SHARE EXCHANGE AGREEMENT BY AND AMONG SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD and SMARTHEAT INC. and THE SHAREHOLDERS OF SHENYANG TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD Dated as of April 14, 2008
Exhibit
2.1
BY
AND AMONG
SHENYANG
TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD
and
SMARTHEAT
INC.
and
THE
SHAREHOLDERS OF
SHENYANG
TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD
Dated
as of April 14, 2008
1
This
SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into as
of April 14, 2008, by and among SHENYANG TAIYU MACHINERY &
ELECTRONIC EQUIPMENT CO., LTD, a company organized under the laws of the
Peoples Republic of China ("Taiyu") and SMARTHEAT INC., a Nevada
corporation ("Purchaser") and each of the
shareholders of Taiyu listed on Schedule 4.2 hereto
(the "Taiyu
Shareholders").
WHEREAS, Taiyu is a Chinese
company that is engaged in the business of research, manufacturing and marketing
of energy saving Heat Exchange Plates ("HEP") products;
WHEREAS, Purchaser and Taiyu
have agreed to the acquisition by Purchaser of all of equitable and other legal
rights, title and interests in and to the share capital of Taiyu pursuant
to a voluntary share exchange transaction (the "Share Exchange") between
Purchaser and Taiyu upon the terms and subject to the conditions set forth
herein;
WHEREAS, in furtherance
thereof, the Board of Directors of Purchaser has approved the Share Exchange in
accordance with the applicable provisions of the NRS and upon the terms and
subject to the conditions set forth herein;
WHEREAS, in furtherance
thereof, the Board of Directors and shareholders of Taiyu have each approved the
Share Exchange in accordance with the applicable provisions of the laws of the
People's Republic of China ("PRC") and upon the terms and
subject to the conditions set forth herein; and
WHEREAS, for United States
federal income tax purposes, the parties intend that the Share Exchange shall
constitute a tax-free reorganization within the meaning of Sections 368 and 1032
of the Code.
NOW, THEREFORE, in
consideration of the premises, and the mutual covenants and agreements contained
herein, the parties do hereby agree as follows:
ARTICLE
I. DEFINITIONS
(a) "Affiliate" shall mean, as to
any Person, any other Person controlled by, under the control of, or under
common control with, such Person. As used in this definition,
"control" shall mean possession, directly or indirectly, of the power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person which owns or holds directly
or indirectly five per cent (5%) or more of the voting securities or five per
cent (5%) or more of the partnership or other equity interests of any other
Person (other than as a limited partner of such other Person) will be deemed to
control such other Person.;
(b) "Agreement" means this Share
Exchange Agreement and Plan of Reorganization.
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(c) "Applicable Law" or "Applicable Laws" means any and
all laws, ordinances, constitutions, regulations, statutes, treaties, rules,
codes, licenses, certificates, franchises, permits, principles of common law,
requirements and Orders adopted, enacted, implemented, promulgated, issued,
entered or deemed applicable by or under the authority of any Governmental Body
having jurisdiction over a specified Person or any of such Person's properties
or assets.
(d) "Best Efforts" means the
efforts that a prudent Person desirous of achieving a result would use in
similar circumstances to achieve that result as expeditiously as possible,
provided, however, that a Person required to use Best Efforts under this
Agreement will not be thereby required to take actions that would result in a
Material Adverse Effect in the benefits to such Person of this Agreement and the
Share Exchange.
(e) "Breach" means any breach of,
or any inaccuracy in, any representation or warranty or any breach of, or
failure to perform or comply with, any covenant or obligation, in or of this
Agreement or any other Contract.
(f) "Business" means the research,
manufacture, sale and distribution of energy saving Heat Exchange Plates ("HEP")
products for industrial and residential applications as presently conducted by
Taiyu.
(g) "Business Day" means any day
other than (a) Saturday or Sunday or (b) any other day on which banks in
Philadelphia, Pennsylvania are permitted or
required to be closed.
(h) "Closing" shall mean the
completion of the Share Exchange and the consummation of the transactions set
forth herein.
(i) "Closing Date" shall mean the
date on which the Closing is completed.
(j) "Code" shall mean the Internal
Revenue Code of 1986, as amended.
(k) "Confidential Information"
means any information pertaining to the business, operations, marketing,
customers, financing, forecasts and plans of any Party provided to or learned by
any other Party during the course of negotiation of the Share
Exchange. Information shall be treated as Confidential Information
whether such information has been marked "confidential" or in a similar
manner.
(l) "Consent" means any approval,
consent, license, permits, ratification, waiver or other
authorization.
(m) "Contract" means any agreement,
contract, lease, license, consensual obligation, promise, undertaking,
understanding, commitment, arrangement, instrument or document (whether written
or oral and whether express or implied), whether or not legally
binding.
(n) "Distribution Compliance
Period" shall have the meaning set forth in Section 3.4(e).
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(o) "Employee Benefit Plan" has the
meaning set forth in Section 4.16
(p) "Encumbrance" means and
includes:
(i) with
respect to any personal property, any security or other property interest or
right, claim, lien, pledge, option, charge, security interest, contingent or
conditional sale, or other title claim or retention agreement or lease or use
agreement in the nature thereof, interest or other right or claim of third
parties, whether voluntarily incurred or arising by operation of law, and
including any agreement to grant or submit to any of the foregoing in the
future; and
(ii) with
respect to any Real Property (whether and including owned real estate or Real
Estate subject to a Real Property Lease), any mortgage, lien, easement,
interest, right-of-way, condemnation or eminent domain proceeding, encroachment,
any building, use or other form of restriction, encumbrance or other claim
(including adverse or prescriptive) or right of Third Parties (including
Governmental Bodies), any lease or sublease, boundary dispute, and agreements
with respect to any real property including: purchase, sale, right of first
refusal, option, construction, building or property service, maintenance,
property management, conditional or contingent sale, use or occupancy, franchise
or concession, whether voluntarily incurred or arising by operation of law, and
including any agreement to grant or submit to any of the foregoing in the
future.
(q) "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations issued by the Department of Labor pursuant to ERISA or any successor
law.
(r) "Exchange Act" means the
Securities Exchange Act of 1934, as amended.
(s) "GAAP" means at any particular
time generally accepted accounting principles in the United States, consistently
applied on a going concern basis, using consistent audit scope and materiality
standards.
(t) "Governing Documents" means
with respect to any particular entity, the articles or certificate of
incorporation and the bylaws (or equivalent documents for entities of foreign
jurisdictions); all equity holders' agreements, voting agreements, voting trust
agreements, joint venture agreements, registration rights agreements or other
agreements or documents relating to the organization, management or operation of
any Person or relating to the rights, duties and obligations of the equity
holders of any Person; and any amendment or supplement to any of the
foregoing.
(u) "Governmental Authorization"
means any Consent, license, registration or permit issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Applicable Law.
(v) "Governmental Body" means: (i)
nation, state, county, city, town, borough, village, district, tribe or other
jurisdiction; (ii) federal, state, local, municipal, foreign, tribal or other
government; (iii) governmental or quasi-governmental authority of any nature
(including any agency, branch, department, board, commission, court, tribunal or
other entity exercising governmental or quasi-governmental powers); (iv)
multinational organization or body; (v) body exercising, or entitled or
purporting to exercise, any administrative, executive, judicial, legislative,
police, regulatory or taxing authority or power; or (vi) official of any of the
foregoing.
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(w) "Improvements" means all
buildings, structures, fixtures and improvements located on Land, including
those under construction.
(x) "IRS" means the United States
Internal Revenue Service and, to the extent relevant, the United States
Department of the Treasury.
(y) "Knowledge" means actual
knowledge without independent investigation.
(z) "Land" means all parcels and
tracts of land in which any Person has an ownership or leasehold
interest.
(aa) "Material Adverse Effect" or
"Material Adverse
Change" means, in connection with any Person, any event, change or effect
that is materially adverse, individually or in the aggregate, to the condition
(financial or otherwise), properties, assets, liabilities, revenues, income,
business, operations, results of operations or prospects of such Person, taken
as a whole.
(bb) "NRS" shall mean the Nevada
Revised Statute, as amended.
(cc) "Order" means any writ,
directive, order, injunction, judgment, decree, ruling, assessment or
arbitration award of any Governmental Body or arbitrator.
(dd) "Ordinary Course of Business"
means an action taken by a Person will be deemed to have been taken in the
Ordinary Course of Business only if that action: (i) is consistent in nature,
scope and magnitude with the past practices of such Person and is taken in the
ordinary course of the normal, day-to-day operations of such Person; (ii) does
not require authorization by the board of directors or shareholders of such
Person (or by any Person or group of Persons exercising similar authority) and
does not require any other separate or special authorization of any nature; and
(iii) is similar in nature, scope and magnitude to actions customarily taken,
without any separate or special authorization, in the ordinary course of the
normal, day-to-day operations of other Persons that are in the same line of
business as such Person.
(ee) "Party" or "Parties" means Taiyu, the
Purchaser and/or the Taiyu Shareholders.
(ff) "Person" shall mean an
individual, company, partnership, limited liability company, limited liability
partnership, joint venture, trust or unincorporated organization, joint stock
corporation or other similar organization, government or any political
subdivision thereof, or any other legal entity.
(gg) "PRC" shall mean the Peoples
Republic of China
(hh) "Proceeding" means any action,
arbitration, audit, hearing, investigation, litigation or suit (whether civil,
criminal, administrative, judicial or investigative, whether formal or informal,
whether public or private) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
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(ii) "Purchaser" means SmartHeat
Inc.
(jj) "Purchaser Balance Sheet" has
the meaning set forth in Section 5.2(b)(ii)
(kk) "Purchaser Balance Sheet Date"
has the meaning set forth in Section 5.2(b(ii).
(ll) "Purchaser Business" means
Purchaser's business in the exploration of mineral properties.
(mm) "Purchaser Common Stock" means
the common stock, par value $.001 per share, of Purchaser.
(nn) "Purchaser Contracts" has the
meaning set forth in Section 5.2(l).
(oo) "Purchaser's Counsel" means
Cane ▇▇▇▇▇, LLP.
(pp) "Purchaser Employee Plans" has
the meaning set forth in Section 5.2(o).
(qq) "Purchaser Financial
Information" has the meaning set forth in
Section 5.1(b).
(rr) "Purchaser Intellectual
Property" has the meaning set forth in Section 5.2(j).
(ss) "Purchaser SEC Reports" has the
meaning set forth in Section 5.2(k)).
(tt) "Real Property" means any Land
and Improvements and all privileges, rights, easements, hereditaments and
appurtenances belonging to or for the benefit of any Land, including all
easements appurtenant to and for the benefit of any Land (a "Dominant Parcel") for, and as
the primary means of access between, the Dominant Parcel and a public way, or
for any other use upon which lawful use of the Dominant Parcel for the purposes
for which it is presently being used is dependent, and all rights existing in
and to any streets, alleys, passages and other rights-of-way included thereon or
adjacent thereto (before or after vacation thereof) and vaults beneath any such
streets.
(uu) "Related Agreements" means the
Control Share Agreement.
(vv) "Real Property Lease" means any
lease, rental agreement or rights to use land pertaining to the occupancy of any
improved space on any Land.
(ww) "Representative" means with
respect to a particular Person, any director, officer, manager, employee, agent,
consultant, advisor, accountant, financial advisor, legal counsel or other
Representative of that Person.
(xx) "Schlombs" means ▇▇▇▇▇
Schlombs
(yy) "SEC" means the United States
Securities and Exchange Commission.
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(zz) "Securities Act" means the
Securities Act of 1933, as amended.
(aaa) "Security Interest" means any
mortgage, pledge, security interest, Encumbrance, charge, claim, or other lien,
other than: (a) mechanic's, materialmen's and similar liens; (b)
liens for Taxes not yet due and payable or for Taxes that the taxpayer is
contesting in good faith through appropriate Proceedings; (c) liens arising
under worker's compensation, unemployment insurance, social security, retirement
and similar legislation; (d) liens arising in connection with sales of foreign
receivables; (e) liens on goods in transit incurred pursuant to documentary
letters of credit; (f) purchase money liens and liens securing rental
payments under capital lease arrangements; and (g) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
(bbb) "Share Exchange" has the
meaning set forth in the preamble.
(ccc) "Shares" has the meaning set
forth in Section 2.1
(ddd) "Split-Off Agreement" has the
meaning set forth in Section 2.5.
(eee) "Subsidiary" means with respect
to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred), are held by the Owner or one or more of its
Subsidiaries.
(fff) "Taiyu" has the meaning set
forth in the preamble.
(ggg) "Taiyu Balance Sheet" has the
meaning set forth in Section 4.6.
(hhh) "Taiyu Balance Sheet Date" has
the meaning set forth in Section 4.6.
(iii) "Taiyu Board" has the meaning
set forth in Section 4.4.
(jjj) "Taiyu Employee Plans" has the
meaning set forth in Section 4.16.
(kkk) "Taiyu Financial Information"
has the meaning set forth in Section 4.6.
(lll) "Taiyu Intellectual Property"
has the meaning set forth in Section 4.12(a).
(mmm) "Taiyu Shareholders" has the
meaning set forth in Section 2.1.
(nnn) "Tangible Personal Property"
means all machinery, equipment, tools, furniture, office equipment, computer
hardware, supplies, materials, vehicles and other items of tangible personal
property of every kind owned or leased by a Party (wherever located and whether
or not carried on a Party's books), together with any express or implied
warranty by the manufacturers or sellers or lessors of any item or component
part thereof and all maintenance records and other documents relating
thereto.
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(ooo) "Tax" or "Taxes" means, with respect to
any Person, (i) all income taxes (including any tax on or based upon net income,
gross income, gross receipts, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, commercial rent, premium, property or
windfall profit taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such person (if any),
(ii) all value added taxes and (iii) any liability for the payment of any amount
of the type described in clauses (i) or (ii) above as a result of (A) being a
"transferee" (within the meaning of Section 6901 of the Code or any Applicable
Law) of another person, (B) being a member of an affiliated, combined or
consolidated group or (C) a contractual arrangement or otherwise.
(ppp) "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule, exhibit or attachment thereto, and
including any amendment thereof.
(qqq) "Third Party" means a Person
that is not a Party to this Agreement.
2.1 The Share
Exchange.
Upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the NRS, at the Closing, the parties shall cause the Share
Exchange to be consummated by taking all appropriate actions to ensure that
all equitable and
legal rights, title and interests in and to the share capital of Taiyu is
assigned, delivered and transferred to the Purchaser, in exchange for the
issuance of an aggregate of 18,500,000 shares of Purchaser Common Stock (the
"Shares") to the
shareholders of Taiyu listed on Schedule 2.1.
The
Parties each hereby agree to use their Best Efforts and to cooperate with each
other to cause the Share Exchange to be a tax-free reorganization within the
meaning of Sections 368 and 1032 of the Code.
2.3 Closing.
The
Closing will occur via e-mail and facsimile on April 14, 2008 at 10:00 a.m. EST
or such later date and time to be agreed upon by the parties (the "Closing Date"), following
satisfaction or waiver of the conditions set forth in
Article VIII.
(a) Purchaser
shall (and shall cause Schlombs to) take such action as may be necessary to (i)
appoint the individual set forth on Schedule 2.4(a) as a
directors of the Purchaser, effective as of the Closing and until his respective
successor has been duly elected or appointed and qualified or until his earlier
death, resignation or removal in accordance with Purchaser’s Articles of
Incorporation and By-laws and (ii) have Schlombs resign as a director, effective
as of the end of the day on the Closing Date and after the appointment of such
new directors.
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(b) Those
individuals set forth on Schedule 2.4(b)
shall, as of the Closing, be appointed as the officers of the Purchaser until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Purchaser's
Certificate of Incorporation and By-laws. As of the Closing, Schlombs
shall resign from all positions as an officer of Purchaser.
(c) If at any
time after the Closing, any party shall consider that any further deeds,
assignments, conveyances, agreements, documents, instruments or assurances in
law or any other things are necessary or desirable to vest, perfect, confirm or
record in the Purchaser the title to any property, rights, privileges, powers
and franchises of, and equity in, Taiyu by reason of, or as a result of, the
Share Exchange, or otherwise to carry out the provisions of this Agreement, the
remaining parties, as applicable, shall execute and deliver, upon request, any
instruments or assurances, and do all other things necessary or proper to vest,
perfect, confirm or record title to such property, rights, privileges, powers,
franchises, and equity in the Purchaser, and otherwise to give effect to the
provisions of this Agreement and the Share Exchange.
At the
Closing, contemporaneously with the consummation of the Share Exchange,
Purchaser shall, pursuant to the terms and conditions of that certain Stock
Purchase Agreement dated of even date herewith entered into by and between
Schlombs and the Purchaser (the "Split-Off Agreement") which
shall be substantially in the form attached hereto as Exhibit 2.5, cause
2,500,000 shares of the Purchaser's Common Stock held by Schlombs to be
transferred back to the Purchaser and cancel and extinguish such
shares.
ARTICLE III.
COVENANTS, REPRESENTATIONS AND
The Taiyu
Shareholders acknowledge and agree that they are acquiring the Shares for
investment purposes and will not offer, sell or otherwise transfer, pledge or
hypothecate any of the Shares issued to them (other than pursuant to an
effective Registration Statement under the Securities Act) directly or
indirectly unless:
(a) The sale
is to Purchaser;
(b) the sale
is made pursuant to the exemption from registration under the Securities Act,
provided by Rule 144 thereunder; or
(c) the
Shares are sold in a transaction that does not require registration under the
Securities Act, or any applicable United States state laws and regulations
governing the offer and sale of securities, and the vendor has furnished to
Purchaser an opinion of counsel to that effect or such other written opinion as
may be reasonably required by Purchaser.
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3.2 Share
Legend.
The Taiyu
Shareholders acknowledge and agree that the certificates representing the Shares
shall bear the following legend:
"THESE
SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S.
PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATIONS UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). ACCORDINGLY,
NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED
UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO
REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES OR, DIRECTLY OR
INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AN IN EACH CASE ONLY
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION,
HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
ACCORDANCE WITH THE 1933 ACT."
The Taiyu
Shareholders represent and warrant that:
(a) the Taiyu
Shareholders are located outside the United States;
(b) the Taiyu
Shareholders are not aware of any advertisement of any of the shares being
issued hereunder;
(c) the Taiyu
Shareholders will not acquire the shares as a result of, and will not itself
engage in, any "directed selling efforts: (as defined in Regulation S under the
Securities Act) in the United States in respect of the shares which would
include any activities undertaken for the purpose of, or that could reasonably
be expected to have the effect of, conditioning the market in the United States
for the resale of the shares; provided, however, that the Taiyu Shareholders may
sell or otherwise dispose of the shares pursuant to registration of the shares
pursuant to the Securities Act and any applicable state and provincial
securities laws or under an exemption from such registration requirements and as
otherwise provided herein.
(a) The Taiyu
Shareholders acknowledge and agree that Purchaser will refuse to register any
transfer of the shares not made in accordance with the provisions of Regulation
S, pursuant to an effective registration statement under the Securities Act or
pursuant to an available exemption from the registration requirements of the
Securities Act and in accordance with applicable state and provincial securities
laws;
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(b) The Taiyu
Shareholders acknowledge and agree that offers and sales of any of the Shares,
prior to the expiration of a period of one year after the date of transfer of
the shares (the "Distribution Compliance Period"), shall only be made in
compliance with the safe harbor provisions set forth in Regulation S, pursuant
to the registration provisions of the Securities Act or an exemption therefrom,
and that all offers and sales after the Distribution Compliance Period shall be
made only in compliance with the registration provisions of the Securities Act
or an exemption therefrom and in each case only in accordance with all
applicable securities laws;
(c) The Taiyu
Shareholders acknowledge and agree not to engage in any hedging transactions
involving the Shares prior to the end of the Distribution Compliance Period
unless such transactions are in compliance with the provisions of the Securities
Act; and
(d) The Taiyu
Shareholders hereby acknowledge and agree to Purchaser making a notation on its
records or giving instructions to the registrar and transfer agent of Purchaser
in order to implement the restrictions on transfer set forth and described
herein.
As a
material inducement for Purchaser to enter into this Agreement and to consummate
the transactions contemplated hereby, Taiyu makes the following representations
and warranties as of the date hereof and as of the Closing Date, each of which
is relied upon by Purchaser regardless of any investigation made or information
obtained by Purchaser (unless and to the extent specifically and expressly
waived in writing by Purchaser on or before the Closing Date):
(a) Taiyu is
a corporation duly organized, validly existing and in good standing under the
laws of PRC. Taiyu is duly qualified to do business in the PRC and is
in good standing under the laws of each jurisdiction 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 and the failure to be so
qualified would have a Material Adverse Effect on Taiyu.
(b) Taiyu
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, trust, joint venture, association, or other
entity.
4.2 Corporate
Documents.
Schedule 4.2
shall consist of a true and correct copy of a shareholder list setting forth all
owners of the authorized capital of, or other equity in, Taiyu.
The
entire authorized capital of Taiyu consists of 25,000,000 Yuan, all of which has
been duly authorized, fully paid in and is nonassessable. All of the authorized
capital is held of record by the stockholders listed on the shareholder list
attached as Schedule
4.3.
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Taiyu has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. On the Closing Date, this Agreement shall be duly and
validly authorized by all necessary action on the part of Taiyu in accordance
with Applicable Laws and Taiyu's Governing Documents. This Agreement
constitutes the valid and legally binding obligation of Taiyu, enforceable in
accordance with its terms and conditions. The Board of Directors of
Taiyu (the "Taiyu Board")
has duly and validly authorized the execution and delivery of this
Agreement and approved the consummation of the transactions contemplated hereby,
and has taken all corporate actions required to be taken by the Taiyu Board for
the consummation of the Share Exchange.
4.5 Noncontravention.
Neither
the execution and delivery of this Agreement, nor consummation of the Share
Exchange, by Taiyu will:
(a) violate
any Applicable Law, Order, stipulation, charge or other restriction of any
Governmental Body to which Taiyu is subject or any provision of its Governing
Documents; or
(b) conflict
with, result in a Breach of, constitute a default under, result in the
acceleration of, create in any Person the right to accelerate, terminate, modify
or cancel, or require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other arrangement to
which Taiyu is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets), except where the violation, conflict, Breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect on the financial condition of
Taiyu or on the ability of the Parties to consummate the Share
Exchange.
Schedule 4.6
contains the audited combined balance sheets and statements of income,
stockholders’ equity and cash flow as of and for the year ended December 31,
2006 and December 31, 2007 for Taiyu (collectively, the “Taiyu Financial Information”).
The audited balance sheet dated as of December 31, 2007 of Taiyu shall be
referred to herein as the "Taiyu Balance Sheet" and
December 31, 2007 shall be sometimes referred to herein as the "Taiyu Balance Sheet
Date."
Since the
Taiyu Balance Sheet Date, and except as disclosed on Schedule 4.7,
there has not been, occurred or arisen, with respect to any member of the
Taiyu:
(a) any
change or amendment in its Governing Documents;
(b) any
reclassification, split up or other change in, or amendment of or modification
to, the rights of the holders of any of its capital stock;
(c) any
direct or indirect redemption, purchase or acquisition by any Person of any of
its capital stock or of any interest in or right to acquire any such
stock;
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(d) any
issuance, sale, or other disposition of any capital stock, or any grant of any
options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any capital stock;
(e) any
declaration, set aside, or payment of any dividend or any distribution with
respect to its capital stock (whether in cash or in kind) or any redemption,
purchase, or other acquisition of any of its capital stock;
(f) the
organization of any Subsidiary or the acquisition of any shares of capital stock
by any Person or any equity or ownership interest in any business;
(g) any
damage, destruction or loss of any of the its properties or assets whether or
not covered by insurance;
(h) any
material sale, lease, transfer, or assignment of any of its assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of
Business;
(i) the
execution of, or any other commitment to any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
outside the Ordinary Course of Business;
(j) any
acceleration, termination, modification, or cancellation of any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $10,000 to which it is a party or by which it
is bound;
(k) any
Security Interest or Encumbrance imposed upon any of its assets, tangible or
intangible;
(l) any grant
of any license or sublicense of any rights under or with respect to any material
Taiyu Intellectual Property;
(m) any sale,
assignment or transfer (including transfers to any employees, Affiliates or
shareholders) of any material Taiyu Intellectual Property;
(n) any
capital expenditure (or series of related capital expenditures) involving more
than $25,000 and outside the Ordinary Course of Business;
(o) any
capital investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments, loans,
and acquisitions) involving more than $25,000 and outside the Ordinary Course of
Business;
(p) any
issuance of any note, bond, or other debt security or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or capitalized lease
obligation involving more than $25,000;
(q) any delay
or postponement of the payment of accounts payable or other liabilities, other
than those being contested in good faith;
13
(r) any
cancellation, compromise, waiver, or release of any right or claim (or series of
related rights and claims) involving more than $25,000 and outside the Ordinary
Course of Business;
(s) any loan
to, or any entrance into any other transaction with, any of its directors,
officers, and employees either involving more than $1,000 individually or $5,000
in the aggregate;
(t) the
adoption, amendment, modification, or termination of any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of
any of its directors, officers, and employees (or taken away any such action
with respect to any other Employee Benefit Plan);
(u) any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(v) any
increase in the base compensation of any of its directors, officers, and
employees that is greater than Twenty Five Thousand Dollars ($25,000) per
annum;
(w) any
charitable or other capital contribution in excess of $2,500;
(x) any
taking of other action or entrance into any other transaction other than in the
Ordinary Course of Business, or entrance into any transaction with any insider
of Taiyu, except as disclosed in this Agreement and the Disclosure
Schedules;
(y) any other
event or occurrence that may have or could reasonably be expected to have a
Material Adverse Effect on Taiyu (whether or not similar to any of the
foregoing); or
(z) any
agreement or commitment, whether in writing or otherwise, to do any of the
foregoing.
4.8 Tax
Matters.
(a) Except as
set forth on Schedule 4.8
Taiyu:
(i) has timely paid or caused to be paid
all material Taxes required to be paid by it though the date hereof and as of
the Closing Date (including any Taxes shown due on any Tax Return);
(ii) has filed
or caused to be filed in a timely and proper manner (within any applicable
extension periods) all Tax Returns required to be filed by it with the
appropriate Governmental Body in all jurisdictions in which such Tax Returns are
required to be filed; and all tax returns filed on behalf of Taiyu were complete
and correct in all material respects; and
(iii) has not
requested or caused to be requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
14
(iv) has not
been notified since January 1, 2006 by any Governmental Body that any
material issues have been raised (and no such issues are currently pending) by
any Governmental Body in connection with any Tax Return filed by or on behalf of
Taiyu; there are no pending Tax audits and no waivers of statutes of limitations
have been given or requested with respect to Taiyu; no Tax liens have been filed
against Taiyu or unresolved deficiencies or additions to Taxes have been
proposed, asserted or assessed against Taiyu;
(v) has made
full and adequate accrual (A) on the Taiyu Balance Sheet, and the books and
records of Taiyu for all income taxes currently due and all accrued
Taxes not yet due and payable by Taiyu for all periods ending on or prior to the
Taiyu Balance Sheet Date, and (B) on the books and records of
Taiyu for all Taxes payable by Taiyu for all periods beginning after
the Taiyu Balance Sheet Date;
(vi) has not
incurred any liability for Taxes from and after the Taiyu Balance Sheet Date
other than Taxes incurred in the Ordinary Course of Business and consistent with
past practices;
(vii) has
complied in all material respects with all Applicable Laws relating to the
collection or withholding of Taxes (such as Taxes or withholding of Taxes from
the wages of employees); and
(viii) does not
have any liability in respect of any Tax sharing agreement with any
Person;
(b) No
member of the Taiyu has incurred any liability to make any payments either alone
or in conjunction with any other payments that would constitute a "parachute
payment" within the meaning of Section 280G of the Code (or any
corresponding provision of state local or foreign Applicable Law related to
Taxes);
(c) No
claim has been made within the last three years by any taxing authority in a
jurisdiction in which Taiyu does not file Tax Returns that Taiyu is or may be
subject to taxation by that jurisdiction;
(d) The
consummation of the Share Exchange will not trigger the realization or
recognition of intercompany gain or income to Taiyu or any Affiliate of Taiyu
under the Federal consolidated return regulations with respect to Federal, state
or local taxes; and
(e) Taiyu
is not currently, nor has it been at any time during the previous five years, a
"U.S. real property holding corporation" and, therefore, the Shares are not
"U.S. real property interests," as such terms are defined in Section 897 of
the Code.
4.9 Title to
Assets.
Taiyu has
good and marketable title to, or a valid leasehold interest in, the properties
and assets owned or leased and used by it to operate the Business in the manner
presently operated by it, as reflected in the Taiyu Financial
Information.
15
4.10 Leased
Real Property.
Except as
disclosed on Schedule
4.10, Taiyu does not own or holds any leasehold interest in or right to
use any Real Property.
4.11 Condition
of Facilities.
(a) Use of
the Real Property of Taiyu for the various purposes for which it is presently
being used is permitted as of right under all Applicable Laws related to zoning
and is not subject to "permitted nonconforming" use or structure
classifications. All Improvements are in compliance with all
Applicable Laws, including those pertaining to zoning, building and the
disabled, are in good repair and in good condition, ordinary wear and tear
excepted, and are free from latent and patent defects. No part of any
Improvement encroaches on any real property not included in the Real Property of
Taiyu or the Taiyu , and there are no buildings, structures, fixtures or other
Improvements primarily situated on adjoining property which encroach on any part
of the Land.
(b) Each item
of Tangible Personal Property is in good repair and good operating condition,
ordinary wear and tear excepted, is suitable for immediate use in the Ordinary
Course of Business and is free from latent and patent defects. No
item of Tangible Personal Property is in need of repair or replacement other
than as part of routine maintenance in the Ordinary Course of
Business. All Tangible Personal Property used in the Business is in
the possession of Taiyu.
(a) Taiyu
owns, or is licensed or otherwise possesses legal enforceable rights to use all:
(i) trademarks and service marks (registered or unregistered), trade dress,
trade names and other names and slogans embodying business goodwill or
indications of origin, all applications or registrations in any jurisdiction
pertaining to the foregoing and all goodwill associated therewith; (ii) material
patentable inventions, technology, computer programs and software (including
password unprotected interpretive code or source code, object code, development
documentation, programming tools, drawings, specifications and data) and all
applications and patents in any jurisdiction pertaining to the foregoing,
including re-issues, continuations, divisions, continuations-in-part, renewals
or extensions; (iii) trade secrets, including confidential and other non-public
information (iv) copyrights in writings, designs, software programs, mask works
or other works, applications or registrations in any jurisdiction for the
foregoing and all moral rights related thereto; (v) databases and all database
rights; and (vi) Internet web sites, domain names and applications and
registrations pertaining thereto (collectively, "Taiyu Intellectual
Property") that are used in the Business except for any such failures to
own, be licensed or process that would not be reasonably likely to have a
Material Adverse Effect.
(b) Except as
may be evidenced by patents issued after the date hereof, there are no conflicts
with or infringements of any material Taiyu Intellectual Property by
any third party and the conduct of the Business as currently conducted does not
conflict with or infringe any proprietary right of a third party.
16
(c) Taiyu
owns or has the right to use all software currently used in and material to the
Business.
4.13 Affiliate
Transactions.
No
officer, director, or employee of Taiyu or any member of the immediate family of
any such officer, director or employee, or any entity in which any of such
persons owns any beneficial interest (other than any publicly-held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market and less than one percent of the stock of which is
beneficially owned by any of such persons), has any agreement with Taiyu or any
interest in any of their property of any nature, used in or pertaining to the
Business (other than the ownership of capital stock of the corporation as
disclosed in Section 4.3). None of the foregoing Persons has any
direct or indirect interest in any competitor, supplier or customer of Taiyu or
in any Person from whom or to whom the Taiyu leases any property or transacts
business of any nature.
4.14 Powers of
Attorney.
There are
no outstanding powers of attorney executed on behalf of Taiyu.
4.15 Litigation.
Except as
set forth on Schedule
4.15:
(a) there is
no pending or, to Taiyu's Knowledge, threatened Proceeding:
(i) by or against Taiyu or that otherwise
relates to or may affect the Business which, if adversely determined, would have
a Material Adverse Effect; or
(ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Share Exchange.
(b) to the
Knowledge of Taiyu, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement of
any such Proceeding. Taiyu has delivered to Purchaser copies, if any,
of all pleadings, correspondence and other documents relating to each
Proceeding.
(c) there is
no material Order to which Taiyu, any member of the Taiyu or the
Business is subject; and
(d) to the
Knowledge of Taiyu, no officer, director, agent or employee of Taiyu is subject
to any Order that prohibits such officer, director, agent or employee from
engaging in or continuing any conduct, activity or practice relating to the
Business.
(e) Taiyu has
been and is in compliance with all of the terms and requirements of each Order
to which it or the Business is or has been subject;
17
(f) no event
has occurred or circumstance exists that is reasonably likely to constitute or
result in (with or without notice or lapse of time) a violation of or failure to
comply with any term or requirement of any Order to which Taiyu or the Business
is subject; and
(g) Taiyu has
not received any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding any actual, alleged,
possible or potential violation of, or failure to comply with, any term or
requirement of any Order to which Taiyu or the Business is subject.
4.16 Employee
Benefits.
(a) Schedule 4.16 lists
all material (i) Employee Benefit Plans of the Taiyu , (ii) bonus, stock
option, stock purchase, stock appreciation right, incentive, deferred
compensation, supplemental retirement, severance, and fringe benefit plans,
programs, policies or arrangements, and (iii) employment or consulting
agreements, for the benefit of, or relating to, any current or former employee
(or any beneficiary thereof) of Taiyu that, in the case of a plan described in
(i) or (ii) above, is currently maintained by Taiyu or with respect to which
Taiyu has an obligation to contribute, and that, in the case of an agreement
described in (iii) above, is currently in effect (the “Taiyu Employee
Plans”).
(b) There is
no Proceeding pending or, to Taiyu's Knowledge, threatened against the assets of
any Taiyu Employee Plan or, with respect to any
Taiyu Employee Plan, against Taiyu, other than Proceedings that would
not reasonably be expected to result in a Material Adverse Effect, and to
Taiyu's Knowledge there is no Proceeding pending or threatened in writing
against any fiduciary of any Taiyu Employee Plan other than Proceedings that
would not reasonably be expected to result in a Material Adverse
Effect.
(c) Each of
the Taiyu Employee Plans has been operated and administered in all material
respects in accordance with its terms and Applicable Law.
(d) No
director, officer, or employee of Taiyu will become entitled to retirement,
severance or similar benefits or to enhanced or accelerated benefits (including
any acceleration of vesting or lapsing of restrictions with respect to
equity-based awards) under any Taiyu Employee Plan solely as a result
of consummation of the Share Exchange.
4.17 Insurance.
Except as
set forth on Schedule
4.17 Taiyu has sufficient insurance of any kind or nature, including, but
not limited to, fire, liability, workmen's compensation and other forms of
insurance covering Taiyu all or any portion of its business, property and
assets.
4.18 Employees.
To the
Knowledge of Taiyu, no officer, director, agent, employee, consultant, or
contractor of Taiyu is bound by any Contract that purports to limit the ability
of such officer, director, agent, employee, consultant, or contractor (i) to
engage in or continue or perform any conduct, activity, duties or practice
relating to the Business or (ii) to assign to Taiyu or to any other Person any
rights to any invention, improvement, or discovery. No former or
current employee of Taiyu is a party to, or is otherwise bound by, any Contract
that in any way adversely affected, affects, or will affect the ability of Taiyu
or Purchaser to conduct the Business as heretofore carried on by
Taiyu.
18
4.19 Labor
Relations.
Taiyu is
not a party to any collective bargaining or similar agreement. To the
Knowledge of Taiyu, there are no strikes, work stoppages, unfair labor practice
charges or grievances pending or threatened against Taiyu by any employee of
Taiyu or any other Person or entity.
4.20 Legal
Compliance.
To the
Knowledge of Taiyu, Taiyu is in material compliance with all Applicable Laws
(including rules and regulations thereunder) of any Governmental Bodies having
jurisdiction over Taiyu , including any requirements relating to antitrust,
consumer protection, currency exchange, equal opportunity, health, occupational
safety, pension and securities matters.
4.21 Brokers'
Fees.
Taiyu has
no liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the Share Exchange for which Taiyu could become liable
or obligated.
4.22 Undisclosed
Liabilities.
To the
Knowledge of Taiyu, Taiyu does not have any liability (and to the Knowledge of
Taiyu, there is no basis for any present or future Proceeding, charge,
complaint, claim, or demand against any of them giving rise to any liability),
except for
(a) liabilities
reflected or reserved against in the Taiyu Balance Sheet;
or
(b) liabilities
which have arisen in the Ordinary Course of Business since the Taiyu Balance
Sheet Date.
4.23 Disclosure.
The
representations and warranties of Taiyu contained in this Agreement 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 misleading.
As a
material inducement for Taiyu to enter into this Agreement and to consummate the
transactions contemplated hereby, Purchaser hereby makes the following
representations and warranties as of the date hereof and as of the Closing Date,
each of which is relied upon by Taiyu regardless of any investigation made or
information obtained by Taiyu (unless and to the extent specifically and
expressly waived in writing by Taiyu on or before the Closing
Date):
19
(i) Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of State of
Nevada. Purchaser is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction 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 and the failure
to be so qualified would have a Material Adverse Effect on
Purchaser.
(ii) Purchaser
has no Subsidiary and does not own any shares of capital stock or other
securities of any other Person.
(b) Authorization of
Transaction. Purchaser has the corporate power to execute,
deliver and perform this Agreement, the Related Agreements, and, subject to the
satisfaction of the conditions precedent set forth herein, has taken all action
required by law, its Governing Documents or otherwise, to authorize the
execution, delivery, and performance of this Agreement and such
related documents. The execution and delivery of this Agreement has
been approved by the Board of Directors of Purchaser. This Agreement
is a valid obligation of Purchaser and is legally binding on Purchaser in
accordance with its terms..
(c) Capitalization of
Purchaser. The entire authorized capital stock of Purchaser
consists of 75,000,00 shares of common stock having a par value of $0.001 per
share, of which 6,549,900 shares are issued and outstanding. All
issued and outstanding shares of Purchaser Common Stock have been duly
authorized, are validly issued, fully paid and nonassessable. There
are no outstanding or authorized options, warrants, rights, contracts, calls,
puts, rights to subscribe, conversion rights or other agreements or commitments
to which Purchaser is a party or which are binding upon Purchaser providing for
the issuance, disposition or acquisition of any of its capital stock, nor any
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to Purchaser.
(d) Noncontravention. Neither
the execution and delivery of this Agreement, nor consummation of the Share
Exchange, will:
(i) violate any Applicable Law, Order,
stipulation, charge or other restriction of any Governmental Body to which
Purchaser is subject or any provision of its Governing Documents;
or
(ii) conflict
with, result in a Breach of, constitute a default under, result in the
acceleration of, create in any Person the right to accelerate, terminate, modify
or cancel, or require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest, or other arrangement to
which Purchaser is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of its
assets), except where the violation, conflict, Breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a Material Adverse Effect on the financial condition of
Purchaser or on the ability of the Parties to consummate the Share
Exchange.
20
(a) Affiliate
Transactions. No officer, director, or employee of Purchaser
or any member of the immediate family of any such officer, director or employee,
or any entity in which any of such persons owns any beneficial interest (other
than any publicly-held corporation whose stock is traded on a national
securities exchange or in the over-the-counter market and less than one percent
of the stock of which is beneficially owned by any of such Persons), has any
agreement with Purchaser or any interest in any of their property of any nature,
used in or pertaining to the Purchaser Business. None of the
foregoing Persons has any direct or indirect interest in any competitor,
supplier or customer of Purchaser or in any Person from whom or to whom
Purchaser leases any property or transacts business of any nature.
(b) Purchaser Financial
Information. Schedule 5.2(b)
shall include the following financial information (collectively, the “Purchaser Financial
Information”):
(i) audited balance sheet and statements of
income, changes in stockholders' equity and cash flow as of and for the fiscal
years ended 2006 and 2007 for Purchaser; and
(ii) the names
and locations of all banks, trust companies, savings and loan associations and
other financial institutions at which Purchaser maintains safe deposit boxes or
accounts of any nature and the names of all persons authorized to have access
thereto, draw thereon or make withdrawals therefrom, as listed on Schedule
5.2(b).
The
audited balance sheet as of October 31, 2007 of Purchaser shall be referred to
herein as the "Purchaser
Balance Sheet" and October 31, 2007 shall be sometimes referred to herein
as the "Purchaser Balance Sheet
Date." Purchaser Financial Information presents fairly
the financial condition of Purchaser as of such dates and the results of
operations of Purchaser for such periods, in accordance with GAAP and are
consistent with the books and records of Purchaser (which books and records are
correct and complete).
(c) Events Subsequent to
Purchaser Balance Sheet. Since the Purchaser Balance Sheet
Date, there has not been, occurred or arisen, with respect to
Purchaser:
(i) any change or amendment in its
Governing Documents;
(ii) any
reclassification, split up or other change in, or amendment of or modification
to, the rights of the holders of any of its capital stock;
(iii) any
direct or indirect redemption, purchase or acquisition by any Person of any of
its capital stock or of any interest in or right to acquire any such
stock;
(iv) any
issuance, sale, or other disposition of any capital stock, or any grant of any
options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any capital stock;
21
(v) any
declaration, set aside, or payment of any dividend or any distribution with
respect to its capital stock (whether in cash or in kind) or any redemption,
purchase, or other acquisition of any of its capital stock;
(vi) the
organization of any Subsidiary or the acquisition of any shares of capital stock
by any Person or any equity or ownership interest in any business;
(vii) any
damage, destruction or loss of any of the its properties or assets whether or
not covered by insurance;
(viii) any sale,
lease, transfer, or assignment of any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ix) the
execution of, or any other commitment to any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
outside the Ordinary Course of Business;
(x) any
acceleration, termination, modification, or cancellation of any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses), involving more than $10,000 to which it is a party or by which it
is bound;
(xi) any
Security Interest or Encumbrance imposed upon any of its assets, tangible or
intangible;
(xii) any grant
of any license or sublicense of any rights under or with respect to any
Purchaser Intellectual Property;
(xiii) any sale,
assignment or transfer (including transfers to any employees, affiliates or
shareholders) of any Purchaser Intellectual Property;
(xiv) any
capital expenditure (or series of related capital expenditures) involving more
than $10,000 and outside the Ordinary Course of Business;
(xv) any
capital investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments, loans,
and acquisitions) involving more than $10,000 and outside the Ordinary Course of
Business;
(xvi) any
issuance of any note, bond, or other debt security or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or capitalized lease
obligation involving more than $25,000;
(xvii) any delay
or postponement of the payment of accounts payable or other
liabilities;
(xviii) any
cancellation, compromise, waiver, or release of any right or claim (or series of
related rights and claims) involving more than $25,000 and outside the Ordinary
Course of Business;
22
(xix) any loan
to, or any entrance into any other transaction with, any of its directors,
officers, and employees either involving more than $500 individually or $2,500
in the aggregate;
(xx) the
adoption, amendment, modification, or termination of any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of
any of its directors, officers, and employees (or taken away any such action
with respect to any other Employee Benefit Plan);
(xxi) any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xxii) any
increase in the base compensation of any of its directors, officers, and
employees;
(xxiii) any
charitable or other capital contribution in excess of $2,500;
(xxiv) any
taking of other action or entrance into any other transaction other than in the
Ordinary Course of Business, or entrance into any transaction with any insider
of Purchaser, except as disclosed in this Agreement and the Disclosure
Schedules;
(xxv) any other
event or occurrence that may have or could reasonably be expected to have an
Material Adverse Effect on Purchaser (whether or not similar to any of the
foregoing); or
(xxvi) any
agreement or commitment, whether in writing or otherwise, to do any of the
foregoing.
(d) Tax
Matters.
Purchaser:
(i) has timely paid or caused to be paid
all Taxes required to be paid by it though the date hereof and as of the Closing
Date (including any Taxes shown due on any Tax Return);
(ii) has filed
or caused to be filed in a timely and proper manner (within any applicable
extension periods) all Tax Returns required to be filed by it with the
appropriate Governmental Body in all jurisdictions in which such Tax Returns are
required to be filed; and all tax returns filed on behalf of Purchaser and each
Purchaser Tax Affiliate were completed and correct in all material respects;
and
(iii) has not
requested or caused to be requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
23
(iv) has
previously delivered true, correct and complete copies of all Federal Tax
Returns filed by or on behalf of Purchaser through the date hereof for the
periods ending after December 31, 2004.
(v) since
January 1, 2005, has not been notified by the IRS or any other Governmental Body
that any issues have been raised (and no such issues are currently pending) by
the IRS or any other Governmental Body in connection with any Tax Return filed
by or on behalf of Purchaser or any Purchaser Tax Affiliate; there are no
pending Tax audits and no waivers of statutes of limitations have been given or
requested with respect to Purchaser or any present or former Affiliate of
Purchaser (for years that it was an Affiliate); no Tax liens have
been filed against Purchaser or unresolved deficiencies or additions to Taxes
have been proposed, asserted or assessed against Purchaser or any present or
former Affiliate (for the years that it was
an Affiliate);;
(vi) has made
full and adequate accrual (i) on the Purchaser Balance Sheet, and the books and
records of Purchaser for all income Taxes currently due and all accrued Taxes
not yet due and payable by Purchaser for all periods ending on or prior to the
Purchaser Balance Sheet Date, and (ii) on the books and records of Purchaser and
for all Taxes payable by Purchaser for all periods beginning after the Purchaser
Balance Sheet Date;
(vii) has not
incurred any liability for Taxes from and after the Purchaser Balance Sheet Date
other than Taxes incurred in the Ordinary Course of Business and consistent with
past practices;
(viii) has not
(i) made an election (or had an election made on its behalf by another person)
to be treated as a “consenting corporation” under Section 341(f) of the
Code or (ii) a “personal holding company” within the meaning of Section 542 of
the Code;
(ix) has
complied in all material respects with all Applicable Laws relating to the
collection or withholding of Taxes (such as Taxes or withholding of Taxes from
the wages of employees);
(x) has no
liability in respect of any Tax sharing agreement with any Person and all Tax
sharing agreements to which Purchaser has been bound have been
terminated;
(xi) has not
incurred any Liability to make any payments either alone or in conjunction with
any other payments that:
(A) shall be
non-deductible under, or would otherwise constitute a “parachute payment” within
the meaning of Section 280G of the Code (or any corresponding provision of
state local or foreign income Tax Law); or
(B) are or
may be subject to the imposition of an excise Tax under Section 4999 of the
Code;
24
(xii) has not
agreed to (nor has any other Person agreed to on its behalf) and is not required
to make any adjustments or changes on, before or after the Closing Date, to its
accounting methods pursuant to Section 481 of the Code, and the Internal
Revenue Service has not proposed any such adjustments or changes in the
accounting methods of Purchaser; and
(xiii) is not
currently, nor has it been at any time during the previous five years, a “U.S.
real property holding corporation” and, therefore, the Purchaser Common Stock is
not “U.S. real property interests,” as such terms are defined in
Section 897 of the Code.
No claim
has been made within the last three years by any taxing authority in a
jurisdiction in which Purchaser does not file Tax Returns that Purchaser is or
may be subject to taxation by that jurisdiction;
(e) Intercompany Gain as Result
of Transaction. The consummation of the Share Exchange will
not trigger the realization or recognition of intercompany gain or income to
Purchaser under the Federal consolidated return regulations with respect to
Federal, state or local Taxes; and
(f) Title to
Assets. Purchaser has good and marketable title to, or a valid
leasehold interest in, the properties and assets owned or leased and used by it
to operate the Purchaser Business in the manner presently operated by Purchaser,
as reflected in the Purchaser Financial Information.
(g) Real
Property. Except as set forth in Schedule 5.2(g)
Purchaser does not own or hold an ownership interest in any Real
Property.
(h) Leased Real Property.
Except as set forth in Schedule 5.2(h),
Purchaser does not own or a leasehold interest in any Real
Property.
(i) Use of the Real Property of Purchaser
for the various purposes for which it is presently being used is permitted as of
right under all Applicable Laws related to zoning and is not subject to
“permitted nonconforming” use or structure classifications. All
Improvements are in compliance with all Applicable Laws, including those
pertaining to zoning, building and the disabled, are in good repair and in good
condition, ordinary wear and tear excepted, and are free from latent and patent
defects. To the Knowledge of Purchaser, no part of any Improvement
encroaches on any real property not included in the Real Property of Purchaser,
and there are no buildings, structures, fixtures or other Improvements primarily
situated on adjoining property which encroach on any part of the
Land.
(ii) Each item
of Tangible Personal Property is in good repair and good operating condition,
ordinary wear and tear excepted, is suitable for immediate use in the Ordinary
Course of Business and is free from latent and patent defects. No
item of Tangible Personal Property is in need of repair or replacement other
than as part of routine maintenance in the Ordinary Course of
Business. Except as disclosed in Schedule 5.2(i)(ii),
all Tangible Personal Property used in the Purchaser Business is in the
possession of Purchaser.
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(i) Purchaser owns, or is licensed or
otherwise possesses legal enforceable rights to use all: (i) trademarks and
service marks (registered or unregistered), trade dress, trade names and other
names and slogans embodying business goodwill or indications of origin, all
applications or registrations in any jurisdiction pertaining to the foregoing
and all goodwill associated therewith; (ii) patentable inventions, technology,
computer programs and software (including password unprotected
interpretive code or source code, object code, development documentation,
programming tools, drawings, specifications and data) and all applications and
patents in any jurisdiction pertaining to the foregoing, including re-issues,
continuations, divisions, continuations-in-part, renewals or extensions; (iii)
trade secrets, including confidential and other non-public information (iv)
copyrights in writings, designs, software programs, mask works or other works,
applications or registrations in any jurisdiction for the foregoing and all
moral rights related thereto; (v) databases and all database rights; and (vi)
Internet Web sites, domain names and applications and registrations pertaining
thereto (collectively, “Purchaser Intellectual
Property”) that are used in the Purchaser Business except for any such
failures to own, be licensed or process that would not be reasonably likely to
have a Material Adverse Effect.
(ii) Purchaser
owns or has the right to use all software currently used in and material to the
Purchaser Business.
(k) SEC Reports and Financial
Statements. Since January 1, 2005, Purchaser has filed with
the SEC all reports and other filings required to be filed by Purchaser in
accordance with the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder (the “Purchaser SEC Reports”). As of
their respective dates, Purchaser SEC Reports complied in all material respects
with the applicable requirements of the Securities Act, the Exchange Act and the
respective rules and regulations promulgated thereunder applicable to such
Purchaser SEC Reports and, except to the extent that information contained in
any Purchaser SEC Report has been revised or superseded by a later Purchaser SEC
Report filed and publicly available prior to the date of this Agreement, none of
the Purchaser SEC Reports contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Purchaser
included in Purchaser SEC Reports were prepared from and are in accordance with
the accounting books and other financial records of Purchaser, were prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by the rules of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and presented fairly
the consolidated financial position of Purchaser and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except
as set forth in the Purchaser SEC Reports, Purchaser has no liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
other than liabilities or obligations incurred in the Ordinary Course of
Business since the Purchaser Balance Sheet Date. The Purchaser SEC
Reports accurately disclose (i) the terms and provisions of all stock option
plans, (ii) transactions with Affiliates, and (iii) all material contracts
required to be disclosed pursuant to Item 601(b)(10) of Regulation S-B
promulgated by the SEC.
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(l) Contracts. Schedule 5.2(l)
is a true, complete and accurate list of all written or oral contracts,
understandings, agreements and other arrangements (including a brief description
of all such oral arrangements) executed by an officer or duly authorized
employee of Purchaser or to which Purchaser is a party either:
(i) involving more than $10,000,
or
(ii) in the
nature of a collective bargaining agreement, employment agreement, or severance
agreement with any of its directors, officers and employees.
Purchaser
has delivered or will, prior to Closing, deliver to Taiyu a correct and complete
copy of each Contract (redacted copies for names are acceptable) listed in Schedule 5.2(l)
(the “Purchaser
Contracts”). Except as disclosed in Schedule 5.2(l):
(i) Purchaser has fully complied with all material terms of Purchaser Contracts;
(ii) to the Knowledge of Purchaser, other parties to Purchaser Contracts have
fully complied with the terms of Purchaser Contracts; and (iii) there are no
disputes or complaints with respect to nor has Purchaser received any notices
(whether oral or in writing) that any other party to Purchaser Contracts is
terminating, intends to terminate or is considering terminating, any of
Purchaser Contracts listed or required to be listed in Schedule 5.2(l).
(m) Powers of
Attorney. There are no outstanding powers of attorney executed
on behalf of Purchaser.
(n) Litigation. Except
as set forth in Schedule
5.2(n):
(i) There is no pending or, to Purchaser’s
Knowledge, threatened Proceeding:
(A) by or
against Purchaser or that otherwise relates to or may affect the Purchaser
Business which, if adversely determined, would have a Material Adverse Effect;
or
(B) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Share Exchange.
To the
Knowledge of Purchaser, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement of
any such Proceeding.
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(ii) Except as
set forth in Schedule 5.2(n):
(A) there is
no material Order to which Purchaser or the Purchaser Business is subject;
and
(B) to the
Knowledge of Purchaser, no officer, director, agent or employee of Purchaser is
subject to any Order that prohibits such officer, director, agent or employee
from engaging in or continuing any conduct, activity or practice relating to the
Purchaser Business.
(iii) Except as
set forth in Schedule 5.2(n):
(A) Purchaser
has been and is in compliance with all of the terms and requirements of each
Order to which it or the Purchaser Business is or has been subject;
(B) No event
has occurred or circumstance exists that is reasonably likely to constitute or
result in (with or without notice or lapse of time) a violation of or failure to
comply with any term or requirement of any Order to which Purchaser or the
Purchaser Business is subject; and
(C) Purchaser
has not received any notice, or received but subsequently resolved to the
satisfaction of the Governmental Body or other Person (evidence of such approval
is attached as Schedule 5.1(n),
or other communication (whether oral or written) from any Governmental Body or
any other Person regarding any actual, alleged, possible or potential violation
of, or failure to comply with, any term or requirement of any Order to which
Purchaser or the Purchaser Business is subject.
(o) Employee
Benefits.
(i) Purchaser has no (i) Employee Benefit
Plans, (ii) bonus, stock option, stock purchase, stock appreciation right,
incentive, deferred compensation, supplemental retirement, severance, and fringe
benefit plans, programs, policies or arrangements, and (iii) employment or
consulting agreements, for the benefit of, or relating to, any current or former
employee (or any beneficiary thereof) of Purchaser, in the case of a plan
described in (i) or (ii) above, that is currently maintained by Purchaser or
with respect to which Purchaser has an obligation to contribute, and in the case
of an agreement described in (iii) above, that is currently in effect (the
“Purchaser Employee
Plans”).
(ii) No
director, officer, or employee of Purchaser will become entitled to retirement,
severance or similar benefits or to enhanced or accelerated benefits (including
any acceleration of vesting or lapsing of restrictions with respect to
equity-based awards) under any Purchaser Employee Plan solely as a result of
consummation of the Share Exchange.
(p) Insurance. Schedule 5.2(p)
is an accurate and complete description of all policies of insurance of any kind
or nature, including, but not limited to, fire, liability, workmen's
compensation and other forms of insurance owned or held by or covering Purchaser
or all or any portion of its property and assets.
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(q) Employees. Schlombs
is the sole employee of Purchaser and he presently does not receive any
compensation for his services. To the Knowledge of Purchaser, no
officer, director, agent, employee, consultant, or contractor of Purchaser is
bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor (i) to engage in or
continue or perform any conduct, activity, duties or practice relating to the
Purchaser Business or (ii) to assign to Purchaser or to any other Person any
rights to any invention, improvement, or discovery. No former or
current employee of Purchaser is a party to, or is otherwise bound by, any
Contract that in any way adversely affected, affects, or will affect the ability
of Purchaser to conduct the Purchaser Business.
(r) Labor
Relations. Purchaser is not a party to any collective
bargaining or similar agreement. To the Knowledge of Purchaser, there
are no strikes, work stoppages, unfair labor practice charges or grievances
pending or threatened against Purchaser by any employee of Purchaser or any
other person or entity.
(s) Legal
Compliance. To the Knowledge of Purchaser, Purchaser is in
material compliance with all Applicable Laws of any Governmental Bodies having
jurisdiction over Purchaser, including any requirements relating to antitrust,
consumer protection, currency exchange, equal opportunity, health, occupational
safety, pension and securities matters.
(t) Brokers'
Fees. Purchaser has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the Share Exchange
for which Purchaser could become liable or obligated.
(u) Undisclosed
Liabilities. Purchaser has no liability (and to the Knowledge
of Purchaser, there is no basis for any present or future Proceeding, charge,
complaint, claim, or demand against any of them giving rise to any liability),
except for
(i) liabilities reflected or reserved
against in the Purchaser Balance Sheet; or
(ii) liabilities
which have arisen in the Ordinary Course of Business since the date of the
Purchaser Balance Sheet.
(v) Disclosure. The
representations and warranties of Purchaser contained in this Agreement 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 misleading.
Between
the date hereof and the Closing Date, each Party will give to the other and its
counsel, accountants and other Representatives full access to all the
properties, documents, contracts, personnel files and other records and shall
furnish copies of such documents and with such information with respect to its
affairs as may from time to time be reasonably requested. Each Party
will disclose to the other and make available to such Party and its
Representatives all books, contracts, accounts, personnel records, letters of
intent, papers, records, communications with regulatory authorities and other
documents relating to the business and operations of Taiyu or Purchaser, as the
case may be. In addition, Taiyu shall make available to Purchaser all
such banking, investment and financial information as shall be necessary to
allow for the efficient integration of Taiyu's banking, investment and financial
arrangements with those of Purchaser at the Closing. Access of
Purchaser pursuant to the foregoing shall be granted at a reasonable time and
upon reasonable notice.
29
6.2 Effect of
Access.
(a) Nothing
contained in this Article VI shall be deemed to create any duty or
responsibility on the part of either Party to investigate or evaluate the value,
validity or enforceability of any Contract or other asset included in the assets
of the other Party.
(b) With
respect to matters as to which any Party has made express representations or
warranties herein, the Parties shall be entitled to rely upon such express
representations and warranties irrespective of any investigations made by such
Parties, except to the extent that such investigations result in actual
knowledge of the inaccuracy or falsehood of particular representations and
warranties.
ARTICLE
VII. COVENANTS
(a) Prior to
the Closing or the termination of this Agreement, Taiyu will use its Best
Efforts to preserve the Business, to keep available to Purchaser the services of
the present employees of Taiyu, and to preserve for Purchaser the goodwill of
the suppliers, customers and others having business relations with
Taiyu. Taiyu shall conduct its Business only in the Ordinary Course
of Business, including, without limitation, its policies and practices relating
to the collection of accounts receivable and the payment of accounts payable and
other liabilities, and not introduce any new methods of management, operations
or accounting, without Purchaser’s prior written consent (which shall not be
unreasonably withheld); maintain its assets in as good working order and
condition as at present, ordinary wear and tear excepted; perform all material
obligations under material agreements and leases relating to or affecting it,
and keep in full force and effect present insurance policies.
(b) Prior to
the Closing or the termination of this Agreement, Purchaser will use its Best
Efforts to preserve the Purchaser Business, to keep available to Purchaser the
services of the present employees of Purchaser, and to preserve for Purchaser
the goodwill of the suppliers, customers and others having business relations
with Purchaser. Purchaser shall conduct the Purchaser Business only
in the Ordinary Course of Business, including, without limitation, its policies
and practices relating to the collection of accounts receivable and the payment
of accounts payable and other liabilities, and not introduce any new methods of
management, operations or accounting, without the prior written consent of Taiyu
(which shall not be unreasonably withheld); maintain its assets in as good
working order and condition as at present, ordinary wear and tear excepted;
perform all material obligations under material agreements and leases relating
to or affecting it, and keep in full force and effect present insurance
policies.
30
7.2 Current
Information.
(a) During
the period from the date of this Agreement to the Closing, each Party hereto
shall promptly notify each other Party of any (i) significant change in the
normal course of business or operations of its business, (ii) Proceeding (or
communications indicating that the same may be contemplated), or the institution
or threat or settlement of Proceedings, in each case involving such Party, the
outcome of which, if adversely determined, could reasonably be expected to have
a Material Adverse Effect on the Party, taken as a whole or (iii) event which
such Party reasonably believes could be expected to have a Material Adverse
Effect on the ability of any Party to consummate the Share
Exchange.
(b) During
the period from the date of this Agreement to the Closing, Purchaser shall
promptly notify Taiyu of any correspondence received from the SEC and shall
deliver a copy of such correspondence to Taiyu within one (1) Business Day of
receipt.
Prior to
the Closing, neither Taiyu nor Purchaser will (other than (i) as contemplated by
the terms of this Agreement and the Related Agreements, (ii) with respect to
transactions for which there is a binding commitment existing prior to the date
hereof disclosed in the Disclosure Schedules, and (iii) transactions described
on Schedule 7.3
which do not vary materially from the terms set forth on such Schedule 7.3, or in
the Ordinary Course of Business without first obtaining the written consent of
the other Parties):
(a) declare
or pay any dividend or make any other distribution to shareholders, whether in
cash, stock or other property;
(b) amend its
Governing Documents or enter into any agreement to merge or consolidate with, or
sell a significant portion of its assets to, any other Person;
(c) except
pursuant to options, warrants, conversion rights or other contractual rights,
issue any shares of its capital stock or share capital or any options, warrants
or other rights to subscribe for or purchase such common or share capital or
other capital stock or any securities convertible into or exchangeable for any
such common, share capital or other capital stock;
(d) directly
redeem, purchase or otherwise acquire any of its common or other capital
stock;
(e) effect a
reclassification, recapitalization, split-up, exchange of shares, readjustment
or other similar change in or to any capital stock or otherwise reorganize or
recapitalize;
(f) enter
into any employment contract which is not terminable upon notice of ninety (90)
days or less, at will, and without penalty except as provided herein or grant
any increase (other than ordinary and normal increases consistent with past
practices) in the compensation payable or to become payable to officers or
salaried employees, grant any stock options or, except as required by law, adopt
or make any change in any bonus, insurance, pension or other Employee Benefit
Plan, agreement, payment or agreement under, to, for or with any of such
officers or employees;
31
(g) make any
payment or distribution to the trustee under any bonus, pension, profit
sharing or retirement plan or incur any obligation to make any such payment
or contribution which is not in accordance with such Party's usual past
practice, or make any payment or contributions or incur any obligation pursuant
to or in respect of any other plan or contract or arrangement providing for
bonuses, options, executive incentive compensation, pensions, deferred
compensation, retirement payments, profit sharing or the like, establish or
enter into any such plan, contract or arrangement, or terminate or modify any
plan;
(h) prepay
any debt in excess of Twenty Five Thousand Dollars ($25,000), borrow or agree to
borrow any amount of funds except in the Ordinary Course of Business or,
directly or indirectly, guarantee or agree to guarantee obligations of others,
or fail to pay any monetary obligation in a timely manner prior to
delinquency;
(i) enter
into any agreement, contract or commitment having a term in excess of three (3)
months or involving payments or obligations in excess of Twenty Five Thousand
Dollars ($25,000) in the aggregate, except in the Ordinary Course of
Business;
(j) amend or
modify any material Contract;
(k) agree to
increase the compensation or benefits of any employee (except for normal annual
salary increases in accordance with past practices);
(l) place on
any of its assets or properties any pledge, charge or other Encumbrance, except
as otherwise authorized hereunder, or enter into any transaction or make any
contract or commitment relating to its properties, assets and business, other
than in the Ordinary Course of Business or as otherwise disclosed
herein;
(m) guarantee
the obligation of any person, firm or corporation, except in the Ordinary Course
of Business;
(n) make any
loan or advance in excess of Twenty-Five Thousand Dollars ($25,000) or cancel or accelerate
any material indebtedness owing to it or any claims which it may possess or
waive any material rights of substantial value;
(o) sell or
otherwise dispose of any Real Property or any material amount of any tangible or
intangible personal property other than leasehold interests in closed
facilities, except in the Ordinary Course of Business;
(p) commit
any act or fail to do any act which will cause a Breach of any Contract and
which will have a Material Adverse Effect on its business, financial condition
or earnings;
32
(q) violate
any Applicable Law which violation might have a Material Adverse Effect on such
Party;
(r) purchase
any real or personal property or make any other capital expenditure where the
amount paid or committed is in excess of Twenty-Five Thousand Dollars
($25,000) per
expenditure;
(s) except in
the Ordinary Course of Business, enter into any agreement or transaction with
any of such Party's Affiliates; or
(t) engage in
any transaction or take any action that would render untrue in any material
respect any of the representations and warranties of such Party contained in
this Agreement, as if such representations and warranties were given as of the
date of such transaction or action.
7.4 Public
Disclosures.
Purchaser
and Taiyu will consult with each other before issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation except as may be
required by Applicable Law. The Parties shall issue a joint press
release, mutually acceptable to Taiyu and Purchaser, promptly upon execution and
delivery of this Agreement.
7.5 Confidentiality.
Purchaser
and Taiyu shall hold, and shall use their Best Efforts to cause their respective
auditors, attorneys, financial advisors, bankers and other consultants and
advisors to hold, in strict confidence, unless compelled to disclose by judicial
or administrative process or by other requirements of law, all Confidential
Information, and each Party shall not release or disclose such Confidential
Information to any other Person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with the
transactions contemplated by this Agreement.
8.1 Mutual
Conditions.
The
respective obligations of each Party to effect the Share Exchange shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived in writing by Purchaser and
Taiyu:
(a) None of
Purchaser, or Taiyu shall be subject to any Order by a court of competent
jurisdiction which (i) prevents or materially delays the consummation of the
Share Exchange or (ii) would impose any material limitation on the ability of
Purchaser effectively to exercise full rights of ownership of the common stock
of Taiyu or any material portion of the assets or Business, taken as
a whole.
33
(b) No
statute, rule or regulation, shall have been enacted by any Governmental Body
that makes the consummation of the Share Exchange illegal.
(c) Purchaser
and Taiyu shall have received all Consents of Third Parties that are required of
such Third Parties prior to the consummation of the Share Exchange, in form and
substance acceptable to Purchaser or Taiyu, as the case may be, except where the
failure to obtain such consent, approval or authorization would not have a
Material Adverse Effect.
The
obligations of Purchaser under this Agreement are subject to the satisfaction,
at or before the Closing, of each of the following conditions:
(a) The
representations and warranties of Taiyu contained herein that are qualified as
to materiality shall be true in all respects on and as of the Closing Date with
the same force and effect as though made on and as of such date, and each of the
representations and warranties of Taiyu that are not so qualified shall be true
in all material respects on and as of the Closing Date.
(b) Taiyu
shall have performed and complied in all material respects with all covenants,
agreements, obligations and conditions required by this Agreement to be
performed or complied with by Taiyu at or prior to the Closing.
(c) There
shall not be threatened, instituted or pending any Proceeding by or before any
court or Governmental Body requesting or looking toward an Order that (a)
restrains or prohibits the consummation of the Share Exchange, (b) could have a
Material Adverse Effect on Purchaser's ability to exercise control over or
manage the Taiyu after the Closing or (c) could have a Material Adverse Effect
on Taiyu.
(d) On the
Closing Date, there shall be no effective Order issued by a court of competent
jurisdiction restraining or prohibiting the consummation of the Share
Exchange.
(e) The
Related Agreements to which Taiyu is a party and all other documents to be
delivered by Taiyu to Purchaser at the Closing shall be satisfactory in form and
substance to Purchaser.
(f) All
Consents of all Third Parties and Governmental Bodies shall have been obtained
that are necessary, in the opinion of Purchaser Counsel, in connection with (a)
the execution and delivery by Taiyu of this Agreement and the Related Agreements
to which it is a Party or (b) the consummation by Taiyu of the Share Exchange
and copies of all such Consents shall have been delivered to
Purchaser.
(g) Schlombs
shall have executed and delivered to Purchaser the Control Share Agreement and
shall simultaneously with the Closing consummate the transactions contemplated
therein.
34
The
obligations of Taiyu and the Taiyu Shareholders under this Agreement are subject
to the satisfaction, at or before the Closing, of each of the following
conditions:
(a) The
representations and warranties of Purchaser contained herein that are qualified
as to materiality shall be true in all respects on and as of the Closing Date
(except for such representations and warranties made as of a specific date which
shall be true as of such date) with the same force and effect as though made on
and as of such date, and each of the representations and warranties of Purchaser
that are not so qualified shall be true in all material respects on and as of
the Closing Date (except for such representations and warranties made as of a
specific date which shall be true in all material respects as of such
date).
(b) Purchaser
shall have performed and complied in all material respects with all covenants,
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by Purchaser at or prior to the Closing.
(c) There
shall not be threatened, instituted or pending any Proceeding by or before any
court or Governmental Body requesting or looking toward an Order, that (a)
restrains or prohibits the consummation of the Share Exchange or (b) could have
a Material Adverse Effect on Purchaser.
(d) On the
Closing Date, there shall be no effective Order issued by a court of competent
jurisdiction restraining or prohibiting the consummation of the Share
Exchange.
(e) The
Related Agreements to which Purchaser is a party and all other documents to be
delivered by Purchaser to Taiyu at the Closing shall be satisfactory in form and
substance to Taiyu.
(f) All
Consents of all Third Parties and Governmental Bodies shall have been obtained
that are necessary, in the opinion of counsel to Taiyu, in connection with (a)
the execution and delivery by Purchaser of this Agreement or the Related
Agreements to which either of them is a party, and (b) the consummation by
Purchaser of the transactions contemplated hereby or thereby, and copies of all
such Consents shall have been delivered to Taiyu.
(g) Purchaser
shall have delivered to Taiyu the resignation of Schlombs from all positions as
an officer and director of Purchaser effective upon Closing.
(h) Purchaser
shall have delivered to Taiyu evidence of the expansion of Purchaser's Board of
Directors to two (2) members and evidence of the appointment of up one (1) new
director nominated by Taiyu.
(i) Purchaser
shall deliver to each Taiyu Shareholder a certificate evidencing ownership of
the Shares described in Section 3.2.
(j) Purchaser
shall deliver to Taiyu evidence of the cancellation of 2,400,000 shares of
Purchaser Common Stock held by Schlombs.
35
(k) The
stockholders of Purchaser shall have given all necessary approvals and consents
required under NRS.
(l) The Share
Exchange shall qualify as a tax-free transaction to each of Purchaser, Taiyu and
Taiyu's stockholders.
(m) As of the
Closing Date, Purchaser shall not have any debts or liabilities that are not
disclosed in the Purchaser SEC Reports and shall not have any Security Interests
or Encumbrances recorded against its properties or assets.
All
representations and warranties made by any Party in this Agreement or pursuant
hereto, as modified by any Disclosure Schedule, exhibit, certificate or other
document executed and delivered pursuant hereto shall survive the Closing and
any investigation made by or on behalf of any Party for a period of one (1) year
following the Closing Date. All statements contained herein or in any
schedule, exhibit, certificate or other document executed and delivered pursuant
hereto shall be deemed representations and warranties for purposes of Sections
9.1, 8.2(a), and 8.3(a). The right to any remedy based upon such
representations and warranties shall not be affected by any investigation
conducted with respect to, or any knowledge acquired at any time, whether before
or after execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of any such representation or
warranty.
10.1 Termination.
This
Agreement may be terminated at anytime prior to the Closing:
(a) by mutual
written consent of Purchaser and Taiyu;
(b) by
Purchaser or Taiyu:
(i) if the Share Exchange shall not have
been consummated on or before August 31, 2008, unless the failure to
consummate the Share Exchange is the result of a willful and material Breach of
this Agreement by the Party seeking to terminate this Agreement;
(ii) if any
court of competent jurisdiction or other Governmental Body shall have issued an
Order or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Share Exchange and such order, decree, ruling or other action
shall have become final and non-appealable;
(iii) in the
event of a Breach by the other Party of any representation, warranty, covenant
or other agreement contained in this Agreement which cannot be or has not been
cured within ten (10) days after the giving of written notice to the breaching
Party of such Breach (provided that the terminating Party is not then in Breach
of any representation, warranty, covenant or other agreement contained in this
Agreement);
36
(iv) in the
event that (i) all of the conditions to the obligation of such Party to effect
the Share Exchange set forth in Section 8.1 shall have been satisfied and (ii)
any condition to the obligation of such Party to effect the Share Exchange set
forth in Section 8.2 (in the case of Purchaser) or Section 8.3 (in the case of
Taiyu) is not capable of being satisfied prior to the end of the period referred
to in Section 10.1(b)(i); or
(v) if there
shall have occurred prior to the Closing changes in Applicable Law that, in the
aggregate, shall have a Material Adverse Effect on either Party.
10.2 Effect of
Termination.
In the
event of termination of this Agreement as provided in Section 10.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of any Party except to the extent that such
termination results from the willful and material Breach by a Party of any of
its representations, warranties, covenants or other agreements set forth in this
Agreement, in which case the terminating Party shall have the right to pursue
any remedies available to it at law or in equity.
10.3 Amendment.
This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the Parties.
10.4 Extension;
Waiver.
At any
time prior to the Closing, the Parties may (i) extend the time for the
performance of any of the obligations or other acts of the other Parties, (ii)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (iii) waive
compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a Party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party.
A
termination of this Agreement pursuant to Section 10.1, an amendment of this
Agreement pursuant to Section 10.3, or an extension or waiver pursuant to
Section 10.4 shall, in order to be effective, require in the case of Purchaser
or Taiyu, action by its Board of Directors or the duly authorized designee of
the Board of Directors.
11.1 Notices.
Any
communications required or desired to be given hereunder shall be deemed to have
been properly given if sent by hand delivery or by facsimile and overnight
courier or overnight courier to the parties hereto at the following addresses,
or at such other address as either party may advise the other in writing from
time to time:
37
If to
Purchaser:
SMARTHEAT
INC.
▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention:
▇▇▇▇▇ Schlombs
Phone:
Fax:
with a copy
to:
Cane
▇▇▇▇▇ LLP
▇▇▇▇ ▇.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
If to
Taiyu:
TAIYU
MACHINERY & ELECTRONIC EQUIPMENT CO., LTD
▇-▇, ▇▇,
▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇
Economic and Technological Development ▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇
Attention:
Phone:
Fax:
with a copy
to:
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇
▇▇▇-▇▇▇▇
All such
communications shall be deemed to have been delivered on the date of hand
delivery or facsimile or on the next Business Day following the deposit of such
communications with the overnight courier.
11.2 Further
Assurances.
Each
Party hereby agrees to perform any further acts and to execute and deliver any
documents which may be reasonably necessary to carry out the provisions of this
Agreement.
38
11.3 Governing
Law.
This
Agreement shall be interpreted, construed and enforced in accordance with the
laws of the State of Nevada, applied without giving effect to any
conflicts-of-law principles.
11.4 Commissions.
Each of
the Parties hereto represents and warrants that no broker or finder is entitled
to any brokerage or finder's fee or other commission in connection with the
Share Exchange. Each of the Parties hereto shall pay or discharge,
and shall indemnify and hold the other harmless from and against, all claims or
liabilities for brokerage commissions or finder's fees incurred by reason of any
action taken by it.
11.5 Captions.
The
captions or headings in this Agreement are made for convenience and general
reference only and shall not be construed to describe, define or limit the scope
or intent of the provisions of this Agreement.
All
Exhibits and Schedules to this Agreement are integral parts of this Agreement as
if fully set forth herein.
11.7 Entire
Agreement.
This
Agreement, the Related Agreements, including all Exhibits and Schedules attached
hereto and thereto contain the entire agreement of the Parties and supersede any
and all prior or contemporaneous agreements between the Parties, written or
oral, with respect to the transactions contemplated hereby. Such
agreement may not be changed or terminated orally, but may only be changed by an
agreement in writing signed by the Party or Parties against whom enforcement of
any waiver, change, modification, extension, discharge or termination is
sought.
11.8 Expenses.
Except as
expressly provided otherwise, each party hereto will bear its own costs and
expenses (including fees and expenses of auditors, attorneys, financial
advisors, bankers, brokers and other consultants and advisors) incurred in
connection with this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby.
11.9 Counterparts.
This
Agreement may be executed in several counterparts, each of which, when so
executed, shall be deemed to be an original, and such counterparts shall
together constitute and be one and the same instrument.
39
11.10 Binding
Effect.
This
Agreement shall be binding on, and shall inure to the benefit of, the Parties
hereto, and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No
Party may assign any right or obligation hereunder without the prior written
consent of the other Parties.
11.11 No Rule
of Construction.
The
Parties agree that, because all Parties participated in negotiating and drafting
this Agreement, no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any Party by reason of that
Party's role in drafting this Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
40
SIGNATURE
PAGE OF PURCHASER AND TAIYU TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN WITNESS WHEREOF, Purchaser
and Taiyu have caused this Share Exchange Agreement and Plan of Reorganization
to be executed by their respective duly authorized officers, all as of the day
and year first above written.
|
By
Purchaser:
|
|
|
SMARTHEAT
INC.
|
|
|
By: /s/ ▇▇▇▇▇ Schlombs
▇▇▇▇▇ Schlombs
Chief Executive
Officer
|
|
|
By
Taiyu:
|
|
|
SHENYANG
TAIYU MACHINERY & ELECTRONIC EQUIPMENT CO., LTD
|
|
|
By: /s/ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
Chairman and Chief Executive
Officer
|
|
41
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
Beijing
YSKN Machinery & Electronic Equipment Co., Ltd
/s/ Company
Stamp
Name:
(36.8%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
/s/ Yang In
Cheol
Name:
Yang In Cheol
(20.8%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
Shen Yang
ZhiCe Investment Co., Ltd
/s/ Company
Stamp
Name:
(16%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
Advantage
Consultants Limited
/s/ Company
Stamp
Name:
(4.10%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
/s/ Song ▇▇▇▇
▇▇▇
Name:
Song ▇▇▇▇ ▇▇▇
(6%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
IN
WITNESS WHEREOF, the shareholder of Taiyu has executed this Share Exchange
Agreement and Plan of Reorganization as of the day and year first above
written.
/s/ Dong
Xin
Name:
Dong Xin
(5.4%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
/s/ ▇▇▇▇ ▇▇▇
Yun
Name:
▇▇▇▇ ▇▇▇ Yun
(5.4%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
/s/ ▇▇
▇▇▇
Name: ▇▇
▇▇▇
(3.9%)
42
SIGNATURE
PAGE OF TAIYU SHAREHOLDERS TO
SHARE EXCHANGE AGREEMENT AND PLAN OF
REORGANIZATION
/s/ Yu
Ping
Name: Yu
Ping
(1.6%)
42