EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (hereinafter referred to as this "Agreement"), is
entered into as of the 14th day of June, 2000, by and among Premier Brands,
Inc., (hereinafter referred to as the "Company"), a Utah corporation, and SNet
Communications (HK) Limited and ShanghaiNet Technologies (H.K.) Company,
Limited, the shareholders (together, the "Shareholders") of CathayBancorp.com,
Limited ("Cathay"), a company organized under the laws of the Hong Kong Special
Administrative Region, People's Republic of China ("Hong Kong"), by and through
their duly authorized agent Peter Lau (the "Designee"). The Company and the
Shareholders are referred to collectively as the "Parties".
Premises
Whereas, the Shareholders own 100% percent of Cathay, a company organized
and existing under the laws of Hong Kong;
Whereas the Company desires to acquire, and the Shareholders wish to
transfer 100% of the issued and outstanding shares of Cathay in exchange for
21,750,000 shares of the Company's common stock, on the terms and conditions
hereinafter provided, all for the purpose of effecting a "tax-free"
reorganization pursuant to Section 368(a)(1)(B) as modified by Section 368(b) of
the Internal Revenue Code of 1986, as amended;
Agreement
NOW THEREFORE, on the stated premises and for and in consideration of the
mutual covenants and agreements hereinafter set forth and the mutual benefits to
the Parties to be derived herefrom, it is hereby agreed as follows:
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF THE SHAREHOLDERS
As an inducement to, and to obtain the reliance of the Company, the
Shareholders jointly and severally represent and warrant as follows:
Section 1.01 - Organization. Cathay is a company duly organized and validly
existing under the laws of Hong Kong and has the corporate power and is duly
authorized, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities to own all of its
properties and assets to carry on its business, and includes qualification to do
business as a foreign corporation in the states or countries in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification except where failure to be so qualified
would not have a material adverse effect on its business. Included in the Cathay
Schedules (as hereinafter defined) are complete and correct copies of the
articles of incorporation, as amended, and bylaws (or the foreign equivalent
thereof) of Cathay in effect on the date hereof. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby will not, violate any
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provision of Cathay's articles of incorporation or bylaws (or the foreign
equivalent thereof). Cathay has taken, or will have taken prior to Closing, all
actions required by law, its articles of incorporation, or otherwise to
authorize the execution and delivery of this Agreement. Cathay has, or will have
prior to Closing, full power, authority, and legal right and has, or will have
prior to Closing, taken all action required by law, its bylaws, articles of
incorporation (or the foreign equivalent thereof) and otherwise to consummate
the transactions herein contemplated. (Schedule 1.01 - Cathay articles of
incorporation and bylaws, with any amendments thereto)
Section 1.02 - Capitalization and Outstanding Shares. The authorized
capitalization of Cathay consists of 10,000 common shares, HK $1.00 par value
per share, of which 1,000 are issued and outstanding. The Shareholders own all
of such common shares and will own all of the outstanding common shares to the
Closing Date (as defined herein). Such shares are validly issued, fully paid,
and non-assessable and not issued in violation of the pre-emptive or other
rights of any person. (Schedule 1.02 - none)
Section 1.03 - Ownership of Cathay Shares. Each of the Shareholders hereby
represents and warrants with respect to himself, herself or itself that he, she
or it is the legal and beneficial owner of that number of Cathay shares set
forth opposite his, her or its name in the attached schedule (which together
constitute 100% of all of Cathay's outstanding shares), free and clear of any
claims, charges, equities, liens, security interests, and encumbrances
whatsoever (including but not limited to any marital or community property
interest) and that each has full right, power, and authority to transfer,
assign, convey, and deliver its Cathay shares; and delivery of such shares at
the closing will convey to the Company good and marketable title to such shares,
free and clear of any claims, charges, equities, liens, security interests and
encumbrances whatsoever. (Schedule 1.03 - list of shareholders and number of
shares)
Section 1.04 - Subsidiaries and Predecessor Corporations. Schedule 1.04
contains a true, correct and complete list and description of Cathay's
subsidiaries and predecessors. (Schedule 1.04 - List of subsidiaries and
predecessors, and their corporate documents)
Section 1.05 - Financial Statements.
(a) Included in the Cathay Schedules are the most recent audited balance
sheets of Cathay, and the related audited statements of operations,
stockholders' equity and cash flows, together with the notes to such statements
and the opinion of an independent certified public accountant, with respect
thereto.
(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles. The Cathay balance sheets present
fairly as of the date of such balance sheet the financial condition of Cathay.
Cathay did not have, as of the date of such balance sheet, except as and to the
extent reflected or reserved against therein, any liabilities or obligations
(absolute or contingent) which should be reflected in the balance sheet or the
notes thereto, prepared in accordance with generally accepted accounting
principles, and all assets reflected therein are properly reported and present
fairly the financial condition of the assets of Cathay in accordance with
generally accepted accounting principles.
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(c) All accounts receivable of Cathay (i) have arisen out of bona fide
transactions in the ordinary course of business consistent with past practice,
and are payable on ordinary trade terms, (ii) to the knowledge of Cathay, its
officers, directors and shareholders, are legal, valid and binding obligations
of the respective debtors enforceable in accordance with their respective terms,
(iii) to the knowledge of Cathay, its officers, directors and shareholders, are
not subject to any valid set-off or counterclaim, and (iv) do not represent
obligations for goods sold on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return arrangement.
(d) Cathay has no liabilities with respect to the payment of any federal,
state, county, local or other taxes (including any deficiencies, interest or
penalties), except for taxes accrued but not yet due and payable.
(e) Cathay has filed all state, federal or local income and/or franchise
tax returns required to be filed by it from inception to the date hereof. Each
of such income tax returns reflects the taxes due for the period covered
thereby, except for amounts which, in the aggregate, are immaterial.
(f) The books and records, financial and otherwise, of Cathay are in all
material respects complete and correct and have been maintained in accordance
with good business and accounting practices.
(g) All of Cathay's assets are reflected on its financial statements, and
except as set forth in the Cathay Schedules or the financial statements of
Cathay or the notes thereto, Cathay has no material liabilities, direct or
indirect, matured or unmeasured, contingent or otherwise. (Schedule 1.05 -
financial statements)
Section 1.06 - Taxes. Other than with respect to taxes not yet due and
payable, (i) all taxes due and owing by Cathay (whether or not shown on any tax
return) have been properly determined in accordance with applicable rules and
regulations and have been timely paid in full, or in connection with amounts
paid or owing to any employee, creditor, independent contractor, shareholder,
customer, supplier or other third party, where required by law have been timely
withheld, deposited and paid in full; and (ii) all tax returns required to be
filed for taxable periods ending on or before the date of this Agreement have
been or will be duly and timely filed in accordance with all applicable laws,
and each such tax return is (or will be when filed) correct and complete in all
material respects. There is no pending, or to the knowledge of Cathay, its
officers, directors or shareholders, threatened dispute, claim or issue raised,
or expected to be raised or assessed, by any governmental authority in any
jurisdiction concerning any tax liability of Cathay or otherwise known to
Cathay. Cathay has made available to the Company complete and correct copies of
all tax returns, or portions thereof, filed by or with respect to, and all tax
examination reports and statements of deficiencies assessed against, or agreed
to by or with respect to, Cathay since May 25, 2000. Cathay has not received any
written ruling of a governmental authority related to taxes or entered into any
written and legally binding agreement with a governmental authority related to
taxes.
Section 1.07 - Information. The information concerning Cathay set forth in
this Agreement is complete and accurate in all material respects and does not
contain any untrue statement of a material fact or omit to state a material fact
required to make the
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statements made, in light of the circumstances under which they were made, not
misleading.
Section 1.08 - Options or Warrants or Subscriptions. Except as set forth in
the Cathay Schedules, there are no existing options, warrants, calls,
subscriptions or commitments of any character relating to the authorized and
unissued Cathay common stock. (Schedule 1.08 - list of warrants and options)
Section 1.09 - Absence of Certain Changes or Events. Except as set forth in
this Agreement or the Cathay Schedules, since December 31, 1999:
(a) there has not been nor will there be at the Closing Date (i) any
material adverse change in the business, operations, properties, assets, or
condition of Cathay; or (ii) any damage, destruction, or loss to Cathay (whether
or not covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or condition of Cathay.
(b) Cathay has not, nor will have, prior to Closing (i) amended its
articles of incorporation or bylaws; (ii) declared or made, or agreed to declare
or make, any payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed, or agreed to purchase or
redeem, any of its capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the business of Cathay; (iv)
made any material change in its method of management, operation or accounting;
(v) entered into any other material transaction other than sales in the ordinary
course of its business; (vi) made any accrual or arrangement for payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer or employee; (vii) increased the rate of
compensation payable or to become payable by it to any of its officers or
directors or any of its employees whose monthly compensation exceeds $1,000; or
(viii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) Cathay has not, nor will it have (i) borrowed or agreed to borrow any
funds or incurred, or become subject to, any material obligation or liability
(absolute or contingent) except as necessary in its ordinary course of business;
(ii) paid or agreed to pay any material obligations or liability (absolute or
contingent) other than current liabilities incurred since that date in the
ordinary course of business and professional and other fees and expenses in
connection with the preparation of this Agreement and the consummation of the
transactions contemplated hereby; (iii) sold or transferred, or agreed to sell
or transfer, any of its assets, properties, or rights (except assets,
properties, or rights not used or useful in its business which, in the aggregate
have a value of less than $1,000), or canceled, or agreed to cancel, any debts
or claims (except debts or claims which in the aggregate are of a value of less
than $1,000); (iv) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment or
termination is material, considering the business of Cathay; or (v) issued,
delivered, or agreed to issue or deliver any stock, bonds or other corporate
securities including debentures (whether authorized and unissued or held as
treasury stock); and
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(d) to the best knowledge of Cathay and the Shareholders, Cathay has not
become subject to any law or regulation which materially and adversely affects,
or in the future may adversely affect, the business, operations, properties,
assets, or condition of Cathay. (Schedule 1.09 - description of changes since
12/31/99)
Section 1.10 - Title and Related Matters. Cathay has, or will have upon
Closing, good and marketable title to all of its properties, inventory,
interests in properties, and assets, real and personal, which are reflected in
Cathay's most recent balance sheet or acquired after that date (except
properties, interests in properties and assets sold or otherwise disposed of
since such date in the ordinary course of business) free and clear of all liens,
pledges, charges, or encumbrances except (a) statutory liens or claims not yet
delinquent; (b) such imperfections of title and easements as do not and will not
materially detract from or interfere with the present or proposed use of the
properties subject thereto or affected thereby or otherwise materially impair
present business operations on such properties and (c) as described in the
Cathay Schedules. (Schedule 1.10 - description of assets and related
encumbrances)
Section 1.11 - Litigation and Proceedings. Except as set forth in the
Cathay Schedules, there are no actions, suits, proceedings, or investigations
pending or, to the knowledge of the Shareholders after reasonable investigation,
threatened by or against Cathay or affecting Cathay or its properties, at law or
in equity, before any court or other governmental agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind. The Shareholders have
no knowledge of any material default on Cathay's part with respect to any
judgment, order, injunction, decree, award, rule, or regulation of any court,
arbitrator, or governmental agency or instrumentality or of any circumstances
which, after reasonable investigation, would result in the discovery of such a
default. Additionally, there are no actions, suits, proceedings, or
investigations pending or, to the knowledge of the Shareholders after reasonable
investigation, threatened by or against the Shareholders or affecting the
Shareholders or each of their properties, at law or in equity, before any court
or other governmental agency or instrumentality, domestic or foreign, or before
any arbitrator of any kind. The Shareholders do not have any knowledge of any
material default on their part with respect to any judgment, order, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality or of any circumstances which, after reasonable
investigation, would result in the discovery of such a default. (Schedule 1.11 -
list of claims/litigation)
Section 1.12 - Contracts. There are no material contracts, agreements,
franchises, license agreements, or other commitments to which Cathay is a party
or by which it or any of its assets, products, licenses, or properties are bound
except as set forth in the Cathay Schedules, herein, or in the financial
statements of Cathay, or in the notes thereto. (Schedule 1.12 - material
contracts not disclosed in financial statement)
Section 1.13 - Material Contract Defaults. Except as set forth in the
Cathay Schedules, Cathay is not, nor will it be at the time of Closing, in
default in any material respect under the terms of any outstanding contract,
agreement, lease, or other commitment which is material to the business,
operations properties, assets or condition of Cathay and there is no event of
default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which Cathay has not taken adequate steps to
prevent such a default from occurring. (Schedule 1.13 - list of material
contract defaults)
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Section 1.14 - No Conflict With Other Instruments. Except as set forth in
the Cathay Schedules, the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in the breach of
any term or provision of, or constitute an event of default under, any material
indenture, mortgage, deed of trust, or other material contract, agreement, or
instrument to which Cathay or the Shareholders are a party or to which any of
their properties or operations are subject. (Schedule 1.14 - list of documents
which the execution of this agreement will be conflicting with)
Section 1.15 - Governmental Authorizations and Licenses. As set forth in
the Cathay Schedules, Cathay has, or will have upon Closing, all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted. Except for compliance with federal and state securities and
corporation laws, as hereinafter provided, no authorization, approval, consent,
or order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
the Shareholders of this Agreement and consummation by the Shareholders of the
transaction contemplated hereby. (Schedule 1.15 - list of licenses)
Section 1.16 - Compliance With Laws and Regulations. Cathay has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of Cathay or except to the extent that noncompliance would
not result in the occurrence of any material liability for Cathay.
Section 1.17 - Approval of Agreement. As shown in the Cathay Schedules,
each Shareholder has authorized the Designee to act as his or her representative
and attorney-in-fact in his favor and giving him the power to execute any
further documents or certificates in accordance with this agreement, including
but not limited to any documents required for Closing. (Schedule 1.17 -
Shareholders' authorization of designee)
Section 1.18 - Employee Benefit Plans. Except as set forth on Schedule 1.18
(the "Employee Benefit Plans"), Cathay is not a party to, does not participate
in or contribute to any of the following for the benefit of Cathay's employees:
(i) any retirement, pension or deferred compensation plan, incentive
compensation plan, stock plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe benefit
arrangement that does not constitute an employee benefit plan; or (ii) any
employment agreement not terminable upon 90 days or less written notice without
further liability. Each Employee Benefit Plan is in compliance in all respects
with all requirements of law applicable thereto and the respective requirements
of the governing documents thereof, except where noncompliance would not
materially and adversely affect the business, operations, properties, assets or
condition of Cathay or except to the extent that noncompliance would not result
in the occurrence of any material liability for Cathay. Cathay has not incurred
any liability (nor, to the knowledge of Cathay, its officers, directors or
Shareholders, does any condition exist or event occurred that presents a
material risk that any liability will be incurred) with respect to the Employee
Benefit Plans that have or would reasonably be expected to materially and
adversely affect the business, operations, properties, assets or condition of
Cathay. Each Employee Benefit Plan is
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fully and properly funded in accordance with applicable law and the governing
documents of such Employee Benefit Plan. (Schedule 1.18 - list of employee
benefit plans)
Section 1.19 - Insurance. Schedule 1.19 contains a true and complete list
(including the insurance policy face or coverage sheets) of all insurance
policies (including any self insurance programs, if any) currently in effect
that insure Cathay or its officers, directors or employees, or affect or relate
to the ownership, use or operation of any of the material assets or properties
of Cathay, except for any such insurance policy the absence of which would not
materially and adversely affect the business, operations, properties, assets or
condition of Cathay. Each policy listed in Schedule 1.19 is valid and binding
and in full force and effect, all premiums due thereunder have been paid when
due and neither Cathay, its officers, directors, shareholders, employees nor any
other person to whom such policy has been issued has received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder, and neither Cathay, its officers, directors, shareholders nor
employees know of any reason or state of facts that could lead to the
cancellation of such policies. In Cathay's reasonable judgment, the insurance
coverage provided by the insurance policies listed in Schedule 1.19 is
reasonably adequate for Cathay. (Schedule 1.19 - list of insurance policies)
Section 1.20 - Corporate Books and Records. The minute books and other
similar records of Cathay set forth in Schedule 1.20 which will be made
available to the Company prior to the Closing of this Agreement contain a true,
complete and current record, in all material respects, of all action taken at
all meetings and by all written consents in lieu of meetings of directors,
members or shareholders. (Schedule 1.20 - list of minute books and records)
Section 1.21 - Environmental Compliance. Cathay (i) is in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
imposing liability or standards of conduct concerning any Hazardous Material (as
hereinafter defined) ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct its business and (iii) is in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually or in the aggregate, result in a
material adverse effect on the condition (financial or otherwise) or on the
earnings, business, properties, business prospects or operations of Cathay. The
term "Hazardous Material" means (a) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (b) any "hazardous waste" as defined by the Resource Conservation and
Recovery Act, as amended, (c) any petroleum or petroleum product, (d) any
polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous,
dangerous, or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
Section 1.22 - Cathay Schedules. Within 10 days after execution hereof,
Cathay and the Shareholders will deliver to the Company the following schedules,
which are collectively referred to as the "Cathay Schedules" and which consist
of separate schedules dated as of the date of execution of this Agreement, all
certified by the
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Shareholders of Cathay as complete, true, and correct as of the date of this
Agreement in all material respects:
(a) Schedule 1.01 - containing complete and correct copies of the
certificate and articles of incorporation, as amended, and bylaws of Cathay in
effect as of the date of this Agreement;
(b) Schedule 1.03 - containing a list indicating the name and address of
each Shareholder of Cathay together with the number of shares owned by him, her
or it;
(c) Schedule 1.04 - containing a list of all of Cathay's subsidiaries and
predecessors and copies of their corporate documents;
(d) Schedule 1.05 - containing Cathay's audited financial statements for
the 12 months ended December 31, 1998 and December 31, 1999;
(e) Schedule 1.08 - containing a list of all warrants, subscriptions and
options;
(f) Schedule 1.09 - containing a description of changes since December 31,
1999
(g) Schedule 1.10 - containing a description of all assets and real
property owned by Cathay, together with a description of every mortgage, deed of
trust, pledge, lien, agreement, encumbrance, claim, or equity interest of any
nature whatsoever in such real property;
(h) Schedule 1.11 - containing a description of all known actual or
threatened claims or litigation against or involving Cathay;
(i) Schedule 1.12 - containing a description of material contracts not
otherwise disclosed;
(j) Schedule 1.13 - containing a description of defaults (not remedied) on
material contracts;
(k) Schedule 1.14 - containing a description of documents required to be
disclosed in section 1.14;
(l) Schedule 1.15 - a list together with copies of all licenses, permits,
and other governmental authorization (or requests or applications therefor)
pursuant to which Cathay carries on or proposes to carry on its business (except
those which, in the aggregate, are immaterial to the present or proposed
business of Cathay);
(m) Schedule 1.17 - Shareholders authorization of the Designee to act as
their representative;
(n) Schedule 1.18 - a list of Cathay's employee benefit plans;
(o) Schedule 1.19 - a list of Cathay's insurance policies;
(p) Schedule 1.20 - a list of Cathay's minute books and records;
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(q) any other schedules setting forth any other information, together with
any required copies of documents, required to be disclosed in the Cathay
Schedules by sections 1.01 through 1.22;
(r) a Schedule 1.22(r) listing the accounts receivable and notes and other
obligations receivable of Cathay as of December 31, 1999, or thereafter other
than in the ordinary course of business of Cathay, indicating the debtor and
amount, and classifying the accounts to show in reasonable detail the length of
time, if any, overdue, and stating the nature and amount of any refunds,
set-offs, reimbursements, discounts, or other adjustments, which are in the
aggregate material and due to or claimed by such debtor; and
(s) a Schedule 1.22(s) listing the accounts payable and notes and other
obligations payable of Cathay as of December 31, 1999, or that arose thereafter
other than in the ordinary course of the business of Cathay, indicating the
creditor and amount, classifying the accounts to show in reasonable detail the
length of time, if any, overdue, and stating the nature and amount of any
refunds, set offs, reimbursements, discounts, or other adjustments, which in the
aggregate are material and due to or claimed by Cathay with respect to such
obligations.
(t) a Schedule 1.22(t) comprising a a true and complete list of (a) all
accounts with banks, money market mutual funds or securities or other financial
institutions maintained by Cathay within the past twelve (12) months, the
account numbers thereof, and all persons authorized to sign or act on behalf of
Cathay, (b) all safe deposit boxes and other similar custodial arrangements
maintained by Cathay within the past twelve (12) months, and (c) the names of
all persons holding powers of attorney from Cathay or who are otherwise
authorized to act on behalf of Cathay with respect to any matter, other than its
officers and directors, and a summary of the terms of such powers or
authorizations.
The Shareholders shall cause the Cathay Schedules and the instruments and
data delivered to the Company hereunder to be updated after the date hereof up
to and including the Closing Date. It is understood and agreed that not all of
the schedules referred to above have been completed or are available to be
furnished by the Shareholders. The Shareholders shall have a period of thirty
(30) days after the date hereof to provide such schedules. If the Shareholders
cannot or fail to do so, or if the Company finds the schedules unacceptable and
after giving the Shareholders written notice of such failure or unacceptability
and a 10-day period to cure, the Company may terminate this Agreement by giving
written notice to the Shareholders.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND
WARRANTIES OF THE COMPANY
As an inducement to, and to obtain the reliance of the Shareholders, the
Company represents and warrants as follows:
Section 2.01 - Organization. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Utah and
has the corporate power and is duly authorized, qualified, franchised, and
licensed under all
<PAGE>
applicable laws, regulations, ordinances, and orders of public authorities to
own all of its properties and assets, to carry on its business in all material
respects as it is now being conducted, and there is no jurisdiction in which it
is not qualified in which the character and location of the assets owned by it
or the nature of the business transacted by it requires qualification. Included
in the Company Schedules (as hereinafter defined) are complete and correct
copies of the articles of incorporation of the Company as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not violate any
provision of the Company's articles of incorporation or bylaws. The Company has
taken all action required by law, its articles of incorporation, its bylaws, or
otherwise to authorize the execution and delivery of this Agreement, and the
Company has full power, authority, and legal right and has taken all action
required by law, its articles of incorporation, bylaws, or otherwise to
consummate the transactions herein contemplated. (Schedule 2.01 - certificate
and articles of incorporation)
Section 2.02 - Capitalization and Outstanding Shares. The Company's
authorized capitalization currently consists of 100,000,000 shares of common
stock, par value $.001, of which 4,208,319 shares of common stock are issued and
outstanding, and 5,000,000 shares of preferred stock, of which none are validly
issued and outstanding. All issued and outstanding shares are legally issued,
fully paid, non-assessable and not issued in violation of the pre-emptive or
other rights of any person.
Section 2.03 - Subsidiaries and Predecessor Corporation. Except as shown in
the Company Schedules, the Company owns no subsidiaries and has no predecessor
corporations. (Schedule 2.03 - list of subsidiaries and predecessor
corporations.)
Section 2.04 - Financial Statements.
(a) Included in the the Company Schedules are (i) the audited balance
sheets of the Company as of December 31, 1999 and December 31, 1998, and the
related audited statements of operations, stockholders' equity and cash flows
for the two fiscal years ended December 31, 1999 and December 31, 1998, together
with the notes to such statements and the opinion of independent certified
public accountants, with respect thereto.
(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles. The Company's balance sheets present a
true and fair view as of the dates of such balance sheets of the financial
condition of the Company. The Company did not have, as of the dates of such
balance sheets, except as and to the extent reflected or reserved against
therein, any liabilities or obligations (absolute or contingent) which should be
reflected in the balance sheets or the notes thereto, prepared in accordance
with generally accepted accounting principles, and all assets reflected therein
are properly reported and present fairly the financial condition of the assets
of the Company in accordance with generally accepted accounting principles.
(c) All accounts receivable of the Company (i) have arisen out of bona fide
transactions in the ordinary course of business consistent with past practice,
and are payable on ordinary trade terms, (ii) to the knowledge of the Company,
its officers, directors and shareholders, are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their
respective terms, (iii) to the knowledge of the Company, its officers, directors
and shareholders, are not subject to any valid set-off
<PAGE>
or counterclaim, and (iv) do not represent obligations for goods sold on
consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement.
(d) The Company currently has no liabilities with respect to the payment of
any federal, state, county local or other taxes (including any deficiencies,
interest or penalties), except for taxes accrued but not yet due and payable.
(e) The Company has filed all state, federal or local income and/or
franchise tax returns required to be filed by it from inception to the date
hereof. None of such federal income tax returns have been examined by the
Internal Revenue Service. Each of such income tax return reflects the taxes due
for the period covered thereby, except for amounts which, in the aggregate, are
immaterial.
(f) The Company's books and records, are in all material aspects complete,
correct and have been maintained in accordance with good business and accounting
practices.
(g) All of the Company's assets are reflected on its financial statements,
and except as set forth in the Company Schedules or the financial statements of
the Company or the notes thereto, the Company has no material liabilities,
direct or indirect, matured or unmeasured, contingent or otherwise. (Schedule
2.04 - financial statements)
Section 2.05 - Taxes. Other than with respect to taxes not yet due and
payable, (i) all taxes due and owing by the Company (whether or not shown on any
tax return) have been properly determined in accordance with applicable rules
and regulations and have been paid in full, or in connection with amounts paid
or owing to any employee, creditor, independent contractor, shareholder,
customer, supplier or other third party, where required by law have been
withheld, deposited and paid in full; and (ii) all tax returns required to be
filed for taxable periods ending on or before the date of this Agreement have
been or will be duly filed in accordance with all applicable laws, and each such
tax return is (or will be when filed) correct and complete in all material
respects. There is no pending, or to the knowledge of the Company, its officers,
directors or shareholders, threatened dispute, claim or issue raised, or
expected to be raised or assessed, by any governmental authority in any
jurisdiction concerning any tax liability of the Company or otherwise known to
the Company. The Company has made available to the Shareholders complete and
correct copies of all tax returns, or portions thereof, filed by or with respect
to, and all tax examination reports and statements of deficiencies assessed
against, or agreed to by or with respect to, the Company since January 1, 1995.
Section 2.06 - Company's Shareholders. The list of the Company's
shareholders set forth in Schedule 2.06 is a complete list of the Company's
shareholders, as provided by Colonial Stock Transfer Company, Inc., the
Company's transfer agent (the "Transfer Agent"). Such list is in accordance with
the Company's records, and there is no material discrepancy between the
Company's records and the list of shareholders provided by the Transfer Agent.
(Schedule 2.06 - list of the Company's shareholders)
Section 2.07 - Information. The information concerning the Company set
forth in this Agreement and the Company Schedules is complete and accurate in
all material respects and does not contain any untrue statements of a material
fact or omit to state a
<PAGE>
material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 2.08 - Options or Warrants or Subscriptions. Except as disclosed in
the Company Schedules, there are no existing options, warrants, calls,
subscriptions or commitments of any character relating to the authorized and
unissued stock of the Company. (Schedule 2.08 - list of warrants and options)
Section 2.09 - Title and Related Matters. The Company has good and
marketable title to all of its properties, inventory, interest in properties,
and assets, real and personal, which are reflected in the Company's most recent
balance sheet or acquired after that date (except properties, interest in
properties, and assets sold or otherwise disposed of since such date in the
ordinary course of business), free and clear of all liens, pledges, charges, or
encumbrances except (a) statutory liens or claims not yet delinquent; (b) such
imperfections of title and easements as do not and will not materially detract
from or interfere with the present or proposed use of the properties subject
thereto or affected thereby or otherwise materially impair present business
operations on such properties; or (c) as described in the Company Schedules.
(Schedule 2.09 - description of assets and related encumbrances)
Section 2.10 - Litigation and Proceedings. Except as set forth in the
Company Schedules, there are no actions, suits, proceedings, or investigations
pending or, to the knowledge of the Company after reasonable investigation,
threatened by or against the Company or affecting the Company or its properties,
at law or in equity, before any court or other governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind. The
Company has no knowledge of any material default on the Company's part with
respect to any judgment, order, injunction, decree, award, rule, or regulation
of any court, arbitrator, or governmental agency or instrumentality or of any
circumstances which, after reasonable investigation, would result in the
discovery of such a default. (Schedule 2.10 - description of litigation/claims)
Section 2.11 - Contracts. There are no material contracts, agreements,
franchises, license agreements, or other commitments to which the Company is a
party or by which it or any of its assets, products, licenses, or properties are
bound except as set forth in the Company Schedules, herein, or in the financial
statements of the Company, or in the notes thereto. (Schedule 2.11 - material
contracts not disclosed in financial statements)
Section 2.12 - Material Contract Defaults. Except as set forth in the
Company Schedules, the Company is not, nor will it be at the time of Closing, in
default in any material respect under the terms of any outstanding contract,
agreement, lease, or other commitment which is material to the business,
operations properties, assets or condition of the Company and there is no event
of default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which the Company has not taken adequate steps to
prevent such a default from occurring. (Schedule 2.12 - list of material
contract defaults)
Section 2.13 - No Conflict With Other Instruments. Except as set forth in
the Company Schedules, the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement will not result in the breach of
any term or provision of, or constitute an event of default under, any material
indenture, mortgage,
<PAGE>
deed of trust, or other material contract, agreement, or instrument to which the
Company is a party or to which any of its properties or operations are subject.
(Schedule 2.13 - list of documents which the execution of this agreement will be
conflicting with)
Section 2.14 - Governmental Authorizations and Licenses. As set forth in
the Company Schedules, the Company has or will have upon Closing, all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted. Except for compliance with federal and state securities and
corporation laws, as hereinafter provided, no authorization, approval, consent,
or order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
the Company of this Agreement and the consummation by the Company of the
transaction contemplated hereby. (Schedule 2.14 - list of licenses)
Section 2.15 - Compliance With Laws and Regulations. The Company has
complied with all applicable statutes and regulations of any federal, state, or
other governmental entity or agency thereof, including, but not limited to,
those governing tax, environmental, labor and intellectual property matters,
except to the extent that noncompliance would not materially and adversely
affect the business, operations, properties, assets, or condition of the Company
or except to the extent that noncompliance would not result in the occurrence of
any material liability for the Company.
Section 2.16 - Approval of Agreement. As shown in the Company Schedules,
the board of directors of the Company has approved this Agreement and the
transactions contemplated hereby. (Schedule 2.16 - board consent)
Section 2.17 - Employee Benefit Plans. Except as set forth on Schedule 2.17
(the "Employee Benefit Plans"), the Company is not a party to, does not
participate in or contribute to any of the following for the benefit of the
Company's employees: (i) any retirement, pension or deferred compensation plan,
incentive compensation plan, stock plan, vacation pay, severance pay, bonus or
benefit arrangement, insurance or hospitalization program or any other fringe
benefit arrangement that does not constitute an employee benefit plan; or (ii)
any employment agreement not terminable upon 90 days or less written notice
without further liability. Each Employee Benefit Plan is in compliance in all
respects with all requirements of law applicable thereto and the respective
requirements of the governing documents thereof, except where noncompliance
would not materially and adversely affect the business, operations, properties,
assets or condition of the Company or except to the extent that noncompliance
would not result in the occurrence of any material liability for the Company.
The Company has not incurred any liability (nor, to the knowledge of the
Company, its officers, directors or shareholders, does any condition exist or
event occurred that presents a material risk that any liability will be
incurred) with respect to the Employee Benefit Plans that have or would
reasonably be expected to materially and adversely affect the business,
operations, properties, assets or condition of the Company. Each Employee
Benefit Plan is fully and properly funded in accordance with applicable law and
the governing documents of such Employee Benefit Plan. (Schedule 2.17 - list of
employee benefit plans)
Section 2.18 - Insurance. Schedule 2.18 contains a true and complete list
(including the insurance policy face or coverage sheets) of all insurance
policies
<PAGE>
(including any self insurance programs, if any) currently in effect that insure
the Company or its officers, directors or employees, or affect or relate to the
ownership, use or operation of any of the material assets or properties of the
Company, except for any such insurance policy the absence of which would not
materially and adversely affect the business, operations, properties, assets or
condition of the Company. Each policy listed in Schedule 2.18 is valid and
binding and in full force and effect, all premiums due thereunder have been paid
when due and neither the Company, its officers, directors, shareholders,
employees nor any other person to whom such policy has been issued has received
any notice of cancellation or termination in respect of any such policy or is in
default thereunder, and neither the Company, its officers, directors,
shareholders nor employees know of any reason or state of facts that could lead
to the cancellation of such policies. In the Company's reasonable judgment, the
insurance coverage provided by the insurance policies listed in Schedule 2.18 is
reasonably adequate for the Company. (Schedule 2.18 - list of insurance
policies)
Section 2.19 - Corporate Books and Records. The minute books and other
similar records of the Company set forth in Schedule 2.19 and made available to
the Shareholders prior to the execution of this Agreement contain a true,
complete and current record, in all material respects, of all action taken at
all meetings and by all written consents in lieu of meetings of directors,
members or shareholders. (Schedule 2.19 - list of minute books and records)
Section 2.20 - Absence of Certain Changes or Events. Except as set forth in
this Agreement or the Company Schedules, since December 31, 1999:
(a) there has not been nor will there be at the Closing Date (i) any
material adverse change in the business, operations, properties, assets, or
condition of the Company; or (ii) any damage, destruction, or loss to the
Company (whether or not covered by insurance) materially and adversely affecting
the business, operations, properties, assets, or condition of the Company;
(b) the Company has not, and prior to Closing, except as contemplated by
this agreement, will not have (i) amended its articles of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of the Company; (iv) made any material
change in its method of management, operation or accounting; (v) entered into
any other material transaction other than sales in the ordinary course of its
business; (vi) made any accrual or arrangement for payment of bonuses or special
compensation of any kind or any severance or termination pay to any present or
former officer or employee; (vii) increased the rate of compensation payable or
to become payable by it to any of its officers or directors or any of its
employees whose monthly compensation exceeds $1,000; or (viii) made any increase
in any profit sharing, bonus, deferred compensation, insurance, pension,
retirement, or other employee benefit plan, payment, or arrangement made to,
for, or with its officers, directors, or employees;
(c) the Company has not, nor will it have except as contemplated by this
Agreement (i) borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or contingent) except
as necessary in its ordinary course of business; (ii) paid or agreed to pay any
material obligations or liability
<PAGE>
(absolute or contingent) other than current liabilities incurred since that date
in the ordinary course of business and professional and other fees and expenses
in connection with the preparation of this agreement and the consummation of the
transactions contemplated hereby; (iii) sold or transferred, or agreed to sell
or transfer, any of its assets, properties, or rights (except assets,
properties, or rights not used or useful in its business which, in the aggregate
have a value of less than $1,000), or canceled, or agreed to cancel, any debts
or claims (except debts or claims which in the aggregate are of a value of less
than $1,000); (iv) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment or
termination is material, considering the business of the Company; or (v) issued,
delivered, or agreed to issue or deliver any stock, bonds or other corporate
securities including debentures (whether authorized and unissued or held as
treasury stock); and
(d) to the best knowledge of the Company, the Company has not become
subject to any law or regulation which materially and adversely affects, or in
the future may adversely affect the business, operations, properties, assets, or
condition of the Company. (Schedule 2.20 - description of changes since December
31, 1999)
Section 2.21 - Continuity of Business Enterprises. The Company has no
commitment or present intention to liquidate Cathay or sell or otherwise dispose
of a material portion of Cathay's business or assets following the consummation
of the transactions contemplated hereby.
Section 2.22 - Environmental Compliance. The Company (i) is in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or imposing liability or standards of conduct concerning any
Hazardous Material (as hereinafter defined) ("Environmental Laws"), (ii) has
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, individually or in
the aggregate, result in a material adverse effect on the condition (financial
or otherwise) or on the earnings, business, properties, business prospects or
operations of the Company. The term "Hazardous Material" means (a) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (b) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act, as amended, (c) any
petroleum or petroleum product, (d) any polychlorinated biphenyl and (e) any
pollutant or contaminant or hazardous, dangerous, or toxic chemical, material,
waste or substance regulated under or within the meaning of any other
Environmental Law.
Section 2.23 - Company Schedules. The Company has delivered to the
Shareholders the following schedules, which are collectively referred to as the
"Company Schedules" and which consist of separate schedules, which are dated the
date of this Agreement, all certified by the chief executive officer of the
Company to be complete, true, and accurate:
(a) Schedule 2.01 - containing complete and accurate copies of the articles
of incorporation of the Company as in effect as of the date of this Agreement;
<PAGE>
(b) Schedule 2.03 - containing a list indicating the name and address of
each subsidiary;
(c) Schedule 2.04 - containing the Company's audited financial statements
for the 12 months ended December 31, 1998 and December 31, 1999;
(d) Schedule 2.06 - containing a list of the Company's shareholders, as
provided by the Transfer Agent;
(e) Schedule 2.08 - containing a description of all of the Company's
outstanding warrants, subscriptions and options;
(f) Schedule 2.09 - containing a description of all real property and
assets owned by the Company, together with a description of every mortgage, deed
of trust, pledge, lien, agreement, encumbrance, claim, or equity interest of any
nature whatsoever in such real property;
(g) Schedule 2.10 - containing a description of all known actual or
threatened claims or litigation against or involving the Company;
(h) Schedule 2.11 - containing a description of material contracts not
otherwise disclosed;
(i) Schedule 2.12 - containing a description of defaults (not remedied) on
material contracts;
(j) Schedule 2.13 - containing a description of documents required to be
disclosed in section 2.13;
(k) Schedule 2.14 - a list together with copies of all licenses, permits,
and other governmental authorization (or requests or applications therefor)
pursuant to which the Company carries on or proposes to carry on its business
(except those which, in the aggregate, are immaterial to the present or proposed
business of the Company);
(l) Schedule 2.16 - board consent approving the execution of this
Agreement;
(m) Schedule 2.17 - a list of the Company's employee benefit plans;
(n) Schedule 2.18 - a list of the Company's insurance policies;
(o) Schedule 2.19 - a list of the Company's minute books and records;
(p) Schedule 2.20 - containing a description of changes which have occurred
since December 31, 1999; and
(q) any other schedules setting forth any other information, together with
any required copies of documents required to be disclosed in the Company
Schedules by Article II.
<PAGE>
The Company shall cause the Company Schedules and the instruments and data
delivered to the Shareholders hereunder to be updated after the date hereof up
to and including the Closing Date. It is understood and agreed that not all of
the schedules referred to above have been completed or are available to be
furnished by the Company. The Company shall have a period of thirty (30) days
after the date hereof to provide such schedules. If the Company cannot or fails
to do so, or if the Shareholders finds the schedules unacceptable, and after
giving the Company written notice of such failure or unacceptability and a
10-day period to cure, the Shareholders may terminate this agreement by giving
written notice to the Company.
Section 2.22 - Disclaimer; Knowledge. Except for the representations and
warranties specifically set forth in this Article II, the Company makes no (nor
shall the Company in any manner whatsoever be deemed or be construed as having
made any) representation or warranty to the Shareholders or otherwise, express
or implied. Neither this Agreement nor the documents and certificates executed
by the Company in order to consummate the transactions contemplated hereby shall
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein, in light of the
circumstances under which they were made, not misleading. Wherever used in this
Agreement, the "knowledge" of the Company means the knowledge of the officers,
executives, partners, members or other persons in a similar position or having
similar powers and duties, in each case after reasonable inquiry.
ARTICLE III
PLAN OF EXCHANGE
Section 3.01 - The Exchange. The Shareholders agree to assign, transfer,
and deliver to the Company, free and clear of all liens, pledges, encumbrances,
charges, restrictions or known claims of any kind, nature, or description, 1,000
common shares of Cathay, constituting 100% of the issued and outstanding common
shares of Cathay, and the Company agrees to acquire such shares by issuing and
delivering in exchange therefor 21,750,000 shares of the Company's common stock,
par value $.001, to the Shareholders and their designated recipients in the
amounts set forth opposite the name of each Shareholder and their designated
recipients in the list attached hereto as Exhibit 1 and incorporated herein.
Section 3.02 - Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall be within ten days after the signing of
this Agreement and at such time and place as the parties may mutually agree
("Closing Date").
Section 3.03 - Closing Events. At the Closing, each of the respective
Parties hereto shall execute, acknowledge, and deliver (or shall ensure to be
executed, acknowledged, and delivered) the following:
(a) In the case of the Company,
(i) a bring-down letter from the Company's accountants; and
(ii) a legal opinion, acceptable to Cathay, to the effect that
this Agreement has been properly executed, is legally
enforceable and, to the best of counsel's knowledge, that
there is no outstanding litigation pending against the
Company which has not been disclosed to Cathay.
<PAGE>
(b) In the case of Cathay,
(i) a comfort letter from Cathay's accountants; and
(ii) a legal opinion, acceptable to the Company, to the effect
that, to the best of counsel's knowledge, this Agreement has
been properly executed and is legally enforceable.
(c) Any and all certificates, opinions, financial statements,
schedules, agreements, resolutions, ruling or deeds or other instruments
required by this Agreement to be so delivered at or prior to the Closing,
together with such other items as may be reasonably requested by the
Parties hereto and their respective legal counsel in order to effectuate or
evidence the transactions contemplated hereby. The Shareholders must each
have executed a power of attorney authorizing the Designee to act on each
of their behalf.
Section 3.04 - Termination.
(a) This Agreement may be terminated by the board of directors of the
Company or by the Shareholders at any time prior to the Closing Date if:
(i) there shall be any additional, i.e. actual or threatened action or
proceeding before any court or any governmental body which has not been
disclosed in this Agreement and which shall seek to restrain, prohibit, or
invalidate the transactions contemplated by this Agreement and which, in
the judgment of such board of directors, made in good faith and based upon
the advice of its legal counsel, makes it inadvisable to proceed with the
exchange contemplated by this Agreement;
(ii) any of the transactions contemplated hereby are disapproved by
any regulatory authority whose approval is required to consummate such
transactions or in the judgment of such party, made in good faith and based
on the advice of counsel, there is substantial likelihood that any such
approval will not be obtained or will be obtained only on a condition or
conditions which would be unduly burdensome, making it inadvisable to
proceed with the exchange; or
(iii) there shall have been any change in the latest balance sheets of
Cathay or the Company, or in their respective assets, properties, business,
or financial condition which could have a material adverse affect on the
value of each such business, except any changes disclosed in the Parties'
Schedules, as the case may be, dated as of the date of the execution of
this Agreement; or
(iv) the Board of Directors of the Company, or the Shareholders
determine in good faith that a condition to closing has not occurred.
In the event of termination pursuant to this paragraph (a) of Section 3.04, no
obligation, right or liability shall arise hereunder, and each party shall bear
all of the expenses incurred by it in connection with the negotiation, drafting,
and execution of this Agreement and the transactions herein contemplated.
(b) This Agreement may be terminated at any time prior to the Closing by
action of the Shareholders if in their sole and reasonable judgment they
determine that the
<PAGE>
Company shall have failed to comply in any material respect with any of their
covenants or agreements contained in this Agreement or if any of the
representations or warranties of the Company contained herein shall be
inaccurate in any material respect. If this Agreement is terminated pursuant to
this paragraph (b) of Section 3.04, this Agreement shall be of no further force
or effect, and no obligation, right or liability shall arise hereunder.
(c) The Board of Directors of the Company may terminate this contract if in
their sole and reasonable judgment the Shareholders shall fail to comply in any
material respect with any of their covenants or agreements contained in this
Agreement or if any of the representations or warranties of the Shareholders
contained herein shall be inaccurate in any material respect. If this Agreement
is terminated pursuant to this paragraph (c) of Section 3.04, this Agreement
shall be of no further force or effect, and no obligation, right or liability
shall arise hereunder.
Section 3.05 - Shareholder Approval. This plan of share exchange will not
be submitted to the shareholders of the Company for their approval.
ARTICLE IV
SPECIAL COVENANTS
Section 4.01 - Delivery of Books and Records. At the Closing, the
Shareholders shall deliver to the Company the originals of the corporate minute
books, books of account, contracts, records, and all other books or documents of
Cathay now in the possession of Cathay or its representatives.
Section 4.02 - Special Covenants and Representations Regarding the
Exchanged Company Stock. The consummation of this Agreement and the transactions
herein contemplated, including the issuance of the Exchanged Stock set forth in
section 3.01 to the Shareholders contemplated hereby, constitute the offer and
sale of securities under the Securities Act of 1933, as amended (the "Securities
Act") and applicable state statutes. The Shareholders acknowledge that the
shares of the Company to be delivered to each pursuant to this Agreement have
not been registered under the Securities Act or the laws of any other
jurisdiction, and that therefore the stock is not fully transferable except as
permitted under various exemptions, if any, contained in the Securities Act and
the rules of the Securities and Exchange Commission interpreting the act. Under
US law, the Company common stock cannot be sold or transferred by the
Shareholders unless they are subsequently registered under applicable law or an
exemption from registration is available. The Company is not required to
register or assist in the registration of the Company common shares or to make
any exemption from registration available. The provisions contained in this
paragraph are intended to ensure compliance with the Securities Act. The
Shareholders represent and warrant to the Company that each is acquiring the
shares of the Company common stock under this Agreement for their own account
for investment, and not for the purpose of resale or any other distribution of
such common shares. The Shareholders also represent and warrant that each has no
present intention of disposing of all or any part of such shares at any
particular time, for any particular price or upon the happening of any
particular circumstances. The Shareholders further represent that each has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Company. The
Shareholders acknowledge that the Company is relying on the truth and accuracy
of these warranties and representations in
<PAGE>
issuing the shares without first registering the shares under the Securities
Act. The Shareholders covenant and represent that none of the shares of the
Company common stock to be issued to them pursuant to this Agreement, will be
offered, sold, assigned, pledged, transferred, or otherwise disposed of except
after full compliance with all of the applicable provisions of the Securities
Act and the rules and regulations of the Securities and Exchange Commission
under the Securities Act. Therefore the Shareholders agree not to sell or
otherwise dispose of any of the common shares of the Company received pursuant
to this agreement unless such Shareholder:
1. has delivered to the Company a written legal opinion in form and
substance satisfactory to counsel for the Company to the effect that
the disposition is permissible under the terms of the Securities Act
and the rules and regulations promulgated thereunder;
2. has complied with the registration and prospectus requirements of the
Securities Act relating to such disposition; or
3. has presented the Company satisfactory evidence that such a
disposition is exempt from registration under the Securities Act. The
Company shall place a stop transfer order against transfers of shares
until one of the conditions set forth in this paragraph have been met.
Furthermore, the Shareholders agree that the certificates evidencing
the common shares that each will receive under this Agreement will
contain the following legend or one substantially similar:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR REGISTERED
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED (1) ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER THE ACT; OR (2) ABSENT AN OPINION
OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH STATES OR THAT
SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES
AND EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES.
Section 4.03 Short Positions Prohibited. For a period beginning from the
Closing Date and ending on the second anniversary of the Closing Date, neither
the Shareholders nor any of their affiliates, subsidiaries, officers, directors
or agents, shall directly or indirectly maintain, or assist in maintaining any
short position in the securities of the Company.
Section 4.04 - Third Party Consents and Certificates. The Parties agree to
cooperate with each other in order to obtain any required third party consents
to this Agreement and the transactions herein and therein contemplated.
Section 4.05 - Actions Prior to Closing.
(a) From and after the date of this Agreement until the Closing Date and
except as set forth in the attached Schedules or as permitted or contemplated by
this
<PAGE>
Agreement, the Company, and the Shareholders (for and on behalf of Cathay),
respectively, will each:
(i) carry on their business in substantially the same manner as they had
heretofore;
(ii) maintain and keep their properties in states of good repair and
condition as at present, except for depreciation due to ordinary wear and
tear and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in amount and
in scope of coverage to that now maintained by them;
(iv) perform in all material respects all of their obligations under
material contracts, leases, and instruments relating to or affecting their
assets, properties, and business;
(v) use their best efforts to maintain and preserve their business
organization intact, to retain their key employees, and to maintain their
relationship with material suppliers and customers; and
(vi) fully comply with and perform in all material respects all obligations
and duties imposed on them by all federal and state laws and all rules,
regulations, and orders imposed by federal or state governmental
authorities.
(b) From and after the date of this Agreement until the Closing Date,
neither the Company, nor the Shareholders, on behalf of Cathay will:
(i) make any changes in their articles of incorporation or bylaws except as
contemplated by this Agreement;
(ii) declare or make, or agree to declare or make, any payment of dividends
or distributions of any assets of any kind whatsoever to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock;
(iii) waive any rights of value which in the aggregate are extraordinary or
material considering the business of either the Company or Cathay
respectively;
(iv) make any material change in their method of management, operation or
accounting;
(v) enter into any other material transaction other than in the ordinary
course of either party's respective business;
(vi) make any accrual or arrangement for payment of bonuses or special
compensation of any kind or any severance or termination pay to any present
or former officer or employee;
(vii) increase the rate of compensation payable or to become payable by it
to any of its officers or directors or any of its employees whose monthly
compensation exceeds $1,000; or
(viii) make any increase in any profit sharing, bonus, deferred
compensation, insurance, pension, retirement, or other employee benefit
plan, payment, or arrangement made to, for, or with its officers,
directors, or employees;
(ix) borrow or agree to borrow any funds or incur, or become subject to,
any material obligation or liability (absolute or contingent) except as
necessary in its ordinary course of business;
(x) pay or agree to pay any material obligations or liability (absolute or
contingent) other than current liabilities incurred in the ordinary course
of business and professional and other fees and expenses in connection with
the preparation of this agreement and the consummation of the transactions
contemplated hereby;
<PAGE>
(xi) sell or transfer, or agree to sell or transfer, any of their assets,
properties, or rights (except assets, properties, or rights not used or
useful in their respective business which, in the aggregate have a value of
less than $1,000), or cancel, or agree to cancel, any debts or claims
(except debts or claims which in the aggregate are of a value of less than
$1,000);
(xii) make or permit any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or
termination is material, considering their respective businesses; or
(xiii) issue, deliver or agree to issue or deliver any stock, bonds or
other corporate securities including debentures (whether authorized and
unissued or held as treasury stock).
Section 4.06 - Indemnification.
(a) The Shareholders hereby agree to indemnify the Company and its
officers, agents and directors as of the date of execution of this Agreement
against any loss, liability, claim, damage or expense (including, but not
limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever), to which it or they may become subject
arising out of or based on any inaccuracy appearing in or misrepresentations
made under Article I of this Agreement. The indemnification provided for in this
paragraph shall survive the Closing and consummation of the transactions
contemplated hereby and termination of this Agreement.
(b) The Company hereby agrees to indemnify the Shareholders against any
loss, liability, claim, damage, or expense (including, but not limited to, any
and all expense whatsoever reasonably incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever), to which it or they may become subject arising out of or based on
any inaccuracy appearing in or misrepresentation made under Article II of this
Agreement. The indemnification provided for in this paragraph shall survive the
Closing and consummation of the interactions contemplated hereby and termination
of this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01 - Accuracy of Representations. The representations and
warranties made by the Shareholders in this Agreement were true when made and
shall be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and the Shareholders shall
have performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing.
The Company shall have been furnished with a certificate, signed by the
Shareholders and dated the Closing Date, to the foregoing effect.
Section 5.02 - Officer's Certificate. The Company shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
representative of
<PAGE>
Cathay to the effect that no litigation, proceeding, investigation, or inquiry
is pending, to the best of his knowledge, against Cathay, which might result in
an action to enjoin or prevent the consummation of the transactions contemplated
by this Agreement, or, to the extent not disclosed in the Cathay Schedules, by
or against Cathay, which might result in any material adverse change in any of
the assets, properties, business, or operations of Cathay.
Section 5.03 - No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business, or operations of Cathay nor shall any event have occurred which, with
the lapse of time or the giving of notice, may cause or create any material
adverse change in the financial condition, business or operations of Cathay.
Section 5.04 - Good Standing. The Company shall have received a certificate
of good standing from the appropriate governmental official, dated as of a date
within ten days prior to the Closing Date certifying that Cathay is in good
standing as a corporation in its state or country of incorporation.
Section 5.05 -- Other Items.
(a) The Company shall have received a Shareholder list of Cathay containing
the name, address, and number of shares held by each Shareholder, certified by
an executive officer of Cathay as being true, complete and accurate, and a
designation of how many shares of the exchanged Company stock each is to receive
pursuant to this Agreement.
(b) The Company shall have received a copy of each Power of Attorney duly
signed and notarized by each of the Shareholders authorizing the Designee to act
on their behalf.
(c) The Company shall have received such further documents, certificates or
instruments relating to the transactions contemplated hereby as the Company may
reasonably request.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS
The obligations of the Shareholders under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 - Accuracy of Representations. The representations and
warranties made by the Company in this Agreement were true when made and shall
be true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the Closing Date, and the Company shall have
performed and complied with all covenants and conditions required by this
Agreement to be performed or complied with by the Company prior to or at the
Closing, and the Shareholders shall have been furnished with a certificate,
signed by a duly authorized executive officer of the Company and dated the
Closing Date, to the foregoing effect.
<PAGE>
Section 6.02 - Officer's Certificate. The Shareholders shall have been
furnished with a certificate dated the Closing Date and signed by a duly
authorized executive officer of the Company, to the effect that no litigation,
proceeding, investigation or inquiry is pending, other than those disclosed
herein, or to the best knowledge of the Company, threatened, which might result
in an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement.
Section 6.03 - No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business, or operations of the Company nor shall any event have occurred which,
with the lapse of time or the giving of notice, may cause or create any material
adverse change in the financial condition, business or operations of the
Company.
Section 6.04 - Good Standing. The Shareholders shall have received a
certificate of good standing from the appropriate governmental official, or the
equivalent, dated as of a date within ten days prior to the Closing Date
certifying that the Company is in good standing as a corporation in Utah.
ARTICLE VII.
ACCESS TO THE PROPERTIES AND BOOKS
Section 7.01 - The Company's Rights. The Shareholders hereby grant to the
Company and its duly authorized representatives, the right of full and complete
access to the properties of Cathay and full opportunity to examine such
entities' books and records, during normal business hours between the date
hereof and the Closing Date.
Section 7.02 - Shareholders' Rights. The Company hereby grants to the
Shareholders and their duly authorized representatives, the right of full and
complete access to the properties of the Company and full opportunity to examine
such entities' books and records, during normal business hours between the date
hereof and the Closing Date.
ARTICLE VIII.
OFFICERS AND DIRECTORS, NAME CHANGE
Section 8.01 Directors. At Closing, the current directors of the Company
shall nominate, and agree to vote in favor of the election of (i) Brian Ransom,
Philip Flaherty, David Cooperberg and Peter Lau to the Company's Board of
Directors and (ii) Peter Lau as the Company's President and Chief Executive
Officer. Thereafter, the other remaining board members agree to (i) amend the
By-laws to permit the Company to have one or more directors and (ii) upon
request of the Designee, tender their written resignations.
Section 8.02 - Name Change. At or before Closing, the Company shall take
those steps necessary to effect a name change to Cathay Technologies Group, Inc.
or some other substantially similar name.
<PAGE>
ARTICLE IX.
MISCELLANEOUS
Section 9.01 - Governing Law. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to the matters of state law, with the laws
of the State of New York.
Section 9.02 - Resolution of Disputes.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement, or the interpretation, breach, termination or
validity hereof, shall first be resolved through friendly
consultation, if possible. Such consultation shall begin
immediately after one party has delivered to the other party a
written request for such consultation (the "Consultation Date").
If the dispute cannot be resolved within 30 days following the
Consultation Date, the dispute shall be submitted to arbitration
upon the request of either party, with written notice to the
other party.
(b) Arbitration. The arbitration shall be conducted in New York, New
York under the auspices of the American Arbitration Association
("AAA") in accordance with the commercial arbitration rules and
supplementary procedures for international commercial arbitration
of the AAA. There shall be three arbitrators--one arbitrator
shall be chosen by each party to the dispute and those two
arbitrators shall choose the third arbitrator. All arbitration
proceedings shall be conducted in English. Each party shall
cooperate with the other in making full disclosure of and
providing complete access to all information and documents
requested by the other party in connection with the arbitration
proceedings. Arbitration shall be the sole, binding, exclusive
and final remedy for resolving any dispute between the parties;
either party may apply to any court of competent jurisdiction in
the State of New York for enforcement of any award granted by the
arbitrators.
(c) During the period when a dispute is being resolved, except for
the matter being disputed, the parties shall in all other
respects continue to abide by the terms of this Agreement.
Section 9.03 - Notices. Any notice or other communications required or
permitted hereunder shall be sufficiently given if personally delivered to it or
sent by registered mail or certified mail, postage prepaid, or by prepaid
telegram addressed as follows:
If to the Company:
Premier Brands, Inc.
c/o David Cooperberg
205 East 78th Street
Apartment 14L
New York, New York 10021-1239
<PAGE>
With copies to:
Bruce Pritchett, Attorney at Law
1612 South 250 East
Kaysville, Utah 84037
If to the Shareholders:
Peter Lau
570 Lexington Avenue
Suite 1800
New York, New York 10022
With copies to
Howard H. Jiang, Goodman Phillips & Vineberg
430 Park Avenue, 10th Floor
New York, New York 10022
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered, mailed or telegraphed.
Section 9.04 - Attorney's Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorney's
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 9.05 - Confidentiality. Each party hereto agrees with the other
party that, unless and until the transactions contemplated by this Agreement
have been consummated, it and each of its representatives will hold in strict
confidence all data and information obtained with respect to the other party or
any subsidiary thereof from any representative, officer, director or employee,
or from any books or records or from personal inspection, and shall not use or
disclosure data or information or disclose the same to others, except (i) to the
extent such data or information is published, is a matter of public knowledge,
or is required by law to be published; and (ii) to the extent that such
disclosure data or information must be used or disclosed in order to consummate
the transactions contemplated by this Agreement. In the event of the termination
of this Agreement, each party shall return to the other party all documents and
other materials obtained by it or on its behalf and shall destroy all copies,
digests, workpapers, abstracts or other materials relating thereto, and each
party will continue to comply with the confidentiality provisions set forth
herein.
Section 9.06 - Schedules; Knowledge. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules delivered
pursuant to this Agreement.
<PAGE>
Section 9.07 - Entire Agreement. This Agreement represents the entire
agreement between the parties relating to the subject matter thereof.
Section 9.08 - Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated for a period of three
months. All rights and obligations under this entire Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators and
assigns of the parties.
Section 9.09 - Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument. For purposes of this Agreement,
facsimile signatures may be deemed originals.
Section 9.10 - Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same of any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance may be extended by a writing
signed by the party or parties for whose benefit the provision is intended.
[The remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be extended by their respective officers, hereunto duly authorized, as of the
date first-above written.
PREMIER BRANDS, INC.
ATTEST: By: /s/ S. David Cooperberg
-----------------------
Name: S. David Cooperberg
Title: President
/s/ Bruce Pritchett
------------------------
Bruce Pritchett, Counsel
THE SHAREHOLDERS
/s/ Peter Lau
------------------------
Name: Peter Lau
As the "Designee" for and on behalf of
all Shareholders by and
through Power of Attorney
<PAGE>
State of New York
County of New York
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned authority, for the above
stated purposes by S. David Cooperberg, the President of Premier Brands, Inc.,
to certify which witness my hand and seal of office on this the 15th day of
June, 2000.
/s/ Notary
--------------------------------
Notary Public in and for the
State of New York
State of New York
County of New York
SUBSCRIBED AND SWORN TO BEFORE ME, the undersigned authority, for the above
stated purposes by Peter Lau, who after being duly sworn did state under oath
that he was the duly authorized representative of the Shareholders and that he
had executed the foregoing document with their consent and authority, and under
power of attorney, on this the 14th day of June, 2000.
/s/ Notary
---------------------------------
Notary Public in and for the
State of New York
