EXCHANGE AGREEMENT
BY AND AMONG
XXXXX.XXX, INC.,
XXXXXXX REVERSE MERGER FUND, LLC
XXXXX GROUP LIMITED, AND
EACH MEMBER OF XXXXX GROUP LIMITED
DATED AS OF AUGUST 11, 2005
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Agreement") is made and entered into as of
August 11, 2005, by and among Xxxxx.xxx, Inc., a Florida corporation ("Qorus"),
Xxxxxxx Reverse Merger Fund, LLC, a Delaware limited liability company ("KRM
Fund"), Xxxxx Group Limited, an International Business Company incorporated in
the British Virgin Islands (the "Company"), and each of the persons listed under
the caption "Members" on the signature page hereof, together with each person
becoming a Member prior to the closing of the transactions contemplated
hereunder who shall execute a counterpart signature of this Agreement, such
persons being all of the members of the Company. The Members shall be referred
to herein collectively as the "Members" and individually as the "Member".
RECITALS
A. The Members own all of the Shares (as defined in Section 1.1) of the
Company.
B. The Company owns all of the registered capital of Shenyang Xxxxx Non
Ferrous Metals Co., Ltd. ("Shenyang"), a wholly foreign owned enterprise under
the wholly foreign-owned enterprises laws of the PRC.
C. Kangping Aluminum Factory Co., Ltd. ("Kangping") is a limited liability
company organized under the Company Law of the PRC and a domestic enterprise
with exclusively domestic capital registered in Liaoning Province in the PRC
whose registered capital is owned directly by Xxxxxx Xxx and Shenyang Fangyuan
Aluminum Group Co., Ltd. ("Fangyuan"), a limited liability company formed under
the Company Law of the PRC
D. Kangping is engaged in the business of manufacturing of primary
aluminum products in the PRC.
E. Shenyang and Kangping are to enter into a series of agreements whereby
Shenyang shall agree to advise, consult, manage and operate Kangping's business
in consideration for certain payments by Kangping to Shenyang, including a
Cooperation Agreement, proxies and Option Agreement (collectively, theses
agreements are referred to herein as the "Restructuring Agreements"), each of
which shall be acceptable to Qorus.
F. KRM Fund owns the majority of the outstanding shares of common stock of
Qorus.
G. Qorus desires to acquire all of the Shares and equity ownership of the
Members of the Company in exchange for certain of equity securities of Qorus,
and the Members desire to transfer and contribute all of their Shares and equity
ownership of the Company to Qorus in exchange for certain equity securities of
Qorus, on the terms and conditions hereinafter set forth.
H. As a condition and inducement to Qorus' willingness to enter into this
Agreement, at or prior to the Closing (as defined in Section 1.2), KRM Fund and
each Member of the Company will enter into a voting agreement in substantially
the form attached hereto as Exhibit A (the "Voting Agreement").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
EXCHANGE
1.1 Exchange. At the Closing and subject to and upon the terms and
conditions of this Agreement, the Members of the Company agree to contribute,
transfer, assign and deliver to Qorus, and Qorus agrees to acquire from the
Members, all of the outstanding shares of capital stock of the Company
("Shares") owned by the Members as specifically set forth on Schedule 1.1
hereto. As of the Closing Date, the Shares shall constitute all of the issued
and outstanding Shares and equity ownership interests of the Company. The
exchange of Shares contemplated hereunder and the other transactions
contemplated hereunder shall be referred to herein as the "Transaction" or the
"Transactions".
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Article IX hereof, the closing of the Transaction (the "Closing") shall take
place at the offices of Guzov Ofsink, LLC, 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000 at a time and date to be specified by the parties, which
shall be no later than the third business day after the satisfaction or waiver
of the conditions set forth in Article VII, or at such other time, date and
location as the parties hereto agree in writing (the "Closing Date").
1.3 Exchange Consideration. In exchange for the Shares of the Company,
Qorus shall issue 983,265 shares of Series A Convertible Preferred Stock, par
value $0.01 per share, of Qorus (the "Preferred Shares"), which shall be
convertible into 576,193,290 shares of Qorus' Common Stock (the "Conversion
Shares"), subject to Stockholder Approval as defined in Section 4.3(a) hereof.
The Conversion Shares shall represent 91% of the issued and outstanding shares
of common stock of Qorus, on an as converted and fully diluted basis immediately
following the Closing, after giving effect to any Shares, ownership interests,
equity securities, convertible securities, warrants, options, or other
derivative securities of Qorus or the Company issued or to be issued to any
Person (as defined herein), or assumed or to be assumed by Qorus, in connection
with or following the Transactions (including any shares of Qorus' common stock
to be issued to any finder, consultant or advisor engaged by the Company with
respect to this Transaction), including the Gateway Shares.
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1.4 Allocation of Preferred Shares. At the Closing, the Preferred Shares
to be issued to the Members of the Company in exchange for the Shares shall be
issued to the respective Members in proportion to their respective ownership of
the Shares as described in Schedule 1.1 hereto.
1.5 Delivery of Assignment of Shares. At Closing, the Company shall
deliver to Qorus a certificate duly executed and authorized by the registered
agent of the Company and each of the officers and directors of the Company
certifying to the ownership of the Shares by each Member as set forth on
Schedule 1.1 hereof, and each Member shall deliver an assignment, stock power or
other acceptable instrument of transfer of the Shares owned by such Member, duly
executed by such Member with all certificates representing the Shares and such
other documents as may be reasonably requested to vest in Qorus good and
marketable title to the Shares free and clear of any and all Liens (as defined
in Section 2.3 hereof). The Company shall record the transfer of the Shares
described in this Section 1.5 on its transfer books.
1.6 Issuance of Certificates Representing Qorus' Preferred Shares. At
Closing, Qorus will issue the Preferred Shares to the Members as provided in
Section 1.4 above. The Preferred Shares, when issued, shall be restricted shares
and may not be sold, transferred or otherwise disposed of by the Members without
registration under the Securities Act of 1933, as amended ("Securities Act") or
an available exemption from registration under the Securities Act. The
certificates representing the Preferred Shares will contain the appropriate
restrictive legends.
1.7 Taking of Necessary Action; Further Action. If, at any time after the
Closing, any further action is necessary or desirable to carry out the purposes
of this Agreement, including to vest Qorus with full right, title and possession
to the Shares, the Members of the Company and Qorus will take all such lawful
and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MEMBERS WITH RESPECT TO SHARES
Each Member of the Company for himself only, and not with respect to any
other Member, hereby severally represents and warrants to, and covenants with,
Qorus with respect to such Member as follows:
2.1 Ownership of Shares. Each Member of the Company is both the record and
beneficial owner of the Shares set forth beside such Member's name on Schedule
1.1 hereto. Each Member is not the record or beneficial owner of any other
Shares. The information set forth on Schedule 1.1 with respect to each Member is
accurate and complete.
2.2 Authority of Members. Each Member that is a natural person has full
power and authority and is competent to (i) execute, deliver and perform this
Agreement, and each ancillary document which each such Member has executed or
delivered or is to execute or deliver pursuant to this Agreement (including the
Voting Agreement and Restructuring Agreements), and (ii) carry out each such
Member's obligations hereunder and thereunder, without the need for any
Governmental Action/Filing (as defined herein). Each Member that is a corporate
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or other entity has obtained all due authorization and has full power for the
execution, delivery and performance of this Agreement and each ancillary
document which each such Member has executed or delivered or is to execute or
deliver pursuant to this Agreement (including the Voting Agreement and
Restructuring Agreements) and to carry out each such Member's obligations
hereunder and thereunder without the need for any Governmental Action/Filing.
The execution, delivery and performance by each Member of this Agreement and
each ancillary document does not and will not conflict with, result in a breach
of, or constitute a default or require a consent or action under, any agreement
or other instrument to or by which such Member is a party or is bound or to
which any of the Shares of such Member are subject, or, to such Member's
knowledge, any Legal Requirement (as defined herein) to which such Member is
subject, or result in the creation of any Lien (as defined in Section 2.3) on
the Shares. This Agreement, and each Member's ancillary documents to be executed
and delivered by such Member at the Closing, has been duly executed and
delivered by such Member (and each ancillary document to be executed and
delivered by such Member at or after the Closing will be duly executed and
delivered by such Member), and this Agreement constitutes, and each ancillary
document, when executed and delivered by such Member will constitute, and
assuming the due authorization, execution and delivery thereof by the other
parties hereto and thereto, as applicable, such Member's legal, valid and
binding obligation, enforceable against such Member in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity and public policy. For purposes of this
Agreement, (x) the term "Governmental Action/Filing" shall mean any franchise,
license, certificate of compliance, authorization, consent, order, permit,
approval, consent or other action of, or any filing, registration or
qualification with, any federal, state, municipal, foreign or other
governmental, administrative or judicial body, agency or authority, and (y) the
term "Legal Requirements" means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Entity (as defined in Section 3.5(b)),
and all requirements set forth in applicable Contracts (as defined in Section
3.19(a)).
2.3 Title To Shares. Each Member has and shall transfer to Qorus at the
Closing, good and marketable title to the Shares shown as owned of record by
such Member on Schedule 1.1 to this Agreement, free and clear of all liens,
claims, charges, encumbrances, pledges, mortgages, security interests, options,
rights to acquire, proxies, voting trusts or similar agreements, restrictions on
transfer or adverse claims of any nature whatsoever ("Liens").
2.4 Pre-emptive Rights. At Closing, no Member has any pre-emptive
rights or any other rights to acquire any Shares of the Company that have not
been waived or exercised.
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2.5 Repayment of Obligations. At the Closing Date, all amounts owed to the
Company, Shenyang or Kangping or any Subsidiary of the foregoing (as defined in
Section 3.2 hereof) by each Member of the Company (regardless of whether such
amounts are due and payable) shall have been paid in full.
2.6 Acquisition of Preferred Shares for Investment.
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(a) Each Member is acquiring the Preferred Shares for investment for
Member's own account and not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and each Member has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Each Member further represents that he does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Preferred Shares.
(b) Each Member understands that the Preferred Shares are not
registered under the Securities Act, that the issuance of the Preferred Shares
(and the underlying Conversion Shares) is intended to be exempt from
registration under the Securities Act pursuant to Regulation S promulgated
thereunder ("Regulation S"). Each Member represents and warrants that he or she:
(i) can bear the economic risk of his respective investments and (ii) possesses
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the investment in Qorus and its
securities.
(c) Each Member is not a "U.S. Person" as defined in Rule 902(k) of
Regulation S. Each Member has no intention of becoming a U.S. Person. At the
time of the origination of contact concerning this Agreement and the date of the
execution and delivery of this Agreement, the Member was outside of the United
States. Each certificate representing the Preferred Shares (and the underlying
Conversion Shares) shall be endorsed with the following legends, in addition to
any other legend required to be placed thereon by applicable federal or state
securities laws:
"THE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S.
PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("SECURITIES ACT")) AND WITHOUT REGISTRATION WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE
SECURITIES ACT."
"TRANSFER OF THESE SECURITIES, INCLUDING ANY SHARES OF COMMON
STOCK UNDERLYING SUCH SECURITIES, IS PROHIBITED, EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S, PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE
EXEMPTION FROM REGISTRATION. HEDGING TRANSACTIONS MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT."
The Member agrees that, notwithstanding anything contained herein to the
contrary, the warranties, representations, agreements and covenants of the
Member under this Section 2.6 shall survive the Closing.
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(d) Each Member acknowledges that neither the U.S. Securities and
Exchange Commission ("SEC"), nor the securities regulatory body of any state or
other jurisdiction, has received, considered or passed upon the accuracy or
adequacy of the information and representations made in this Agreement.
(e) Each Member acknowledges that he has carefully reviewed such
information as he has deemed necessary to evaluate an investment in Qorus and
its securities. To the full satisfaction of each Member, he has been furnished
all materials that he has requested relating to Qorus and the issuance of the
Preferred Shares hereunder, and each Member has been afforded the opportunity to
ask questions of Qorus' representatives to obtain any information necessary to
verify the accuracy of any representations or information made or given to the
Members. Notwithstanding the foregoing, nothing herein shall derogate from or
otherwise modify the representations and warranties of Qorus set forth in this
Agreement, on which each of the Members have relied in making an exchange of his
Shares of the Company for the Preferred Shares of Qorus.
(f) Each Member understands that the Preferred Shares (and the
underlying Conversion Shares) may not be sold, transferred, or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Preferred Shares (and the underlying Conversion Shares) or any
available exemption from registration under the Securities Act, the Preferred
Shares (and the underlying Conversion Shares) may have to be held indefinitely.
Each Member further acknowledges that the Preferred Shares (and the underlying
Conversion Shares) may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of Rule 144 are satisfied
(including, without limitation, Qorus' compliance with the reporting
requirements under the Securities Exchange Act of 1934, as amended ("Exchange
Act")).
ARTICLE III
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COMPANY
Xxxxxxx Xxxx, Xxxxxx Xxx and the Company, hereby each represents and
warrants to, and covenant with, Qorus and KRM Fund, as follows:
3.1 Organization and Qualification.
(a) The Company is a company organized as an International Business
Company under the laws of the British Virgin Islands, is duly formed or
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being or currently planned by the Company to be conducted. The Company is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Approvals") necessary
to own, lease and operate the properties it purports to own, operate or lease
and to carry on its business as it is now being conducted, and to consummate the
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Transactions contemplated under this Agreement, except where the failure to have
such Approvals could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (as defined in Section 11.2(b)) on
the Company. The Company has complete and correct copies of the articles of
organization and bylaws or similar governing, organization or charter documents
(collectively referred to herein as "Charter Documents"). The Company is not in
violation of any of the provisions of the Company's Charter Documents. The
Company is in good standing in the British Virgin Islands. The minute books or
the equivalent contain true, complete and accurate records of meetings and
consents in lieu of meetings of its board of directors (and any committees
thereof), similar governing bodies and stockholders ("Corporate Records") of the
Company, since the time of the Company's organization. The ownership records of
the Company' Shares are true, complete and accurate records of the ownership of
the Shares as of the date of such records and contain all transfers of such
Shares since the time of the Company's organization ("Share Records").
(b) Shenyang is a limited liability company organized under the
Company Law of the PRC and a wholly foreign owned enterprise under the wholly
foreign-owned enterprises laws of the PRC, is duly formed or organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being or currently
planned by Shenyang to be conducted. Shenyang is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease, to carry on its business as it is now being conducted, to consummate
the Transactions contemplated under this Agreement, to enter into and perform
all of its obligations under the Restructuring Agreements, to become, and
maintain its status as, a wholly foreign owned enterprise under the laws of the
PRC, and to exchange currency of the PRC into currency of the United States and
vice versa without limitation subject to PRC laws, regulations and the State
Administration of Foreign Exchange ("SAFE") rules and regulations, except where
the failure to have such Approvals could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Shenyang. Shenyang
is not in violation of any of the provisions of Shenyang's Charter Documents.
The Corporate Records of Shenyang contain true, complete and accurate records of
meetings and consents in lieu of meetings of its board of directors (and any
committees thereof), similar governing bodies and holders of its registered
capital, since the time of Shenyang's organization. The ownership records of
Shenyang's registered capital are true, complete and accurate records of such
ownership as of the date of such records and contain all transfers of such
registered capital since the time of Shenyang's organization.
(c) Kangping is a limited liability company organized under the
Company Law of the PRC and a domestic company with exclusively domestic capital
under the laws of the PRC, is duly formed or organized, validly existing and in
good standing under the laws of its jurisdiction of organization and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Kangping to be conducted. Kangping is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease, to carry on its business as it is now being conducted, to consummate
the Transactions contemplated under this Agreement, and to enter into and
perform all of its obligations under the Restructuring Agreements, except where
the failure to have such Approvals could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Kangping. Kangping
is not in violation of any of the provisions of Kangping's Charter Documents.
The Corporate Records of Kangping contain true, complete and accurate records of
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meetings and consents in lieu of meetings of its board of directors (and any
committees thereof), similar governing bodies and holders of its registered
capital, since the time of Kangping's organization. Copies of such Corporate
Records of Kangping have been heretofore delivered to Qorus. The ownership
records of Kangping's registered capital are true, complete and accurate records
of such ownership as of the date of such records and contain all transfers of
such registered capital since the time of Kangping's organization.
3.2 Subsidiaries. Set forth in Schedule 3.2 hereto is a true and complete
list of all Subsidiaries of the Company, Shenyang and Kangping stating, with
respect to each Subsidiary, its jurisdiction of incorporation or organization,
date of incorporation or organization, capitalization and equity ownership. Each
Subsidiary is a corporation duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as they are now being
conducted, and no Subsidiary is required to qualify to do business as a foreign
corporation in any other jurisdiction. All of the outstanding shares of capital
stock of each Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable, have not been issued in violation of any
preemptive or other right of stockholders (or any other Person) or of any Legal
Requirements, and are owned beneficially and of record by the Company as
specified on Schedule 3.2, free and clear of any Lien. No Subsidiary is in
violation of any of the provisions of its Charter Documents.
Except as described in Schedule 3.2 hereto, neither the Company, Shenyang
or Kangping nor any Subsidiary owns, directly or indirectly, any ownership,
equity, profits or voting interest in any Person (other than the Company,
Shenyang, Kangping or the Subsidiaries) or has any agreement or commitment to
purchase any such interest, and the Company, Shenyang, Kangping and its
Subsidiaries have not agreed and are not obligated to make nor are bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of any
nature, as of the date hereof or any date hereafter, under which any of them may
be obligated to make any future investment in or capital contribution to any
other entity.
For purposes of this Agreement, (i) the term "Subsidiary" shall mean any
Person in which the Company, Kangping, Shenyang or any Subsidiary directly or
indirectly, owns beneficially securities or interests representing more than 50%
of (x) the aggregate equity or profit interests, or (y) the combined voting
power of voting interests ordinarily entitled to vote for management or
otherwise, (ii) the term "Person" shall mean and include an individual, a
corporation, a partnership (general or limited), a joint venture, an
association, a limited liability company, a trust or any other organization or
entity, including a government or political subdivision or an agency or
instrumentality thereof, and (iii) the term "Affiliated Company" or "Affiliated
Companies" shall mean the Company, Kangping and Shenyang, individually or
collectively, as the case may be.
3.3 Capitalization.
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(a) The authorized capital stock of the Company consists of 50,000
shares of capital stock, par value US$1.00 per share, or an authorized capital
of US$50,000. At the close of business on the business day prior to the date
hereof, Schedule 1.1 hereto contains all of the outstanding equity securities of
the Company. At Closing, the Company shall deliver to Qorus a current and
updated Schedule 1.1 showing all equity securities outstanding immediately prior
to Closing, which Schedule 1.1 shall be substituted for and replace the Schedule
1.1 attached hereto as of the date of this Agreement with all references to
Schedule 1.1 herein referring to the Schedule 1.1 to be delivered at Closing.
All Shares on Schedule 1.1 have been validly issued, fully paid and are
nonassessable. Except as set forth in Schedule 1.1 and Schedule 3.3, there are
no outstanding securities, convertible securities, options, warrants or
derivative securities, and there are no agreements or commitments obligating the
Company to issue or grant any of the foregoing, including any pre-emptive or
similar rights. All outstanding Shares, options, warrants and other securities
of the Company have been issued in compliance with (i) all applicable securities
laws and (in all material respects) other applicable laws and regulations, and
(ii) all requirements set forth in any applicable contracts. Except as described
in Schedule 3.3 hereto, there are no commitments or agreements of any character
to which the Company is bound obligating the Company to accelerate the vesting
of any options or warrants as a result of the Transactions. The Company has
heretofore delivered to Qorus true, complete and accurate copies of all options,
warrants and other securities of the Company, if any, including any and all
documents and agreements relating thereto.
(b) Shenyang has a registered capital of US$100,000 and an invested
capital of US$100,000. At the close of business on the business day prior to the
date hereof, all of the registered capital of Shenyang are owned beneficially
and of record by the Company. All Shenyang registered capital has been validly
issued, fully paid and are nonassessable. Except as set forth in Schedule 3.3,
there are no outstanding ownership interests, securities, convertible
securities, options, warrants or derivative securities, and there are no
agreements or commitments obligating Shenyang to issue or grant any of the
foregoing, including any pre-emptive or similar rights. All outstanding
registered capital, options, warrants and other securities of Shenyang have been
issued in compliance with (i) all applicable securities laws and (in all
material respects) other applicable laws and regulations, and (ii) all
requirements set forth in any applicable contracts. Except as described in
Schedule 3.3 hereto, there are no commitments or agreements of any character to
which Shenyang is bound obligating Shenyang to accelerate the vesting of any
options or warrants as a result of the Transactions. Shenyang has heretofore
delivered to Qorus true, complete and accurate copies of all options, warrants
and other securities of Shenyang, if any, including any and all documents and
agreements relating thereto.
(c) Kangping has a registered capital of RMB100,000,000 and an
invested capital of RMB100,000,000. At the close of business on the business day
prior to the date hereof, Fangyuan owns 80% of the registered capital of
Kangping and Xxxxxx Xxx owns 20% of the registered capital of Kangping. All the
registered capital of Kangping has been validly issued, fully paid and are
nonassessable. Except as set forth in Schedule 3.3, there are no outstanding
ownership interests, securities, convertible securities, options, warrants or
derivative securities, and there are no agreements or commitments obligating
Kangping to issue or grant any of the foregoing, including any pre-emptive or
similar rights. All outstanding registered capital, options, warrants and other
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securities of Kangping have been issued in compliance with (i) all applicable
securities laws and (in all material respects) other applicable laws and
regulations, and (ii) all requirements set forth in any applicable contracts.
Except as described in Schedule 3.3 hereto, there are no commitments or
agreements of any character to which Kangping is bound obligating Kangping to
accelerate the vesting of any options or warrants as a result of the
Transactions. Kangping has heretofore delivered to Qorus true, complete and
accurate copies of all options, warrants and other securities of Kangping, if
any, including any and all documents and agreements relating thereto.
(d) Except as set forth in this Section 3.3 or in Schedule 3.3
hereto, there are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of the Affiliated
Companies, or any securities exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in this
Section 3.3 or in Schedule 3.3 hereof, and except for the Option Agreement that
is to be entered into in connection with the Restructuring Documents, there are
no subscriptions, options, warrants, equity securities, ownership or partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the Affiliated
Companies or any Member are a party or by which they are bound obligating them
to issue, deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition of, any registered capital, ownership interests, partnership
interests or similar ownership interests of the Affiliated Companies or
obligating the Affiliated Companies to grant, extend, accelerate the vesting of
or enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement.
(e) Except as contemplated by this Agreement and except as set forth
in Schedule 3.3 hereto, and except for that certain Authorizations by and among
Fangyuan, Xxxxxx Xxx, Shenyang and Kangping ("Authorizations") which shall be
entered into prior to Closing and be acceptable to Qorus, there are no
registration rights, and there is no voting trust, voting agreement, proxy,
rights plan, anti-takeover plan or other agreement or understanding to which the
Affiliated Companies or any Member are a party or by which they are bound with
respect to any shares of capital stock, registered capital, equity securities,
partnership interests or similar ownership interests of any class of the
Affiliated Companies, and there are no agreements to which the Affiliated
Companies are a party, or which the Affiliated Companies have knowledge of,
which conflict with this Agreement or the transactions contemplated herein or
otherwise prohibit the consummation of the transactions contemplated hereunder.
3.4 Authority Relative to this Agreement. The Company and each of the
Members has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and, to consummate the
transactions contemplated hereby (including the Transaction). The execution and
delivery of this Agreement and the consummation by the Company and each of the
Members of the transactions contemplated hereby (including the Transaction) have
been duly and validly authorized by all necessary action on the part of each
Affiliated Company (including the approval by its stockholders), and no other
proceedings on the part of each Affiliated Company are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
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Agreement has been duly and validly executed and delivered by the Company and
each of the Members and, assuming the due authorization, execution and delivery
thereof by the other parties hereto, constitutes the legal and binding
obligation of the Company and each of the Members, enforceable against each of
them in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company and
each of the Members does not, and the performance of this Agreement by the
Company and each of the Members shall not, (i) conflict with or violate their
respective Charter Documents, (ii) conflict with or violate any Legal
Requirements, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or materially impair the Affiliated Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of any
Affiliated Company or its Subsidiaries pursuant to, any Material Contracts (as
defined below), except, with respect to clauses (ii) or (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Affiliated Companies and their Subsidiaries.
(b) The execution and delivery of this Agreement by the Company and
each of the Members does not, and the performance of obligations of the Company
and each of the Members hereunder will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any court,
administrative agency, commission, governmental or regulatory authority,
domestic or foreign (a "Governmental Entity"), except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws ("Blue Sky Laws"), and the rules and regulations thereunder, and
appropriate documents with the relevant authorities of other jurisdictions in
which the Company is qualified to do business, and (ii) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Affiliated
Companies or, after the Closing, Qorus, or prevent consummation of the
Transaction or otherwise prevent the parties hereto from performing their
obligations under this Agreement.
3.6 Compliance. Each Affiliated Company and any Subsidiaries have complied
with and are not in violation of any Legal Requirements with respect to the
conduct of their business, or the ownership or operation of their business,
except for failures to comply or violations which, individually or in the
aggregate, have not had and are not reasonably likely to have a Material Adverse
Effect on the Affiliated Companies and the Subsidiaries. To the knowledge of the
Company and each of the Members, the businesses and activities of the Affiliated
Company and any Subsidiaries have not been and are not being conducted in
violation of any Legal Requirements. Each Affiliated Company and any
Subsidiaries are not in default or violation of any term, condition or provision
of any applicable Charter Documents or Contracts. Except as set forth on
Schedule 3.6, no written notice of non-compliance with any Legal Requirements
11
relating or with respect to the business of the Affiliated Companies or any
Subsidiaries has been received by the Affiliated Companies or any Subsidiaries
(and each Affiliated Company has no knowledge of any material such notice
delivered to any other Person). To the knowledge of the Company and each of the
Members, the Affiliated Companies and any Subsidiaries are not in violation of
any material term of any contract or covenant relating to employment, patents,
proprietary information disclosure, non-competition or non-solicitation.
3.7 Financial Statements.
(a) The Company will provide Qorus a correct and complete copy of
its audited financial statements, on a consolidated basis with Shenyang and
Kangping, with Kangping's financial statements being the historical financial
statements of the consolidated group for financial reporting purposes
(including, in each case, any related notes thereto) for the last three fiscal
years, which statements were prepared in accordance with generally accepted
accounting principles of the United States ("U.S. GAAP") applied on a consistent
basis throughout the period involved (except as may be indicated in the notes
thereto), and such statements fairly present in all material respects the
financial position of the Company, on a consolidated basis, at the date thereof
and the results of its operations and cash flows for the periods indicated on a
consolidated basis, and does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The Company will provide to Qorus a correct and complete copy of
its unaudited financial statements, on a consolidated basis with Shenyang and
Kangping, with Kangping's financial statements being the historical financial
statements of the consolidated group for financial reporting purposes
(including, in each case, any related notes thereto) for the six-month period
ended June 30, 2005, complied as to form in all material respects with, and
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the period involved (except as may be indicated in the notes thereto), and such
statements fairly present in all material respects the financial position of the
Company, on a consolidated basis, at the date thereof and the results of its
operations and cash flows for the period indicated on a consolidated basis,
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to have a Material Adverse
Effect on the Company or Kangping.
(c) The books of account and other financial records of the Company
and Kangping have been maintained in accordance with good business practice, and
the Company and Kangping maintain a system of internal controls to assure the
accuracy of their financial records and statements.
3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, the Affiliated Companies have no liabilities individually in excess of
$25,000 and in the aggregate in excess of $100,000 (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the consolidated financial statements prepared in
accordance with U.S. GAAP which are, individually or in the aggregate, material
12
to the business, results of operations or financial condition of the Affiliated
Companies and any Subsidiaries, except: (i) liabilities provided for in or
otherwise disclosed in the consolidated balance sheets of the Company (including
Kangping and Shenyang) as of December 31, 2004, prepared in accordance with U.S.
GAAP, which have been delivered to Qorus, and (ii) such liabilities arising in
the ordinary course of business of the Affiliated Companies and any Subsidiaries
since December 31, 2004, none of which would have a Material Adverse Effect on
the Affiliated Companies and any Subsidiaries.
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto or in the consolidated balance sheets of the Company (including
Kangping and Shenyang) since December 31, 2004, or except with respect to the
Restructuring Agreements, there has not been, with respect to any Affiliated
Company or any Subsidiaries: (i) any Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, securities or property) in respect of, any of equity
securities, or any purchase, redemption or other acquisition of any of equity
securities or any options, warrants, calls or rights to acquire any equity
securities or other securities, (iii) any split, combination or reclassification
of any equity securities, (iv) any granting of any increase in compensation or
fringe benefits, except for normal increases of cash compensation in the
ordinary course of business consistent with past practice, or any payment of any
bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting of any increase in severance or termination
pay or any entry into any currently effective employment, severance, termination
or indemnification agreement or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence of a
transaction of the nature contemplated hereby, (v) entry into any licensing or
other agreement with regard to the acquisition or disposition of any
Intellectual Property (as defined in Section 3.18 hereof) other than licenses in
the ordinary course of business consistent with past practice or any amendment
or consent with respect to any licensing agreement filed or required to be filed
with respect to any Governmental Entity, (vi) any material change in its
accounting methods, principles or practices, (vii) any change in the auditing
firm, (vii) any issuance of securities, or (viii) any revaluation of any of
their respective assets, including, without limitation, writing down the value
of capitalized inventory or writing off notes or accounts receivable or any sale
of assets other than in the ordinary course of business.
3.10 Litigation. Except as disclosed in Schedule 3.10 hereto, there are no
claims, suits, actions or proceedings pending, or to the knowledge of any
Affiliated Company, threatened against the Affiliated Companies or any
Subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seeks to restrain or enjoin
the consummation of the transactions contemplated by this Agreement or which
could reasonably be expected, either individually or in the aggregate with all
such claims, actions or proceedings, to have a Material Adverse Effect on the
Affiliated Companies or any Subsidiaries or have a Material Adverse Effect on
the ability of the parties hereto to consummate the Transaction.
3.11 Employee Benefit Plans.
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(a) To the knowledge of the Company and each of the Members, all
employee compensation, incentive, fringe or benefit plans, programs, policies,
commitments or other arrangements (whether or not set forth in a written
document) covering any active or former employee, director or consultant of the
Affiliated Companies or any Subsidiary, or any trade or business (whether or not
incorporated) which is under common control with the Affiliated Companies or any
Subsidiary, with respect to which the Affiliated Companies or any Subsidiary has
liability (collectively, the "Plans") has been maintained and administered in
all material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Plans, and all liabilities with respect to the Plans have
been properly reflected in the consolidated financial statements of the Company
(including Kangping and Shenyang). No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Plan
activities) has been brought or is continuing, or to the knowledge of the
Company and each of the Members is threatened, against or with respect to any
such Plan. To the knowledge of the Company and each of the Members, there are no
audits, inquiries or proceedings pending or, to the knowledge of the Company and
each of the Members, threatened by any governmental agency with respect to any
Plans. To the knowledge of the Company and each of the Members, all
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Plans have been timely made or accrued. To the knowledge
of the Company and each of the Members, each Plan can be amended, terminated or
otherwise discontinued after the Closing in accordance with its terms, subject
to PRC laws, without liability to Qorus or the Affiliated Companies or any
Subsidiary (other than ordinary administration expenses and expenses for
benefits accrued but not yet paid).
(b) Except as disclosed on Schedule 3.11 hereto, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
stockholder, officer, director or employee of the Affiliated Companies or any
Subsidiary under any Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any Plan, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits
3.12 Labor Matters. Except as disclosed in Schedule 3.12 hereto, the
Affiliated Companies and any Subsidiaries are not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Affiliated Companies or any Subsidiary nor does any Affiliated
Company know of any activities or proceedings of any labor union to organize any
such employees.
3.13 Restrictions on Business Activities. Except as disclosed on Schedule
3.13 hereto, to the knowledge of the Company and each of the Members, there is
no agreement, commitment, judgment, injunction, order or decree binding upon the
Affiliated Companies or any Subsidiary or to which the Affiliated Companies or
any Subsidiary is a party which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of the
Affiliated Companies or any Subsidiary, any acquisition of property by the
Affiliated Companies or any Subsidiary or the conduct of business by the
Affiliated Companies or any Subsidiary as currently conducted other than such
14
effects, individually or in the aggregate, which have not had and could not
reasonably be expected to have a Material Adverse Effect on the Affiliated
Companies or any Subsidiaries.
3.14 Title to Property.
(a) All land use rights owned by the Affiliated Companies and any
Subsidiary (including land use rights, improvements and fixtures thereon,
easements and rights of way) (the "Real Property") is shown or reflected on the
U.S. GAAP Financial Statements (as defined in Section 6.4(c) hereof). The
Affiliated Companies and any Subsidiary have good, valid and marketable title to
the Real Property, and except as set forth in the U.S. GAAP Financial Statements
or on Schedule 3.14 hereto, all of the Real Property is held free and clear of
all Liens, rights of way, easements, restrictions, exceptions, variances,
reservations, covenants or other title defects or limitations of any kind, other
than liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby.
Schedule 3.14 hereto is a list of all options or other contracts under which any
Affiliated Company or any Subsidiary has a right to acquire any interest in real
property.
(b) All leases of real property held by the Affiliated Companies and
any Subsidiary and all personal property and other property and assets of the
Affiliated Companies and any Subsidiary (other than Real Property) owned, used
or held for use in connection with the business of the Affiliated Companies and
any Subsidiaries (the "Personal Property") are shown or reflected on the U.S.
GAAP Financial Statements. The Affiliated Companies and any Subsidiary own and
have good and marketable title to the Personal Property, and all such assets and
properties are in each case held free and clear of all Liens, except for Liens
disclosed in the U.S. GAAP Financial Statements or in Schedule 3.14 hereto, none
of which Liens has or will have, individually or in the aggregate, a Material
Adverse Effect on such property or on the present or contemplated use of such
property in the businesses of the Affiliated Companies or any Subsidiaries.
(c) All leases pursuant to which an Affiliated Company or a
Subsidiary leases from others material real or personal property are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing material default or event of default of the
Affiliated Companies or any Subsidiary or, to the knowledge of the Company and
each of the Members, any other party (or any event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such validity and effectiveness or the existence of such default or event of
default could not reasonably be expected to have a Material Adverse Effect on
the Affiliated Companies or any Subsidiaries.
3.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all applicable central, federal, provincial, state,
local, municipal and foreign taxes, including, without limitation, gross
receipts, income, profits, sales, use, occupation, value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, assessments, governmental charges and duties together with all
15
interest, penalties and additions imposed with respect to any such amounts and
any obligations under any agreements or arrangements with any other person with
respect to any such amounts and including any liability of a predecessor entity
for any such amounts.
(b) Tax Returns and Audits. Except as set forth in Schedule 3.15
hereto, to the knowledge of the Company and each of the Members:
(i) The Affiliated Companies and each Subsidiary have timely
filed all federal, state, local and foreign returns, estimates, information
statements and reports relating to Taxes ("Returns") required to be filed by the
Affiliated Companies and each Subsidiary with any Tax authority prior to the
date hereof. All such Returns are true, correct and complete in all material
respects. The Affiliated Companies and each Subsidiary have paid all Taxes shown
to be due on such Returns.
(ii) All Taxes that the Affiliated Companies and each
Subsidiary are required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper governmental authorities
to the extent due and payable.
(iii) The Affiliated Companies and each Subsidiary have not
been delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against the Affiliated Companies or any
Subsidiary, nor have the Affiliated Companies or any Subsidiary executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Affiliated Companies or any Subsidiary by any Tax authority is presently in
progress, nor have the Affiliated Companies or any Subsidiary been notified of
any request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by the
Affiliated Companies or any Subsidiary has been proposed in writing, formally or
informally, by any Tax authority to the Affiliated Companies or any Subsidiary
or any representative thereof.
(vi) The Affiliated Companies and each Subsidiary have no
liability for any unpaid Taxes which have not been accrued for or reserved on
Kangping's balance sheets included in the audited financial statements for the
most recent fiscal year ended, whether asserted or unasserted, contingent or
otherwise, other than any liability for unpaid Taxes that may have accrued since
the end of the most recent fiscal year in connection with the operation of the
business of the Affiliated Companies or any Subsidiary in the ordinary course of
business, none of which is material to the business, results of operations or
financial condition of the Affiliated Companies or any Subsidiaries.
3.16 Environmental Matters. Except as disclosed in Schedule 3.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to the knowledge of the
Company and each of the Members: (i) the Affiliated Companies and each
Subsidiary have complied with all applicable Environmental Laws; (ii) the
properties currently owned or operated by the Affiliated Companies and each
16
Subsidiary (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned or operated by the Affiliated Companies and each
Subsidiary were not contaminated with Hazardous Substances during the period of
ownership or operation by the Affiliated Companies or any Subsidiary; (iv) the
Affiliated Companies and each Subsidiary are not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
the Affiliated Companies and each Subsidiary have not been associated with any
release or threat of release of any Hazardous Substance; (vi) the Affiliated
Companies and each Subsidiary have not received any notice, demand, letter,
claim or request for information alleging that the Affiliated Companies or any
Subsidiary may be in violation of or liable under any Environmental Law; and
(vii) the Affiliated Companies and each Subsidiary are not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
As used in this Agreement, the term "Environmental Law" means all
applicable central, federal, provincial, state, local or municipal law,
regulation, order, decree, permit, authorization, opinion, common law or agency
requirement relating to: (A) the protection, investigation or restoration of the
environment, health and safety, or natural resources; (B) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance or
(C) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property.
As used in this Agreement, the term "Hazardous Substance" means any
substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law
3.17 Brokers; Third Party Expenses. Except as set forth on Schedule 3.17,
neither the Affiliated Companies nor, to the knowledge of the Company and each
of the Members, Fangyuan, Xxxxxx Xxx and Xxxxxxx Xxxx have incurred, nor will
they incur, directly or indirectly, any liability for brokerage, finders' fees,
agent's commissions or any similar charges in connection with this Agreement or
any transactions contemplated hereby. Except as disclosed on Schedule 3.17, no
ownership interests, equity securities, convertible securities, warrants,
options, or other derivative securities of the Affiliated Companies or Qorus are
payable to any third party by the Affiliated Company or any Member as a result
of this Transaction.
3.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following: (i)
patents and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof
("Patents") worldwide; (ii) inventions (whether patentable or not), invention
17
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) registered copyrights and applications therefor, and
all other rights corresponding thereto, worldwide; (iv) material domain names,
uniform resource locators ("URLs") and other names and locators associated with
the Internet ("Domain Names"); (v) registered industrial designs and
applications therefor, worldwide; (vi) registered trade names, logos, trademarks
and service marks, and any applications therefor (collectively, "Trademarks"),
worldwide; (vii) all databases and data collections and all rights therein; and
(viii) all moral and economic rights of authors and inventors, however
denominated.
"the Company Intellectual Property" shall mean any Intellectual
Property that is owned by, or licensed to, the Affiliated Companies or any
Subsidiary.
"the Company Products" means all current versions of products or
services of the Affiliated Companies or any Subsidiary.
(a) Except as disclosed on Schedule 3.18, to the knowledge of the
Company and each of the Members, the Company Intellectual Property and the
Company Products are not subject to any material proceeding or outstanding
decree, order, judgment, contract, license, agreement or stipulation restricting
in any manner the use, transfer or licensing thereof by the Affiliated Companies
or any Subsidiary, or which may affect the validity, use or enforceability of
such the Company Intellectual Property or the Company Product, which in any such
case could reasonably be expected to have a Material Adverse Effect on the
Affiliated Companies and any Subsidiaries.
(b) Except as disclosed on Schedule 3.18 hereto, to the knowledge of
the Company and each of the Members, the Affiliated Companies and any
Subsidiaries either own and have good and marketable title to each material item
of the Company Intellectual Property owned by it free and clear of any Liens
(excluding licenses and related restrictions granted in the ordinary course) or
have one or more licenses sufficient for use of the Company Intellectual
Property by the Affiliated Companies and any Subsidiary; and the Affiliated
Companies and any Subsidiaries are the owner or licensee of all material
Trademarks used in connection with the operation or conduct of the business of
the Affiliated Companies and any Subsidiaries including the sale of any the
Company Products.
(c) The operation of the business of the Affiliated Companies and
any Subsidiaries as such business currently is conducted, including the use of
any product, device or process, to the knowledge of the Company and each of the
Members and except as could not reasonably be expected to have a Material
Adverse Effect, has not and does not infringe or misappropriate the Intellectual
Property of any third party or constitute unfair competition or trade practices
under the laws of any jurisdiction.
3.19 Agreements, Contracts and Commitments.
18
(a) For purposes of this Agreement, (i) the term "Contracts" shall
mean all written contracts, agreements, leases, mortgages, indentures, notes,
bonds, liens, licenses, arbitration awards, judgments, decrees, orders,
documents, instruments, understandings and commitments to which the Affiliated
Companies or any Subsidiary is a party or by or to which any of the properties
or assets of the Affiliated Companies or any Subsidiary may be bound, subject or
affected (including without limitation notes or other instruments payable to the
Affiliated Companies), and the term "Material Contracts" shall mean (x) each
Contract, other than the Restructuring Documents, (I) providing for payments
(present or future) to the Affiliated Companies or any Subsidiary in excess of
$100,000 in the aggregate, or (II) under which or in respect of which the
Affiliated Companies presently have any liability or obligation of any nature
whatsoever (absolute, contingent or otherwise) in excess of $100,000, and (y)
without limitation of subclause (x), each of the following Contracts:
(i) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from the Affiliated Companies or any Subsidiary;
(ii) any guaranty, direct or indirect, by the Affiliated
Companies or any Subsidiary or any officer, director or 5% or more stockholder
("Insider") of the Affiliated Companies or any Subsidiary of any obligation of
the Affiliated Companies or any Subsidiary for borrowings, or otherwise,
excluding endorsements made for collection in the ordinary course of business;
(iii) any Contract made other than in the ordinary course of
business or (x) providing for the grant of any preferential rights to purchase
or lease any asset of the Affiliated Companies or any Subsidiary or (y)
providing for any right (exclusive or non-exclusive) to sell or distribute, or
otherwise relating to the sale or distribution of, any product or service of the
Affiliated Companies or any Subsidiary;
(iv) any obligation to register any shares of the capital
stock or other securities of the Affiliated Companies or any Subsidiary with any
Governmental Entity;
(v) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(vi) any collective bargaining agreement with any labor union;
(vii) any lease or similar arrangement for the use by the
Affiliated Companies or any Subsidiary of personal property;
(viii) any Contract granting or purporting to grant, or
otherwise in any way relating to, any mineral rights or any other interest
(including, without limitation, a leasehold interest) in real property; and
(ix) any Contract with the Affiliated Companies or any
Subsidiary to which any Insider of the Affiliated Companies or Subsidiary is a
party.
19
(b) Each Material Contract was entered into at arms' length and in
the ordinary course, is in full force and effect and, to the knowledge of the
Company and each of the Members, is valid and binding upon and enforceable
against each of the parties thereto. The Restructuring Agreements, the Option
Agreement and the Authorizations are each valid and binding upon and enforceable
against each of the parties thereto under the laws of the PRC and the laws of
any other jurisdiction which may be applicable, and true, correct and complete
copies of each such agreement have been attached as Exhibits hereto.
(c) Except as set forth in Schedule 3.19, neither the Affiliated
Companies or any Subsidiary nor, to the knowledge of the Company and each of the
Members, any other party thereto, is in breach of or in default under, and no
event has occurred which with notice or lapse of time or both would become a
breach of or default under, any Material Contract, which breach, individually or
in the aggregate, could be reasonably likely to have a Material Adverse Effect
on the Affiliated Companies and any Subsidiaries, and no party to any Material
Contract has given any written notice of any claim of any such breach, default
or event, which, individually or in the aggregate, are reasonably likely to have
a Material Adverse Effect on the Affiliated Companies and any Subsidiaries. Each
Material Contract to which the Affiliated Companies or any Subsidiary is a party
or by which it is bound that has not expired by its terms is in full force and
effect, except where such failure to be in full force and effect is not
reasonably likely to have a Material Adverse Effect on the Affiliated Companies
and any Subsidiaries.
3.20 Insurance. The Affiliated Companies maintain all insurance required
under PRC laws and regulations (the "Insurance Policies").
3.21 Governmental Actions/Filings; Approvals. Except as set forth in
Schedule 3.21, the Affiliated Companies and each Subsidiary hold, and/or have
made, all Governmental Actions/Filings and Approvals reasonably necessary for
the conduct by the Affiliated Companies and any Subsidiaries of their business
(as presently conducted and to be conducted following the Closing) including,
without limitation: (i) with respect to Shenyang, the receipt of any and all
certifications and approvals required to qualify as a wholly foreign owned
enterprise ("WFOE Certification"), which WFOE certifications do not expire for a
period of 20 years from the date of issuance on May 18, 2005 are not subject to
any conditions which have not been previously satisfied, and (ii) with respect
to Shenyang, it has filed the required applications and has received any and all
foreign exchange certifications and approvals from the appropriate national and
local branches of the State Administration of Foreign Exchange ("SAFE
Certifications") in the PRC, which SAFE Certifications were issued on May 30,
2005 and allow Shenyang to exchange currency of the PRC into currency of the
United States and vice versa, subject to the PRC laws and SAFE rules and
regulations without any further action by Shenyang or its controlling persons,
except with respect to any Governmental Actions/Filings and Approvals the
failure of which to hold or make would not reasonably be likely to have a
Material Adverse Effect on the Affiliated Companies and any Subsidiaries.
For purposes of this Agreement, the term "Governmental Action/Filing"
shall mean any franchise, license, certificate of compliance, authorization,
consent, order, permit, approval, consent or other action of, or any filing,
registration or qualification with, any federal, state, municipal, foreign or
other governmental, administrative or judicial body, agency or authority.
20
3.22 Interested Party Transactions. Except as set forth in the Schedule
3.22 hereto or as reflected in the financial statements to be delivered
hereunder, no employee, officer, director or stockholder of the Affiliated
Companies or any Subsidiary or a member of his or her immediate family is
indebted to the Affiliated Companies or any Subsidiary, nor are the Affiliated
Companies or any Subsidiary indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of the Affiliated Companies and any Subsidiaries, and (iii) for other employee
benefits made generally available to all employees. Except as set forth in
Schedule 3.22, to the knowledge of the Company and each of the Members, none of
such individuals has any direct or indirect ownership interest in any Person
with whom the Affiliated Companies or any Subsidiary is affiliated or with whom
the Affiliated Companies or any Subsidiary has a contractual relationship, or
any Person that competes with the Affiliated Companies or any Subsidiary, except
that each employee, officer, director or stockholder of the Affiliated Companies
and any Subsidiary and members of their respective immediate families may own
less than 5% of the outstanding stock in publicly traded companies that may
compete with the Affiliated Companies or any Subsidiary. Except as set forth in
Schedule 3.22, to the knowledge of the Affiliated Companies, no employee,
officer, director or stockholder or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Affiliated
Companies or any Subsidiary (other than such contracts as relate to any such
individual ownership of interests in or securities of the Affiliated Companies).
3.23 Board of Director Approval. The board of directors of the Company or
similar governing body has, as of the date of this Agreement, unanimously
approved, subject to the approval of all of the members or stockholders, this
Agreement and the transactions contemplated hereby, and resolved to seek the
members' or stockholders' approval and adoption of this Agreement and approval
of the Transaction as provided in the applicable Charter Documents.
3.24 Management. During the past five year period, to the knowledge of the
Company and each of the Members, no current or former officer or director or
member or stockholder of the Affiliated Companies or any Subsidiary has been the
subject of:
(a) a petition under bankruptcy laws or any other insolvency or
moratorium law or has a receiver, fiscal agent or similar officer been appointed
by a court for such person, or any partnership in which such person was a
general partner at or within two years before the time of such filing, or any
corporation or business association of which such person was an executive
officer at or within two years before the time of such filing;
(b) a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations that do not relate to
driving while intoxicated or driving under the influence);
(c) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
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(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the United
States Commodity Futures Trading Commission or an associated person of any
of the foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii)Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of securities laws or commodities laws;
(d) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any authority barring, suspending or otherwise limiting
for more than 60 days the right of any such person to engage in any activity
described in the preceding sub-paragraph, or to be associated with persons
engaged in any such activity;
(e) a finding by a court of competent jurisdiction in a civil action
or by the U.S. Securities and Exchange Commission ("SEC") or other authority to
have violated any securities law, regulation or decree and the judgment in such
civil action or finding by the SEC or any other authority has not been
subsequently reversed, suspended or vacated; or
(f) a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
3.25 Representations and Warranties Complete. The representations and
warranties of Xxxxxxx Xxxx, Xxxxxx Xxx, the Company included in this Agreement
and any Schedule provided pursuant to this Agreement, are true and complete in
all material respects and do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading, under the circumstance
under which they were made. Any disclosure on one schedule will be deemed notice
of and disclosure in respect of any other representation and warranty.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QORUS AND KRM FUND
Qorus and KRM Fund represent and warrant to, and covenant with, the
Company, as follows:
4.1 Organization and Qualification.
(a) Qorus is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Florida and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Qorus to be conducted. To its knowledge, Qorus is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being or currently
planned by Qorus to be conducted, except where the failure to have such
Approvals could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Qorus. Complete and correct copies of the
Charter Documents of Qorus, as amended and currently in effect, have been
heretofore delivered to the Company. Qorus is not in violation of any of the
provisions of Qorus' Charter Documents.
(b) Qorus is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Qorus.
4.2 Subsidiaries. As of the date of this Agreement, Qorus has no
Subsidiaries and does not own, directly or indirectly, any ownership, equity,
profits or voting interest in any Person and, other than this Agreement, has no
agreement or commitment to purchase any such interest, and Qorus has not agreed
and is not obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
4.3 Capitalization.
(a) The authorized capital stock of Qorus consists of 50,000,000
shares of common stock, par value $0.001 per share ("Qorus Common Stock") and
5,000,000 shares of preferred stock, par value $0.01 per share ("Qorus Preferred
Stock"), of which 1,200,000 shares will be designated as Series A Convertible
Preferred Stock pursuant to the Articles of Amendment to the Articles of
Incorporation of Xxxxx.xxx, Inc. ("Articles of Amendment"), which are attached
hereto as Exhibit B. At the close of business on the business day prior to the
date hereof, (i) 49,184,800 shares of Qorus Common Stock were issued and
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outstanding (which includes 3,010,000 shares of Qorus Common Stock issued and
held in treasury, which will be cancelled prior to Closing), all of which are
validly issued, fully paid and nonassessable; (ii) no shares of Qorus Preferred
Stock were issued and outstanding (provided, Qorus has the obligation to issue,
and will issue, to Gateway 18,410 shares of Series A Convertible Preferred Stock
prior to Closing); (iii) 23,200 shares of Qorus Common Stock were reserved for
issuance upon the exercise of outstanding options to purchase the Company Common
Stock granted to certain Persons, of which 20,000 options are exercisable at
$0.01 per share without expiration and 3,200 options are exercisable at $5.00
per share expiring October 25, 2006 ("the Company Stock Options"); (iv) no
shares of Qorus Common Stock were reserved for issuance upon the exercise of
outstanding warrants to purchase Qorus Common Stock ("Qorus Warrants"); (v) no
shares of Qorus Preferred Stock were reserved for issuance to any party (other
than the Members in accordance with this Agreement); and (vi) no shares of Qorus
Common Stock were reserved for issuance upon the conversion of Qorus Preferred
Stock or any outstanding convertible notes, debentures or securities
("Convertible Securities"). All outstanding shares of Qorus Common Stock have
been issued and granted in compliance with (i) all applicable securities laws
and (in all material respects) other applicable laws and regulations, and (ii)
all requirements set forth in any applicable Contracts. Prior to Closing, there
will be an aggregate of 1,200,000 shares of authorized but unissued shares of
Series A Convertible Preferred Stock, par value $0.01 per share ("Series A
Preferred Stock"), which, subject to the approval of Qorus' stockholders to
effect the Reverse Split (as defined below) and to increase the number of
authorized capital stock of Qorus, which in any case shall be required to have
occurred subsequent to the Closing ("Stockholder Approval"): (i) shall be
convertible into 703,200,000 shares of Common Stock on a pre-Reverse Split
basis, based on a conversion rate of 586 shares of Common Stock on a pre-Reverse
Split basis for each share of Series A Preferred Stock. Upon the issuance of the
shares of the Series A Preferred Stock, and, subject to the Stockholder
Approval, the Conversion Shares issuable upon conversion thereof, when issued,
will be validly issued, fully paid and non-assessable. The term "Reverse Split"
is defined in Section 6.15(a) hereof. Immediately following the Transaction, the
Members will own 91% of the total combined voting power of all classes of Qorus
stock entitled to vote on a fully diluted basis.
(b) There are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of Qorus, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for this Agreement or as set forth
in Schedule 4.3, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Qorus is a party or by which it is bound obligating Qorus to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
Qorus or obligating Qorus to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. To Qorus' knowledge, there is no plan or arrangement to
issue Qorus Common Stock or Qorus Preferred Stock except as set forth in this
Agreement. Except as contemplated by this Agreement and except as set forth in
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Schedule 4.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, anti-takeover plan or other agreement or
understanding to which Qorus is a party or by which it is bound with respect to
any equity security of any class of Qorus.
4.4 Authority Relative to this Agreement. Qorus and KRM Fund have full
corporate power and authority to: (i) execute, deliver and perform this
Agreement, and each ancillary document which Qorus has executed or delivered or
is to execute or deliver pursuant to this Agreement, and (ii) carry out their
obligations hereunder and thereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by Qorus of the transactions contemplated
hereby (including the Transaction) have been duly and validly authorized by all
necessary corporate action on the part of Qorus (including the approval by its
Board of Directors) and on the part of KRM Fund (the majority shareholder of
Qorus by its Board of Managers), and no other corporate proceedings on the part
of Qorus are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Qorus and KRM Fund and, assuming the due
authorization, execution and delivery thereof by the other parties hereto,
constitutes the legal and binding obligation of Qorus and KRM Fund, enforceable
against them in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and public policy. Upon the Stockholder Approval, which in any case shall be
required to have occurred subsequent to the Closing, the Series A Preferred
Stock will be convertible into duly authorized, validly issued, fully paid and
nonassessable shares of Qorus' Common Stock.
4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Qorus and the
execution and delivery of each ancillary document to be delivered by Qorus
hereunder do not, and the performance of this Agreement and each such ancillary
document by Qorus shall not: (i) conflict with or violate Qorus' Charter
Documents, (ii) conflict with or violate any Legal Requirements, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or materially impair Qorus'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Qorus pursuant to, any Contracts, except, with respect to clauses (ii)
or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, have a Material
Adverse Effect on Qorus.
(b) Except for: (i) the filing of the Articles of Amendment with the
appropriate authorities and pursuant to the laws of the State of Florida, and
(ii) the requirement to obtain the Stockholder Approval which in any case shall
be required to have occurred subsequent to the Closing, the execution and
delivery of this Agreement by Qorus does not, and the performance of its
obligations hereunder will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(i) for applicable requirements, if any, of the Securities Act, the Exchange
Act, Blue Sky Laws, and the rules and regulations thereunder, and appropriate
documents with the relevant authorities of other jurisdictions in which Qorus is
qualified to do business, and (ii) where the failure to obtain such consents,
25
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Qorus, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
4.6 Compliance. To Qorus' knowledge, Qorus has complied with, and is not
in violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Qorus. To Qorus'
knowledge, the businesses and activities of Qorus have not been and are not
being conducted in violation of any Legal Requirements. Qorus is not in default
or violation of any material term, condition or provision of its Charter
Documents. Except as set forth on Schedule 4.6, to Qorus' knowledge, no written
notice of non-compliance with any Legal Requirements has been received by Qorus.
4.7 SEC Filings; Financial Statements.
(a) Qorus has made available to the Company a correct and complete
copy, or there has been available on XXXXX copies, of each report, registration
statement and definitive proxy statement filed by Qorus with the SEC for the 36
months prior to the date of this Agreement (the "Qorus SEC Reports"), which, to
Qorus' knowledge, are all the forms, reports and documents filed by Qorus with
the SEC for the 36 months prior to the date of this Agreement. As of their
respective dates, to Qorus' knowledge, the Qorus SEC Reports: (i) were prepared
in accordance and complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Qorus SEC Reports, and (ii)
did not at the time they were filed (and if amended or superseded by a filing
prior to the date of this Agreement then on the date of such filing and as so
amended or superceded) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent set forth in the preceding sentence,
Qorus makes no representation or warranty whatsoever concerning the Qorus SEC
Reports as of any time other than the time they were filed.
(b) To Qorus' knowledge, each set of financial statements
(including, in each case, any related notes thereto) contained in the Qorus SEC
Reports comply as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
U.S. GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, do not contain footnotes as permitted by Form 10-QSB promulgated
under the Exchange Act) and each fairly presents in all material respects the
financial position of Qorus at the respective dates thereof and the results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal adjustments
which were not or are not expected to have a Material Adverse Effect on Qorus
taken as a whole.
26
(c) Qorus has previously furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Qorus with the SEC pursuant
to the Securities Act or the Exchange Act.
(d) To the extent received by KRM Fund, Qorus has provided to the
Company copies of all correspondence received by it from the SEC during the 36
months prior to the date of this Agreement.
4.8 No Undisclosed Liabilities. Except as set forth in Schedule 4.8
hereto, Qorus has no liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Qorus, except (i) liabilities provided for
in or otherwise disclosed in Qorus SEC Reports filed prior to the date hereof,
(ii) liabilities incurred since March 31, 2005 in the ordinary course of
business, none of which would have a Material Adverse Effect on Qorus, and (iii)
those liabilities and obligations specifically set forth in Section 6.11.
4.9 Absence of Certain Changes or Events. Except as set forth in Schedule
4.9 hereto or in Qorus SEC Reports filed prior to the date of this Agreement,
and except as contemplated by this Agreement, since March 31, 2005, there has
not been: (i) any Material Adverse Effect on Qorus, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Qorus' capital stock, or any
purchase, redemption or other acquisition by Qorus of any of Qorus' capital
stock or any other securities of Qorus or any options, warrants, calls or rights
to acquire any such shares or other securities, (iii) except for the designation
of the Series A Preferred Stock, any split, combination or reclassification of
any of Qorus' capital stock, (iv) any granting by Qorus of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Qorus of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by Qorus of
any increase in severance or termination pay or any entry by Qorus into any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving
Qorus of the nature contemplated hereby, (v) entry by Qorus into any licensing
or other agreement with regard to the acquisition or disposition of any
Intellectual Property other than licenses in the ordinary course of business
consistent with past practice or any amendment or consent with respect to any
licensing agreement filed or required to be filed by Qorus with respect to any
Governmental Entity, (vi) any material change by Qorus in its accounting
methods, principles or practices, except as required by concurrent changes in
U.S. GAAP, (vii) any change in the auditors of Qorus, (vii) any issuance of
capital stock of Qorus, except for the issuance of 650,000 shares of Qorus
Common Stock to a financial consultant on April 4, 2005 for services rendered,
or (viii) any revaluation by Qorus of any of their respective assets, including,
without limitation, writing down the value of, or any sale of, assets of Qorus
other than in the ordinary course of business.
4.10 Litigation. Except as set forth on Schedule 4.10 hereto or in Qorus
SEC Reports, there are no claims, suits, actions or proceedings pending or to
27
Qorus' knowledge, threatened against Qorus, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
individually or in the aggregate with all such claims, actions or proceedings,
to have a Material Adverse Effect on Qorus or have a Material Adverse Effect on
the ability of the parties hereto to consummate the Transaction.
4.11 Employee Benefit Plans. Except as disclosed on Schedule 4.11 hereto
or in Qorus SEC Reports, Qorus does not maintain, and has no liability under,
any Plan, and neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or employee of Qorus, or
(ii) result in the acceleration of the time of payment or vesting of any such
benefits.
4.12 Labor Matters. Qorus is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Qorus,
nor does Qorus know of any activities or proceedings of any labor union to
organize any such employees.
4.13 Restrictions on Business Activities. To Qorus' knowledge, there is no
agreement, commitment, judgment, injunction, order or decree binding upon Qorus
or to which Qorus is a party which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business practice of
Qorus, any acquisition of property by Qorus or the conduct of business by Qorus
as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have, a
Material Adverse Effect on Qorus.
4.14 Title to Property. Qorus does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Qorus has
a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
4.15 Taxes. Except as set forth in Schedule 4.15 hereto, to Qorus'
knowledge:
(a) Qorus has timely filed all Returns required to be filed by Qorus
with any Tax authority prior to the date hereof. All such Returns are true,
correct and complete in all material respects. Qorus has paid all Taxes shown to
be due on such Returns.
(b) All Taxes that Qorus is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
proper governmental authorities to the extent due and payable.
(c) Qorus has not been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed or assessed against Qorus, nor
has Qorus executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
28
(d) No audit or other examination of any Return of Qorus by any Tax
authority is presently in progress, nor has Qorus been notified of any request
for such an audit or other examination.
(e) No adjustment relating to any Returns filed by Qorus has been
proposed in writing, formally or informally, by any Tax authority to Qorus or
any representative thereof.
(f) Qorus has no liability for any unpaid Taxes which have not been
accrued for or reserved on Qorus' balance sheets included in the audited
financial statements for the most recent fiscal year ended, whether asserted or
unasserted, contingent or otherwise, other than any liability for unpaid Taxes
that may have accrued since the end of the most recent fiscal year in connection
with the operation of the business of Qorus in the ordinary course of business.
4.16 Environmental Matters. Except as disclosed in Schedule 4.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Qorus' knowledge: (i)
Qorus has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Qorus (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Qorus were not
contaminated with Hazardous Substances during the period of ownership or
operation by Qorus; (iv) Qorus is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Qorus has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Qorus has not received any notice, demand, letter, claim or
request for information alleging that Qorus may be in violation of or liable
under any Environmental Law; and (vii) Qorus is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
4.17 Brokers. Except for Qorus' obligations under the Financial Advisory
Agreement (as defined in Section 6.11), Qorus has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agent's commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby. Prior to Closing, Qorus will issue 18,410
shares of its Series A Preferred Stock ("Gateway Shares") to Worldwide Gateway
Co., Ltd. ("Gateway") as a finder's fee in connection with the transactions
contemplated under this Agreement. The Conversion Shares shall represent 91% of
the issued and outstanding shares of common stock of Qorus, on an as converted
and fully diluted basis immediately following the Closing.
4.18 Intellectual Property. Qorus does not own, license or otherwise have
any right, title or interest in any Intellectual Property.
29
4.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement, any agreement with
Florida Atlantic Stock Transfer, Inc. ("Transfer Agent"), the agreement with
Vero Management, LLC which will be terminated prior to Closing, or except as set
forth on Schedule 4.19 or in Qorus SEC Reports, to Qorus' knowledge, there are
no contracts, agreements, leases, mortgages, indentures, note, bond, liens,
license, arbitration awards, judgments, decrees, orders, documents, instruments,
understandings and commitments, to which Qorus is a party or by or to which any
of the properties or assets of Qorus may be bound, subject or affected, which
are not cancelable by Qorus with 30 days notice ("Qorus Contracts").
(b) To Qorus' knowledge, each Qorus Contract was entered into at
arms' length and in the ordinary course, is in full force and effect and is
valid and binding upon and enforceable against each of the parties thereto.
True, correct and complete copies of all Qorus Contracts (or written summaries
in the case of oral Qorus Contracts) and of all outstanding offers or proposals
of Qorus have been heretofore delivered to the Company.
(c) Neither Qorus nor, to the knowledge of Qorus, any other party
thereto is in breach of or in default under, and no event has occurred which
with notice or lapse of time or both would become a breach of or default under,
any Qorus Contract, and no party to any Qorus Contract has given any written
notice of any claim of any such breach, default or event, which, individually or
in the aggregate, are reasonably likely to have a Material Adverse Effect on
Qorus. Each agreement, contract or commitment to which Qorus is a party or by
which it is bound that has not expired by its terms is in full force and effect,
except where such failure to be in full force and effect is not reasonably
likely to have a Material Adverse Effect on Qorus.
4.20 Insurance. Qorus does not maintain any Insurance Policies.
4.21 Governmental Actions/Filings. To its knowledge, Qorus has been
granted and holds, and has made, all Governmental Actions/Filings necessary to
the conduct by Qorus of its businesses (as presently conducted) or used or held
for use by Qorus, all of which are listed in Schedule 4.21 hereto, and true,
complete and correct copies of which have heretofore been delivered to the
Company. Each such Governmental Action/Filing is in full force and effect and,
expect as disclosed in Schedule 4.21 hereto, will not expire prior to December
31, 2005, and Qorus is in compliance with all of its obligations with respect
thereto. To Qorus' knowledge, no event has occurred and is continuing which
requires or permits, or after notice or lapse of time or both would require or
permit, and consummation of the transactions contemplated by this Agreement or
the ancillary documents will not require or permit (with or without notice or
lapse of time, or both), any modification or termination of any such
Governmental Actions/Filings. Except as set forth in Schedule 4.21, to Qorus'
knowledge, no Governmental Action/Filing is necessary to be obtained, secured or
made by Qorus to enable it to continue to conduct its businesses and operations
and use its properties after the Closing in a manner which is consistent with
current practice.
4.22 Interested Party Transactions. Except as set forth in the Schedule
4.22 hereto or in Qorus' SEC Reports, no employee, officer, director or
30
stockholder of Qorus or a member of his or her immediate family is indebted to
Qorus, nor is Qorus indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than (i) for payment of salary for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of
Qorus, and (iii) for other employee benefits made generally available to all
employees. Except as set forth in Schedule 4.22, to Qorus' knowledge, none of
such individuals has any direct or indirect ownership interest in any Person
with whom Qorus is affiliated or with whom Qorus has a material contractual
relationship, or any Person that competes with Qorus, except that each employee,
stockholder, officer or director of Qorus and members of their respective
immediate families may own less than 5% of the outstanding stock in publicly
traded companies that may compete with Qorus. Except as set forth in Schedule
4.22, to Qorus' knowledge, no officer, director or stockholder or any member of
their immediate families is, directly or indirectly, interested in any material
contract with Qorus (other than such contracts as relate to any such individual
ownership of capital stock or other securities of Qorus).
4.23 Indebtedness; Qorus Assets. Except as set forth on Schedule 4.23,
Qorus has no indebtedness for borrowed money. Immediately prior to the Closing,
Qorus will have no assets, except for cash reserves earmarked for the payment of
certain accounts payable and accrued expenses of Qorus with respect to the
period prior to Closing which remain unpaid, which Qorus shall be responsible
for payment following the Closing pursuant to Section 6.11 hereof ("Cash
Reserve").
4.24 Over-the-Counter Bulletin Board Quotation. Qorus Common Stock is
quoted on the NASD Over-the-Counter Electronic Bulletin Board ("OTC BB"). There
is no action or proceeding pending or, to Qorus' knowledge, threatened against
Qorus by NASDAQ or NASD, Inc. ("NASD") with respect to any intention by such
entities to prohibit or terminate the quotation of Qorus Common Stock on the OTC
BB.
4.25 Exchange Act Compliance. Qorus is in compliance with, and current in,
all of the reporting, filing and other requirements under the Exchange Act, the
shares of Qorus Common Stock have been registered under Section 12(g) of the
Exchange Act, and Qorus is in compliance with all of the requirements under, and
imposed by, Section 12(g) of the Exchange Act, except where a failure to so
comply is not reasonably likely to have a Material Adverse Effect on Qorus.
4.26 Board Approval. The Board of Directors of Qorus (including any
required committee or subgroup of the Board of Directors of Qorus) has, as of
the date of this Agreement, unanimously approved this Agreement and the
transactions contemplated hereby.
4.27 Representations and Warranties Complete. The representations and
warranties of Qorus included in this Agreement and any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made. Any disclosure on one schedule will be deemed notice of
and disclosure by Qorus in respect of any other representation and warranty of
Qorus.
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ARTICLE V
CONDUCT PRIOR TO CLOSING
5.1 Conduct of Business by the Affiliated Companies and Qorus. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Closing, the
Affiliated Companies and any Subsidiaries and Qorus shall, except to the extent
that the other party shall otherwise consent in writing, carry on its business
in the usual, regular and ordinary course consistent with past practices, in
substantially the same manner as heretofore conducted and in compliance with all
applicable laws and regulations (except where noncompliance would not have a
Material Adverse Effect), pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to (i) preserve substantially intact its present business
organization, (ii) keep available the services of its present officers, managers
and employees, and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings. In addition, except as permitted or required by the terms of
this Agreement, the Restructuring Documents or set forth on the Schedule 5.1
hereto, without the prior written consent of the other party, during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Closing, the
Affiliated Companies and any Subsidiaries and Qorus shall not do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or (except
as specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Except with respect to the Restructuring Agreements, transfer or
license to any person or otherwise extend, amend or modify any material rights
to any Intellectual Property, or enter into grants to transfer or license to any
person future patent rights, other than in the ordinary course of business
consistent with past practices provided that in no event shall any party license
on an exclusive basis or sell any Intellectual Property;
(c) Except for employment agreements in the ordinary course or
otherwise scheduled or set forth in this Agreement including Schedule 5.1,
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock, membership interests or ownership interests, or split, combine or
reclassify any capital stock, membership interests or ownership interests, or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for any capital stock, membership interests or ownership
interests, other than the issuance of the Gateway Shares by Qorus prior to
Closing;
(d) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock, membership interests or ownership interests, except
repurchases of unvested shares, membership interests or ownership interests at
cost in connection with the termination of the employment relationship with any
32
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber,
or agree to any of the foregoing with respect to, any shares of capital stock,
membership interests or ownership interests or any securities convertible into
or exchangeable for shares of capital stock, membership interests or ownership
interests, or subscriptions, rights, warrants or options to acquire any shares
of capital stock, membership interests or ownership interests or any securities
convertible into or exchangeable for shares of capital stock, membership
interests or ownership interests, or enter into other agreements or commitments
of any character obligating it to issue any such shares, membership interests,
ownership interests or convertible or exchangeable securities (except relating
to employment and similar agreements);
(f) Amend its Charter Documents;
(g) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of Qorus or the Affiliated Companies or any Subsidiary, as applicable,
or enter into any joint ventures, strategic partnerships or alliances or other
arrangements that provide for exclusivity of territory or otherwise restrict
such party's ability to compete or to offer or sell any products or services
(except for the transactions contemplated under the Debt Repayment Agreement as
defined in Section 7.1(l) hereof);
(h) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of such party;
(i) Incur any indebtedness for borrowed money in excess of $100,000
other than re-financing existing debts, in the aggregate or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Qorus or the
Affiliated Companies or any Subsidiary, as applicable, enter into any "keep
well" or other agreement to maintain any financial statement condition or enter
into any arrangement having the economic effect of any of the foregoing other
than in the ordinary course of business of such party;
(j) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer letters
and agreements entered into in the ordinary course of business consistent with
past practice), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants, except in the ordinary course of business consistent with past
practices and other than for new hires in the ordinary course;
33
(k) Pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of this
Agreement)in excess of $100,000 other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practices
or in accordance with their terms, or liabilities recognized or disclosed in the
most recent financial statements (or the notes thereto) of the Affiliated
Companies or of any Subsidiary or of Qorus, as applicable, or incurred since the
date of such financial statements, or waive the benefits of, agree to modify in
any manner, terminate, release any person from or knowingly fail to enforce any
confidentiality or similar agreement to which the Affiliated Companies or any
Subsidiary or Qorus is a party or a beneficiary;
(l) Except in the ordinary course of business consistent with past
practices, modify, amend or terminate any Material Contract of the Affiliated
Companies or any Subsidiary or Qorus, as applicable, or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(m) Except as required by U.S. GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(n) Incur or enter into any agreement, contract or commitment
requiring such party to pay in excess of $100,000 in any 12 month period, other
than in the ordinary course or otherwise provided in this Agreement and
employment agreements which may be entered into by the Affiliated Companies or
any Subsidiary;
(o) Settle any litigation in excess of $100,000;
(p) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(q) Form, establish or acquire any Subsidiary;
(r) Permit any Person to exercise any of its discretionary rights
under any Plan to provide for the automatic acceleration of any outstanding
options, the termination of any outstanding repurchase rights or the termination
of any cancellation rights issued pursuant to such plans; or
(s) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 5.1 (a) through (r) above.
34
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Board of Directors of Qorus. At Closing, the current board of
directors of Qorus shall deliver duly adopted resolutions to: (a) set the size
of Qorus' board of directors to five (5) members effective as of the Closing;
(b) elect the following persons to Qorus' board of directors effective as of the
Closing: (i) Xxxxxxx Xxxx, who shall be a management member of Qorus' board of
directors ("Management Member"); and (ii) one member recommended by KRM Fund,
which person shall be an independent director and a financial expert, qualified
and available to serve on Qorus' audit and compensation committee, and otherwise
must be acceptable to Xxxxxxx Xxxx, which acceptance shall not be unreasonably
withheld ("KRM Fund Member"); (iii) one person who shall have been selected by
Xxxxxxx Xxxx and shall be an independent director ("Independent Member"); and
(iv) two persons who shall have been selected by Xxxxxxx Xxxx and may be either
independent or non-independent directors; provided, however, that Xxxxxxx Xxxx
hereby agrees that by the earlier of the date Qorus submits the listing
application to any exchange or June 30, 2006, the board composition shall be in
compliance with the rules of the American Stock Exchange or NASD Marketplace
Rules; and (c) accepting the resignations of the current officers and directors
of Qorus effective as of the Closing ("Resolutions"). At Closing, the current
officers and director of Qorus shall deliver their resignations, as appropriate,
as officers and directors of Qorus to be effective upon the Closing (the
"Resignations"). Prior to Closing, the Company shall deliver or cause to be
delivered to Qorus completed and signed director and officer questionnaires
("Questionnaires") in the English language for the Management Member, KRM Fund
Member, Independent Member and each officer to be appointed by Qorus following
Closing. The foregoing designations of the KRM Fund Member and Independent
Member (and the officers to be appointed by Qorus following Closing) shall be
subject to Qorus' receipt of the completed and signed Questionnaires ("D&O
Information"). Each Member shall execute and deliver at Closing the Voting
Agreement which shall provide, among other things, that such Members will vote
their Qorus' Preferred Shares (or in the event of conversion, the Conversion
Shares) to elect the KRM Fund Member and Independent Member to Qorus' board of
directors for a period of one year following the Closing.
6.2 Undertaking by Accountant. On or before the Closing, the Company shall
obtain, and deliver to Qorus, an undertaking from Xxxxx Xxxxxxxx, P.C. (New
York, New York) ("Accountant"), in a form and substance satisfactory to Qorus,
providing that: (i) the Accountant has agreed to an engagement with Qorus to
serve as its certified public accountants following the Closing for its fiscal
year ending December 31, 2005 for purposes of auditing and reviewing the
financial statements of Qorus and the Affiliated Companies, on a consolidated
basis, to comply with Qorus' ongoing reporting requirements under the Exchange
Act including, without limitation, the filing of Forms 10-Q, 10-K, and 8-K, (ii)
the transaction contemplated hereunder will not disqualify or otherwise prohibit
the Accountant from rendering the foregoing engagement services or from
undertaking such services in a timely manner, (iii) the Accountant is duly
registered with the U.S. Public Company Accounting Oversight Board ("PCAOB"),
(iv) the Accountant shall provide its consent to the use of Qorus' audited
financial statements and accompanying reports, including such consolidated
financial statements, in any regulatory filing by Qorus prior to or following
the Closing, (v) consenting to the use of its name and the disclosure of its
35
engagement by Qorus in the Change of Accountant Form 8-K (as defined in Section
6.3) ("Accountant Undertaking"), and (vi) the Accountant shall have determined
to the satisfaction of Qorus that the financial statements of Qorus and the
Affiliated Companies may be consolidated for financial reporting purposes under
U.S. GAAP and SEC rules following the Closing. A signed copy of the engagement
letter between Qorus and the Accountant shall be attached to the Accountant
Undertaking.
6.3 Change of Accountants. At Closing, Qorus shall prepare the Form 8-K
announcing the change in Qorus' certifying accountants from KBA Group LLP
("Qorus' Accountant") to the Accountant effective as of or following the Closing
("Change of Accountant Form 8-K"), in a form acceptable to the Company and in a
format acceptable for XXXXX filing. The Change of Accountant Form 8-K shall be
filed with the SEC at or within four (4) business days following Closing, and
prior to the filing thereof, Qorus' Accountant shall have issued its resignation
letter to Qorus resigning from the engagement and consenting to the use of its
name and the disclosure of its resignation in the Change of Accountant Form 8-K
("Resignation Letter").
6.4 Other Actions.
(a) At least ten (10) days prior to Closing, Qorus shall prepare the
information statement required by Rule 14f-1 promulgated under the Exchange Act
("14f-1 Information Statement"), and Qorus shall file the 14f-1 Information
Statement with the SEC and mail the same to each of Qorus' stockholders.
(b) At least five (5) days prior to Closing, the Company shall
prepare the Form 8-K announcing the Closing, which shall include all information
required by such form, as determined by counsel to the Company, the U.S. GAAP
Financial Statements and the Company Pro Forma Financial Statements (as defined
below) ("Transaction Form 8-K"), which shall be in a form reasonably acceptable
to Qorus and in a format acceptable for XXXXX filing. Prior to Closing, the
Company shall prepare the press release announcing the consummation of the
Transaction hereunder ("Press Release"). At the Closing, Qorus shall file the
Transaction Form 8-K with the SEC and distribute the Press Release.
(c) At least ten (10) days prior to the Closing, the Company, shall
deliver to Qorus: (i) the audited financial statements of the Company, on a
consolidated basis with Shenyang and Kangping, with Kangping's financial
statements being the historical financial statements of the consolidated group
for financial reporting purposes, for the last three fiscal years ended, which
financials statements shall comply in all material respects with the published
rules and regulations of the SEC, shall be prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the period involved, and shall fairly
present in all material respects the financial position of the Company, on a
consolidated basis, at the respective dates thereof and the results of its
operations and cash flows for the periods indicated on a consolidated basis, and
(ii) the interim financial statements for the Company, on a consolidated with
Kangping and Shenyang, for the six month period ended June 30, 2005, which
financials statements shall be reviewed by the Accountant, comply in all
material respects with the published rules and regulations of the SEC, be
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved, and fairly present in all material respects the financial
36
position of the Company, on a consolidated basis, at the respective dates
thereof and the results of its operations and cash flows for the periods
indicated (collectively, the "U.S. GAAP Financial Statements").
(d) The annual financial statements and the interim financial
statements included in the U.S. GAAP Financial Statements shall have been
audited and reviewed, respectively, by the Accountant.
(e) At least ten (10) days prior to the Closing, the Company shall
deliver to Qorus pro forma financial statements for the Company, Kangping,
Shenyang and Qorus, on a consolidated basis, giving effect to the Transaction,
for such periods as required by the SEC to be included in a Form 8-K or any
other report or form required to be filed with the SEC at or after Closing with
respect to the Transaction, all prepared in all material respects with the
published rules and regulations of the SEC and in accordance with U.S. GAAP
applied on a consistent basis throughout the periods involved (the "Pro Forma
Financial Statements"). The Pro Forma Financial Statements shall have been
reviewed by, the Accountant and shall be in a format acceptable for inclusion on
the Transaction 8-K.
The Affiliated Companies and Qorus shall cooperate with each other and use
their respective commercially reasonable efforts to take or cause to be taken
all actions, and do or cause to be done all things, necessary, proper or
advisable on its part under this Agreement and applicable laws to consummate the
Transaction and the other transactions contemplated hereby as soon as
practicable, including preparing and filing as soon as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as soon as practicable all consents, registrations, approvals, permits
and authorizations necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the Transaction or any of
the other transactions contemplated hereby. Subject to applicable laws relating
to the exchange of information and the preservation of any applicable
attorney-client privilege, work-product doctrine, self-audit privilege or other
similar privilege, each of the Affiliated Companies and Qorus shall have the
right to review and comment on in advance, and to the extent practicable each
will consult the other on, all the information relating to such party, and any
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Transaction and the other transactions contemplated hereby. In exercising
the foregoing right, each of the Affiliated Companies and Qorus shall act
reasonably and as promptly as practicable.
6.5 Required Information. In connection with the preparation of the
Transaction Form 8-K, the 14f-1 Information Statement and the Press Release, and
for such other reasonable purposes, the Affiliated Companies and Qorus each
shall, upon request by the other, furnish the other with all information
concerning themselves, their respective subsidiaries, directors, officers,
managers, managing members, stockholders and members (including the directors
and officers of Qorus to be elected effective as of the Closing pursuant to
Section 6.1 hereof) and such other matters as may be reasonably necessary or
advisable in connection with the Transaction, or any other statement, filing,
notice or application made by or on behalf of the Affiliated Companies and Qorus
or any of their respective subsidiaries to any third party and/or any
Governmental Entity in connection with the Transaction and the other
37
transactions contemplated hereby. Each party warrants and represents to the
other party that all such information shall be true and correct in all material
respects and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
6.6 Confidentiality; Access to Information.
(a) Any confidentiality agreement or letter of intent previously
executed by the parties shall be superseded in its entirety by the provisions of
this Agreement. Each party agrees to maintain in confidence any non-public
information received from the other party, and to use such non-public
information only for purposes of consummating the transactions contemplated by
this Agreement. Such confidentiality obligations will not apply to (i)
information which was known to the one party or their respective agents prior to
receipt from the other party; (ii) information which is or becomes generally
known; (iii) information acquired by a party or their respective agents from a
third party who was not bound to an obligation of confidentiality; and (iv)
disclosure required by law. In the event this Agreement is terminated as
provided in Article IX hereof, each party will return or cause to be returned to
the other all documents and other material obtained from the other in connection
with the Transaction contemplated hereby.
(b) Access to Information.
(i) The Company will afford Qorus and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of the Company and its Subsidiaries during the period prior to the
Closing to obtain all information concerning the business, including the status
of product development efforts, properties, results of operations and personnel
of the Affiliated Companies and any Subsidiaries, as Qorus may reasonably
request. No information or knowledge obtained by Qorus in any investigation
pursuant to this Section 6.6 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Transaction.
(ii) Qorus will afford the Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Qorus during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Qorus,
as the Company may reasonably request. No information or knowledge obtained by
the Company in any investigation pursuant to this Section 6.6 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
6.7 No Solicitation. Other than with respect to the Transaction, each of
the Affiliated Companies and Qorus agrees that neither it nor any of its
officers, directors, managers, or managing members shall, and that it shall
direct and use its reasonable best efforts to cause its and its agents and other
representatives (including any investment banker, attorney or accountant
38
retained by it) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate any inquiries or the making of any proposal or offer with
respect to (i) a merger, reorganization, share exchange, consolidation or
similar transaction involving it, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or purchase of all or substantially all of the assets or equity
securities of it, taken as a whole, in a single transaction or series of related
transactions or (iii) any tender offer or exchange offer for 20% or more of the
outstanding shares of Qorus Common Stock or the Company's Shares (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
Each of the Affiliated Companies and Qorus further agree that they and their
officers, directors, managers, or managing members shall, and that they shall
direct and use their reasonable best efforts to cause their agents and
representatives not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Each of the Affiliated Companies and Qorus agree that they will immediately
cease and cause to be terminated any existing discussions or negotiations with
any parties conducted heretofore with respect to any Acquisition Proposal. Each
of the Affiliated Companies and Qorus agree that they will take the necessary
steps to promptly inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 6.7.
Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Qorus, or their respective representatives from, prior to the Closing (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal, if applicable, or otherwise complying with the Exchange
Act; (B) providing information in response to a request therefore by a person
who has made a bona fide unsolicited Acquisition Proposal; (C) engaging in any
negotiations or discussions with any person who has made a bona fide unsolicited
Acquisition Proposal or otherwise facilitating any effort or attempt to
implement an Acquisition Proposal; or (D) withdrawing or modifying the approval
or recommendation by Qorus' board of directors of this Agreement, approving or
recommending any Acquisition Proposal or causing the applicable party to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement relating to any Acquisition Proposal, if, and only to
the extent that in each such case referred to in clause (B), (C) or (D) above,
Qorus' board of directors determines in good faith, after consultation with
outside legal counsel that such action is necessary to act in a manner
consistent with the directors' fiduciary duties under applicable law and
determines in good faith after consultation with its financial advisors that the
person or group making such Acquisition Proposal has adequate sources of
financing to consummate such Acquisition Proposal and that such Acquisition
Proposal, if consummated as proposed, is materially more favorable to the
stockholders of Qorus from a financial point of view (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and determines
in good faith that such Superior Proposal is reasonably capable of being
consummated, taking into account legal, financial, regulatory and other aspects
of the proposal and the person making the proposal.
6.8 Public Disclosure. Except to the extent previously disclosed or to the
extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
39
consent of the other party, which consent shall not be unreasonably withheld. To
the extent a party hereto believes it is required by law or regulation to make
disclosure regarding the Transaction, it shall, if possible, immediately notify
the other party prior to such disclosure. Notwithstanding the foregoing, the
parties hereto agree that Qorus will prepare and file a Current Report on Form
8-K pursuant to the Exchange Act reasonably acceptable to the Company to report
the execution of this Agreement and that any party hereto may file any reports
as required by the Exchange Act including, without limitation, any reports on
Schedule 13D.
6.9 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VII to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all consents, approvals or waivers from third parties required as a result of
the transactions contemplated in this Agreement, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (v) the execution or delivery of any additional
instruments reasonably necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Qorus and its board of directors and the
Affiliated Companies and any Subsidiaries and the Members shall, if any state
takeover statute or similar statute or regulation is or becomes applicable to
the Transaction, this Agreement or any of the transactions contemplated by this
Agreement, use its commercially reasonable efforts to enable the Transaction and
the other transactions contemplated by this Agreement to be consummated as
promptly as practicable on the terms contemplated by this Agreement.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Qorus or any Affiliated Company to agree to any divestiture
by itself or any of its affiliates of shares of capital stock, membership
interests or ownership interest or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to conduct
their business or to own or exercise control of such assets, properties and
stock.
(b) The Affiliated Companies and Members shall give prompt notice to
Qorus upon becoming aware that any representation or warranty made by them
contained in this Agreement has become untrue or inaccurate, or of any failure
of the Affiliated Companies or Members to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
them under this Agreement, in each case, such that the conditions set forth in
Article VII would not be satisfied; provided, however, that no such notification
40
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
(c) Qorus shall give prompt notice to the Affiliated Companies and
Members upon becoming aware that any representation or warranty made by it
contained in this Agreement has become untrue or inaccurate, or of any failure
of Qorus to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Article VII would
not be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
6.10 Reserved.
6.11 Absence of Material Liabilities. Immediately prior to Closing, Qorus
shall have no material liabilities or obligations requiring the payment of
monies, other than obligations under or with respect to: (i) a certain Financial
Advisory Agreement, in the form attached hereto as Exhibit C ("Financial
Advisory Agreement"), (ii) any agreement with the Transfer Agent, (iii) Qorus
Contracts disclosed under Section 4.19 hereto, and (iv) accounts payable and
accrued expenses of Qorus with respect to the period prior to Closing. Qorus
will establish the Cash Reserve provided for in Section 4.23 in an amount equal
to the monetary obligations of Qorus in respect of all unpaid accounts payable
and accrued expenses of Qorus as of Closing (other than under the Financial
Advisory Agreement) (collectively, the "Pre-Closing Cash Obligations").
Following Closing, to the extent not satisfied by Qorus prior to or at Closing,
the Pre-Closing Cash Obligations will be paid in full from the Cash Reserve;
provided, however, that in the event the Cash Reserve is not sufficient to pay
the Pre-Closing Cash Obligations, KRM Fund shall pay such Pre-Closing Cash
Obligations which remain unpaid. To the extent any portion of the Cash Reserve
remains after satisfying the Pre-Closing Cash Obligations, the remaining Cash
Reserve shall be paid to KRM Fund or its designee. Following the Closing, the
Affiliated Companies shall pay and satisfy Qorus' obligations under the
agreement with the Transfer Agent and the Qorus Contracts which arise with
respect to the period following Closing.
6.12 Cash Payments at Closing. At Closing, the Affiliated Companies shall
pay, on behalf of Qorus, $360,000 in partial payment of the reverse merger fees
under the Financial Advisory Agreement (such sum being referred to herein, as
the "Company Closing Payment") to Xxxxxxx Securities, LLC ("Xxxxxxx
Securities"). The Affiliated Companies shall pay, on behalf of Qorus, the sum of
$80,000 as the final payment of the reverse merger fees in accordance with the
terms of the Financial Advisory Agreement.
6.13 Business Records. At Closing, Qorus shall cause to be delivered to
the Company all records and documents relating to Qorus, which Qorus possesses,
including, without limitation, books, records, government filings, Returns,
Charter Documents, Corporate Records, Stock Records, consent decrees, orders,
and correspondence, director and stockholder minutes and resolutions, stock
ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Qorus ("Business Records").
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6.14 Reserved.
6.15 Information Statement. As soon as practicable following the Closing,
Qorus prepare, an information statement pursuant to Rule 14(c) promulgated under
Section 14A of the Exchange Act (together with any amendments or supplements
thereto, the "Information Statement") in connection with the approval and
adoption of the following matters (the "Stockholder Matters"):
(a) To approve a 1 for 10 reverse stock split, with special
treatment for certain of Qorus' stockholders to preserve round lot stockholders
if so determined by Qorus' board of directors ("Reverse Split");
(b) To approve the change of the name of Qorus to a name selected by
Xxxxxxx Xxxx;
(c) To approve an increase in the number of authorized common stock
of Qorus from 50,000,000 to 150,000,000; and
(d) All such other actions as shall be necessary or desirable in
connection with or related to the foregoing actions in (a) through (c) above.
As soon as practicable following the Closing, Qorus shall obtain the
written consent of each Member and KRM Fund approving the Stockholder Matters,
such consent to be effective twenty (20) days following the filing of the
definitive Information Statement with the SEC. Upon receipt of such written
consent, Qorus will file the Information Statement with the SEC and shall cause
such Information Statement to become definitive and to be mailed to the holders
of Qorus' securities entitled to vote at a meeting of stockholders.
ARTICLE VII
CONDITIONS TO THE TRANSACTION
7.1 Conditions to Obligations of Each Party to Effect the Transaction. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any law
in any jurisdiction in which the Affiliated Companies or Qorus has material
operations relating to the transactions contemplated hereby have expired or
terminated early and all material approvals required to be obtained prior to the
Transaction in connection with the transactions contemplated hereby shall have
42
been obtained. The parties expressly acknowledge and agree that any SEC
rulemaking requiring enhanced disclosure of reverse merger transactions with a
public shell will not be a reason for either party to terminate this Agreement
or deemed a failure of any condition set forth herein.
(b) Debt Holder Consents. The lenders under any of the Affiliated
Companies or any Subsidiary credit facilities, secured loans, mortgages and
other indebtedness for borrowed money shall have consented in writing to the
Transaction (if such consent is required in connection with this Transaction).
(c) Required Approvals. This Agreement and the Transaction have been
duly approved and adopted, by the requisite vote of the Members under the laws
of the jurisdiction of its organization and the Company's Charter Documents, and
by the requisite actions of the Board of Directors of Qorus under the laws of
the State of Florida and Qorus' Charter Documents.
(d) Articles of Amendment. Prior to Closing, the Board of Directors
of Qorus shall have adopted, and Qorus shall have filed with, and had accepted
by, the Secretary of State of the State of Florida, the Articles of Amendment
attached hereto as Exhibit B.
(e) Release. Gateway and Yorkshire Capital Limited shall have
delivered an executed release in favor of all parties to this Agreement and
Xxxxxxx Securities that the Gateway Shares to be issued prior to Closing are in
full settlement of any and all compensation due and payable to it and its
affiliates and controlling persons for acting as a finder in connection with
this Agreement and the transactions contemplated hereby.
(f) Agreement of All Members. All Members owning any Shares or
equity securities of the Company prior to or at Closing shall have executed this
Agreement evidencing his agreement to exchange his Shares or equity securities
of the Company into Qorus' Preferred Shares on the same terms and conditions as
each other Member. To the extent applicable, the Company shall have obtained
modification agreements to all options, warrants, and other agreements
eliminating any and all rights to acquire securities of the Affiliated Companies
or any Subsidiary and terminating all pre-emptive rights.
(g) Financial Statements; Transaction Form 8-K. The Company shall
have delivered to Qorus the U.S. GAAP Financial Statements and the Pro Forma
Financial Statements as required by Sections 6.4(b) and 6.4(d) and the
Transaction Form 8-K as required by Section 6.4(a). Qorus shall have filed the
Transaction Form 8-K with the SEC at Closing.
(h) Vero Termination Agreement. Qorus shall have terminated its
agreement with Vero Management, LLC, effective at Closing.
(i) Voting Agreement. KRM Fund and each Member shall have executed
and delivered the Voting Agreement by and between the Members and KRM Fund, in
the form attached hereto as Exhibit A.
(j) Blue Sky Laws. Qorus' Preferred Stock to be issued under this
Agreement are exempt from, or have been qualified under, the Blue Sky Laws of
each appropriate jurisdiction to the satisfaction of Qorus and the Company and
their respective counsels.
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(k) Restructuring Agreements. The Restructuring Agreements, each in
a form reasonably acceptable to Qorus, have been duly authorized and executed by
the parties thereto, with a copy of each of the foregoing having been delivered
to Qorus at or prior to Closing.
(l) Debt Repayment Agreement. Kangping, Fangyuan and Xxxxxxx Xxxx
shall have entered into a binding agreement pursuant to which Fangyuan will pay
in full approximately US$20,084,100 owed to Kangping as of December 31, 2004,
by: (i) transferring certain land use rights for the land located at Xx. 00
Xxxxxxxx Xxxxxxxxx Xxx Xx Xxxxxxxx Xx Xxxx Yi Street (23,132 square meters) and
at Xx.00 Xxxxxxxx Xxxxxxxxx Xx Xxxx Xxxxxxxx Xxxx Xxxx Hu Street (27,197.25
square meters) ("Land Use Right"), and (ii) paying to Kangping in RMB a cash
equivalent of US$6,342,000 prior to July 31, 2005 ("Debt Repayment Agreement"),
which Debt Repayment Agreement shall be acceptable to Qorus. The Debt Repayment
Agreement will xxxxx Xxxxxxxx the option to purchase the Land Use Right for a
purchase price of US$13,742,100.
(m) 14f-1 Information Statement. At least ten (10) days prior to
Closing, Qorus shall have filed the 14f-1 Information Statement with the SEC,
and Qorus shall have mailed the 14f-1 Information Statement to each of the
record stockholders of Qorus, and Qorus shall have otherwise complied with all
of the provisions under Rule 14f-1 under the Exchange Act.
7.2 Additional Conditions to Obligations of the Members and the Company.
The obligations of the Company and the Members to consummate and effect the
Transaction shall be subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, any of which may be waived, in writing,
exclusively and only by the Company:
(a) Representations and Warranties. Each representation and warranty
of Qorus contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date. The
Company and the Members shall have received a certificate with respect to the
foregoing signed on behalf of Qorus by an authorized officer of Qorus ("Qorus
Closing Certificate").
(b) Agreements and Covenants. Qorus shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) Director and Officer Resignations and Appointments. Qorus shall
have delivered to the Company the Resignations and Resolutions in a form
satisfactory to the Company, effective as of the Closing. Qorus shall also have
delivered to the Company evidence satisfactory to the Company of the appointment
of new directors of Qorus in accordance with Section 6.1 hereof.
(d) Consents. Qorus shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Qorus.
44
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Qorus shall have occurred since the date of this Agreement.
(f) No Financial Obligations. Immediately prior to the Closing,
Qorus shall have no liabilities or obligations, other than as set forth in
Section 6.11 hereof.
(g) SEC Compliance; OTC BB Quotation. Immediately prior to Closing,
Qorus shall be in compliance with the reporting requirements under the Exchange
Act and shall be quoted on the OTC BB.
(h) Business Records; Resignation Letter. Qorus shall have delivered
to the Company the Business Records and the Resignation Letter from Qorus'
Accountants.
(i) Other Deliveries. At Closing, Qorus shall have delivered to the
Company and/or its Members: (i) certificates representing Qorus' Preferred
Shares to the Members as set forth in Schedule 1.1 hereof and in accordance with
Section 1.6, (ii) copies of resolutions and actions taken by Qorus' board of
directors in connection with the approval of this Agreement and the Transactions
contemplated hereunder, and (iii) such other documents or certificates as shall
reasonably be required by the Company and its counsel in order to consummate the
transactions contemplated hereunder.
7.3 Additional Conditions to the Obligations of Qorus. The obligations of
Qorus to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Qorus:
(a) Representations and Warranties. Each representation and warranty
of the Affiliated Companies and the Members contained in this Agreement (i)
shall have been true and correct as of the date of this Agreement and (ii) shall
be true and correct on and as of the Closing Date with the same force and effect
as if made on and as of the Closing. Qorus shall have received a certificate
with respect to the foregoing signed on behalf of the Affiliated Companies by an
authorized officer of the Affiliated Companies and by each Member with respect
to the foregoing ("Closing Certificate").
(b) Agreements and Covenants. The Affiliated Companies and Members
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them at or prior to the Closing Date.
(c) Consents. The Affiliated Company and any Subsidiaries shall have
obtained all consents, waivers and approvals required in connection with the
consummation of the transactions contemplated hereby, including the transactions
contemplated by the Restructuring Agreements, other than consents, waivers and
approvals the absence of which, either alone or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Affiliated
Companies and any Subsidiaries. The Affiliated Companies and any Subsidiaries
have received all approvals and permits required by any applicable national,
foreign, provincial and local governing bodies and regulatory authorities to
permit the Affiliated Companies and any Subsidiaries: (i) to be listed or
45
quoted, through Qorus' ownership of all Shares of the Company, as a public
company on a U.S. exchange or quotation system following the Closing, and (ii)
to operate their respective businesses following the Closing including, without
limitation, receipt of all WFOE Certifications and SAFE Registrations.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to the Affiliated Companies or any Subsidiaries shall have occurred since the
date of this Agreement.
(e) Accountant Undertaking. The Company shall have delivered to
Qorus in a timely manner the Accountant Undertaking, in a form satisfactory to
Qorus.
(f) Closing Payments. At Closing, the Affiliated Companies shall
have made the Company Closing Payment required by Section 6.12.
(g) D&O Information. The Company shall have delivered the
Questionnaires in a timely manner, and the D&O Information shall be acceptable
to Qorus.
(h) Change of Accountant Form 8-K; Press Release. The Company shall
have delivered the Change of Accountant Form 8-K and Press Release to Qorus,
each in a form acceptable to Qorus.
(i) Financial Advisory Agreement. The Financial Advisory Agreement
between Qorus and Xxxxxxx Securities in the form of Exhibit C hereto, has been
authorized and approved by Qorus' board of directors and shall be executed at
the Closing.
(j) Legal Opinion by PRC Counsel. The legal counsel of Kangping and
Shenyang in the PRC shall have issued its legal opinion, in the English language
and addressed to Qorus and KRM Fund, that (i) each of Kangping and Shenyang are
duly formed or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and have the requisite power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being or currently planned to be conducted, (ii) that the
authorized and registered capital and the shares of capital stock outstanding of
Kangping and Shenyang are in accordance with the representations set forth in
Section 3.3 hereof, (iii) that the Restructuring Agreements are each valid and
binding upon and enforceable against each of the parties thereto under the laws
of the PRC and the laws of any other jurisdiction which may be applicable, (iv)
with respect to Shenyang, the all certifications and approvals required to
qualify as a wholly foreign owned enterprise ("WFOE Certification") have been
received by Shenyang, and such WFOE certifications by their terms do not expire
and are not revocable for a period of 20 years from the date of issuance, (v)
with respect to Shenyang, it has filed the applications for and has received any
and all foreign exchange certifications and approvals as required from the
appropriate national and local branches of the State Administration of Foreign
Exchange ("SAFE Certifications") in the PRC, which SAFE Certifications were
issued on May 30, 2005 and allow Shenyang to exchange currency of the PRC into
currency of the United States and vice versa without limitation, subject to the
PRC laws and SAFE rules and regulations, and (vi) the WFOE Certifications and
SAFE Certifications and the continuation thereof are not subject to any
conditions which have not already been satisfied, (vii) Shenyang is entitled to
all tax benefits under the PRC and its subdivisions that are enjoyed by a wholly
foreign owned enterprise ("WFOE"), (viii) Kangping is in compliance with all
environmental and tax laws in the PRC, and owns all real estate (including land
46
use rights) for each property on which Kangping is currently operating in the
PRC, (ix) nothing contained in this Agreement or the transactions contemplated
hereunder will affect in any way Shenyang's status and continued status as a
WFOE, and (x) Kangping and Shenyang have all proper authority to enter into this
Agreement and the transactions contemplated hereunder, and this Agreement and
the transactions contemplated hereunder have been duly authorized and approved
by each of their board of directors or comparable governing body and their
members or stockholders, and this Agreement and the transactions contemplated
hereunder do not require any consents or approvals from any governmental bodies
or authorities in the PRC or its subdivisions.
(k) Legal Opinion by Company's Counsel. The legal counsel of the
Company shall have issued its legal opinion, in the English language and
addressed to Qorus and KRM Fund, that (i) the Company is duly formed or
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being or currently planned to be conducted, (ii) that the authorized and
registered capital and the shares of capital stock outstanding of the Company is
in accordance with the representations set forth in Section 3.3 hereof, and
(iii) the Company has all proper authority to enter into this Agreement and the
transactions contemplated hereunder, and this Agreement and the transactions
contemplated hereunder have been duly authorized and approved by its board of
directors or comparable governing body and its members or stockholders, and this
Agreement and the transactions contemplated hereunder do not require any
consents or approvals from any governmental bodies or authorities.
(l) Repayment of Affiliate Obligations. At the Closing Date, all
amounts owed to the Affiliated Companies or any Subsidiary by each Member and
any person to become an officer or director of Qorus following Closing and their
respective affiliates (regardless of whether such amounts are due and payable)
shall have been paid in full.
(m) Other Deliveries. At Closing, the Company and/or Members shall
have delivered to Qorus: (i) documents evidencing the exchange of Shares owned
by Members, in accordance with Section 1.5, (ii) copies of resolutions and
actions taken the each Affiliated Company's board of directors or comparable
governing body and its members or stockholders in connection with the approval
of this Agreement and the transactions contemplated hereunder, and (iii) such
other documents or certificates as shall reasonably be required by Qorus and its
counsel in order to consummate the transactions contemplated hereunder.
(n) Schedules. At Closing, the Company shall have delivered to Qorus
any and all necessary schedules with exceptions to the representations and
warranties contained in this Agreement in such form as may be reasonably
acceptable to Qorus.
(o) Guarantee and Assumption Agreement. Shenyang shall have
delivered a certain Guarantee and Assumption Agreement in such form as
reasonably acceptable to Qorus.
47
ARTICLE VIII
SURVIVAL
Except as specifically set forth in Sections 6.11, 6.12, 6.14 and 6.15,
and Articles II, X and XI hereof ("Surviving Provisions"), all representations,
warranties, agreements and covenants contained in or made pursuant to this
Agreement by any party hereto or contained in any Schedule hereto shall not
survive the Closing, and no claims made by virtue of such representations,
warranties, agreements and covenants shall be made or commenced by any party
hereto from and after the Closing. The agreements and covenants of any party
contained in the Surviving Provisions which require or contemplate performance
by such party after the Closing shall survive (and not be affected in any
respect by) the Closing and may be enforced by the parties hereto.
Each Member hereby jointly and severally indemnifies and holds harmless,
and agrees to indemnify and hold harmless, Qorus (from and after the Closing),
and its respective directors, officers, shareholders, employees and agents
(collectively, the "Indemnified Parties") against (i) any and all liabilities,
obligations, losses, damages, claims, actions, Liens and deficiencies which
exist, or which may be imposed on, incurred by or asserted against any one or
more of the Indemnified Parties, (1) based upon, resulting from or arising out
of, or as to which there was, any material breach or inaccuracy of any
representation or warranty contained in Article II of this Agreement, or (2)
based upon, resulting from or arising out of any present or future claim,
action, suit or proceeding brought or asserted against any Indemnified Party by
or on behalf of any Person who, at any time prior to the Closing, had (or
purports to have had) any equity interest in the Affiliated Companies, and (ii)
any cost or expense (including reasonable attorneys' fees and court costs)
incurred by the Indemnified Parties or any of them in connection with the
foregoing (including, without limitation, any cost or expense incurred by the
Indemnified Parties in enforcing their rights hereunder.
The provisions of this Article VIII shall survive (and not be affected in
any respect by) the Closing.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Qorus and the Affiliated
Companies;
(b) by either Qorus or any of the Affiliated Companies if the
Transaction shall not have been consummated for any reason by September 15,
2005; provided, however, that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Transaction
to occur on or before such date and such action or failure to act constitutes a
breach of this Agreement;
48
(c) by either Qorus or any of the Affiliated Companies if a
Governmental Entity shall have issued an order, decree or ruling or taken any
other action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Transaction, which order, decree, ruling
or other action is final and nonappealable;
(d) by any of the Affiliated Companies, upon a material breach of
any representation, warranty, covenant or agreement on the part of Qorus set
forth in this Agreement, or if any representation or warranty of Qorus shall
have become materially untrue, in either case such that the conditions set forth
in Section 7.1 or Section 7.2 would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become
untrue, provided, that if such inaccuracy in Qorus' representations and
warranties or breach by Qorus is curable by Qorus prior to the Closing Date,
then no Affiliated Company may not terminate this Agreement under this Section
9.1(d) for thirty (30) days after delivery of written notice from an Affiliated
Company to Qorus of such breach, provided Qorus continues to exercise
commercially reasonable efforts to cure such breach (it being understood that no
Affiliated Company may not terminate this Agreement pursuant to this Section
9.1(d) if it shall have materially breached this Agreement or if such breach by
Qorus is cured during such thirty (30)-day period); or
(e) by Qorus, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Affiliated Companies or
Members set forth in this Agreement, or if any representation or warranty of the
Affiliated Companies or Members shall have become materially untrue, in either
case such that the conditions set forth in Section 7.1 or Section 7.3 would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue, provided, that if such inaccuracy in any
Affiliated Company's or Members' representations and warranties or breach by the
Affiliated Companies or Members is curable by the Affiliated Companies or
Members prior to the Closing Date, then Qorus may not terminate this Agreement
under this Section 9.1(e) for thirty (30) days after delivery of written notice
from Qorus to the Affiliated Companies and Members of such breach, provided the
Affiliated Companies and Members continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Qorus may not terminate
this Agreement pursuant to this Section 9.1(e) if it shall have materially
breached this Agreement or if such breach by the Affiliated Companies or Members
is cured during such thirty (30)-day period).
9.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 9.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 9.1(d) or Section 9.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
as set forth in this Section 9.2, Section 9.3 and Article XI (General
Provisions), each of which shall survive the termination of this Agreement.
9.3 Fees and Expenses. Except as provided in Sections 6.11 and 6.12, all
fees and expenses incurred in connection with this Agreement and the
Transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Transaction is consummated. The parties further
agree that, whether or not the Transaction is consummated, the Affiliated
Companies shall be responsible for any and all costs and expenses incurred in
49
connection with the preparation and filing of the Transaction Form 8-K
(including the U.S. GAAP Financial Statements and the Pro Forma Financial
Statements contained therein).
9.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of Qorus,
each Affiliated Company and each Member.
9.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE X
POST-CLOSING COVENANTS
10.1 Post-Closing Covenants. The Members and the Company acknowledge that
the agreements contained in this Section 10.1 are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
Qorus would not enter into this Agreement. The parties hereto acknowledge and
agree that the failure by Qorus or the Affiliated Companies to satisfy, perform
and comply with the covenants set forth in this Section 10.1 ("Post-Closing
Covenants") following the Closing will have a material adverse effect on Qorus
and the investment of KRM Fund in Qorus. During the period beginning upon the
Closing and ending on the first anniversary of the Closing, Qorus agrees to
satisfy, perform and comply with, and the Members and the Company agree to cause
Qorus to satisfy, perform, and comply with, the following agreements and
covenants:
(a) Respond promptly, and to the satisfaction of the SEC, to any
review or inquiry by the SEC to the Transaction Form 8-K (including any
amendments thereto) or any other form, report or document filed by Qorus with
the SEC, and file within the statutory time limits any required filings or
notifications with the SEC, NASDAQ, NASD and any other federal, state, foreign
government or regulatory agency including any agency or organization with
jurisdiction over any exchange on which the Qorus' securities are listed or
quoted.
(b) Comply with the terms and conditions of the Financial Advisory
Agreement and the Voting Agreement.
(c) Hold meetings of Qorus' board of directors at least once each
fiscal quarter during the fiscal years ending December 31, 2005 and 2006; and
50
schedule regular meetings for the audit and compensation committee, with advance
notice to all directors, and insure that such committee meetings are properly
held as scheduled.
(d) Engage certified public accountants that are at all times
registered with PCAOB and, in the event Qorus' certified public accountants
resign or are terminated for any reason, Qorus shall promptly engage a new
certified public accountant registered with PCAOB.
(e) Add independent directors, create audit, compensation and other
committees, and comply with the provisions of the Xxxxxxxx-Xxxxx Act of 2002,
and take such other actions as required by applicable laws and regulations
regarding corporate governance.
(f) Adopt proper disclosure, xxxxxxx xxxxxxx and code of ethics
policies to the extent required by law or applicable regulation. (g) Pay, when
due, all transfer agent fees, listing fees and any other fees the non-payment of
which may adversely effect compliance with applicable laws and regulations
(including securities laws and regulations) or the listing or quotation of
Qorus' securities.
(h) File all tax returns of any kind in a timely manner, and pay,
when due, all tax obligations of any kind or nature.
(i) Engage an independent research firm, selected by the Company and
recommended by KRM Fund, within sixty (60) days after the Closing.
(j) (i) Remain in compliance with and current in its reporting
requirements under the Exchange Act, (ii) remain quoted on, at a minimum, the
OTC BB, (iii) certify in writing to any person holding restricted stock of Qorus
as of the date of this Agreement that Qorus has filed all of the reports
required to be filed by it under the Exchange Act to enable such person to sell
such person's restricted stock under Rule 144 or 145, as may be applicable in
the circumstances, or will inform such person in writing that it has not filed
any such report or reports, upon being informed in writing by such person of its
intent to sell any shares under Rule 144 or Rule 145 promulgated under the
Securities Act (including any rule adopted in substitution or replacement
thereof), and (iv) if any certificate representing any shares of restricted
stock of Qorus is presented to Qorus' transfer agent for registration of
transfer in connection with any sale theretofore made under Rule 144 or 145,
provided such certificate is duly endorsed for transfer by the appropriate
person(s) or accompanied by a separate stock power duly executed by the
appropriate person(s) in each case with reasonable assurances that such
endorsements are genuine and effective, and is accompanied by an opinion of
counsel satisfactory to Qorus and its counsel that such transfer has complied
with the requirements of Rule 144 or 145, as the case may be, promptly instruct
its transfer agent to register such transfer and to issue one or more new
certificates representing such shares to the transferee and, if appropriate
under the provisions of Rule 144 or 145, as the case may be, free of any stop
transfer order or restrictive legend.
(k) After Market Support Services Agreement. Qorus and the Company
shall enter into an After Market Support Services Agreement with Xxxxxxx After
Market Support, LLC ("KAMS") within 15 days following the Closing, which
provides that KAMS will be the exclusive investor relations and after market
support firm for Qorus and the Company for the one year period following the
Closing, at such fees and in such form as reasonably agreed and acceptable to by
51
Qorus, the Company and KAMS provided, however, that in the event that the
Financial Advisory Agreement, as attached hereto as Exhibit C, by its terms,
shall terminate, the KAMS agreement shall also terminate without penalty to the
Company or Qorus.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Qorus, to:
Xxxxx.xxx, Inc.
000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
Attn: Xxxxx X. Xxxxxxx, President
(000) 000-0000 telephone
(000) 000-0000 telecopy
(b) if to the Affiliated Companies or Members, to:
Xxxxx Group Limited
c/o Xxxxxxx Xxxx
Shenyang Fangyuan Aluminum Group Co., Ltd.
Xx. 00, Xx Xxxx Xx Xxxxxx, Xxx Xx Xxxxxxxx,
XXX
Zip Code: 110023
00000-00000000000 telephone
00000-00-00000000 telecopy
with a copy to:
Xxxxxx Xxxxxx, Esq.
Guzov Ofsink, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
52
11.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
and its Subsidiaries, if any, taken as a whole (it being understood that neither
of the following alone or in combination shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (a) changes attributable to the public
announcement or pendency of the transactions contemplated hereby, (b) changes in
general national or regional economic conditions, (c) changes affecting the
industry generally in which the Affiliated Companies or Qorus operates, or (d)
any SEC rulemaking requiring enhanced disclosure of reverse merger transactions
with a public shell.
(c) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(b) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the Commitment Letter dated November 10, 2004 between
Xxxxxxx Securities and Kangping shall terminate and be of no further force or
effect upon the execution of this Agreement; and (b) are not intended to confer
upon any other person any rights or remedies hereunder (except as specifically
provided in this Agreement).
53
11.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
11.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
11.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 11.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
11.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the China International Economic and Trade Arbitration Commission
("CIETAC") in its office in Hong Kong. The arbitration and resolution of the
dispute shall be resolved by a single arbitrator appointed by the CIETAC
pursuant to CIETAC rules. The arbitration shall in all respects be governed and
conducted by applicable CIETAC rules, and any award and/or decision shall be
conclusive and binding on the parties. The arbitration shall be conducted in
Hong Kong and all proceedings shall be conducted in English. The arbitrator
54
shall supply a written opinion supporting any award, including a statement of
facts and conclusions of law, and judgment may be entered on the award in any
court of competent jurisdiction. Each party shall pay its own fees and expenses
for the arbitration, except that any costs and charges imposed by the CIETAC and
any fees of the arbitrator for his services shall be assessed against the losing
party by the arbitrator. In the event that preliminary or permanent injunctive
relief is necessary or desirable in order to prevent a party from acting
contrary to this Agreement or to prevent irreparable harm prior to a
confirmation of an arbitration award, then either party is authorized and
entitled to commence a lawsuit solely to obtain equitable relief against the
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
[Remainder of this page intentionally left blank.]
55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
XXXXX.XXX, INC.
By:
------------------------------------
Xxxxx X. Xxxxxxx, President
XXXXX GROUP LIMITED
By: /s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx, Director
XXXXXXX REVERSE MERGER FUND, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxx, Manager
56
MEMBERS:
/s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx, Individually
/s/ Xxxxxx Xxx
------------------------------------
Xxxxxx Xxx, Individually
/s/ Xxxx Xxxxx
------------------------------------
Xxxx Xxxxx, Individually
/s/ Xxxxxxxx Xxxxx
------------------------------------
Xxxxxxxx Xxxxx, Individually
/s/ Xxxxxxx Xxx
------------------------------------
Xxxxxxx Xxx, Individually
/s/ Jiangao Li
------------------------------------
Jiangao Li, Individually
/s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx, Individually
57
Index of Exhibits and Schedules
Exhibits
Exhibit A - Voting Agreement
Exhibit B - Articles of Amendment to the Articles of Incorporation of Xxxxx.xxx,
Inc.
Exhibit C - Financial Advisory Agreement
Schedules
Schedule Description
Schedule 1.1 Company Share Ownership and Allocation
Company Schedules
Schedule 3.2 Subsidiaries
Schedule 3.3 Capitalization
Schedule 3.6 Compliance
Schedule 3.8 No Undisclosed Liabilities
Schedule 3.9 Absence of Certain Changes or Events
Schedule 3.10 Litigation
Schedule 3.11 Employee Benefit Plans
Schedule 3.12 Labor Matters
Schedule 3.13 Restrictions on Business Activities
Schedule 3.14 Title to Property
Schedule 3.15 Taxes
Schedule 3.16 Environmental Matters
58
Schedule 3.17 Brokers; Third Party Expenses
Schedule 3.18 Intellectual Property
Schedule 3.19 Agreements; Contracts; Commitments
Schedule 3.20 Insurance
Schedule 3.21 Government Actions/Filings; Approvals
Schedule 3.22 Interested Party Transactions
Qorus Schedules
Schedule 4.3 Capitalization
Schedule 4.6 Compliance
Schedule 4.8 No Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes or Events
Schedule 4.10 Litigation
Schedule 4.11 Employee Benefit Plans
Schedule 4.15 Taxes
Schedule 4.16 Environmental Matters
Schedule 4.19 Contracts; Agreements; Commitments
Schedule 4.21 Government Actions/Filings; Approvals
Schedule 4.22 Interested Party Transactions
Schedule 4.23 Indebtedness; Qorus Assets
Conduct Pending Closing
Schedule 5.1 Parties' Conduct Prior to Closing
59
Schedule 1.1 to Exchange Agreement
Company Share Ownership and Allocation
Number of Qorus
Company Qorus Common Stock Qorus Common
Shares Series A Issuable Upon Stock Issuable
Owned Preferred Series A Upon Series A
Immediately Stock Preferred Preferred
Prior Issued At Conversion (Post- Conversion (Post-
to Closing Closing Reverse Split) Reverse Split)
------------ ------------ ------------ ------------
Company's Members
Xxxxxxx Xxxx 30,000 589,960 345,716,560 34,571,656
Xxxxxx Xxx 11,500 226,151 132,524,486 13,252,449
Xxxx Xxxxx 2,676 52,624 30,837,664 3,083,767
Xxxxxxxx Xxxxx 2,500 49,163 28,809,518 2,880,952
Xxxxxxx Xxx 2,500 49,163 28,809,518 2,880,952
Jiangao Li 275 5,408 3,169,088 316,909
Xxxxxxx Xxxx 549 10,796 6,326,456 632,646
Total 50,000 983,265 576,193,290 57,619,331
