EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
PARALLEL TECHNOLOGIES, INC.,
DALIAN FUSHI BIMETALLIC MANUFACTURING COMPANY, LTD.,
THE PERSONS LISTED ON THE SIGNATURE PAGES HERETO AS MANAGEMENT OF
DALIAN FUSHI BIMETALLIC MANUFACTURING COMPANY, LTD.,
CHINAMERICA FUND, LP
AND
THE OTHER INVESTORS LISTED ON THE SIGNATURE PAGES HERETO
DATED AS OF DECEMBER ___, 2005
TABLE OF CONTENTS
PAGE
1. DEFINITIONS..............................................................1
2. PURCHASE AND SALE OF SHARES..............................................6
(a) Purchase and Sale of Shares........................................6
(b) The Closing........................................................7
(c) Performance Adjustment.............................................8
(d) Public Relations and Executive Searches............................9
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY, ITS SUBSIDIARIES
AND DALIAN FUSHI........................................................10
(a) Organization and Standing.........................................10
(b) Authorization of Transaction......................................10
(c) Noncontravention..................................................11
(d) Capitalization....................................................11
(e) Subsidiaries......................................................11
(f) Disclosure Documents; Common Stock Trading........................12
(g) Financial Statements..............................................13
(h) Events Subsequent to Most Recent Form 10-QSB......................13
(i) No Undisclosed Liabilities; No Guaranties.........................13
(j) Absence of Litigation.............................................13
(k) Title to Assets...................................................14
(l) Legal Compliance..................................................14
(m) Contracts.........................................................14
(n) Employees; Employee Benefits......................................14
(o) Intellectual Property.............................................15
(p) Notes and Accounts Receivables....................................16
(q) Tax Matters.......................................................16
(r) Dalian Fushi......................................................17
(s) Books and Records.................................................18
(t) Certain Business Relationships....................................18
(u) Private Offering..................................................19
-i-
TABLE OF CONTENTS
(continued)
PAGE
(v) Use of Proceeds...................................................19
(w) Powers of Attorney................................................19
(x) Brokers' Fees.....................................................19
(y) Certain Business Practices........................................19
(z) Environmental and Safety Laws.....................................19
(aa) Manufacturing and Marketing Rights................................20
(bb) Employment of Wenbing Xxxxx Xxxx..................................20
(cc) Funds Flow Statement..............................................20
(dd) Disclosure........................................................20
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.........................20
(a) Organization and Standing.........................................20
(b) Authorization of Transaction......................................21
(c) Brokers' Fees.....................................................21
(d) No Registration...................................................21
(e) Acquisition for Investment........................................21
(f) Risks of Investment...............................................21
(g) Accredited Investor Status........................................21
(h) Disclosure of Information.........................................21
(i) Investment Experience.............................................22
5. REGISTRATION RIGHTS.....................................................22
(a) Registration by the Company.......................................22
(b) Priority Registrations............................................23
(c) Registration Procedures...........................................23
(d) Lock-up...........................................................25
(e) Indemnification...................................................25
6. POST-CLOSING COVENANTS..................................................26
(a) General...........................................................26
(b) American Stock Exchange...........................................26
(c) Board of Directors................................................26
(d) Board of Advisors.................................................26
-ii-
TABLE OF CONTENTS
(continued)
PAGE
(e) Chief Financial Officer...........................................27
(f) Name Change; Reverse Stock Split..................................27
(g) Employee Stock Ownership Plan.....................................27
(h) Executive Search..................................................27
(i) Employment Agreements.............................................27
(j) Transfer of Dalian Fushi Employees................................27
(k) Compliance with Law...............................................27
(l) Completion of Restructuring.......................................27
(m) Filing of Registration Statement..................................28
(n) Company Bylaws....................................................28
7. CONDITIONS TO OBLIGATION TO CLOSE.......................................29
(a) Conditions to Obligation of the Investors.........................29
(b) Conditions to Obligation of the Company, Dalian Fushi and
Management........................................................30
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.................................31
(a) Survival of Representations and Warranties........................31
(b) Indemnification Provisions for Benefit of the Investors...........31
(c) Matters Involving Third Parties...................................31
9. MISCELLANEOUS...........................................................32
(a) Press Releases and Public Announcements...........................32
(b) No Third Party Beneficiaries......................................32
(c) Entire Agreement..................................................32
(d) Succession and Assignment.........................................32
(e) Counterparts......................................................33
(f) Headings..........................................................33
(g) Notices...........................................................33
(h) Controlling Law; Venue............................................34
(i) Amendments and Waivers............................................34
(j) Severability......................................................34
(k) Expenses..........................................................34
(l) Construction......................................................34
-iii-
TABLE OF CONTENTS
(continued)
PAGE
(m) Incorporation of Exhibits and Schedules...........................35
(n) Specific Performance..............................................35
(o) Disputes; Arbitration.............................................35
-iv-
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as of
December ___, 2005, by and among Parallel Technologies, Inc., a Nevada
corporation (the "Company"), Dalian Fushi Bimetallic Manufacturing Company,
Ltd., a company organized under the laws of the People's Republic of China
("Dalian Fushi"), the persons listed on the signature pages hereto as management
of Dalian Fushi ("Management"), Chinamerica Fund, LP, a Texas limited
partnership ("CA"), and the other investors listed on the signature pages hereto
(CA and the other investors shall be referred to individually as an "Investor"
and collectively as the "Investors"). The Investors and the Company are also
referred to individually herein as a "Party" and collectively herein as the
"Parties."
PRELIMINARY STATEMENTS
A. Dalian Fushi currently engages in the business of manufacturing
bimetallic composite cable and wire products in China, which business will
become the business of the Company and its Subsidiaries (defined below) through
the restructuring and contractual arrangements with Dalian Fushi described below
(the "Business").
B. The Company has completed a share exchange with all of the
stockholders of Diversified Product Inspections, Inc. ("DPI") resulting in the
Company acquiring DPI and its wholly-owned subsidiary in China, Dalian
Diversified Product Inspections Bimetallic Cable Co., Ltd. ("WOFE").
X. XXXX and Dalian Fushi have entered into a series of Restructuring
Agreements and are in the process of completing the transactions contemplated in
the Restructuring Agreements, which transactions upon completion will result in
the Company, through its Subsidiaries, acquiring and/or leasing substantially
all the assets of, and certain additional rights of and to, Dalian Fushi, and
will have the effect of a reverse merger with Dalian Fushi (as more fully
described herein).
D. Previous to the above described share exchange and related
acquisition, the Company was a shell company without any significant assets.
E. The Company desires to issue and sell to the Investors, and the
Investors desire to subscribe for and acquire from the Company, a substantial
equity interest in the Company upon the terms and conditions hereinafter set
forth, and the Investors base their investment decision on the result of the
above referenced transactions between Dalian Fushi and the Company.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
The following terms used in this Agreement shall have the meanings set
forth below, provided that these definitions do not include terms used in
Section 2(c) that are otherwise defined in that Section.
1
"2005 Performance Shortfall" means the difference obtained by subtracting
the Actual Pre-Money Value from the Original Pre-Money Value.
"2006 Performance Shortfall" means the difference obtained by subtracting
the 2006 Net Profit from the 2006 Target Profit.
"Actual Pre-Money Value" means six times the 2005 Net Profit plus
$1,000,000.
"Acquired Assets" has the meaning set forth in Section 3(r).
"Adverse Consequences" means all Proceedings, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages,
investigation and/or remediation costs, dues, penalties, fines, costs of defense
and other costs, amounts paid in settlement, Liabilities, responsibilities,
Taxes, liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Agreement" means this Stock Purchase Agreement.
"Ancillary Agreements" means the Purchase Price Escrow Agreement, the
Stock Escrow Agreement, the PR Escrow Agreement, the Stock Purchase Agreement
between Dalian Fushi and Xxxxx Xxxxxx and the amendment thereof, the Share
Exchange Agreement between the Company and all of the stockholders of DPI
resulting in the Company acquiring DPI and WOFE, and any other agreements or
arrangements relating to the transactions contemplated by this Agreement.
"Arbitration Notice" has the meaning set forth in Section 9(o).
"Business" has the meaning set forth in the Preliminary Statements.
"CA" has the meaning set forth in the preface.
"Capital Report" has the meaning set forth in Section 6(n).
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning set forth in Section 2(a).
"Company" has the meaning set forth in the preface.
"Company Intellectual Property" means all intellectual property currently
used by the Company and its Subsidiaries (including Dalian Fushi) including,
without limitation, (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto,
2
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, trade names, domain names, service
marks, brand marks, brand names, service marks, trade dress, logos and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know how, formulas, compositions, manufacturing and production processes and
techniques, technical data, industrial or other designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium), and each license or contract relating thereto that is material to the
conduct of the Business.
"Company Disclosure Schedule" has the meaning set forth in Section 3.
"Confidential IP Information" has the meaning set forth in Section 3(o).
"Dalian Assets" has the meaning set forth in Section 3(r).
"Dalian Fushi" has the meaning set forth in the preface.
"Disclosure Documents" has the meaning set forth in Section 3(f).
"Dispute" has the meaning set forth in Section 9(o).
"DPI" has the meaning set forth in the Preliminary Statements.
"Dual Purposes Escrow Shares" has the meaning set forth in Section 2(c).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Encumbrance" means any claim, mortgage, servitude, easement,
encroachment, restrictive covenant, right of way, survey defect, equitable
interest, lease or other possessory interest, lien, option, pledge, security
interest, preference, priority, right of first refusal, environmental use
restriction or similar restriction.
"Entity" means any corporation (including any non profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, association, company (including any company limited by
shares, limited liability company or joint stock company), firm, society or
other enterprise, association, organization or entity.
"Environmental Laws" has the meaning set forth in Section 3(dd).
"Escrow Agent" means Guzov Ofsink, LLC, as the Company's escrow agent for
the Purchase Price Escrow Agreement.
3
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date of any document purported to be prepared in accordance
with GAAP.
"Governmental Authorization" means any approval, consent, ratification,
waiver, authorization, franchise, license, permit (including environmental
permits) or registration issued, granted, given or otherwise made available by
or under the authority of any Governmental Body or pursuant to any Law.
"Governmental Body" means any (i) nation, region, state, province, county,
xxxxxxxxxxxx, xxxx, xxxx, xxxxxxx, xxxxxxxx or other jurisdiction, (ii) federal,
state, provincial, local, municipal, foreign or other government, (iii)
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department or other Entity and any court or other
tribunal), (iv) multinational organization, (v) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, policy,
regulatory or taxing authority or power of any nature or (vi) official of any of
the foregoing.
"Hazardous Materials" has the meaning set forth in Section 3(dd).
"Indemnified Party" has the meaning set forth in Section 8(d).
"Indemnifying Party" has the meaning set forth in Section 8(d).
"Intangible Rights" has the meaning set forth in Section 3(o).
"Investor" and "Investors" have the meanings set forth in the preface.
"IRS" means the Internal Revenue Service or any successor agency and, to
the extent relevant, the Department of Treasury.
"Law" means any foreign, federal, state and local statute, law,
constitution, treaty, rule, regulation, by-law, ordinance, code, regulation,
resolution, order, determination, writ, injunction, awards (including, without
limitation, awards of any arbitrator), judgment, decree, binding case law,
principle of common law or notice of any Governmental Body (for the avoidance of
doubt, including, but not limited to, the Laws of the United States of America
and the People's Republic of China).
"Liabilities" includes liabilities or obligations of any nature, whether
known or unknown, whether absolute, accrued, contingent, xxxxxx, inchoate or
otherwise, whether due or to become due, and whether or not required to be
reflected on a balance sheet prepared in accordance with GAAP, including any
Liability for Taxes.
"Management" has the meaning set forth in the preface.
"Material Contracts" has the meaning set forth in Section 3(m).
"Material" shall mean any event or circumstance that has, or is reasonably
likely to have, a significant adverse effect on the assets, results, goodwill,
business, operations or prospects of the Company or its Subsidiaries (including
Dalian Fushi) taken as a whole.
4
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(g).
"NASD" means the National Association of Securities Dealers, Inc.
"Net Profit" means the net profit of the Company as determined in the
following manner: (i) promptly following the completion of the Company's audited
financial statements, the Company shall deliver to CA the net profit calculation
and the method for such calculation for the Company on a consolidated basis for
the applicable time period, prepared in good faith and reviewed by the Company's
auditors; (ii) following its receipt from the Company of the net profit
calculation and method, CA shall have 15 days to review the net profit
calculation and method and to inform the Company in writing of any disagreement
that it may have with the net profit calculation and method, which objection
shall specify in reasonable detail CA's disagreement with the net profit
calculation and method, including its calculation of net profit; (iii) if the
Company does not receive such objection within such 15 day period, the net
profit calculation and method delivered by the Company shall be deemed to have
been accepted by CA and shall become the Net Profit for purposes of the
applicable provision of Section 2(c), and (iv) if CA does timely deliver an
objection to the Company, then the provisions of Section 9(o) shall become
applicable.
"Original Investment Price" means the price per share of the Common Stock
(issuable upon conversion of the Preferred Stock) paid by the Investors under
this Agreement, which amount is $2.82 (as may be adjusted from time to time to
account for stock splits (as contemplated hereunder or otherwise), stock
dividends, recapitalizations, reclassifications or similar events).
"Original Pre-Money Value" means six times the 2005 Target Profit plus
$1,000,000, which amount is $41,500,000.
"Party" and "Parties" have the meanings set forth in the preface.
"Person" means an individual or an Entity, including a Governmental Body
or any other body with legal personality separate from its equityholders or
members, including if established by any Governmental Body.
"Plan" has the meaning specified in ERISA Section 3(3).
"PR Escrow Agreement" has the meaning set forth in Section 2(d).
"Preferred Stock" has the meaning set forth in Section 3(d).
"Proceeding" means any action, arbitration, audit, examination,
investigation, claim, demand, inquiry, hearing, litigation, suit or appeal
(whether civil, criminal, administrative, judicial or investigative, whether
formal or informal, and whether public or private) commenced, brought,
conducted, heard by or before or otherwise involving any Governmental Body or
arbitrator.
"Purchase Price" has the meaning set forth in Section 2(a).
"Purchase Price Escrow Agreement" has the meaning set forth in Section
2(b).
5
"Registration Statement" has the meaning set forth in Section 5(a).
"Restructuring Agreements" means the documents annexed hereto as Exhibit
I.
"Restructuring Completion Date" has the meaning specified in Section 6(l).
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B" has the meaning set forth in Section 2(a).
"Shares" has the meaning set forth in Section 2(a).
"Shortfall Percentage" means the quotient obtained by dividing the 2006
Percentage Shortfall by the 2006 Target Profit.
"Stock Escrow Agreement" has the meaning set forth in Section 2(c).
"Subsidiary" means any Entity with respect to which a specified Person (or
a Subsidiary thereof) owns a majority of the common stock or has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors (or members of a similar supervisory group) and, with respect to the
Company, expressly includes Diversified Product Inspections, Inc., a Delaware
corporation, and WOFE.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement required to be supplied to any governmental
authority relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d).
"Warrants" has the meaning set forth in Section 2(a).
"WOFE" means Dalian Diversified Product Inspections Bimetallic Cable Co.,
Ltd, a company organized under the laws of the People's Republic of China and a
wholly owned Subsidiary of the Company.
2. PURCHASE AND SALE OF SHARES.
(a) PURCHASE AND SALE OF SHARES. On the basis of the representations,
warranties, covenants and agreements contained herein, and subject to the terms
and conditions hereof, the Company agrees to issue and sell to the Investors,
and the Investors, severally and not jointly, agree to purchase from the Company
for an aggregate purchase price of $12,000,000 (the "Purchase Price") (subject
to escrow pursuant to Section 2(d)):
6
(i) at the Closing an aggregate of 215,425 shares of Series B
Convertible Preferred Stock of the Company, par value $.001 per share ("Series
B"), having the rights, preferences and other terms set forth on Exhibit A,
which Series B is convertible into 4,250,000 shares of common stock of the
Company, par value $.006 per share ("Common Stock") upon the occurrence of a
contemplated reverse split (or such other amount reflecting no less than 21.25%
of the outstanding voting capital stock at the time of conversion);
(ii) such number of additional shares of Common Stock, if any,
issuable to the Investors pursuant to Section 2(c)(ii);
(iii) such number of additional shares of Common Stock, if any,
issuable to the Investors pursuant to Section 5(c)(iii); and
(iv) warrants in the form of Exhibit B (the "Warrants").
The number of shares of Series B and Common Stock and the number of Warrants to
be purchased by each Investor and the portion of the Purchase Price to be paid
by each Investor is as set forth on Exhibit C. The shares of Series B and Common
Stock (including the Common Stock into which the Series B is convertible) listed
in (i)-(iii) are referred to as the "Shares."
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxx & XxXxxxxx
LLP in Houston, Texas, commencing at 10:00 a.m., local time, on the date hereof
or at such other location, date and time as may be agreed upon between the
Investors and the Company, on which date this Agreement is signed by all the
Investors (the "Closing Date"). At the Closing, the Company shall issue and
deliver to each Investor:
(i) a stock certificate or certificates in definitive form,
registered in the name of such Investor, representing the Series B being
purchased by such Investor as set forth on Exhibit C; and
(ii) a certificate or certificates in definitive form, registered
in the name of such Investor, representing the Warrants being purchased by such
Investor as set forth on Exhibit C.
As payment in full for the Shares and the Warrants, and against delivery of the
stock certificates referenced above (and the delivery of certificates in
definitive form, registered in the name of the Investors, representing any
Common Stock to be issued), the Investors have delivered to the Escrow Agent the
Purchase Price pursuant to those certain escrow agreements, and all amendments
thereto, by and among the Escrow Agent, the Company, Dalian Fushi and the
Investors dated in October and November, 2005, a copy of which is attached as
Exhibit D (the "Purchase Price Escrow Agreement"). Each Investor, by signing
below, hereby extends the term of the Purchase Price Escrow until the Closing
Date. The release of the Purchase Price to the Company shall be effected in
accordance with the terms of this Agreement and the Escrow Agreement. At the
Closing, the Investors and the Company shall deliver to each other all of the
various certificates, instruments, and documents referred to in Section 7.
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(c) PERFORMANCE ADJUSTMENT.
(i) 2005 Performance Adjustment. The Company hereby represents to
the Investors that the Company's after Tax Net Profit on a consolidated, pro
forma basis, prior to costs directly attributed to this Agreement and the
transactions contemplated hereby, as reported under GAAP and as prepared by an
independent registered public accounting firm acceptable to the Investors for
the fiscal year ending 2005 ("2005 Net Profit") shall be at least $6,750,000
(the "2005 Target Profit"). The 2005 Net Profit shall be based upon the
performance of the Business in the form which it exists as of Closing (assuming
completion of the transactions contemplated by the Restructuring Agreements),
and shall not include any amounts from any Subsidiary, business division, assets
or contractual arrangement or other source of the Company acquired after the
Closing. As the Investors are relying on such expected profit in making their
investment hereunder, and in order to make whole the Investors in the event the
2005 Target Profit is not met and for the purposes of the indemnity provisions
under Section 8 of this Agreement, the Company has placed 3,000,000 shares of
Common Stock issuable upon the conversion of the Series A Convertible Preferred
Stock of the Company (based on post reverse split shares, subject to applicable
adjustment) which are owned by Management (the "Dual Purposes Escrow Shares")
into an escrow account for the benefit of the Investors pursuant to an escrow
agreement by and among the Company, Dalian Fushi, certain holders of the Series
A shares, the Investors and Gateway National Bank, N.A., as escrow agent,
attached as Exhibit E (the "Stock Escrow Agreement"). In the event that the
Company does not generate the 2005 Target Profit (as determined based on the
Company's 2005 audited financial statements), a number of Dual Purposes Escrow
Shares, which shall not be more than 3,000,000 (based on post reverse split
shares, subject to applicable adjustment), shall be retired to the Company
treasury as set forth below in order to maintain the value of the Investors'
investment in the Company (the "2005 Performance Adjustment") pursuant to the
terms of the Stock Escrow Agreement. The 2005 Performance Adjustment shall be
determined by (A) subtracting the Actual Pre-Money Value from the Original
Pre-Money Value to obtain the 2005 Performance Shortfall and (B) dividing the
2005 Performance Shortfall by the Original Investment Price. The Company shall
immediately redeem, retire or otherwise cancel such number of the Dual Purposes
Escrow Shares equal to the 2005 Performance Adjustment, but no more than
3,000,000 shares (based on post reverse split shares, subject to applicable
adjustment), as calculated pursuant to this Section 2(c)(i).
Sample Calculation:
If the 2005 Net Profit is reported to be $6,250,000, the 2005 Performance
Adjustment would be calculated as follows:
1) (Original Pre-Money Value - Actual Pre-Money Value)
-------------------------------------------------------------------
Original Investment Price
2) ($41,500,000 - $38,500,000)
-----------------------------------
$2.82
3) $3,000,000
-------------- = 1,063,829.8 Dual Purposes Escrow Shares
$2.82
8
(ii) 2006 Performance Adjustment. The Company hereby represents to
the Investors that the Company's after Tax Net Profit on a consolidated, pro
forma basis, as reported under GAAP and as prepared by an accounting firm
acceptable to the Investors ("2006 Net Profit") for the fiscal year ending 2006
shall be no less than $10,700,000 (the "2006 Target Profit"). Except for the
acquisition of Dalian Tongfa New Materials Science and Technology Co., Ltd., the
2006 Net Profit shall be based upon the performance of the Business in the form
which it exists as of Closing (assuming completion of the transactions
contemplated by the Restructuring Agreements), and shall not include any amounts
from any Subsidiary, business division, assets or contractual arrangement or
other source of the Company acquired after the Closing. In the event the 2006
Net Profit is not equal to or greater than 90% of the 2006 Target Profit, the
Company agrees to issue a number of additional shares of Common Stock to the
Investors (the "2006 Performance Shares") pro rata in accordance their original
investment holdings as set forth on Exhibit C. The number of 2006 Performance
Shares shall be calculated by (A) subtracting the 2006 Net Profit from the 2006
Target Profit to obtain the 2006 Performance Shortfall, (B) dividing the 2006
Performance Shortfall by the 2006 Target Profit to obtain the Shortfall
Percentage and (C) multiplying the Shortfall Percentage by the number of shares
of Common Stock (issuable upon conversion of the Series B) originally issued to
the Investors under this Agreement. If the Shortfall Percentage is 10% or less,
no 2006 Performance Shares shall be issued to the Investors.
Sample Calculation:
If the 2006 Net Profit is reported to be $9,095,000, the number of 2006
Performance Shares would be calculated as follows:
1) 2006 Target Profit - 2006 Net Profit = 2006 Performance Shortfall
10,700,000 - 9,095,000 = 1,605,000
2) 2006 Performance Shortfall
--------------------------------- = Shortfall Percentage
2006 Target Profit
1,605,000
------------ = 0.15
10,700,000
3) Shortfall Percentage X Shares = 2006 Performance Shares
0.15 X 4,250,000 = 637,500 2006 Performance Shares
(d) PUBLIC RELATIONS AND EXECUTIVE SEARCHES. $600,000 of the Purchase
Price shall be delivered directly into escrow for the purpose of effecting an
integrated investor and public relations campaign, of which $500,000 of the
escrow funds shall apply, and executive search costs, of which $100,000 of the
escrow funds shall apply, post-Closing. The terms of such escrow shall be
governed by an escrow agreement by and among Gateway National Bank, N.A., as
escrow agent, the Company and the Investors in the form attached as Exhibit F
(the "PR Escrow Agreement"). The release of such portion of the Purchase Price
from escrow shall be effected in accordance with the terms of the PR Escrow
Agreement. The Company shall use its best efforts to use these escrow funds
pursuant to the terms of the PR Escrow Agreement within 12 months from Closing.
9
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY, ITS SUBSIDIARIES
AND DALIAN FUSHI.
The Company, Dalian Fushi and Management, jointly and severally,
represents and warrants to each Investor that the statements contained in this
Section 3 are correct and complete as of the date of this Agreement except as
set forth in the disclosure schedule delivered by the Company to the Investors
on the date hereof and initialed by the Parties (the "Company Disclosure
Schedule"). Nothing in the Company Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, however,
unless the Company Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail in light of
the applicable representation required to be given under this Agreement. The
Company Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3.
(a) ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, with full and unrestricted corporate power and authority to own, operate
and lease its assets, to carry on the Business (and any other business) as
currently conducted (and proposed to be conducted), to execute and deliver this
Agreement and the Ancillary Agreements and to carry out the transactions
contemplated hereby and thereby. The Company has made available to the Investors
complete and correct copies of the charter and by-laws of the Company, with all
amendments thereto, as in effect on the date of this Agreement. The Company is
duly qualified to do business and is in good standing (to the extent such
concept is applicable in the relevant jurisdiction) in all jurisdictions in
which either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification, except
where the failure to so qualify will not have a material adverse effect on the
Business or financial condition of the Company and its Subsidiaries (including
Dalian Fushi), taken as a whole. All Governmental Authorizations required under
the Law of the People's Republic of China for the due and proper establishment
and operation of Dalian Fushi have been duly obtained from all relevant People's
Republic of China authorities and are in full force and effect. All filings and
registrations with the People's Republic of China authorities required in
respect of Dalian Fushi and their operations, including but not limited to the
registrations with the delegated authority of Ministry of Commerce, the State
Administration of Industry and Commerce, the State Administration for Foreign
Exchange, tax bureau and customs authorities have been duly completed in
accordance with applicable Laws. By the Restructuring Completion Date, all
Governmental Authorizations required under the Law of the People's Republic of
China for the due and proper establishment and operation of WOFE will be duly
obtained from all relevant People's Republic of China authorities and are in
full force and effect. By the Restructuring Completion Date, all filings and
registrations with the People's Republic of China authorities required in
respect of WOFE to commence and carry out its operations, including but not
limited to the registrations with the delegated authority of Ministry of
Commerce, the State Administration of Industry and Commerce, the State
Administration for Foreign Exchange, tax bureau and customs authorities have
been duly completed in accordance with applicable Laws.
(b) AUTHORIZATION OF TRANSACTION. The Company has full corporate power
and authority to execute and deliver this Agreement and any applicable Ancillary
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and any Ancillary Agreements by the Company and
the consummation by the Company of the transactions contemplated hereby and
10
thereby have been duly authorized by all necessary corporate action on the part
of the Company, including any shareholder approval (including to complete the
transactions required hereby). This Agreement constitutes the valid and legally
binding obligation of the Company, enforceable in accordance with its terms and
conditions. The Company need not provide any notice to, make any filing with, or
obtain any authorization, consent or approval of any Governmental Body or any
other Person in order to consummate the transactions contemplated by this
Agreement or any Ancillary Agreement, except as set forth in Section 3(b) of the
Company Disclosure Schedule.
(c) NONCONTRAVENTION. Except as set forth in Section 3(c) of the Company
Disclosure Schedule, the execution, delivery and performance by the Company of
this Agreement and any Ancillary Agreements, the fulfillment of and compliance
with the respective terms and provisions hereof and thereof, and the
consummation by the Company and any of its Subsidiaries (including Dalian Fushi)
of the transactions contemplated hereby and thereby, do not and will not: (i)
conflict with, or violate any provision of, any Law having applicability to the
Company, its Subsidiaries or Dalian Fushi, or any of their assets, or any
provision of the charter or bylaws of the Company or any of its Subsidiaries
(including Dalian Fushi); (ii) conflict with, or result in any breach of, or
constitute a default under any agreement, contract or other arrangement (whether
written or oral) to which the Company or any Subsidiary (including Dalian Fushi)
is a party or by which the Company, its Subsidiaries or Dalian Fushi or any of
their assets may be bound; or (iii) result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
Encumbrance of any nature upon, or with respect to any of the assets (including
the Shares) of the Company or any Subsidiary (including Dalian Fushi).
(d) CAPITALIZATION. The entire authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, of which 39,243,659 shares
are issued and outstanding, and (ii) 5,000,000 shares of preferred stock of the
Company, par value $.001 per share ("Preferred Stock"), with 785,000 designated
as Series A, of which 785,858.51 shares are issued and outstanding, and 216,000
designated as Series B, of which no shares are issued and outstanding. No other
capital stock or equity securities of or interests in the Company are authorized
or outstanding, and there are no shares of capital stock or other securities of
the Company reserved for future issuance. All of the issued and outstanding
shares of Common Stock and Preferred Stock have been duly authorized, are
validly issued, fully paid and nonassessable, were issued in compliance with all
applicable federal and state securities Laws and any other applicable Laws, and
are held of record by the respective stockholders as set forth in Section 3(d)
of the Company Disclosure Schedule. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, rights of first
refusal, pre-emptive rights, conversion rights, exchange rights or other
contracts or commitments (whether written or oral) that could require the
Company to issue, sell or otherwise cause to become outstanding any of its
capital stock (including any instruments or securities convertible into capital
stock). There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
(e) SUBSIDIARIES. Section 3(e) of the Disclosure Schedule sets forth (i)
the authorized capital stock of each direct and indirect Subsidiary of the
Company and the number of issued and outstanding shares of each class of its
capital stock (or other securities), the names of the holders thereof, and the
number of shares held by each such holder, (ii) the number of shares of its
capital stock held in treasury and (iii) the nature and amount of any such
equity investment, other interest or advance. All of such shares of capital
stock of Subsidiaries directly or indirectly held by the Company have been duly
authorized, are validly issued and fully paid and nonassessable. All of the
issued and outstanding shares (or other securities) of each Subsidiary were
11
issued in compliance with all applicable federal and state securities Laws and
any other applicable Laws. The Company directly, or indirectly through wholly
owned Subsidiaries, holds of record and beneficially owns all such shares of
capital stock of the direct or indirect Subsidiaries free and clear of all
Encumbrances. Each Subsidiary is an Entity duly organized, validly existing and
in good standing (to the extent such concept is applicable in the relevant
jurisdiction) under the Laws of its state or jurisdiction of incorporation (as
listed in Section 3(e) of the Company Disclosure Schedule) and in all
jurisdictions in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification. Each Subsidiary has the full and unrestricted power and authority
to own, operate and lease its assets and to carry on the Business (and any other
business) as currently conducted (and proposed to be conducted). Dalian Fushi
has the full and unrestricted power and authority to own, operate and lease its
assets and to carry on the Business (and any other business) as currently
conducted. Other than as contemplated by the Restructuring Agreements, there are
no outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights or other contracts or commitments
that could require any Subsidiary to issue, sell or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation or similar rights with
respect to any Subsidiary. Other than as contemplated by the Restructuring
Agreements, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of any Subsidiary
(including Dalian Fushi). Other than as contemplated by the Restructuring
Agreement, neither the Company nor any of its Subsidiaries (including Dalian
Fushi) control directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association which is not a Subsidiary.
(f) DISCLOSURE DOCUMENTS; COMMON STOCK TRADING.
(i) The Company has timely filed with, or furnished to, the SEC each
form, proxy statement or report required to be filed with, or furnished to, the
SEC by the Company pursuant to the Exchange Act since July 6, 2005
(collectively, the "Disclosure Documents"), and no Disclosure Documents are
required to be filed with, or furnished to, the SEC prior to such date that were
not otherwise filed on a timely basis. The Disclosure Documents complied, as of
the date of their filing with the SEC, in all respects with the requirements of
the Securities Act, the Exchange Act and the Xxxxxxxx-Xxxxx Act of 2002 and the
rules and regulations promulgated thereunder. The information contained or
incorporated by reference in the Disclosure Documents was true, complete and
correct in all respects as of the respective dates of the filing thereof with
the SEC and, as of such respective dates, the Disclosure Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent updated or superseded by any Disclosure Document subsequently filed
by the Company with the SEC prior to the date hereof. To the knowledge of the
officers of the Company, there is no event, fact or circumstance that would
cause any certification signed by any such officer in connection with any
Disclosure Document pursuant to the requirements of the Sarbanes Oxley-Act of
2002 to be untrue, inaccurate or incorrect in any respect.
(ii) The financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with the published rules
and regulations of the SEC and in conformity with GAAP applied on a consistent
basis throughout the periods indicated therein, except as may be indicated
therein or in the notes thereto, and presented fairly, in all material respects,
the consolidated financial position of the Company and its Subsidiaries as of
the dates indicated, and the consolidated results of the operations and cash
flows of the Company and its Subsidiaries for the periods therein specified
(except in the case of quarterly financial statements for the absence of
footnote disclosure and subject, in the case of interim periods, to normal
year-end adjustments).
12
(iii) The Common Stock is validly, properly and effectively
registered under the Exchange Act in accordance with all applicable federal
securities laws and is quoted on the OTC Bulletin Board. The Company is
currently in compliance with all applicable NASD and OTC Bulletin Board
requirements and standards. There is no revocation order, suspension order,
injunction or other Proceeding or Law (whether issued by the SEC, the NASD or
other Governmental Body) affecting the effectiveness of the Company's Exchange
Act registration or the trading of the Common Stock. The consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements do not
conflict with, and will not result in any violation of, any NASD or OTC Bulletin
Board trading requirement or standard applicable to the Company or its Common
Stock.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit H are the unaudited
balance sheets and statements of income, changes in stockholders' equity and
cash flow (the "Financial Statements") as of and for the month ended September
30, 2005 (the "Most Recent Fiscal Month End") for each of the Company and Dalian
Fushi. The Financial Statements (including the notes thereto) have been prepared
in accordance with the requirements for the financial statements included in the
Company's Disclosure Documents. No Financial Statements are available for DPI
and WOFE as they are newly formed entities and have not conducted any business
as of the date hereof except for this Agreement, other Ancillary Agreements, and
the Restructuring Agreements.
(h) EVENTS SUBSEQUENT TO MOST RECENT FORM 10-QSB. Except as set forth in
Section 3(h) of the Company Disclosure Schedule and as contemplated by this
Agreement or as set forth in any Ancillary Agreement, since the filing of the
Company's Form 10-QSB for the quarterly period ended September 30, 2005, there
has not been any change in the Business, capital structure, ownership,
organizational documents, contractual relationships, financial condition,
operations, results of operations or future prospects of the Company or any of
its Subsidiaries (including Dalian Fushi).
(i) NO UNDISCLOSED LIABILITIES; NO GUARANTIES. Except as set forth on
Section 3(i) of the Company Disclosure Schedule, in the financial statements of
the Company included in the Disclosure Documents and the financial statements
attached as Exhibit H, the Company and its Subsidiaries (including Dalian Fushi)
do not have any Liabilities. Except as set forth on Section 3(i) of the Company
Disclosure Schedule, none of the Company nor any of its Subsidiaries (including
Dalian Fushi) is a guarantor or otherwise liable for any Liability (including
indebtedness) of any other Person. Neither the Company nor any of its
Subsidiaries (including Dalian Fushi) is a party to, or has any commitment to
become a party to, any agreement, contract or other arrangement associated with
off balance sheet financing.
(j) ABSENCE OF LITIGATION. Except as set forth in the Disclosure
Documents, there is no Proceeding pending or threatened by or before any
Governmental Body against the Company or any of its Subsidiaries (nor is there a
basis for any of the foregoing). As of the date hereof, there is no Proceeding
pending or, to the Company's knowledge, threatened by or before any Governmental
Body (i) seeking to prevent, hinder, modify or challenge any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements, or (ii) that
would cause any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements to be illegal, invalid, voidable or otherwise rescinded.
13
(k) TITLE TO ASSETS. Except as set forth in Section 3(k) of the Company
Disclosure Schedule, the Company or any of its Subsidiaries (including Dalian
Fushi) have good and marketable title to, or a valid leasehold interest in, free
and clear of all Encumbrances, all properties and assets (i) purportedly owned
or used by them or located on their premises, or (ii) necessary or advisable for
the conduct of the Business as currently conducted (or proposed to be
conducted). All facilities, machinery, equipment, fixtures, vehicles and other
assets and properties owned, leased or used by the Company or any of its
Subsidiaries (including Dalian Fushi) are in good operating condition and repair
(subject to ordinary wear and tear) and are reasonably fit and usable for the
purposes for which they are being used.
(l) LEGAL Compliance. Each of the Company and its Subsidiaries
(including Dalian Fushi) and their respective predecessors and Affiliates is
currently in compliance and, except to the extent that noncompliance will not
and could not reasonably be expected to have a material adverse effect upon the
Business or the financial condition of the Company and any of its Subsidiaries
(including Dalian Fushi) as currently conducted or proposed to be conducted, has
been in compliance with all applicable Laws, and no Proceeding has been filed or
commenced against any of them alleging any failure so to comply. Each of the
Company and its Subsidiaries (including Dalian Fushi) and their respective
predecessors and Affiliates will be in compliance with all applicable Laws after
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
(m) CONTRACTS. Section 3(m) of the Company Disclosure Schedule lists all
contracts and other agreements (whether written or oral) to which any of the
Company or its Subsidiaries is a party (including Dalian Fushi) pursuant to
which the Company or any of its Subsidiaries (including Dalian Fushi) is to
receive, or is obligated to pay, more than $100,000 ("Material Contracts") or
which is otherwise Material to the Company and its Subsidiaries (including
Dalian Fushi) taken as a whole, specifying for each its date and the parties
thereto, all of which are listed on Section 3(m) of the Company Disclosure
Schedule. The Company has made available to King & Wood, on behalf of the
Investors, a correct and complete copy of each written agreement or other
documentation (as amended to date) listed in Section 3(m) of the Company
Disclosure Schedule. With respect to each such agreement: (i) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements; (iii)
neither the Company nor its Subsidiaries (including Dalian Fushi) have provided
or received notice of breach or default and no event has occurred which with
notice or lapse of time could constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (iv) no
party has repudiated any provision of the agreement. The contracts and other
agreements listed in Section 3(m) of the Company Disclosure Schedule represent
all Material Contracts required or necessary for the Company and its
Subsidiaries (including Dalian Fushi) to own, operate and manage the Business as
currently conducted (or as proposed to be conducted).
(n) EMPLOYEES; EMPLOYEE BENEFITS.
(i) Except as set forth in Section 3(n) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (including Dalian
Fushi) maintain any Plans (as defined in ERISA Section 3(3)) or any obligation,
arrangement or customary practice, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, officers, employees or agents.
14
(ii) Section 3(n) of the Company Disclosure Schedule lists all
current directors and officers of the Company and each Subsidiary (including
Dalian Fushi), showing each such person's name, position, and annual
remuneration, bonuses and fringe benefits for the current fiscal year. Other
than as contemplated hereby, there are no employment agreements with any such
Persons.
(iii) To the Company's knowledge, during the past 5 years no
director or officer of the Company or any Subsidiary has: (i) been arrested or
convicted for any crime material to an evaluation of such person's ability or
integrity, including, without limitation, any violation of any federal or state
law which currently or has previously regulated the types of business in which
the Company is currently or has previously been engaged; (ii) filed a petition
under federal bankruptcy or any state insolvency laws; or (iii) been a director
or officer of a business Entity which has filed a petition under federal
bankruptcy or any state insolvency laws, or had a receiver or similar officer
appointed by a court to administer the business or property of such Entity.
(iv) With regard to employment and staff or labor management, the
Company and each Subsidiary (including Dalian Fushi) have complied with all
applicable Laws in all material respects. Neither the Company, any of its
Subsidiaries or Dalian Fushi is aware that any officer or key employee, or that
group of key employees, intends to terminate their employment with them, nor
does the Company, any of its Subsidiaries or Dalian Fushi have a present
intention to terminate the employment of any of the foregoing.
(o) INTELLECTUAL PROPERTY.
(i) Except as set forth in Section 3(o) to the Company Disclosure
Schedule, the Company and its Subsidiaries own or have a right to use all
Company Intellectual Property, free and clear of any and all Encumbrances of any
kind, except where the failure to own or have a right to use such property or
such lien or encumbrance would not have a material adverse effect upon the
Business or the financial condition of the Company and any of its Subsidiaries
(including Dalian Fushi). All Company Intellectual Property and a listing of all
names under which the Company and its Subsidiaries (including Dalian Fushi) have
operated are set forth in Section 3(o) to the Company Disclosure Schedule.
Except as set forth in Section 3(o) to the Company Disclosure Schedule, the use
of the Company Intellectual Property by the Company and its Subsidiaries
(including Dalian Fushi) does not conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including, without limitation, any intellectual property right,
trademark, trade name, domain name, patent, service xxxx, brand xxxx, brand
name, database, industrial design, trade secrets, technology, software, customer
lists, copyright or any pending application therefor of any other Person
(collectively, "Intangible Rights"), and the Company and the directors and
officers (and employees with responsibility for intellectual property matters)
of the Company and its Subsidiaries (including Dalian Fushi) do not have
knowledge of any claims thereof. Except as set forth in Section 3(o) to the
Company Disclosure Schedule, the use of all Company Intellectual Property will
not be adversely affected by the transactions contemplated in this Agreement.
(iii) The Company and its Subsidiaries (including Dalian Fushi) have
taken all reasonable and practicable steps to protect and preserve the
confidentiality of all Company Intellectual Property not subject to copyright or
patent rights ("Confidential IP Information"). Use by the Company and its
Subsidiaries (including Dalian Fushi) of Confidential IP Information not owned
by the Company and its Subsidiaries (including Dalian Fushi) have been and is
pursuant to the terms of a written agreement between the respective Company or
Subsidiary (including Dalian Fushi) and the owner of such Confidential IP
Information, or is otherwise lawful.
15
(p) NOTES AND ACCOUNTS RECEIVABLES. All notes and accounts receivable of
the Company and its Subsidiaries are reflected properly on the Financial
Statements and are valid receivables subject to no setoffs or counterclaims, are
current and collectible within 90 days after the Closing, subject only to the
reserve for bad debts set forth on the face of the balance sheet included in the
Financial Statements (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company and its Subsidiaries.
(q) TAX MATTERS.
(i) Except as set forth in Section 3(q) of the Company Disclosure
Schedule, each of the Company, its Subsidiaries and Dalian Fushi have timely
filed all Tax Returns that it was required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects at
the time of filing and were prepared in substantial compliance with all
applicable Laws. All Taxes due and owing by any of the Company, its Subsidiaries
or Dalian Fushi (whether or not shown on any Tax Return) have been timely paid.
None of the Company, its Subsidiaries, and Dalian Fushi currently is the
beneficiary of any extension of time within which to file any Tax Return. No
Proceeding has ever been commenced by any Governmental Body where any of the
Company, any of its Subsidiaries or Dalian Fushi does not file Tax Returns
asserting that the Company, its Subsidiaries, or Dalian Fushi was, is, or may be
subject to taxation by that Governmental Body. There are no Encumbrances on any
of the assets of any of the Company, its Subsidiaries or Dalian Fushi that arose
in connection with any failure (or alleged failure) to pay any Tax or file any
Tax Return.
(ii) Section 3(q) of the Company Disclosure Schedule lists all Tax
Returns filed with respect to any of the Company, its Subsidiaries or Dalian
Fushi for taxable periods ended on or after January 1, 2000, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently
are the subject of audit. Except as set forth in Section 3(u) of the Company
Disclosure Schedule, none of the Company, its Subsidiaries or Dalian Fushi has
received from any Governmental Body any (A) written notice indicating an intent
to open an audit or other review, (B) request for information related to Tax
matters, or (C) notice of deficiency or proposed adjustment for any amount of
Tax proposed, asserted, or assessed against the Company, its Subsidiaries or
Dalian Fushi. The Company has delivered to the Investors correct and complete
copies of all Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of the Company, its Subsidiaries or Dalian
Fushi since January 1, 2000.
(iii) Each of the Company, its Subsidiaries and Dalian Fushi have
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other Person.
(iv) No director or officer (or employee responsible for Tax
matters) of any of the Company, it Subsidiaries or Dallas Fushi expects any
Governmental Body to assess any additional Taxes for any period for which Tax
Returns have been filed.
(v) None of the Company, its Subsidiaries or Dalian Fushi has waived
any statute of limitations in respect of Taxes or agreed to an extension of time
with respect to a Tax assessment or deficiency.
16
(vi) None of the Company, its Subsidiaries or Dalian Fushi is a
party to or bound by any Tax allocation or sharing agreement. None of the
Company, its Subsidiaries or Dalian Fushi (A) has been a member of group of
Entities filing a consolidated Tax Return (other than a group the common parent
of which is the Company) or (B) has any liability for the Taxes of any Person as
a transferee or successor, by contract, or otherwise.
(vii) The unpaid Taxes of each of the Company and its Subsidiaries
did not, as of the Most Recent Fiscal Month End, exceed the reserve for
Liabilities pertaining to Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Financial Statements for the Most Recent Fiscal Month End.
(r) DALIAN FUSHI.
(i) As of the Closing Date, the Company and its Subsidiaries
completed a series of transactions as set forth in the Restructuring Agreements.
The Business is the only business that Dalian Fushi has been engaged in, and the
Business is the only business currently engaged in by the Company.
(ii) As a result of the Restructuring Agreements, and by the
Restructuring Completion Date, (A) WOFE shall have acquired, and Dalian Fushi
legally, validly and irrevocably shall have transferred to WOFE, in accordance
and compliance with all applicable Laws, the Business and all the properties and
other assets of Dalian Fushi as specifically identified in Section 3(r) of the
Company Disclosure Schedule (the "Acquired Assets") and as set forth in the
Restructuring Agreements, except for those certain assets separately identified
in Section 3(r) of the Company Disclosure Schedule, which assets shall remain
the property of Dalian Fushi (the "Dalian Assets"), (B) WOFE shall have acquired
those certain rights to such Dalian Assets as specified in Section 3(r) of the
Company Disclosure Schedule and as set forth in the Restructuring Agreements,
and (C) the Company is required as of the Closing Date to consolidate into its
financial statements those of DPI, WOFE and Dalian Fushi in accordance with GAAP
and as required under SEC Regulation S-X. The Acquired Assets and rights to the
Dalian Assets to be acquired by WOFE are adequate and satisfactory for the
conduct of the Business in the manner in which the Business is currently being
conducted and proposed to be conducted. Except as set forth in Section 3(r) of
the Company Disclosure Schedule, upon the Restructuring Completion Date, the
WOFE shall have good, valid and marketable title to, or a valid leasehold
interest in, all Acquired Assets and Dalian Assets free and clear of any and all
Encumbrances.
(iii) As a result of the Restructuring Agreements, and by the
Restructuring Completion Date, the Company shall have, directly or indirectly
through WOFE, acquired all rights, whether directly or indirectly through its
Subsidiaries, to the control, management and election of the Board of Directors
(or similar supervisory group) of Dalian Fushi and to otherwise operate the
Business. These rights include all rights with respect to the voting of any and
all securities of Dalian Fushi entitled to, or otherwise having the right to,
vote and to operate the Business, including any part remaining in Dalian Fushi.
(iv) As a result of the Restructuring Agreements and the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, the ownership structure and capitalization of Dalian Fushi
and WOFE will be as set forth in Section 3(r) of the Company Disclosure
Schedule, which includes for each of them its authorized/registered capital
stock and the number of issued and outstanding shares of each class of its
capital stock (or other securities), the names of the holders thereof, and the
number of shares held by each such holder
17
(v) Copies of all Restructuring Agreements used to acquire or
evidence the Acquired Assets and the rights to Dalian Assets by WOFE are
attached as Exhibit I in their final executed form. With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable, and in full
force and effect under all applicable Laws; (B) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements; (C) neither the Company nor its
Subsidiaries (including Dalian Fushi) have provided or received notice of breach
or default and no event has occurred (or would occur) which with notice or lapse
of time would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; (D) no party has repudiated
any provision of the agreement; and (E) the agreement cannot be terminated,
unwound, invalidated, voided or otherwise rescinded for any reason, event,
action or circumstance, whether as a result of the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement or
otherwise.
(vi) Dalian Fushi has obtained from the Bank of China and the
Industrial and Commerce Bank of China written consents that are required in
connection with the contemplated transactions of this Agreement, including, but
not limited to, the Restructuring Agreements. As such, the lease for the Leased
Assets contemplated under the Restructuring Agreements will be effective at
Closing.
(s) BOOKS AND RECORDS. Except as set forth in Section 3(s) to the
Company Disclosure Schedule, the books of account, minute books, equity record
books and other records of the Company and its Subsidiaries (including Dalian
Fushi), all of which have been made available to the Investors prior to Closing,
are accurate and complete in all material respects and have been maintained in
accordance with sound business practices including the maintenance of an
adequate system of internal controls (including for purposes of making the
certifications required by the Sarbanes Oxley Act of 2002 in connection with the
Disclosure Documents). Except as set forth in Section 3(s) of the Company
Disclosure Schedule, each transaction of the Company and its Subsidiaries
(including Dalian Fushi) is properly and accurately recorded on the books and
records of the respective Company or Subsidiary, and each document (including
any contract or other agreement, invoice or receipt) on which entries in the
Company's and its Subsidiaries' (including Dalian Fushi's) books and records are
based is accurate and complete in all material respects. The minute books of the
Company and its Subsidiaries contain accurate and complete records of all
meetings held of, and corporate action taken by, the Company's and its
Subsidiaries' stockholders, directors and directors' committees, respectively,
and no such meeting has been held for which minutes have not been prepared and
are not contained in such minute books.
(t) CERTAIN BUSINESS RELATIONSHIPS. Except as set forth in Section 3(t)
of the Company Disclosure Schedule, none of the Company, its Subsidiaries,
Dalian Fushi nor any their respective employees, officers, directors, agents,
representatives or Affiliates has been involved in any business arrangement or
relationship with the Company and its Subsidiaries (including Dalian Fushi)
within the past 36 months, and none of the Company, its Subsidiaries, Dalian
Fushi nor any their respective employees, officers, directors, agents,
representatives or Affiliates own any asset, tangible or intangible, which is
used in, or required or necessary for the conduct of, the businesses of the
Company and its Subsidiaries (including Dalian Fushi and the Business). There
are no loan, guarantee, cross-guarantee, pledge, credit or other similar
18
agreements, monies due, advances made or other funds transferred, between the
Companies or any of its Subsidiaries and Dalian Fushi, except those contemplated
in the Restructuring Agreements. Except as disclosed in Schedule 3(t), to the
best of Management's knowledge, none of the respective employees, officers,
directors, agents, representatives of the Company, any of its Subsidiaries or
Dalian Fushi has any direct or indirect ownership interest in any firm or
corporation with which the Company or any of its Subsidiaries (including Dalian
Fushi) is affiliated or with which the Company or any of its Subsidiaries
(including Dalian Fushi) has a business relationship, or any firm or corporation
that competes with the Company or any of its Subsidiaries (including Dalian
Fushi).
(u) PRIVATE OFFERING. Based on the representations provided by each
Investor in Section 4, the offer and sale of the Shares to each Investor is, and
the offer and sale of any Common Stock to each Investor pursuant to Section
2(c)(ii) will be, exempt from the registration and prospectus delivery
requirements of the Securities Act and any other securities Laws. Neither the
Company nor any Person acting on its behalf has offered or sold or will offer or
sell any securities, or has taken or will take any other action (including,
without limitation, any offering of securities of the Company under
circumstances that would require, under the Securities Act, the integration of
such offering with the offer and sale of the Shares) which would subject the
offer and sale of the Shares to the registration provisions of the Securities
Act.
(v) USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Shares for the purpose(s) set forth in the use of proceeds schedule attached
hereto as Exhibit J.
(w) POWERS OF ATTORNEY. Except as set forth in Section 3(w) of the
Company Disclosure Schedule, there are no outstanding powers of attorney
executed on behalf of any of the Company or its Subsidiaries (including Dalian
Fushi).
(x) BROKERS' FEES. Except as set forth in Section 3(x) of the Company
Disclosure Schedule, neither the Company not any of its Subsidiaries (including
Dalian Fushi), not any of their shareholders, employees, officer or directors)
has any Liability to pay any fees or commissions or other consideration to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement, including any Liability or obligations for which the Investors can
become liable or obligated. Except as set forth in Section 3(x) of the Company
Disclosure Schedule, any such Liability will be paid by the Company prior to the
Closing.
(y) CERTAIN BUSINESS PRACTICES. None of the Company, its Subsidiaries,
Dalian Fushi, their officers, directors (or Persons in similar positions),
agents or employees or their respective representatives or Affiliates has (a)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended (if
applicable to such Person), or (b) violated any of the provisions of Section 999
of the Code or Section 8 of the Export Administration Act, as amended (if
applicable to such Person).
(z) ENVIRONMENTAL AND SAFETY LAWS. Since their inception, neither the
Company, its Subsidiaries nor Dalian Fushi have been, in violation of any
applicable Law relating to the environment or occupational health and safety,
where such violation would have a material adverse effect on the Business or
financial condition of any of the Company, any of its Subsidiaries or Dalian
Fushi. Each of Company, its Subsidiaries and Dalian Fushi have operated all
facilities and properties owned, leased or operated by it in material compliance
with the Environmental Laws and no Hazardous Materials have been stored, used,
19
disposed of, treated, released or discharged by any of the Company, its
Subsidiaries or Dalian Fushi in violation of Environmental Laws. As used herein,
"Environmental Laws" means all applicable, Laws governing, regulating or
otherwise affecting the environment, health or safety. As used herein, the term
"Hazardous Materials" means the existence in any form of polychlorinated
biphenyls, asbestos or asbestos containing materials, urea formaldehyde foam
insulation, oil, gasoline, petroleum, petroleum products and petroleum-derived
substances (other than in vehicles operated in the ordinary course of business),
pesticides and herbicides, and any other chemical, material or substance
regulated under any Environmental Laws.
(aa) MANUFACTURING AND MARKETING RIGHTS. Except for the Restructuring
Documents, neither the Company, any of its Subsidiaries or Dalian Fushi has
granted rights to manufacture, produce, assemble, license, market or sell its
products or services to any other Person nor is bound by any agreement that
affects their exclusive right to develop, manufacture, assemble, distribute,
market or sell its products and services. There are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company, any of its Subsidiaries or Dalian
Fushi is a party or by which it or any its assets is bound that may involve (A)
provisions restricting or affecting the development, manufacture or distribution
of any their products or services, or (B) agreements not to compete with any
person or entity or not to engage in any particular line of business.
(bb) EMPLOYMENT OF WENBING XXXXX XXXX. Wenbing Xxxxx Xxxx shall remain in
the employ of Dalian Fushi in his current position for a period of one year
following Closing and shall use his best efforts to enter into an employment
agreement with the Company pursuant to Section 6(i) in form and with such terms
as acceptable to the Company and CA.
(cc) FUNDS FLOW STATEMENT. The funds flow statement provided to the
Investors and attached as Exhibit K shall be the only release instructions
provided to the Escrow Agent by the Company pursuant to the Purchase Price
Escrow Agreement at Closing.
(dd) DISCLOSURE. The representations and warranties and statements made
by the Company, Dalian Fushi and Management in this Agreement are true,
accurate, correct and complete in every respect and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained herein not false or
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor, severally and not jointly, represents and warrants to the
Company that the statements contained in this Section 4 are correct ----------
and complete as of the date of this Agreement.
(a) ORGANIZATION AND STANDING. CA represents and warrants for itself
that it is a limited partnership duly organized and validly existing under the
laws of the State of Texas, holding partnership power and authority to own,
operate and lease its assets to carry on its business as currently conducted, to
execute and deliver this Agreement and the Ancillary Agreements and to carry out
the transactions contemplated hereby and thereby. Each other Investor represents
and warrants for itself that it is a Entity duly organized and validly existing
under the laws of its jurisdiction of organization, holding power and authority
to own, operate and lease its assets to carry on its business as currently
conducted, to execute and deliver this Agreement and the Ancillary Agreements
and to carry out the transactions contemplated hereby and thereby.
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(b) AUTHORIZATION OF TRANSACTION. Each of the Investors has full
corporate or partnership power and authority, as applicable (or capacity, if an
individual), to execute and deliver this Agreement and any applicable Ancillary
Agreement and to perform its obligations hereunder and thereunder. This
Agreement constitutes the valid and legally binding obligation of the Investor,
enforceable in accordance with its terms and conditions except to the extent
that such enforcement may be limited by bankruptcy, reorganization, insolvency
and other similar Laws and court decisions relating to or affecting the
enforcement of creditors rights generally and by the application of general
equitable principles. Except as otherwise required by applicable federal or
state securities Laws, the Investors need not provide any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
Governmental Body of any other Person in order to consummate the transactions
contemplated by this Agreement or any Ancillary Agreement.
(c) BROKERS' FEES. No Investor has any Liability to pay any fees or
commissions or other consideration to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the Company or any
of its Subsidiaries could become liable or obligated.
(d) NO REGISTRATION. Other than as contemplated herein, each Investor
understands that the Shares and the shares of Common Stock issuable on the
exercise of the Warrants have not been registered under the Securities Act or
any state securities laws and will be issued in reliance upon exemptions
contained in the Securities Act or interpretations thereof and in the applicable
state securities laws, and cannot be offered for sale, sold or otherwise
transferred unless the Shares and the shares of Common Stock issuable on the
exercise of the Warrants subsequently are so registered or qualify for exemption
from registration under the Securities Act.
(e) ACQUISITION FOR INVESTMENT. The Shares and Warrants are being
acquired under this Agreement by each Investor in good faith solely for its own
account, for investment and not with a view toward distribution within the
meaning of the Securities Act. The Shares and Warrants will not be offered for
sale, sold or otherwise transferred by the Investor without either registration
or exemption from registration under the Securities Act and any applicable state
securities laws.
(f) RISKS OF INVESTMENT. Each Investor understands and is able to bear
any economic risks associated with such investment (including, without
limitation, holding the Shares and the shares of Common Stock issuable on the
exercise of the Warrants until the effectiveness of a registration statement
covering the Shares filed under the Securities Act).
(g) ACCREDITED INVESTOR STATUS. Each investor is an "accredited
investor" within the meaning of Rule 502 of Regulation D promulgated under the
Securities Act.
(h) DISCLOSURE OF INFORMATION. Each Investor has had full access to all
the information they consider necessary or appropriate to make an informed
investment decision with respect to the Shares and Warrants to be purchased
under this Agreement. Each Investor further has had an opportunity to ask
questions and receive answers from the Company and Dalian Fushi regarding the
Business and of the Company regarding the terms of the offering of the Shares
and Warrants and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to any Investor or to
which such Investor had access. Each Investor has not relied on any oral
representation made by the Company, Dalian Fushi or any Subsidiary or any
officer, director, employee or agent of any of them.
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(i) INVESTMENT EXPERIENCE. Each Investor understands the risks of
investing in companies domiciled in the People's Republic of China and that the
purchase of the Shares and Warrants involves substantial risk.
5. REGISTRATION RIGHTS.
(a) REGISTRATION BY THE COMPANY.
(i) Mandatory Registration. In addition to the registration
statement filed by the Company under the Securities Act for the registration of
the Common Stock issuable upon conversion of the Series B acquired by the
Investors at Closing (as required by Section 6(m)):
(A) in the event additional shares of Common Stock are
issuable pursuant to Section 2(c)(ii) the Company shall file a registration
statement (or a post-effective amendment to the registration required by Section
6(m)) to register such additional Shares) with the SEC under the Securities Act
for the registration of the Shares as promptly as practicable, but in no event
later than 30 days, after the determination of the issuance of the Shares
pursuant to Section 2(c)(ii); and
(B) any Investor acquiring shares of Common Stock (including
issuable upon conversion of shares of Series A) pursuant to Section 8(b) under
the Stock Escrow Agreement may request registration of such securities and the
Company shall file a registration statement (or a post-effective amendment to
the registration required by Section 6(m)) to register such additional
securities) with the SEC under the Securities Act for the registration of the
securities as promptly as practicable, but in no event later than 30 days after
receipt of the Investor's request.
(ii) Registration Statement Form. Registrations under this Section
5(a) shall be on Form S-3 or such other appropriate registration form of the SEC
as shall be reasonably selected by the Company and approved by CA, which
approval shall not be unreasonably withheld. The Company shall provide drafts of
the Registration Statement proposed to be filed by it to the Investors in
advance of the filing thereof and provide the Investors with a reasonable amount
of time to review and comment on the same prior to its filing.
(iii) Effective Registration Statement. A registration required
pursuant to this Section 5(a) shall not be deemed to have been effected unless
the Registration Statement has been declared effective by the SEC and has
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all of the Shares covered by such Registration
Statement until such time as all of the Shares have been disposed of in
accordance with the intended methods of disposition by each Investor set forth
in such Registration Statement (unless the failure to so dispose of such Shares
shall be caused solely by reason of a failure on the part of the Investors).
(iv) Expenses; Taxes. All expenses (other than fees of counsel to
the Investors) incurred in connection with registrations, filings or
qualifications of Shares pursuant to this Section 5, including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company.
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(b) PRIORITY REGISTRATIONS. Notwithstanding anything else set forth
herein and subject to the limitations set forth below, the Registration
Statement may include, in addition to the Shares, the shares of Common Stock
that may be acquired by Xxxxx X. Little pursuant to the exercise of a warrant
acquired by him under that certain Consulting Agreement, dated November 18,
2005, which shares shall constitute no more than 0.4% of the capitalization of
the Company as set forth in Section 3(r) of the Company Disclosure Schedule;
provided, however, (i) that any such inclusion shall not affect the rights of
the Investors pursuant to this Section 5; and (ii) if the Company fails to
provide Mr. Little sufficient notice regarding, or take appropriate actions to
include Mr. Little's shares in, the Registration Statement, such failure shall
in no way affect, change or delay, and Mr. Little shall have no rights
regarding, the registration procedures described in this Section 5.
(c) REGISTRATION PROCEDURES. The Company shall, as expeditiously as
possible:
(i) use its best efforts to cause the Registration Statement filed
pursuant to Section 6(m) to be declared effective by the SEC within 90 days and
not later than 120 days from the date of the initial filing;
(ii) prepare and file with the SEC any other requisite Registration
Statement pursuant to Section 5(a) and thereafter use its best efforts to cause
such Registration Statement to be declared effective by the SEC within 90 days
and not later than 120 days from the date of the initial filing;
(iii) with regard to (i) and (ii), after the 120th day after the
date of the initial filing, and for each 30-calendar day period thereafter in
which the Registration Statement fails to be declared effective, the Company
shall issue to each Investor a number of shares of Common Stock equal to 3% of
such Investor's Shares covered by such Registration Statement at that time,
which Shares shall be included in the Registration Statement and used in the
calculation of any additional issuance pursuant to this Section 5(c)(iii);
(iv) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
the Shares covered by such Registration Statement until the earlier of the time
as all of such Shares have been disposed of in accordance with the intended
methods of disposition by the Investors set forth in such Registration Statement
or the date that the Shares are eligible for resale pursuant to the provisions
of Rule 144 under the Securities Act;
(v) furnish to the Investors' counsel copies of any correspondence
between the Company and the SEC with respect to such Registration Statement or
amendments or supplements thereto filed pursuant to this Section 5.
(vi) furnish such number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents, as the Investors may reasonably require.
23
(vii) use its best efforts to (A) register or qualify the Shares
under such other securities or blue sky laws of such states and jurisdictions
where an exemption is not available and as the Investors shall reasonably
request, (B) keep such registration or qualification in effect for so long as
such Registration Statement remains in effect, and (C) take any other action
which may be reasonably necessary or advisable to enable the Investors to
consummate the disposition in such jurisdictions of the securities to be sold by
the Investors, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(vii) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction;
(viii) use its best efforts to cause all Shares covered by such
Registration Statement to be registered with or approved by such other federal
or state governmental agencies or authorities as may be necessary in the opinion
of counsel to the Company and counsel to the Investors to enable the Investors
to consummate the disposition of such Shares;
(ix) notify the Investors at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and at the request of
the Investors promptly prepare and furnish to it a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(x) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC;
(xi) provide and cause to be maintained a transfer agent and
registrar for all the Shares covered by such Registration Statement from and
after a date not later than the effective date of such registration;
(xii) provide a CUSIP number for all Shares covered by such
Registration Statement not later than the effective date of the Registration
Statement;
(xiii) use its best effort to avoid the issuance of, or if issued,
to obtain the withdrawal of, any order enjoining or suspending the use or
effectiveness of such Registration Statement or suspending the qualification (or
exemption from qualification) of any of the Shares for sale in any jurisdiction,
as promptly as reasonably practicable; and
(xiv) use its best efforts to list the Shares on the American Stock
Exchange or any other national securities exchange on which the shares of the
same class covered by such Registration Statement are then listed or for which
the Shares and the Company qualifies, and, if no such shares are so listed, on
any national securities exchange on which the Common Stock is then listed.
24
Each Investor agrees by acquisition of the Shares that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (ix) of this Section 5(c), such holder will forthwith discontinue
such disposition of the Shares pursuant to the Registration Statement until
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (ix) of this Section 5(c) and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies of
the prospectus then in such holder's possession relating to the Shares current
at the time of receipt of such notice, other than permanent file copies.
(d) LOCK-UP. After the effectiveness of a Registration Statement
pursuant to Section 6(m), each Investor agrees to enter into standard lock-up
agreement restricting the sale of 50% of each Investor's Shares covered by such
Registration Statement for a period of time not to exceed 18 months from the
date of effectiveness of the Registration Statement, the terms and form of which
agreement shall be mutually agreeable among the Investors and the Company.
(e) INDEMNIFICATION.
(i) Indemnification by the Company. With regard to any Registration
Statement, the Company, Dalian Fushi and Management will, and hereby do, jointly
and severally, indemnify and hold harmless each Investor and its respective
directors, officers, partners, agents and Affiliates, against any Adverse
Consequences, joint or several, to which such Investor or any such director,
officer, partner, agent, Affiliate or controlling person may become subject
under the Securities Act or otherwise, including, without limitation, the fees
and expenses of legal counsel, insofar as such any Adverse Consequences arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company will reimburse such Investor and each such director,
officer, partner, agent, Affiliate and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such any Adverse Consequences; provided, however, that the Company
shall not be liable in any such case to the extent that any such any Adverse
Consequences arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Investor,
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Investor or any such director, officer, partner,
agent, Affiliate or controlling person and shall survive the transfer of such
securities by the Investor.
(ii) Indemnification by the Investors. As a condition to including
the Shares in the Registration Statement, each Investor will, and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 5(e)(i)) each other Investor, the Company, and each director of
the Company and each officer of the Company, with respect to any statement or
alleged statement in or omission or alleged omission from such Registration
Statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such Investor
specifically stating that it is for use in the preparation of such Registration
Statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement; provided, however, that the Liability of such
indemnifying party under this Section 5(e)(ii) shall be limited to the amount of
net proceeds actually received by such indemnifying party giving rise to such
Liability.
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(v) Other Indemnification. Indemnification and contribution similar
to that specified in the preceding subdivisions of this Section 5(e) (with
appropriate modifications) shall be provided by the Company and each Investor
with respect to any required registration or other qualification of securities
under any federal or state law or regulation of any governmental authority other
than the Securities Act.
(vi) Indemnification Payments. The indemnification and contribution
required by this Section 5(e) shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or Adverse Consequence is incurred.
6. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing.
(a) GENERAL. In case at any time after the Closing any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under this
Agreement).
(b) AMERICAN STOCK EXCHANGE. Promptly following Closing, the Company,
with the assistance of CA, shall prepare and submit a listing application to the
American Stock Exchange and use its reasonable best efforts to have such listing
approved and effective as soon as practicable after the effectiveness of the
Registration Statement filed pursuant to Section 6(m).
(c) BOARD OF DIRECTORS. Within 90 days following Closing, the Company
and the current management and stockholders of Dalian Fushi shall, after
consultation with CA and the other Investors, nominate a seven person Board of
Directors of the Company and take all actions and obtain all consents,
authorizations and approvals which are required to be obtained in order to
effect the election of such Persons. Of such seven member Board of Directors,
(i) two members shall be members of the current management of Dalian Fushi, (ii)
one member shall represent Xxxxx Brothers, Inc., the Company's investment
bankers, pursuant to an existing agreement, (iii) and at least four members
shall be independent directors as determined pursuant to the American Stock
Exchange Company Guide (which requirement may be waived or amended by Investors
representing a majority of the outstanding Shares then held by Investors
majority of the Investors if the Company is unable to obtain a listing of its
Common Stock on the American Stock Exchange within six months following the
Closing or such other period of time as acceptable to CA). The member to be
elected chairman of the audit committee and the member to be elected
vice-chairman of the board (who will also serve as chairman of the corporate
governance committee) must be approved in advance by CA, which approval not to
be unreasonably withheld. Each director's compensation shall be determined after
consultation with the Investors.
(d) BOARD OF Advisors. Promptly following Closing, and in addition to
its Board of Directors, the Company shall establish a five-member board of
advisors consisting of the individuals set forth in Section 6(d) of the Company
Disclosure Schedule. If for any reason one or more of these individuals is
unable or unwilling to serve on the initial board of advisors, the Company shall
consult with CA as to substitute member(s) and any substitute member(s) must be
approved in advance by CA, which approval not to be unreasonably withheld.
26
(e) CHIEF FINANCIAL OFFICER. Promptly following Closing, the Company
shall retain a chief financial officer acceptable to, and after consultation
with, CA; provided, however, that retention of Dalian Fushi's current chief
financial officer as the Company's chief financial officer under an employment
agreement pursuant to Section 6(i) shall satisfy this Section 6(e).
(f) NAME CHANGE; REVERSE STOCK SPLIT. Promptly following Closing, the
Company shall take all actions and obtain all consents, authorizations and
approvals, including any Governmental Authorizations, which are required to be
obtained in order to (i) change the name of the Company to a name selected by
and acceptable to the Company and CA, and (ii) effect a reverse stock split of
the Common Stock so that the Company has a sufficient number of authorized and
unissued shares of Common Stock, the details of which are set forth in Section
6(f) of the Company Disclosure Schedule, to permit the conversion of all
outstanding shares of Series B acquired by the Investors pursuant to this
Agreement.
(g) EMPLOYEE STOCK OWNERSHIP PLAN. The Company shall reserve for
issuance 20,000,000 shares of Common Stock under an approved and qualified
employee stock ownership plan, terms of which shall be determined by the
compensation committee of the Board of Directors of the Company (as constituted
pursuant to Section 6(c)).
(h) EXECUTIVE SEARCH. Promptly following the Closing, the Company shall
retain one or more independent professional executive search firm, each as
acceptable to CA and selected from a list of proposed firms provided by CA, to
assist in the recruitment for the members to be added to the Board of Directors
of the Company pursuant to Section 6(c).
(i) EMPLOYMENT AGREEMENTS. The Company shall use its best efforts to
promptly enter into employment agreements with Wenbing Xxxxx Xxxx and the other
members of Management as designated and by, with such terms as acceptable to,
CA.
(j) TRANSFER OF DALIAN FUSHI EMPLOYEES. The Company, WOFE and Dalian
Fushi shall use their best efforts to promptly transfer the employment of all
employees of Dalian Fushi to WOFE in accordance with applicable Laws. WOFE will
enter into an employment agreement with each such transferred employee (the
terms of which shall be acceptable to CA) and pay all social security,
insurance, housing and other applicable fees and costs required under applicable
Law.
(k) COMPLIANCE WITH LAW. The shareholder(s) of the WOFE shall comply
with Bulletin No. 75 Notice issued by the PRC State Administration of Foreign
Exchange, including but not limited to, the obligation to file disclosure forms
with respect to their ownership status in the Company on or before March 31,
2006, and the obligation to transfer any dividends or profits they received
offshore to the PRC within 180 days upon the receipt of such dividends or
profits.
(l) COMPLETION OF RESTRUCTURING. Commencing at the Closing, the Company,
WOFE and Dalian Fushi shall use their best efforts to complete in all respects
the restructuring and related transactions contemplated by the Restructuring
Agreements, including without limitations, by taking the following actions and
obtaining the following approvals and certificates under applicable Laws, all of
which shall be completed within 15 days of the Closing (the "Restructuring
Completion Date"):
(i) WOFE shall obtain an audit of its registered capital by an
accounting firm duly qualified to conduct such audits in the People's Republic
of China and a capital verification report from such firm (the "Capital
Report");
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(ii) WOFE shall file the Capital Report with the PRC State
Administration for Industry and Commerce in Dalian, People's Republic of China;
(iii) Immediately following the registered capital verification
process is completed, WOFE shall transmit to Dalian Fushi the full purchase
price for the assets to be purchased by it under the Restructuring Agreements
and upon receipt of the purchase price, the title for the Acquired Assets will
be transferred to WOFE;
(iv) WOFE shall arrange for, and have completed, an environmental
report and inspection with respect to the machinery and equipment purchased by
the WOFE pursuant to the Restructuring Agreements and as required under
applicable Laws;
(v) Dalian Fushi shall commence the patent transfer procedure as
contemplated in the Restructuring Agreements, which procedure is estimated to
take three to five months to complete; prior to the effectiveness of the patent
transfer, the Company and its Subsidiaries shall have the exclusive legal right,
royalty free, to use all of the patents specified in the Restructuring
Agreements. Dalian Fushi shall execute any license agreements required by the
Company that the Company deems necessary or advisable;
(vi) WOFE shall obtain a new business license allowing it to conduct
the Business;
(vii) Dalian Fushi shall arrange for, and have completed, the
granting of a secondary lien on the Leased Assets to WOFE (only up to the amount
permissible under applicable Laws);
(viii) Dalian Fushi shall send a written notice to its existing
customers seeking consent to the assignment of all contracts of Dalian Fushi to
WOFE. Dalian Fushi shall use its best efforts to obtain such consent. To the
extent that customers agree to the assignment, Dalian Fushi shall assign and
transfer all such contracts to WOFE; to the extent that customers do not agree
to assign the contracts to WOFE, Dalian Fushi shall perform the contracts with
WOFE's assistance as specified under the Restructuring Agreements and continue
to seek such consents;
(ix) As soon as the new business license for WOFE is obtained, WOFE
and Dalian Fushi shall complete for WOFE the tax registration with, and obtain a
tax certificate from, the tax bureau;
(x) As soon as the new business license for WOFE is obtained, WOFE
and Dalian Fushi shall complete the registration with customs authorities, if
applicable; and
(xi) WOFE and Dalian Fushi shall complete other registrations and
filings with such competent authorities that are necessary for the conduct of
the Business by the Company and its Subsidiaries and required by applicable
Laws.
(m) FILING OF REGISTRATION STATEMENT. The Company shall file a
Registration Statement with the SEC under the Securities Act for the
registration of the Common Stock issuable upon conversion of the Series B
acquired by the Investors within 5 days after the Closing Date under this
Agreement in a form and with disclosure acceptable to the Investors.
(n) COMPANY BYLAWS. The Company shall use its best efforts to obtain
shareholder approval for, and take all steps necessary to adopt, amended and
restated bylaws reasonably acceptable to CA within 60 days after the Closing,
and prepare and file a preliminary Schedule 14C information statement relating
to the adoption and amendment of the Company bylaws within 15 days from the
Closing Date.
28
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE INVESTORS. The obligation of each of
the Investors to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 shall
be true and correct in all material respects (for purposes of this Section, any
representation or warranty that is qualified by a materiality standard shall be
read without regard to any such materiality qualification as if such
qualification were not contained therein);
(ii) the certificate of designation containing the terms of the
Series B as set forth in Exhibit A shall be duly authorized, adopted, filed and
otherwise made effective;
(iii) the certificate of designation containing the terms of the
Series A Preferred Stock of the Company as set forth in Exhibit A shall be duly
authorized, adopted, filed and otherwise made effective;
(iv) the Company shall have filed a Current Report on Form 8-K with
the SEC under the Exchange Act relating to the acquisition and leasing of assets
of, and certain additional rights of and to, Dalian Fushi, the disclosure of
which shall be in the form required by the SEC and otherwise reasonably
acceptable to the Investors and in compliance in all material respects with the
disclosure requirements under applicable Laws;
(v) the Company shall have completed an audit on the Company and its
Subsidiaries (including Dalian Fushi) conducted by Xxxxx X. Xxxxxx & Co. for the
fiscal years ended December 31, 2004 and December 31, 2003, and the Company
shall have received an unqualified audit opinion;
(vi) the Company shall have obtained a shareholder approval for the
reverse split and name change and shall have filed a preliminary Schedule 14C
information statement relating to the reverse stock split and the name change
contemplated in Section 6(f) in a form and with disclosure acceptable to the
Investors;
(vii) the Company shall have completed a share exchange with all of
the stockholders of DPI, whereby the Company shall become the sole owner of DPI
and sole indirect owner of WOFE;
(viii) Dalian Fushi shall have completed an amendment to the stock
purchase agreement dated as of November 28, 2005, between Dalian Fushi and Xxxxx
Xxxxxx pursuant to which Mr. Little agrees to receive his purchase price from
the proceeds under this Agreement;
(ix) the Company, Dalian Fushi and Management shall have delivered
to the Investors a certificate to the effect that each of the conditions
specified in Section 7(a)(i)-(viii) is satisfied in all respects;
29
(x) the Company shall have delivered to the Investors the funds flow
statement pursuant to Section 3(cc), which statement is acceptable to the
Investors and shall be signed by Xxxxx Xxxxxx;
(xi) the Restructuring Agreements attached as Exhibit I shall be in
a form and with such terms as acceptable to the Investors;
(xii) the Investors shall have received the Ancillary Agreements
executed by the Company, Dalian Fushi, Management and the Series A holders, as
applicable;
(xiii) the Investors shall have received from U.S. counsel to the
Company an opinion in form and substance as set forth in Exhibit M, addressed to
the Investors, and dated as of the Closing Date;
(xiv) the Investors shall have received from Chinese counsel to the
Company an opinion in form and substance as set forth in Exhibit N, addressed to
the Investors, and dated as of the Closing Date; and
(xv) all actions to be taken by the Company in connection with
consummation of the transactions contemplated by this Agreement and all
certificates, opinions, instruments and other documents reasonably required to
effect the transactions contemplated hereby will be reasonably satisfactory in
form and substance to the Investors.
The Investors may waive any condition specified in this Section 7(a) if they
execute a writing so stating at the Closing.
(b) CONDITIONS TO OBLIGATION OF THE COMPANY, DALIAN FUSHI AND
MANAGEMENT. The obligation of the Company, Dalian Fushi and Management to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4 shall
be true and correct in all material respects (for purposes of this Section, any
representation or warranty that is qualified by a materiality standard shall be
read without regard to any such materiality qualification as if such
qualification were not contained therein);
(ii) the Investors shall have delivered to the Company a certificate
to the effect that the condition specified above in Section 7(b)(i) is satisfied
in all respects;
(iii) the Company shall have received the Ancillary Agreements
executed by the Investors, as applicable; and
(iv) all actions to be taken by the Investors in connection with
consummation of the transactions contemplated hereby and all certificates,
instruments, and other documents reasonably required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company.
30
The Company may waive any condition specified in this Section 7(b) if it
executes a writing so stating at the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the representations,
warranties, covenants, indemnities and other agreements contained in this
Agreement shall survive two years from the effective date of the Registration
Statement filed pursuant to Section 6(m).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE INVESTORS. In addition
to any indemnification under Section 5, in the event the Company, Dalian Fushi
or Management breaches any of its representations, warranties and covenants
contained herein (ignoring for purposes of determining whether or not any such
breach has occurred any materiality qualifiers), the Company, Dalian Fushi and
Management, jointly and severally, agree to indemnify, defend and hold harmless
the Investors and any of their directors, officers, employees, agent,
representatives or Affiliates (each, an "Indemnified Party") from and against
the entirety of any Adverse Consequences the Investors may suffer through and
after the date of the claim for indemnification resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
The aggregate Liability of the Company and Dalian Fushi under this Section 8(b)
shall be limited as to each Investor to the amount of the Purchase Price paid by
such Investor as set forth on Exhibit C; provided, however, that this limitation
on Liability shall not apply to any indemnification of the Investors pursuant to
Section 5. To satisfy any rights to indemnification pursuant to this Section 8
or Section 5, claims by the Indemnified Party may be made for (i) cash or (ii)
Dual Purposes Escrow Shares pursuant to the terms and provisions of the Stock
Escrow Agreement, in each case at the option and in the sole discretion of the
Indemnified Party. Notwithstanding anything to the contrary in this Agreement,
none of the Indemnified Parties shall be entitled to assert any right to
indemnification under this Section 8(b) until the aggregate Liability relating
to any Adverse Consequences claimed by one or more of the Indemnified Parties
exceeds $100,000 (whether resulting from one claim or a series of claims,
separate or related), and in such event the Indemnified Parties shall be
entitled to recover the full amount of all such Liability from the first dollar
without regard to the $100,0000 minimum threshold and this minimum threshold
shall not apply to any subsequent claims by the Indemnified Parties under this
Section 8(B).
(c) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Indemnified Party with
respect to any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under Section
5 or this Section 8, then each Indemnified Party shall promptly notify the
Indemnifying Party thereof in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is actually and materially
prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
31
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii), (A) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (B) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Parties need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in Section 5 or this Section 8, as applicable.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. The Company shall not issue
any press release or make any public announcement relating to the subject matter
of this Agreement prior to or in the 90 days subsequent to the Closing without
the prior written approval of CA; provided, however, that a Party's failure to
object to any press release or public announcement within two business days of
notice of a proposed press release or public announcement, such notice to be
delivered pursuant to Section 9(g), shall be deemed approval; provided, further,
that any Party may make any public disclosure it believes in good faith is
required by applicable Law or regulation or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Parties prior to making the
disclosure).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including any Ancillary
Agreements) constitutes the entire agreement among the Parties and supersedes
any prior understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
32
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that any Investor may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Investor shall no longer
remain responsible for the performance of all of its obligations hereunder).
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, consents, waivers and other communications
under this Agreement must be in writing and will be deemed given to a Party when
(a) delivered to the appropriate address by hand or by nationally recognized
overnight courier service (costs prepaid), (b) sent by facsimile or e-mail with
confirmation of transmission by the transmitting equipment, or (c) received or
rejected by the addressee, if sent by certified mail, return receipt requested;
in each case to the following addresses, facsimile numbers or e-mail addresses
and marked to the attention of the individual (by name or title) designated
below (or to such other address, facsimile number, e-mail address or individual
as a party may designate by notice to the other parties):
If to the Investors:
Chinamerica Fund, L.P.
0000 Xx. Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxx 00000
Attention:
Xxxxxxxxxxx Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: Xxxxx@xxxxxxxxxxx.xxx
with a copy (which shall not constitute notice) to:
Xxxxx & XxXxxxxx LLP
Pennzoil Place, South Tower
711 Louisiana, Suite 3400
Attention: Xxxxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: 427-5099
E-mail: xxxxxxxx.x.xxxxxx@Xxxxxxxx.xxx
If to the Company, Dalian Fushi or Management:
Parallel Technologies, Inc.
000 Xxxx Xxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxx.xxx
33
with a copy (which shall not constitute notice) to:
Guzov Ofsink, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxx.xxx
(h) CONTROLLING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
choice of law provisions, statutes, regulations or principles of this or any
other jurisdiction. Each Party hereby irrevocably submits to the exclusive
jurisdiction (including personal jurisdiction) of the state and federal courts
of the State of Texas for any action, suit or proceeding arising in connection
with this Agreement, and agrees that any such action suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
conveniens or any other jurisdiction to venue therein). Process in any
Proceeding under this Agreement may be served on any Party anywhere in the
world. Notwithstanding the foregoing, nothing in this Agreement shall preclude
the Investors the right to commence Proceedings relating to this Agreement in
any foreign jurisdiction, including the People's Republic of China.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Company, CA and Investors representing a majority of the outstanding Shares then
held by the Investors. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. Furthermore, in lieu of such invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
(k) EXPENSES. The Company shall bear all costs and expenses relating to
the acquisition of assets of, and certain additional rights of and to, Dalian
Fushi. The Company shall pay CA's out-of-pockets costs and expenses in
connection with the transactions contemplated by this Agreement and any
Ancillary Agreement (including legal fees and expenses of legal counsel to the
Investors) up to a maximum of $25,000. Except as otherwise provided in this
Section 9(k) or elsewhere in this Agreement, each of the Parties will bear his
or its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
34
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the Investors would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the Investors shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
(o) DISPUTES; ARBITRATION. Subject to Section 9(n), any issue, dispute,
Proceeding or controversy arising out of or relating to this Agreement (or any
Ancillary Agreement), its alleged breach or its subject matter (a "Dispute")
shall be resolved pursuant to this Section 9(o).
(i) Any Dispute shall first be referred to CA as a representative of
the applicable Investors and a representative of the Company who has authority
to settle the controversy for resolution between such Parties, if possible.
Those Persons may, if they desire, consult outside experts or a mutually
respected disinterested Person for assistance in arriving at a resolution.
(ii) If any Dispute cannot be resolved after good faith negotiation,
either Party or the Indemnifying Party or its applicable Affiliate, may, by
written notice ("Arbitration Notice") to the other, demand to have the claim
finally and exclusively settled by confidential and binding arbitration in
Houston, Texas, governed by the laws of the State of Texas and in accordance
with the commercial rules of arbitration of the American Arbitration Association
in effect at that time. A total of three arbitrators shall be appointed. Within
10 days after dispatch of the Arbitration Notice, each of the applicable
Investors and the Company shall appoint one arbitrator, and the two so chosen
shall select a third within 15 days of the expiration of the 10-day period. Each
arbitrator shall have at least 10 years of experience in an industry or
profession related to the subject matter involved in the Dispute, and all
arbitration proceedings shall be held, and a transcribed record thereof shall be
prepared, in English. Neither Party involved in the arbitration shall have the
right to conduct discovery of the other (except as the arbitrators may so order
on the application of either Party), but shall furnish to the arbitrators such
information as the arbitrators may reasonably request to facilitate the
resolving of the Dispute. The arbitrators shall announce the award and the
reason therefor in writing within three months from the date of the selection of
the third arbitrator, or such later date as the Parties may agree upon in
35
writing. The losing Party on a specific claim or counterclaim shall bear all
expenses of the arbitration, including those relating to the arbitrators, and
attorney's fees, experts and presentation of proof with respect to that claim or
counterclaim. Any award granted by the arbitrators shall be final and binding
upon the Parties and shall constitute the sole and exclusive remedy for any
dispute between the Parties. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The Parties expressly
submit to the non-exclusive jurisdiction of the courts of the United States of
America for the enforcement of any arbitration award.
(iii) Notwithstanding the foregoing provisions of this Section 9(o),
in the event there is a good faith conflict of interest among two or more
Investors relating to any Dispute, this Section 9(o) shall not apply to such
Investors individually, and separate arbitration Proceedings may occur, to the
extent necessary.
(Remainder of page intentionally left blank)
36
The Parties have executed and delivered this Agreement as of the date
indicated in the first sentence of this Agreement.
PARALLEL TECHNOLOGIES, INC.
By: /s/ Xx Xx
----------------------------------
Name: XX XX
Title: CEO
DALIAN FUSHI BIMETALLIC MANUFACTURING
COMPANY, LTD.
By: /s/ Xx XX
----------------------------------
Name: XX XX
Title: CEO
MANAGEMENT OF DALIAN FUSHI BIMETALLIC
MANUFACTURING COMPANY, LTD.
/s/ Xx Xx
-------------------------------------
Xx Xx
/s/ Xxxx Xxx
-------------------------------------
Xxxx Xxx
/s/ Yang Xishan
-------------------------------------
Yang Xishan
/s/ Xxxxxxx Xx
-------------------------------------
Xxxxxxx Xx
/s/ Wenbing Xxxxx Xxxx
-------------------------------------
Wenbing Xxxxx Xxxx
(Signatures continue on following page)
37
THE INVESTORS
CHINAMERICA FUND, LP
By:/s/ Xxxx Xxxxxxx
-------------------------------------
Name: Xxxx Xxxxxxx
----------------------------
Title: Managing Director
---------------------------
CHINAMERICA DALIAN FUSHI
ACQUISITIONS, LLC
By:/s/ Xxxx Xxxxxxx
-------------------------------------
Name: Xxxx Xxxxxxx
----------------------------
Title: Managing Director
---------------------------
XXXXXX PARTNERS LP
By: /s/ Xxxxxx Xxxxxx
-------------------------------------
Name: Xxxxxx Xxxxxx
----------------------------
Title: Managing Partner
----------------------------
RENAISSANCE US GROWTH INVESTMENT
TRUST
By: /s/ Xxxxxxx Xxxxxxxxx
----------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President, XXXX Capital
Group, Investment Adviser
BFS US SPECIAL OPPORTUNITIES TRUST
PLC
By: Xxxxxxx Xxxxxxxxx
----------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President, XXXX Capital
Group, Investment Adviser
(Signatures continue on following page)
38
ENABLE GROWTH PARTNERS LP
By:__________________________________
Name:_____________________________
Title:____________________________
ENABLE OPPORTUNITY PARTNERS LP
By:__________________________________
Name:_____________________________
Title:____________________________
LAKE STREET FUND LP
By: /s/ Xxxxx Xxxx
----------------------------------
Name: Xxxxx Xxxx
Title: Manager
WEDBUSH SEC INC. CUST.
XXX ROLLOVER 10/13/92
By: /s/ Xxxx X. Xxxxxx
----------------------------------
Name: Xxxx X. Xxxxxx
Title: Owner
XXXX ASSET MANAGEMENT LLC
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
39
EXHIBIT A
CERTIFICATES OF DESIGNATIONS, PREFERENCES AND RIGHTS
FOR SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK
(See Exhibits 3.4 and 3.5 to this Form 8-K)
A-1
EXHIBIT B
FORM OF WARRANT
(See Exhibit 4.2 to this Form 8-K)
B-1
EXHIBIT C
INVESTORS
PERCENTAGE
SHARES OF OF NUMBER OF
SERIES B COMMON STOCK OUTSTANDING SHARES
CONVERTIBLE ISSUABLE UPON VOTING ISSUABLE
PREFERRED CONVERSION CAPITAL UPON
NAMES OF PURCHASE PERCENTAGE STOCK POST REVERSE STOCK POST EXERCISE
INVESTORS PRICE AMONG GROUP PURCHASED SPLIT REVERSE SPLIT OF WARRANT
--------------------------------------------------------------------------------------------
Chinamerica $1,700,000 0.141666667 30,518.52 602,083.3333 0.030104167 301,041.67
Fund, LP
--------------------------------------------------------------------------------------------
Chinamerica
Dalian Fushi
Acquisitions,
LLC $1,000,000 0.083333333 17,952.07 354,166.67 0.017708333 177,083.33
--------------------------------------------------------------------------------------------
Xxxx Asset
Management LLC $3,500,000 0.291666667 62,832.25 1,239,583.333 0.061979167 619,791.67
--------------------------------------------------------------------------------------------
Renaissance US
Growth
Investment
Trust $1,000,000 0.083333333 17,952.07 354,166.67 0.017708333 177,083.33
--------------------------------------------------------------------------------------------
BFS US Special
Opportunities
Trust PLC $1,000,000 0.083333333 17,952.07 354,166.67 0.017708333 177,083.33
--------------------------------------------------------------------------------------------
Enable Growth
Partners LP $600,000 0.05 10,771.24 212,500.00 0.010625 106,250.00
--------------------------------------------------------------------------------------------
Enable
Opportunity
Partners LP $150,000 0.0125 2,692.81 53,125.00 0.00265625 26,562.50
--------------------------------------------------------------------------------------------
Lake Street
Fund LP $700,000.00 0.058333333 12,566.45 247,916.67 0.012395833 123,958.33
--------------------------------------------------------------------------------------------
Xxxx X. Xxxxxx $350,000.00 0.029166667 6,283.22 123,958.33 0.006197917 61,979.17
--------------------------------------------------------------------------------------------
Xxxxxx
Partners LP $2,000,000 0.166666667 35,904.14 708,333.33 0.035416667 354,166.67
--------------------------------------------------------------------------------------------
Total 215,424.84 4,250,000.00 0.2125000 2,125,000
----- ---------- ------------ ----------- ----------
X-0
XXXXXXX X
(Xxxxxxxxxxxxx Xxxxxxx)
X-0
EXHIBIT E
STOCK ESCROW AGREEMENT
(See attached)
E-1
EXECUTION COPY
STOCK ESCROW AGREEMENT
This Stock Escrow Agreement (this "Agreement") is made as of December 13,
2005, by and among Parallel Technologies, Inc., a Nevada corporation (the
"Company"), Dalian Fushi Bimetallic Manufacturing Company, Ltd., a company
organized under the laws of the People's Republic of China ("Dalian Fushi"), the
persons listed on the signature pages hereto as the Series A Convertible
Preferred Shareholders of the Company (the "Series A Holders"), Chinamerica
Fund, LP, a Texas limited partnership ("CA"), the other investors listed on the
signature pages hereto (CA and the other investors shall be referred to
individually as an "Investor" and collectively as the "Investors") and Gateway
National Bank, N.A., as the escrow agent (the "Escrow Agent"). All of the
aforementioned are also referred to individually herein as a "Party" and
collectively herein as the "Parties."
PRELIMINARY STATEMENTS
A. The Company, Dalian Fushi, the Investors and certain members of
management of Dalian Fushi have entered into that certain Stock Purchase
Agreement dated the date hereof (the "Stock Purchase Agreement"), a copy of
which has been delivered to the Escrow Agent, pursuant to which the Company will
issue and sell to the Investors, and the Investors will subscribe for and
acquire from the Company, certain Company securities for a purchase price of $12
million upon the terms and subject to the conditions set forth therein.
Capitalized terms used in this Agreement and not otherwise defined shall have
the meanings set forth in the Stock Purchase Agreement.
B. Dalian Fushi currently owns 20,000,000 shares of the common stock of
the Company, par value $.006 per share ("Common Stock"), representing 50.96% of
the total issued and outstanding shares of Common Stock of the Company.
C. The Series A Holders currently own 746,254 shares of Series A
Convertible Preferred Stock of the Company, par value $.001 (the "Series A"),
which are convertible into 14,718,458 shares of Common Stock pursuant to the
terms of such preferred stock.
D. Section 14 of the Certificate of Designations, Preferences and Rights
of the Series B Convertible Preferred Stock of the Company, par value $.001 (the
"Series B"), a copy of which has been delivered to the Escrow Agent, provides
certain rights to the Investors, as Series B holders, to acquire
then-outstanding shares of Common Stock and Series A (the "Certificate Shares"),
which shares will be deposited at the Closing in escrow by Dalian Fushi and the
Series A Holders as security for the Company's obligations under the Certificate
of Designations, Preferences and Rights of the Series B. Dalian Fushi and the
Series A Holders (including any Persons who subsequently acquire shares of
Common Stock or Series A from them or their transferrees) shall be collectively
referred to as the "Dalian Fushi Shareholders" for purposes of such Section 14.
E. Section 2(c)(i) of the Stock Purchase Agreement provides that, at the
Closing, the Series A Holders will deposit in escrow a number of shares of
Series A convertible into at least 3,000,000 shares of Common Stock, which
shares shall be held as security in the event the 2005 Target Profit is not met
(including the shares of Common Stock issuable upon conversion, the "Claim
Shares" and collectively with the Certificate Shares, the "Escrow Shares").
F. The Claim Shares shall also serve as collateral for the indemnification
obligations of the Company, Dalian Fushi and Management under Section 8 of the
Stock Purchase Agreement.
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G. The escrow fund created by the deposit of the Escrow Shares is referred
to as the "Escrow Fund." For the avoidance of doubt, the Claim Shares will be
included in the Certificate Shares.
H. Pursuant to the terms of the Stock Purchase Agreement and the
Certificate of Designations, Preferences and Rights for the Series B, the
Parties have agreed, as a condition to their respective obligations thereunder,
to enter into this Agreement and establish the terms and conditions pursuant to
which the Escrow Shares will be deposited, held in, and disbursed from the
Escrow Fund.
I. The Parties desire to appoint the Escrow Agent to act pursuant to the
terms and conditions set forth herein and the Escrow Agent desires to accept
such appointment.
J. Dalian Fushi and the Series A Holders desire to appoint the Company to
act as their representative pursuant to the terms and conditions set forth
herein and the Company desires to accept such appointment.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
1. ESTABLISHMENT OF THE ESCROW FUND.
(A) Escrow Fund. The Escrow Agent agrees to (i) accept delivery of the
shares of Common Stock, consisting of 20,000,000 shares, (ii) accept delivery of
746,254 shares of Series A (including the shares of Common Stock issuable upon
conversion of such Series A), and (iii) hold such Escrow Shares in escrow as
part of the Escrow Fund, all subject to the terms and conditions of this
Agreement, Section 2(c)(i) and Section 8 of the Stock Purchase Agreement and
Section 14 of the Certificate of Designations, Preferences and Rights for the
Series B (the "Escrow Provisions").
(B) Escrow Arrangements; Purpose. The Escrow Fund is to be held and
distributed by the Escrow Agent in accordance with and subject to the provisions
of this Agreement and the applicable Escrow Provisions. The Escrow Fund is held
for the benefit of the Investors as security and collateral for the obligations
of the Company under the Certificate of Designations, Preferences and Rights for
the Series B, the indemnification obligations of the Company, Dalian Fushi,
Management and the Series A Holders under Section 8 of the Stock Purchase
Agreement, and in the event the 2005 Target Profit is not met pursuant to
Section 2(c)(i) of the Stock Purchase Agreement.
2. ADMINISTRATION OF ESCROW FUND AND TAX ESCROW FUND.
(a) Delivery of Escrow Shares. At Closing, the Escrow Shares will be
delivered by the Company, on behalf of Dalian Fushi and the Series A Holders
(each, a "Holder," and collectively, the "Holders") to the Escrow Agent in
accordance with the applicable Escrow Provisions, together with stock powers
executed in blank. The Escrow Agent will provide the Company written
notification of the receipt of each Holder's respective Escrow Shares in
accordance with Section 5.
(b) Holders' Accounts. The Escrow Agent will maintain for the Holders an
accounting record (each, a "Holders' Account") specifying the Holders'
respective portion of the assets comprising the Escrow Fund held for the record
of the Holders pursuant to the applicable Escrow Provisions. All Escrow Shares
received by the Escrow Agent under Section 2(a) will be held in the name of each
of the Holders in the Escrow Fund and will be allocated to the Holders' Account
in accordance with Exhibit A. The Escrow Agent shall promptly amend Exhibit A to
reflect any change in the assets comprising the Escrow Fund and the portion
applicable to each individual Holder.
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(C) Dividends, Voting, Conversions and Rights of Ownership.
(i) The Holders will have voting rights with respect to their respective
portion of the Escrow Shares deposited in the Escrow Fund while such Escrow
Shares are held in escrow. While the Escrow Shares are held in escrow, the
Holders will retain and will be able to exercise all other incidents of
ownership of their respective Escrow Shares, which are not inconsistent with the
terms and conditions of this Agreement and the Stock Purchase Agreement. The
Escrow Agent agrees to deliver, or cause to be delivered, to each applicable
Seller only those proxy materials with respect to the Escrow Shares in the
Escrow Fund that are actually received by the Escrow Agent.
(ii) Stock dividends or other distributions (other than cash as provided
below) upon the Escrow Shares shall be added to the Escrow Fund, and shall not
be distributed to the Holders, as their interests may appear; and, to the extent
any stock dividends are actually distributed to the Holders with respect to such
Escrow Shares prior to the Expiration Date, the Holders shall promptly remit
such shares to the Escrow Agent and such shares shall be added to the Escrow
Fund.
(iii) Any shares of Common Stock issued to the Series A Holders upon
conversion of the Series A shall be delivered by the Company to the Escrow Agent
and added to the Escrow Fund, and shall not be distributed to the Series A
Holders; and, to the extent any such shares are actually distributed to the
Series A Holders upon conversion of the Series A prior to the Expiration Date,
the Series A Holders shall promptly remit such shares to the Escrow Agent and
such shares shall be added to the Escrow Fund.
(iv) Cash dividends or distributions upon the Escrow Shares shall not be
added to the Escrow Fund, but shall be distributed to the Holders, as their
interests may appear, net of applicable withholding taxes.
(v) The parties hereto agree that, for tax purposes, all taxable income,
if any, attributable to the Escrow Fund pursuant to this Agreement shall be
allocable to each respective Holder in accordance with each Holders' Account on
Exhibit A. For greater certainty, the Escrow Agent shall be authorized, as
required under applicable law, to withhold and remit to the Internal Revenue
Service a portion of any income earned on the Escrow Fund held by the Escrow
Agent pursuant to this Agreement.
(d) Claims upon the Escrow Fund.
(i) Section 14 of the Certificate of
Designations, Preferences and Rights for the Series B.
(A) Upon receipt by the Escrow Agent of a certificate from CA, as
representative of the Series B holders, pursuant to Section 14 of the
Certificate of Designations, Preferences and Rights for the Series B stating
that (1) the conditions specified in Section 14(a) of the Certificate of
Designations, Preferences and Rights have not occurred within 120 days since the
initial issuance of the Series B or, thereafter, within any additional 30-day
period, and (2) the number of Certificate Shares (as designated by CA in shares
of Common Stock or Series A, as available) to be delivered to the Investors
pursuant to such Section 14(a), the Escrow Agent shall, subject to the
provisions of Section 2(e), deliver to the Investors out of the Escrow Fund, as
promptly as practicable,
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in such manner and in such number of Certificate Shares as specified in such
certificate from CA, which shares shall be allocated among the Investors based
on each Investor's pro rata percentage of Series B shares then held. The Escrow
Agent shall not be required to determine or calculate the number of shares or
percentage of interest to be issued and shall not be obligated to issue
Certificate Shares, but rather will only deliver the Certificate Shares as
instructed in the certificate from CA to the Escrow Agent. Any Certificate
Shares delivered pursuant to this Section 2(d)(i)(A) shall not be deemed to
include any Claim Shares. For purposes of this Agreement, an Investor's pro rata
percentage of Series B shares then held shall be initially based on Exhibit C to
the Stock Purchase Agreement, and each Investor shall promptly notify CA of any
transfer of all or any portion of its Series B shares and the identity of the
purchaser of such shares.
(B) Upon receipt by the Escrow Agent of a certificate from an Investor
(with a duplicate copy delivered to CA), as a Series B holder, pursuant to
Section 14 of the Certificate of Designations, Preferences and Rights for the
Series B stating that (1) the conditions specified in Section 14(a) of the
Certificate of Designations, Preferences and Rights have not occurred within one
year since the initial issuance of the Series B, (2) the Company has failed to
purchase all of the outstanding shares of Series B by the 30th day after such
one-year period, and (3) payment has been tendered pursuant to Section 14(b) of
the Certificate of Designations, Preferences and Rights for the Series B, in the
amount of $.001 per share, the Escrow Agent shall, subject to the provisions of
Section 2(e), deliver to the Investor out of the Escrow Fund, as promptly as
practicable, such number of the Certificate Shares (including the Claim Shares
included therein) as such Investor claims in such certificate (which shall be
based on such Investor's pro rata percentage of Series B shares then held). The
Escrow Agent shall not be required to determine or calculate the number of
shares or percentage of interest to be issued and shall not be obligated to
issue Certificate Shares, but rather will only deliver the Certificate Shares as
instructed in the certificate from such Investor to the Escrow Agent.
For purposes of any actions contemplated pursuant or relating to this Section
2(d)(i) or Section 14(b) of the Certificate of Designations, Preferences and
Rights for the Series B, as of the date hereof, and without further act of any
Party, CA is hereby appointed as the representative for and on behalf of each
Investor (including any Person who subsequently acquires shares of Series B from
an Investor or their transferees) pursuant to the terms of Section 14 of the
Certificate of Designations, Preferences and Rights for the Series B. CA may
take all actions necessary or appropriate in the judgment of CA in such capacity
as representative for the Investors. In the absence of bad faith or willful
misconduct, CA shall not be liable under any circumstances or for any reason for
any act done or omitted hereunder as representative for the Investors. CA shall
be indemnified and held harmless from and against any liability, indebtedness,
claim, loss, damage, costs, expenses, judgments, penalties, deficiency,
obligation or responsibility sustained or incurred by CA (other than due to bad
faith or willful misconduct) arising out of or in connection with the acceptance
or administration of CA's duties hereunder as representative for the Investors,
including the reasonable fees and expenses of any legal counsel or experts
retained by CA.
(ii) Section 8 of the Stock Purchase Agreement.
(A) Upon receipt by the Escrow Agent at any time on or before the last day
of the two-year period following the date of the Stock Purchase Agreement of a
certificate signed by an Investor (with a duplicate copy delivered to CA): (1)
stating that the Investor or any of its respective Indemnified Parties has paid
or properly accrued or reasonably anticipates that it will have to pay or accrue
Liabilities related to any Adverse Consequences, and (2) generally describing
the Adverse Consequence included in the amount so stated or the basis for such
anticipated
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Liability, and the nature of the misrepresentation, breach of representation,
warranty or covenant to which such item is related, the Escrow Agent shall,
subject to the provisions of Section 2(e), deliver to Investor out of the Escrow
Fund, as promptly as practicable, Claim Shares in an amount equal to the
Liabilities for such Adverse Consequences. Any such distribution shall be first
made in any available shares of Common Stock, and then in shares of Series A.
(B) For the purposes of determining the number of shares of Common Stock
or Series A to be delivered to the Investor out of the Escrow Fund pursuant to
Section 2(d)(ii)(A), (1) the shares of Common Stock shall be valued at the
average of the Trading Price for the 10 consecutive trading days ending
immediately preceding the second trading day before the date such determination
is made, and (2) the value of the shares of Series A shall be based on the value
of the Common Stock into which such Series A would otherwise be convertible.
"Trading Price" shall mean (a) if the Common Stock is actively traded on any
national securities exchange or any Nasdaq quotation or market system, then the
closing price of the Common Stock on the applicable date, (b) if the shares of
Common Stock are not actively traded on any such exchange or system, then the
arithmetic mean of the bid and asked prices of a share of the Common Stock on
the applicable over-the-counter system, Pink Sheets or otherwise, or (c) if the
shares of Common Stock are not actively traded, then a good-faith determination
of the value by the full Board of Directors of the Company.
(C) Notwithstanding the foregoing, any claims made under this Section
2(d)(ii) shall be stayed, and shall not otherwise be satisfied or processed by
the Escrow Agent, until after the 2005 Performance Determinate Date (as defined
below), and any payment out of the Escrow Fund under this Section 2(d)(ii) shall
not exceed the remaining balance of the 3,000,000 Claim Shares after any Claim
Shares are retired to the Company Treasury following the 2005 Performance
Determination Date.
(iii) Section 2(c)(i) of the Stock Purchase Agreement. Upon receipt by the
Escrow Agent of a certificate signed by any Investor (with a duplicate copy
delivered to CA): (A) stating that the Company has not met the 2005 Target
Profit (as determined pursuant to Section 2(c)(i) of the Stock Purchase
Agreement), (B) specifying the 2005 Performance Adjustment (as determined
pursuant to Section 2(c)(i) of the Stock Purchase Agreement), and (C) specifying
in reasonable detail the number of the Claim Shares held in the Escrow Fund to
be retired to the Company treasury, which in no event shall exceed the 3,000,000
Claim Shares, the Escrow Agent shall deliver to the Company out of the Escrow
Fund, as promptly as practicable, such number of Claim Shares (or such number as
then available) held in the Escrow Fund, which in no event shall exceed the
3,000,000 Claim Shares, and the Company will promptly take all necessary action
to retire those shares to the Company Treasury. Any such retirement shall be
first made in any available shares of Common Stock, and then in shares of Series
A. Any claims under this Section 2(d)(iii) shall be made within the 90-day
period following the receipt by the Investors of the Company's 2005 audited
financial statements pursuant to Section 2(c)(i) of the Stock Purchase Agreement
(the last day of such 90-day period, the "2005 Performance Determinate Date").
(e) Objection to Claims; Resolutions of Conflicts.
(i) At the time of delivery of any Investor certificate delivered to the
Escrow Agent pursuant to Section 2(d)(i), (ii) or (iii) (a "Claim Certificate"),
a duplicate copy of such Claim Certificate will be delivered by the Investor to
the Company, and for a period of 15 days after such delivery, the Escrow Agent
shall make no delivery of Escrow Shares unless the Escrow Agent shall have
received written authorization from the Company to make such delivery. After the
expiration of
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such 15-day period, the Escrow Agent shall deliver the Escrow Shares in
accordance with Section 2(d)(i), (ii) or (iii), as applicable, provided that no
such delivery may be made if the Company shall object in a written statement
(the "Company Notice") to the claim made in the Claim Certificate, and such
statement shall have been delivered to the Escrow Agent, with a copy to the
Investor, prior to the expiration of such 15-day period. Notwithstanding the
foregoing, with respect to Section 2(d)(i), the Company may only object if (A)
all the shares of Common Stock issuable upon conversion of Series B have been
delivered pursuant to Section 14 of the Certificate of Designations, Preferences
and Rights for the Series B, or (B) sufficient payment has been made pursuant to
such Section 14, and no other objection by the Company shall be recognized for
purposes of this Section 2(e)(i). In the case of any claims made pursuant to
Section 2(d)(ii) prior to the 2005 Performance Determinate Date, such 15-day
period shall not be deemed to commence until the day following the 2005
Performance Determinate Date.
(ii) In case the Company shall object in writing to any claim or claims
made in any Claim Certificate, the Company and the Investor shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Company and the Investor should so agree, a
certificate setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such certificate and distribute Escrow Shares in
accordance with the terms thereof.
(iii) If no such agreement is reached within 15 days following receipt by
the Escrow Agent of the Company Notice, either the Company or the Investor may
demand arbitration of the matter unless, in the case of Section 2(d)(ii), the
amount of the Liability related to the Adverse Consequence is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration pursuant to
Section 9(o) of the Stock Purchase Agreement; and, further, any non-disputed
portion of the Escrow Shares subject to a Claim Certificate shall be delivered
in accordance with Section 2(d).
(f) Release from Escrow Fund. Unless a claim is pending in accordance with
Section 2(d) or (e), the Escrow Agent shall distribute to the Holders, as
applicable, within five business days following the Expiration Date, all Escrow
Shares remaining in the Escrow Fund as of their applicable Expiration Date, net
of applicable withholding taxes with respect to dividends or other distributions
pursuant to Section 2(c), in accordance with Exhibit A. For purposes of this
Agreement, "Expiration Date" shall mean:
(i) with respect to the Certificate Shares (but not any Claim Shares
included therein), the satisfactions of the conditions set forth in Section 14
of the Certificate of Designations, Preferences and Rights for the Series B; and
(ii) with respect to the Claim Shares, the second anniversary of this
Agreement with respect to all Claim Shares remaining in the Escrow Fund.
If a claim is pending at and as of an Expiration Date, the Escrow Agent shall
withhold from such distribution to the Holders only such portion of the Escrow
Fund as is necessary to satisfy any unsatisfied claim until all such claims have
been resolved pursuant to Section 2(e), and, as promptly as practicable after
the Expiration Date, distribute all remaining assets in the Escrow Fund to the
Holders.
6
(g) No Encumbrance. The Escrow Fund shall be held as a trust fund and
shall not be subject to any Encumbrance, trustee process or any other judicial
process of any creditor of any party hereto. Except as provided in this
Agreement, no Escrow Shares or any beneficial interest in the Escrow Shares may
be pledged, sold, encumbered, assigned or transferred, including by operation of
law, by a Holder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of a Holder, prior to the delivery
to such Holder of the Escrow Shares by the Escrow Agent, except as otherwise
contemplated by this Agreement or the Stock Purchase Agreement.
3. THE ESCROW AGENT; LIMITATION OF THE ESCROW AGENT'S LIABILITY; FEES AND
EXPENSES.
(a) The Escrow Agent is hereby appointed depositary and escrow agent for
the Parties with respect to the Escrow Funds.
(b) The Escrow Agent is not a party to, nor is it bound by nor need it
give any consideration to the terms or provisions of, any agreement among the
Parties other than this Agreement. The only duties and responsibilities of the
Escrow Agent hereunder shall be to hold the Escrow Funds as escrow agent
according to the terms and provisions of this Agreement and to dispose of and
deliver the Escrow Funds as provided in this Agreement.
(c) The Escrow Agent shall be indemnified and held harmless by the
Investors and the Holders, from and against any and all liability, including all
expenses reasonably incurred in its defense, to which the Escrow Agent shall be
subject by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Fund made by the Escrow Agent pursuant to
this Agreement, except as a result of the Escrow Agent's willful misconduct or
material breach of this Agreement, provided, however, that under all
circumstances, Escrow Agent shall be given notice of any alleged breach of this
Agreement and the reasonable opportunity to cure such alleged breach, which
under all circumstances shall not be less than ten (10) business days following
receipt of notice. The reasonable costs and expenses of enforcing this right of
indemnification shall also be paid by the Company and the Holders. This right of
indemnification shall survive the termination of this Agreement, and the removal
or resignation of the Escrow Agent.
(d) The Escrow Agent undertakes to perform only such duties as are
specifically set forth in this Agreement, and the Escrow Agent shall not be
liable except for the performance of such duties as are specifically set forth
in this Agreement, provided, however, that under all circumstances, Escrow Agent
shall be given notice of any alleged breach of this Agreement and the reasonable
opportunity to cure such alleged breach, which under all circumstances shall not
be less than ten (10) business days following receipt of notice, and no implied
covenants or obligations shall be read into this Agreement against the Escrow
Agent. The Escrow Agent may consult with counsel (of its choice) regarding any
of its duties or obligations hereunder, and shall be fully protected in any
action taken in good faith in accordance with such advice. The Escrow Agent
shall be fully protected in acting in accordance with any written instructions
given to it hereunder and believed by it to have been executed by the proper
party or parties. The Escrow Agent's duties shall be determined only with
reference to this Agreement, the Stock Purchase Agreement, the Certificate of
Designations, Preferences and Rights for the Series B and applicable Laws. The
Escrow Agent is not charged with any duties or responsibilities in connection
with any other documents or agreements.
(e) Fees are payable in advance as compensation for the ordinary
administrative services to be rendered hereunder and the Company and the Holders
agree to pay all the fees and expenses of the Escrow Agent, including the
indemnity provided in Section 3(c) hereof.
7
(f) It is understood and agreed that in the event any disagreement among
the parties hereto results in adverse claims or demands being made in connection
with the Escrow Fund, or in the event the Escrow Agent in good faith is in doubt
as to what action it should take hereunder, the Escrow Agent shall retain the
Escrow Fund until the Escrow Agent shall have received (i) an enforceable final
order of a court of competent jurisdiction which is not subject to further
appeal directing delivery of the Escrow Fund (including a final order entered
following arbitration pursuant to Section 9(o) of the Stock Purchase Agreement)
or (ii) a written agreement executed by the applicable Investors and the Company
directing delivery of the Escrow Fund, in which event Escrow Agent shall
disburse the Escrow Fund in accordance with such order or agreement. Any court
order referred to in (i) above shall be accompanied by a legal opinion of
counsel for the presenting party satisfactory to the Escrow Agent to the effect
that said court order is final and enforceable and is not subject to further
appeal. The Escrow Agent shall act on such court order and legal opinion without
further question. Notwithstanding the foregoing, if Escrow Agent is in doubt or
remains unsure of what action it should take hereunder, Escrow Agent shall have
the right to file an interpleader action and interplead into a court of
competent jurisdiction the Escrow Shares and all documents and instruments
evidencing, pertaining or relating to the Escrow Shares and any other item,
instrument or document held in or subject to the Escrow Fund and thereby Escrow
Agent shall be released of its duties, responsibilities and obligations arising
hereunder.
(g) The Escrow Agent may resign at any time by giving written notice
thereof to the other parties hereto. Such resignation shall become effective 10
business days following the receipt of such notice and Escrow Agent shall
deliver, within 10 business days after the effectiveness of its resignation, the
Escrow Shares and all items, documents and instruments held pursuant to the
Escrow Fund to its successor Escrow Agent. If an instrument of acceptance by a
successor Escrow Agent shall not have been delivered to the Escrow Agent within
10 business days after the giving of such notice of resignation, the resigning
Escrow Agent may, at the expense of Company and the Investors, petition any
court of competent jurisdiction for the appointment of a successor Escrow Agent.
Subject to Section 3(f) hereof, if any property subject hereto is at any time
attached, garnished or levied upon, under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in case any order, judgment or
decree shall be made or entered by any court affecting such property, or any
part thereof, then in any of such events, the Escrow Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ, judgment or
decree, which it is advised by legal counsel (of its own choosing) is binding
upon it, and if it complies with any such order, writ judgment or decree, it
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
4. COMPANY AS REPRESENTATIVE. As of the date hereof, and without further
act of any Party, the Company is hereby appointed as the representative for and
on behalf of each Holder, to give and receive notices and communications, to
authorize delivery to the Investors of Escrow Shares in satisfaction of claims
by the Investors, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Company for the
accomplishment of the foregoing. Subject to Section 2(e), the Company shall
issue such certificates for such denominations of Escrow Shares to be delivered
to any Investor pursuant to Section 2(d) in accordance with instructions in an
Investor's certificate, from the Escrow Agent or from CA, as representative of
the Investors. A decision, act, consent or instruction of the Company relating
to the Escrow Fund shall constitute a decision of, and shall be final, binding
and
8
conclusive upon, each of the Holders, and the Escrow Agent and the Investors may
rely upon any such decision, act, consent or instruction of the Company as being
the decision, act, consent or instruction of each such Holders. In the absence
of bad faith, the Escrow Agent and the Investors are hereby relieved from any
Liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Company.
5. NOTICES. Any certificate or other notice to any party hereto given
pursuant to this Agreement shall be given by fax, first-class mail or nationally
recognized express overnight courier delivery service addressed as follows.
Notices shall not be deemed to be given until actually received.
If to the Escrow Agent:
Gateway National Bank, N.A.
00000 X. Xxxxxxx Xxxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx XxXxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxxxxxx.xxx
with a copy (which shall not constitute notice) to:
Xxxx X. Xxxxxxxxxxx
Xxxxxxxxxxx, Xxxxxx & XxXxxxxx, LLP
0000 Xxx Xxxxxxx
Xxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: xxxxxx@xxxxxxxx.xxx
If to the Investors:
c/o Chinamerica Fund, L.P.
0000 Xx. Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxx 00000
Attention: Xxxxxxxxxxx Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: Xxxxx@xxxxxxxxxxx.xxx
with a copy to counsel for CA (which shall not constitute
notice) to:
Xxxxx & XxXxxxxx LLP
Pennzoil Place, South Tower
711 Louisiana, Suite 3400
Attention: Xxxxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: Xxxxxxxx.X.Xxxxxx@Xxxxxxxx.xxx
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If to the Company, Dalian Fushi or any of the Series A Holders:
Parallel Technologies, Inc.
000 Xxxx Xxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
E-mail: xxxxxxx@xxxxxxxxxxxxx.xxx
with a copy (which shall not constitute notice) to:
Guzov Ofsink, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
E-mail: xxxxxxx@xxxxxxxxx.xxx
6. INCORPORATION BY REFERENCE OF PORTIONS OF THE STOCK PURCHASE AGREEMENT.
The parties agree that the terms of Section 2(c)(i) and Section 8 the Stock
Purchase Agreement and Section 14 of the Certificate of Designations,
Preferences and Rights for the Series B shall be deemed to be incorporated by
reference in this Agreement as if such Sections had been set forth in its
entirety herein. Notwithstanding the immediately preceding sentence, the parties
agree that the Escrow Agent's fees and expenses shall be governed under this
Agreement. The parties acknowledge that the administration of the Escrow Fund by
the Escrow Agent will require reference to both the terms of this Agreement as
well as the terms of such Escrow Provisions In the event of any conflict between
this Agreement and the Escrow Provisions, the provisions of the Escrow
Provisions shall govern.
7. GENERAL.
(a) Controlling Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
choice of law provisions, statutes, regulations or principles of this or any
other jurisdiction. Each Party hereby irrevocably submits to the exclusive
jurisdiction (including personal jurisdiction) of the state and federal courts
of the State of Texas for any action, suit or proceeding arising in connection
with this Agreement, and agrees that any such action suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
conveniens or any other jurisdiction to venue therein). Process in any
Proceeding under this Agreement may be served on any Party anywhere in the
world. Notwithstanding the foregoing, nothing in this Agreement shall preclude
the Investors the right to commence Proceedings relating to this Agreement in
any foreign jurisdiction, including the People's Republic of China.
(b) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without
10
the prior written approval of the other Parties adversely affected by such
assignment; provided, however, that any Investor may assign any or all of its
rights and interests hereunder to one or more of its Affiliates. Notwithstanding
the foregoing, for purposes of this Agreement the term "Investor" shall include
any transferees of an Investor's Series B shares.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(d) Entire Agreement. Subject to Section 6, this Agreement constitutes the
entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
(e) Waivers. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by the Company (for itself
and on behalf of the Holders), CA and Investors representing a majority of the
outstanding Shares then held by Investors. The Investors and the Holders, as
applicable, may waive any condition or any breach of any provision of this
Agreement. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a wavier of any other condition or breach of any other
provision contained in this Agreement.
(f) Amendment. Except for the right of the Escrow Agent to amend Exhibit A
pursuant to Section 2(b), this Agreement may be amended with the written consent
of the Investors, the Escrow Agent and the Holders; provided, however, that if
the Escrow Agent does not agree to an amendment agreed upon by the Investors and
the Holders, the Investors will appoint a successor Escrow Agent (reasonably
acceptable to the Holders) which shall become the successor Escrow Agent upon
delivery to the then current Escrow Agent of an instrument of acceptance of such
appointment by such successor Escrow Agent.
(Remainder of page intentionally left blank)
11
The Parties have executed and delivered this Agreement as of the date
indicated in the first sentence of this Agreement.
GATEWAY NATIONAL BANK, N.A.
as Escrow Agent
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
PARALLEL TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SERIES A CONVERTIBLE PREFERRED
SHAREHOLDERS:
DALIAN FUSHI ENTERPRISE GROUP CO.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
------------------------------------------
Xxxxxxx Xx
------------------------------------------
Xxx Xxxx
------------------------------------------
Xxxxxx Xxxx
(Signatures continue on following page)
12
DALIAN FUSHI BIMETALLIC MANUFACTURING
COMPANY, LTD.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
13
THE INVESTORS
CHINAMERICA FUND, LP
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
CHINAMERICA DALIAN FUSHI ACQUISITION, LLC
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
14
XXXXXX PARTNERS LP
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
15
RENAISSANCE US GROWTH INVESTMENT TRUST
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
16
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
00
XXXX XXXXXX FUND LP
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(Signatures continue on following page)
18
XXXX X. XXXXXX
WEDBUSH SEC. INC. CUST.
XXX ROLLOVER 10/13/92
------------------------------------------
Xxxx X. Xxxxxx
(Signatures continue on following page)
19
------------------------------------------
Xxxx Xxxxx Xxxxx
(Signatures continue on following page)
20
MIDSOUTH INVESTOR FUND LP
By:
---------------------------------------
Xxxxx X. Xxxxxxx
------------------------------------------
Xxxxx X. Xxxxxxx
(Signatures continue on following page)
21
XXXX ASSET MANAGEMENT LLC
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
22
EXHIBIT A
HOLDERS' ACCOUNTS FOR ESCROW FUND
-------------------------------------------------------------------------------------------
PERCENTAGE
INTEREST
HOLDER NUMBER AND TYPE OF ESCROW SHARES(1) OF ESCROW
FUND(2)
-------------------------------------------------------------------------------------------
Dalian Fushi Bimetallic 20,000,000 shares of Common Stock (81,542.79 0.55%
Manufacturing Company following reverse split)
-------------------------------------------------------------------------------------------
654,688.64 shares of Series A Convertible
Dalian Fushi Enterprise Preferred Stock (12,915,997.42 shares of 87.27%
Group Co. Common Stock issuable upon conversion)
-------------------------------------------------------------------------------------------
74,625.40 shares of Series A Convertible
Xxx Xxxx Preferred Stock (1,472,244.09 shares of Common 9.94%
Stock issuable upon conversion)
-------------------------------------------------------------------------------------------
12,238.57 shares of Series A Convertible
Xxxxxx Xxxx Preferred Stock (241,448.03 shares of Common 1.63%
Stock issuable upon conversion)
-------------------------------------------------------------------------------------------
4,701.40 shares of Series A Convertible
Xxxxxxx Xx Preferred Stock (92,751.38 shares of Common 0.62%
Stock issuable upon conversion)
-------------------------------------------------------------------------------------------
Total 14,800,000.95 shares of Common Stock(3) 100%
-------------------------------------------------------------------------------------------
-----------------------------------
(1) Includes Common Stock issuable upon conversion of Series A Convertible
Preferred Stock, which is based on conversion rate following the Company's
contemplated 245.27 for 1 Common Stock reverse split (as provided in
Section 14 of the Certificate of Designations, Preferences and Rights for
the Series B).
(2) Percentage interests based on post-reverse split.
(3) Assuming conversion of all Series A Convertible Preferred Stock and
post-reverse split.
23
EXHIBIT F
(Intentionally Omitted)
F-1
EXHIBIT G
(INTENTIONALLY OMITTED)
G-1
EXHIBIT H
FINANCIAL STATEMENTS
(Included in Form 8-K)
H-1
EXHIBIT I
RESTRUCTURING AGREEMENTS
(Included as Exhibits 10.2 through 10.8 of Form 8-K)
I-1
EXHIBIT J
USE OF PROCEEDS
(See Exhibit 4.4 of Form 8-K)
J-1
EXHIBIT K
FUNDS FLOW STATEMENT
(See Exhibit 4.4 of Form 8-K)
K-1
EXHIBIT L
(INTENTIONALLY OMITTED)
L-1
