to the extent that such financial statements and reports
are required to be included in any regulatory filing by the Buyer prior to or
following the Closing ("Former Accountant Consents"). Prior to the Closing, the
Company shall prepare the Form 8-K announcing the change in the Buyer's
certifying accountants from Xxxxxxxxx, Xxxxx & Xxxxx P.C. ("Buyer's Accountant")
to the Accountant effective as of the Closing ("Change of Accountant Form 8-K"),
in a form acceptable to Buyer and in a format acceptable for XXXXX filing. The
Change of Accountant Form 8-K shall be filed with the SEC at Closing, and prior
to the filing thereof, the Buyer's Accountant shall have issued its resignation
letter to Buyer resigning from the engagement and consenting to the use of its
name and the disclosure of its resignation in the Change of Accountant Form 8-K
("Resignation Letter").
6.6 Other Actions. On or before the Compliance Date, the Company shall
prepare the Form 8-K announcing the Closing, together with the Company Proforma
Financial Statements, and all information that may be required to be disclosed
with respect to the Transaction in any report or form to be filed with the SEC,
including, without limitation, all enhanced disclosure for reverse merger
transactions with a public shell that may be required by SEC rulemaking from
time to time ("Transaction Form 8-K"), which shall be in a form acceptable to
Buyer and in a format acceptable for XXXXX filing. Prior to Closing, the Company
shall prepare the press release announcing the consummation of the Transaction
hereunder ("Press Release"). At the Closing, Buyer shall file the Transaction
Form 8-K with the SEC and distribute the Press Release. At least ten (10) days
prior to the Closing, the Company shall prepare the information statement
required by Rule 14f-1 promulgated under the Exchange Act ("Information
Statement"), which shall be in a form acceptable to Buyer, and Buyer shall file
the Information Statement with the SEC and mail the same to each of Buyer's
stockholders.
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Company and Buyer shall further cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this Agreement
and applicable laws to consummate the Transaction and the other transactions
contemplated hereby as soon as practicable, including preparing and filing as
soon as practicable all documentation to effect all necessary notices, reports
and other filings and to obtain as soon as practicable all consents,
registrations, approvals, permits and authorizations necessary or advisable to
be obtained from any third party and/or any Governmental Entity in order to
consummate the Transaction or any of the other transactions contemplated hereby.
Subject to applicable laws relating to the exchange of information and the
preservation of any applicable attorney-client privilege, work-product doctrine,
self-audit privilege or other similar privilege, each of Company and Buyer shall
have the right to review and comment on in advance, and to the extent
practicable each will consult the other on, all the information relating to such
party, and any of Company's Subsidiaries, that appear in any filing made with,
or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Transaction and the other transactions
contemplated hereby. In exercising the foregoing right, each of Company and
Buyer shall act reasonably and as promptly as practicable.
6.7 Required Information. In connection with the preparation of the
Transaction Form 8-K, Information Statement and Press Release, and for such
other reasonable purposes, Company and Buyer each shall, upon request by the
other, furnish the other with all information concerning themselves, their
respective Subsidiaries, directors, officers and stockholders (including the
directors of Buyer to be elected effective as of the Closing pursuant to Section
6.3 hereof) and such other matters as may be reasonably necessary or advisable
in connection with the Transaction, or any other statement, filing, notice or
application made by or on behalf of Company and Buyer or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Transaction and the other transactions contemplated hereby. Each party
warrants and represents to the other party that all such information shall be
true and correct in all material respects and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
6.8 Confidentiality; Access to Information.
(a) Each party agrees to maintain in confidence any non-public
information received from the other party, and to use such non-public
information only for purposes of consummating the transactions contemplated by
this Agreement. Such confidentiality obligations will not apply to (i)
information which was known to the one party or their respective agents prior to
receipt from the other party; (ii) information which is or becomes generally
known; (iii) information acquired by a party or their respective agents from a
third party who was not bound to an obligation of confidentiality; and (iv)
disclosure required by law, regulation or court order. In the event this
Agreement is terminated as provided in Article IX hereof, each party will return
or cause to be returned to the other all documents and other material obtained
from the other in connection with the Transaction contemplated hereby.
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(b) Access to Information.
(i) Company will afford Buyer and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of Company and its Subsidiaries during the period prior to the Closing
to obtain all information concerning the business, including the status of
product development efforts, properties, results of operations and personnel of
Company and its Subsidiaries, as Buyer may reasonably request. No information or
knowledge obtained by Buyer in any investigation pursuant to this Section 6.8
will affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Transaction.
(ii) Buyer will afford Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Buyer during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Buyer,
as Company may reasonably request. No information or knowledge obtained by
Company in any investigation pursuant to this Section 6.8 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
6.9 No Solicitation. Other than with respect to the Transaction, until the
earlier to occur of the Closing or the termination of this Agreement, each of
Company and Buyer agrees that neither it nor (in the case of Company) any of its
Subsidiaries nor any of its or its Subsidiaries' officers and directors shall,
and that it shall direct and use its reasonable best efforts to cause its and
its Subsidiaries' agents and other representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to (i) a
merger, reorganization, share exchange, consolidation or similar transaction
involving it or its Subsidiaries, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or purchase of all or substantially all of the assets or equity
securities of, it and its Subsidiaries, taken as a whole, in a single
transaction or series of related transactions or (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of the Buyer Common
Stock or Company Common Stock (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). Each of Company and Buyer further
agrees that neither it nor any of its Subsidiaries nor (in the case of Company)
any of its or its Subsidiaries' officers and directors shall, and that it shall
direct and use its reasonable best efforts to cause its and its Subsidiaries'
agents and representatives not to, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. Each of the Company and Buyer agrees that it will immediately cease
and cause to be terminated any existing discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. Each of
the Company and Buyer agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 6.9.
35
Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Buyer, or their respective representatives from, (A) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal, if
applicable, or otherwise complying with the Exchange Act; (B) providing
information in response to a request therefor by a person who has made a bona
fide unsolicited Acquisition Proposal; (C) engaging in any negotiations or
discussions with any person who has made a bona fide unsolicited Acquisition
Proposal or otherwise facilitating any effort or attempt to implement an
Acquisition Proposal; or (D) withdrawing or modifying the approval or
recommendation by Buyer's board of directors of this Agreement, approving or
recommending any Acquisition Proposal or causing the applicable party to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement relating to any Acquisition Proposal, if, and only to
the extent that in each such case referred to in clause (B), (C) or (D) above,
the Buyer's board of directors determines in good faith, after consultation with
outside legal counsel that such action is necessary to act in a manner
consistent with the directors' fiduciary duties under applicable law and
determines in good faith after consultation with its financial advisors that the
person or group making such Acquisition Proposal has adequate sources of
financing to consummate such Acquisition Proposal and that such Acquisition
Proposal, if consummated as proposed, is materially more favorable to the
stockholders of Buyer from a financial point of view (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and determines
in good faith that such Superior Proposal is reasonably capable of being
consummated, taking into account legal, financial, regulatory and other aspects
of the proposal and the person making the proposal.
6.10 Public Disclosure. Except to the extent previously disclosed or to
the extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
consent of the other parties, which consent shall not be unreasonably withheld.
To the extent a party hereto believes it is required by law or regulation to
make disclosure regarding the Transaction, it shall, if possible, immediately
notify the other parties prior to such disclosure. The parties hereto agree that
Buyer will prepare and file a Current Report on Form 8-K pursuant to the
Exchange Act to report the execution of this Agreement and that Buyer and
Buyer's stockholders may file any reports as required by the Exchange Act
including, without limitation, any reports on Schedule 13D or 13G.
6.11 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VII to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all consents, approvals or waivers from third parties required as a result of
the transactions contemplated in this Agreement, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments reasonably necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Buyer and its board of directors and Company and
its board of directors shall, if any state takeover statute or similar statute
or regulation is or becomes applicable to the Transaction, this Agreement or any
of the transactions contemplated by this Agreement, use its commercially
reasonable efforts to enable the Transaction and the other transactions
contemplated by this Agreement to be consummated as promptly as practicable on
the terms contemplated by this Agreement. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Buyer or Company
or any Subsidiary of Company to agree to any divestiture by itself or any of its
affiliates of shares of capital stock or of any business, assets or property, or
the imposition of any material limitation on the ability of any of them to
conduct their business or to own or exercise control of such assets, properties
and stock.
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(b) Company and Stockholders shall give prompt notice to Buyer upon
becoming aware that any representation or warranty made by them contained in
this Agreement has become untrue or inaccurate, or of any failure of Company or
Stockholders to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Article VII would
not be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Buyer shall give prompt notice to Company and Stockholders upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue or inaccurate, or of any failure of Buyer to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Article VII would not be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
6.12 Treatment as a Reorganization. Neither Buyer nor Company nor
Stockholders shall take any action prior to or following the Transaction that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
37
6.13 Absence of Liabilities. Immediately prior to Closing, Buyer shall
have no liabilities or obligations, whether or not requiring the payment of
monies, other than Buyer's obligations under or with respect to: (i) a certain
Financial Advisory Agreement, in the form attached hereto as Exhibit B
("Financial Advisory Agreement"), (ii) any agreements with the Transfer Agent,
(iii) the Investigation Costs (as defined in Section 9.4 hereof), (iv) the
Contracts disclosed under Section 4.19 hereto, and (v) accounts payable and
accrued expenses of Buyer with respect to the period prior to Closing which
remain unpaid, for which Buyer has established a Cash Reserve (collectively,
"Buyer Obligations"). At Closing, the Stockholders and Company agree to pay and
satisfy, or cause the Buyer to pay or satisfy, all of the Buyer Obligations and
to otherwise abide by the terms and conditions of the Buyer Obligations
following the Closing.
6.14 Cash Payments at Closing. At Closing, Company and/or the Stockholders
shall pay: (i) $150,000 (less the $50,000 commitment fee paid under the Letter
of Intent (as defined in Section 11.4) and the amount of any Deposit made under
Section 1.9) to Xxxxxxx Securities, LLC ("Xxxxxxx") in partial payment of the
reverse merger fees under the Financial Advisory Agreement , and (ii) the amount
the Investigation Costs not to exceed $15,000 either directly to the provider of
such investigation services or to KRM Fund as reimbursement for the payment of
the Investigation Costs (such payments being referred to herein, as the "Company
Closing Payments"). At Closing, the $50,000 commitment fee under the Letter of
Intent ("Commitment Fee") and any Deposit made under Section 1.9 shall be paid
or credited to Xxxxxxx in partial payment of the reverse merger fees under the
Financial Advisory Agreement ("Buyer Closing Payment").
6.15 Business Records. At or prior to Closing, Buyer shall have delivered
to Company all records and documents relating to Buyer, which Buyer possesses,
including, without limitation, books, records, government filings, Corporate
Records, Stock Records, Returns, Charter Documents, consent decrees, orders, and
correspondence, director and stockholder minutes and resolutions, stock
ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Buyer ("Business Records").
6.16 Issuance of Service Provider Shares. At Closing, the Board of
Directors of Buyer as to be constituted following the Closing under Section 6.3
hereof shall deliver duly adopted resolutions, to be effective immediately
following the Closing: (i) authorizing and approving the issuance of the Service
Provider Shares to the persons set forth in Schedule 3.17 hereof ("Service
Providers"), subject to Buyer's receipt of investor representation letters from
each Service Provider in a form satisfactory to Buyer; (ii) directing the
Transfer Agent to issue certificates representing such Service Provider Shares
with the appropriate restrictive legends under the Securities Act; and (iii) as
a condition of such issuance, each Service Provider shall execute a counterpart
of the Voting Agreement attached hereto as Exhibit A.
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ARTICLE VII
CONDITIONS TO THE TRANSACTION
7.1 Conditions to Obligations of Each Party to Effect the Transaction. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any
foreign law in any jurisdiction in which the Company or Buyer or any of
Company's Subsidiaries has material operations relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Transaction in
connection with the transactions contemplated hereby shall have been obtained.
The parties expressly acknowledge and agree that any SEC rulemaking requiring
enhanced disclosure of reverse merger transactions with a public shell will not
be a reason for either party to terminate this Agreement or deemed a failure of
any condition set forth herein; provided, however, that Company's failure to
provide the enhanced disclosure required by SEC rulemaking in the Transaction
Form 8-K on or before the Compliance Date in accordance with Section 6.6 shall
be a failure of the condition set forth in Section 7.3(j) and shall give Buyer
reason to terminate this Agreement in accordance with Section 9.1(b).
(b) Information Statement. At least ten (10) days prior to Closing,
Buyer shall have filed the Information Statements with the SEC, and Buyer shall
have mailed the Information Statement to each of the stockholders of Buyer, and
Buyer shall have otherwise compiled with all of the provisions under Rule 14f-1
under the Exchange Act.
(c) Debt Holder Consents. The lenders under Company's and each of
Company's Subsidiaries' credit facilities, secured loans, mortgages and other
indebtedness for borrowed money shall have consented in writing to the
Transaction and have agreed to continue the existing financing agreements on the
same or more favorable terms and conditions as in existence on the date hereof
if required by the terms of lending agreements between the Company or such
Subsidiaries and such lenders.
7.2 Additional Conditions to Obligations of Stockholders and Company. The
obligations of Company and Stockholders to consummate and effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
all of the Stockholders:
(a) Representations and Warranties. Each representation and warranty
of Buyer contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date.
Company and Stockholders shall have received a certificate with respect to the
foregoing signed on behalf of Buyer by an authorized officer of Buyer ("Buyer
Closing Certificate").
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(b) Agreements and Covenants. Buyer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(c) Resignations and Resolutions. Buyer shall have delivered to
Company the Resignations and Resolutions, in a form reasonably satisfactory to
Company, together with evidence satisfactory to Company of the resignation of
all directors and officers of Buyer, effective as of the Closing. Buyer shall
also have delivered to Company and Stockholders evidence satisfactory to Company
and Stockholders of the appointment of new directors of Buyer in accordance with
Section 6.3 hereof.
(d) Consents. Buyer shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Buyer taken as a whole.
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Buyer shall have occurred since the date of this Agreement.
(f) No Obligations. Immediately prior to the Closing, Buyer shall have
no liabilities or obligations, other than as set forth in Section 6.13 hereof.
(g) SEC Compliance; OTC BB Quotation. Immediately prior to Closing,
Buyer shall be current in its reporting under the Exchange Act and Buyer Common
Stock shall be quoted on the OTC BB.
(h) Business Records; Resignation Letter. The Buyer shall have
delivered to Company the Business Records and the Resignation Letter from
Buyer's Accountant.
(i) Other Deliveries. At Closing, Buyer shall have delivered to the
Company and/or Stockholders: (i) certificates representing Buyer's Shares to
Stockholders in accordance with Section 1.6, (ii) copies of resolutions and
actions taken by Buyer's board of directors in connection with the approval of
this Agreement and the transactions contemplated hereunder, and (iii) such other
documents or certificates as shall reasonably be required by Company and
Stockholder and their counsel in order to consummate the transactions
contemplated hereunder.
(j) Buyer and KRM Fund shall not be a party to any investment banking,
financial advisory agreement, finder's or broker's agreement, placement agency
agreement, underwriting agreement or similar agreement with respect to the
raising of equity or debt capital, the consummation of a "going private"
transaction, a public stock offering or a transaction for the sale of, purchase
by or merger involving the Buyer, except for the Financial Advisory Agreement.
(k) At Closing the Board of Directors of Buyer as to be constituted
immediately following Closing shall deliver the duly adopted resolutions as
provided under Section 6.16.
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7.3 Additional Conditions to the Obligations of Buyer. The obligations of
Buyer to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Buyer:
(a) Representations and Warranties. Each representation and warranty
of Company and Stockholders contained in this Agreement (i) shall have been true
and correct as of the date of this Agreement and (ii) shall be true and correct
on and as of the Closing Date with the same force and effect as if made on and
as of the Closing. Buyer shall have received a certificate with respect to the
foregoing signed on behalf of Company by an authorized officer of Company and by
each Stockholder with respect to the warranties and representations contained in
Article II ("Closing Certificate")
(b) Agreements and Covenants. Company and Stockholders shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date.
(c) Consents. Company and each of Company's Subsidiaries shall have
obtained all consents, waivers, permits and approvals required in connection
with the consummation of the transactions contemplated hereby, other than
consents, waivers and approvals the absence of which, either alone or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
Company and its Subsidiaries, taken as a whole. Company and each of Company's
Subsidiaries have received all approvals and permits required by any applicable
national, foreign, provincial and local governing bodies and regulatory
authorities to permit the listing of Buyer as a public company on a U.S.
exchange or quotation system following the Closing.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to Company and its Subsidiaries shall have occurred since the date of this
Agreement.
(e) Company Financial Statements. Company shall have delivered to
Buyer on or before the Compliance Date the Company U.S. GAAP Financial Statement
and the Company Proforma Financial Statements, all of which shall be acceptable
to Buyer in its sole reasonable discretion. The U.S. GAAP Financial Statements
shall reflect: (i) consolidated net revenues of the Company and its Subsidiaries
for the most recent fiscal year ended not less than $20,000,000, and net
revenues for the first six (6) months of the Company's current fiscal year not
less than $14,000,000, and (ii) consolidated net income of the Company and its
Subsidiaries for the most recent fiscal year ended not less than $3,500,000, and
consolidated net income for the first six (6) months of the Company's current
fiscal year not less than $4,000,000.
(f) Accountant Undertaking; Prior Accountant Consents. Company shall
have delivered to Buyer on or before the Compliance Date the Accountant
Undertaking and the Prior Accountant Consents, each in a form reasonably
satisfactory to Buyer.
(g) Employment Agreements. Each Management Member shall have executed
and delivered employment agreements with the Company, which agreements shall be
in full force and effect effective as of the Closing and shall be reasonably
acceptable to Buyer.
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(h) Closing Payments. Company and/or the Stockholders shall have made
the Company Closing Payments required by Section 6.14 hereof, and Buyer shall
have made the Buyer Closing Payment required by Section 6.14 hereof..
(i) D&O Information. Buyer shall have delivered the Questionnaires on
or before the Compliance Date, and the D&O Information shall be reasonably
acceptable to Buyer.
(j) Transaction Form 8-K; Change of Accountant Form 8-K; Press
Release. The Company shall have delivered to Buyer the Transaction Form 8-K on
or before the Compliance Date, in a form acceptable to Buyer, which shall be
filed with the SEC at Closing, and the Company shall have delivered the Change
of Accountant Form 8-K and the Press Release to Buyer, each in a form acceptable
to Buyer.
(k) Voting Agreement. The Stockholders and Service Providers have
executed and delivered the Voting Agreement by and between the Stockholders,
Service Providers, Buyer and KRM Fund, in the form attached hereto as Exhibit A.
The Voting Agreement has been duly authorized and approved by the Buyer's board
of directors.
(l) Financial Advisory Agreement. The Financial Advisory Agreement
between Buyer and Xxxxxxx Securities, LLC, in the form of Exhibit B hereto, has
been duly authorized and approved by Buyer's board of directors.
(m) Other Deliveries. At Closing, the Company and/or Stockholders
shall have delivered to Buyer: (i) certificates representing the Shares,
together with stock powers, in accordance with Section 1.5, and (ii) copies of
resolutions and actions taken by Company's board of directors and Stockholders
in connection with the approval of this Agreement and the transactions
contemplated hereunder, and (iii) such other documents or certificates as shall
reasonably be required by Buyer and its counsel in order to consummate the
transactions contemplated hereunder.
(n) Company, its Subsidiaries and Stockholders shall not be a party to
any investment banking, financial advisory agreement, finder's or broker's
agreement, placement agency agreement, underwriting agreement or similar
agreement with respect to the raising of equity or debt capital, the
consummation of a "going private" transaction, a public stock offering or a
transaction for the sale of, purchase by or merger involving the Company or its
Subsidiaries, except for the Aidi Agreement, Yaru Agreement and Combined Aidi
Agreement.
(o) The legal counsel of Company and its Subsidiaries in the People's
Republic of China ("PRC") shall have issued its legal opinion, in the English
language and addressed to Buyer and KRM Fund, that Company's Subsidiary, Xi'an
Xinxing Real Estate Development Co. Ltd. ("Xinxing"), has received all approvals
from the government of the PRC to become a wholly foreign-owned enterprise under
the governing laws of the PRC including, without limitation, approval of the
equity transfer agreement between Company and Xinxing dated September 10, 2003,
as amended on June 5, 2004.
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ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival. All representations, warranties, agreements and covenants
contained in or made pursuant to this Agreement (including, without limitation
the covenants set forth in Section 10.1 hereof), or any Exhibit or Schedule
hereto or thereto or any certificate delivered at the Closing, shall survive
(and not be affected by) the Closing, but all claims made by virtue of such
representations, warranties, agreements and covenants shall be made under, and
subject to the limitations set forth in this Article VIII.
8.2 Stockholder Indemnification Obligation with Respect to Stockholder
Representations. Each Stockholder for himself only, and not with respect to any
other Stockholder, hereby indemnifies and holds harmless, and agrees to
indemnify and hold harmless, Buyer and KRM Fund (from and after the Closing),
and their respective directors, officers, shareholders, managers, members,
employees and agents (collectively, the "Buyer Indemnified Parties") against (i)
any and all liabilities, obligations, losses, damages, claims, actions, Liens
and deficiencies which exist, or which may be imposed on, incurred by or
asserted against any one or more of the Buyer Indemnified Parties, based upon,
resulting from or arising out of, or as to which there was, any material breach
or inaccuracy of any representation or warranty by such Stockholder, and as to
such Stockholder, contained in Article II of this Agreement at the time made, or
any agreement or covenant made by such Stockholder in or pursuant to this
Agreement, or in any Exhibit or Schedule hereto or thereto, or any certificate
or document delivered by such Stockholder, as Stockholder, at the Closing
(including, without limitation, any breach of the covenants under Section 10.1
hereof, whether caused by the actions or inactions of Company or Buyer following
Closing), and (ii) any cost or expense (including reasonable attorneys' fees and
court costs) incurred by the Buyer Indemnified Parties or any of them in
connection with the foregoing (including, without limitation, any cost or
expense incurred by the Buyer Indemnified Parties in enforcing their rights
pursuant to this Section 8.2) (collectively, the "Damages").
No Buyer Indemnified Party shall be required to make any claim or demand
against Company or any of its Subsidiaries or any other Person prior to the
making of any claim or demand for indemnification or at any other time. The
rights of the Buyer Indemnified Parties under this Section 8.2 are in addition
to such other rights and remedies which they may have under this Agreement or
otherwise. The amount of any and all Damages suffered by Buyer Indemnified
Parties under this Section 8.2 shall be recovered by KRM Fund, and all claims of
Buyer Indemnified Parties pursuant to this Section 8.2 shall be brought by KRM
Fund on behalf of such Buyer Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim (as defined in this Section 8.2) with respect to which
such Stockholder had Knowledge (as defined in this Section 8.2), no demand or
claim for indemnification under this Section 8.2 may be made after 11:59 p.m.
New York time on the date which is six (6) months following the Closing Date. No
demand or claim for indemnification under this Section 8.2 for any
Misrepresentation Claim may be made after 11:59 p.m. New York time on the first
anniversary of the Closing Date if such Stockholder had Knowledge (as
hereinafter defined) with respect to such Misrepresentation Claim.
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For purposes of this Agreement, the term "Misrepresentation Claim" means a
claim or demand for indemnification based upon, resulting from or arising out of
any material breach or inaccuracy of a warranty or representation and such
material breach or inaccuracy was the direct and primary cause of the Damages
for which indemnification is sought; and the term "Knowledge" means in respect
of any Misrepresentation Claim, as of the Closing Date or at any time prior
thereto, (a) actual knowledge of the material breach or inaccuracy upon which
such Misrepresentation Claim is based or (b) actual knowledge of facts which
would cause a reasonable person, having knowledge and a full understanding of
the terms of this Agreement, to be aware of or recognize the material breach or
inaccuracy upon which the Misrepresentation Claim is based.
8.3 Stockholder Indemnification Obligation with Respect to Company
Representations. Each Stockholder, jointly and severally, hereby indemnifies and
holds harmless, and agrees to indemnify and hold harmless, Buyer Indemnified
Parties (from and after the Closing), against (i) any and all liabilities,
obligations, losses, damages, claims, actions, Liens and deficiencies which
exist, or which may be imposed on, incurred by or asserted against any one or
more of the Buyer Indemnified Parties, based upon, resulting from or arising out
of, or as to which there was, any breach or inaccuracy of any representation or
warranty by the Company contained in this Agreement, or any agreement or
covenant made by the Company in or pursuant to this Agreement, or in any Exhibit
or Schedule hereto or thereto, or any certificate or document delivered by the
Company at the Closing (including, without limitation, any breach of the
covenants under Section 10.1 hereof, whether caused by the actions or inactions
of Company or Buyer following Closing), and (ii) any cost or expense (including
reasonable attorneys' fees and court costs) incurred by the Buyer Indemnified
Parties or any of them in connection with the foregoing (including, without
limitation, any cost or expense incurred by the Buyer Indemnified Parties in
enforcing their rights pursuant to this Section 8.3) (collectively, the
"Damages").
No Buyer Indemnified Party shall be required to make any claim or demand
against Company or any of its Subsidiaries or any other Person prior to the
making of any claim or demand for indemnification or at any other time. The
rights of the Buyer Indemnified Parties under this Section 8.3 are in addition
to such other rights and remedies which they may have under this Agreement or
otherwise. The amount of any and all Damages suffered by Buyer Indemnified
Parties under this Section 8.3 shall be recovered by KRM Fund, the amount of
which shall be determined in accordance with Section 8.6 below, and all claims
of Buyer Indemnified Parties pursuant to this Section 8.3 shall be brought by
KRM Fund on behalf of such Buyer Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim with respect to which the Company had Knowledge, no
demand or claim for indemnification under this Section 8.3 may be made after
11:59 p.m. New York time on the date which is six (6) months following the
Closing Date. No demand or claim for indemnification under this Section 8.3 for
any Misrepresentation Claim may be made after 11:59 p.m. New York time on the
first anniversary of the Closing Date if the Company had Knowledge with respect
to such Misrepresentation Claim.
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8.4 KRM Fund Indemnification Obligation with Respect to Buyer
Representations. KRM Fund hereby indemnifies and holds harmless, and agrees to
indemnify and hold harmless, the Company and Stockholders (from and after the
Closing) and their respective directors, officers, shareholders, managers,
members, employees and agents ("Company Indemnified Parties"), against (i) any
and all liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Company Indemnified Parties, based upon,
resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty by the Buyer contained in this
Agreement, or any agreement or covenant made by the Buyer in or pursuant to this
Agreement, or in any Exhibit or Schedule hereto or thereto, or any certificate
or document delivered by the Buyer at the Closing (excluding any breach of the
covenants under Section 10.1 hereof, whether caused by the actions or inactions
of Company or Buyer following Closing), and (ii) any cost or expense (including
reasonable attorneys' fees and court costs) incurred by the Company Indemnified
Parties or any of them in connection with the foregoing (including, without
limitation, any cost or expense incurred by the Company Indemnified Parties in
enforcing their rights pursuant to this Section 8.4) (collectively, the
"Damages").
No Company Indemnified Party shall be required to make any claim or demand
against Buyer or any other Person prior to the making of any claim or demand for
indemnification or at any other time. The rights of the Company Indemnified
Parties under this Section 8.4 are in addition to such other rights and remedies
which they may have under this Agreement or otherwise. The amount of any and all
Damages suffered by Company Indemnified Parties under this Section 8.4 shall be
recovered by the Stockholders, the amount of which shall be determined in
accordance with Section 8.6 below, and all claims of Company Indemnified Parties
pursuant to this Section 8.4 shall be brought by the Stockholders on behalf of
such Company Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim with respect to which the Buyer had Knowledge, no demand
or claim for indemnification under this Section 8.4 may be made after 11:59 p.m.
New York time on the date which is six (6) months following the Closing Date. No
demand or claim for indemnification under this Section 8.4 for any
Misrepresentation Claim may be made after 11:59 p.m. New York time on the first
anniversary of the Closing Date if the Buyer had Knowledge with respect to such
Misrepresentation Claim.
8.5 Procedure for Indemnification Claims.
(a) Buyer Indemnified Parties and Company Indemnified Parties are
referred to collectively in this Section 8.5 as "Indemnified Parties", and the
Persons from whom indemnification is sought pursuant to this Article VIII are
referred to herein as "Indemnifying Parties".
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(b) If at any time an Indemnified Party determines to assert a right
to indemnification hereunder, the Indemnified Party shall give to the
Indemnifying Party written notice describing the matter for which
indemnification is sought in reasonable detail. In the event that a demand or
claim for indemnification is made hereunder with respect to a matter the amount
or extent of which is not yet known or certain, the notice of demand for
indemnification shall so state, and, where practicable, shall include an
estimate of the amount of the matter. The failure of an Indemnified Party to
give notice of any matter to the Indemnifying Party shall not relieve the
Indemnifying Party of any liability which the Indemnifying Party may have to any
Indemnified Party.
(c) Within 15 days after receipt of the notice referred to in clause
(b) above, the Indemnifying Party from whom indemnification is sought shall (i)
if true, acknowledge in writing his responsibility for all or part of such
matter, and shall pay or otherwise satisfy the portion of such matter as to
which responsibility is acknowledged or take such other action as is reasonably
satisfactory to the Indemnified Party to resolve any such matter that involves
anyone not a party hereto or (ii) give written notice to the Indemnified Party
of his intention to dispute or contest all or part of such responsibility. Upon
delivery of such notice of intention to contest, the parties shall negotiate in
good faith to resolve as promptly as possible any dispute as to responsibility
for, or the amount of, any such matter. Failure to respond to a notice claiming
indemnification shall be deemed a denial of responsibility therefor.
(d) In the event that the Indemnified Party is required to expend any
amount in enforcing its rights of indemnification hereunder, the Indemnifying
Parties will, jointly and severally, promptly upon request, pay such amounts to
the Indemnified Party if indemnification is required to be made hereunder.
(e) Each Indemnifying Party shall have the right to employ separate
counsel in any action or claim which is brought against any Indemnified Party in
respect of which indemnity may be sought from it, and to participate in the
defense of such action or claim, if such Indemnifying Party confirms in writing
its responsibility for such action or claim; provided, however, that (i) the
Indemnified Party or Parties shall retain control of such action or claim and
(ii) the fees and expenses of such separate counsel shall be at the expense of
the Indemnifying Party.
8.6 Recovery of Damages.
(a) Buyer Indemnified Parties shall not be entitled to indemnification
pursuant to Section 8.3, unless and until the aggregate amount of Damages to
Buyer Indemnified Parties with respect to such matters under Section 8.3 exceeds
$50,000, at which time, subject to a maximum amount of Damages of $150,000 that
may be claimed by Buyer Indemnified Parties under Section 8.3, the Buyer
Indemnified Parties shall be entitled to indemnification for the total amount of
such Damages. Notwithstanding the preceding sentence, the maximum amount of
Damages that may be claimed by Buyer Indemnified Parties under Section 8.3 for
Misrepresentation Claims with respect to which the Company had Knowledge shall
be $1,000,000.
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(a) Company Indemnified Parties shall not be entitled to
indemnification pursuant to Section 8.4, unless and until the aggregate amount
of Damages to Company Indemnified Parties with respect to such matters under
Section 8.4 exceeds $50,000, at which time, subject to a maximum amount of
Damages of $150,000 that may be claimed by Company Indemnified Parties under
Section 8.4, the Company Indemnified Parties shall be entitled to
indemnification for the total amount of such Damages. Notwithstanding the
preceding sentence, the maximum amount of Damages that may be claimed by Company
Indemnified Parties under Section 8.4 for Misrepresentation Claims with respect
to which the Buyer had Knowledge shall be $1,000,000.
(b) Materiality qualifications to the representations and warranties
of Company and Buyer shall not be taken into account in determining the amount
of Damages occasioned by a breach of any such representation and warranty for
purposes of determining whether the $50,000 baskets set forth in Section 8.6(a)
and (b) have been met.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Buyer and the Stockholders at any
time;
(b) by Buyer in the event the Company fails to deliver the Financial
Data by the Compliance Date;
(c) by either Buyer, Company or Stockholders if, after the Financial
Data has been delivered on or before the Compliance Date, the Transaction shall
not have been consummated by October 30, 2004 for any reason; provided, however,
that the right to terminate this Agreement under this Section 9.1(c) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Transaction to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
(d) by either Buyer or the Stockholders if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Transaction, which order, decree, ruling or other action is final and
nonappealable;
(e) by Stockholders or the Company, upon a material breach of any
representation, warranty, covenant or agreement on the part of Buyer set forth
in this Agreement, or if any representation or warranty of Buyer shall have
become materially untrue, in either case such that the conditions set forth in
this Agreement would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided, that if
such inaccuracy in Buyer's representations and warranties or breach by Buyer is
curable by Buyer prior to the Closing Date, then the Stockholders may not
terminate this Agreement under this Section 9.1(e) for thirty (30) days after
delivery of written notice from Stockholders to Buyer of such breach, provided
Buyer continues to exercise commercially reasonable efforts to cure such breach
(it being understood that Stockholders may not terminate this Agreement pursuant
to this Section 9.1(e) if they or Company shall have materially breached this
Agreement or if such breach by Buyer is cured during such thirty (30)-day
period);
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(f) by Buyer or KRM Fund, upon a material breach of any
representation, warranty, covenant or agreement on the part of Company or
Stockholders set forth in this Agreement (other than Company's failure to
deliver the Financial Data on or before the Compliance Date), or if any
representation or warranty of Company or Stockholders shall have become
materially untrue, in either case such that the conditions set forth in this
Agreement would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's or Stockholders' representations and warranties or
breach by Company or Stockholders is curable by Company or Stockholders prior to
the Closing Date, then Buyer may not terminate this Agreement under this Section
9.1(f) for thirty (30) days after delivery of written notice from Buyer to
Company and Stockholders of such breach, provided Company and Stockholders
continues to exercise commercially reasonable efforts to cure such breach (it
being understood that Buyer may not terminate this Agreement pursuant to this
Section 9.1(f) if it shall have materially breached this Agreement or if such
breach by Company or Stockholders is cured during such thirty (30)-day period);
9.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 9.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 9.1(e) or Section 9.1(f) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
for and subject to the following: (i) Section 9.2, Section 9.3 and Article XI
(General Provisions) shall survive the termination of this Agreement, (ii)
nothing herein shall relieve any party from liability for any intentional or
willful breach of this Agreement, and (iii) if this Agreement is terminated by
Buyer under Sections 9.1(b) or 9.1(f), the Commitment Fee and any Deposit made
pursuant to Section 1.9 shall be retained by Buyer as liquidated damages.
48
9.3 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Transaction is consummated;
provided, however, that the Company shall reimburse Buyer for its out-of-pocket
expenses incurred to complete investigations and background checks pursuant to
Section 6.3 hereof ("Investigation Costs") in an amount not to exceed $15,000,
whether or not the Transaction is consummated. The parties further agree that,
whether or not the Transaction is consummated, the Company shall be responsible
for any and costs and expenses incurred in connection with the preparation,
filing and mailing (if required) of the Form 8-K (including the U.S. GAAP
Financial Statements and Company Proforma Financial Statements contained
therein), the Press Release and the Information Statement.
9.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of Buyer,
Company and Stockholders.
9.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE X
POST-CLOSING COVENANTS
10.1 Post-Closing Covenants. Each of Stockholders, Company, Buyer and KRM
Fund acknowledge that the agreements contained in this Section 10.1 are an
integral part of the transactions contemplated by this Agreement and that,
without these agreements, the parties would not enter into this Agreement. The
parties hereto acknowledge and agree that the failure by Buyer, the Company
and/or Stockholders to satisfy, perform and comply with the covenants set forth
in this Section 10.2 ("Post-Closing Covenants") following the Closing will have
a material adverse effect on the Buyer. During the period beginning upon the
Closing and ending on the first anniversary of the Closing, Buyer agrees to
satisfy, perform and comply with, and Company and Stockholders agree to cause
the Buyer to satisfy, perform, and comply with, the following agreements and
covenants:
(a) Without the consent of KRM Fund, Buyer shall not issue any of its
securities to any officers, directors, 10% or more shareholders, consultants,
service providers or other parties, except for (i) any issuance pursuant to any
of Buyer's options, warrants and convertible securities issued and outstanding
as of Closing, (ii) any grant of options or stock awards to employees pursuant
to a stock plan duly adopted by the Buyer's board of directors and shareholders,
(iii) any issuance under the Financial Advisory Agreement, (iv) any public
offerings or private placements of Buyer's securities approved by Buyer's board
of directors, (v) any issuance of securities for any arm's-length, third party
business transactions involving business combinations, fixed asset purchases,
joint ventures or strategic alliances which have been approved by Buyer's board
of directors, and (vi) the issuance of the Service Provider Shares under Section
6.16 hereof.
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(b) Buyer's certified public accountants shall at all times be
registered with PCAOB. In the event the Buyer's certified public accountants
resign or are terminated for any reason, Buyer shall promptly engage a new
certified public accountant registered with PCAOB.
(c) Buyer shall add independent directors, create audit, compensation
and other committees, and take such other actions as required by applicable laws
and regulations regarding corporate governance as if Buyer were listed on either
the American Stock Exchange or NASDAQ.
(d) Audit and compensation committee charters are duly adopted by the
Buyer's board of directors, regular meetings for the audit and compensation
committee meetings are scheduled, with notice to all directors, and such
committee meetings are properly held as scheduled.
(e) Proper disclosure, xxxxxxx xxxxxxx and code of ethics policies are
adopted by the Buyer's board and complied with by Buyer and its management.
(f) Buyer files within the statutory time limits any required filings
or notifications with the SEC, NASDAQ and any other federal, state or regulatory
agency including any agency or organization with jurisdiction over any exchange
on which the Buyer's securities are listed or traded.
(g) Within thirty (30) days following the Closing, Buyer shall engage
an investor relations firm and an independent research firm, acceptable to the
Buyer's board of directors and KRM Fund.
(h) Buyer shall file all tax returns of any kind in a timely manner,
and Buyer shall pay, when due, all tax obligations of any kind or nature.
(i) Buyer shall pay, when due, all transfer agent fees, listing fees
and any other fees the non-payment of which may adversely effect compliance with
applicable laws and regulations (including securities laws and regulations) or
the listing or quotation of its common stock.
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(j) Within 30 days following Closing, Buyer shall establish a U.S.
corporate office in New York, New York, U.S.A. or such other U.S. location
determined by the Buyer's board of directors.
(k) Respond in a timely manner, and to the satisfaction of the SEC, to
any review or inquiry by the SEC to the Transaction Form 8-K and the Company
Proforma Financial Statements contained therein
10.2 Other Provisions. Notwithstanding anything contained herein to the
contrary, the provisions of this Article X shall survive (and not be affected in
any respect by) the Closing.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Buyer, to:
Micro Interconnect Technology, Inc.
Attn: Xxxxx X. Xxxxxxx, President
000X Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
(b) if to Company or Stockholders, to:
Xx. Xx Pingji, Chairman
Lanbo Financial Investment Company Group Limited
0 Xxxxxxxxxx Xxxx Xxxx
Xx'xx, Xxxxxx'x Xxxxxxxx of China 710054
with a copy to:
Xxxxx Xxxxxxx, Esq.
Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
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(c) if to KRM Fund, to:
Xx. Xxxxxxx X. Xxxxxxx, Manager
Xxxxxxx Reverse Merger Fund, LLC
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxxxx Xxxxxxx, Xxxxxxxx XXX 00000-0000
(000) 000-0000 telephone
(000) 000-0000 telecopy
11.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity.
(b) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with other
changes, events, violations, inaccuracies, circumstances or effects, that is
materially adverse to the business, assets (including intangible assets),
revenues, financial condition or results of operations of such entity and its
Subsidiaries, if any, taken as a whole (it being understood that neither of the
following alone or in combination shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (a) changes attributable to the public
announcement or pendency of the transactions contemplated hereby, (b) changes in
general national or regional economic conditions, (c) any SEC rulemaking
requiring enhanced disclosure of reverse merger transactions with a public
shell, or (d) changes affecting the industry generally in which Company or Buyer
operates).
(c) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(d) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
52
11.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the letter of intent between Buyer and Company dated
May 25, 2004 ("Letter of Intent") is hereby terminated in its entirety; and (b)
are not intended to confer upon any other person any rights or remedies
hereunder (except as specifically provided in this Agreement). To the extent
that this Agreement is executed in both the English language and one or more
other languages, the English version of this Agreement shall be controlling
notwithstanding anything that may be contained in the non-English versions of
this Agreement.
11.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
11.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 11.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
53
11.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the American Arbitration Association ("AAA") in its office in New York, New
York USA. The arbitration and resolution of the dispute shall be resolved by a
single arbitrator appointed by the AAA pursuant to AAA rules. The arbitration
shall in all respects be governed and conducted by applicable AAA rules, and any
award and/or decision shall be conclusive and binding on the parties. The
arbitration shall be conducted in New York, New York USA. The arbitrator shall
supply a written opinion supporting any award, and judgment may be entered on
the award in any court of competent jurisdiction. Each party shall pay its own
fees and expenses for the arbitration, except that any costs and charges imposed
by the AAA and any fees of the arbitrator for his services shall be assessed
against the losing party by the arbitrator. In the event that preliminary or
permanent injunctive relief is necessary or desirable in order to prevent a
party from acting contrary to this Agreement or to prevent irreparable harm
prior to a confirmation of an arbitration award, then either party is authorized
and entitled to commence a lawsuit solely to obtain equitable relief against the
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
MICRO INTERCONNECT TECHNOLOGY, INC.
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx, President
XXXXXXX REVERSE MERGER FUND, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxx, Manager
LANBO FINANCIAL INVESTMENT COMPANY
GROUP, LTD.
By: /s/ Lu Pingji
---------------------------------------
Lu Pingji, Chairman
By: /s/ Xiao Genxiang
---------------------------------------
Xiao Genxiang, Chief Executive Officer
STOCKHOLDERS:
/s/ Lu Pingji
-------------------------------------------
Lu Pingji, Individually
/s/ Xiao Genxiang
-------------------------------------------
Xiao Genxiang, Individually
/s/ Xxxx Xxxxxxxx
-------------------------------------------
Xxxx Xxxxxxxx, Individually
/s/ Lu Pingji
-------------------------------------------
Lu Pingji, as Voting Trustee under
Voting Trust Agreement dated September
28, 2004
55
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
--------
EXHIBIT A - VOTING AGREEMENT
EXHIBIT B - FINANCIAL ADVISORY AGREEMENT
EXHIBIT C - ESCROW AGREEMENT
SCHEDULES
---------
SCHEDULE 1.1 - COMPANY STOCK OWNERSHIP
COMPANY AND STOCKHOLDERS DISCLOSURE SCHEDULES
BUYER DISCLOSURE SCHEDULES
56
