EXHIBIT 10.1
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
KI EQUITY PARTNERS II, LLC ("BUYER"),
CYBER MERCHANTS EXCHANGE, INC. ("COMPANY"), AND
▇▇▇▇▇ ▇▇▇▇ ("YUAN")
DATED AS OF AUGUST 25, 2005
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (the
"AGREEMENT") is made and entered into as of August 25, 2005, by and among KI
Equity Partners II, LLC, a Delaware limited liability company (the "BUYER"),
Cyber Merchants Exchange, Inc., a California corporation (the "COMPANY"), and
▇▇▇▇▇ ▇. ▇▇▇▇, an adult resident of the State of California ("Yuan").
RECITALS
A. The Company, Yuan and ▇▇▇▇▇▇▇ Reverse Merger Fund, LLC ("KRM Fund")
are parties to a certain Securities Purchase Agreement dated November 19, 2004
("Prior Agreement").
B. This Agreement is intended to amend and restate the terms and
conditions of the Prior Agreement, to substitute KI Equity Partners II, LLC as
the Buyer in replacement of KRM Fund, and to discharge KRM Fund from all
obligations.
C. The parties to this Agreement hereby desire to irrevocably release
and discharge KRM Fund from any and all liabilities and obligations under the
Prior Agreement and this Agreement.
D. The Company currently has 1,014,880 shares of common stock, no par
value, issued and outstanding ("COMMON STOCK"), after giving effect to the
issuance of a stock bonus to certain directors and employees of the Company
effective May 31, 2005 ("Stock Bonus") and a pre-reverse stock split basis
1-for-8.5 reverse stock split effective as of July 18, 2005 ("REVERSE SPLIT").
E. The Reverse Split provided for the round up of fractional shares and
special treatment to preserve round lot stockholders.
F. Yuan is the beneficial owner of 341,334 shares of the Company's
Common Stock, and Yuan is the chief executive officer of the Company.
G. The Company desires to issue 7,104,160 shares of Common Stock
("SHARES") to Buyer, and Buyer desires to purchase the Shares from the Company
("STOCK ISSUANCE"), on the terms and conditions set forth herein.
H. Following the Stock Issuance, Buyer will own 87.5% of the issued and
outstanding shares of the Company's Common Stock on a post-Reverse Split basis.
I. Effective May 31, 2005, in contemplation of the Stock Issuance, the
Company transferred all of its assets and liabilities (including all pending
patents, registered trademarks and the goodwill related to the business of the
Company) to ASAP Show, Inc., a Nevada corporation, a wholly owned subsidiary of
the Company ("ASAP SUBSIDIARY"), and the ASAP.
Subsidiary and Yuan assumed and agreed to pay and/or assume any and all
liabilities and obligations of the Company, including, without limitation, any
and all obligations of the Company with respect to the 1996, 1999 and 2001 stock
option plans of the Company ("OPTION PLANS"), all pursuant to the terms and
conditions of a certain transfer and assumption agreement between the Company,
Yuan and the ASAP Subsidiary ("TRANSFER AGREEMENT").
J. In connection with the transactions contemplated herein and as a
condition to Buyer's purchase of the Shares, the Company desires to declare a
distribution of, and distribute, all the outstanding shares of the ASAP
Subsidiary's common stock pro rata to the stockholders of the Company's Common
Stock prior to Closing ("DISTRIBUTION").
K. The consummation of the transactions under this Agreement and the
consummation of the Reverse Split, the Transfer Agreement and the Distribution
have been duly authorized and approved by the directors and stockholders of the
Company.
NOW, THEREFORE, in consideration of the above recitals, the covenants,
promises and representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I
SALE AND PURCHASE
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1.1 Sale and Purchase of Shares.
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At the Closing and subject to and upon the terms and conditions of this
Agreement, the Company agrees to sell and issue to Buyer, and Buyer agrees to
purchase from the Company, the Shares. As of Closing, the Shares shall
constitute not less than 87.5% of the issued and outstanding shares of the
Company's Common Stock on a post-Reverse Split basis. The sale and purchase of
Shares contemplated hereunder shall be referred to herein as the "TRANSACTION"
or the "STOCK ISSUANCE".
1.2 Closing.
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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 the Buyer at a time and date to be specified by the parties, which
shall be no later than the third business day after the satisfaction or waiver
of the conditions set forth in Article VII, or at such other time, date and
location as the parties hereto agree in writing (the "CLOSING DATE").
1.3 Purchase Price.
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The aggregate purchase price for the Shares shall be Four Hundred
Fifteen Thousand Dollars ($415,000) ("SHARE PURCHASE PRICE"). At Closing, the
Share Purchase Price shall be paid to the Company. The Company, Yuan and Buyer
agree that the Share Purchase Price will be transferred to the ASAP Subsidiary,
subject to the terms and conditions of this Agreement and the Transfer
Agreement.
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1.4 Issuance of Certificates Representing the Shares.
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At Closing, the Company shall direct the Company's transfer agent, U.S.
Stock Transfer Corporation ("TRANSFER AGENT") to issue to Buyer certificates
representing the Shares with the restrictive legend under the Securities Act of
1933, as amended ("Securities Act").
1.5 Taking of Necessary Action; Further Action.
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If, at any time after the Closing, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest Buyer with
full right, title and possession to the Shares, the Company will take all such
lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
The Company hereby represents and warrants to, and covenants with,
Buyer, as follows:
2.1 Organization and Qualification.
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(a) Company is a corporation duly incorporated or organized, validly
existing and in good standing under the laws of the State of California 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 conducted by
Company. 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 or
currently planned by Company to be conducted. The Company is duly qualified to
conduct its business in each state listed on SCHEDULE 2.1 hereof. Except as set
forth in SCHEDULE 2.1 hereof, the Company has timely filed each annual corporate
or information report ("ANNUAL REPORT") required to be filed by it in each state
in which it is required to be qualified to do business as a foreign corporation.
Complete and correct copies of the articles of incorporation or organization and
by-laws (or other comparable governing instruments with different names)
(collectively referred to herein as "CHARTER DOCUMENTS") of Company, as amended
and currently in effect, and each Annual Report filed by the Company have been
heretofore delivered to Buyer. Company is not in violation of any of the
provisions of the Company's Charter Documents.
(b) The minute books of Company contain true, complete and accurate
records of all meetings and consents in lieu of meetings of its Board of
Directors (and any committees thereof), similar governing bodies and
stockholders ("CORPORATE RECORDS"), since the time of Company's organization.
Copies of such Corporate Records of Company have been heretofore delivered to
Buyer.
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(c) The Company has heretofore delivered to Buyer a true, complete
and accurate record of the registered ownership of the Company's capital stock
maintained by the Transfer Agent as of a recent date acceptable to Buyer and a
record of the beneficial ownership of the Company's capital stock as of a recent
date acceptable to Buyer ("STOCK RECORDS").
2.2 SUBSIDIARIES. Set forth in SCHEDULE 2.2 hereto is a true and
complete list of all Subsidiaries stating, with respect to each Subsidiary, its
jurisdiction of incorporation or organization, date of incorporation or
organization, capitalization and equity ownership. Each Subsidiary is a
corporation duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization. Each Subsidiary is duly qualified to conduct its business in each
state listed on SCHEDULE 2.2 hereof. Except as set forth in SCHEDULE 2.2 hereof,
each Subsidiary has timely filed each Annual Report required to be filed by it
in each state in which it is required to be qualified to do business as a
foreign corporation. 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 any Person or of any laws, and are owned beneficially and of record by
Company as specified on SCHEDULE 2.2, 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"). Complete and
correct copies of the Charter Documents of each Subsidiary, as amended and
currently in effect, and each Annual Report filed by a Subsidiary have been
heretofore delivered to Buyer. No Subsidiary is in violation of any of the
provisions of its Charter Documents.
Except as described in SCHEDULE 2.2 hereto, neither Company nor any
Subsidiary owns, directly or indirectly, any ownership, equity, profits or
voting interest in any Person (other than Subsidiaries) or has any agreement or
commitment to purchase any such interest, and Company and its Subsidiaries have
not agreed and are not obligated to make nor are bound by any written, oral or
other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or any date hereafter, under which any of them may be obligated
to make any future investment in or capital contribution to any other entity.
For purposes of this Agreement, (i) the term "SUBSIDIARY" shall mean
any Person in which the Company or any Subsidiary directly or indirectly, owns
beneficially securities or interests representing 50% or more of (x) the
aggregate equity or profit interests, or (y) the combined voting power of voting
interests ordinarily entitled to vote for management or otherwise, and (ii) the
term "PERSON" shall mean and include an individual, a corporation, a partnership
(general or limited), a joint venture, an association, a trust or any other
organization or entity, including a government or political subdivision or an
agency or instrumentality thereof.
2.3 Authority Relative to This Agreement.
-------------------------------------
The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and,
to consummate the transactions contemplated hereby (including the Transaction).
The execution and delivery of this Agreement and the consummation by Company of
the transactions contemplated hereby (including the Transaction) have been duly
and validly authorized by all necessary corporate action on the part of Company
(including the approval by its Board of Directors and by the Stockholders as
required), and no other corporate proceedings on the part of Company are
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necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Company and, assuming the due authorization, execution and delivery
thereof by the Buyer, constitutes the legal and binding obligation of Company,
enforceable against Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity and public policy.
2.4 No Conflict; Required Filings and Consents.
-------------------------------------------
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company shall not, (i)
conflict with or violate the Company's Charter Documents, (ii) subject to
obtaining the adoption of this Agreement and the Transaction by the Stockholders
of Company, conflict with or violate any Legal Requirements to which the Company
is bound, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
materially impair Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Company pursuant to any
Contracts except, with respect to clauses (ii) or (iii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not, individually
and in the aggregate, have a Material Adverse Effect on Company and its
Subsidiaries, taken as a whole. For purposes of this Agreement, "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 2.4(b)), and all requirements
set forth in applicable Contracts (as defined in Section 2.16).
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of their obligations hereunder will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "GOVERNMENTAL ENTITY"), except for applicable
requirements, if any, of the Securities Act, the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), state securities laws ("BLUE SKY LAWS"),
and the rules and regulations thereunder, and appropriate documents with the
relevant authorities of other jurisdictions in which Company is qualified to do
business.
2.5 Capitalization.
---------------
(a) The authorized capital stock of Company consists of 40,000,000
shares of common stock, no par value ("COMMON STOCK") and 10,000,000 shares of
preferred stock, no par value ("PREFERRED STOCK"). At the close of business on
the business day prior to the date hereof, (i) 1,014,880 shares of Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable; (ii) no shares of Preferred Stock were issued and outstanding;
(iii) no shares of Common Stock were reserved for issuance upon the exercise of
options to purchase Common Stock granted to employees of Company or other
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parties ("STOCK OPTIONS"), with all Stock Options previously granted having
expired by their terms or cancelled by mutual agreement of Company and the
holder thereof pursuant to the Transfer Agreement; (iv) no shares of Common
Stock were reserved for issuance upon the exercise of warrants to purchase
Common Stock ("WARRANTS"); and (v) no shares of Common Stock were reserved for
issuance upon the conversion of the Preferred Stock or any outstanding
convertible notes, debentures or securities ("CONVERTIBLE SECURITIES"). All
shares of Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instrument pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
The Shares to be issued with respect to the Transaction shall, when issued, be
duly authorized, validly issued, fully paid and nonassessable. Except as
described in SCHEDULE 2.5 hereto, there are no commitments or agreements of any
character to which Company is bound obligating Company to accelerate the vesting
of any Stock Option as a result of the Transaction. All outstanding shares of
Common Stock and Preferred Stock and all outstanding Stock Options, Warrants and
Convertible Securities 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.
(b) Except as set forth in SCHEDULE 2.5 hereto, there are no equity
securities, partnership interests or similar ownership interests of any class of
any equity security of Company or any Subsidiary, or any securities exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in SCHEDULE 2.5 hereof or as set forth in
Section 2.5(a) hereof there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Company or any Subsidiary is a party or by which it is bound obligating
Company or any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or any
Subsidiary or obligating Company or any Subsidiary to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. Except as set forth in SCHEDULE
2.5 hereof, there are no lock up agreements or other agreements affecting the
transfer of any equity security of any class of Company or any Subsidiary.
(c) Except as contemplated by this Agreement and except as set forth
in SCHEDULE 2.5 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan, or other agreement or
understanding to which Company or any Subsidiary is a party or by which Company
or any Subsidiary is bound with respect to any equity security of any class of
Company or any Subsidiary.
2.6 Compliance.
-----------
Company has complied with, is not in violation of, any laws, rules or
regulations of any Governmental Entity including, without limitation, any and
all applicable securities laws, environmental laws, and laws regarding hazardous
substances and wastes, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
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have a Material Adverse Effect on Company or its Subsidiaries. No Company or
Subsidiary is in default or violation of any term, condition or provision of any
applicable Charter Documents.
2.7 Financial Statements; Filings.
-----------------------------
(a) Company has made available to Buyer each report and statement
filed by Company and each Subsidiary with any Governmental Entity (the "COMPANY
REPORTS"), which are all the forms, reports and documents required to be filed
by Company with any Governmental Entity, and such Company Reports are true,
correct and complete. As of their respective dates, the Company Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the applicable Governmental Entity, and the rules and
regulations of such Governmental Entities applicable to such Company Reports,
and (ii) did not at the time they were filed (and if amended or superseded by a
filing prior to the date of this Agreement then on the date of such filing and
as so amended or superceded) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent set forth in the preceding
sentence, Company makes no representation or warranty whatsoever concerning the
Company Reports as of any time other than the time they were filed.
(b) Company has provided to Buyer a correct and complete copy of the
audited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary for the prior three fiscal years ended
(including eleven month period ended May 31, 2005), complied as to form in all
material respects with the published rules and regulations of any applicable
Governmental Entity, prepared in accordance with the generally accepted
accounting principles of the United States ("U.S. GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto), audited by a certifying accountant registered with the Public Company
Accounting Oversight Board ("PCAOB"), and each fairly presents in all material
respects the financial position of Company and Subsidiaries at the respective
dates thereof and the results of its operations and cash flows for the periods
indicated.
(c) Company has provided to Buyer a correct and complete copy of the
unaudited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary for the most recent interim period
ended, complied as to form in all material respects with the published rules and
regulations of any applicable Governmental Entity, 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), and each fairly presents in all
material respects the financial position of Company and Subsidiaries at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal adjustments which were not or are not expected to
have a Material Adverse Effect on Company.
(d) Company has previously furnished to Buyer a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
applicable Governmental Entities but which are required to be filed with respect
to Company or any Subsidiary, to agreements, documents or other instruments
which previously had been filed by Company or any Subsidiary with the applicable
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Governmental Entities pursuant to applicable rules and regulations. The books of
account and other financial records of Company and each Subsidiary have been
maintained in accordance with good business practice.
(e) Company is in full compliance with, and current in, all of the
reporting, filing and other requirements under the Exchange Act. The shares of
the Company's Common Stock have been duly and properly registered under Section
12(g) of the Exchange Act, and the Company is in full compliance with all of the
requirements under, and imposed by, Section 12(g) of the Exchange Act.
2.8 No Undisclosed Liabilities.
---------------------------
Except as set forth in SCHEDULE 2.8 hereto, Company and each Subsidiary
have no liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
financial statements prepared in accordance with U.S. GAAP.
2.9 Absence of Certain Changes or Events.
-------------------------------------
Except as set forth in SCHEDULE 2.9 hereto, since May 31, 2005, there
has not been: (i) any Material Adverse Effect on Company or any Subsidiary, (ii)
any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of
Company's or any Subsidiary's capital stock (other than the Distribution), or
any purchase, redemption or other acquisition of any of Company's or any
Subsidiary's capital stock or any other securities of Company or any Subsidiary
or any options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of Company's
capital stock (other than the Reverse Split), (iv) any granting by Company or
Subsidiary of any increase in compensation or fringe benefits, except for normal
increases of cash compensation in the ordinary course of business consistent
with past practice, (v) any material change by Company or any Subsidiary in its
accounting methods, principles or practices, except as required by concurrent
changes in U.S. GAAP (other than the change of the Company's fiscal year end to
May 31, 2005, effective for the eleven month period ended May 31, 2005), (vi)
any change in the auditors of Company or any Subsidiary, (vii) any issuance of
capital stock of Company or any of its Subsidiaries, or (vii) any revaluation by
Company or any Subsidiary of any of their respective assets, other than in the
ordinary course of business.
2.10 Litigation.
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Except as disclosed in SCHEDULE 2.10 hereto, there are no claims,
suits, actions or, to the best knowledge of Company, proceedings pending or
threatened against Company or any Subsidiary, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement.
2.11 Employee Benefit Plans.
-----------------------
(a) Set forth on SCHEDULE 2.11 hereto are all employee compensation,
incentive, fringe or benefit plans, programs, policies, commitments or other
arrangements (whether or not set forth in a written document) covering any
active or former employee, director or consultant of Company or any Subsidiary,
with respect to which Company or any Subsidiary has liability (collectively, the
"PLANS"), and each Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
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any and all statutes, orders, rules and regulations which are applicable to such
Plans, and all liabilities with respect to the Plans have been properly
reflected in the financial statements of Company and it Subsidiaries. No suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought, or to the knowledge of
Company, is threatened, against or with respect to any such Plan. The
transactions contemplated under the Transfer Agreement shall not result in any
liability under any Plans.
(b) Except as disclosed on SCHEDULE 2.11 hereto, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor the transactions contemplated under the
Transfer Agreement will (i) result in any payment (including severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any stockholder, director, employee or consultant of Company or any Subsidiary
under any Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any Plan, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.12 Labor Matters.
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The Company and its Subsidiary are not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Company or a Subsidiary.
2.13 Restrictions On Business Activities.
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There is no agreement, commitment, judgment, injunction, order or
decree binding upon Company or a Subsidiary or to which Company or a Subsidiary
is a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company or a
Subsidiary, any acquisition of property by Company or a Subsidiary or the
conduct of business by Company or a Subsidiary.
2.14 Taxes.
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(a) Definition of Taxes.
For the purposes of this Agreement, "TAX" or "TAXES" refers to any
and all federal, state, local and foreign taxes, including, without limitation,
gross receipts, income, profits, sales, use, occupation, value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, assessments, governmental charges and duties together
with all interest, penalties and additions imposed with respect to any such
amounts and any obligations under any agreements or arrangements with any other
person with respect to any such amounts and including any liability of a
predecessor entity for any such amounts.
(b) Tax Returns and Audits.
Except as set forth in SCHEDULE 2.14 hereto:
(i) Company and each Subsidiary has timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
relating to Taxes ("RETURNS") required to be filed by Company or a Subsidiary
with any Tax authority prior to the date hereof, except such Returns which are
not material to Company or a Subsidiary. All such Returns are true, correct and
complete in all material respects. Company and each Subsidiary have paid all
Taxes shown to be due on such Returns.
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(ii) All Taxes that Company or a Subsidiary is required by law
to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper governmental authorities to the extent due and
payable.
(iii) Company and each Subsidiary have not been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any Subsidiary, nor has
Company or any Subsidiary executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of Company or
any Subsidiary by any Tax authority is presently in progress, nor has Company or
any Subsidiary been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by Company or
any Subsidiary has been proposed in writing, formally or informally, by any Tax
authority to the Company or any Subsidiary or any representative thereof.
(vi) Company and its Subsidiaries have no liability for any
material unpaid Taxes which have not been accrued for or reserved on Company's
or Subsidiary's balance sheets included in the audited financial statements for
the most recent fiscal year ended, whether asserted or unasserted, contingent or
otherwise, which is material to Company or a Subsidiary, other than any
liability for unpaid Taxes that may have accrued since the end of the most
recent fiscal year in connection with the operation of the business of Company
or its Subsidiaries in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company or its Subsidiaries.
2.15 Brokers; Third Party Expenses.
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Except as set forth on SCHEDULE 2.15,
Company and Yuan have 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 transactions
contemplated hereby. At Closing, the Company is responsible for paying and shall
pay, out of the proceeds of the Share Purchase Price, $30,000 to ▇▇▇▇▇▇
▇▇▇▇▇▇/▇▇▇▇ ▇▇▇▇▇▇▇ for his services as a finder with respect to the
transactions contemplated by this Agreement.
2.16 Agreements, Contracts and Commitments.
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Except as set forth in SCHEDULE 2.16, the Company and its Subsidiaries
are not a party to any contracts, agreements, leases, mortgages, indentures,
note, bond, guaranty, liens, license, permit, franchise, purchase orders, sales
orders, arbitration awards, judgments, decrees, orders, documents, instruments,
understandings and commitments, or other instrument or obligation (including
without limitation outstanding offers or proposals) of any kind, whether written
or oral ("Contracts"). True, correct and complete copies of each Contract (or
written summaries in the case of oral Contracts) have been heretofore delivered
to Buyer.
2.17 Interested Party Transactions.
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Except as set forth in the SCHEDULE 2.17 hereto or the Company Reports,
no employee, officer, director or 5% or more stockholder of Company or a member
of his or her immediate family is indebted to Company, nor is Company indebted
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(or committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of Company or an Subsidiary, and (iii)
for other employee benefits made generally available to all employees, and all
related party transactions between such persons and the Company have been fully
and properly disclosed in the Company Reports.
2.18 Over-the-counter Bulletin Board Quotation.
------------------------------------------
The Company's common stock is quoted on the Over-the-Counter Bulletin
Board ("OTC BB"). There is no action or proceeding pending or, to Company's
knowledge, threatened against the Company by NASDAQ or the National Association
of Securities Dealers ("NASD") with respect to any intention by such entities to
prohibit or terminate the quotation of Buyer Common Stock on the OTC BB. There
is no action pending or threatened, to Company's knowledge, by any market maker
in the Company's common stock to discontinue their market making activities with
respect thereto.
2.19 Board and Stockholder Approval.
-------------------------------
The board of directors of Company or similar governing body (including
any required committee or subgroup of thereof) and the stockholders have, as of
the date of this Agreement, authorized and approved this Agreement and the
transactions contemplated hereby, the Reverse Split, the Transfer Agreement and
the transactions contemplated thereunder, and the Distribution.
2.20 Investment Company Act.
-----------------------
Company is not an "investment company" or an "affiliated person" of or
"promoter" or "principal underwriter" or an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended, nor is Company
otherwise subject to regulation thereunder. Company is not a "holding company"
as that term is defined in, and is not otherwise subject to regulation under,
the Public Utility Holding Company Act of 1935.
2.21 Officers and Directors.
-------------------------
During the past five year period, to Company's knowledge, no current or
former officer or director of Company has been the subject of:
(a) a petition under the Federal bankruptcy laws or any other
insolvency or moratorium law or has a receiver, fiscal agent or similar officer
been appointed by a court for such person, or any partnership in which such
person was a general partner at or within two years before the time of such
filing, or any corporation or business association of which such person was an
executive officer at or within two years before the time of such filing;
(b) a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations which do not relate to
driving while intoxicated or driving under the influence);
(c) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
(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
11
foregoing, or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any violation of
Federal, state or other securities laws or commodities laws;
(d) any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any Federal, state or local authority barring,
suspending or otherwise limiting for more than 60 days the right of any such
person to engage in any activity described in the preceding sub-paragraph, or to
be associated with persons engaged in any such activity;
(e) a finding by a court of competent jurisdiction in a civil action
or by the U.S. Securities and Exchange Commission ("SEC") to have violated any
securities law, regulation or decree and the judgment in such civil action or
finding by the SEC has not been subsequently reversed, suspended or vacated; or
(f) a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
2.22 Representations and Warranties Complete.
----------------------------------------
The representations and warranties of Company included in this
Agreement and any list, statement, document or information set forth in, or
attached to, 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to, and covenants with, the Company, as
follows:
3.1 Organization.
-------------
Buyer is a limited liability company duly organized and validly
existing under the laws of the State of Delaware 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 Buyer to be conducted.
3.2 Authority Relative to This Agreement.
--------------------------------------
Buyer has full power and authority to: (i) execute, deliver and perform
this Agreement, and each ancillary document which Buyer has executed or
delivered or is to execute or deliver pursuant to this Agreement, and (ii) carry
12
out Buyer's obligations hereunder and thereunder and, to consummate the
transactions contemplated hereby (including the Transaction). The execution and
delivery of this Agreement and the consummation by Buyer of the transactions
contemplated hereby (including the Transaction) have been duly and validly
authorized by all necessary action on the part of Buyer (including the approval
by its Board of Managers), and no other proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and, assuming the due authorization, execution and delivery
thereof by the Company, constitutes the legal and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and public policy.
3.3 No Conflict; Required Filings and Consents.
-------------------------------------------
(a) The execution and delivery of this Agreement by Buyer do not,
and the performance of this Agreement by Buyer, shall not: (i) conflict with or
violate Buyer's certificate of organization or operating agreement, or (ii)
subject to obtaining the adoption of this Agreement and the Transaction by the
Board of Managers, conflict with or violate any laws or regulations.
(b) The execution and delivery of this Agreement by Buyer does not,
and the performance of its obligations hereunder will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except for applicable requirements, if any, of the Exchange
Act and the rules and regulations thereunder.
3.4 Brokers.
--------
Buyer has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agent's commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.5 Approval.
---------
The Board of Managers of Buyer has, as of the date of this Agreement,
unanimously declared the advisability of the Transaction and approved this
Agreement and the transactions contemplated hereby.
3.6 Acquisition of Shares for Investment.
-------------------------------------
Buyer is an "accredited investor," as such term is defined in Section
2(15) of the Securities Act and Rule 501 of Regulation D promulgated thereunder,
Buyer is purchasing the Shares for Buyer's own account, for investment purposes,
in Buyer's name and solely for Buyer's own beneficial interest and not as
nominee for, or on behalf of, or for the beneficial interest of, or with the
intention to transfer to, any other Person. Buyer understands and agrees that
the Shares being acquired pursuant to this Agreement have not been registered
under the Securities Act or under any applicable state securities laws and may
not be sold, pledged, assigned, hypothecated or otherwise transferred
("TRANSFER"), except pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, the availability of which shall to be established to the
satisfaction of the Company at or prior to the time of Transfer.
13
3.7 Representations and Warranties Complete.
----------------------------------------
The representations and warranties of Buyer included in this Agreement
and any list, statement, document or information set forth in, or attached to,
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.
Article IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business by Company.
-------------------------------
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 Company, except to the extent that the other party shall otherwise
consent in writing, shall 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, 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 preserve substantially intact its present business organization. In
addition, except as required or permitted by the terms of this Agreement,
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 Company shall not to 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) Grant any severance or termination pay to any officer or
employee except pursuant to applicable law, written agreements outstanding, or
policies existing on the date hereof and as previously or concurrently disclosed
in writing or made available to the other party, or adopt any new severance
plan, or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof;
(c) Except for the Distribution, declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock, equity
securities or property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of Company, except repurchases of unvested shares at
cost in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
14
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber,
or agree to any of the foregoing with respect to, any shares of capital stock or
any securities convertible into or exchangeable for shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into or exchangeable for shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible or exchangeable securities;
(f) Amend its Charter Documents;
(g) Except for the Transfer Agreement, acquire or dispose or agree
to acquire or dispose by merging or consolidating with, or by purchasing or
disposing of 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 dispose or
agree to acquire or dispose any assets which are material, individually or in
the aggregate, to the business of Company, or enter into any joint ventures,
strategic partnerships or alliances or other arrangement;
(h) Incur any indebtedness for borrowed money 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 Company, 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;
(i) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into any
employment contract or collective bargaining agreement (other than offer letters
and letter agreements entered into in the ordinary course of business consistent
with past practice with employees who are terminable "at will"), pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants, except in
the ordinary course of business consistent with past practices;
(j) Except as disclosed in SCHEDULE 4.1(J) hereto, pay, discharge,
settle or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), or litigation (whether or not
commenced prior to the date of this Agreement) other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practices or in accordance with their terms;
(k) Except as required by U.S. GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(l) Except as set forth in SCHEDULE 4.1(L) hereto, incur or enter
into any agreement, contract or commitment requiring such party to pay in excess
of $1,000 in any 12 month period;
(m) Except for the ASAP Subsidiary, form, establish or acquire any
Subsidiary;
15
(n) Permit the 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
(o) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 4.1 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Absence of Liabilities and Contracts.
-------------------------------------
At Closing, the Company shall pay, out of the proceeds of the Share
Purchase Price, any and all debts, liabilities or obligations of the Company,
whether or not such obligations are due at the time of Closing, including,
without limitation: (i) any and all liabilities and obligations of the Company
assumed by ASAP Subsidiary under the Transfer Agreement which have not been
satisfied prior to Closing or for which the Company has not fully released, (ii)
all invoices received by the Company from vendors and suppliers since the date
of the Transfer Agreement, and (iii) any costs incurred by the Company or the
ASAP Subsidiary in connection with the transactions contemplated hereunder
("CLOSING PAYMENTS"). The remainder of the Share Purchase Price after payment of
the Closing Payments shall be remitted to ASAP Subsidiary pursuant to and in
accordance with the terms and conditions of the Transfer Agreement.
The Company shall also take and any and all actions required to effect
the Distribution prior to or at Closing, and Yuan shall cause the ASAP
Subsidiary to be solely responsible for the registration of the ASAP
Subsidiary's shares included the Distribution under the Securities Act or the
Exchange Act, as required, prior to the time of the Distribution
("REGISTRATION") including the payment of all costs and expenses thereof.
5.2 Company Reports; Income Tax Returns; S-8 Plan.
----------------------------------------------
Prior to Closing, the Company shall be responsible for filing the Form
10Q or 10K for the most recent period ended if such Form 10Q or 10K is due on or
before the Closing Date or becomes due within 45 days following the Closing
Date. Following the Closing, Yuan agrees to cooperate with the Company, and
provide any documentation reasonably requested by the Company or its advisors,
to allow the Company to continue to file its Company Reports (or any amendments
thereto) in a timely manner, and to comply with the reporting requirements of
the Exchange Act. At or prior to Closing, the Company shall complete and file
any and all U.S., state and local income, employment and franchise tax returns
for the year ended June 30, 2004 and the 11-month period ended May 31, 2005 and
all state annual reports and information statements (the "RETURNS"), with copies
of the filed Returns being delivered to Buyer at or prior to Closing. The
Company shall further terminate, at or prior to Closing, the Option Plans and
any S-8 plans maintained by the Company.
5.3 Resignations and Appointments of Company's Officers and Directors.
------------------------------------------------------------------
At or prior to Closing, the Company shall deliver to Buyer
resignations, in a form and substance acceptable to Buyer, providing for the
resignation of all of the officers of the Company and all of the directors of
16
the Company effective as of the Closing (the "RESIGNATIONS"). At or prior to
Closing, the Company shall deliver to Buyer duly adopted resolutions, in a form
and substance acceptable to Buyer, providing for: (i) the appointment of ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ to serve as the President, Treasurer and Secretary of the Company,
and (ii) the appointment of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as the sole director of the
Company, each effective as of the Closing (the "RESOLUTIONS").
5.4 Undertaking by Company Accountants.
-----------------------------------
At or prior to Closing, the Company shall obtain, and deliver to Buyer,
an undertaking from the Company's accountants, ▇▇▇▇▇▇ & Company ("ACCOUNTANT"),
in a form and substance satisfactory to Buyer, providing that: (i) the
Accountants agree to an engagement with Company to serve as its certified public
accountants following the Closing for purposes of the Company's ongoing
reporting requirements under the Exchange Act including, without limitation, the
filing of Forms 10-Q and 10-K, at the rates and charges similar to those
currently being charged by Accountant, (ii) the Accountants are duly registered
with the U.S. Public Company Accounting Oversight Board ("PCAOB"), and (iii) the
Accountants shall provide their consent to the use of their audited financial
statements and accompanying report in any regulatory filing by the Company prior
to or following the Closing ("UNDERTAKING").
5.5 Other Actions.
--------------
(a) At least five (5) days prior to Closing, the Company shall
prepare the Form 8-K announcing the Closing, together with the Company's pro
forma financial statements giving effect to the transactions contemplated
hereunder (including the Transfer Agreement), prepared by the Company and its
Accountant, and such other information that may be required to be disclosed with
respect to the Transaction in any report or form to be filed with the SEC
("TRANSACTION FORM 8-K"), which shall be in a form acceptable to Company and in
a format acceptable for ▇▇▇▇▇ filing. At the Closing, the Company shall file the
Transaction Form 8-K with the SEC.
(b) Prior to Closing, in connection with the Reverse Split, the
Company shall have also effected the change to the Company's CUSIP number, made
any required filings with, and received the approval from, the NASD Market
Regulation, completed all matters to properly effect the Reverse Split with the
Company's Transfer Agent and with the DTC to properly effect the Reverse Split
at the beneficial owner level (collectively, the "CORPORATE MATTERS"), and
delivered to Buyer a current list of record and beneficial holders of the
Company's common stock after giving effect to the Reverse Split.
(c) The Company shall be responsible for all costs associated with
the transactions contemplated hereunder including, without limitation, the
Transaction 8-K, the Reverse Split, the Distribution, and the Corporate Matters.
All of such costs shall be paid by the Company at or prior to Closing or out of
the proceeds of the Share Purchase Price.
Company and Buyer shall further cooperate with each other and use
their respective reasonable best efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on its part under this Agreement and applicable laws to consummate the
Transaction and the other transactions contemplated hereby as soon as
17
practicable, including preparing and filing as soon as practicable all
documentation to effect all necessary notices, reports and other filings and to
obtain as soon as practicable all consents, registrations, approvals, permits
and authorizations necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the Transaction or any of
the other transactions contemplated hereby. Subject to applicable laws relating
to the exchange of information and the preservation of any applicable
attorney-client privilege, work-product doctrine, self-audit privilege or other
similar privilege, each of Company and Buyer shall have the right to review and
comment on in advance, and to the extent practicable each will consult the other
on, all the information relating to such party, that appear in any filing made
with, or written materials submitted to, any third party and/or any Governmental
Entity in connection with the Transaction and the other transactions
contemplated hereby. In exercising the foregoing right, each of Company and
Buyer shall act reasonably and as promptly as practicable.
In connection with the preparation of the Transaction Form 8-K, and
for such other reasonable purposes, Company and Buyer each shall, upon request
by the other, furnish the other with all information concerning themselves,
their respective directors, officers and stockholders (including the directors
of the Company to be elected effective as of the Closing pursuant to Section 5.3
hereof) and such other matters as may be reasonably necessary or advisable in
connection with the Transaction, or any other statement, filing, notice or
application made by or on behalf of Company and Buyer to any third party and/or
any Governmental Entity in connection with the Transaction and the other
transactions contemplated hereby. Each party warrants and represents to the
other party that all such information shall be true and correct in all material
respects and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
5.6 Confidentiality; Access to Information.
---------------------------------------
(a) Each party agrees to maintain and hold in strict confidence any
material, non-public information provided by any other party in connection with
transactions contemplated hereunder.
(b) Company shall afford Buyer and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of Company and its Subsidiaries during the period prior to the Closing
to obtain all information concerning the business, including financial
condition, properties, results of operations and personnel of Company and its
Subsidiaries, as Buyer may reasonably request. No information or knowledge
obtained by Buyer in any investigation pursuant to this Section 5.6 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.
5.7 No Solicitation.
----------------
Other than with respect to the Transaction, the Company, Yuan and Buyer
agree that they shall not, and shall direct and use their reasonable best
efforts to cause their agents and other representatives (including any
investment banker, attorney or accountant retained by it or any of its
18
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
otherwise facilitate any inquiries or the making of any proposal or offer
relating to a "going public" or reverse merger transaction, the sale, issuance
or transfer of any shares of the Company's Common Stock whether by sale, merger,
share exchange or otherwise, or any recapitalization of the Company.
5.8 Public Disclosure.
------------------
Buyer and Company will consult with each other and agree in writing
before issuing any press release or otherwise making any public statement with
respect to the Transaction or this Agreement and will not issue any such press
release or make any such public statement prior to such consultation. Upon the
execution of this Agreement, the Company will file a Current Report on Form 8-K
announcing the execution of this Agreement, which Form 8-K shall be acceptable
to Buyer.
5.9 Business Records.
-----------------
At Closing, Company shall deliver to Buyer all records and documents
relating to the Company, wherever located, including, without limitation, books,
records, supplier and customer lists and files, government filings, the Returns,
consent decrees, orders, and correspondence, financial information and records,
electronic files containing any financial information and records, and other
documents used in or associated with the Company, but specifically excluding all
records related to the sales and operations of the business transferred to ASAP
Subsidiary under the Transfer Agreement ("BUSINESS RECORDS").
5.10 Ownership Records; Transfer Agent Undertaking.
----------------------------------------------
At Closing, the Company shall deliver to Buyer; (i) a full and complete
listing of all stockholders of the Company, dated within three (3) business days
prior to Closing, from the Transfer Agent showing the name, address and stock
ownership of each stockholder, and giving effect to the Reverse Split, and (ii)
a full and complete list of all holders of Company Preferred Stock, Company
Stock Options, Company Warrants and Convertible Securities, dated within three
(3) business days prior to Closing, showing the name, address and ownership of
each holder and, as applicable, the exercise or conversion price and expiration
date (collectively, the "OWNERSHIP RECORDS"). At or prior to Closing, the
Company shall obtain, and deliver to Buyer, an undertaking from the Transfer
Agent, in a form and substance satisfactory to Buyer, stating the amount of any
and all fees and charges owed to Transfer Agent by Company for services rendered
prior to Closing ("TRANSFER AGENT UNDERTAKING").
Article VI
CONDITIONS TO THE TRANSACTION
-----------------------------
6.1 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 Company or Buyer has material operations
relating to the transactions contemplated hereby will have expired or
terminated.
19
(b) Reverse Split; Corporate Matters; Distribution.
-----------------------------------------------
The Reverse Split, the Corporate Matters and the Distribution shall
have been duly authorized and approved by the Company's directors and
stockholders and have been fully executed, implemented and completed. Company
shall have delivered to Buyer certificates of incorporation, certificates of
amendment, certificates of good status, tax clearance certificates and such
other documents evidencing the actions set forth in this Section 6.1(b).
6.2 Additional Conditions to Obligations of Company.
------------------------------------------------
The obligations of the Company 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
the Company:
(a) Representations and Warranties.
-------------------------------
Each representation and warranty of Buyer contained in this
Agreement (i) shall have been true and correct as of the date of this Agreement
and (ii) shall be true and correct on and as of the Closing Date with the same
force and effect as if made on the Closing Date. Company shall have received a
certificate with respect to the foregoing signed on behalf of Buyer by an
authorized manager of Buyer ("BUYER CLOSING CERTIFICATE").
(b) Agreements and Covenants.
-------------------------
Buyer shall have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Closing Date, except to the extent that
any failure to perform or comply (other than a willful failure to perform or
comply or failure to perform or comply with an agreement or covenant reasonably
within the control of Buyer) does not, or will not, constitute a Material
Adverse Effect with respect to Buyer taken as a whole, and the Company shall
have received Buyer Closing Certificate to such effect.
(c) Other Deliveries.
-----------------
At or prior to Closing, Buyer shall have delivered: (i) the Share
Purchase Price to the Company, subject to the terms and conditions of the
Transfer Agreement, (ii) copies of resolutions and actions taken Buyer's board
of managers in connection with the approval of this Agreement and the
transactions contemplated hereunder, and (iii) such other documents or
certificates as shall reasonably be required by Company and its counsel in order
to consummate the transactions contemplated hereunder.
6.3 Additional Conditions to the Obligations of Buyer.
--------------------------------------------------
The obligations of Buyer to consummate and effect the Transaction shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Buyer:
(a) Representations and Warranties.
-------------------------------
Each representation and warranty of the Company contained in this
Agreement (i) shall have been true and correct as of the date of this Agreement
and (ii) shall be true and correct on and as of the Closing Date with the same
force and effect as if made on and as of the Closing. Buyer shall have received
a certificate with respect to the foregoing signed on behalf of the Company with
respect to the warranties and representations made by Company under this
Agreement ("CLOSING CERTIFICATE")
20
(b) Agreements and Covenants.
-------------------------
Company 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 Company at or prior to the Closing Date except to the extent
that any failure to perform or comply (other than a willful failure to perform
or comply or failure to perform or comply with an agreement or covenant
reasonably within the control of Company) does not, or will not, constitute a
Material Adverse Effect on Company, and Buyer shall have received the Closing
Certificate to such effect.
(c) Absence of Liabilities; Closing Payments; Registration.
-------------------------------------------------------
The Company shall have satisfied the requirements of Section 5.1
hereof. The Closing Payments required under Section 5.1 hereof shall have been
paid in full. The ASAP Subsidiary shall have completed the Registration to the
satisfaction of Buyer.
(d) Material Adverse Effect.
------------------------
No Material Adverse Effect with respect to Company shall have
occurred since the date of this Agreement.
(e) Undertaking by Accountant.
--------------------------
Company shall have delivered to Buyer the Undertaking by Accountant,
in a form satisfactory to Buyer.
(f) Stock Records; Ownership Records; Transfer Agent Undertaking.
-------------------------------------------------------------
Company shall have delivered to Buyer the Stock Records, Ownership
Records and Transfer Agent Undertaking (including all electronic files related
thereto), in a form satisfactory to Buyer.
(g) Resignations and Resolutions.
-----------------------------
The Company shall have delivered to Buyer the Resignations and
Resolutions, in a form satisfactory to Buyer.
(h) SEC Compliance; Otc Bb Quotation; Company Reports; Returns.
-----------------------------------------------------------
Immediately prior to Closing, Company shall be in compliance with,
and current in, the reporting and filing requirements under the Exchange Act and
shall be quoted on the OTC BB. The Company shall have complied with the
requirements of Section 5.2 hereof.
(i) Due Diligence.
--------------
Buyer shall have completed its due diligence investigation and
review of the Company, and the results of such investigation and review are
satisfactory to the Buyer in its sole discretion.
(j) Options and Contracts.
----------------------
The Company shall have provided written evidence that all
outstanding stock options and warrants of the Company have expired by their
terms or been cancelled by the mutual written agreement of the Company and the
holder thereof. The Company shall further provide written evidence that all
agreements, contracts and commitments under which the Company has any
obligations have been cancelled or assumed by ASAP with the consent and release
of the Company by the other party thereto.
(k) Other Deliveries.
-----------------
At Closing, Company shall have delivered to Buyer: (i) the duly
executed direction letter to the Transfer Agent as contemplated by Section 1.4
hereof, (ii) the Company's Charter Documents, (iv) Company's Corporate Records
and Business Records (including all electronic files and programs related
thereto), (v) the Transaction Form 8-K, all in a form acceptable to Buyer, and
21
(vi) such other documents or certificates as shall reasonably be required by
Buyer and its counsel in order to consummate the transactions contemplated
hereunder.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
-------------------------
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7.1 Survival.
---------
All representations, warranties, agreements and covenants contained in
or made pursuant to this Agreement, or any Exhibit or Schedule hereto or thereto
or any certificate delivered at the Closing, shall survive (and not be affected
by) the Closing, but all claims made by virtue of such representations,
warranties, agreements and covenants shall be made under, and subject to the
limitations set forth in this Article VII.
7.2 Indemnification by Yuan.
------------------------
Yuan hereby indemnifies and holds harmless, and agrees to indemnify and
hold harmless, Company and Buyer (from and after the Closing), and Buyer's
directors, officers, shareholders, managers, members, employees and agents
(collectively, the "BUYER INDEMNIFIED PARTIES") against (i) any and all
liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Buyer Indemnified Parties, (1) based upon,
resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty by Company under this Agreement, or
any statement, agreement or covenant made by Company or Yuan in or pursuant to
this Agreement, including the Indemnity 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 Buyer Indemnified Party by or on behalf of any
person who, at any time prior to the Closing, had or purports to have had any
interest in the Company's Common Stock, or by any Person in connection with the
Stock Bonus, and (ii) any cost or expense (including reasonable attorneys' fees
and court costs) incurred by the Buyer Indemnified Parties or any of them in
connection with the foregoing (including, without limitation, any cost or
expense incurred by the Buyer Indemnified Parties in enforcing their rights
pursuant to this Section 7.2). No demand or claim for indemnification under this
Section 7.2 may be made after 11:59 p.m., Denver time, on the date one (1) year
following the Closing Date.
Article VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
8.1 Termination.
------------
This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written agreement of Buyer and Company;
(b) by either Buyer or Company if the Transaction shall not have
been consummated by September 30, 2005 for any reason; provided, however, that
the right to terminate this Agreement under this Section 8.1(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; or
22
(c) by either Buyer or the Company 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.
8.2 Notice of Termination; Effect of Termination.
---------------------------------------------
Any termination of this Agreement under Section 8.1 above will be
effective immediately upon 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 8.1, this Agreement shall be of no further
force or effect and the Transaction shall be abandoned, except (i) as set forth
in this Section 8.2, Section 8.3 and Article IX (General Provisions), each of
which shall survive the termination of this Agreement, and (ii) nothing herein
shall relieve any party from liability for any intentional or willful breach of
this Agreement.
8.3 Fees and Expenses.
-------------------
All fees and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Transaction are consummated. Without limiting the
foregoing sentence, the Company shall be responsible for all costs associated
with the Transaction 8-K, the Reverse Split, the Distribution, and the Corporate
Matters, which costs shall be paid at Closing out of the Share Purchase Price.
8.4 Amendment.
----------
This Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed on behalf of each of Buyer and the
Company.
8.5 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 IX
GENERAL PROVISIONS
------------------
9.1 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):
23
(a) if to Buyer, to:
KI Equity Partners II, LLC
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Manager
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ fax
(b) if to Company or Yuan, to:
Cyber Merchant Exchange, Inc.
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Chairman and CEO
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇. ▇▇▇▇ ▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ fax
with a copy to:
The ▇▇▇▇ Law Group
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇-▇▇▇-▇▇▇▇ fax
9.2 Interpretation.
---------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity.
(b) For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
and its Subsidiaries, if any, taken as a whole (it being understood that neither
of the following alone or in combination
24
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 or (c) changes affecting the industry generally in which Company or
Buyer operates).
(c) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(b) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
9.3 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.
9.4 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, including the Prior Agreement and (b) are not intended to
confer upon any other person any rights or remedies hereunder (except as
specifically provided in this Agreement).
9.5 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.
9.6 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
25
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.
9.7 Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado, USA, regardless of the laws that might
otherwise govern under applicable principles of conflicts of law thereof.
9.8 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.
9.9 Assignment; Novation.
---------------------
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 9.9, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. The Company, Buyer and Yuan
hereby agree to substitute KI Equity Partners II, LLC as the Buyer in
replacement of KRM Fund, and the Company, Buyer and Yuan irrevocably release and
discharge KRM Fund from any and all liabilities and obligations of any kind that
KRM Fund may have under or with respect to the Prior Agreement or this
Agreement. KRM Fund hereby agrees and consents to the foregoing novation. KRM
Fund shall be a third party beneficiary of the provisions of this Section 9.9 as
if were a signatory to this Agreement and shall have the same rights and
remedies to enforce the provisions of this Section 9.9 as if it were a signatory
to this Agreement.
9.10 Arbitration.
------------
Any disputes or claims arising under or in connection with this
Agreement or the transactions contemplated hereunder shall be resolved by
binding arbitration. Notice of a demand to arbitrate a dispute by either party
shall be given in writing to the other at their last known address. Arbitration
shall be commenced by the filing by a party of an arbitration demand with the
American Arbitration Association ("AAA") in its office in Denver, Colorado USA.
The arbitration and resolution of the dispute shall be resolved by a single
arbitrator appointed by the AAA pursuant to AAA rules. The arbitration shall in
all respects be governed and conducted by applicable AAA rules, and any award
and/or decision shall be conclusive and binding on the parties. The arbitration
shall be conducted in Denver, Colorado. The arbitrator shall supply a written
opinion supporting any award, and judgment may be entered on the award in any
court of competent jurisdiction. Each party shall pay its own fees and expenses
for the arbitration, except that any costs and charges imposed by the AAA and
any fees of the arbitrator for his services shall be assessed against the losing
party by the arbitrator. In theevent 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.
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26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
KI EQUITY PARTNERS II, LLC
By:
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Manager
CYBER MERCHANTS EXCHANGE, INC.
By:
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chairman and CEO
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, Individually
ACCEPTED AND AGREED TO WITH RESPECT TO
THE PROVISIONS OF SECTION 9.9 HEREOF:
▇▇▇▇▇▇▇ REVERSE MERGER FUND, LLC
By:
--------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Manager
27
INDEX OF SCHEDULES
SCHEDULES
COMPANY DISCLOSURE SCHEDULES
28