SHARE EXCHANGE AGREEMENT
AMONG
DIVERSIFAX, INC
UPPER CLASS GROUP LIMITED
SHOUGUANG CITY HAOYUAN CHEMICAL COMPANY LIMITED
SHOUGUANG YUXIN CHEMICAL INDUSTRY CO, LTD.
AND
THE SHAREHOLDERS
OF
SHOUGUANG YUXIN CHEMICAL INDUSTRY CO, LTD.
LISTED ON SCHEDULE 1
DATED AS OF
February 5, 2007
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INDEX OF SCHEDULES AND EXHIBITS
Exhibits:
A. Certain Definitions
B. Form of Promissory Note
Schedules:
1. Shareholders of Shouguang Yuxin Chemical Industry Co, Ltd.
2. Shouguang Yuxin Chemical Industry Co, Ltd. Disclosure Schedule
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SHARE EXCHAGE AGREEMENT
This Share Exchange Agreement (the "Agreement") dated as of February 5, 2007, is
entered into by and among Diversifax, Inc., a Delaware corporation ("DSFX"),
Upper Class Group Limited, a British Virgin Island corporation and a wholly own
subsidiary of DSFX ("UCG"), Shouguang City Haoyuan Chemical Company Limited, a
wholly own subsidiary of UCG ("SCHC"), Shouguang Yuxin Chemical Industry Co,
Ltd., a Shouguang corporation in China ("SYCI"), and the shareholders of SYCI
listed on Schedule 1 to this Agreement (each, a "Shareholder" and, collectively,
the "Shareholders").
RECITALS
A. The Shareholders collectively own 100% of the issued and outstanding shares
of capital stock of SYCI (the "Shares") in accordance with on Schedule 1 to this
Agreement.
B. SCHC is a wholly own subsidiary of UCG, and UCG is a wholly own subsidiary of
DSFX. SCHC desires to purchase from the Shareholders, and the Shareholders
desire to sell to SCHC the Shares in exchange for shares of DSFX Common Stock,
all on the terms and subject to the conditions set forth in this Agreement (the
"Exchange").
C. As a result of the Exchange, SCHC will become the sole shareholder of SYCI.
DSFX will own SYCI through UCG and SCHC.
D. Certain capitalized terms used in this Agreement are defined on Exhibit A.
AGREEMENT
In consideration of the agreements, provisions and covenants set forth below,
DSFX, UCG, SCHC, the Shareholders and SYCI, hereby agree as follows:
ARTICLE I.
EXCHANGE OF SHARES
1.1 AGREEMENT TO SELL.
Upon the terms and subject to all of the conditions contained herein, each of
the Shareholders hereby agrees to sell, assign, transfer and deliver to SCHC,
and SCHC hereby agrees to purchase and accept from each of the Shareholders, on
the Closing Date, the Shares.
1.2 PURCHASE PRICE.
As full consideration for the sale, assignment, transfer and delivery of the
Shares by the Shareholders to SCHC, and upon the terms and subject to all of the
conditions contained herein, DSFX shall issue to the Shareholders an aggregate
of 16,188,118 shares of Restricted DSFX Common Stock (the "Acquisition Shares")
at $1.01 per share and pay cash (the "Cash Component") of $2,550,000 to the
Shareholders. The Cash Component is payable by SCHC as follows: $2,550,000 is
payable within six months after the Closing as evidenced by the promissory note
annexed hereto as Exhibit B. The parties understand and acknowledge that such
exchange is based upon an approximate valuation of SYCI at US $18,900,000.
1.3 MECHANICS OF EXCHANGE.
(a) At the Closing, each Shareholder shall be entitled to surrender the
certificate or certificates that immediately prior to the Closing represented
the SYCI Common Stock (the "Certificates") to the exchange agent designated by
SCHC in exchange for the Acquisition Shares and the Cash Component.
(b) Promptly after the Closing, DSFX or its designated exchange agent shall make
available to each Shareholder a letter of transmittal and instructions for use
in effecting the surrender of Certificates in exchange for the Acquisition
Shares. Upon surrender of a Certificate to such exchange agent together with the
letter of transmittal, duly executed, the Shareholder shall be entitled to
receive in exchange therefore such number of Acquisition Shares as such
Shareholder has the right to receive in respect of the Certificate so
surrendered pursuant to the provisions of this Article I.
1.4 NO FRACTIONAL SHARES.
No fraction of a share of DSFX Common Stock shall be issued in the Exchange. In
lieu of fractional shares, the Shareholders upon surrender of their Certificates
as set forth in Section 1.3 shall be paid an amount in cash, without interest,
rounded to the nearest cent, determined by multiplying the fractional interest
to which such Shareholder would otherwise be entitled by the DSFX Stock Price as
of $1.01 per share agreed by all parties.
1.5 CLOSING.
The closing of the transactions contemplated by this Agreement (the "Closing")
shall take place in New York, on or before February 15, 2007, (the "Closing
Date"); provided, however, that if all of the other conditions set forth in
Articles VI and VII hereof are not satisfied or waived, unless this agreement
has been terminated under Section 9 hereof, or at such date, the Closing Date
shall be the business day following the day on which all such conditions have
been satisfied or waived, or at such other date, time and place as DSFX, UCG,
SCHC, SYCI, and the Shareholders shall agree.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SYCI
Except as set forth in the Disclosure Schedule attached hereto provided by SYCI
(the "SYCI Disclosure Schedule"), the parts of which are numbered to correspond
to the section numbers of this Agreement, each of SYCI and the Shareholders
represents and warrants jointly and severally to DSFX and SCHC as follows:
2.1 ORGANIZATION AND QUALIFICATION.
SYCI is duly incorporated, validly and in good standing existing under the laws
of China, has all requisite authority and power (corporate and other),
governmental licenses, authorizations, consents and approvals to carry on its
business as presently conducted and as contemplated to be conducted, to own,
hold and operate its properties and assets as now owned, held and operated by
it, to enter into this Agreement, to carry out the provisions hereof except
where the failure to be in good standing or to have such governmental licenses,
authorizations, consents and approvals will not, in the aggregate, either (i)
have a Material Adverse Effect on the business, assets or financial condition of
SYCI, or (ii) impair the ability of SYCI to perform its material obligations
under this Agreement. SYCI duly qualified, licensed or domesticated as a foreign
corporation in good standing in each jurisdiction wherein the nature of its
activities or its properties owned or leased requires such qualification,
licensing or domestication, except where the failure to be so qualified,
licensed or domesticated will not have a Material Adverse Effect. Set forth on
Part 2.1 of the SYCI Disclosure Schedule is a list of those jurisdictions in
which SYCI presently conducts its business, owns, holds and operates its
properties and assets.
2.2 SUBSIDIARIES.
SYCI do not own directly or indirectly, any equity or other ownership interest
in any corporation, partnership, joint venture or other entity or enterprise.
SYCI do not have any direct or indirect interests of stock ownership or
otherwise in any corporation, partnership, joint venture, firm, association or
business enterprise, and is not party to any agreement to acquire such an
interest.
2.3 ARTICLES OF INCORPORATION AND BYLAWS.
The copies of the Articles of Incorporation and bylaws of SYCI (collectively,
the "Organizational Documents") that have been delivered to DSFX and SCHC prior
to the execution of this Agreement are true and complete and have not been
amended or repealed. SYCI are not in violation or breach of any of the
provisions of the Organizational Documents, except for such violations or
breaches which, in the aggregate, will not have a Material Adverse Effect on
SYCI.
2.4 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT.
This Agreement and each of the Transaction Agreements constitute the legal,
valid and binding obligation of each person or entity who is a party thereto
(other than SCHC and DSFX), enforceable against each such person or entity in
accordance with its terms, except as such enforcement is limited by general
equitable principles, or by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors rights generally. Each of the
Shareholders and SYCI has all requisite legal capacity to execute and deliver
this Agreement and the Transaction Agreements to which he or she is a party, and
to perform its, his or her obligations hereunder and thereunder. The execution
and delivery by SYCI and each Shareholders of this Agreement and the Transaction
Agreements (to the extent either is a party thereto), and the consummation of
the transactions contemplated herein and therein (the "Transactions") have been
authorized by all necessary corporate or other action on the part of SYCI and
each of the Shareholders. This Agreement and the Transaction Agreements have
been duly executed and delivered by the parties thereto (other than SCHC and
DSFX).
2.5 NO VIOLATION.
Neither the execution nor delivery of this Agreement or the Transaction
Agreements, nor the consummation or performance of any of the Transactions by
SYCI or the Shareholders will directly or indirectly:
(i) violate or conflict with any provision of the Organizational Documents of
SYCI; (B) result in (with or without notice or lapse of time) a violation or
breach of, or conflict with or constitute a default or result in the termination
or in a right of termination or cancellation of, or accelerate the performance
required by, or require notice under, any agreement, promissory note, lease,
instrument or arrangement to which SYCI or any of its assets are bound or result
in the creation of any Liens upon SYCI or any of its assets; (C) violate any
order, writ, judgment, injunction, ruling, award or decree of any Governmental
Body; ("Governmental Body"); (D) violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation that relates to the
Shareholders, SYCI or any of the assets of SYCI; or (E) result in cancellation,
modification, revocation or suspension of any permits, licenses, registrations,
consents, approvals, authorizations or certificates issued or granted by any
Governmental Body which are held by or granted to the Shareholders, or SYCI or
which are necessary for the conduct of SYCI's business; or
(ii) to the knowledge of SYCI or any of the Shareholders, cause SYCI to become
subject to, or to become liable for the payment of, any Tax (as hereinafter
defined) or cause any of the assets owned by SYCI to be reassessed or revalued
by any taxing authority or other Governmental Body.
None of SYCI or the Shareholders is or will be required to give any notice to or
obtain any approval, consent, ratification, waiver or other authorization (a
"Consent") from any person or entity (including, without limitation, any
Governmental Body) in connection with (i) the execution and delivery of this
Agreement or any of the Transaction Agreements, or (ii) the consummation or
performance of any of the Transactions.
2.6 CAPITALIZATION AND RELATED MATTERS.
(a) Capitalization. The registered capital amount of SYCI is RMB 10,990,000,
which equal to 100% ownership percentage of SYCI. Except as set forth in the
preceding sentence, no other class of capital stock or other security of SYCI is
authorized, issued, reserved for issuance or outstanding. The Shareholders, as
of the Closing Date, are the lawful, record and beneficial owners of the Shares
in accordance with the percentages set forth opposite each Seller's name on
Schedule 1 attached hereto. Shouguang City Haoyuan Group Ltd. and Xxxxxxxx Xx,
as of the Closing Date, are the lawful, record and beneficial owners of the
total ownership interest of SYCI. Each of the Shareholders have, as of the date
hereof and as of the Closing Date, valid and marketable title to their
respective ownership interest of SYCI, free and clear of all Liens (including,
without limitation, any claims of spouses under applicable community property
laws) and are the lawful, record and beneficial owners of all of the Shares.
Except as is issued to and held by the Shareholders or SYCI, no other class of
capital stock or other security of SYCI, as applicable, is authorized, issued,
reserved for issuance or outstanding. At the Closing, DSFX will be vested with
good and marketable title to the ownership or the Shares, free and clear of all
Liens (including, without limitation, any claims of spouses under applicable
community property laws). No legend or other reference to any purported Lien
appears upon any certificate representing the Shares. Each of the Shares has
been duly authorized and validly issued and is fully paid and nonassessable.
None of the outstanding capital or other securities of SYCI was issued, redeemed
or repurchased in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or any other securities or "blue sky" laws.
(b) No Redemption Requirements. There are no authorized or outstanding options,
warrants, equity securities, calls, rights, commitments or agreements of any
character by which SYCI or any of the Shareholders is obligated to issue,
deliver or sell, or cause to be issued, delivered or sold, any shares of capital
stock or other securities of SYCI. There are no outstanding contractual
obligations (contingent or otherwise) of SYCI to retire, repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of, or other ownership
interests in, SYCI or to provide funds to or make any investment (in the form of
a loan, capital contribution or otherwise) in any other entity.
2.7 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS.
Except as would not have a Material Adverse Effect, the business and operations
of SYCI have been and are being conducted in accordance with all applicable
foreign, federal, provincial and local laws, rules and regulations and all
applicable orders, injunctions, decrees, writs, judgments, determinations and
awards of all courts and governmental agencies and instrumentalities. There are
no permits, bonuses, registrations, consents, approvals, authorizations,
certificates, or any waiver of the foregoing, which are required to be issued or
granted by a Governmental Body for the conduct of the Business as presently
conducted or the ownership of the assets of SYCI. Except as would not have a
Material Adverse Effect, SYCI is not, and has not received notice alleging that
it is, in violation of, or (with or without notice or lapse of time or both) in
default under, or in breach of, any term or provision of the Organizational
Documents or of any indenture, loan or credit agreement, note, deed of trust,
mortgage, security agreement or other material agreement, lease, license or
other instrument, commitment, obligation or arrangement to which SYCI is a party
or by which any of SYCI's properties, assets or rights are bound or affected. To
the knowledge of SYCI, no other party to any material contract, agreement,
lease, license, commitment, instrument or other obligation to which SYCI is a
party is (with or without notice or lapse of time or both) in default thereunder
or in breach of any term thereof. SYCI is not subject to any obligation or
restriction of any kind or character, nor is there, to the knowledge of SYCI,
any event or circumstance relating to SYCI that materially and adversely affects
in any way its business, properties, assets or prospects or that prohibits SYCI
from entering into this Agreement and the Transaction Agreements or would
prevent or make burdensome its performance of or compliance with all or any part
of this Agreement, the Transaction Agreements or the consummation of the
Transactions contemplated hereby or thereby.
2.8 CERTAIN PROCEEDINGS.
There are no outstanding or pending Proceeding that has been commenced against
or involving SYCI or any of its assets and, to the knowledge of SYCI and the
Shareholders, no matters of the foregoing nature are contemplated or threatened.
None of SYCI or the Shareholders have been charged with, and is not threatened
with, or under any investigation with respect to, any allegation concerning any
violation of any provision of any federal, provincial, local or foreign law,
regulation, ordinance, order or administrative ruling, and is not in default
with respect to any order, writ, injunction or decree of any Governmental Body.
2.9 NO BROKERS OR FINDERS.
None of SYCI, the Shareholders, or any officer, director, independent
contractor, consultant, agent or employee of SYCI has agreed to pay, or has
taken any action that will result in any person or entity becoming obligated to
pay or entitled to receive, any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the Transactions.
SYCI and the Shareholders shall jointly and severally indemnify and hold DSFX
harmless against any liability or expense arising out of, or in connection with,
any such claim.
2.10 TITLE TO AND CONDITION OF PROPERTIES.
SYCI has good, valid and marketable title to all of its properties and assets
(whether real, personal or mixed, and whether tangible or intangible) reflected
as owned in its books and records, free and clear of all Liens. SYCI owns or
holds under valid leases or other rights to use all real property, plants,
machinery, equipment and all assets necessary for the conduct of its business as
presently conducted, except where the failure to own or hold such property,
plants, machinery, equipment and assets would not have a Material Adverse Effect
on SYCI. No Person other than SYCI owns or has any right to the use or
possession of the assets used in SYCI's business. The material buildings,
plants, machinery and equipment necessary for the conduct of the business of
SYCI as presently conducted are structurally sound, are in good operating
condition and repair and are adequate for the uses to which they are being put
or would be put in the Ordinary Course of Business, in each case, taken as a
whole, and none of such buildings, plants, machinery or equipment is in need of
maintenance or repairs, except for ordinary, routine maintenance and repairs
that are not material in nature or cost.
2.11 ABSENCE OF UNDISCLOSED LIABILITIES.
SYCI have no debt, obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether asserted or unasserted, whether due
or to become due, whether or not known to SYCI) arising out of any transaction
entered into prior to the Closing Date or any act or omission prior to the
Closing Date which individually or taken together would constitute a Material
Adverse Effect on SYCI and have no debt, obligation or liability to each other
or any of the Shareholders or their affiliates, except to the extent
specifically set forth on or reserved against on the Balance Sheet of SYCI.
The financial statements are consistent with the books and records of SYCI and
fairly present in all material respects the financial condition, assets and
liabilities of SYCI, as applicable, taken as a whole, as of the dates and
periods indicated, and were prepared in accordance with GAAP (except as
otherwise indicated therein or in the notes thereto).
2.12 CHANGES.
SYCI has not, since September 30, 2006:
(a) Ordinary Course of Business. Conducted its business or entered into any
transaction other than in the Ordinary Course of Business, except for this
Agreement.
(b) Adverse Changes. Suffered or experienced any change in, or affecting, its
condition (financial or otherwise), properties, assets, liabilities, business,
operations, results of operations or prospects which would have a Material
Adverse Effect;
(c) Loans. Made any loans or advances to any Person other than travel advances
and reimbursement of expenses made to employees, officers and directors in the
Ordinary Course of Business;
(d) Compensation and Bonuses. Made any payments of any bonuses or compensation
other than regular salary payments, or increase in the salaries, or payment on
any of its debts in the Ordinary Course of Business, to any of its shareholders,
directors, officers, employees, independent contractors or consultants or entry
into by it of any employment, severance, or similar contract with any director,
officer, or employee, independent contractor or consultant; Adopted, or
increased in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees;
(e) Liens. Created or permitted to exist any Lien on any of its properties or
assets other than Permitted Liens;
(f) Capital Stock. Issued, sold, disposed of or encumbered, or authorized the
issuance, sale, disposition or encumbrance of, or granted or issued any option
to acquire any shares of its capital stock or any other of its securities or any
Equity Security, or altered the term of any of its outstanding securities or
made any change in its outstanding shares of capital stock or its
capitalization, whether by reason of reclassification, recapitalization, stock
split, combination, exchange or readjustment of shares, stock dividend or
otherwise; changed its authorized or issued capital stock; granted any stock
option or right to purchase shares of its capital stock; issued any security
convertible into any of its capital stock; granted any registration rights with
respect to shares of its capital stock; purchased, redeemed, retired, or
otherwise acquired any shares of its capital stock; declared or paid any
dividend or other distribution or payment in respect of shares of capital stock
of any other entity;
(g) Dividends. Declared, set aside, made or paid any dividend or other
distribution to any of its shareholders;
(h) Material Contracts. Terminated or modified any of its Material Contract
except for termination upon expiration in accordance with the terms of such
agreements, a description of which is included in the SYCI's Disclosure
Schedule;
(i) Claims. Released, waived or cancelled any claims or rights relating to or
affecting SYCI in excess of $10,000 in the aggregate or instituted or settled
any Proceeding involving in excess of $10,000 in the aggregate;
(j) Discharged Liabilities. Paid, discharged, cancelled, waived or satisfied any
claim, obligation or liability in excess of $10,000 in the aggregate, except for
liabilities incurred prior to the date of this Agreement in the Ordinary Course
of Business;
(k) Indebtedness. Created, incurred, assumed or otherwise become liable for any
Indebtedness or commit to any endeavor involving a commitment in excess of
$10,000 in the aggregate, other than contractual obligations incurred in the
Ordinary Course of Business;
(l) Guarantees. Guaranteed or endorsed in a material amount any obligation or
net worth of any Person;
(m) Acquisitions. Acquired the capital stock or other securities or any
ownership interest in, or substantially all of the assets of, any other Person;
(n) Accounting. Changed its method of accounting or the accounting principles or
practices utilized in the preparation of its financial statements, other than as
required by GAAP;
(o) Agreements. Entered into any agreement, or otherwise obligated itself, to do
any of the foregoing.
2.13 MATERIAL CONTRACTS.
SYCI has delivered to DSFX, prior to the date of this Agreement, true, correct
and complete copies of each of its Material Contracts.
(a) No Defaults. The Material Contracts of SYCI are valid and binding agreements
of SYCI, as applicable, and are in full force and effect and are enforceable in
accordance with their terms. Except as would not have a Material Adverse Effect,
SYCI is not in breach or default of any of its Material Contracts to which it is
a party and, to the knowledge of SYCI, no other party to any of its Material
Contracts is in breach or default thereof. Except as would not have a Material
Adverse Effect, no event has occurred or circumstance has existed that (with or
without notice or lapse of time) would (a) contravene, conflict with or result
in a violation or breach of, or become a default or event of default under, any
provision of any of its Material Contracts or (b) permit SYCI or any other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate or modify any
of its Material Contracts. SYCI has not received any notice and have no
knowledge of any pending or threatened cancellation, revocation or termination
of any of its Material Contracts to which it is a party, and there are no
renegotiations of, or attempts to renegotiate.
2.14 TAX RETURNS AND AUDITS.
(a) Tax Returns. (a) All material Tax Returns required to be filed by or on
behalf of SYCI have been timely filed and all such Tax Returns were (at the time
they were filed) and are true, correct and complete in all material respects;
(b) all Taxes of SYCI required to have been paid (whether or not reflected on
any Tax Return) have been fully and timely paid, except those Taxes which are
presently being contested in good faith or for which an adequate reserve for the
payment of such Taxes has been established on SYCI Balance Sheet; (c) no waivers
of statutes of limitation have been given or requested with respect to SYCI in
connection with any Tax Returns covering SYCI or with respect to any Taxes
payable by it; (d) no Governmental Body in a jurisdiction where SYCI does not
file Tax Returns has made a claim, assertion or threat to SYCI that SYCI is or
may be subject to taxation by such jurisdiction; (e) SYCI has duly and timely
collected or withheld, paid over and reported to the appropriate Governmental
Body all amounts required to be so collected or withheld for all periods under
all applicable laws; (f) there are no Liens with respect to Taxes on the
property or assets of SYCI other than Permitted Liens; (g) there are no Tax
rulings, requests for rulings, or closing agreements relating to SYCI for any
period (or portion of a period) that would affect any period after the date
hereof; and (h) any adjustment of Taxes of SYCI made by a Governmental Body in
any examination that SYCI is required to report to the appropriate provincial,
local or foreign taxing authorities has been reported, and any additional Taxes
due with respect thereto have been paid. No state of fact exists or has existed
which would constitute ground for the assessment of any tax liability by any
Governmental Body. All Tax Returns filed by SYCI are true, correct and complete.
(b) No Adjustments, Changes. Neither SYCI nor any other Person on behalf of SYCI
(a) has executed or entered into a closing agreement pursuant to Section 7121 of
the Code or any predecessor provision thereof or any similar provision of
provincial, local or foreign law; or (b) has agreed to or is required to make
any adjustments pursuant to Section 481(a) of the Code or any similar provision
of provincial, local or foreign law.
(c) No Disputes. There is no pending audit, examination, investigation, dispute,
proceeding or claim with respect to any Taxes of or Tax Return filed or required
to be filed by SYCI, nor is any such claim or dispute pending or contemplated.
SYCI has made available to DSFX true, correct and complete copies of all Tax
Returns, examination reports and statements of deficiencies assessed or asserted
against or agreed to by SYCI since January 1, 2004, and any and all
correspondence with respect to the foregoing. SYCI does not have any outstanding
closing agreement, ruling request, requests for consent to change a method of
accounting, subpoena or request for information to or from a Governmental Body
in connection with any Tax matter.
(d) No Tax Allocation, Sharing. SYCI is not a party to any Tax allocation or
sharing agreement. Other than with respect to the Tax Group of which SYCI is the
common parent, SYCI (a) has not been a member of a Tax Group filing a
consolidated income Tax Return under Section 1501 of the Code (or any similar
provision of provincial, local or foreign law), and (b) do not have any
liability for Taxes for any Person under Treasury Regulations Section 1.1502-6
(or any similar provision of provincial, local or foreign law) as a transferee
or successor, by contract or otherwise.
2.15 MATERIAL ASSETS.
The financial statements of SYCI reflect the material properties and assets
(real and personal) owned or leased by them.
2.16 INSURANCE COVERAGE.
SYCI has made available to DSFX, prior to the date of this Agreement, true,
correct and complete copies of all insurance and general liability policies
maintained by SYCI on their properties and assets all claims made under any such
current or prior insurance policies. All of such policies (a) taken together,
provide adequate insurance coverage for the properties, assets and operations of
SYCI for all risks normally insured against by a Person carrying on the same
business as SYCI, and (b) are sufficient for compliance with all applicable Laws
and Material Contracts of SYCI. All of such policies are valid, outstanding and
in full force and effect and, by their express terms, will continue in full
force and effect following the consummation of the transactions contemplated by
this Agreement. Except as set forth on Schedule 3.19, SYCI have not received and
has no knowledge of (a) any refusal of coverage or any written notice that a
defense will be afforded with reservation of rights, or (b) any notice of
cancellation or any other indication in writing or otherwise that any insurance
policy is no longer in full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform its obligations
thereunder. All premiums due on such insurance policies on or prior to the date
hereof have been paid. There are no, and SYCI and the Shareholders have no
knowledge of any circumstances or facts which, with or without notice of lapse
of time or both would lead to any: (i) pending or threatened claims with respect
to SYCI or their properties or assets under any such insurance policies; (ii)
claims as to which the insurers have notified SYCI that they intend to deny
liability; and (iii) existing defaults on the part of SYCI under any such
insurance policies.
2.17 LITIGATION; ORDERS.
There is no Proceeding (whether federal, provincial, local or foreign) pending
or, to the knowledge of SYCI, threatened or appealable against or affecting SYCI
or any of its properties, assets, business or employees. To the knowledge of
SYCI, there is no fact that might result in or form the basis for any such
Proceeding. SYCI is not subject to any Orders and have not received any written
opinion or memorandum or legal advice from their legal counsel to the effect
that SYCI is exposed, from a legal standpoint, to any liability which would be
material to its business. SYCI is not engaged in any legal action to recover
monies due it or for damages sustained by any of them.
2.18 LICENSES.
Except as would not have a Material Adverse Effect, SYCI possesses from the
appropriate Governmental Body all licenses, permits, authorizations, approvals,
franchises and rights that are necessary for it to engage in its business as
currently conducted and to permit it to own and use its properties and assets in
the manner in which it currently owns and uses such properties and assets
(collectively, "Permits"). Except as would not have a Material Adverse Effect,
SYCI has not received any written notice from any Governmental Body or other
Person that there is lacking any license, permit, authorization, approval,
franchise or right necessary for SYCI to engage in its business as currently
conducted and to permit SYCI to own and use its properties and assets in the
manner in which it currently owns and uses such properties and assets. Except as
would not have a Material Adverse Effect, the Permits are valid and in full
force and effect. Except as would not have a Material Adverse Effect, no event
has occurred or circumstance exists that may (with or without notice or lapse of
time): (a) constitute or result, directly or indirectly, in a violation of or a
failure to comply with any Permit; or (b) result, directly or indirectly, in the
revocation, withdrawal, suspension, cancellation or termination of, or any
modification to, any Permit. Neither SYCI nor the Shareholders has received any
written notice from any Governmental Body or any other Person regarding: (a) any
actual, alleged, possible or potential contravention of any Permit; or (b) any
actual, proposed, possible or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to, any Permit. All applications
required to have been filed for the renewal of such Permits have been duly filed
on a timely basis with the appropriate Persons, and all other filings required
to have been made with respect to such Permits have been duly made on a timely
basis with the appropriate Persons. All Permits are renewable by their terms or
in the Ordinary Course of Business without the need to comply with any special
qualification procedures or to pay any amounts other than routine fees or
similar charges, all of which have, to the extent due, been duly paid.
2.19 INTERESTED PARTY TRANSACTIONS.
No officer, director or shareholder of SYCI or any Affiliate, Related Person or
"associate" (as such term is defined in Rule 405 of the Commission under the
Securities Act) of any such Person, either directly or indirectly, (1) has an
interest in any Person which (a) furnishes or sells services or products which
are furnished or sold or are proposed to be furnished or sold by SYCI, or (b)
purchases from or sells or furnishes to, or proposes to purchase from, sell to
or furnish SYCI any goods or services; (2) has a beneficial interest in any
contract or agreement to which SYCI is a party or by which it may be bound or
affected; or (3) is a party to any material agreements, contracts or commitments
in effect as of the date hereof with SYCI. "Related Person" means: (i) with
respect to a particular individual, the individual's immediate family which
shall include the individual's spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law; and
(ii) with respect to a specified individual or entity, any entity or individual
that, directly or indirectly, controls, is controlled by, or is under common
control with such specified entity or individual.
2.20 GOVERNMENTAL INQUIRIES.
SYCI has made available to DSFX a copy of each material written inspection
report, questionnaire, inquiry, demand or request for information received by
SYCI from (and the response of SYCI thereto), and each material written
statement, report or other document filed by SYCI with, any Governmental Body
since January 1, 2003.
2.21 BANK ACCOUNTS AND SAFE DEPOSIT BOXES.
Part 2.22 of the SYCI Disclosure Schedule discloses the title and number of each
bank or other deposit or financial account, and each lock box and safety deposit
box used by SYCI, the financial institution at which that account or box is
maintained and the names of the persons authorized to draw against the account
or otherwise have access to the account or box, as the case may be.
2.22 INTELLECTUAL PROPERTY.
Any Intellectual Property SYCI uses in its business as presently conducted is
owned by SYCI or properly licensed.
2.23 STOCK OPTION PLANS; EMPLOYEE BENEFITS.
(a) Set forth on Part 2.23 of the SYCI Disclosure Schedule is a complete list of
all stock option plans providing for the grant by SYCI of stock options to
directors, officers or employees. All such stock option plans are Approved
Plans.
(b) Except as set forth on Part 2.23 of the SYCI Disclosure Schedule, SYCI does
not have any employee benefit plans or arrangements covering their present and
former employees or providing benefits to such persons in respect of services
provided to SYCI. SYCI has no commitment, whether formal or informal and whether
legally binding or not, to create any additional plan, arrangement or practice
similar to the Approved Plans.
(c) The consummation of the transactions contemplated hereby will not result in
(i) any payment (including, without limitation, severance, unemployment
compensation or bonus payments) becoming due from SYCI or due to any Person,
(ii) any increase in the amount of compensation or benefits payable to any
Person or (iii) any acceleration of the vesting or timing of payment of any
compensation, award or determination of options, warrants, rights, severance
payments or other contingent obligations of any nature whatsoever of SYCI in
favor of any Person. No agreement, arrangement or other contract of SYCI
provides benefits or payments contingent upon, triggered by, or increased as a
result of a change in the ownership or effective control of SYCI.
(d) SYCI is not a party to or bound by any written or oral agreement or
understanding to employ, subsequent to the Closing, any of its respective
present or former directors, officers, independent contractors, consultants,
agents or employees.
2.24 EMPLOYEE MATTERS.
(a) No former or current employee of SYCI is a party to, or is otherwise bound
by, any agreement or arrangement (including, without limitation, any
confidentiality, non-competition or proprietary rights agreement) that in any
way adversely affected, affects, or will affect (i) the performance of his, her
or its duties to SYCI, or (ii) the ability of SYCI to conduct its business.
(b) None of SYCI has employees, directors, officers, consultants, independent
contractors, representatives or agents whose contract of employment or
engagement cannot be terminated by three months' notice. (c) SYCI are not
required or obligated to pay, and since January 1, 2003, have not paid any
moneys other than in respect of remuneration, pension or other benefits pursuant
to plans described in Part 2.23 of the SYCI Disclosure Schedule, to or for the
benefit of, any director, officer, employee, consultant, independent contractor,
representative or agent of SYCI. (d) SYCI are in compliance with all applicable
laws respecting employment and employment practices, terms and conditions or
employment and wages and hours, and are not engaged in any unfair labor
practice. There is no labor strike, dispute, shutdown or stoppage actually
pending or, to the knowledge of SYCI or the Shareholders, threatened against or
affecting SYCI.
2.25 ENVIRONMENTAL AND SAFETY MATTERS.
Except as would not have a Material Adverse Effect:
(a) Each of SYCI has at all time been and is in compliance with all
Environmental Laws and Orders applicable to SYCI, as applicable.
(b) There are no Proceedings pending or, to the knowledge of SYCI, threatened
against SYCI alleging the violation of any Environmental Law or Environmental
Permit applicable to SYCI or alleging that SYCI is a potentially responsible
party for any environmental site contamination. None of SYCI or the Shareholders
are aware of, or has ever received notice of, any past, present or future
events, conditions, circumstances, activities, practices, incidents, actions or
plans which may interfere with or prevent continued compliance, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste.
(c) Neither this Agreement nor the consummation of the transactions contemplated
by this Agreement shall impose any obligations to notify or obtain the consent
of any Governmental Body or third Persons under any Environmental Laws
applicable to SYCI.
2.26 MATERIAL CUSTOMERS.
Since January 1, 2003, none of the Material Customers (as hereinafter defined)
of SYCI has notified any of SYCI or the Shareholders of their intent to
terminate their business with SYCI business because of any dissatisfaction on
the part of any such person or entity. The Transactions have not caused any of
the Material Customers of SYCI to terminate or provide notice of their intent or
threaten to terminate their business with SYCI or to notify SYCI or the
Shareholders of their intent not to continue to do such business with SYCI after
the Closing. As used herein, "Material Customers" means those customers from
whom SYCI derives annual revenues in excess of RMB 100,000.
2.27 INVENTORIES.
All inventories of SYCI are of good, usable and merchantable quality in all
material respects, and, except as set forth in the SYCI Disclosure Schedule, do
not include a material amount of obsolete or discontinued items. Except as set
forth in the SYCI Disclosure Schedule, (a) all such inventories are of such
quality as to meet in all material respects the quality control standards of
SYCI, (b) all such inventories are recorded on the books at the lower of cost or
market value determined in accordance with GAAP, and (c) no write-down in
inventory has been made or should have been made pursuant to GAAP during the
past two years.
2.28 MONEY LAUNDERING LAWS.
The operations of SYCI are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the money
laundering statutes of all U.S. and non-U.S. jurisdictions, the rules and
regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any Governmental Body
(collectively, the "Money Laundering Laws") and no Proceeding involving SYCI
with respect to the Money Laundering Laws is pending or, to the knowledge of
SYCI , threatened.
2.29 DISCLOSURE.
(a) Any information set forth in this Agreement, the SYCI Disclosure Schedule,
or the Transaction Agreements shall be true, correct and complete in all
material respects.
(b) No statement, representation or warranty of SYCI or the Shareholders in this
Agreement (taken with the Schedules) or the Transaction Agreements or any
exhibits or schedules thereto contain any untrue statement of a material fact or
omits to state a material fact necessary to make the statements herein or
therein, taken as a whole, in light of the circumstances in which they were
made, not misleading.
(c) Except as set forth in the SYCI Disclosure Schedule, the Shareholders, SYCI
have no knowledge of any fact that has specific application to SYCI (other than
general economic or industry conditions) and that adversely affects the assets
or the business, prospects, financial condition, or results of operations of
SYCI.
(d) In the event of any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules with respect to a specifically identified
representation or warranty), the statements in the Schedules shall control.
(e) The books of account, minute books and stock record books of SYCI, all of
which have been made available to DSFX, are complete and accurate and have been
maintained in accordance with sound business practices. Without limiting the
generality of the foregoing, the minute books of SYCI contain complete and
accurate records of all meetings held, and corporate action taken, by the
shareholders, the boards of directors, and committees of the boards of directors
of SYCI, as applicable, and no meeting of any such shareholders, board of
directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books.
2.30 FINDERS AND BROKERS.
(a) None of SYCI, the Shareholders or any Person acting on behalf of SYCI or the
Shareholders has engaged any finder, broker, intermediary or any similar Person
in connection with the Exchange.
(b) None of SYCI, the Shareholders nor any Person acting on behalf of SYCI or
the Shareholders has entered into a contract or other agreement that provides
that a fee shall be paid to any Person or Entity if the Exchange is consummated.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF DSFX
DSFX hereby represents and warrants to the Shareholders as of the date hereof:
3.1 ORGANIZATION; GOOD STANDING.
DSFX is duly incorporated, validly and in good standing existing under the laws
of Delaware, has all requisite authority and power (corporate and other),
governmental licenses, authorizations, consents and approvals to carry on its
business as presently conducted and as contemplated to be conducted, to own,
hold and operate its properties and assets as now owned, held and operated by
it, to enter into this Agreement, to carry out the provisions hereof except
where the failure to be in good standing or to have such governmental licenses,
authorizations, consents and approvals will not, in the aggregate, either (i)
have a Material Adverse Effect on the business, assets or financial condition of
DSFX, or (ii) impair the ability of DSFX to perform its material obligations
under this Agreement. DSFX is duly qualified, licensed or domesticated as a
foreign corporation in good standing in each jurisdiction wherein the nature of
its activities or its properties owned or leased requires such qualification,
licensing or domestication, except where the failure to be so qualified,
licensed or domesticated will not have a Material Adverse Effect.
3.2 DSFX COMMON STOCK.
As of February 4, 2007, there were 27,017,262 shares of DSFX's common stock
issued and outstanding. The Acquisition Shares, when issued in connection with
this Agreement and the other Transactional Agreements, will be duly authorized,
validly issued, fully paid and nonassessable.
3.3 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(a) The execution, delivery and performance of this Agreement, the Transactional
Agreements, and all other agreements and instruments contemplated to be executed
and delivered by DSFX in connection herewith have been duly authorized by all
necessary corporate action on the part of DSFX and its board of directors.
(b) This Agreement, the Transactional Agreements, and all other agreements and
instruments contemplated to be executed and delivered by DSFX constitute the
legal, valid and binding obligation of DSFX, enforceable against DSFX in
accordance with their terms, except to the extent that enforceability may be
limited by applicable bankruptcy, Exchange, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity regardless of whether such enforceability is considered in
a proceeding in law or equity.
(c) There is no pending Proceeding, and, to DSFX's knowledge, no Person has
threatened to commence any Proceeding that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
the Exchange or DSFX's ability to comply with or perform its obligations and
covenants under the Transactional Agreements, and, to the knowledge of DSFX, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that might directly or indirectly give rise to or serve as a basis for
the commencement of any such Proceeding.
3.4 NON-CONTRAVENTION; CONSENTS.
The execution and delivery of this Agreement and the other Transactional
Agreements, and the consummation of the Exchange, by DSFX will not, directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a material violation of (i) DSFX's
Certificate of Incorporation or Bylaws, or (ii) any resolution adopted by DSFX
Board or any committee thereof or the stockholders of DSFX;
(b) to the knowledge of DSFX, contravene, conflict with or result in a material
violation of, or give any Governmental Body the right to challenge the Exchange
or to exercise any remedy or obtain any relief under, any legal requirement or
any Order to which DSFX or any material assets owned or used by it are subject;
(c) to the knowledge of DSFX, cause any material assets owned or used by DSFX to
be reassessed or revalued by any taxing authority or other Governmental Body;
(d) to the knowledge of DSFX, contravene, conflict with or result in a material
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by DSFX or that otherwise relates to
DSFX's business or to any of the material assets owned or used by DSFX, where
such contraventions, conflict, violation, revocation, withdrawal, suspension,
cancellation, termination or modification would have a Material Adverse Effect
on DSFX;
(e) contravene, conflict with or result in a material violation or material
breach of, or material default under, any Contract to which DSFX is a party;
(f) give any Person the right to any payment by DSFX or give rise to any
acceleration or change in the award, grant, vesting or determination of options,
warrants, rights, severance payments or other contingent obligations of any
nature whatsoever of DSFX in favor of any Person, in any such case as a result
of the Exchange; or
(g) result in the imposition or creation of any material Lien upon or with
respect to any material asset owned or used by DSFX.
Except for Consents, filings or notices required under the state and federal
securities laws or any other laws or regulations or as otherwise contemplated in
this Agreement and the other Transactional Agreements, DSFX will not be required
to make any filing with or give any notice to, or obtain any Consent from, any
Person in connection with the execution and delivery of this Agreement and the
other Transactional Agreements or the consummation or performance of the
Exchange.
3.5 FINDERS AND BROKERS.
(a) Neither DSFX nor any Person acting on behalf of DSFX has engaged any finder,
broker, intermediary or any similar Person in connection with the Exchange.
(b) DSFX has not entered into a contract or other agreement that provides that a
fee shall be paid to any Person or Entity if the Exchange is consummated.
3.6 REPORTS AND FINANCIAL STATEMENTS; ABSENCE OF CERTAIN CHANGES.
(a) DSFX has filed all reports required to be filed with the SEC pursuant to the
Exchange Act since September 30, 2006 (all such reports, including those to be
filed prior to the Closing Date and all registration statements and prospectuses
filed by DSFX with the SEC, are collectively referred to as the "DSFX SEC
Reports"). All of the DSFX SEC Reports, as of their respective dates of filing
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing): (i) complied in all material respects as to
form with the applicable requirements of the Securities Act or Exchange Act and
the rules and regulations thereunder, as the case may be, and (ii) did not
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. The audited financial statements of DSFX included in the DSFX SEC
Reports comply in all material respects with the published rules and regulations
of the SEC with respect thereto, and such audited financial statements (i) were
prepared from the books and records of DSFX, (ii) were prepared in accordance
with GAAP applied on a consistent basis (except as may be indicated therein or
in the notes or schedules thereto) and (iii) present fairly the financial
position of DSFX as of the dates thereof and the results of operations and cash
flows for the periods then ended. The unaudited financial statements included in
the DSFX SEC Reports comply in all material respects with the published rules
and regulations of the SEC with respect thereto; and such unaudited financial
statements (i) were prepared from the books and records of DSFX, (ii) were
prepared in accordance with GAAP, except as otherwise permitted under the
Exchange Act and the rules and regulations thereunder, on a consistent basis
(except as may be indicated therein or in the notes or schedules thereto) and
(iii) present fairly the financial position of DSFX as of the dates thereof and
the results of operations and cash flows (or changes in financial condition) for
the periods then ended, subject to normal year-end adjustments and any other
adjustments described therein or in the notes or schedules thereto.
(b) Except as specifically contemplated by this Agreement or reflected in the
DSFX SEC Reports, since September 30, 2006, there has not been (i) any material
adverse change in DSFX's business, assets, liabilities, operations, and, to the
knowledge of DSFX, no event has occurred that is likely to have a material
adverse effect on DSFX's business, assets, liabilities or operations, (ii) any
declarations setting aside or payment of any dividend or distribution with
respect to the DSFX Common Stock other than consistent with past practices,
(iii) any material change in DSFX's accounting principles, procedures or
methods, (iv) cancellation in writing of any material customer contract or (v)
the loss of any customer relationship which would have a material adverse effect
on DSFX's business, assets, liabilities or operations.
3.7 COMPLIANCE WITH APPLICABLE LAW.
Except as disclosed in the DSFX SEC Reports filed prior to the date of this
Agreement and except to the extent that the failure or violation would not in
the aggregate have a Material Adverse Effect on the business, results of
operations or financial condition of DSFX, to DSFX's knowledge DSFX holds all
Governmental Authorizations necessary for the lawful conduct of its business
under and pursuant to, and the business of DSFX is not being conducted in
violation of, any Governmental Authorization applicable to DSFX.
3.8 COMPLETE COPIES OF REQUESTED REPORTS.
DSFX has delivered or made available true and complete copies of each document
that has been reasonably requested by SYCI or the Shareholders.
3.9 FULL DISCLOSURE.
(a) Neither this Agreement (including all Schedules and Exhibits hereto) nor any
of the Transactional Agreements contemplated to be executed and delivered by
DSFX in connection with this Agreement contains any untrue statement of material
fact; and none of such documents omits to state any material fact necessary to
make any of the representations, warranties or other statements or information
contained therein not misleading.
(b) All of the information set forth in the prospectus and all other information
regarding DSFX and the business, condition, assets, liabilities, operations,
financial performance, net income and prospects of either that has been
furnished to SYCI or the Shareholders by or on behalf of DSFX or any of the
DSFX's Representatives, is accurate and complete in all material respects.
ARTICLE IV.
COVENANTS OF SYCI
4.1 ACCESS AND INVESTIGATION.
Each of SYCI and the Shareholders shall ensure that, at all times during the
Pre-Closing Period:
(a) SYCI and their Representatives provide DSFX and its Representatives access,
at reasonable times and with twenty-four (24) hours notice from DSFX to SYCI ,
to all of the premises and assets of SYCI , to all existing books, records, Tax
Returns, work papers and other documents and information relating to SYCI , and
to responsible officers and employees of SYCI, and SYCI and its Representatives
provide DSFX and its Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to SYCI as DSFX may request in good faith;
(b) Each of SYCI and their Representatives confer regularly with DSFX upon its
request, concerning operational matters and otherwise report regularly (not less
than semi-monthly and as DSFX may otherwise request) to DSFX and discuss with
DSFX and its Representatives concerning the status of the business, condition,
assets, liabilities, operations, and financial performance of SYCI , and
promptly notify DSFX of any material change in the business, condition, assets,
liabilities, operations, and financial performance of SYCI , or any event
reasonably likely to lead to any such change.
4.2 OPERATION OF BUSINESS.
Each of SYCI and the Shareholders shall ensure that, during the Pre-Closing
Period:
(a) SYCI conducts its operations in the Ordinary Course of Business and in the
same manner as such operations have been conducted prior to the date of this
Agreement;
(b) SYCI uses its commercially reasonable efforts to preserve intact its current
business organization, keep available and not terminate the services of its
current officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees and
other Persons having business relationships with SYCI;
(c) SYCI does not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of its capital stock, and does not
repurchase, redeem or otherwise reacquire any shares of its capital stock or
other securities, except with respect to the repurchase of shares of SYCI Common
Stock upon termination of employees at the original purchase price pursuant to
agreements existing at the date hereof;
(d) SYCI does not sell or otherwise issue (or grant any warrants, options or
other rights to purchase) any shares of capital stock or any other securities,
except the issuance of shares of SYCI Common Stock pursuant to option grants to
employees made under the Option Plan in the Ordinary Course of Business;
(e) SYCI does not amend its Articles of Incorporation, Bylaws or other
Organizational Documents, and does not effect or become a party to any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) SYCI does not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(g) SYCI does not establish or adopt any Employee Benefit Plan, and does not pay
any bonus or make any profit sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other compensation
or remuneration payable to, any of its directors, officers or employees;
(h) SYCI does not change any of its methods of accounting or accounting
practices in any respect;
(i) SYCI does not make any Tax election;
(j) SYCI does not commence or take any action or fail to take any action which
would result in the commencement of any Proceeding;
(k) SYCI does not (i) acquire, dispose of, transfer, lease, license, mortgage,
pledge or encumber any fixed or other assets, other than in the Ordinary Course
of Business; (ii) incur, assume or prepay any indebtedness, Indebtedness or
obligation or any other liabilities or issue any debt securities, other than in
the Ordinary Course of Business; (iii) assume, guarantee, endorse for the
obligations of any other person, other than in the Ordinary Course of Business;
(iv) make any loans, advances or capital contributions to, or investments in,
any other Person, other than in the Ordinary Course of Business; or (v) fail to
maintain insurance consistent with past practices for its business and property;
(l) SYCI pays all debts and Taxes, files all of its Tax Returns (as provided
herein) and pays or performs all other obligations, when due;
(m) SYCI does not enter into or amend any agreements pursuant to which any other
Person is granted distribution, marketing or other rights of any type or scope
with respect to any of its services, products or technology;
(n) SYCI does not hire any new officer-level employee;
(o) SYCI does not revalue any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable,
except as required under GAAP and in the Ordinary Course of Business;
(p) Except as otherwise contemplated hereunder, SYCI does not enter into any
transaction or take any other action outside the Ordinary Course of Business;
and
(q) SYCI does not enter into any transaction or take any other action that
likely would cause or constitute a Breach of any representation or warranty made
by it in this Agreement.
4.3 FILINGS AND CONSENTS; COOPERATION.
Each of SYCI the Shareholders shall ensure that:
(a) Each filing or notice required to be made or given (pursuant to any
applicable Law, Order or contract, or otherwise) by SYCI or the Shareholders in
connection with the execution and delivery of any of the Transactional
Agreements, or in connection with the consummation or performance of the
Exchange, is made or given as soon as possible after the date of this Agreement;
(b) Each Consent required to be obtained (pursuant to any applicable Law, Order
or contract, or otherwise) by SYCI or the Shareholders in connection with the
execution and delivery of any of the Transactional Agreements, or in connection
with the consummation or performance of the Exchange, is obtained as soon as
possible after the date of this Agreement and remains in full force and effect
through the Closing Date;
(c) SYCI promptly delivers to DSFX a copy of each filing made, each notice given
and each Consent obtained by SYCI during the Pre-Closing Period; and
(d) During the Pre-Closing Period, SYCI and its Representatives cooperate with
DSFX and DSFX's Representatives, and prepare and make available such documents
and take such other actions as DSFX may request in good faith, in connection
with any filing, notice or Consent that DSFX is required or elects to make, give
or obtain.
4.4 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULES.
(a) During the Pre-Closing Period, SYCI shall promptly notify DSFX in writing
of:
(i) the discovery by it of any event, condition, fact or circumstance that
occurred or existed on or prior to the date of this Agreement which is contrary
to any representation or warranty made by it in this Agreement or in any of the
other Transactional Agreements, or that would upon the giving of notice or lapse
of time, result in any of its representations and warranties set forth in this
agreement to become untrue or otherwise cause any of the conditions of Closing
set forth in Article VI or Article VII not to be satisfied;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement (except as a result of actions taken
pursuant to the express written consent of DSFX) and that is contrary to any
representation or warranty made by it in this Agreement, or that would upon the
giving of notice or lapse of time, result in any of its representations and
warranties set forth in this agreement to become untrue or otherwise cause any
of the conditions of Closing set forth in Article VI or Article VII not to be
satisfied;
(b) If any event, condition, fact or circumstances that is required to be
disclosed pursuant to Section 4.4(a) requires any material change in the SYCI
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the SYCI Disclosure Schedule were dated as of the
date of the occurrence, existence or discovery of such event, condition, fact or
circumstances, then SYCI, as applicable, shall promptly deliver to DSFX an
update to the SYCI Disclosure Schedule specifying such change (a "Disclosure
Schedule Update").
(c) It will promptly update any relevant and material information provided to
DSFX after the date hereof pursuant to the terms of this Agreement.
4.5 Commercially Reasonable Efforts.
During the Pre-Closing Period, each of SYCI and the Shareholders shall use
commercially reasonable efforts to cause the conditions set forth in Article VI
and Article VII to be satisfied on a timely basis and so that the Closing can
take place on or before February 15, 2007, in accordance with Section 1.5, and
shall not take any action or omit to take any action, the taking or omission of
which would or could reasonably be expected to result in any of the
representations and warranties of SYCI set forth in this Agreement becoming
untrue, or in any of the conditions of Closing set forth in Article VI or
Article VII not being satisfied.
4.6 CONFIDENTIALITY; PUBLICITY.
Each of SYCI and the Shareholders shall ensure that:
(a) SYCI and its Representatives keep strictly confidential the existence and
terms of this Agreement prior to the issuance or dissemination of any mutually
agreed upon press release or other disclosure of the Exchange; and
(b) neither SYCI nor any of its Representatives issues or disseminates any press
release or other publicity or otherwise makes any disclosure of any nature (to
any of its suppliers, customers, landlords, creditors or employees or to any
other Person) regarding any of the Exchange; except in each case to the extent
that it is required by law to make any such disclosure regarding such
transactions or as separately agreed by the parties; provided, however, that if
it is required by law to make any such disclosure, SYCI advises DSFX, at least
five business days before making such disclosure, of the nature and content of
the intended disclosure.
ARTICLE V.
COVENANTS OF DSFX
5.1 NOTIFICATION.
During the Pre-Closing Period, DSFX shall promptly notify SYCI in writing of:
(a) the discovery by DSFX of any event, condition, fact or circumstance that
occurred or existed on or prior to the date of this Agreement which is contrary
to any representation or warranty made by DSFX in this Agreement; and,
(b) any event, condition, fact or circumstance that occurs, arises or exists
after the date of this Agreement (except as a result of actions taken pursuant
to the written consent of SYCI) and that is contrary to any representation or
warranty made by DSFX in this Agreement;
5.2 FILINGS AND CONSENTS; COOPERATION.
DSFX shall ensure that:
(a) Each filing or notice required to be made or given (pursuant to any
applicable Law, Order or contract, or otherwise) by DSFX in connection with the
execution and delivery of any of the Transactional Agreements, or in connection
with the consummation or performance of the Exchange, is made or given as soon
as possible after the date of this Agreement;
(b) Each Consent required to be obtained (pursuant to any applicable Law, Order
or contract, or otherwise) by DSFX in connection with the execution and delivery
of any of the Transactional Agreements, or in connection with the consummation
or performance of the Exchange, is obtained as soon as possible after the date
of this Agreement and remains in full force and effect through the Closing Date;
(c) DSFX promptly delivers to SYCI a copy of each filing made, each notice given
and each Consent obtained by DSFX during the Pre-Closing Period; and
(d) During the Pre-Closing Period, DSFX and its Representatives cooperate with
SYCI and its Representatives, and prepare and make available such documents and
take such other actions as SYCI may request in good faith, in connection with
any filing, notice or Consent that SYCI is required or elects to make, give or
obtain.
5.3 COMMERCIALLY REASONABLE EFFORTS.
During the Pre-Closing Period, DSFX shall use its commercially reasonable
efforts to cause the conditions set forth in Article VI and Article VII to be
satisfied on a timely basis and so that the Closing can take place on or before
February 15, 2007or as soon thereafter as is reasonably practical, in accordance
with Section 1.5, and shall not take any action or omit to take any action, the
taking or omission of which would or could reasonably be expected to result in
any of the representations and warranties or DSFX set forth in this Agreement
becoming untrue or in any of the conditions of closing set forth in Article VI
or Article VII not being satisfied.
5.4 DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Each of DSFX, SYCI and the Shareholders acknowledges and agrees that it may
receive Confidential Information in connection with this Transaction including
without limitation, the SYCI Disclosure Schedule and any information disclosed
during the due diligence process, the public disclosure of which will harm the
disclosing party's business. The Receiving Party may use Confidential
Information only in connection with the Transaction. The results of the due
diligence review may not be used for any other purpose other than in connection
with the Transaction. Except as expressly provided in this Agreement, the
Receiving Party shall not disclose Confidential Information to anyone without
the Disclosing Party's prior written consent. The Receiving Party shall take all
reasonable measures to avoid disclosure, dissemination or unauthorized use of
Confidential Information, including, at a minimum, those measures it takes to
protect its own confidential information of a similar nature. The Receiving
Party shall not export any Confidential Information in any manner contrary to
the export regulations of the governmental jurisdiction to which it is subject.
(b) The Receiving Party may disclose Confidential Information as required to
comply with binding orders of governmental entities that have jurisdiction over
it, provided that the Receiving Party (i) gives the Disclosing Party reasonable
notice (to the extent permitted by law) to allow the Disclosing Party to seek a
protective order or other appropriate remedy, (ii) discloses only such
information as is required by the governmental entity, and (iii) uses
commercially reasonable efforts to obtain confidential treatment for any
Confidential Information so disclosed.
(c) All Confidential Information shall remain the exclusive property of the
Disclosing Party. The Disclosing Party's disclosure of Confidential Information
shall not constitute an express or implied grant to the Receiving Party of any
rights to or under the Disclosing Party's patents, copyrights, trade secrets,
trademarks or other intellectual property rights.
(d) The Receiving Party shall notify the Disclosing Party immediately upon
discovery of any unauthorized use or disclosure of Confidential Information or
any other breach of this Agreement by the Receiving Party. The Receiving Party
shall cooperate with the Disclosing Party in every reasonable way to help the
Disclosing Party regain possession of such Confidential Information and prevent
its further unauthorized use.
(e) The Receiving Party shall return or destroy all tangible materials embodying
Confidential Information (in any form and including, without limitation, all
summaries, copies and excerpts of Confidential Information) promptly following
the Disclosing Party's written request; provided, however, that, subject to the
provisions of this Agreement, the Receiving Party may retain one copy of such
materials in the confidential, restricted access files of its legal department
for use only in the event a dispute arises between the parties related to the
Transaction and only in connection with that dispute. At the Disclosing Party's
option, the Receiving Party shall provide written certification of its
compliance with this Section.
5.5 INDEMNIFICATION.
(a) Each of SYCI and the Shareholders, jointly and severally, each shall defend,
indemnify and hold harmless DSFX, and its respective employees, officers,
directors, stockholders, controlling persons, affiliates, agents, successors and
assigns (collectively, the "DSFX Indemnified Persons"), and shall reimburse the
DSFX Indemnified Person, for, from and against any loss, liability, claim,
damage, expense (including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), directly or indirectly, relating to, resulting
from or arising out of:
(i) any untrue representations, misrepresentations or breach of warranty by or
of SYCI or the Shareholders contained in or pursuant to this Agreement, and the
SYCI Disclosure Schedule;
(ii) any breach or nonfulfillment of any covenant, agreement or other obligation
by or of SYCI or the Shareholders (only to the extent made or occurring prior to
or at the Closing) contained in or pursuant to this Agreement, the Transaction
Agreements executed by SYCI or any of the Shareholders in their individual
capacity, the SYCI Disclosure Schedule, or any of the other agreements,
documents, schedules or exhibits to be entered into by SYCI or any of the
Shareholders in their individual capacity pursuant to or in connection with this
Agreement;
(iii) all of Pre-Closing liabilities of SYCI or the Shareholders; and
(iv) any liability, claim, action or proceeding of any kind whatsoever, whether
instituted or commenced prior to or after the Closing Date, which directly or
indirectly relates to, arises or results from, or occurs in connection with
facts or circumstances relating to the conduct of business of SYCI, or the
assets of SYCI, or events or circumstances existing on or prior to the Closing
Date.
(b) DSFX shall defend, indemnify and hold harmless SYCI and its respective
affiliates, agents, successors and assigns (collectively, the "SYCI Indemnified
Persons"), and shall reimburse the SYCI Indemnified Persons, for, from and
against any Damages, directly or indirectly, relating to, resulting from or
arising out of:
(i) any untrue representation, misrepresentation or breach of warranty by or of
DSFX contained in or pursuant to this Agreement;
(ii) any breach or nonfulfillment of any covenant, agreement or other
obligations by or of DSFX contained in or pursuant to this Agreement, the
Transaction Agreements or any other agreements, documents, schedules or exhibits
to be entered into or delivered to pursuant to or in connection with this
Agreement.
(c) Promptly after receipt by an indemnified Party under Section 5.5 of this
Agreement of notice of a claim against it ("Claim"), such indemnified Party
shall, if a claim is to be made against an indemnifying Party under such
Section, give notice to the indemnifying Party of such Claim, but the failure to
so notify the indemnifying Party will not relieve the indemnifying Party of any
liability that it may have to any indemnified Party, except to the extent that
the indemnifying Party demonstrates that the defense of such action is
prejudiced by the indemnified Party's failure to give such notice.
(d) A claim for indemnification for any matter not involving a third-party claim
may be asserted by notice to the Party from whom indemnification is sought.
ARTICLE VI.
CLOSING CONDITIONS OF DSFX
DSFX's obligations to effect the Closing and consummate the Exchange are subject
to the satisfaction of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of SYCI and the Shareholders in this
Agreement shall have been true and correct as of the date of this Agreement and
shall be true and correct on and as of the Closing. SYCI and the Shareholders
shall have performed all obligations in this Agreement required to be performed
or observed by them on or prior to the Closing.
6.2 ADDITIONAL CONDITIONS TO CLOSING.
(a) All necessary approvals under federal and state securities laws and other
authorizations relating to the issuance of the Acquisition Shares and the
transfer of the Shares shall have been received.
(b) DSFX shall have obtained an opinion stating that the terms of the Exchange
are fair, just and equitable to DSFX and its shareholders.
(c) No preliminary or permanent injunction or other order by any federal, state
or foreign court of competent jurisdiction which prohibits the consummation of
the Exchange shall have been issued and remain in effect. No statute, rule,
regulation, executive order, stay, decree, or judgment shall have been enacted,
entered, issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the Exchange. All
authorizations, consents, orders or approvals of, or declarations or filings
with, and all expirations of waiting periods imposed by, any Governmental Body
which are necessary for the consummation of the Exchange, other than those the
failure to obtain which would not materially adversely affect the consummation
of the Exchange or in the aggregate have a material adverse effect on DSFX and
its subsidiaries, taken as a whole, shall have been filed, occurred or been
obtained (all such permits, approvals, filings and consents and the lapse of all
such waiting periods being referred to as the "Requisite Regulatory Approvals")
and all such Requisite Regulatory Approvals shall be in full force and effect.
(d) There shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Exchange, by any
Governmental Body which, in connection with the grant of a Requisite Regulatory
Approval, imposes any material condition or material restriction upon DSFX or
its subsidiaries or SYCI, including, without limitation, requirements relating
to the disposition of assets, which in any such case would so materially
adversely impact the economic or business benefits of the Exchange as to render
inadvisable the consummation of the Exchange.
6.3 PERFORMANCE OF AGREEMENTS.
SYCI or the Shareholders, as the case may be, shall have executed and delivered
each of the agreements, instruments and documents required to be executed and
delivered, and performed all actions required to be performed by SYCI or any of
the Shareholders, as the case may be, pursuant to this Agreement, except as DSFX
has otherwise consented in writing.
6.4 CONSENTS.
Each of the Consents identified or required to have been identified in the SYCI
Disclosure Schedule shall have been obtained and shall be in full force and
effect, other than those Consents, which have been expressly waived by DSFX.
6.5 NO MATERIAL ADVERSE CHANGE AND SATISFACTORY DUE DILIGENCE.
There shall not have been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of SYCI
since the date of this Agreement as determined by DSFX in its discretion. DSFX
shall be satisfied in all respects with the results of its due diligence review
of SYCI.
6.6 SYCI CLOSING CERTIFICATES.
In addition to the documents required to be received under this Agreement, DSFX
shall also have received the following documents:
(a) copies of resolutions of SYCI , certified by a Secretary, Assistant
Secretary or other appropriate officer of SYCI, authorizing the execution,
delivery and performance of this Agreement and other Transactional Agreements;
(b) good standing certificate from China of SYCI; and
(c) such other documents as DSFX may request in good faith for the purpose of
(i) evidencing the accuracy of any representation or warranty made by SYCI, (ii)
evidencing the compliance by SYCI, or the performance by SYCI of, any covenant
or obligation set forth in this Agreement or any of the other Transactional
Agreements, (iii) evidencing the satisfaction of any condition set forth in
Article VII or this Article VI, or (iv) otherwise facilitating the consummation
or performance of the Exchange.
6.7 TRANSACTIONAL AGREEMENTS.
Each Person (other than DSFX) shall have executed and delivered prior to or on
the Closing Date all Transactional Agreements to which it is to be a party.
6.8 RESIGNATION OF DIRECTORS AND OFFICERS.
DSFX shall have received a written resignation from each of the directors and
officers of SYCI effective as of the Closing.
6.9 DELIVERY OF STOCK CERTIFICATES, MINUTE BOOK AND CORPORATE SEAL.
The Shareholders shall have delivered to DSFX the stock books, stock ledgers,
minute books and corporate seals of SYCI.
ARTICLE VII.
CLOSING CONDITIONS OF THE SHAREHOLDERS
The Shareholders' obligations to effect the Closing and consummate the Exchange
are subject to the satisfaction of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of DSFX in this Agreement shall have been
true and correct as of the date of this Agreement and shall be true and correct
on and as of the Closing and DSFX shall have performed all obligations in this
Agreement required to be performed or observed by them on or prior to the
Closing.
7.2 ADDITIONAL CONDITIONS TO CLOSING.
(a) All necessary approvals under federal and state securities laws and other
authorizations relating to the issuance and transfer of the Acquisition Shares
by DSFX and the transfer of the Shares by SYCI shall have been received.
(b) No preliminary or permanent injunction or other order by any federal, state
or foreign court of competent jurisdiction which prohibits the consummation of
the Exchange shall have been issued and remain in effect. No statute, rule,
regulation, executive order, stay, decree, or judgment shall have been enacted,
entered, issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the Exchange. All Requisite
Regulatory Approvals shall have been filed, occurred or been obtained and all
such Requisite Regulatory Approvals shall be in full force and effect.
(c) There shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Exchange, by any
federal or state Governmental Body which, in connection with the grant of a
Requisite Regulatory Approval, imposes any condition or restriction upon the
Surviving Corporation or its subsidiaries (or, in the case of any disposition of
assets required in connection with such Requisite Regulatory Approval, upon
DSFX, its subsidiaries or SYCI or any of their subsidiaries), including, without
limitation, requirements relating to the disposition of assets, which in any
such case would so materially adversely impact the economic or business benefits
of the Exchange as to render inadvisable the consummation of the Exchange.
7.3 DSFX CLOSING CERTIFICATES.
The Shareholders shall have received the following documents:
(a) copies of resolutions of DSFX, certified by a Secretary, Assistant Secretary
or other appropriate officer of DSFX, authorizing the execution, delivery and
performance of the Transactional Agreements and the Exchange;
(b) good standing certificates for the State of Delaware; and
(c) such other documents as SYCI may request in good faith for the purpose of
(i) evidencing the accuracy of any representation or warranty made by DSFX, (ii)
evidencing the compliance by DSFX with, or the performance by DSFX of, any
covenant or obligation set forth in this Agreement or any of the other
Transactional Agreements, (iii) evidencing the satisfaction of any condition set
forth in Article VI or this Article VII, or (iv) otherwise facilitating the
consummation or performance of the Exchange.
7.4 NO MATERIAL ADVERSE CHANGE.
There shall not have been any material adverse change in DSFX's business,
condition, assets, liabilities, operations or financial performance since the
date of this Agreement.
7.5 PERFORMANCE OF AGREEMENTS.
DSFX shall have executed and delivered each of the agreements, instruments and
documents required to be executed and delivered, and performed all actions
required by DSFX pursuant to this Agreement, except as SYCI and the Shareholders
have otherwise consented in writing.
7.6 CONSENTS.
Each of the Consents identified or required to have been identified in Section
3.4 shall have been obtained and shall be in full force and effect, other than
those Consents the absence of which shall not have a material adverse effect on
DSFX.
7.7 DSFX STOCK.
On the Closing Date, shares of DSFX Common Stock shall be eligible for quotation
on the OTC Bulletin Board.
ARTICLE VIII.
FURTHER ASSURANCES
Each of the parties hereto agrees that it will, from time to time after the date
of the Agreement, execute and deliver such other certificates, documents and
instruments and take such other action as may be reasonably requested by the
other party to carry out the actions and transactions contemplated by this
Agreement, including the closing conditions described in Articles VI and VII.
SYCI and the Shareholders shall reasonably cooperate with DSFX in its of the
books and records of SYCI, or in preparing any solicitation materials to be sent
to the shareholders of DSFX in connection with the approval of the Exchange and
the transactions contemplated by the Transactional Agreements.
ARTICLE IX.
TERMINATION
9.1 TERMINATION.
This Agreement may be renegotiated or terminated and the Exchange abandoned at
any time prior to the Closing Date:
(a) by mutual written consent of DSFX, UCG, SCHC, SYCI and the Shareholders;
(b) by DSFX if it is not satisfied with the results of its due diligence of SYCI
for any reason;
(c) by DSFX if (i) there is a material Breach of any covenant or obligation of
SYCI or the Shareholders; provided however, that if such Breach or Breaches are
capable of being cured prior to the Closing Date, such Breach or Breaches shall
not have been cured within 10 days of delivery of the written notice of such
Breach, or (ii) DSFX reasonably determines that the timely satisfaction of any
condition set forth in Article VI has become impossible or impractical (other
than as a result of any failure on the part of DSFX to comply with or perform
its covenants and obligations under this Agreement or any of the other
Transactional Agreements);
(d) by SYCI if (i) there is a material Breach of any covenant or obligation of
DSFX; provided however, that if such Breach or Breaches are capable of being
cured prior to the Closing Date, such Breach or Breaches shall not have been
cured within 10 days of delivery of the written notice of such Breach, or (ii)
SYCI reasonably determines that the timely satisfaction of any condition set
forth in Article VII has become impossible or impractical (other than as a
result of any failure on the part of SYCI or any Shareholder to comply with or
perform any covenant or obligation set forth in this Agreement or any of the
other Transactional Agreements);
(e) by DSFX if the Closing has not taken place on or before February 15, 2007
(except if as a result of any failure on the part of DSFX to comply with or
perform its covenants and obligations under this Agreement or in any other
Transactional Agreement);
(f) by SYCI if the Closing has not taken place on or before February 15, 2007
(except if as a result of the failure on the part of SYCI or the Shareholders to
comply with or perform any covenant or obligation set forth in this Agreement or
in any other Transactional Agreement);
(g) by any of DSFX, on the one hand or SYCI, on the other hand, if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Exchange and such order,
decree, ruling or any other action shall have become final and non-appealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this clause (g) shall have used all commercially reasonable efforts to remove
such order, decree or ruling; or
(h) The parties hereby agree and acknowledge that a breach of the provisions of
Sections 4.1, 4.2, 4.3, 4.4 and 4.6 are, without limitation, material Breaches
of this Agreement.
9.2 TERMINATION PROCEDURES.
If DSFX wishes to terminate this Agreement pursuant to Section 9.1, DSFX shall
deliver to the Shareholders, SYCI a written notice stating that DSFX is
terminating this Agreement and setting forth a brief description of the basis on
which DSFX is terminating this Agreement. If SYCI wishes to terminate this
Agreement pursuant to Section 9.1, SYCI, as applicable, shall deliver to DSFX a
written notice stating that SYCI is terminating this Agreement and setting forth
a brief description of the basis on which SYCI is terminating this Agreement.
9.3 EFFECT OF TERMINATION.
In the event of termination of this Agreement as provided above, this Agreement
shall forthwith have no further effect. Except for a termination resulting from
a Breach by a party to this Agreement, there shall be no liability or obligation
on the part of any party hereto. In the event of a breach, the remedies of the
non-breaching party shall be to seek damages from the breaching party or to
obtain an order for specific performance, in addition to or in lieu of other
remedies provided herein. Upon request after termination, each party will
redeliver or, at the option of the party receiving such request, destroy all
reports, work papers and other material of any other party relating to the
Exchange, whether obtained before or after the execution hereof, to the party
furnishing same; provided, however, that SYCI and the Shareholders shall, in all
events, remain bound by and continue to be subject to Section 4.6 and all
parties shall in all events remain bound by and continue to be subject to
Section 5.4 and 5.5.
Notwithstanding the above, both DSFX, on the one hand, and SYCI and the
Shareholders, on the other hand, shall be entitled to announce the termination
of this Agreement by means of a mutually acceptable press release.
ARTICLE X.
MISCELLANEOUS
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of SYCI and the Shareholders in this
Agreement and the SYCI Disclosure Schedule shall survive shall survive
indefinitely. The right to indemnification, reimbursement or other remedy based
on such representations and warranties will not be affected by any investigation
conducted by the parties.
10.2 EXPENSES.
Except as otherwise set forth herein, each of the parties to the Exchange shall
bear its own expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by this Agreement.
10.3 ENTIRE AGREEMENT.
This Agreement and the other Transactional Agreements contain the entire
agreement of the parties hereto, and supersede any prior written or oral
agreements between them concerning the subject matter contained herein, or
therein. There are no representations, agreements, arrangements or
understandings, oral or written, between the parties to this Agreement, relating
to the subject matter contained in this Agreement and the other Transaction
Agreements, which are not fully expressed herein or therein. The schedules and
each exhibit attached to this Agreement or delivered pursuant to this Agreement
are incorporated herein by this reference and constitute a part of this
Agreement.
10.4 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.
10.5 DESCRIPTIVE HEADINGS.
The Article and Section headings in this Agreement are for convenience only and
shall not affect the meanings or construction of any provision of this
Agreement.
10.6 NOTICES.
Any notices required or permitted to be given under this Agreement shall be in
writing and shall be deemed sufficiently given on the earlier to occur of the
date of personal delivery, the date of receipt or three (3) days after posting
by overnight courier or registered or certified mail, postage prepaid, addressed
as follows:
If to DSFX: Chengming Industrial Park, Unit - Haoyuan Chemical Company
Limited, Shouguang City, Shandong, P.R. China 262714
If to SYCI: Shouguang Yuxin Chemical Industry Co, Ltd.
Wo Pu Town, Xxxx Xx Oil Extraction Plant 2nd Living District,
Shouguang City, Shandong Province, China
If to the To such address or addresses as a party shall have previously
Shareholders: designated by notice to the sender given in accordance with
this section.
10.7 CHOICE OF LAW.
This Agreement shall be construed in accordance with and governed by the laws of
the State of New York without regard to choice of law principles. The parties
hereto each consent to the jurisdiction of the courts of the state of New York,
county of New York and to the federal courts located in the county of New York,
State of New York.
10.8 BINDING EFFECT; BENEFITS.
This Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement,
express or implied, is intended to confer on any Person other than the parties
or their respective successors and permitted assigns, the Shareholders and other
Persons expressly referred to herein, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.9 ASSIGNABILITY.
Neither this Agreement nor any of the parties' rights hereunder shall be
assignable by any party without the prior written consent of the other parties
and any attempted assignment without such consent shall be void.
10.10 WAIVER AND AMENDMENT.
Any term or provision of this Agreement may be waived at any time by the party,
which is entitled to the benefits thereof. The waiver by any party of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach. The parties may, by mutual agreement in writing, amend
this Agreement in any respect. SYCI and the Shareholders hereby acknowledge
their intent that this Agreement includes as a party any holder of capital stock
in SYCI at the time of Closing. DSFX, SCHC, SYCI and the Shareholders therefore
agree that this Agreement may be amended, without the further consent of any
party to this Agreement, (i) to add as a new Shareholder any existing
shareholder of SYCI and (ii) to modify Schedule 1 to reflect the addition of
such shareholder.
10.11 ATTORNEYS' FEES.
In the event of any action or proceeding to enforce the terms and conditions of
this Agreement, the prevailing party shall be entitled to an award of reasonable
attorneys' and experts' fees and costs, in addition to such other relief as may
be granted.
10.12 SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
10.13 CONSTRUCTION.
In executing this Agreement, the parties severally acknowledge and represent
that each: (a) has fully and carefully read and considered this Agreement; (b)
has or has had the opportunity to consult independent legal counsel regarding
the legal effect and meaning of this document and all terms and conditions
hereof; (c) has been afforded the opportunity to negotiate as to any and all
terms hereof; and (d) is executing this Agreement voluntarily, free from any
influence, coercion or duress of any kind. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the day and year first above written.
Diversifax, Inc
By: /s/
----------------------------------------
Name: Xxxx Xxxx
Title: CEO
Shouguang Yuxin Chemical Industry Co, Ltd.
By: /s/
----------------------------------------
Name: Xxxx Xxxx
Title: President
Shareholders:
See attached Shareholder signature pages
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
"Agreement" shall mean the Share Exchange Agreement to which this Exhibit A is
attached (including all Disclosure Schedules and all Exhibits), as it may be
amended from time to time.
"Approved Plans" shall mean a stock option or similar plan for the benefit of
employees or others, which has been approved by the shareholders of SYCI.
"Breach" There shall be deemed to be a "Breach" of a representation, warranty,
covenant, obligation or other provision if there is or has been any inaccuracy
in or breach of, or any failure to comply with or perform, such representation,
warranty, covenant, obligation or other provision.
"Certificates" shall have the meaning specified in Section 1.3 of the Agreement.
"Closing" shall have the meaning specified in Section 1.5 of the Agreement.
"Closing Date" shall have the meaning specified in Section 1.5 of the Agreement.
"Code" shall have the meaning specified in the Recitals of this Agreement.
"Confidential Information" shall mean all nonpublic information disclosed by one
party or its agents (the "Disclosing Party") to the other party or its agents
(the "Receiving Party") that is designated as confidential or that, given the
nature of the information or the circumstances surrounding its disclosure,
reasonably should be considered as confidential. Confidential Information
includes, without limitation (i) nonpublic information relating to the
Disclosing Party's technology, customers, vendors, suppliers, business plans,
intellectual property, promotional and marketing activities, finances,
agreements, transactions, financial information and other business affairs, and
(ii) third-party information that the Disclosing Party is obligated to keep
confidential. Confidential Information does not include any information that (i)
is or becomes publicly available without breach of this Agreement, (ii) can be
shown by documentation to have been known to the Receiving Party at the time of
its receipt from the Disclosing Party, (iii) is received from a third party who,
to the knowledge of the Receiving Party, did not acquire or disclose such
information by a wrongful or tortious act, or (iv) can be shown by documentation
to have been independently developed by the Receiving Party without reference to
any Confidential Information.
"Consent" shall mean any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
"Disclosure Schedule Update" shall have the meaning specified in Section 4.4 of
the Agreement.
"DSFX" shall have the meaning specified in the first paragraph of the Agreement.
"DSFX Common Stock" shall mean the shares of common stock of DSFX.
"DSFX SEC Reports" shall have the meaning specified in Section 4.6 of the
Agreement.
"Entity" shall mean any corporation (including any non profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, cooperative, foundation, society, political party,
union, company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization or entity.
"Environmental Laws" shall mean any Law or other requirement relating to the
protection of the environment, health, or safety from the release or disposal of
hazardous materials.
"Environmental Permit" means all licenses, permits, authorizations, approvals,
franchises and rights required under any applicable Environmental Law or Order.
"Equity Security" shall mean any stock or similar security, including, without
limitation, securities containing equity features and securities containing
profit participation features, or any security convertible into or exchangeable
for, with or without consideration, any stock or similar security, or any
security carrying any warrant, right or option to subscribe to or purchase any
shares of capital stock, or any such warrant or right.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean Generally Accepted Accounting Principles, applied on a
consistent basis.
"Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, concession, approval, consent,
ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Law; or
(b) right under any contract with any Governmental Body.
"Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature (including any
governmental division, subdivision, department, agency, bureau, branch, office,
commission, council, board, instrumentality, officer, official, representative,
organization, unit, body or Entity and any court or other tribunal); or
(d) individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory, police, military
or taxing authority or power of any nature, including any court, arbitrator,
administrative agency or commissioner, or other governmental authority or
instrumentality.
"Indebtedness" shall mean any obligation, contingent or otherwise. Any
obligation secured by a Lien on, or payable out of the proceeds of, or
production from, property of the relevant party will be deemed to be
Indebtedness.
"Intellectual Property" means all industrial and intellectual property,
including, without limitation, all U.S. and non-U.S. patents, patent
applications, patent rights, trademarks, trademark applications, common law
trademarks, Internet domain names, trade names, service marks, service xxxx
applications, common law service marks, and the goodwill associated therewith,
copyrights, in both published and unpublished works, whether registered or
unregistered, copyright applications, franchises, licenses, know-how, trade
secrets, technical data, designs, customer lists, confidential and proprietary
information, processes and formulae, all computer software programs or
applications, layouts, inventions, development tools and all documentation and
media constituting, describing or relating to the above, including manuals,
memoranda, and records, whether such intellectual property has been created,
applied for or obtained anywhere throughout the world.
"Knowledge" A corporation shall be deemed to have "knowledge" of a particular
fact or matter only if a director or officer of such corporation has, had or
should have had knowledge of such fact or matter.
"Laws" means, with respect to any Person, any U.S. or non-U.S. federal,
national, state, provincial, local, municipal, international, multinational or
other law (including common law), constitution, statute, code, ordinance, rule,
regulation or treaty applicable to such Person.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or
charge, right of first refusal, encumbrance or other adverse claim or interest
of any kind, including, without limitation, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by Law.
"Material Adverse Effect" means any change, effect or circumstance which,
individually or in the aggregate, would reasonably be expected to (a) have a
material adverse effect on the business, assets, financial condition or results
of operations of the affected party, in each case taken as a whole or (b)
materially impair the ability of the affected party to perform its obligations
under this Agreement and the Transaction Agreements, excluding any change,
effect or circumstance resulting from (i) the announcement, pendency or
consummation of the transactions contemplated by this Agreement, (ii) changes in
the United States securities markets generally, or (iii) changes in general
economic, currency exchange rate, political or regulatory conditions in
industries in which the affected party operates.
"Material Contract" means any and all agreements, contracts, arrangements,
understandings, leases, commitments or otherwise, providing for potential
payments by or to the company in excess of $10,000, and the amendments,
supplements and modifications thereto.
"Order" shall mean any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any Governmental
Body.
"Ordinary Course of Business" shall mean an action taken by SYCI if (i) such
action is taken in normal operation, consistent with past practices, (ii) such
action is not required to be authorized by the Shareholders, Board of Directors
or any committee of the Board of the Directors or other governing body of SYCI
and (iii) does not require any separate or special authorization or consent of
any nature by any Governmental Body or third party.
"Permitted Liens" shall mean (a) Liens for Taxes not yet payable or in respect
of which the validity thereof is being contested in good faith by appropriate
proceedings and for the payment of which the relevant party has made adequate
reserves; (b) Liens in respect of pledges or deposits under workmen's
compensation laws or similar legislation, carriers, warehousemen, mechanics,
laborers and materialmen and similar Liens, if the obligations secured by such
Liens are not then delinquent or are being contested in good faith by
appropriate proceedings conducted and for the payment of which the relevant
party has made adequate reserves; and (c) statutory Liens incidental to the
conduct of the business of the relevant party which were not incurred in
connection with the borrowing of money or the obtaining of advances or credits
and that do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its business.
"Person" shall mean any individual, Entity or Governmental Body.
"Pre-Closing Period" shall mean the period commencing as of the date of the
Agreement and ending on the Closing Date.
"Proceeding" shall mean any action, suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding and any informal proceeding), prosecution, contest, hearing, inquiry,
inquest, audit, examination or investigation, commenced, brought, conducted or
heard by or before, or otherwise has involved, any Governmental Body or any
arbitrator or arbitration panel.
"Representatives" of a specified party shall mean officers, directors,
employees, attorneys, accountants, advisors and representatives of such party,
including, without limitation, all subsidiaries of such specified party, and all
such Persons with respect to such subsidiaries. The Related Persons of SYCI
shall be deemed to be "Representatives" of SYCI, as applicable.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SYCI" shall have the meaning specified in the first paragraph of the Agreement
"SYCI Balance Sheet" shall mean SYCI's audited balance sheet at December 31,
2004 and December 31, 2005.
"SYCI Common Stock" shall mean the shares of common stock of SYCI.
"SYCI Disclosure Schedule" shall have the meaning specified in introduction to
Article II of the Agreement.
"SYCI Disclosure Schedule" shall have the meaning specified in introduction to
Article II of the Agreement.
"Taxes" shall mean all foreign, federal, state or local taxes, charges, fees,
levies, imposts, duties and other assessments, as applicable, including, but not
limited to, any income, alternative minimum or add-on, estimated, gross income,
gross receipts, sales, use, transfer, transactions, intangibles, ad valorem,
value-added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, unemployment, excise, severance,
stamp, occupation, premium, real property, recording, personal property, federal
highway use, commercial rent, environmental (including, but not limited to,
taxes under Section 59A of the Code) or windfall profit tax, custom, duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalties or additions to tax with
respect to any of the foregoing; and "Tax" means any of the foregoing Taxes.
"Tax Group" shall mean any federal, state, local or foreign consolidated,
affiliated, combined, unitary or other similar group of which SYCI is now or was
formerly a member.
"Tax Return" shall mean any return, declaration, report, claim for refund or
credit, information return, statement or other similar document filed with any
Governmental Body with respect to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"Transactional Agreements" shall mean:
"UCG" shall have the meaning specified in the first paragraph of the Agreement
(a) this Agreement; and
(b) the Promissory Note.
EXHIBIT B
FORM OF PROMISSORY NOTE
DIVERSIFAX, INC.
PROMISSORY NOTE
NO. ___ $____________ ______, 2007
FOR VALUE RECEIVED, the undersigned, Diversifax, Inc., a Delaware corporation
(the "Maker"), hereby promises to pay to the order of ___________________(the
"Payee"), the principal amount of _________________, all in accordance with the
provisions of this promissory note.
1. Payment of Principal. The full amount of the principal of this promissory
note shall be due and payable on __________________ (the "Maturity Date").
2. No Interest. Under no circumstances shall interest accrue or be charged on
the unpaid principal balance of this promissory note.
3. Method of Payment. Payments hereunder shall be in lawful money of the United
States and shall be made to Payee at the following address or at such other
place as Payee may designate to Maker in writing: c/o
____________________________________________________.
4. Prepayment. This promissory note may be prepaid in whole or in part at any
time without penalty or premium by payment of all or any part of the outstanding
principal amount.
5. Unconditional Payment Obligation. No provision of this promissory note shall
alter or impair the obligation of the Maker, which is absolute and
unconditional, to pay the principal of this promissory note at the time and
place and in the currency herein prescribed.
6. Events of Default. If any of the following events ("Events of Default") shall
occur, Payee may, by notice to Maker, declare this promissory note and all
amounts payable hereunder to be due and payable, whereupon the same shall become
immediately due and payable:
(a) Maker shall become insolvent or admit in writing its inability to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors;
(b) Any proceedings shall be instituted by or against Maker seeking either (i)
an order for relief with respect to, or reorganization, arrangement, adjustment
or composition of, its debts under the United States Bankruptcy Code or under
any other law relating to bankruptcy, insolvency, reorganization, or relief of
debtors, or (ii) appointment of a trustee, receiver or similar official for
Maker or for any substantial part of its property;
(c) Maker's failure to conduct business in the ordinary course, dissolution or
termination of existence; or
(d) Maker's failure after the Maturity Date to repay the amounts due hereunder
within ten (10) days of receiving written notice from Payee that such amounts
are due and payable.
7. Waiver of Notice. Maker hereby waives presentment, demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this promissory note, and assents to extension of
the time of payment or forbearance or other indulgence without notice.
8. Governing Law. This promissory note shall be construed in accordance with the
laws of the State of New York, without regard to its conflicts of laws rules.
9. Notices. All notices, requests, demands and other communications with respect
to this promissory note shall be given in person or forwarded by first class
United States mail, postage prepaid, registered or certified mail, with return
receipt requested, addressed to the party's address. Any notice, request, demand
or communication shall be deemed validly given and received upon delivery if
given in person, and on the 5th business day after deposit in the United States
mail if given by mail as provided for in the preceding sentence.
IN WITNESS WHEREOF, the Maker has executed and delivered this Note effective as
of February 5, 2007.
DIVERSIFAX, INC.
By:
------------------------------
Xxxx Xxxx
Chief Executive Officer
SCHEDULE 1
SYCI Shareholders
Shareholders Name Ownership Percentage of SYCI Shares of DSFX to be issued
---------------------- ---------------------------- ---------------------------
Shandong Haoyuan 50.96% 8,249,465 shares
Industry Group Ltd.
Xxxxxxxx Xx 49.04% 7,938,653 shares
SCHEDULE 2
SYCI Disclosure Schedule
COUNTERPART SIGNATURE PAGE
SHARE EXCHANGE AGREEMENT
AMONG
DIVERSIFAX, INC.,
UPPER CLASS GROUP LIMITED,
SHOUGUANG CITY HAOYUAN CHEMICAL COMPANY LIMITED,
SHOUGUANG YUXIN CHEMICAL INDUSTRY CO, LTD.
AND THE SHAREHOLDERS NAMED THEREIN
A. The undersigned shareholder of Shouguang Yuxin Chemical Industry Co, Ltd
("SYCI") desires to enter into the Share Exchange Agreement dated February 5,
2007 (the "Agreement"), among Diversifax, Inc., UCG, SCHC, Shouguang Yuxin
Chemical Industry Co, Ltd. ("SYCI") and the Shareholders of SYCI named therein,
a copy of which has been delivered to the undersigned.
B. The undersigned hereby adopts, accepts and agrees to all of the terms and
provisions of the Agreement.
C. This Counterpart Signature Page has been executed by the undersigned
Shareholder. The parties to the Agreement are hereby authorized to attach this
Counterpart Signature Page to a copy of the Agreement, together with executed
Counterpart Signature Pages of the other Shareholders. The undersigned agrees
that when this Counterpart Signature Page has been appended to the Agreement,
the Agreement shall thereupon become a binding agreement between the
undersigned, DSFX, UCG, SCHC, SYCI and other Shareholders who have executed
similar Counterpart Signature Pages, enforceable against the undersigned in
accordance with its terms, without further action by the undersigned.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Counterpart
Signature Page as of the (date) day of _____ , 2007.
Shareholders:
SHANDONG HAOYUAN INDUSTRY GROUP LTD
By: /s/
-------------------------------------
Name: Xxxx Xxxx
Title: President
/s/
-----------------------------------------
Name: Xxxxxxxx Xx
