Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
¨
Definitive
Proxy Statement
¨
Definitive
Additional Materials
¨
Soliciting
Material Pursuant to §240.14a-12
The
Hartcourt Companies, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment
of Filing Fee (Check the appropriate box):
¨
No
fee required.
x
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1)
Title
of each class of securities to which transaction applies:
Shares
of Sino-Canada Investment Group Inc.
(2)
Aggregate
number of securities to which transaction applies:
50,000,000
shares of Sino-Canada Investment Group Inc.
(3)
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
The
maximum being paid for the 50,000,000 shares of Sino-Canada Investment
Group Inc. is $36,680,688. The transaction value is based on
the average of the high and low price of the registrant’s common stock
reported on the OTC Bulletin Board on November 9,2009.
(4)
Proposed
maximum aggregate value of transaction:
$36,680,588
(5)
Total
fee paid:
$2,047
¨
Fee
paid previously with preliminary materials.
¨
Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
(1)
Amount
Previously Paid:
(2)
Form,
Schedule or Registration Statement No.:
(3)
Filing
Party:
(4)
Date
Filed:
Persons
who are to respond to the collection of information contained in this form
are not required to respond unless the form displays a currently valid OMB
control number.
THE
HARTCOURT COMPANIES, INC.
Room
503, Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD [________], 2009
TO
THE STOCKHOLDERS OF THE HARTCOURT COMPANIES, INC.:
NOTICE IS
HEREBY GIVEN that a special meeting of stockholders of The Hartcourt Companies,
Inc., or Hartcourt, a Utah corporation, will be held at [10:00 a.m.] China
standard time on [_______], 2009, at Hartcourt’s offices located at Room 503,
Jinqiao Building, No. 2077, West Yan’an Road, Shanghai, China, to consider and
vote upon the proposals described below.
Proposal 1 – The Agreement
and Reincorporation Proposal. A proposal to approve the Plan of
Reorganization and Share Exchange Agreement, dated August 20, 2009, by and among
Hartcourt, Maple China Education Incorporated, or Maple China, a Delaware
corporation and wholly-owned subsidiary of Hartcourt, Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd., a company existing under
the Company Law of the People’s Republic of China and wholly owned subsidiary of
Hartcourt, Sino-Canada Investment Group Inc., or Sino-Canada, a company existing
under the Company Law of the People’s Republic of China, Sino-Canada High
School, a private educational non-enterprise institution existing under the laws
of the People’s Republic of China, Wujiang Huayu Property Management Company, a
company existing under the Company Law of the People’s Republic of China,
Canadian Systems Learning Corporation, a company existing under the laws of the
British Virgin Islands, the shareholders of Sino-Canada, and Ross Yuan, in the
capacity as representative of the Sino-Canada shareholders, pursuant to which,
among other things, Hartcourt will effect the change in the state of its
incorporation from Utah to Delaware.
Proposal 2 – The Share
Exchange Proposal. A proposal to issue up to 45,850,860 shares
(which amount assumes the effectiveness of the proposed reverse stock split
described below) of Hartcourt common stock, in exchange for all of the issued
and outstanding capital stock of Sino-Canada Investment Group Inc., following
which Sino-Canada Investment Group Inc. will be an indirect wholly-owned
subsidiary of Hartcourt, and the former shareholders of Sino-Canada Investment
Group Inc. will own approximately ___% of the outstanding Hartcourt common
stock.
Proposal 3 – The Name Change
Proposal. A proposal to approve a change of the name of
Hartcourt to Maple China Education Incorporated.
Proposal 4 – The Reverse
Stock Split Proposal. A proposal to approve a 1 for 80 reverse stock
split in the outstanding shares of Hartcourt common stock.
Proposal 5 – The Share
Increase Proposal. A proposal to approve an increase in the authorized
number of shares of common stock of Hartcourt from 5,312,487.5, assuming the
effectiveness of the proposed reverse stock split, to 100,000,000 shares, and to
eliminate any shares of preferred stock.
Proposal 6 – The Board Size
Proposal. A proposal to allow the board of directors to fix the number of
directors so long as there are at least 3 and not more than 9
directors.
Proposal 7 – The Adjournment
Proposal. To approve any adjournment of the special meeting
for the purpose of soliciting additional proxies.
The
Hartcourt board of directors has fixed the record date as the close of business
on [________], 2009, as the date for determining stockholders entitled to
receive notice of and to vote at the special meeting and any adjournment
thereof.
Under
Hartcourt’s articles of incorporation and Utah law, approval of the Agreement
and Reincorporation Proposal, the Share Exchange Proposal, the Name Change
Proposal, the Reverse Stock Split Proposal, the Share Increase Proposal and the
Board Size Proposal each require the affirmative vote of the holders of a
majority of the shares of common stock voted at the special meeting, provided
there is a quorum at such meeting. The Adjournment Proposal will be approved if
holders of a majority of all shares of common stock that are present or
represented at the special meeting and entitled to vote on such proposal vote in
favor of the proposal.
A quorum
will be present at the Hartcourt special meeting if a majority of the
outstanding shares of common stock entitled to vote at the special meeting are
represented in person or by proxy. Abstentions and broker non-votes will count
as present for the purposes of establishing a quorum.
Your vote
is important. Please sign, date and return your proxy card as soon as possible
to make sure that your shares are represented at the special
meeting. You may also vote by telephone or the internet, as described
on the proxy card. If you are a stockholder
of record, you may also cast your vote in person at the special
meeting.
If your
shares are held in an account at a brokerage firm or bank, you must instruct
your broker or bank how to vote your shares, or you may cast your vote in person
at the special meeting by obtaining a proxy from your brokerage firm or
bank.
Important
Notice Regarding Availability of Proxy Materials of the Stockholder Meeting to
Be Held on ______, 2009.
The
proxy statement is available at [website address to be inserted].
After
careful consideration of all relevant factors, Hartcourt’s board of directors
has determined that the above proposals are fair to and in the best interests of
Hartcourt and its stockholders and has recommended that you vote or give
instruction to vote “FOR” adoption of each of them. The board of
directors of Hartcourt did not obtain a fairness opinion on which to base its
assessment.
Dated:
[______], 2009
By Order
of the Board of Directors,
/s/
Wilson Li
Wilson
Li
Chairman
of the Board
SEE
“RISK FACTORS” IN THE ACCOMPANYING PROXY FOR A DISCUSSION OF VARIOUS FACTORS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE SHARE EXCHANGE WITH THE
SINO-CANADA SHAREHOLDERS. UPON HARTCOURT’S ACQUISITION OF SINO-CANADA, A
MAJORITY OF THE OPERATIONS AND ASSETS OF HARTCOURT WILL BE THOSE OF
SINO-CANADA.
THIS
PROXY STATEMENT IS DATED [_______], 2009, AND IS FIRST BEING MAILED TO
HARTCOURT’S STOCKHOLDERS ON OR ABOUT [_______], 2009.
TABLE
OF CONTENTS
SUMMARY
3
Questions
and Answers about the Proposals to be Voted Upon and the Hartcourt Special
Meeting
3
Questions
and Answers about the Share Exchange
6
Other
Information Regarding the Share Exchange
9
Approval
of the Sino-Canada Shareholders
9
Conditions
to the Closing of the Merger and Share Exchange
9
Exclusivity;
No Other Negotiation
10
Termination
10
Amendment
11
Quotation
11
Anticipated
Accounting Treatment
11
Regulatory
Matters
11
Risk
Factors
11
Board
Solicitation
11
RISK
FACTORS
12
Risks
Related to the Hartcourt Vocational Training and Education
Business
12
General
Risks Associated with Hartcourt’s Business
13
Risks
Related to the Sino-Canada Business
14
Risks
Related to the People’s Republic of China
16
Risks
Relating to the Share Exchange
17
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
18
PRICE
RANGE OF SECURITIES AND DIVIDENDS
19
Hartcourt
19
Sino-Canada
19
Dividends
Post Share Exchange
20
THE
HARTCOURT SPECIAL MEETING
21
THE
AGREEMENT AND REINCORPORATION PROPOSAL
24
Conclusion
of Hartcourt’s Board of Directors
24
PLAN
OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT
25
Purchase
Price and Share Issuance
26
Representations
and Warranties
26
Conduct
of Business Pending Closing
28
Additional
Agreements
30
Exclusivity;
No Other Negotiation
32
Conditions
to Closing
32
Termination
34
Amendment
35
CERTAIN
AGREEMENTS RELATING TO THE SHARE EXCHANGE
36
Voting
Agreement
36
Lock-Up
Agreements
36
REINCORPORATION
MERGER WITH MAPLE CHINA
37
SHARE
EXCHANGE PROPOSAL
50
Background
of the Share Exchange
50
Hartcourt’s
Reasons for the Share Exchange and Recommendation of the Hartcourt
Board
50
Interests
of Hartcourt Officers and Directors in the Transactions
51
Board
of Directors and Executive Officers of Maple China after Consumation of
the Share Exchange
52
Fees
and Expenses
52
Material
Federal Income Tax Consequences of the Share Exchange
52
Anticipated
Accounting Treatment
52
Regulatory
Matters
53
NAME
CHANGE PROPOSAL
54
REVERSE
STOCK SPLIT PROPOSAL
55
SHARE
INCREASE PROPOSAL
59
i
BOARD
SIZE PROPOSAL
60
ADJOURNMENT
PROPOSAL
61
INFORMATION
ABOUT SINO-CANADA
62
Quantitative
and Qualitative Disclosures about Market Risk
73
Overview
75
Business
Development
75
Competitive
Strengths
76
Products
and Services
76
Customers
76
Sales
and Marketing
76
Seasonality
76
Competition
76
Intellectual
Property
77
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
82
Hartcourt
Related Party Transactions
83
Sino-Canada
Related Party Transactions
83
BENEFICIAL
OWNERSHIP OF SECURITIES
84
Security
Ownership of Hartcourt
84
Security
Ownership of Sino-Canada
85
Security
Ownership of Hartcourt after the Acquisition
85
DESCRIPTION
OF HARTCOURT’S SECURITIES
87
General
87
Common
Stock
87
Preferred
Stock
87
Transfer
Agent, Registrar and Warrant Agent
87
STOCKHOLDER
PROPOSALS
88
WHERE
YOU CAN FIND MORE INFORMATION
88
INDEX
TO FINANCIAL STATEMENTS
F-1
ANNEXES
A – Plan
of Reorganization and Share Exchange Agreement
B – Form
of Voting Agreement
C – Form
of Lock-Up Agreement
D – Sections
16-10(a)-1301 et. seq. of the Utah Business Corporation Act
I –
Information with respect to Director Designees
ii
SUMMARY
This
summary highlights selected information from this proxy statement. It may not
contain all of the information that is important to you. To better understand
the proposals to be voted on at the special meeting and their potential impact
on you, we urge you to carefully read this entire document and the other
documents to which this proxy statement refers you or that are incorporated by
reference herein. The plan of reorganization and share exchange agreement is
attached as Annex A to this proxy statement. Hartcourt urges you to
read the plan of reorganization and share exchange agreement as it is the legal
document that governs the acquisition, the reincorporation and the other matters
discussed herein.
The
following questions and answers are intended to address briefly some commonly
asked questions regarding the Hartcourt special meeting and the proposals to be
voted upon at the meeting. These questions and answers may not
address all of the information that may be important to you. You should read
carefully the entire document, including the annexes to this proxy
statement.
Q. What
is being voted on at the meeting?
A. You
are being asked to vote on seven proposals:
· A
proposal to approve the Plan of Reorganization and Share Exchange
Agreement, dated August 20, 2009, by and among Hartcourt, Maple China
Education Incorporated, or Maple China, a Delaware corporation and
wholly-owned subsidiary of Hartcourt, Hartcourt Education Investment
Management Consulting (Shanghai) Co., Ltd., a company existing under the
Company Law of the People’s Republic of China and wholly owned subsidiary
of Hartcourt, Sino-Canada Investment Group Inc., or Sino-Canada, a company
existing under the Company Law of the People’s Republic of China,
Sino-Canada High School, a private educational non-enterprise institution
existing under the laws of the People’s Republic of China, Wujiang Huayu
Property Management Company, a company existing under the Company Law of
the People’s Republic of China, Canadian Systems Learning Corporation, a
company existing under the laws of the British Virgin Islands, the
shareholders of Sino-Canada, and Ross Yuan, in the capacity as
representative of the Sino-Canada shareholders, pursuant to which, among
other things, Hartcourt will effect the change in the state of its
incorporation from Utah to Delaware. This proposal is called the
“Agreement and Reincorporation Proposal.”
· A
proposal to issue up to 45,850,860 shares (which amount assumes the
effectiveness of the proposed reverse stock split described below) of
Hartcourt common stock, in exchange for all of the issued and outstanding
capital stock of Sino-Canada Investment Group Inc. This proposal is called
the “Share Exchange Proposal.”
· A
proposal to approve a change of the name of Hartcourt to Maple China
Education Incorporated. This proposal is called the “Name Change
Proposal.”
3
· A
proposal to approve a 1 for 80 reverse stock split in the outstanding
shares of Hartcourt common stock. This proposal is called the “Reverse
Stock Split Proposal.”
· A
proposal to approve an increase in the authorized number of shares of
common stock of Hartcourt from 5,312,487.5, assuming the effectiveness of
the proposed reverse stock split, to 100,000,000 shares, and to eliminate
any shares of preferred stock. This proposal is called the “Share Increase
Proposal.”
· A
proposal to allow the board of directors to fix the number of directors so
long as there are at least 3 and not more than 9 directors. This proposal
is called the “Board Size Proposal.”
· A
proposal for the approval of any adjournment of the special meeting for
the purpose of soliciting additional proxies. This proposal is called the
“Adjournment Proposal.”
Q. What
vote is required to approve each proposal?
A. Approval
of each proposal other than the Adjournment Proposal requires the
affirmative vote of the majority of our shares of common stock voted at
the special meeting, provided that there is a quorum at such
meeting.
Q. What
vote is required to adopt the proposal to adjourn the special meeting for
the purpose of soliciting additional proxies?
A. Approval
of the Adjournment Proposal will require the affirmative vote of the
majority of our shares of common stock that are present or represented at
the special meeting, provided that there is a quorum at such
meeting.
Q. Why
is Hartcourt proposing to approve any adjournment of the special
meeting?
A. We
are proposing to approve any adjournment of the special meeting so that we
may delay the meeting in the event that it appears that the other
proposals to be presented at the meeting will not be approved. This will
provide our management with more time to solicit stockholders to vote or
change their votes.
Q. What
is the relationship if each of the proposals?
A.
We will not consummate any of the Agreement and Reincorporation Proposal,
the Share Exchange Proposal, the Name Change Proposal, the Reverse Stock
Split Proposal, the Share Increase Proposal or the Board Size Proposal
unless each of them are approved. The Adjournment Proposal is not
conditioned on any of the other proposals.
Q. What
constitutes a quorum?
A. A
quorum will be present at the special meeting if one share over fifty
percent of the outstanding shares entitled to vote at the meeting are
represented in person or by proxy. Abstentions and broker non-votes will
count as present for the purposes of establishing a
quorum.
4
Q.
Does the Hartcourt board of directors recommend voting in favor of the
each of the proposals?
A. After
careful consideration of the terms and conditions of the plan of
reorganization and share exchange agreement, the board of directors of
Hartcourt has determined that each of the Agreement and Reincorporation
Proposal, the Share Exchange Proposal, the Name Change Proposal, the
Reverse Stock Split Proposal, the Share Increase Proposal, the Board Size
Proposal and the Adjournment Proposal are in the best interests of the
Hartcourt stockholders. The Hartcourt board of directors recommends that
the stockholders entitled to vote approve each of the proposals described
above. See “Share Exchange Proposal – Interests of Hartcourt
Officers and Directors in the Transactions” for a discussion of how the
interests of our executive officers and directors are different from those
of yours as a stockholder.
Q. How
do the Hartcourt insiders intend to vote their shares?
A.
On the record date, our officers and directors beneficially owned and were
entitled to vote [59,132,868] shares of common stock, representing
approximately [15.3]% of our issued and outstanding common
stock. All of our officers and directors have indicated that
they will vote the shares held by them in favor of all of the proposals.
See “Share Exchange Proposal – Interests of Hartcourt Officers and
Directors in the Transactions.”
Q. If
I am not going to attend the special meeting in person, should I return my
proxy card instead?
A. Yes. After
carefully reading and considering the information in this proxy statement,
please fill out and sign your proxy card. Then return it in the
return envelope as soon as possible, so that your shares may be
represented at the special meeting. You may also submit a proxy by
telephone or on the internet, as explained on the proxy card. A properly
executed proxy will be counted for the purpose of determining the
existence of a quorum.
Q. What
will happen if I abstain from voting or fail to instruct my broker to
vote?
A. An
abstention or the failure to instruct your broker how to vote (also known
as a broker non-vote) will have the effect of voting against the Agreement
and Reincorporation Proposal, Share Exchange Proposal, Name Change
Proposal, Reverse Stock Split Proposal, Share Increase Proposal and Board
Size Proposal. With respect to the Adjournment Proposal, an abstention or
a broker non-vote will have no effect on the vote.
Q. How
do I change my vote?
A. You
must send a later-dated, signed proxy card to Hartcourt’s secretary prior
to the date of the special meeting or attend the special meeting in person
and vote.
Q. If
my shares are held in “street name,” will my broker automatically vote
them for me?
A. No.
Your broker can vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares.
Your broker can tell you how to provide these instructions.
5
Q. Who
can help answer my questions?
A. If
you have questions, you may write or call The Hartcourt Companies, Inc. at
Room 503, Jinqiao Building, No. 2077, West Yan’an Road, Shanghai, China;
Telephone: (86) 21 5206 7613; Attention: Victor Zhou.
Q. When
and where will the special meeting be held?
A. The
special meeting of the stockholders of Hartcourt will be held at [Ÿ] China standard
time on [Ÿ],
2009 at Hartcourt’s offices located at Room 503, Jinqiao Building, No.
2077, West Yan’an Road, Shanghai, China, to consider and vote upon each of
the proposals. See “The Hartcourt Special Meeting” for further information
on attending the meeting in person.
Q. Who
will be entitled to vote?
A. You
will be entitled to vote or direct votes to be cast at the special meeting
if you owned shares of our common stock at the close of business on [Ÿ], 2009, the
record date for the special meeting. You will have one vote for
each share of common stock you owned at the close of business on the
record date. On the record date, there were 389,015,544
shares of common stock outstanding.
Q. Will
proxies be solicited?
A.
Proxies may be solicited by mail, telephone or in person. If
you grant a proxy, you may revoke your proxy before it is exercised at the
special meeting by sending a notice of revocation to the secretary of
Hartcourt, submitting a later-dated proxy statement or voting in person at
the special meeting.
Questions
and Answers about the Share Exchange
The
following questions and answers are intended to address briefly some
commonly asked questions regarding the share exchange with the Sino-Canada
shareholders. These questions and answers may not address all
of the information that may be important to you. You should read carefully
the entire document, including the annexes to this proxy
statement.
Q. What
is the contact information for the parties to the share
exchange?
A. The
contact information for Hartcourt, Maple China and Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd. is as
follows:
c/o
The Hartcourt Companies, Inc.
Room
503, Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China 200336
Telephone:
(86) 21 5206 7613
Attention:
Victor Zhou, Chief Executive Officer
The
contact information for Sino-Canada, Sino-Canada High School, Wujiang
Huayu Property Management Company, and Canadian Systems Learning
Corporation is as follows:
c/o
Sino-Canada Investment Group Inc.
Room
2101, Silver Tower
933
West Zhongshan Road, Shanghai, China 200051
Telephone:
(86) 21 5208 0200
Attention:
Ross Yuan, Chief Executive Officer
6
The
contact information for the Sino-Canada shareholders’ representative is as
follows:
Ross
Yuan, as Shareholders’ Representative
Room
2101, Silver Tower
933
West Zhongshan Road, Shanghai, China 200051
Telephone:
(86) 21 5208 0200
Q. What
is the business of Hartcourt?
A.
Founded in 1983, Hartcourt is a U.S. corporation with subsidiaries in
China and other jurisdictions. Hartcourt moved its operation headquarters
to Shanghai, China in 2002. In August 2006, Hartcourt changed
its business model to focus on the education market in China. From May
2007 to October 2008, Hartcourt completed the acquisition of (i) China
Princely Education Technology Development Company Limited, an authorized
accrediting organization for China vocational education located in
Beijing, PRC; sixty percent of the outstanding equity of Beijing Yanyuan
Rapido Education Company, a well-known training institution in China; and
sixty percent of the outstanding equity of China E & I Development Co.
Ltd., which does business as the China Arts and Science Academy.
Currently, Hartcourt’s revenue is principally derived from its 60%
indirect ownership interests in Beijing Yanyuan
Rapido Education Company, a well-established training
institution,
and China Arts and Science Academy, an online education provider in
China focusing on vocational education. See
“Information About Hartcourt.”
Maple
China Education, the remaining entity after the transaction, will
integrate the private school education business of Sino-Canada and the
vocational training business of Hartcourt. After the transaction, Maple
China will position itself primarily at the sector of certified offshore
private schools, specifically certified offshore Canadian high schools,
which is recognized by the Ministry of Education in both China and Canada.
The Hartcourt business will be supplementary to the core business of
certified high school education. Sino-Canada has built up a unique and
sustainable business model by getting dual diplomas recognized by the
Ministry of Education in both China and Canada, obtaining Canadian high
school curriculum authorization from British Columbia Ministry of
Education, and building up good brand awareness through the flagship
school Sino-Canada High School near Shanghai. Maple China Education
intends to copy the business model to other major cities in the
region of Yangtze River Delta. Maple China will grow rapidly through
acquiring existing private high schools or setting up new schools and
changing them into the certified offshore
model.
7
Q. What
is the business of Sino-Canada?
A.
Founded in 2003, Sino-Canada is primarily engaged in the investment and
management business in the field of education. Sino-Canada’s subsidiaries
include Sino-Canada High School, Canadian Learning Systems Corporation,
and Wujiang Huayu Property Management Company. Sino-Canada High School,
established in China in July of 2003, is a certified school with
Chinese-foreign cooperation acknowledged by both the Chinese and Canadian
governments and authorized to provide a certified Canadian high
school curriculum. Sino-Canada High School is authorized to award its
graduates dual diplomas recognized by the Ministry of Education in both
China and Canada. The number of its students is expanding
rapidly. The Sino-Canada High School campus covers a total area
of approximately 50 acres and a building area of approximately 21,215
square meters. The school has approximately 800 students and 150 teaching
staff at present. Canadian Learning Systems Corporation, incorporated in
November of 2003 in the British Virgin Islands, provides exclusive
management services to each of Sino-Canada High School, Sino-Canada Middle
School and Wujiang Fenghua Training Center, and charges part of
Sino-Canada High School’s and all of Sino-Canada Middle School’s and
Wujiang Fenghua Training Center’s annual profits as compensation for the
exclusive management services it provides. Wujiang Huayu Real Property
Management Company, founded in China in March of 2004, is primarily
engaged in providing property management and related consulting services.
Another subsidiary, Wujiang Fenghua Training Center, will be divested by
Sino-Canada prior to the closing of the share exchange. See “Information
About Sino-Canada.”
Q. How
much of Hartcourt will existing Hartcourt stockholders own after the share
exchange?
A. After
the share exchange with the Sino-Canada shareholders and assuming there is
no adjustment to the purchase price at closing, the existing Hartcourt
stockholders will own approximately 14% of the issued and outstanding
shares of Hartcourt. Existing Hartcourt stockholders would own less than
that percentage of shares if one or more Hartcourt stockholders exercised
dissenters’ rights. The Sino-Canada shareholders will own
approximately 86% of the issued and outstanding shares of Hartcourt after
the share exchange.
Q. Who
will manage Hartcourt after the share exchange?
A. After
the share exchange, we will be managed by the following
individuals:
· Ross
Yuan, Chief Executive Officer
· Simon
Mei, Chief Financial Officer
· Tiezhi
Zhang, President
· Fusheng
Xie, Vice President
· Sun
Meifang, Chief Accounting Officer
· Zhang
Jie, Secretary
Further,
upon the consummation of the share exchange, our board of directors will
consist of seven directors, of which Sino-Canada will designate five
members with two current Hartcourt directors remaining on the
board.
8
Q. Will
the Hartcourt stockholders be taxed as a result of the reincorporation
merger or share exchange?
A.
You will not recognize gain or loss for U.S. federal income tax purposes
as a result of the merger with Maple China, unless you exercise your
dissenters’ rights. If you exercise your dissenters’ rights, you will
generally be required to recognize gain or loss upon the exchange of your
shares of our common stock for cash. Such gain or loss will be measured by
the difference between the amount of cash received by you upon the
conversion and the tax basis of your shares of our common stock. This gain
or loss will generally be a capital gain or loss if you held your shares
as a capital asset on the date of the acquisition, and will be a long-term
capital gain or loss if the holding period for the share of our common
stock is more than one year.
The
share exchange should not have any tax consequences to current Hartcourt
shareholders that are not Sino-Canada shareholders.
For
additional information on the material U.S. federal income tax
consequences of the merger and share exchange, see “Reincorporation Merger
with Maple China — Certain Federal Income Tax Consequences” and “Share
Exchange Proposal – Material Federal Income Tax Consequences of the Share
Exchange.”
Q. Do Hartcourt
stockholders have dissenters’ rights?
A.
If you hold shares of our common stock, then you have the right to
exercise dissenter’s rights in the merger with Maple China. See
“Reincorporation Merger with Maple China — Rights of Dissenting
Shareholders.”
Q. When
do you expect the merger and share exchange to be
completed?
A. It
is anticipated that the merger with Maple China and the share exchange
with the Sino-Canada shareholders will be completed promptly following the
special meeting on [Ÿ], 2009, provided
the other conditions specified in the plan of reorganization and share
exchange agreement have been satisfied or
waived.
Other
Information Regarding the Share Exchange
Approval
of the Sino-Canada Shareholders
Each of
the Sino-Canada shareholder is a party to and has approved the transactions
contemplated in the plan of reorganization and share exchange agreement.
Accordingly, no further action by the Sino-Canada shareholders is needed to
approve the share exchange.
Conditions
to the Closing of the Merger and Share Exchange
The
parties’ respective obligations to complete the transactions contemplated by the
plan of reorganization and share exchange agreement are subject to customary
closing conditions, including, among others, the approval of the transaction by
the stockholders of Hartcourt, completion of the Hartcourt reincorporation
merger, compliance with applicable securities laws and completion of the
divestiure by Sino-Canada of two of its subsidiaries as described
above. In addition, Hartcourt’s obligation to complete the
transactions is conditioned, among other things, upon Sino-Canada’s completion
of audited financial statements required for inclusion in the proxy statement
seeking approval of the transactions by Hartcourt’s stockholders, receipt of
customary legal opinions and no event or condition that has had a material
adverse effect on Sino-Canada. Sino-Canada’s obligation to complete
the transactions is conditioned, among other things, on Hartcourt’s repayment of
certain indebtedness, receipt of customary legal opinions and no event or
condition that has had a material adverse effect on Hartcourt.
The plan
of reorganization and share exchange agreement contains detailed provisions
prohibiting each of Hartcourt and Sino-Canada from seeking an alternative
transaction. These covenants generally prohibit Hartcourt and Sino-Canada, as
well as their officers, directors, subsidiaries, employees, agents and
representatives, from taking any action to solicit, initiate or encourage an
alternative acquisition proposal.
Termination
The plan
of reorganization and share exchange agreement may be terminated and/or
abandoned at any time prior to the closing, whether before or after approval of
the proposals being presented to our stockholders, by:
·
mutual
written consent of Hartcourt and representative of the Sino-Canada
shareholders;
·
either
Hartcourt or Sino-Canada, if the closing has not occurred by May 31,2010;
·
either Hartcourt or Sino-Canada,
if a governmental entity has issued an order, in any case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
acquisition, which order is final and
nonappealable;
·
by
Sino-Canada upon a breach of any representation, warranty, covenant or
agreement on the part of Hartcourt set forth in Share Exchange Agreement,
or if any representation or warranty of Hartcourt becomes untrue, in
either case such that the conditions to the closing of the acquisition
would not be satisfied as of the time of the breach or as of the time the
representation or warranty becomes untrue, and the breach (to the extent
curable) is not cured within 30 days following receipt by Hartcourt of a
notice describing in reasonable detail the nature of such
breach;
·
by
Hartcourt upon a breach of any representation, warranty, covenant or
agreement on the part of Sino-Canada or the Shareholders set forth in the
Share Exchange Agreement, or if any representation or warranty of
Hartcourt or the Shareholders becomes untrue, in either case such that the
conditions to the closing of the acquisition would not be satisfied as of
the time of the breach or as of the time the representation or warranty
becomes untrue, and the breach (to the extent curable) is not cured within
30 days following receipt by Sino-China or the Shareholders, as
applicable, of a notice describing in reasonable detail the nature of such
breach;
·
by
Hartcourt, if a material adverse effect on Sino-Canada has occurred since
the date of the Share Exchange Agreement and is
continuing;
·
by
Sino-Canada, if a material adverse effect on Hartcourt has occurred since
the date of the Share Exchange Agreement and is continuing;
and
·
by
Hartcourt if the financial statements as audited or reviewed, as
applicable, are not completed and available for delivery or delivered to
Hartcourt on or before November 30,2009.
In the
event of the termination of the plan of reorganization and share exchange
agreement, the plan of reorganization and share exchange agreement will be of no
further force or effect, except for the confidentiality and expense provisions
of the plan of reorganization and share exchange agreement.
10
Amendment
The plan
of reorganization and share exchange agreement may be amended at any time by
execution of an instrument in writing signed on behalf of each of Hartcourt,
Sino-Canada and the representative of the Sino-Canada shareholders.
Quotation
Our
outstanding common stock is quoted on the OTC Bulletin Board. Subsequent to the
merger and share exchange, the common stock of Maple China, as the surviving
corporation in the merger, will continue be quoted on the OTC Bulletin
Board.
Anticipated
Accounting Treatment
The share
exchange with the Sino-Canada shareholders will be accounted for as a reverse
merger, whereby Sino-Canada will be the continuing entity for financial
reporting purposes and will be deemed to be the acquirer of
Hartcourt. The acquisition is being accounted for as a reverse merger
because after the acquisition the former shareholders of Sino-Canada will hold
the majority of the outstanding shares of Hartcourt and will have the ability to
initially appoint the majority of the members of the board of directors of
Hartcourt.
In
accordance with the applicable accounting guidance for accounting for the
acquisition as a reverse merger, first Sino-Canada will be deemed to have
undergone a recapitalization, whereby its outstanding ordinary shares were
converted into 45,850,860 shares of Hartcourt common
stock. Immediately thereafter Sino-Canada, which is the continuing
accounting entity, will have been deemed to have acquired the assets and assumed
the liabilities of Hartcourt in exchange for the issuance of the Hartcourt
shares. However, Sino-Canada will be deemed to have acquired
Hartcourt, in accordance with the applicable accounting guidance for accounting
for business combination as a reverse merger, Hartcourt’s assets and liabilities
will be recorded at their historical carrying amounts, which approximate their
fair value, with no goodwill or other intangible assets recorded.
Regulatory
Matters
The
merger and share exchange and the other transactions contemplated by the plan of
reorganization and share exchange agreement are not subject to any federal or
state regulatory requirements or approvals, other than the acceptance for filing
of a certificate of merger with the Secretary of State of the State of Delaware
and the Department of Commerce of the State of Utah.
Risk
Factors
In
evaluating the proposals to be voted on at the special meeting, you should
carefully read this proxy statement and especially consider the factors
discussed in the section entitled “Risk Factors.”
Board
Solicitation
Your
proxy is being solicited by the board of directors of Hartcourt on each of the
proposals being presented to the stockholders at the special
meeting.
You
should carefully consider the following risk factors, together with all of the
other information included in this proxy statement, before you decide whether to
vote or direct your vote to be cast to approve the stockholder
proposals.
If
we complete the share exchange pursuant to the plan of reorganization and share
exchange agreement, the resulting company will be subject to a number of risks.
You should carefully consider the risks described below regarding Hartcourt and
Sino-Canada and the other information included in this proxy statement before
you decide how you want to vote on the proposals. Following the closing of the
plan of reorganization and share exchange agreement, the market price of our
securities could decline due to any of these risks, in which case you could lose
all or part of your investment.
In
assessing these risks, you should also refer to the other information included
in this proxy statement, including the consolidated financial statements and the
accompanying notes of Hartcourt and Sino-Canada, as well as the pro forma
financial information set forth herein. Our business, financial condition or
results of operations could be affected materially and adversely by any of the
risks discussed below.
Risks
Related to the Hartcourt Vocational Training and Education Business
Hartcourt
Has Incurred Significant Losses in the Past and Has a History of Negative Cash
Flow from Operations and May Not Achieve or Sustain Consistent Profitability,
Which Could Result in a Decline in the Value of its Common Stock and an
Inability to Continue Operations.
Whether
we can achieve cash flow levels sufficient to support our operations, and
whether we will then be able to maintain positive cash flow, we cannot predict.
Unless such cash flow levels are achieved, we will need to borrow additional
funds or sell debt or equity security, or some combination thereof, to provide
funding for our operations. There can be no assurances that any additional debt
or equity financing will be available to us on acceptable terms, if at all. The
inability to obtain debt or equity financing could have a material adverse
effect on our operating results, and as a result we could be required to cease
or significantly reduce our operations, seek a merger partner or sell additional
securities on terms that may be disadvantageous to shareholders. In addition,
irrespective of our revenue, we may not achieve or sustain profitability in
future periods.
Hartcourt
Has Not Realized Expected Benefits from Prior Acquisitions and the Impact of
Prior Acquisitions Could Continue to Disrupt our Business and Have Adverse
Effect on our Operating Results.
As a
result of our decision to change our business by focusing on the
vocational/training and education market in China, we invested in new business
strategies and engaged in three acquisitions to date to effect our change in
strategic direction. We have not yet realized the expected benefits
of such change in business and acquisitions for a number of reasons, including
the impact of the downturn in the economy on the types of businesses acquired by
us. The negative results of our acquisitions to date has adversely effected our
ability to acquire additional businesses, to raise capital, and to invest in the
growth of the acquired businesses. If we are unable to realize better
results from our acquired businesses, our operating results and capital
resources will be materially adversely effected. Further, if we are
able to acquire any other businesses, such endeavors are likely to involve
significant continuing risks and uncertainties, including distraction of
management’s attention away from normal business operations; difficulty in the
integration of new employees, business systems and technology; issues raised by
acquiring a business in a new market or subject to new laws or regulations; and
issues not discovered in our due diligence process.
We
Are Subject to Significant Competition from Both Private and Public Education
Institutions.
Our
education and training businesses are subject to competition from non-profit
private entities and from the public school system and public colleges,
including those that offer distance-learning programs. Many of our
competitors in both the private and public sector have greater financial and
other resources than us. Many public and private colleges and universities, as
well as other private career-oriented schools in the market, offer programs
similarly, which intensifies the competition. Public institutions often receive
government subsidies, government and foundation grants, tax-deductible
contributions and other financial resources generally not available to private
schools. Accordingly, public institutions may have facilities and equipment
superior to those in the private sector, and can offer lower tuition
prices. In addition, in our training business, there is a low barrier
to entry, and thus we also are subject to competition from numerous other
providers, many of which may be able to operate at lower-cost, and we may not be
able to attract a sufficient share of the training market.
12
We
May Not Be Able to Implement Our Strategy of Acquiring Numerous Schools to Build
Our Business.
We have only made three acquisitions
since the change of our business to focus on the education and training market.
Our growth and success depends upon attracting students and generating revenue
through tuition. We earlier intended to implement our strategy through an
aggressive acquisition plan, including the acquisition of existing schools,
especially those ones which were built around, or used the faculty capacity of,
the Ministry of Education (MOE) universities and colleges. However, we have not
been able to acquire any such schools to date. Moreover, although MOE has set a
timeline to privatize all vocational schools and educational institutions that
offer degrees lower than a Bachelor’s degree by 2010, there are still a number
of political barriers for foreign invested companies, such as Hartcourt, to
engage in the education business. If we cannot find and acquire the target
schools, our strategy will fail.
Our
Education Business Is Highly Seasonal.
Because most students want their
vocational training during already established vacation periods, generally
during the first and third fiscal quarters, our education business is highly
seasonal. We have more students attending courses and as a result earn most of
our revenues during that time. To the extent we do not provide training to
students during the peak seasons, we will lose opportunities. This seasonality
may cause our operating results to vary considerably from quarter to quarter and
significantly impact our liquidity position.
General
Risks Associated with Hartcourt’s Business
The
Liquidity of Hartcourt’s Common Stock is Affected by Its Limited Trading
Ability.
Shares of
our common stock are traded on the OTC Bulletin Board under the symbol "HRCT".
There is currently no broadly followed established trading market for our common
stock. An "established trading market" may never develop or be maintained. The
absence of an active trading market reduces the liquidity of our shares. The
trading volume of our common stock historically has been limited and sporadic.
As a result of this trading inactivity, the quoted price for our common stock on
the OTC Bulletin Board is not necessarily a reliable indicator of its fair
market value. Further, if we cease to be quoted, holders would find it more
difficult to dispose of, or obtain accurate quotations as to the market value of
our common stock, and the market value of our common stock would likely
decline.
The Lack of Business Insurance
Coverage in China Could Materially and Adversely Affect Hartcourt’s Business,
Financial Condition and Results of Operations Should Any Major Catastrophic
Disaster Occur.
We have
limited business insurance coverage in China. The insurance industry in China is
still at an early stage of development. In particular, PRC insurance companies
offer limited business insurance products. As a result, we do not have any
business liability or disruption insurance coverage for our operations in China.
Any business disruption, litigation or natural disaster might result in our
incurring substantial costs and the diversion of resources.
Hartcourt’s Current Capital Structure
May Not Be Sufficient for Hartcourt to Acquire New Business or Maintain Ongoing
Operations.
Although
we believe that the current capital structure of the Company will be sufficient
to allow us to consummate acquisitions, we cannot ascertain the capital
requirements for any particular transaction. If our current financial resources
prove to be insufficient, either because of the size of the business acquisition
or the depletion of the available financial resources in search of acquisitions,
we will need to seek additional financing. We cannot assure you that such
financing would be available on acceptable terms, if at all. To the extent that
additional financing is unavailable when needed to consummate an acquisition, we
could be compelled to restructure the transaction or abandon that particular
business acquisition. In addition, if we consummate a business combination, we
may require additional financing to fund the operations or growth of the
business. The failure to secure additional financing could have a material
adverse effect on the continued development or growth of our business. None of
our officers, directors or shareholders is required to provide any financing to
us in connection with or after an acquisition.
13
If
the PRC Government Finds that the Structure for Operating Hartcourt’s China
Business Does Not Comply with PRC Government Restrictions on Foreign Investment
in the Education Industry, Hartcourt Could Be Compelled to Restructure Its
Investment or Abandon its Investment.
We are a U.S. corporation and we
conduct our operations solely in China through our directly owned subsidiaries
and indirectly majority-owned subsidiary. To comply with foreign ownership
restrictions, we operate our business in China through a subsidiary which is
majority owned by our employees who are PRC citizens (our nominees). The
nominees have been transferred from certain employees to Victor Zhou, our Chief
Executive Officer. We have entered into a series of contractual arrangements
with our indirectly owned subsidiary, its shareholders and our nominees. As a
result of these contractual arrangements, we are considered the majority
beneficiary of all of our subsidiaries and accordingly we consolidate all of our
subsidiaries' results of operations in our financial statements.
We have in the past received an opinion
from PRC legal counsel that: (1) the ownership structures of our subsidiaries is
in compliance with existing PRC laws and regulations; (2) our contractual
arrangements with each of our subsidiaries, our nominees and its shareholders
are valid and binding, and will not result in any violation of PRC laws or
regulations currently in effect; (3) the business operations of our subsidiaries
are in compliance with existing PRC laws and regulations in all material aspects
and (4) the enforcement of foreign judgments made by courts outside the PRC has
no direct and automatic operation in the PRC, but these judgments may be
recognized and enforced by a PRC court in accordance with a bilateral or
international treaty to which PRC is a party, or subject to the principles of
reciprocity upon a finding that the judgment does not conflict with fundamental
principles, sovereignty, security and public interests of the PRC after review
of the judgment.
There are, however, substantial
uncertainties regarding the interpretation and application of current or future
PRC laws and regulations. In addition, there is the possibility that current PRC
laws and regulations could change and have an adverse affect on our business
operations. Accordingly, we cannot assure you that the PRC regulatory
authorities will not ultimately take a view that is contrary to the opinion of
our PRC legal counsel.
Risks
Related to the Sino-Canada Business
Sino-Canada’s
business is dependent on the business of only a few educational
facilities.
Presently,
Sino-Canada has made investments in several educational facilities,
Sino-Canada High School, or SCHS, Sino-Canada Middle School and the Wujiang
Fenghua Training Center. As a result, Sino-Canada’s success is
dependent upon the viability of the business of these three facilities, and
certain factors which may adversely impact these businesses, will adversely
impact Sino-Canada’s business.
Opening
additional new schools would require major investments and regulatory approvals,
which Sino-Canada may not be able to obtain.
Sino-Canada’s business model
anticipates opening new schools in the future. Establishing new
schools requires Sino-Canada to make investments in management,
capital expenditures, marketing expenses and other resources. When opening a new
school, Sino-Canada is required to obtain appropriate regulatory
approvals. Sino-Canada’s failure to effectively manage the operations
of newly established schools or service areas, to obtain necessary regulatory
approvals with respect to new school openings or any diversion of management’s
attention from our core school operating activities, could harm Sino-Canada’s
business.
14
Sino-Canada’s
success depends, in part, on the effectiveness of its marketing and advertising
programs in recruiting new students.
In order to maintain and increase its
revenues and margins, Sino-Canada must continue to attract new students in a
cost-effective manner. Over the last fiscal year, Sino-Canada has increased the
amounts spent on marketing and advertising, and it anticipates this trend to
continue. If Sino-Canada is unable to successfully advertise and market our
schools and programs, our ability to attract and enroll new students could be
adversely impacted and, consequently, our financial performance could
suffer.
Sino-Canada’s
success depends upon its ability to recruit and retain key
personnel.
Sino-Canada’s success also depends, in
large part, upon its ability to attract and retain highly qualified faculty,
school presidents and administrators and corporate management. We may have
difficulty locating and hiring qualified personnel, and retaining such personnel
once hired. The loss of the services of any of Sino-Canada’s key personnel, or
its failure to attract and retain other qualified and experienced personnel on
acceptable terms, could cause its business to suffer.
Competition
from public and other private schools could harm Sino-Canada’s
business.
Sino-Canada’s schools compete for
students with traditional public and other private schools, including those that
offer online learning programs. With the government supports and
greater financial resources, the local high school education market is dominated
mostly by public schools and Sino-Canada has to position itself as a dual
diploma provider.
Maple Leaf Education, Sino-Canada’s
largest direct competitor in the market sector, is the largest independent
private education provider that is also authorized to provide Canadian high
school curriculums certified by British Columbia’s Ministry of Education. With
headquarters in Dalian, Liaoning province, Maple Leaf Education is currently
doing its business in North China, operating a greater number of schools than
Sino-Canada with an enrollment of more than 6,000 students. Maple
Leaf Education recently closed a round of financing and appears ready for
further expansion geographically. Its potential entry into Yangtze River Delta
region could have a direct negative impact on Sino-Canada’s
business.
Failure to acquire schools on
favorable terms could restrict Sino-Canada’s business.
From the third quarter of 2009,
Sino-Canada has engaged in evaluations of, and discussions with, possible
acquisition candidates. Sino-Canada may not continue to be able to identify
suitable acquisition opportunities, acquire additional schools on favorable
terms and successfully integrate any acquired schools into its operations
profitably. Additionally, just like newly opened schools, acquired dual diploma
schools are also required to obtain appropriate regulatory approvals from both
governments. Continued growth through acquisition may also subject Sino-Canada
to unanticipated business or regulatory uncertainties, barriers or
liabilities.
Failure
to maintain the required authorizations and accreditations from governments
could cause Sino-Canada’s schools to lose the ability to award dual
diplomas.
A school that grants dual diplomas must
be accredited by the applicable jurisdictions. For example, SCHS
maintains certifications to award diplomas that are recognized by the Ministries
of Education in both China and Canada. These authorizations are subject to
review periodically, and thus SCHS must meet the standards and criteria set by
both governments. The failure by one or more of Sino-Canada’s schools (including
new schools and acquired schools) to maintain appropriate authorizations and
accreditations could have a material adverse effect on Sino-Canada’s
business.
Sino-Canada
anticipates that it will need additional financing for its business
operations.
The recent global financial and credit
market disruptions have reduced the availability of liquidity and credit
generally necessary to fund expansion of global economic
activity. Current conditions have made, and will likely continue to
make, it difficult to obtain new funding for Sino-Canada’s operating and capital
needs, if required, from the credit and capital markets.
15
Sino-Canada anticipates raising
additional capital in the form of debt or equity financing in order to continue
and expand its operations as planned after the proposed transaction with
Hartcourt. Although the combined company will actively seek to raise capital,
there is no assurance that it will receive investments or that the Sino-Canada
business will have sufficient funds to conduct its operations as planned. The
inability of Sino-Canada and Hartcourt to attract additional investments or
loans may have a negative impact on the combined company’s ability to expand or
may result in missed opportunities for the combined businesses.
Sino-Canada’s
business is subject to government regulations and legal
uncertainty.
Substantially all of Sino-Canada’s
business operations are conducted in China. Accordingly, Sino-Canada’s results
of operations, financial condition and prospects are subject, to a significant
degree, to economic, political and legal developments in China. The Chinese
government sets strict rules and regulations in the sector of education,
particularly with regard to private school education. The government also has
tight control on banking system, which may cast uncertainties affecting the
ability of small and medium sized companies to provide commercial
loans. Thus, any related and material policy change of the Chinese
government could significantly affect Sino-Canada’s access to capital and its
ability to operate the business.
Sino-Canada
will incur increased costs and reduced profitability in its business as a result
of becoming part of a reporting company.
Following the completion of the
transaction with Hartcourt, Hartcourt will continue to be a Securities and
Exchange Commission (“SEC”) reporting company required to comply with the rules
and regulations of the Securities Exchange Act of 1934. As part of a
reporting company, Sino-Canada’s business and operations may bear additional
general and administrative expenses, including additional legal, accounting and
other expenses in order to meet public disclosure requirements and obligations,
and, as a result, the profitability of Sino-Canada’s business operations is also
expected to be adversely impacted.
Risks
Related to the People’s Republic of China
Substantially
All of Hartcourt’s Assets Are Located in China and Substantially All of
Hartcourt’s Revenues Are Derived from Its Operations in China. Accordingly, the
Chinese Laws, Rules and Regulations Which Can Be Different From the U.S. Laws
Are Prevalent in Governing Hartcourt’s Business Activities in
China.
Chinese law and regulations strictly
limit the repatriation of assets of Chinese companies. Payments to parties
outside of the PRC are governed by the Foreign Exchange Bureau and its
Regulations on Foreign Exchange Control (the “Regulations”). Pursuant to the
Regulations, a Chinese enterprise may only make payments overseas in very
limited circumstances. Chinese enterprises are prohibited from sending payment
abroad to cover the liabilities incurred by affiliated entities located
overseas.
The laws governing Chinese joint
ventures require each partner to conduct its business for the benefit of the
joint venture and not for the benefit of any particular partner. As a result,
one partner may not withdraw funds from the joint venture to pay its own
liabilities unrelated to the joint venture.
Accordingly, we may not be able to
repatriate any profits we realize to the United States so that our shareholders
can receive dividends or other distributions from us.
Because our directors and officers
reside outside of the United States, it may be difficult for you to enforce your
rights against them or enforce United States court judgments again them in the
PRC. After the consummation of acquisitions, all of our assets are located
outside of the United States. It may be difficult for investors in the United
States to enforce their legal rights, to effect service of process upon our
directors or officers or to enforce judgments of United States courts predicated
upon civil liabilities and criminal penalties of our directors and officers
under Federal securities laws. Further, it is unclear if extradition treaties
now in effect between the United States and the PRC would permit effective
enforcement of criminal penalties of the Federal securities
laws.
16
Risks
Relating to the Share Exchange
Because
we do not intend to pay dividends, stockholders will benefit from an investment
in our common stock only if those shares appreciate in value.
We have
never declared or paid any cash dividends on our shares of common stock. Upon
completion of the acquisition, we currently intend to retain all future
earnings, if any, for use in the operations and expansion of the business. As a result, we do not
anticipate paying cash dividends in the foreseeable future. Any future
determination as to the declaration and payment of cash dividends will be at the
discretion of our board of directors and will depend on factors our board of
directors deems relevant, including among others, our results of operations,
financial condition and cash requirements and our business prospects.
Accordingly, realization of a gain on stockholders’ investments will depend on
the appreciation of the price of our common stock, and there is no guarantee
that our common stock will appreciate in value.
Voting
control by the executive officers, directors and other affiliates of the
combined company may limit your ability to influence the outcome of director
elections and other matters requiring stockholder approval.
Upon
consummation of the share exchange, the officers, directors and other affiliates
of Hartcourt will own over [Ÿ]% of our common stock.
These shareholders can control substantially all matters requiring approval by
our stockholders, including the election of directors and the approval of other
business transactions. This concentration of ownership could have the effect of
delaying or preventing a future change in control of Hartcourt or discouraging a
potential acquirer from attempting to obtain control of Hartcourt, which in turn
could have a material adverse effect on the market price of our common stock or
prevent our stockholders from realizing a premium over the market price for
their common stock.
If Hartcourt is unable to consummate
the transaction with Sino-Canada Hartcourt may not be able obtain sufficient
financing to continue operations.
In the
past 12 months, Hartcourt has borrowed approximately $1,300,000 from Yuan Dien
Investment, Inc. pursuant to a convertible note that will convert into shares of
Maple China following the closing. If Hartcourt does not consummate the
transaction with Sino-Canada, Yuan Di an Investment, Inc. is unlikely to
continue to lend any funds to Hartcourt. Without additional
financing, Hartcourt will only be able to satisfy the minimum requirement for
business running as a smaller sized company.
17
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
proxy statement contains forward-looking statements that involve substantial
risks and uncertainties. All statements, other than statements of historical
facts, included in this proxy statement regarding Sino-Canada’s and Hartcourt’s
strategy, future operations, future financial position, future revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. The words “anticipate,”“believe,”“estimate,”“expect,”“intend,”“may,”“plan,”“predict,”“project,”“will,”“would” and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying
words.
The
parties may not actually achieve the plans, intentions or expectations disclosed
in the forward-looking statements, and you should not place undue reliance on
the forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking
statements made by the parties. The parties to this proxy statement have
included important factors in the cautionary statements included in this proxy
statement, particularly in the “Risk Factors” section, that the parties believe
could cause actual results or events to differ materially from the
forward-looking statements made by the parties, including, among
others:
·
the
number and percentage of Hartcourt stockholders voting against the
acquisition;
·
fluctuations
in customer demand;
·
management
of growth;
·
outcomes
of government reviews, inquiries, investigations and related
litigation;
·
general
economic conditions;
·
geopolitical
events; and
·
changing
principles of generally accepted accounting
principles.
Further,
the forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures, collaborations, dividends
or investments made by the parties.
You
should read this proxy statement, including all annexes to this proxy statement
with the understanding that actual future results may be materially different
from what the parties expect. Neither Hartcourt or Sino-Canada assumes any
obligation to update any forward-looking statements.
18
PRICE
RANGE OF SECURITIES AND DIVIDENDS
Hartcourt
Our
common stock is quoted on the OTC Bulletin Board under the symbol HRCT. The
closing price for our common stock on August 19, 2009, the last trading day
before announcement of the entering into of the plan of reorganization and share
exchange agreement, was $.012. The closing price for our common stock on [___],
2009, the most recent trading day before the date of this proxy statement, was
$[___].
The table
below sets forth, for the calendar quarters indicated, the high and low sales
prices for our common stock as reported on the OTC Bulletin Board in U.S.
dollars.
Although
Hartcourt’s common stock is quoted on the OTC Bulletin Board, it trades with
limited volume. Consequently, the information provided above may not be
indicative of Hartcourt’s common stock price under different
conditions.
Holders of
Hartcourt. As of [____], 2009, the record date,
there were, of record, approximately [704] holders of common stock. This number
does not include shareholders whose shares were held in trust by other entities.
The actual number of shareholders is greater than the number of holders of
record.
Dividends. Hartcourt
did not pay any dividends on its common stock for its fiscal year
ended May 31, 2009. Hartcourt does not anticipate paying any cash dividends on
its common stock in the foreseeable future. Hartcourt currently intends to
retain future earnings, if any, to finance operations and the expansion of its
business.
The
payment of dividends by us in the future will be contingent upon revenues and
earnings, if any, capital requirements and our general financial condition upon
completion of the share exchange. The payment of any dividends subsequent to
that time will be within the discretion of our board of directors serving at
that time. It is the present intention of our board of directors to
retain all earnings, if any, for use in business operations and, accordingly, we
do not anticipate declaring any dividends in the foreseeable future. Loans or
credit facilities may also limit our ability to pay dividends.
We are
furnishing this proxy statement to our stockholders as part of the solicitation
of proxies by our board of directors for use at the special meeting to consider
the plan of reorganization and share exchange agreement and other proposals.
This document provides you with the information you need to know to be able to
vote or instruct your vote to be cast at the special meeting.
Date, Time and
Place. Hartcourt will hold the special meeting at
[Ÿ], China standard
time, on [Ÿ], 2009,
at Hartcourt’s offices located at Room 503, Jinqiao Building, No. 2077, West
Yan’an Road, Shanghai, China to vote on the proposals described
below.
Purpose. At
the special meeting, holders of our common stock will be asked to
approve:
1. The Agreement and
Reincorporation Proposal. The plan of reorganization and share exchange
agreement pursuant to which, among other things, Hartcourt will effect the
change in the state of its incorporation from Utah to Delaware.
2. The Share Exchange
Proposal. A proposal to issue up to 45,850,860 shares (which
amount assumes the effectiveness of the proposed reverse stock split described
below) of Hartcourt common stock, in exchange for all of the issued and
outstanding capital stock of Sino-Canada, following which Sino-Canada will be an
indirect wholly-owned subsidiary of Hartcourt, and the former shareholders of
Sino-Canada will own approximately ___% of the outstanding Hartcourt common
stock.
3. The Name Change
Proposal. A proposal to change our name to Maple China
Education Incorporated.
4. The Reverse Stock Split
Proposal. A proposal to approve a 1 for 80 reverse stock split
in the outstanding shares of Hartcourt common stock.
5. The Share Increase
Proposal. A proposal to approve an increase in the authorized number of
shares of common stock of Hartcourt from 5,312,487.5, assuming the effectiveness
of the proposed reverse stock split, to 100,000,000 shares, and to eliminate any
shares of preferred stock.
6. The Board Size
Proposal. A proposal to allow the board of directors to fix
the number of directors so long as there are at least 3 and not more than 9
directors.
7. The Adjournment
Proposal. Any adjournment of the special meeting for the
purpose of soliciting additional proxies.
Our board
of directors has determined that the plan of reorganization and share exchange
agreement and the other proposals are fair to and in the best interests of
Hartcourt and its stockholders, approved and declared each of them advisable,
adopted resolutions approving the plan of reorganization and share exchange
agreement and the matters contemplated therein, and recommends that our
stockholders vote “FOR” (a) the Agreement and Reincorporation Proposal, (b) the
Share Exchange Proposal, (c) the Name Change Proposal, (d) the Reverse Stock
Split Proposal, (e) the Share Increase Proposal, (f) the Board Size Proposal,
and (g) the Adjournment Proposal.
Record Date; Who Is Entitled to
Vote. The “record date” for the special meeting is
[_______], 2009. Record holders of our common stock at the close of business on
the record date are entitled to vote or have their votes cast at the special
meeting. On the record date, there were 389,015,544 outstanding shares of our
common stock. Each share of common stock is entitled to one vote per proposal at
the special meeting.
Vote
Required. Approval of the Agreement and
Reincorporation Proposal, the Share Exchange Proposal, the Name Change Proposal,
the Reverse Stock Split Proposal, the Share Increase Proposal, and the Board
Size Proposal each require the affirmative vote of a majority of our outstanding
shares of common stock. Approval of the Adjournment Proposal requires the
affirmative vote of the holders of a majority of our common stock present in
person at the meeting or represented by a proxy and entitled to vote
thereon.
21
Abstentions; Broker
Non-Votes. Abstaining from voting or not voting on
a proposal (including broker non-votes which are described in the next
paragraph) will have the same effect as a vote against the Agreement and
Reincorporation Proposal, the Share Exchange Proposal, the Name Change Proposal,
the Reverse Stock Split Proposal, the Share Increase Proposal, and the Board
Size Proposal.
A broker
non-vote occurs when a broker submits a proxy card with respect to shares held
in a fiduciary capacity (typically referred to as being held in “street name”)
but declines to vote on a particular matter because the broker has not received
voting instructions from the beneficial owner and does not have discretionary
authority to vote on the proposal. Under the rules that govern
brokers who are voting with respect to shares held in street name, brokers have
the discretion to vote such shares on routine matters, but not on non-routine
matters. The matters currently planned to be considered by the
stockholders are not routine matters. As a result, brokers can
only vote the shares if they have instructions to do so. Broker
non-votes will not be counted in determining whether the Adjournment Proposal to
be considered at the meeting is approved, but will have the effect of a vote
against the Agreement and Reincorporation Proposal, the Share Exchange Proposal,
the Name Change Proposal, the Reverse Stock Split Proposal, the Share Increase
Proposal, and the Board Size Proposal.
Voting Your
Shares. Each share of common stock that you own in
your name entitles you to one vote per proposal. Your proxy card shows the
number of shares you own.
By signing and returning the
enclosed proxy card. If you duly sign and return a
proxy card, your “proxy,” whose names are listed on the proxy card, will vote
your shares as you instruct on the card. If you sign and return the proxy card,
but do not give instructions on how to vote your shares, your shares will be
voted as recommended by our board of directors, which is “FOR” approval of each
proposal.
By telephone or on the
internet. You can submit a proxy to vote your
shares by following the telephone or internet voting instructions included with
your proxy card. If you do, you should not return the proxy card.
You can attend the special meeting
and vote in person. We will give you a ballot when
you arrive. However, if your shares are held in the “street name” of your
broker, bank or another nominee, you must get a proxy from the broker, bank or
other nominee. That is the only way we can be sure that the broker, bank or
nominee has not already voted your shares.
Whether
or not you attend the special meeting, if your shares are held by a broker, bank
or other nominee in “street name,” then you must obtain a proxy form from the
institution that holds your shares and follow the instructions included on that
form regarding how to instruct your broker to vote your shares.
Exercising
Dissenters’ Rights. Sections
16-10a-1301 through 16-10a-1331 of the UBCA grants any Hartcourt shareholder of
record on the record date who objects to the reincorporation
merger the right to have Hartcourt purchase the shares owned by the dissenting
shareholder at their fair value at the effective time of the
merger. Any shareholder contemplating the exercise of these dissenters’ rights
should review carefully the discussion of dissenting
shareholder rights under the caption “Reincorporation
Merger with Maple China — Rights of Dissenting Shareholders” and the provisions of Sections
16-10a-1301 through 16-10a-1331 of the UBCA, particularly the procedural steps
required to perfect such rights.
A VOTE
AGAINST THE REINCORPORATION MERGER IS NOT SUFFICIENT TO PERFECT YOUR
DISSENTER'S RIGHTS
AND SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTIONS
16-10a-1301 THROUGH 16-10a-1331 ARE NOT FULLY AND
PRECISELY SATISFIED. A SUMMARY OF THE STATUTORY PROCEDURE TO PERFECT YOUR DISSENTER'S
RIGHTS IS PROVIDED BELOW AND A COPY OF SECTIONS 16-10a-1301 THROUGH 16-10a-1331
IS ATTACHED AS ANNEX D.
22
Questions About
Voting. If you have any questions about how to vote or direct
a vote in respect of your common stock, you may call Victor Zhou, the chief
executive officer of Hartcourt at (86) 21 5206 7613. You may also want to
consult your financial and other advisors about the vote.
Revoking Your Proxy and Changing Your
Vote. If you give a proxy, you may revoke it or
change your voting instructions at any time before it is exercised
by:
·
if
you have already sent in a proxy, sending another proxy card with a later
date;
·
if
you voted by telephone, calling the same number and following the
instructions;
·
notifying
Hartcourt in writing before the special meeting that you have revoked your
proxy; or
·
attending
the special meeting, revoking your proxy and voting in
person.
If your
shares are held in “street name,” consult your broker for instructions on how to
revoke your proxy or change your vote.
Solicitation
Costs. We are soliciting proxies on behalf of our
board of directors. We will bear all costs and expenses associated with printing
and mailing this proxy statement, as well as all fees paid to the SEC. This
solicitation is being made by mail, but also may be made in person or by
telephone or other electronic means. We and our respective directors, officers,
employees and consultants may also solicit proxies in person or by mail,
telephone or other electronic means.
We have
not hired a firm to assist in the proxy solicitation process but may do so if it
deems this assistance necessary. We will pay all fees and expenses related to
the retention of any proxy solicitation firm.
We will
ask banks, brokers and other institutions, nominees and fiduciaries to forward
our proxy materials to their principals and to obtain their authority to execute
proxies and voting instructions. We will reimburse them for their reasonable
expenses.
Stock
Ownership. Information concerning the holdings of
certain Hartcourt stockholders is set forth under “Beneficial Ownership of
Securities.”
23
THE
AGREEMENT AND REINCORPORATION PROPOSAL
The plan
of reorganization and share exchange agreement contemplates, among other things,
the merger of Harcourt into Maple China pursuant to which Hartcourt will effect
the change in the state of its incorporation from Utah to Delaware. See “Plan of
Reorganization and Share Exchange Agreement” and “Reincorporation
Merger with Maple China” below.
The plan
of reorganization and share exchange agreement also contemplates other matters
that are proposed for approval separately as described in “Share Exchange
Proposal,” the “Name Change Proposal,” the “Reverse Stock Split Proposal,” the
“Share Increase Proposal,” and the “Board Size Proposal” below. By voting to
approve the Agreement and Reincorporation Proposal you are only voting to
approve the plan of reorganization and share exchange agreement insofar as it
pertains to the proposed reincorporation to Delaware and not with respect to the
other matters set forth in the agreement which will be deemed approved by the
approval, if and as applicable, of such other proposals.
Vote
Required for the Agreement and Reincorporation Proposal
Utah law requires the affirmative vote
of a majority of the votes entitled to be cast by the holders of common stock of
Hartcourt to approve the plan of reorganization and share exchange agreement
pursuant to which Hartcourt will effect the reincorporation merger. Abstentions
and broker non-votes will have the same effect as votes against the agreement
and reincorporation proposal. A vote in favor of the agreement and
reincorporation proposal is a vote to approve the plan of reorganization and
share exchange agreement and therefore the reincorporation merger.
Conclusion
of Hartcourt’s Board of Directors.
After
careful consideration of all relevant factors, as described in “Plan of
Reorganization and Share Exchange Agreement”, “Reincorporation Merger
with Maple China” and “Share Exchange Proposal” below, our board of directors
determined that the Agreement and Reincorporation Proposal is in the best
interests of Hartcourt and its stockholders. The board of directors has approved
and declared the Agreement and Reincorporation Proposal advisable and recommends
that you vote or give instructions to vote “FOR” the Agreement and
Reincorporation Proposal.
The
discussion herein of the information and factors considered by the Hartcourt
board of directors in approving the matters related to the Agreement and
Reincorporation Proposal is not meant to be exhaustive, but includes the
material information and factors considered by the board of
directors.
24
PLAN
OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT
The
following discussion of the principal terms of the plan of reorganization and
share exchange agreement is subject to, and is qualified in its entirety by
reference to, the plan of reorganization and share exchange agreement. A copy of
the plan of reorganization and share exchange agreement is attached as Annex A
to this proxy statement and is incorporated by reference into this proxy
statement. The following description summarizes the material
provisions of the plan of reorganization and share exchange agreement, which
agreement we urge you to read carefully because it is the principal legal
document that governs the acquisition.
The
representations and warranties described below and included in the plan of
reorganization and share exchange agreement were made by Hartcourt, Sino-Canada
and its subsidiaries, and the shareholders of Sino-Canada as of specific dates.
The assertions embodied in these representations and warranties may be subject
to important qualifications and limitations agreed to by the parties in
connection with negotiating the plan of reorganization and share exchange
agreement. The representations and warranties may also be subject to a
contractual standard of materiality that may be different from what may be
viewed as material to stockholders, or may have been used for the purpose of
allocating risk among the parties, rather than establishing matters as facts.
The plan of reorganization and share exchange agreement is described in this
proxy statement and included as Annex A only to provide you with information
regarding its terms and conditions at the time it was entered into by the
parties. Accordingly, you should read the representations and warranties in the
plan of reorganization and share exchange agreement not in isolation but rather
in conjunction with the other information contained in this
document.
Hartcourt
Education Investment Management Consulting (Shanghai) Co., Ltd., a company
existing under the Company Law of the People’s Republic of China and
wholly owned subsidiary of
Hartcourt;
·
Sino-Canada;
·
Sino-Canada
High School, a private educational non-enterprise institution existing
under the laws of the People’s Republic of China and wholly owned
subsidiary of Sino-Canada;
·
Wujiang
Huayu Property Management Company, a company existing under the Company
Law of the People’s Republic of China and wholly owned subsidiary of
Sino-Canada;
·
Canadian
Learning Systems Corporation, a company existing under the laws
of the British Virgin Islands and wholly owned subsidiary of
Sino-Canada;
·
the
shareholders of Sino-Canada; and
·
Ross
Yuan, in the capacity as representative of the Sino-Canada
shareholders.
We refer
to Sino-Canada and its subsidiaries listed above as the “Sino-Canada
entities.”
Select
Terms of Reincorporation Merger
Immediately
prior to the closing of the share exchange, Hartcourt will effect a
reincorporation from the State of Utah to the State of Delaware by filing with
the Secretary of State of the State of Delaware a certificate of merger
substantially in the form attached hereto as Annex G and by filing with the
Secretary of State of the State of Utah articles of merger substantially in the
form attached hereto as Annex H. The surviving corporation in the
reincorporation merger will be Maple China Education
Incorporated. The certificate of incorporation of the surviving
corporation in the merger will be substantially in the form attached hereto as
Annex E, and the bylaws of the surviving corporation in the merger will be
substantially in the form attached hereto as Annex F. See “Reincorporation
Merger with Maple China.”
25
Purchase
Price and Share Issuance
The plan
of reorganization and share exchange agreement provides that in exchange for all
of the issued and outstanding shares of capital stock of Sino-Canada, Hartcourt
will issue approximately $33,623,963, worth of shares of its common stock at an
agreed upon price of $0.88 per share (post-split) to the Sino-Canada
shareholders. The shares of Hartcourt common stock will be issued in a
private placement in satisfaction of the purchase price. The aggregate purchase
price and the actual number of shares to be issued in the exchange remain
subject to potential purchase price adjustments at the closing. The number of
shares of Hartcourt common stock issued in the transaction will be decreased in
the event Sino-Canada’s working capital (measured by current assets less current
liabilities) decreases by more than five percent at the closing as compared to
March 31, 2009, and will be increased in the event that Hartcourt’s total
liabilities at closing exceeds $600,000, up to a maximum of 45,850,859 shares.
Any such adjustments in the number of shares of Hartcourt common stock issued
would be based on the purchase price of $0.88 per share. The purchase
price adjustment for Hartcourt’s outstanding liabilities at closing will exclude
Hartcourt’s outstanding loan of up to $1,300,000 from Yuan Dian Investment Inc.
that will be repaid upon the closing in accordance with its terms by issuing
shares of common stock of Hartcourt at a price of $0.88 per share. See “Share
Exchange Proposal.”
Representations
and Warranties
In the
plan of reorganization and share exchange agreement, the Sino-Canada entities
make certain representations and warranties (subject to certain exceptions)
relating to, among other things:
·
proper
corporate organization and similar corporate
matters;
·
capital
structure;
·
authorization,
execution, delivery and enforceability of the plan of reorganization and
share exchange agreement and other transaction
documents;
·
absence
of conflicts with the organizational documents, material contracts and
laws;
·
required
consents and approvals;
·
financial
information and absence of undisclosed
liabilities;
·
internal
controls;
·
absence
of certain changes or events;
·
accounts
receiveable;
·
taxes;
·
restrictions
on business activities;
·
title
to properties, absence of liens and encumbrances, condition of equipment,
and sufficient of assets;
compliance
with laws, including those relating to foreign corrupt practices and
export laws, and sufficiency of
permits;
·
absence
of litigation;
·
environmental
matters;
·
brokers
and finders;
·
employment
matters;
·
insurance
coverage;
·
warranties
and indemnities related to Sino-Canada’s
services;
·
relationships
with customers and suppliers and
·
the
accuracy of the information provided for inclusion in this proxy
statement.
In the
plan of reorganization and share exchange agreement, the Sino-Canada
shareholders make certain representations and warranties (subject to certain
exceptions) relating to, among other things:
·
ownership
of their Sino-Canada shares;
·
proper
corporate organization for shareholders that are entities and similar
corporate matters;
·
authorization,
execution, delivery and enforceability of the plan of reorganization and
share exchange agreement and other transaction
documents;
·
absence
of conflicts with the organizational documents, material contracts and
laws;
·
required
consents and approvals; and
·
securities
law matters related to the shareholders’ purchase of Hartcourt common
stock.
In the
plan of reorganization and share exchange agreement, we make certain
representations and warranties (subject to certain exceptions) relating to,
among other things:
·
proper
corporate organization and similar corporate
matters;
·
capital
structure;
·
authorization,
execution, delivery and enforceability of the plan of reorganization and
share exchange agreement and other transaction
documents;
·
absence
of conflicts with the organizational documents, material contracts and
laws;
27
·
required
consents and approvals;
·
SEC
filings;
·
taxes;
·
absence
of litigation;
·
compliance
with laws and sufficiency of
permits;
·
internal
controls;
·
compliance
with laws relating to foreign corrupt
practices;
·
brokers
and finders;
·
shares
of common stock to be issued to te Sino-Canada
shareholders;
·
board
of director approvals; and
·
the
accuracy of the information provided for inclusion in this proxy
statement.
Conduct
of Business Pending Closing
From the
date of the execution of the plan of reorganization and share exchange agreement
until the closing, Hartcourt and the Sino-Canada entities agreed to use
commercially reasonable efforts to carry on their respective businesses in the
ordinary course in substantially the same manner as previously conducted, to pay
all debts and taxes when due, to pay or perform other obligations when due, to
use all reasonable efforts consistent with past practice and policies to
preserve intact their respective business organizations, to use commercially
reasonable efforts consistent with past practice to keep available the services
of present executive officers and, in the case of Sino-Canada, its key
employees, and to use commercially reasonable efforts consistent with past
practice to preserve relationships with those having business dealings with
them.
The
Sino-Canada entities agreed, with limited exceptions, not to, without the prior
written consent of Hartcourt:
·
enter
into any new line of business or make a material change to any existing
line of business;
·
declare,
set aside or pay any dividends on or make any other distributions, 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;
·
purchase,
redeem or otherwise acquire, directly or indirectly, any shares of their
capital stock;
·
issue,
deliver, sell, authorize, pledge or otherwise encumber any shares of their
securities, or enter into other agreements or commitments of any character
obligating them to issue any such
securities;
·
cause,
permit or propose any amendments to their charter
documents;
·
acquire
or agree to acquire any equity or voting interest in or a portion of the
assets of any material business;
·
enter
into any binding agreement, agreement in principle, letter of intent,
memorandum of understanding or similar agreement with respect to any joint
venture, strategic partnership or alliance, except for non-exclusive
marketing, distributor, reseller, customer, end-user and related
agreements entered into in the ordinary course of
business;
28
·
sell,
lease, license, encumber or otherwise dispose of any material properties
or assets except sales of inventory in the ordinary course of
business;
·
make
any loans, advances of money or capital
contributions;
·
except
as required by GAAP or the SEC, make any material change in its methods or
principles of accounting;
·
except
as required by law, make or change any tax election or adopt or change any
accounting method in respect of taxes, settle or compromise any material
tax liability or consent to any extension or waiver of any limitation
period with respect to taxes;
·
except
as required by GAAP or the SEC, revalue any of its
assets;
·
pay,
discharge, settle or satisfy any claims or litigation other than (x) in
the ordinary course of business consistent with past practice or in
amounts not in excess of $25,000 individually or $100,000 in the aggregate
or (y) to the extent subject to reserves on its financial
statements;
·
waive
the benefits of, agree to modify in any manner, terminate, release any
person from or knowingly fail to enforce any confidentiality or similar
agreement to which any of the Sino-Canada entities is a party or of which
any or the Sino-Canada entities is a
beneficiary;
·
except
as required by law or a contract currently binding on the Sino-Canada
entities, (A) increase in any manner the amount of compensation or fringe
benefits of, pay any bonus to or grant severance or termination pay to any
employee earning more than $50,000 annually or director of the Sino-Canada
entities, (B) make any increase in or commitment to increase the benefits
or expand the eligibility under any employee benefit plan (including any
severance plan), adopt or amend or make any commitment to adopt or amend
any employee benefit plan or make any contribution, other than regularly
scheduled contributions or pursuant to the terms of any existing employee
benefit plan, to any employee benefit plan, (C) enter into any employment,
severance, termination or indemnification agreement with any employee or
enter into any collective bargaining agreement, (D) grant any stock
appreciation right, phantom stock award, stock-related award or
performance award, or (E) enter into any agreement with any employee the
benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving the Sino-Canada
entities of the nature contemplated by the share exchange
agreement;
·
grant
any exclusive rights to a third party with respect to any intellectual
property;
·
enter
into or renew any contracts containing any non-competition, exclusivity or
other restrictions on the operation of the business of the Sino-Canada
entities or Hartcourt;
·
enter
into any contract which would be to grant to a third party following the
acquisition any actual or potential right of license to any intellectual
property other than in the normal course of
business;
·
enter
into or renew any contracts containing any material purchase, supply,
support, maintenance or service obligation, other than those obligations
in the ordinary course of business;
·
hire
employees in the ordinary course of business and at compensation levels
substantially comparable to that of similarly situated
employees;
29
·
incur
any indebtedness for borrowed money in excess of $100,000 or guarantee any
such indebtedness;
·
enter
into, modify, amend, or terminate any material contract currently in
effect;
·
enter
into any contract to pay a third party in excess of an aggregate of
$100,000, or which is outside of the ordinary course of business;
or
·
except
as required by law, intentionally take any action that is intended to
result in any of their representations and warranties being or becoming
untrue in any material respect, result in any of the conditions to closing
not being satisfied or result in a material violation of any provision of
the plan of reorganization and share exchange
agreement.
We
agreed, with limited exceptions, not to, without the prior written consent of
Sino-Canada:
·
pledge,
sell, transfer, dispose or otherwise encumber or grant any rights or
interests to others of any kind with respect to all or any part of our
shares of capital stock;
·
except
pursuant to existing equity rights outstanding, issue any shares of our
capital stock or any options or any securities convertible into or
exchangeable for our capital stock;
·
declare
any dividend or make any distribution in cash, securities or otherwise on
our outstanding shares of capital stock or directly or indirectly redeem
or purchase or in any other manner whatsoever advance, transfer (other
than in payment for goods received or services rendered in the ordinary
course of business), or distribute to any of our affiliates or otherwise
withdraw cash or cash equivalents in any manner inconsistent with
established cash management
practices;
·
except
as contemplated by the share exchange agreement, to amend our charter
documents;
·
merge
or consolidate with, or acquire all or substantially all the assets of, or
otherwise acquire any business operations of, any
person;
·
take
any action or omit to take any action that may directly or indirectly
impede or affect the share exchange on the terms contemplated by the
agreement;
·
incur
any indebtedness for borrowed money in excess of $100,000 or guarantee any
such indebtedness; or
·
except
as required by law, intentionally take any action that is intended to
result in any of its representations and warranties being or becoming
untrue in any material respect, result in any of the conditions to closing
not being satisfied or result in a material violation of any provision of
the plan of reorganization and share exchange
agreement.
Additional
Agreements
The plan
of reorganization and share exchange agreement also contains additional
agreements of the parties. Agreements applicable to Sino-Canada
provide for:
·
Sino-Canada
to use its commercially reasonable efforts to deliver to Hartcourt on or
before November 30, 2009, audited historical financial statements prepared
for the periods required for inclusion in the proxy statement and an
unaudited balance sheet as of June 30, 2009 and the related consolidated
statements of income, cash flow and members’ equity for the respective
three-and six-month periods then ended each as reviewed by independent
registered public accountants, and such financials must, in the opinion of
Hartcourt, be suitable or readily adaptable for incorporation in the
reports required to be filed by Hartcourt with the
SEC;
30
·
Sino-Canada to promptly provide
any information reasonably required or appropriate for inclusion in the
proxy statement and to cooperate with Hartcourt in the preparation of the
proxy statement; and
·
Sino-Canada
Company to divest itself of Sino-Canada Middle School, a private
educational non-enterprise institution existing under the laws of the
People’s Republic of China, and Wujiang Fenghua Training Center, a social
organization existing under the laws of the People’s Republic of China,
prior to the closing.
·
Agreements applicable to
Hartcourt provide for:
·
Hartcourt
to prepare, file and mail a proxy statement and to hold a stockholder
meeting to approve the transactions contemplated by the Share Exchange
Agreement;
·
Hartcourt
to file in a timely manner all reports required to be filed with the SEC,
and not to terminate its status as an issuer required to file reports
under the Exchange Act;
·
Hartcourt to call, hold and
convene a meeting of its stockholders to consider the reincorporation and
the issuance of shares to the Shareholders, to be held as promptly as
practicable after the filing of a final proxy statement;
and
·
the
board of directors of Hartcourt to recommend that the stockholders of
Hartcourt vote in favor of the Share Exchange Agreement and the
transactions contemplated by the Share Exchange Agreement, and subject to
applicable law, refrain from withdrawing, amending or modifying its
recommendation.
·
Agreements applicable to both
parties provide for:
·
the protection of confidential
information of the parties subject to certain exceptions as required by
law, regulation or legal or administrative process, and, subject to the
confidentiality requirements, the provision of reasonable access to
information;
·
the
parties to use their reasonable best efforts to obtain all necessary
approvals from stockholders, governmental agencies and other third parties
that are required for the consummation of the transactions contemplated by
the Share Exchange Agreement, subject to certain
limitations;
·
Hartcourt and Sino-Canada to
provide prompt written notice to the other party of any representation or
warranty made by it contained becoming untrue or inaccurate, or any
failure of such party to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by
it;
·
Hartcourt
and Sino-Canada have each agreed not to, among other things, (i) solicit,
initiate or encourage alternative acquisition proposals, or (ii) subject
to certain exceptions, participate in discussions regarding, or recommend,
approve or endorse, any alternative acquisition
proposals;
·
the parties to take all action
necessary, such that upon the consummation of the acquisition, the
Hartcourt board of directors will consist of seven directors, of which
Sino-Canada will designate five members and Hartcourt will designate
two;
·
the
outstanding options of Hartcourt to be assumed and exchanged for
equivalent options of Maple China Education Incorporated as the surviving
corporation in the reincorporation
merger;
31
·
the parties to cooperate in the
preparation of any press release or public announcement related to the
Share Exchange Agreement or related transactions;
and
·
the
parties to agree to use commercially reasonable efforts to fulfill the
closing conditions in the Share Exchange Agreement, including coordinating
meetings with Hartcourt stockholders for the purpose of obtaining
stockholder approval of the
acquisition.
Exclusivity;
No Other Negotiation
Pursuant
to the share exchange agreement, none of the Sino-Canada entities or the
Sino-Canada shareholders may take, directly or indirectly, any action to
initiate, assist, solicit, negotiate, or encourage any offer, inquiry or
proposal from any person other than Hartcourt relating to an acquisition
proposal. Acquisition proposal means any offer or proposal, relating to any
transaction or series of related transactions involving:
·
any
purchase from Sino-Canada or acquisition by any person or group of more
than a 10% interest in the total outstanding voting securities of the
Sino-Canada entities or any tender offer or exchange offer that if
consummated would result in any person or group beneficially owning 10% or
more of the total outstanding voting securities of the Sino-Canada
entities, or any merger, consolidation, business combination or similar
transaction involving the Sino-Canada
entities;
·
any
sale, lease (other than in the ordinary course of business), exchange,
transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 10% of the assets of the
Sino-Canada entities (taken as a whole);
or
·
any
liquidation or dissolution of
Sino-Canada.
Pursuant
to the share exchange agreement, we may not take directly or indirectly, any
action to initiate, assist, solicit, negotiate, or encourage any offer, inquiry
or proposal from any person relating to an acquisition proposal. For
Hartcourt, an acquisition proposal means any offer or proposal, relating to any
transaction or series of related transactions involving:
·
any
acquisition of any voting securities of any person or any merger,
consolidation, business combination or similar transaction resulting in an
acquisition of voting securities,
or
·
any
acquisition of the assets of any
person.
·
If
either party receives an acquisition proposal, that party agrees it will
provide the other party with notice of the material terms and conditions
of the acquisition proposal.
Conditions
to Closing
Consummation
of the plan of reorganization and share exchange agreement and the related
transactions is conditioned on the approval of each of the Agreement and
Reincorporation Proposal, the Share Exchange Proposal, the Reverse Stock Split
Proposal, the Share Increase Proposal and the Board Size Proposal by the holders
of a majority of our outstanding common stock at the special
meeting.
In
addition, the consummation of the share exchange with the Sino-Canada
shareholders is conditioned upon certain closing conditions,
including:
·
the
consummation of the reincorporation merger of Hartcourt and Maple
China;
·
no
governmental entity shall have enacted, issued, promulgated, enforced or
entered any law or order which is in effect and which has the effect of
making the acquisition illegal or otherwise prohibiting or preventing
consummation of the
acquisition;
32
·
any
necessary approvals from any governmental entity shall have been timely
obtained all in a form and substance satisfactory to Hartcourt;
and
·
Sino-Canada
shall have divested itself of its subsidiaries Sino-Canada Middle School
and Wujiang Fenghua Training
Center.
Hartcourt’s
Conditions to Closing of the Share Exchange
Our
obligation to consummate the share exchange, in addition to the conditions
described above, are conditioned upon each of the following, among other
things:
·
the
representations and warranties of Sino-Canada, its subsidiaries and the
Sino-Canada shareholders (other than the representations and warranties as
of a specified date which shall be true and correct as of such date) shall
have been true and correct on the date they were made and shall be true
and correct in all material respects (except for those representations and
warranties which are qualified as to materiality which shall be true and
correct in all respects) on and as of the closing date as though made on
and as of such time, and we shall have received a certificate to such
effect;
·
Sino-Canada,
its subsidiaries and the Sino-Canada shareholders shall have performed and
complied in all material respects with all covenants and obligations under
the agreement required to be performed and complied with by them as of the
closing, and we shall have received a certificate to such
effect;
·
there
shall have been no material adverse effect with respect to the Sino-Canada
entities since the date of execution of the plan of reorganization and
share exchange agreement;
·
there
shall be no material action, suit, claim, order, injunction or proceeding
of any nature pending, or overtly threatened, against Sino-Canada or its
properties or any of its respective officers, directors or shareholders
arising out of, or in any way connected with, the acquisition or the other
transactions contemplated by the share exchange
agreement;
·
we
shall have received a legal opinion from counsel to the Sino-Canada
entities regarding certain matters related to the share
exchange;
·
Sino-Canada
shall have delivered to us an estimated closing balance sheet of
Sino-Canada, on a consolidated basis, prepared in accordance with GAAP,
determined as of 11:59 p.m. on the business day immediately preceding the
closing date, certified as true and correct by Sino-Canada’s chief
executive officer;
·
the
required historical Sino-Canada financial statements shall have been
prepared for inclusion in this proxy statement and, in our opinion, shall
be suitable or readily adaptable for incorporation in the reports required
to be filed by us with the SEC pursuant to the Exchange Act of
1934;
·
the
Sino-Canada shareholders shall have executed and delivered the voting
agreement attached hereto as Annex
B;
·
the
Sino-Canada shareholders shall have executed and delivered the lock-up
agreement attached hereto as Annex
C;
·
each
of the officers and directors of the surviving corporation in the
reincorporation merger shall have been appointed and elected in accordance
with the agreement, effective immediately following the
closing.
33
Sino-Canada’s
Conditions to Closing of the Share Exchange
The
obligations of Sino-Canada, its subsidiaries and the Sino-Canada shareholders to
consummate the share exchange, in addition to the conditions described above,
are conditioned upon each of the following, among other things:
· the
representations and warranties of Hartcourt (other than the representations and
warranties as of a specified date which shall be true and correct as of such
date) shall have been true and correct on the date they were made and shall be
true and correct in all material respects (except for those representations and
warranties which are qualified as to materiality which shall be true and correct
in all respects) on and as of the closing date as though made on and as of such
time, and Sino-Canada shall have received a certificate to such
effect;
·
Hartcourt
shall have performed and complied in all material respects with all
covenants and obligations under the agreement required to be performed and
complied with by it as of the closing, and Sino-Canada shall have received
a certificate to such effect;
·
there
shall have been no material adverse effect with respect to us since the
date of execution of the plan of reorganization and share exchange
agreement;
·
there
shall be no material action, suit, claim, order, injunction or proceeding
of any nature pending, or overtly threatened, against us or our properties
or any of our officers, directors or shareholders arising out of, or in
any way connected with, the acquisition or the other transactions
contemplated by the plan of reorganization and share exchange
agreement;
·
Sino-Canada
and the shareholders’ representative shall have received a legal opinion
from our counsel regarding certain matters related to the share
exchange;
·
we
shall have delivered to Sino-Canada a schedule setting forth
the amount of our indebtedness, on a consolidated basis, prepared in
accordance with GAAP, determined as of 11:59 p.m. on the business day
immediately preceding the closing date, certified as true and correct by
our chief executive officer;
·
our
outstanding indebtedness to Yuan Dian Investment Inc. pursuant to the
amended and restated loan agreement dated August 18, 2009 shall be repaid
upon the closing in accordance with its terms by payment of shares of the
surviving corporation in the reincorporation merger in satisfaction of all
amounts owing thereunder;
·
the
surviving corporation in the reincorporation merger shall have executed
and delivered the voting agreement attached hereto as Annex
B;
·
the
surviving corporation in the reincorporation merger shall have executed
and delivered the lock-up agreement attached hereto as Annex
C;
·
each
of the officers and directors of the surviving corporation in the
reincorporation merger shall have been appointed and elected in accordance
with the agreement, effective immediately following the
closing.
We cannot
assure you that all of the conditions will be satisfied or waived.
Termination
The plan
of reorganization and share exchange agreement may be terminated and/or
abandoned at any time prior to the closing, whether before or after approval of
the proposals being presented to our stockholders, by:
·
mutual
written consent of Hartcourt and representative of the Sino-Canada
shareholders;
34
·
either
Hartcourt or Sino-Canada, if the closing has not occurred by May 31,2010;
·
either
Hartcourt or Sino-Canada, if a governmental entity has issued an order, in
any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the acquisition, which order is final and
nonappealable;
·
by
Hartcourt if any Sino-Canada entity takes any action to liquidate,
dissolve or wind-up;
·
by
Sino-Canada if Hartcourt takes any action to liquidate, dissolve or
wind-up;
·
by
Sino-Canada upon a breach of any representation, warranty, covenant or
agreement on the part of Hartcourt set forth in the plan of reorganization
and share exchange agreement, or if any representation or warranty of
Hartcourt becomes untrue, in either case such that the conditions to the
closing of the acquisition would not be satisfied as of the time of the
breach or as of the time the representation or warranty becomes untrue,
and the breach (to the extent curable) is not cured within 30 days
following receipt by Hartcourt of a notice describing in reasonable detail
the nature of such breach;
·
by
Hartcourt upon a breach of any representation, warranty, covenant or
agreement on the part of any of the Sino-Canada entities or the
Sino-Canada shareholders set forth in the plan of reorganization and share
exchange agreement, or if any representation or warranty of any of the
Sino-Canada entities -Canada or the Sino-Canada shareholders becomes
untrue, in either case such that the conditions to the closing of the
acquisition would not be satisfied as of the time of the breach or as of
the time the representation or warranty becomes untrue, and the breach (to
the extent curable) is not cured within 30 days following receipt by the
Sino-Canada entity or the Sino-Canada shareholders, as applicable, of a
notice describing in reasonable detail the nature of such
breach;
·
by
Hartcourt, if a material adverse effect on Sino-Canada has occurred since
the date of the plan of reorganization and share exchange agreement and is
continuing;
·
by
Sino-Canada, if a material adverse effect on Hartcourt has occurred since
the date of the plan of reorganization and share exchange agreement and is
continuing; and
·
by
Hartcourt if Sino-Canada has not delivered the historic financial
statements required for inclusion in this proxy statement on ore before
November 30, 2009.
In the
event of the termination of the plan of reorganization and share exchange
agreement, the plan of reorganization and share exchange agreement will be of no
further force or effect, except for the confidentiality and expense provisions
of the plan of reorganization and share exchange agreement.
Amendment
The plan
of reorganization and share exchange agreement may be amended by the parties
thereto at any time by execution of an instrument in writing signed on behalf of
each of Hartcourt, Sino-Canada and the representative of the Sino-Canada
shareholders.
35
CERTAIN
AGREEMENTS RELATING TO THE SHARE EXCHANGE
Voting
Agreement
Upon the
consummation of the acquisition, our board of directors will consist of seven
directors, of which Sino-Canada will designate five members with [two current]
Hartcourt directors remaining on the board. Upon the
consummation of the acquisition, the board of directors is expected to consist
of Messrs. Victor Zhou, Ross Yuan, Tiezhi Zhang, Fusheng Xie, Wilson Li, Guoquan
Shen and Ping Mei.
At the
closing of the acquisition, the Sino-Canada shareholders, Mr. Victor Zhou and
Mr. Wilson Li, as representatives of Hartcourt, and Hartcourt will enter into a
voting agreement. The voting agreement provides that until the date immediately
prior to the first annual stockholder meeting of the surviving corporation held
after the closing date of the share exchange, at any meeting called or action
taken for the purpose of electing directors to the Hartcourt board of directors,
the Sino-Canada shareholders will agree to vote for two directors nominated by
Messrs. Zhou and Li on behalf of the Hartcourt stockholders.
The
voting agreement is attached as Annex B hereto. We encourage you to read the
voting agreement in its entirety.
Lock-Up
Agreements
At the
closing of the acquisition, the Sino-Canada shareholders have agreed to enter
into lock-up agreements providing that they may not sell or otherwise transfer
any of the common stock received in the acquisition for a period of 12 months
from the closing date of the acquisition.
The form
of lock-up agreement is attached as Annex C hereto. We encourage you to read the
lock-up agreement in its entirety.
36
REINCORPORATION
MERGER WITH MAPLE CHINA
Introduction
The Board of Directors of Hartcourt
believes that it is advisable and in the best interests of Hartcourt and its
shareholders to change the state of incorporation of Hartcourt from Utah to
Delaware by merging Hartcourt into Maple China, its newly formed wholly-owned
subsidiary that is incorporated in Delaware (the “reincorporation merger”). The
name of the Delaware corporation, which will be the successor to Hartcourt in
the reincorporation merger, will be Maple China Education Incorporated. Maple
China is also referred to as the “surviving corporation” in this proxy
statement.
Maple China was incorporated under
Delaware law on August 18, 2009. The address and phone number of Maple
China are the same as the address and phone number of Hartcourt. As of the time
immediately prior to the reincorporation merger, Maple China will not have any
material assets or liabilities and will not have carried on any
business.
The
Reincorporation Merger
The reincorporation merger would be
effected pursuant to the plan of reorganization and share exchange agreement in
substantially the form attached as Annex A. Upon completion of the
reincorporation merger, Hartcourt would cease to exist as a corporate entity and
Maple China, which would be the surviving corporation, would continue to operate
the business of Hartcour under the name Maple China Education Incorporated. The
discussion of the reincorporation merger set forth below is qualified in its
entirety by reference to the attached plan of reorganization and share exchange
agreement.
The plan of reorganization and share
exchange agreement provides that the reincorporation merger will be effected
immediately prior to the closing of the share exchange with the Sino-Canada
shareholders, and thus is subject to the conditions to closing with respect to
the share exchange, including the approval of the reincorporation merger by the
requisite Hartcourt shareholders. See “Share Exchange Proposal” below. If the
shareholders do not approve the reincorporation merger, Hartcourt and Maple
China would not consummate the merger and Hartcourt would continue to operate as
a Utah corporation.
If the Name Change Proposal, Reverse
Stock Split Proposal, Share Increase Proposal and Board Size Proposal are each
approved by the Hartcourt shareholders then, incident to the reincorporation
merger and pursuant to the plan of reorganization and share exchange agreement,
the certificate of incorporation of the surviving corporation will provide in
part as follows:
·
the
name of the surviving corporation will be changed to Maple China Education
Incorporated. See “Name Change Proposal”
below;
·
each
outstanding share of common stock, par value $.001 per share, of Hartcourt
will be converted automatically into .0125 shares of common stock, par
value $.001 per share, of Maple China upon the effective date of the
reincorporation merger. See “Reverse Stock Split Proposal”
below;
·
the
total number of authorized shares of common stock of the surviving
corporation will be increased to 100,000,000. See “Share Increase
Proposal” below; and
·
the
board of directors of the surviving corporation may fix the the number of
directors so long as there are at least 3 and not more than 9 directors.
See “Board Size Proposal” below.
The common stock of Hartcourt is traded
on the OTCBB under the symbol “HRCT.” Following the reincorporation merger, the
common stock of the surviving corporation will be traded on the OTCBB under the
symbol “____”.
37
If Hartcourt and Maple China effect the
reincorporation merger, all employee benefit plans (including stock option and
other equity-based plans) of Hartcourt would be continued by the surviving
corporation, and each stock option and other equity-based award issued and
outstanding pursuant to such plans would be converted automatically into a stock
option or other equity-based award with respect to the same number of shares of
common stock of the surviving corporation, upon the same terms and conditions as
set forth in the applicable plan under which the award was granted and in the
agreement reflecting the award. Similarly, each outstanding warrant to purchase
common stock of Hartcourt would be converted automatically into a warrant to
purchase the same number of shares of common stock of the surviving corporation,
upon the same terms and conditions.
Principal
Reasons for the Reincorporation Proposal
The incorporators of Hartcourt chose to
incorporate in the State of Utah because the laws of Utah were suitable for
Hartcourt Utah’s operations at the time.
For many years, Delaware has followed a
policy of encouraging incorporation in Delaware and, in furtherance of that
policy, has been the leader in adopting, construing and implementing
comprehensive, flexible corporate laws that are responsive to the legal and
business needs of the corporations organized under Delaware law. Delaware has
established progressive principles of corporate governance that Hartcourt could
draw upon when making business and legal decisions. In addition, any direct
benefit that Delaware law provides to corporations indirectly benefits the
stockholders. Because Delaware law is responsive to the needs of stockholders,
Delaware law also directly benefits stockholders. For these reasons, Hartcourt
has determined that Delaware law would better suit the current needs of
Hartcourt and its stockholders than Utah law does.
The Board of Directors of Hartcourt has
considered the following benefits available to Delaware corporations in deciding
to propose reincorporation in Delaware:
·
the
General Corporation Law of the State of Delaware, which is generally
acknowledged to be the most advanced and flexible corporate statute in the
U.S.;
·
the
Delaware General Assembly, which each year considers and adopts statutory
amendments that the Corporation Law Section of the Delaware State Bar
Association proposes in an effort to ensure that the corporate statute
continues to be responsive to the changing needs of
businesses;
·
the
Delaware Court of Chancery, which handles complex corporate issues with a
level of experience and a degree of sophistication and understanding
unmatched by any other court in the U.S., and the Delaware Supreme Court,
which is highly regarded; and
·
the
well-established body of case law construing Delaware law, which has
developed over the last century and which provides businesses with a
greater degree of predictability than most, if not all, other
jurisdictions provide.
Additionally, management believes that,
as a Delaware corporation, Hartcourt would be better able to continue to attract
and retain qualified directors and officers than it would be able to as a Utah
corporation, in part, because Delaware law provides more predictability with
respect to the issue of liability of directors and officers than Utah law does.
The increasing frequency of claims against directors and officers that are
litigated has greatly expanded the risks to directors and officers of exercising
their respective duties. The amount of time and money required to respond to and
litigate such claims can be substantial. Although Utah law and Delaware law both
permit a corporation to include a provision in the corporation’s articles or
certificate, as the case may be, of incorporation that in certain circumstances
reduces or limits the monetary liability of directors for breaches of their
fiduciary duty of care, Delaware law, as stated above, provides to directors and
officers more predictability than Utah does and, therefore, provides directors
and officers of a Delaware corporation a greater degree of comfort as to their
risk of liability than that afforded under Utah law.
38
Anti-Takeover
Implications
Delaware, like many other states,
permits a corporation to include in its certificate of incorporation or bylaws
or to otherwise adopt measures designed to reduce a corporation’s vulnerability
to unsolicited takeover attempts. The Board of Directors of Hartcourt, however,
is not proposing the reincorporation merger to prevent a change in control of
Hartcourt and is not aware of any present attempt by any person to acquire
control of Hartcourt or to obtain representation on Hartcourt’s Board of
Directors. The Board of Directors of Hartcourt has no current plans to implement
any defensive strategies to enhance the ability of the Board of Directors to
negotiate with an unsolicited bidder.
With respect to implementing defensive
strategies, Delaware law is preferable to Utah law because of the substantial
judicial precedent on the legal principles applicable to defensive strategies.
As a Utah corporation or a Delaware corporation, Hartcourt Utah could implement
some of the same defensive measures. As a Delaware corporation, however,
Hartcourt Utah would benefit from the predictability of Delaware law on such
matters.
Comparison
of Shareholder Rights Before and After the Reincorporation Merger
Set forth below is a table that
summarizes some of the most significant differences in the rights of the
shareholders of Hartcourt before and after the reincorporation merger is
effective as a result of the differences between Utah law, the Utah Articles and
the Utah Bylaws, on the one hand, and Delaware law, the Delaware Certificate and
the Delaware Bylaws, on the other hand. The summary of the differences is
significant because if the shareholders of Hartcourt approve the agreement and
reincorporation proposal and the reincorporation merger becomes effective, the
Delaware Certificate and the Delaware Bylaws, as set forth in Annex E and Annex
F, respectively, attached to this proxy statement will become the certificate of
incorporation and bylaws of the surviving corporation by virtue of the
reincorporation merger. All statements in this proxy statement concerning such
documents are qualified by reference to the complete provisions of the
documents. In addition to the differences described below, the Delaware
Certificate and the Delaware Bylaws include certain technical differences from
the Utah Articles and Utah Bylaws to reflect differences between Delaware law
and Utah law. The table below is not intended to be relied upon as an exhaustive
list of all differences or a complete description of the differences, and is
qualified in its entirety by reference to Utah law, Delaware law, the Utah
Articles and Utah Bylaws, and the Delaware Certificate and Delaware
Bylaws.
Hartcourt,
a Utah corporation
Maple
China, a Delaware corporation
Par
Value; Surplus; Capital
All
shares of common stock of Hartcourt have a par value of $.001 per share.
The Hartcourt Articles authorize two classes of preferred stock with a par
value of $0.01, and three other classes of preferred stock with various
conversion rights, but no par value. The concepts of surplus and capital
do not exist under Utah law.
All
shares of common stock of Maple China have a par value of $.001 per share.
The concepts of surplus and capital are recognized under Delaware
law.
Action by Shareholders
Without a Meeting
Utah
law permits shareholder action by less than unanimous written consent and
provides that any action that could be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if written consents are signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The Hartcourt
Bylaws, however, allow action to be taken by the shareholders without a
formal meeting by consent, if such consent is executed in writing by all
of the shareholders entitled to vote. Unlike Delaware law, Utah law
requires a unanimous written consent of shareholders to elect directors.
Utah law provides that, in order to be effective, all written consents
must be delivered to Hartcourt within 60 days after the earliest dated
consent delivered to Hartcourt Utah, and prompt notice of the action by
written consent must be given to those shareholders who have not consented
in writing and who, if the action had been taken at a meeting, would have
been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of
shareholders to take the action were delivered to Hartcourt. Unlike
Delaware law, Utah law requires that the actions taken by the written
consent of shareholders cannot become effective until at least 10 days
after notice of such actions has been furnished to all shareholders who
did not sign the written consent.
Delaware
law permits stockholder action by less than unanimous written consent and
provides that any action that could be taken at an annual or special
meeting of stockholders (including the election of directors) may be taken
without a meeting, without prior notice and without a vote, if written
consents are signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Delaware law provides that, in order to be
effective, all written consents must be delivered to Maple China within 60
days after the earliest dated consent delivered to Maple China, and prompt
notice of the action by written consent must be given to those
stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written
consents signed by a sufficient number of stockholders to take the action
were delivered to Company. Unlike Utah law, Delaware law does not
stipulate that the actions taken by the written consent of stockholders
cannot become effective until at least 10 days after notice of such
actions has been furnished to all stockholders who did not sign the
written consent.
39
Special
Meetings of Shareholders
The
Hartcourt Bylaws permit special meetings of the shareholders to be called
at any time by the president or by any holder(s) of at least twenty-five
percent of the outstanding capital stock. Notice of a special
meeting may be waived in writing either before or after such
meeting.
Unlike
the Utah Bylaws, the Delaware Bylaws do not permit stockholders to request
that a special meeting of stockholders be held. Instead, a special meeting
of stockholders can be called only by a majority of the board of directors
or by the corporation’s chairman of the board, chief executive officer or
the president.
Removal
of Directors
Utah
law provides that any director may be removed, with or without cause, by
the holders of common stock of Hartcourt Utah but only at a meeting of
shareholders pursuant to a notice of meeting, which includes the removal
of such director as an item of business.
Delaware
law provides that any director may be removed, with or without cause, by a
majority of the shares then entitled to vote at an election of directors;
however, Delaware law also provides that, so long as a Delaware
corporation has a classified board of directors, unless otherwise provided
in the corporation’s certificate of incorporation, stockholders may effect
such removal only for cause. The Maple China Bylaws provide that a
director may be removed only for cuase and only by an affirmative vote of
66 2/3% shares then entitled to vote.
Ratification
The
Hartcourt Bylaws do not contain a provision on
ratification.
The
Maple China Bylaws provide that certain transactions questioned in a
stockholder’s suit may be approved or ratified, before or after judgment,
by the board of directors or stockholders, and ratification will have the
same effect as if the questioned transaction had been originally duly
authorized, and the claim will be
barred.
40
Indemnification
The
Hartcourt Bylaws are silent as to indemnification, however Utah law
provides that, unless limited by its articles of incorporation, a
corporation shall indemnify a director who was successful, on the merits
or otherwise, in the defense of any proceeding, or in the defense of any
claim, issue, or matter in the proceeding, to which he was a party because
he is or was a director of the corporation, against reasonable expenses
incurred by him in connection with the proceeding or claim with respect to
which he has been successful.
With
respect to third party actions, under Utah law, Hartcourt has the power,
but not an obligation, to indemnify any director, officer, employee or
agent of Hartcourt Utah who was or is a party or is threatened to be made
a party to any threatened, pending, or completed action or suit, against
expenses (including attorneys’ fees) judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with any such action, suit or proceeding, if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to
the best interest of Hartcourt, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. With respect to corporate actions, under Utah law, Hartcourt has
the power, but not an obligation, to indemnify any director, officer,
employee or agent of Hartcourt who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor,
against expenses (including attorneys’ fees) actually and reasonably
incurred by him or her in connection with any such action, suit or
proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of
Hartcourt, except that no indemnification will be made in respect of any
claim, issue, or matter as to which such a person shall have been adjudged
to be liable for negligence or misconduct in the performance of his or her
duty to the corporation, unless and only to the extent that the court in
which the action or suit was brought determines on application that,
despite the adjudication of liability but in view of all circumstances of
the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
The
Maple China Bylaws provide that directors and officers of Maple China
shall be indemnified to the fullest extent permitted by Delaware law.
Unlike the Utah Bylaws, which are permissive, the indemnification
provisions of the Maple China Bylaws require mandatory indemnification for
both third party actions and actions by or in the right of the
corporation.
Maple
China Bylaws contain the following provisions not currently contained in
the Hartcourt Bylaws: (i) mandatory reimbursement of expenses of a
director or officer, upon receipt of an undertaking by such director to
repay all amounts advanced if such director is ultimately determined not
to be entitled to indemnification by Maple China, and (ii) Maple China
will provide indemnification to directors, officers and agents with
respect to proceedings commenced by the director, officer or agent only if
commencement of such proceeding was authorized, in the specific case, by
the board of directors, independent directors or by the stockolders of
Maple China.
41
Insurance
The
Hartcourt bylaws are silent as to Insurance, however Utah law permits a
corporation to purchase and maintain liability insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent of
the corporation, against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee,
fiduciary, or agent, whether or not the corporation would have power to
indemnify him against the same liability.
The
Delaware Bylaws permit the company to purchase insurance on behalf of
directors or other agents, whether or not such the company would
otherwaise have the power to indemnify such person against
liability.
Elimination
of Directors’ Liability for Monetary Damages
Utah
law permits a corporation, pursuant to its articles of incorporation, or
in certain circumstances its bylaws, to provide for the elimination or
limitation of the liability of a director to the corporation or its
shareholders for monetary damages for any action taken or failure to take
any action as a director, except liability for (1) the amount of a
financial benefit received by a director to which he is not entitled; (2)
an intentional infliction of harm on the corporation or its shareholders;
(3) unlawful distributions; or (4) an intentional violation of criminal
law. The Hartcourt Articles and the Hartcourt Bylaws do not contain such a
provision.
Delaware
law permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of directors to
the corporation or its stockholders for monetary damages for breach of
fiduciary duties as a director, except for liability (i) for any breach of
the director’s duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for payment of a dividend
or a stock repurchase or redemption in violation of Delaware law or (iv)
for any transaction from which the director derived an improper personal
benefit. The Maple China Certificate contains such a
provision.
Record
Date
The
Hartcourt Bylaws do not contain a provision for fixing the record
date.
Consistent
with Delaware law, the Maple China Bylaws differ with respect to Hartcourt
Bylaws in the following ways:
•
the Maple China Bylaws provide that the record date is not to precede the
date upon which the resolution fixing the record date is adopted by the
board of directors;
42
•
the record date is not to be more than 60 days before a meeting or action
requiring determination of stockholders;
•
in the case of an action by written consent the record date shall be more
than 10 days after the date upon which the resolution fixing the record
date is adopted by the board of directors; and
•
in the case of a stockholder meeting, the record date may not be less than
10 days before the meeting.
Amendment
to the Articles (Certificate) of Incorporation
Under
Utah law, amendments to the Hartcourt Articles (other than ministerial
amendments authorized by the board of directors without shareholder
action) may be proposed by the board of directors. The board of directors
must recommend the amendment to the shareholders, unless the amendment is
being proposed by the shareholders, or unless the board of directors
determines that, because of a conflict of interest or other special
circumstances, it should make no recommendation and the board of directors
then communicates the basis for its determination to the shareholders with
the amendment. Pursuant to the Utah Articles, the Utah Articles
may be ameneded by an affirmative vote by the majority of the shares
entitled to vote.
Under
Delaware law, stockholders are not entitled to enact, without any action
taken by the board of directors, an amendment to the Delaware Certificate.
Amendments to the Delaware Certificate generally require that the board of
directors adopt a resolution setting forth the amendment, declaring its
advisability and submitting it to a vote of the stockholders.
The
Hartcourt Bylaws provide that the board of directors or the shareholders
may amend, repeal, or replace the by-laws of Hartcourt Utah. In addition,
no bylaw adopted by the board of directors shall require more than a
majority of the voting shares for a quorum at a meeting of shareholders,
or more than a majority of the votes cast to constitute action by the
shareholders, except where higher percentages are required by Utah
law.
The
Maple China Certificate provides that the board of directors may make,
alter, rescind, amend, or repeal any or all of the Maple China Bylaws, by
approval of the majority of the board of directors. The
stockholders also have the power to adopt, amend or repeal the
bylaws.
The
Hartcourt Bylaws do not contain an advance notice provision.
Under
Delaware law, a corporation may adopt an advance notice bylaw provision
that provides that a stockholder entitled to vote at the meeting may
nominate a person for election as a director or may propose other business
to be conducted at such a meeting only if advance written notice of such
director nomination or stockholder proposal is given. Under the Maple
China Bylaws, written notice of such stockholders’ intent to make such
nomination or to propose such other business at an annual meeting of
stockholders generally must be received by the corporation’s secretary not
later than 60 days, nor earlier than 90 days, prior to the first
anniversary date of the preceding year’s annual meeting. Any stockholder
wishing to nominate a person as director or to propose such other business
must submit certain information as set forth in the Maple China Bylaws.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or stockholder proposal not made in compliance with the
procedures set forth in the Maple China
Bylaws.
43
Dissolution
Under
Utah law, the board of directors of Hartcourt Utah may submit a proposal
of voluntary dissolution of Hartcourt Utah to the shareholders entitled to
vote thereon. The board of directors must recommend such dissolution to
the shareholders as part of the dissolution proposal, unless the board of
directors determines that, because of a conflict of interest or other
special circumstances, it should make no recommendation and communicates
the basis for its determination to the shareholders.
Under
Delaware law, Maple China will be subject to the same voting requirement
with respect to a dissolution, however, if the board of directors does not
initially approve the dissolution, then the stockholder vote required for
the dissolution is a unanimous written consent of all stockholders
entitled to vote thereon.
Dividends
Utah
law provides that the payment of dividends and other distributions is
generally permissible unless, after giving effect to the dividend or
distribution, Hartcourt would be unable to pay its debts as they become
due in the usual course of business, or if the total assets of Hartcourt
would be less than the sum of its total liabilities plus the amount that
would be needed, if Hartcourt were dissolved at the time the dividend was
paid, to satisfy the preferential rights of shareholders whose
preferential rights upon dissolution are superior than those of the
shareholders receiving the dividend. Because Utah law dispenses with the
statutory definitions of capital and surplus, the above limitation is the
only limitation with respect to the declaration of dividends by the board
of directors of Hartcourt. The Hartcourt Bylaws prohibt payment of
dividends out of capital of the company.
Delaware
law provides the same provision with respect to declaration of dividends
as Utah law. However, unlike in Utah, the concepts of capital and surplus
are retained in Delaware. Delaware law defines surplus as the excess of
the net assets of the corporation over its capital. Unless the
corporation’s board of directors determines otherwise, the capital of the
corporation is equal to the aggregate par value of the issued shares of
stock having par value. Therefore, Delaware law permits a corporation to
declare and pay dividends out of surplus or, if there is no surplus, out
of the net profits for the fiscal year in which the dividend is declared
and/or for the preceding fiscal year.
The
Maple China bylaws allow directors to set aside funds of Maple China, that
would otherwise be avaible for dividends, for reserves to be used by Maple
China for any purpose the directors see conducive to the interests of the
company.
44
Corporate
Records
(Form
of Records)
Neither
the Bylaws nor the Articles of Hartcourt contain a provision regarding
corporate records; however, under Utah law, Hartcourt is required to keep,
as permanent records, minutes of all meetings of the shareholders and the
board of directors of Hartcourt, a record of all actions taken by the
shareholders or the board of directors without a meeting, a record of all
actions taken by a committee of the board of directors, and a record of
all waivers of notices of meetings of shareholders and of the board of
directors or any committee of the board of directors. In addition, Utah
law requires Hartcourt Utah to keep specific records at its principal
office, including the Hartcourt Articles, the Hartcourt Bylaws, the
minutes of all shareholders’ meetings, records of all action taken by
shareholders without a meeting, for the past three years, a list of the
names and business addresses of its current officers and directors, its
most recent annual report to the Utah Division of Corporations and
Commercial Code and all financial statements prepared for periods ending
during the last 3 years.
Delaware
law does not require that Maple China keep any specific records at any
particular place or for a specific period of time, and Maple China’s
Bylaws and Certifate are silent as to the form of corporate records. The
Maple China Certificate, however, provides that the books of the
corporation may be kept at such places that may be designated by the board
of directors or in the bylaws of Maple China.
Addtionally,
under Delaware law any records maintained by a corporation in the regular
course of its business, including its stock ledger, books of account, and
minute books, may be kept on, or by means of, or be in the form of, any
information storage device, or method provided that the records so kept
can be converted into clearly legible paper form within a reasonable time.
Any corporation shall so convert any records so kept upon the request of
any person entitled to inspect such records. When records are kept in such
manner, a clearly legible paper form produced from or by means of the
information storage device or method shall be admissible in evidence, and
accepted for all other purposes, to the same extent as an original paper
record of the same information would have been, provided the paper form
accurately portrays the record.
Examination
of Booksand Records
Under
Utah law, any shareholder or director of Hartcourt may, upon five business
days’ written demand, inspect certain records, including shareholder
actions, minutes of shareholder meetings, communications with shareholders
and recent financial statements. In addition, upon five business days’
written demand, any such shareholder or director may inspect the list of
shareholders and certain other corporate records, including minutes of the
meetings of board of directors of Hartcourt, provided that the demand is
made in good faith and for a proper purpose reasonably related to such
person’s interests as a shareholder.
The
inspection rights of the stockholders under Delaware law are
the same as under Utah law, except that if Maple China refuses to permit
inspection or does not reply to the demand within five business days after
the demand has been made, the stockholder may apply to the Delaware Court
of Chancery for an order to compel such inspection.
Dissenters’
(Appraisal) Rights
Under
Utah law, shareholders are entitled to exercise dissenters’ rights in the
event of certain mergers, share exchanges, sales, leases, exchanges or
other dispositions of all or substantially all of the property of
Hartcourt. Dissenters’ rights in Utah are available to both record holders
and beneficial holders.
Delaware
law provides appraisal rights only in the case of certain mergers or
consolidations. Thus, under Delaware law, stockholders have no appraisal
rights in the event of a sale, lease or exchange of all or substantially
all of a corporation’s assets. Appraisal rights in Delaware are available
only to record holders.
45
Control
Shares
Acquisition
Act
Pursuant
to the Hartcourt Articles and in accordance with Utah law,
Hartcourt has not elected to not have the provisions of the
Utah Control Shares Acquisition Act apply to control share acquisitions of
the securities of Hartcourt Utah. Therefore Hartcourt is subject to the
Utah Control Shares Acquisiton Act.
The
Maple China Certificate does not contain a provision that limits Maple
China’s ability to protect itself against a takeover attempt.
Reacquisition
of Stock
by
the Corporation
Under
Utah law, Hartcourt may acquire its own shares, and, except in certain
circumstances, such shares will constitute authorized but unissued
shares.
Delaware
law requires that (i) no repurchases of shares by Maple China be made when
the capital of the company is impaired or when such repurchase would cause
an impairment, and (ii) a purchase of shares redeemable at the option of
Hartcourt Delaware not be made for more than the price at which the shares
may then be redeemed.
Franchise
Tax
Utah
law requires corporations to pay franchise tax at the rate of 5% of net
taxable income. The franchise tax must be pre-paid quarterly if taxable
income is greater than $3,000 per year. Otherwise it is payable yearly.
Pursuant to Utah law, the current minimum tax is $100 per year. In 2008
Hartcourt paid franchise tax of $ N/A.
Delaware
law requires corporations to pay franchise tax annually. The current
minimum tax is $75 per year and the current maximum tax is $180,000per
year. Had we been incorporated in Delaware during 2008, Maple China would
have paid a franchise tax of $[_____].
Accounting
Treatment of the Reincorporation Merger
The reincorporation merger would be
accounted for as a reverse merger whereby, for accounting purposes, Sino-Canada
would be considered the acquirer and the surviving corporation would be treated
as the successor to the historical operations of Sino-Canada. Accordingly, the
historical financial statements of Sino-Canada, as of and for all periods
through the date of this proxy statement, would be treated as the financial
statements of the surviving corporation.
Regulatory
Approval
To Hartcourt’s knowledge, the only
required regulatory or governmental approval or filings necessary in connection
with the consummation of the reincorporation merger would be the filing of
articles of merger with the Utah Department of Commerce, Division of
Corporations and Commercial Code and the filing of a certificate of merger with
the Secretary of State of the State of Delaware.
Certain
Federal Income Tax Consequences
The following summary describes certain
United States federal income tax considerations relevant to the reincorporation
merger. This summary is based on the Internal Revenue Code of 1986, as amended
(the “Code”), and Treasury regulations, rulings, administrative pronouncements,
and judicial decisions as of the date hereof, all of which may be revoked or
modified, possibly retroactively so as to result in federal income tax
consequences different from those described below. Hartcourt does not intend to
request a ruling from the Internal Revenue Service (“IRS”) regarding the federal
income tax consequences of the reincorporation merger. This summary does not
address all aspects of federal income taxation that may be relevant to the
reincorporation merger, nor does this summary address the effect of any
applicable foreign, state, local or other tax laws. This summary also does not
address the federal income tax consequences of the reincorporation merger to
shareholders who are subject to special tax rules, such as shareholders who are
non-United States persons, financial institutions, dealers in securities,
insurance companies, tax-exempt entities, regulated investment companies,
pass-through entities, persons who have a functional currency other than the
dollar, or persons who hold Hartcourt stock other than as a capital
asset.
46
Hartcourt believes that, for federal
income tax purposes, the reincorporation merger would be treated as a
reorganization under section 368 of the Code. No gain or loss would be
recognized by the holders of the common stock of Hartcourt Utah as a result of
the consummation of the reincorporation merger and no gain or loss would be
recognized by Hartcourt or Maple China. In addition, Hartcourt believes that
each former holder of common stock of Hartcourt would have the same basis in the
common stock of the surviving corporation received by such person pursuant to
the reincorporation merger as such holder had in the common stock of Hartcourt
held by such person immediately prior to the consummation of the reincorporation
merger, and such person’s holding period with respect to such common stock of
the surviving corporation would include the period during which such holder held
the corresponding common stock of Hartcourt, provided the latter was held by
such person as a capital asset immediately prior to the consummation of the
reincorporation merger. Shareholders owning at least one percent (by vote or
value) of the total outstanding stock of Hartcourt immediately before the
reincorporation merger may be required to file a statement with their tax return
containing certain information regarding the reincorporation
merger.
State, local or foreign income tax
consequences to shareholders may vary from the federal tax consequences
described above. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
EFFECT OF THE REINCORPORATION MERGER UNDER APPLICABLE FEDERAL, STATE, LOCAL OR
FOREIGN INCOME TAX LAWS.
TO ENSURE COMPLIANCE WITH IRS CIRCULAR
230, (I) THE FOREGOING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED,
AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED
UNDER FEDERAL TAX LAW; (II) THIS DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION
OR MARKETING OF THE REINCORPORATION MERGER; AND (III) EACH SHAREHOLDER SHOULD
SEEK ADVICE BASED ON HIS OR HER PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX
ADVISOR.
Rights
of Dissenting Shareholders
Shareholders of Hartcourt of record on
[______] will have dissenters' rights under the Utah Revised Business
Corporation Act, or the UBCA, as a result of the proposed reincorporation
merger. Stockholders who oppose the reincorporation merger will have the right
to receive payment for the value of their shares as set forth in sections
16-10(a)-1301 et. seq. of the UBCA. A copy of these sections is attached hereto
as Annex D to this Proxy Statement. The material requirements for a shareholder
to properly exercise his or her dissenter’s rights are summarized below.
However, these provisions are very technical in nature, and shareholders are
encouraged to carefully read and understand the actual statutory provisions
governing the assertion of such rights.
Requirements
for Exercising Dissenters' Rights
Under the
UBCA, dissenters' rights will be available only to those shareholders of
Hartcourt who (i) object to the proposed reincorporation merger in writing prior
to or at the meeting before the vote on the matter is taken (a negative vote
will not itself constitute such a written objection); and (ii) do not vote any
of their shares in favor of the proposed reincorporation merger at the
meeting.
TO BE
ENTITLED TO PAYMENT, THE DISSENTING SHAREHOLDER MUST FILE WITH HARTCOURT BEFORE
THE VOTE FOR THE PROPOSED MERGER A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT OF
THE FAIR VALUE OF THE SHARES AND MUST NOT VOTE IN FAVOR OF THE PROPOSED MERGER;
PROVIDED, THAT SUCH DEMAND SHALL BE OF NO FORCE AND EFFECT IF THE PROPOSED
MERGER IS NOT EFFECTED.
47
The notice must be
submitted to Hartcourt at Room 503, Jinqiao Building, No. 2077, West
Yan’an Road, Shanghai, China; Telephone: (86) 21 5206 7613; Attention: Victor
Zhou, and must be
received before the vote for the proposed reincorporation
merger.
The
submission of a blank proxy will constitute a vote in favor of the
reincorporation merger and a waiver of dissenter's rights. A vote against the
Reincorporation and Merger is not necessary for the shareholder to exercise
dissenter's rights and require Hartcourt to purchase their shares. A vote
against the reincorporation merger will not be deemed to satisfy the notice
requirements of the UBCA. The liability to the dissenting Stockholder for the
fair value of the shares shall be the liability of Maple China when and if the
reincorporation merger is consummated.
Any
shareholder contemplating the exercise of these dissenter's rights should review
carefully the provisions of Sections 16-10(a)-1301 et. seq. of the UBCA,
particularly the procedural steps required to perfect such rights. SUCH
DISSENTER'S RIGHTS WILL BE LOST IF THESE PROCEDURAL REQUIREMENTS ARE NOT FULLY
AND PRECISELY SATISFIED. A SUMMARY OF THE STATUTORY PROCEDURE TO PERFECT YOUR
DISSENTER'S RIGHTS IS SET FORTH BELOW AND A COPY OF SECTIONS 16-10(a)-1301 ET.
SEQ. OF THE UBCA IS ATTACHED AS ANNEX D.
Procedure
Within
ten days after the effective time of the reincorporation merger, Maple China
will send to each shareholder who has satisfied the requirements for exercising
dissenter’s rights a written notice in which Maple China will notify such
shareholders of their right to demand payment for their shares and will supply a
form for dissenting shareholders to demand payment.
Shareholders
will have 30 days to make their payment demands or lose such rights. If required
in the notice, each dissenting shareholder must also certify whether or not he
or she acquired beneficial ownership of such shares before or after the date of
the first announcement to the public of the proposed transaction. Upon receipt
of each demand for payment, Maple China will pay each dissenting shareholder the
amount that Maple China estimates to be the fair value of such shareholder's
shares, plus interest from the date of the completion of the reincorporation
merger to the date of payment. With respect to any dissenting shareholder who
does not certify that he or she acquired beneficial ownership of the shares
prior to the first public announcement of the transaction, Maple China may,
instead of making payment, offer such payment if the dissenter agrees to accept
it in full satisfaction of his or her demand. "Fair value" means the market
value of the shares immediately before the effectuation of the reincorporation
merger, excluding any appreciation or depreciation in anticipation of such
events.
Any
dissenter who does not wish to accept the payment or offer made by Maple China
must notify Maple China in writing of his or her own estimate of the fair value
of the shares within 30 days after the date Maple China makes or offers payment.
UNLESS A SHAREHOLDER MAKES SUCH A DEMAND WITHIN SUCH THIRTY-DAY PERIOD, THE
SHAREHOLDER WILL BE ENTITLED ONLY TO THE AMOUNT ESTIMATED BY MAPLE CHINA. If the
dissenting shareholder and Maple China are unable to agree on the fair value of
the shares, then Maple China will commence a proceeding with the Utah courts
within 60 days after receiving the dissenter's notice of his or her own estimate
of fair value. If Maple China does not commence such a proceeding within the
60-day period, it must pay each dissenter whose demand remains unresolved the
amount demanded by such dissenter.
If
a proceeding is commenced, the court will determine the fair value of the shares
and may appoint one or more appraisers to help determine such value. All
dissenting shareholders must be a party to the proceeding, and all such
shareholders will be entitled to judgment against Maple China for the amount of
the fair value of their shares, to be paid on surrender of the certificates
representing such shares. The judgment will include an allowance for interest
(at a rate determined by the court) to the date of payment. The costs of the
court proceeding, including the fees and expenses of any appraisers, will be
assessed against Maple China unless the court finds that the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment at a higher
amount than that offered by Maple China. Both Maple China and the dissenters
must bear their own respective legal fees and expenses, unless the court
requires one party to pay such legal fees and expenses because of the conduct of
such party.
48
The loss
or forfeiture of dissenter's rights simply means the loss of the right to
receive a cash payment from Maple China in exchange for shares. In such event
the shareholder would still hold the appropriate number of shares of Maple
China.
49
SHARE
EXCHANGE PROPOSAL
The plan
of reorganization and share exchange agreement contemplates that immediately
after the reincorporation merger of Hartcourt into Maple China, the surviving
corporation will acquire all of the outstanding shares of capital stock of
Sino-Canada in exchange for up to a maximum of 45,850,860 shares of common stock
of the surviving corporation (assuming the effectiveness of the reverse stock
split). As a result of the share exchange and assuming there is no adjustment to
the purchase price at closing, the former Sino-Canada shareholders will receive
approximately 38,209,048 shares of Hartcourt common stock and will own
approximately 86% of the issued and outstanding shares of
Hartcourt.
The terms
of the share exchange are the result of arm’s-length negotiations between
representatives of Hartcourt and Sino-Canada. The following is a brief
discussion of the background of these negotiations, the plan of reorganization
and share exchange agreement and related transactions.
Victor
Zhou, the Chief Executive Officer and a director of Hartcourt, contacted Ross
Yuan, the Chief Executive Officer and a director of Sino-Canada, for the purpose
of discussing a possible strategic transaction between their respective
companies. In the year prior to this meeting, Hartcourt had acquired
majority interests in two separate Chinese corporations dedicated to private
education. Mr. Yuan was receptive to a meeting for this purpose, and such
meeting took place in Shanghai, China on March 16, 2009.
During
this meeting, which was held at Sino-Canada’s office in Shanghai, Mr. Zhou
disclosed Hartcourt’s intention to pursue a merger with Sino-Canada by acquiring
all of the capital stock of Sino-Canada and its subsidiaries. At this
initial meeting, each executive presented information regarding the business
strategy of his respective company. In addition, the representatives
discussed the potential merits of a strategic combination, but did not agree on
any specific merger structure or terms.
Following
up on the initial meeting, Hartcourt invited Mr. Yuan to visit Beijing Yanyuan
Rapido Education Company, an educational institution in which Hartcourt held a
majority ownership position. During this visit on March 30, 2009, Mr.
Zhou of Hartcourt and Mr. Yuan of Sino-Canada each expressed interest in
pursuing a proposed transaction through a reverse takeover and share exchange
transaction. Each executive expressed interest in pursuing a mutual
financial and legal due diligence process, which began after this
meeting.
During
the first two weeks of June, the representatives of Hartcourt and Sino-Canada
maintained an active dialogue, and the two companies held a series of meetings
through phone calls and short informal visits. As a result of these
meetings, Mr. Zhou and Mr. Yuan, as well as other representatives of Hartcourt
and Sino-Canada, made progress in negotiating the terms of a potential
transaction.
After
considering options, Hartcourt selected Hongda Business Consulting
(Shenzhen) Co.,Ltd (“Hongda”) to act as a financial advisor with respect to the
proposed transaction.
On June16, 2009, Mr. Yuan and Mr. Zhou, representing Sino-Canada and Hartcourt,
respectively, held an in-person meeting again at Sino-Canada’s office in
Shanghai and discussed the material terms of a proposed transaction, including
the aggregate purchase price that Hartcourt might pay in the transaction in
terms of the number of shares of its common stock to be issued, upon a fixed
purchase price.
At this
meeting, Hartcourt proposed, on a term sheet level, the possibility of issuing
2,341,589,523 shares of its common stock at a fixed per share price of $0.011 to
acquire all the capital stock of Sino-Canada and its subsidiaries. As a result
of this proposed transaction, Sino-Canada would hold 85.82% of the total equity
Hartcourt after completion of the transaction. Hartcourt’s proposal
was based on the discussion and consideration of the strategic benefits of the
proposed transaction, the historical information of the two companies, the
financial analysis of the two companies, the valuation report of Sino-Canada
provided by Hongda which provided an independent valuation of
Sino-Canada.
In July,
Mr. Wilson Li, Chairman of the Board of Hartcourt, and Mr. Yuan, representing
Hartcourt and Sino-Canada respectively, and their financial and legal advisors,
had many discussions to negotiate the key non-financial terms of the proposed
transaction. The most significant of these discussions occurred
through phone calls held on July 10, July 16 and July 28, 2009.
Through
these telephone conversations, Hartcourt and Sino-Canada agreed to reincorporate
Hartcourt to Delaware and rename the company as Maple China Education
Incorporated upon the successful closing of the transaction.
During
these discussions, Sino-Canada also informed Hartcourt of its determination to
divest its wholly-owned subsidiaries, Sino-Canada Middle School (“SCMS”) and
Wujiang Fenghua Training Center (the “Training Center”) so as to focus on the
private international high school business. Based on this
restructuring plan, the proposal was for Sino-Canada Investment Group Inc. and
its subsidiaries Sino-Canada High School (“SCHS”), Wujiang Huayu Property
Management Company (“PM”) and Canadian Learning Systems Corporation (“CLSC”) to
become wholly-owned subsidiaries of Hartcourt as a result of the
transaction.
In order
to keep this structure and also maintain the agreed upon consideration
unchanged, Sino-Canada proposed to have CLSC enter into management service
agreements with each of SCMS and TC, through which CLSC would charge SCMS’s and
TC’s annual profits as compensation for its exclusive management service. This
structure was reviewed by the respective companies’ tax and financial
advisors.
Another
proposal which emerged from the discussions during this period was that
Hartcourt effect a one-for eighty reverse stock split in connection with the
transaction. Hartcourt’s management discussed this proposal with its
financial and legal advisors, and determined to submit this proposal to
Hartcourt’s board of directors and stockholders in connection with the approval
of transaction.
In
August, 2009, Ms. Amanda Zhang, Vice President of Hartcourt, and Mr. Ross Yuan,
representing Hartcourt and Sino-Canada respectively, had a few meetings at
Sino-Canada’s office in Shanghai for negotiating the terms necessary to finalize
a definitive agreement for the proposed reverse takeover and share exchange
transaction. Of these meetings, those held on August 10, August 19
and August 20, 2009 were most fruitful.
On August10, 2009, Hartcourt disclosed to Sino-Canada that it had entered into a Loan
Agreement with Yuan Dian Investment Inc. (“Yuan Dian”) for the US.
$1,300,000. Discussion with financial and legal advisors
ensued. The principals from the respective companies ultimately
agreed that this loan would be repaid through the issuance of 1,477,273 shares
of Hartcourt common stock upon the closing of the
transaction. Accordingly, the number of shares to be issued by
Hartcourt to Sino-Canada shareholders was adjusted to the amount of 38,209,049
shares (after the reverse stock split) so as to maintain Sino-Canada’s
shareholder proportion in Hartcourt post-transaction with the arrangement
previously agreed upon by the two companies.
As of
August 10, 2009, Sino-Canada’s board of directors met and approved the
transaction and entering into the Plan of Reorganization and Share Exchange
Agreement with Hartcourt. As of August 19, 2009, Hartcourt’s board of directors
called a meeting and, after extensive discussion, approved the proposed
transaction with Sino-Canada upon terms contained in the Plan of Reorganization
and Share Exchange Agreement. On August 20, 2009, representatives from the two
companies executed the definitive agreement for the reverse takeover and share
exchange transaction between the two companies.
Hartcourt’s
Reasons for the Share Exchange and Recommendation of the Hartcourt
Board
Our board
of directors concluded that the share exchange with the Sino-Canada shareholders
is in the best interests of our shareholders. As described below, our board of
directors considered both the potential advantages and potential disadvantages
of the share exchange with the Sino-Canada shareholders.
Potential
Advantages of the Share Exchange
In
considering and deciding to enter into the share exchange, Hartcourt’s board of
directors gave considerable weight to the positive factors discussed below, and
they also considered the negative factors discussed under the heading “Potential
Disadvantages of the Acquisition with Sino-Canada.”
·
Given
the complementary nature of the educational offerings of Hartcourt and
Sino-Canada in the Chinese education market, the transactions will enhance
the opportunity for the potential realization of Hartcourt’s strategic
objectives;
·
Hartcourt’s
stockholders would have the opportunity to participate in the potential
increase in revenues of the combined company after the share
exchange;
·
The
broadening and integration of the combined company’s offerings may enhance
the combined company’s ability to increase market
penetration;
·
The
combined resources of Hartcourt and Sino-Canada after the share exchange
may allow Hartcourt to compete more effectively against its competitors;
and
·
The
combined company may have more of an opportunity to raise additional
capital to fund the working capital needs and growth of the combined
company
Potential
Disadvantages of the Share Exchange
The
Hartcourt board of directors evaluated potential disadvantages of an acquisition
with Sino-Canada. They were not able to identify any factors associated
specifically with Sino-Canada or its industry that outweighed the advantages of
a acquisition.
·
The
possibility that the announcement and consummation of the share exchange
may negatively impact certain of Hartcourt’s customer and employee
relationships;
50
·
The
costs to Hartcourt of integrating the business, offerings and employees of
Sino-Canada and the transaction expenses of the share exchange and related
transactions;
·
The
dilutive effect of the issuance of Hartcourt common stock pursuant to the
Agreement; and
·
The
transfer of control of Hartcourt to the former Sino-Canada
shareholders.
Valuation
report received by the Hartcourt board of directors
Hartcourt
engaged Hong Da Accounting Firm to determine the fair market value of the shares
of Sino-Canada as at May 31, 2009.
Hongda
examined the audited financial statements of Sino-Canada for 2008 and 2007,
checked list of contracts and agreement as prepared by management, and reviewed
various industry information obtained from external sources. Particularly, the
financial forecasts used by Hong Da are based on reasonable assumptions, and
represent management’s best estimate of the future result of
Sino-Canada.
Since
Sino-Canada is in operation and considering the company’s anticipated returns,
the going concern approach was selected for valuing the company’s
shares.
As at May31, 2009, Sino-Canada’s subsidiaries include Sino-Canada High School (“SCHS”),
Wujiang Huayu Property Management Company (“PM”), Sino-Canada Middle School
(“SCMS”), and Wujiang Fenghua Training Center (“TC”). Sino-Canada holds 100%
shares in each subsidiary company. Given the complicated holding company
structure, the sum-of-part valuation approach is selected. The discounted cash
flow method and market comparison method are both used to value SCHS, the core
business of Sino-Canada. Cost recurring method is applied to other entities
within the Sino-Canada Group.
Using the
discounted cash flow approach, the fair market value of SCHS is derived by
calculating the present value of all future cash flows including the terminal
value of the company in the last year of the forecast, assuming the company can
have excessive capital to fund the further business expansion.
Hong Da
also considered the trading multiple of comparable companies similar to SCHS.
Given the high growth rate of Sino-Canada, the high end range of Price to
Earning multiple is selected from 18.0x to 20.0x. The proposed value of SCHS is
determined by combing the results of DCF and market comparison
methods.
For other
entities with Sino-Canada, the cost recurring method is applied, because there
are land use rights, buildings, and other real estate facilities. Due to the
fast development of real estate industry in the region, the market value of
individual assets has far exceeded its book value.
Hong Da’s
conclusion was that the fair market value of Sino-Canada at consolidation level
was estimated about RMB 242 million, equivalent to USD 35.5 million, as at May31, 2009.
Interests
of Hartcourt Officers and Directors in the Transactions
When you
consider the recommendation of our board of directors in favor of adoption of
the Share Exchange Proposal and the other proposals discussed in this proxy
statement, you should keep in mind that our executive officers and members of
our board of directors have interests in the transaction that are different
from, or in addition to, your interests as a stockholder. These interests
include, among other things:
·
Upon
completion of the acquisition, Messrs. Victor Zhou and Wilson Li will
continue to serve as directors of
Hartcourt.
51
Board
of Directors and Executive Officers of Maple China after Consumation of the
Share Exchange
After the
share exchange, the board of directors of the combined company shall consist of
five Sino-Canada nominees, Messrs. Ross Yuan, Tiezhi Zhang, Anmin Lu, Ping Mei
and Guoquan Shen, and two Hartcourt nominees, Victor Zhou and Wilson
Li. In accordance with the plan of reorganization and share exchange
agreement, the Sino-Canada nominees were nominated by the shareholders of
Sino-Canada and the Hartcourt nominees were nominated by Victor Zhou and Wilson
Li. Each director will remain in office until his or her successor is duly
elected or approved and qualified in accordance with Maple China’s certificate
of incorporation and bylaws or as otherwise provised by applicable law.
Additional information regarding each of the Maple China director designees is
set forth on Annex I hereto and incorporated herein by reference.
After the share exchange, the following
persons will serve as officers of Maple China:
·
Ross
Yuan, Chief Executive Officer
·
Simon
Mei, Chief Financial Officer
·
Tiezhi
Zhang, President
·
Fusheng
Xie, Vice President
·
Sun
Meifang, Chief Accounting Officer
·
Zhang
Jie, Secretary
Fees
and Expenses
All fees
and expenses incurred in connection with the share exchange and the party
incurring such expenses whether or not the share exchange is consummated will
pay the transactions contemplated thereby. We anticipate that we will
incur total transaction costs of approximately $350,000. Such costs do not
include transaction costs of approximately $50,000 anticipated to be incurred by
Sino-Canada. We expect these costs would ultimately be borne by us after the
acquisition if the proposed acquisition is completed.
Material
Federal Income Tax Consequences of the Share Exchange
The share
exchange should not have any U.S. federal income tax consequences to current
Hartcourt shareholders that are not Sino-Canada shareholders.
State, local or foreign income tax
consequences to shareholders may vary from the federal tax consequences
described above. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
EFFECT OF THE SHARE EXCHANGE UNDER APPLICABLE FEDERAL, STATE, LOCAL OR FOREIGN
INCOME TAX LAWS.
TO
ENSURE COMPLIANCE WITH IRS CIRCULAR 230, (I) THE FOREGOING DISCUSSION WAS
NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF
AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW; (II) THIS
DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE
REINCORPORATION MERGER; AND (III) EACH SHAREHOLDER SHOULD SEEK ADVICE BASED ON
HIS OR HER PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX
ADVISOR.
Anticipated
Accounting Treatment
The
Sino-Canada transaction will be accounted for as a reverse merger, whereby
Sino-Canada will be the continuing entity for financial reporting purposes and
will be deemed to be the acquirer of Hartcourt. The acquisition is
being accounted for as a reverse merger because after the acquisition the former
shareholders of Sino-Canada will hold the majority of the outstanding shares of
Hartcourt and will have the ability to initially appoint the majority of the
members of the board of directors of Hartcourt.
52
In
accordance with the applicable accounting guidance for accounting for the
acquisition as a reverse merger, first Sino-Canada will be deemed to have
undergone a recapitalization, whereby its outstanding ordinary shares were
converted into up to 45,850,860 shares of Hartcourt common
stock. Immediately thereafter Sino-Canada, which is the continuing
accounting entity, will have been deemed to have acquired the assets and assumed
the liabilities of Hartcourt in exchange for the issuance of the Hartcourt
shares. However Sino-Canada will be deemed to have acquired
Hartcourt, in accordance with the applicable accounting guidance for accounting
for business combination as a reverse merger, Hartcourt’s assets and liabilities
will be recorded at their historical carrying amounts, which approximate their
fair value, with no goodwill or other intangible assets recorded.
Regulatory
Matters
The share
exchange and the transactions contemplated by the plan of reorganization and
share exchange agreement are not subject to any additional federal or state
regulatory requirements or approvals, including the HSR Act.
53
NAME
CHANGE PROPOSAL
We are
asking you to approve amending our articles of incorporation to change our name
to Maple China Education Incorporated.
Reasons
for the Name Change
Hartcourt
believes a change to its name is appropriate to reflect that Sino-Canada will
account for a substantial portion of the business of the combined company after
the share exchange. Maple China Education is the translation of
“Fenghua,” the Chinese name of Sino-Canada. Hartcourt and Sino-Canada
believe that the Sino-Canada name represents a valuable brand and has a positive
social image in the east of China, and desire to take advantage of such brand
and image.
We cannot
assure you that the name change will have any of the desired consequences
described above.
Interaction
with Reincorporation Merger
If the reincorporation merger is
effected and the Name Change Proposal is approved, the name change would be
accomplished pursuant to the certificate of merger filed with the Delaware
Secretary of State.
If the
Agreement and Reincorporation Proposal is not approved, the Name Change Proposal
will not be presented at the meeting.
Required
Vote
The
approval of the Name Change Proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of our common stock on the
record date. Abstentions and broker non-votes will have the same effect of a
vote against the Name Change Proposal.
Conclusion of Hartcourt’s Board of
Directors
After
careful consideration of all relevant factors, our board of directors determined
that the Name Change Proposal is in the best interests of Hartcourt and its
stockholders. The board of directors has approved and declared the Name Change
Proposal advisable and recommends that you vote or give instructions to vote
“FOR” the proposal.
54
REVERSE
STOCK SPLIT PROPOSAL
We are
asking you to approve amending our articles of incorporation to effect a 1 for
80 reverse stock split in the outstanding shares of Hartcourt common
stock.
If
effected, the principal effects of the reverse stock split are expected to
be:
·
the
number of outstanding shares of Hartcourt common stock prior to the share
exchange will be reduced from approximately 389,015,544 to approximately
4,862,694; and
·
the
price of a share of common stock of Hartcourt will increase to reflect the
reduction in the number of outstanding shares, with the exact amount
depending on the reaction of the public market for our common stock
following the reverse stock split and other
factors.
Except
for adjustments that may result from the treatment of fractional shares and
without taking into account the share exchange, by itself the reverse stock
split will not have any dilutive effect on our shareholders since each
shareholder would hold the same percentage of common stock outstanding
immediately following the reverse stock split as such shareholder held
immediately prior to the reverse split.
Reasons
for the Reverse Stock Split
The
reverse stock split is primarily intended to increase our per share stock price
and to increase the attractiveness of our common stock to prospective investors
and the financial community. The closing price for our common stock as reported
on the OTC Bulletin Board during the period from January 2, 2009 to November 11,2009 has ranged from a high of $.03 to a low of $.01. The closing price on
November 11, 2009 was $0.01.
The board of directors believes that it
is in the best interest of Hartcourt and its shareholders
to approve the Reverse Stock Split Proposal in order to implement a reverse
stock split intended to increase the Company's bid price.
The board of directors believes that
the reverse stock split and anticipated increase in the per share price of our common stock
should enhance the acceptability and marketability of our common stock to
the financial community and investing public. Many institutional investors
have policies prohibiting them from holding lower-priced stocks in their
portfolios, which reduces the number of potential buyers of our common stock.
Additionally, analysts at many brokerage firms are reluctant to recommend lower-priced
stocks to their clients or monitor the activity of lower-priced stocks.
Brokerage houses also frequently have internal practices and policies that discourage
individual brokers from dealing in lower-priced stocks. Further, because
brokers' commissions on lower-priced stock generally represent a higher percentage
of the stock price than commissions on higher priced stock, investors in
lower-priced stocks pay transaction costs which are a higher percentage of their
total share value, which may limit the willingness of individual investors and
institutions to purchase the Common
Stock.
Although the board of directors
believes that a reverse split may be in the best interests of Hartcourt and its
shareholders, if implemented, the reverse split may result in some shareholders owning
"odd-lots" of less than 100 shares. Brokerage commissions and other costs
of transactions in odd lots may be higher, particularly on a per share basis, than
the cost of transactions in even multiples of 100
shares.
We cannot
assure you that the reverse split will have any of the desired consequences
described above.
Interaction
with Reincorporation Merger
If the reincorporation merger is
effected and the Reverse Stock Split Proposal is approved, the reverse stock
split would be accomplished pursuant to the certificate of merger filed with the
Delaware Secretary of State by converting the outstanding shares of common stock
of Hartcourt into a lesser number of shares of common stock of the surviving
corporation.
55
If the
Agreement and Reincorporation Proposal is not approved, the Reverse Stock Split
Proposal will not be presented at the meeting.
Effecting
the Reverse Stock Split
Assuming the Reverse Stock Split
Proposal is approved and the reverse split is consummated, after the effective
date of the reverse split, the common stock of the surviving corporation will
have a new committee on uniform securities identification procedures ("CUSIP")
number, which is a number used to identify a company's equity securities, and
stock certificates with the old CUSIP number will need to be exchanged for stock
certificates with the new CUSIP number by following the procedures described in
"Effect on Registered Certificated Shares" below.
After the effective date of the reverse
stock split, outstanding shares of Common Stock will remain fully paid and
non-assessable.
Effect
On Stock Options
The number of shares reserved for
issuance under our [Option Plan] will be reduced proportionately based on the
reverse stock split ratio of 1 for 80. In addition, the number of shares
issuable upon the exercise of options will be decreased and the exercise price
for such options will be increased based on the reverse stock split ratio and
according to the requirements of the Code. In connection with the reverse split,
the number of shares of Common Stock issuable upon exercise or conversion of
outstanding stock options will be rounded up to the nearest whole
share.
Effect
on Beneficial Shareholders
Hartcourt intends to treat shareholders
holding our common stock in "street name", through a bank, broker or other
nominee, in the same manner as registered shareholders whose shares are
registered in their names. Banks, brokers or other nominees will be instructed
to effect the reverse split for their beneficial holders holding Common Stock in
"street name". However, such banks, brokers or other nominees may have different
procedures than registered shareholders for processing the reverse stock split.
If you hold your shares with such a bank, broker or other nominee and if you
have any questions in this regard, we encourage you to contact your
nominee.
Effect
On Registered Certificated Shares
Some of
the Company's registered shareholders hold all their shares in certificate form.
If any of your shares are held in certificate form, you will receive a
transmittal letter from the Company's transfer agent, Signature Stock Transfer
Inc. (the "Transfer Agent"), as soon as practicable after the effective date of
the reverse stock split. The letter of transmittal will contain instructions on
how to surrender your certificate(s) representing your shares of our common
stock ("Old Certificates") to the Transfer Agent in exchange for certificates
representing the appropriate number of whole shares of Common Stock of Maple
China Education Incorporated as a result of the reverse split ("New
Certificates"). No New Certificates will be issued to a shareholder until such
shareholder has surrendered all Old Certificates, together with a properly
completed and executed letter of transmittal, to the Transfer Agent.
Consequently, you will need to surrender your Old Certificate(s) before you will
be able to sell or transfer your stock.
Shareholders will then receive a New
Certificate or certificates representing the number of whole shares of Common
Stock of Maple China Education Incorporated into which their shares of our
common stock have been converted as a result of the reverse stock split ("New
Common Stock"). Until surrendered, we will deem outstanding Old Certificates
held by shareholders to be canceled and only to represent the number of whole
shares of New Common Stock to which these shareholders are
entitled.
Any Old Certificates submitted for
exchange, whether because of a sale, transfer or other disposition of stock,
will automatically be exchanged for certificates evidencing shares of New Common
Stock.
56
If an Old Certificate has a restrictive
legend on the back of the Old Certificate, a New Certificate
evidencing shares of New Common Stock will be issued with the same restrictive
legends, if any, that are on back of the Old Certificate(s).
All expenses of the exchange will be
borne by us.
Shareholders should not destroy any
stock certificate(s). You should not send your old certificates to the Transfer
Agent until you have received the letter of transmittal.
Fractional
Shares
No fractional shares of common stock
will be issued as a result of the reverse stock split. Instead, shareholders who
otherwise would be entitled to receive fractional shares because they hold a
number of shares not evenly divided by 80, upon surrender to the exchange agent
of such certificates representing such fractional shares, will be entitled to
receive cash equal to that fraction multiplied by $.88. Except for
the right to receive the cash payment in lieu of fractional shares, shareholders
will not have any voting, dividend or other rights with respect to the
fractional shares they would otherwise be entitled to receive.
Certain
Risk Factors Associated With the Reverse Split
There
can be no assurance that the total market capitalization of our Common Stock
(the aggregate value of all the Company's Common Stock at the then market price)
after the proposed reverse split will not be less than the total market
capitalization before the proposed reverse split.
There can be no assurance that the
market price per new share of our common stock after the reverse stock split
will remain unchanged or increase in proportion to the reduction in the number
of old shares of our common stock outstanding before the reverse stock split.
For example, based on the market price of our common stock on [August 19, 2009]
of $[.011] per share and the 1 for 80 reverse stock split ratio, there can be no
assurance that the post-split market price of our common stock would be $.88 per
share or greater. Accordingly, the total market capitalization of our common
stock after the proposed reverse stock split may be lower than the total market
capitalization before the proposed reverse stock split and, in the future, the
market price of our common stock following the reverse split may not exceed or
remain higher than the market price prior to the proposed reverse stock
split.
If
the reverse stock split is effected, the resulting per share stock price may not
attract institutional investors or investment funds and may not satisfy the
investing guidelines of such investors and, consequently, the trading liquidity
of the Company's Common Stock may not improve.
While the Board believes that a higher
stock price may help generate investor interest, there can be no assurance that
the reverse split will result in a per share price that will attract
institutional investors or investment funds or that such share price will
satisfy the investing guidelines of institutional investors or investment funds.
As a result, the trading liquidity of our common stock may not necessarily
improve.
A
decline in the market price of our common stock after the reverse stock split
may result in a greater percentage decline than would occur in the absence of a
reverse split, and the liquidity of our common stock could be adversely affected
following such a reverse split.
If the reverse split is effected and
the market price of our common stock declines, the percentage decline may be
greater than would occur in the absence of a reverse stock split. The market
price of our common stock will, however, also be based on our performance and
other factors, which are unrelated to the number of shares outstanding.
Furthermore, the reduced number of shares that would be outstanding after the
reverse split could
adversely
affect the liquidity of our common stock.
57
Accounting
Consequences
All previously reported per share
amounts will be restated to reflect the effect of the reverse split as though it
had occurred at the beginning of the earliest period presented in the
consolidated financial statements. In addition, the amounts reported on the
consolidated balance sheets as common stock and additional paid in capital will
also be restated to reflect the reverse stock split.
Certain
Federal Income Tax Consequences of the Reverse Stock Split
The following discussion addresses
certain U.S. federal income tax consequences of the reverse stock split that are
applicable to holders of shares of our common stock.
The Company believes that the reverse
stock split of our common stock will constitute a tax-free transaction within
the meaning of Section 368(a)(1)(E) of the Code. Accordingly, it would generally
be the case for federal income tax purposes that: (i) no gain or loss will be
recognized by the holders of shares of the Company's Common Stock upon
consummation of the reverse split, (ii) the aggregate tax basis of shares of New
Common Stock will be the same as the aggregate tax basis of shares of the
Company's Common Stock exchanged in the reverse split, (iii) the holding period
of the New Common Stock received in the reverse split will include the period
for which shares of the Company's Common Stock were held, and (iv) the Company
will not recognize any gain or loss as a result of the reverse
split.
State, local or foreign income tax
consequences to shareholders may vary from the federal tax consequences
described above. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
EFFECT OF THE REVERSE STOCK SPLIT UNDER APPLICABLE FEDERAL, STATE, LOCAL OR
FOREIGN INCOME TAX LAWS.
TO
ENSURE COMPLIANCE WITH IRS CIRCULAR 230, (I) THE FOREGOING DISCUSSION WAS
NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF
AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW; (II) THIS
DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE
REINCORPORATION MERGER; AND (III) EACH SHAREHOLDER SHOULD SEEK ADVICE BASED ON
HIS OR HER PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX
ADVISOR.
Required
Vote for the Reverse Stock Split
The
approval of the Reverse Stock Split Proposal will require the affirmative vote
of the holders of a majority of the outstanding shares of our common stock on
the record date. Abstentions and broker non-votes will have the same effect of a
vote against the Reverse Stock Split Proposal.
Conclusion of Hartcourt’s Board of
Directors
After
careful consideration of all relevant factors, our board of directors determined
that the Reverse Stock Split Proposal is in the best interests of Hartcourt and
its stockholders. The board of directors has approved and declared the Reverse
Stock Split Proposal advisable and recommends that you vote or give instructions
to vote “FOR” the proposal.
58
SHARE
INCREASE PROPOSAL
We are
asking you to approve amending our articles of incorporation to increase the
number of authorized shares of common stock from 5,312,487.5, assuming the
effectiveness of the proposed reverse stock split, to 100,000,000.
Reasons
for the Share Increase
We do not
have sufficient authorized but unissued shares of our common stock to issue to
the Sino-Canada shareholders in the share exchange. Following the
share exchange, we will have approximately 49,286,446
remaining authorized but unissued shares of our common stock available
for future issuances.
Interaction
with Reincorporation Merger
If the reincorporation merger is
effected and the Share Increase Proposal is approved, the share increase would
be accomplished pursuant to the certificate of merger filed with the Delaware
Secretary of State.
If the
Agreement and Reincorporation Proposal is not approved, the Share Increase
Proposal will not be presented at the meeting.
Required
Vote
The
approval of the Share Increase Proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of our common stock on the
record date. Abstentions and broker non-votes will have the same effect of a
vote against the Share Increase Proposal.
Conclusion of Hartcourt’s Board of
Directors
After
careful consideration of all relevant factors, our board of directors determined
that the Share Increase Proposal is in the best interests of Hartcourt and its
stockholders. The board of directors has approved and declared the Share
Increase Proposal advisable and recommends that you vote or give instructions to
vote “FOR” the proposal.
59
BOARD
SIZE PROPOSAL
We are
asking you to approve amending our articles of incorporation to allow the board
of directors to fix the number of directors so long as there are at least 3 and
not more than 9 directors.
Reasons
for Addressing the Size of our Board of Directors
The plan
of reorganization and share exchange agreement contemplates that the board of
directors of the surviving corporation following the share exchange will consist
of seven members. The proposed range will allow for greater flexibility in the
future to increase or decrease the size of our board as deemed appropriate in
the discretion of our board of directors.
Interaction
with Reincorporation Merger
If the reincorporation merger is
effected and the Board Size Proposal is approved, the amendment of our articles
of incorporation would be accomplished pursuant to the certificate of merger
filed with the Delaware Secretary of State.
If the
Agreement and Reincorporation Proposal is not approved, the Board Size Proposal
will not be presented at the meeting.
Required
Vote
The
approval of the Board Size Proposal will require the affirmative vote of the
holders of a majority of the outstanding shares of our common stock on the
record date. Abstentions and broker non-votes will have the same effect of a
vote against the Board Size Proposal.
Conclusion of Hartcourt’s Board of
Directors
After
careful consideration of all relevant factors, our board of directors determined
that the Board Size Proposal is in the best interests of Hartcourt and its
stockholders. The board of directors has approved and declared the Board Size
Proposal advisable and recommends that you vote or give instructions to vote
“FOR” the proposal.
60
ADJOURNMENT
PROPOSAL
This
proposal allows Hartcourt’s board of directors to submit a proposal to adjourn
the special meeting to a later date or dates, if necessary, to permit further
solicitation of proxies in the event there are not sufficient votes at the time
of the special meeting to approve the Acquisition Proposal.
Reasons
for Adjournment Proposal
If this
proposal is not approved by Hartcourt’s stockholders, its board of directors may
not be able to adjourn the special meeting to a later date in the event there
are not sufficient votes at the time of the special meeting to approve the
Acquisition Proposal.
Required
Vote
Approval
of the Adjournment Proposal requires the affirmative vote of the holders of
Hartcourt’s common stock, present in person or represented by proxy at the
special meeting and entitled to vote thereon. Abstentions will have
the effect of a vote against this proposal, but broker non-votes will have no
effect on the approval of the proposal.
Conclusion of Hartcourt’s Board of
Directors
After
careful consideration of all relevant factors, Hartcourt’s board of directors
determined that the Adjournment Proposal of the special meeting for the purpose
of soliciting additional proxies is in the best interests of Hartcourt and its
stockholders. The board of directors has approved and declared the Adjournment
Proposal advisable and recommends that you vote or give instructions to vote
“FOR” the proposal.
61
INFORMATION
ABOUT SINO-CANADA
Business
Sino-Canada Investment Group, Inc., or
Sino-Canada, was formed in December 2006, in accordance with the Company Law of
the People’s Republic of China. Sino-Canada is primarily engaged in
the investment and management business in the sector of private education in
China. Sino-Canada operates through its wholly owned subsidiaries
Sino-Canada High School, Canadian Learning Systems Corporation, Wujiang Huayu
Property Management Company. In order to focus on the core business of high
school education, Sino-Canada determined in the third quarter of 2009 to spin
off its subsidiaries Sino-Canada Middle School and Wujiang Fenghua Training
Center. The divestiture of Sino-Canada Middle School was completed on
August 30, 2009. Sino-Canada will divest its subsidiary, the Wujiang
Fenghua Training Center, prior to the closing of the share exchange with
Hartcourt. Neither Sino-Canada nor any of its subsidiaries have been subject to
any bankruptcy, receivership or similar proceeding since inception.
Sino-Canada provides education
management services primarily through its subsidiary Canadian Learning Systems
Corporation, or CLSC. CLSC was incorporated in November 2003 in the
British Virgin Islands. As of the date of this proxy statement, CLSC
has entered into an exclusive management service agreement with each of the
following educational entities:
·
Sino-Canada
High School,
·
Sino-Canada
Middle School, and
·
Wujiang
Fenghua Training Center.
Under these agreements, CLSC charges an
exclusive management service fee to Sino-Canada High School, Sino-Canada Middle
School and Wujiang Fenghua Training Center. As of the date of this
proxy statement, CLSC’s business is highly dependent on the businesses of
Sino-Canada High School, Sino-Canada Middle School and Wujiang Fenghua Training
Center.
Sino-Canada High School, or SCHS, is a
fully certified Canadian Offshore High School located in Wujiang, Suzhou,
Jiangsu province in China. SCHS was established as a private
educational institution under the laws of China in July 2003. SCHS is
certified to provide dual diploma education acknowledged by the ministry of
education in both China and Canada. As of September 30, 2009, SCHS
had an enrollment of approximately 800 students and a teaching staff of
approximately 150. The student body is primarily from the Yangtze
River Delta Region of China, with students also enrolled from a number of
foreign countries, including Canada, United States of America, Korea, Turkey,
Japan and Russia.
CLSC and SCHS entered into a management
service agreement dated January 1, 2008 (the “SCHS Agreement”). Under this
agreement, CLSC provides exclusive education management services to SCHS,
including, among other things (a) coordinating with the assigned supervisor from
the Ministry of Education in British Columbia, Canada; (b) interviewing foreign
teachers for SCHS; (c) applying for an annual renewal from the Ministry of
Education of Canada to offer a Canadian high school education in China; and (d)
applying to the Ministry of Education in British Columbia, Canada in order to
award a diploma to SCHS’s graduating students. The SCHS Agreement is typically
renewed at the beginning of each calendar year.
Sino-Canada Middle School, or SCMS,
offers a general junior high school diploma education. SCMS was
established under the laws of China in February 2009. SCMS provides
junior secondary school education and awards its graduates with junior secondary
school diplomas recognized by the Chinese Ministry of Education. Its students
are primarily enrolled from the Yangtze River Delta Region of
China. CLSC and SCMS entered into a management service agreement
dated August 1, 2009. Under this agreement, CLSC provides exclusive
education management services to SCMS, including, (a) interviewing teachers for
SCMS; (b) providing expense management service in areas such as operating
expenses, communications, business travel and staff compensation; and (c)
providing other education management services. As compensation for
the education management services provided by CLSC, SCMS agrees to transfer all
of its profit earned to CLSC. SCMS also reimburses CLSC for any of
its expenses that are paid on behalf of SCMS. The management service
agreement with SCMS is a long-term contract; provided however, that the
compensation section of the agreement is subject to annual renewal by the two
parties.
62
The Wujiang Fenghua Training Center, or
the Training Center, offers non-diploma education. The Training
Center, established under the laws of China in February 2008, provides various
kinds of vocational training courses and other non-diploma training courses to
its customers. CLSC and the Training Center entered into a management
service agreement dated August 1, 2009. Under this agreement, CLSC
provides exclusive education management services to the Training Center,
including, (a) interviewing teachers for the Training Center; (b) providing
expense management service in areas such as operating expenses, communications,
business travel and staff compensation; and (c) providing other services related
to the Training Center. As compensation for the education management services
provided by CLSC, the Training Center agrees to transfer all of its profit
earned to CLSC. The Training Center also reimburses CLSC for any of
its expenses that are paid on behalf of the Training Center. The
management service agreement with the Training Center is a long-term contract;
provided however, that the compensation section of the agreement is subject to
annual renewal by the two parties.
Neither SCMS nor the Training Center
owns assets related to Sino-Canada’s business, and neither are parties to the
plan of reorganization and share exchange agreement described in proposal 1 of
this proxy statement.
Wujiang Huayu Property Management
Company, or PM, provides property management and related consulting services, to
SCHS and other companies and social entities besides Sino-Canada and its wholly
owned subsidiaries. As of the date of this proxy statement, PM owns the
gymnasium that is used by SCHS without charge. PM also intends to
purchase the student dormitories on SCHS’ campus, which are leased as of the
date hereof. PM charges certain service fee to SCHS for the property
management and maintenance service and related consulting services it provides
to SCHS. Meanwhile, PM generates certain revenue by providing property
management services to entities that are not affiliated with Sino-Canada and its
subsidiaries.
On August 20, 2009, Sino-Canada, SCHS,
SCMS and CLSC entered into a plan of reorganization and share exchange agreement
with The Hartcourt Companies, Inc. and its subsidiaries, and the shareholders of
Sino-Canada, which is the subject of this proxy statement. See “The
Plan of Reorganization and Share Exchange Agreement.”
Competition
Sino-Canada’s competitors primarily
consist of public schools and other dual diploma/curriculum high school
education providers in China. With the government supports and
greater financial resources, public schools dominate the local high school
education market. Sino-Canada has positioned itself as a dual diploma provider
to attract local students who have plans to pursue university education
overseas.
Other dual diploma / curriculum high
school education providers typically utilize one of three alternative business
models for Sino-foreign cooperative high school education: 1) a Chinese high
school education, combined with additional foreign curriculum instruction
(targeted only to Chinese students), 2) an exclusively foreign curriculum
resulting in a foreign diploma upon graduation (targeted to international
students), and 3) a combined Chinese and foreign curriculum, with the
opportunity to take the Chinese college entrance exam, as well as to study
abroad after graduation (this model is targeted to both Chinese and
international students).
In the Yangtze River Delta Region, SCHS
has built its brand awareness by adopting the third business model described
above. As part of its competitive strategy, SCHS places no restriction on
enrollment of students from foreign countries and charges reasonable enrollment
fees. SCHS students are not required to take an English language test
(i.e. TOEFL, IELTS, or other foreign university preparatory course) while
applying to attend foreign universities. Also, the tuition fee for SCHS is about
50% less than the comparable foreign schools. In the past several
years, 100% of SCHS graduates have been admitted by European and North America
universities, with some entering top foreign universities. [Data backing
previous two statements to be confirmed.]
Sino-foreign cooperative high school
education in China is currently at an early stage of development. Due to various
barriers to entry, most competitors have begun with trial-classes offered by a
domestic high school through cooperation with foreign schools, and are currently
very small in terms of scale. As of the date of this proxy statement,
there are only a few large, independent Sino-foreign cooperative education
providers for grades 10 through 12 in China, and thus the competition for SCHS
is limited in most area of China. Currently, Maple Leaf Education is
the largest independent private education provider in China that is also
authorized to provide Canadian high school curriculums certified by British
Columbia’s Ministry of Education. Headquartered in Dalian, Liaoning province,
Maple Leaf Education is currently doing its business in North China, and has a
greater number of schools under operation and a larger student enrollment than
Sino-Canada. Maple Leaf Education’s potential entry into Yangtze River Delta
region could have direct negative impacts on Sino-Canada’s
business.
63
Description
of Market
Given the demographic trends and fast
economic growth in China, the potential of private high school education,
especially foreign standard high school education, is tremendous. In
the past few years, certified offshore foreign standard high schools have become
more attractive choices for local students. Although such high schools comprise
only a very small percentage of the entire Chinese education market, the target
market is expanding very quickly and the market size is expected to grow
continuously over the next several years.
According to the Ministry of Education
in China, approximately six million students attended private high schools in
2006, which was more than double the number in 2002. [To be confirmed /
updated.] The statistics showed strong growth in the last several
years in private high school enrollment, and Sino-foreign cooperative high
schools are considered as private high schools for statistical
purposes. The market for Sino-foreign cooperative high school
education is still at an early development stage, so there are no public
statistics available for this market segment.
In recent years, more Chinese families
have been willing to send their children to study abroad, and there is a trend
toward foreign education after grade 12. This reflects rapid economic growth in
China and high demand for graduates with international
backgrounds. Also, Chinese cultural traditions favor investment in
education. Sino-foreign cooperative high schools benefit from these trends, and
according to the Ministry of Education of the China, exposure to western
education in China helps their graduates better adapt to western culture when
they pursue foreign studies.
Sino-Canada
expects that after the transaction with Hartcourt is completed, the combined
company can expand its market share by copying SCHS’ business model in other
major cities in China, mainly in east China and south China where rapid economic
growth should lead to increased demand for international
education. The combined company may also look for opportunities to
acquire or set up new schools in targeted cities. In the interim, SCHS will
extend its education services to the vocational and training segments through
use of its current teaching and faculty resources.
Marketing
Over the past several years, SCHS has
increased its spending on marketing and advertising through major newspapers and
television to attract and enroll more students, and Sino-Canada’s management
expects this trend to continue over the next few years.
In addition, SCHS has entered into an
agreement with a Korean student recruitment agency, whereby the agency collects
a commission deducted from the first-year tuition fee that SCHS charges its
students.
Seasonality
SCHS offers a two-semester curriculum
to enrolled students annually. Most students begin their study in September each
year, while only a few students commence studies in the spring semester. SCHS
charges once for the whole academic year, including tuition and miscellaneous
fees. Therefore, SCHS collects most or its cash flows in August and September
each year, while recognizing revenues collected in August and September evenly
throughout for the year. Only a small portion of tuition fees are collected at
the beginning of the spring semester, and the same revenue recognition method is
applied for those fees.
Approvals
and Regulations
To its knowledge, SCHS has obtained all
required licenses and approvals from the Chinese government necessary to provide
high school education in China. SCHS has also obtained Canadian high school
curriculum authorization from the British Columbia Ministry of
Education.
64
There are no existing domestic or
international governmental regulations on the business and services of
Sino-Canada and CLSC.
Intellectual
Property
Neither Sino-Canada nor CLSC has any
registered intellectual property. Sino-Canada and CLSC have not
conducted research and development activities in the last two fiscal
years.
Sino-Canada leases a facility for its
principal office, located at Room 2101, Silver Tower, No. 933, West Zhongshan
Road, Shanghai, China 200051, with the term of the lease expiring in July
2012.
As of September 30, 2009, SCHS held a
land use right covering approximately 25,200 square meters, which serves as a
campus for the school. SCHS also held a housing property right
covering approximately 21,215 square meters, used principally for
teaching.
Legal
Proceedings
Sino-Canada and its subsidiaries are
not a party to any pending litigation nor is it aware of any threatened or
potential legal proceeding.
65
SINO-CANADA’S
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion
of our financial condition and results of operations should be read in
conjunction with our audited financial statements and related notes appearing
elsewhere in this proxy statement. This discussion may contain
forward-looking statements based on current expectations involving risks and
uncertainties. Sino-Canada’s actual results may differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under “Risk Factors” or in other
parts of this proxy statement.
Overview
Sino-Canada
Investment Group, Inc., or Sino-Canada, is primarily engaged in the investment
and management business in the sector of private education in
China. Sino-Canada currently operates in the following areas of
private education: high school, middle school, vocational training and other
types of non-diploma training.
Sino-Canada
was formed in December 2006, in accordance with the Company Law of the People’s
Republic of China. Sino-Canada provides education management services
primarily through its subsidiary Canadian Learning Systems Corporation, or CLSC.
As of September 30, 2009, CLSC had entered into exclusive management service
agreements with Sino-Canada High School, Sino-Canada Middle School, and Wujiang
Fenghua Training Center. Pursuant to each of these agreements, CLSC
charges fees for its exclusive management services. As of the date of
this proxy statement, CLSC’s business is highly dependent on the businesses of
Sino-Canada High School, Sino-Canada Middle School and Wujiang Fenghua Training
Center. Currently, Sino-Canada High School is the core business of
Sino-Canada and contributes most of its revenue.
Established
in July of 2003, Sino-Canada High School (SCHS) is a private school approved by
both the Chinese and Canadian governments and authorized to provide a certified
Canadian high school curriculum and to award its graduates dual diplomas
recognized by the Ministry of Education in both China and Canada. The SCHS
campus covers a total area of approximately 50 acres and a building area of
approximately 21,215 square meters. The school has approximately 800 students
and 150 teaching staff at present.
The
growth of Sino-Canada’s business depends upon a number of factors, including its
ability to acquire or provide
management services to additional educational facilities, its ability to attract
more customers and a stable regulatory environment. Particularly, Sino-Canada
plans to grow rapidly by setting up new schools or acquiring existing private
high schools and utilizing the existing successful business model.
On August20, 2009, Sino-Canada, SCHS, SCMS and CLSC entered into a plan of reorganization
and share exchange agreement with The Hartcourt Companies, Inc. and its
subsidiaries, and the shareholders of Sino-Canada, which is the subject of this
proxy statement. See “The Plan of Reorganization and Share Exchange
Agreement.”
Results
of Operations
The
following table summarizes the results of our operations for the six months
ended June 30, 2009, the fiscal year ended December 31, 2008 (fiscal 2008) and
the fiscal year ended December 31, 2007 (fiscal 2007):
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2009 & 2008
(UNAUDITED)
2009
2008
Revenue
Education
$
2,599,872
$
1,785,336
Service
102,784
243
Net
revenue
2,702,656
1,785,579
Operating
expenses
General
and administrative expenses
1,743,482
1,494,049
Income
from operations
959,174
291,530
Other
income (expense):
Interest
income (expense)
-
(22,265
)
Other
income (expense), net
41,424
73,822
Total
other income (expense)
41,424
51,557
Net
income
1,000,597
343,088
Other
comprehensive item:
Foreign
currency translation gain (loss)
22,388
561,963
Net
comprehensive income (loss)
$
1,022,985
$
905,051
The
accompanying notes form an integral part of these financial
statements.
The net
revenue amount for the six month period ended June 30, 2009 was $2,702,656,
representing a 51% increase from $1,785,579 for the six month period ended June30, 2008. Primarily to an increase in the number of enrolled students
from 700 to 800, and an increase in the annual tuition fee to RMB 62,000 from
RMB 48,000, the net revenue increased significantly in the first half of 2009
over the comparable period in the prior year.
In the
future, Sino-Canada expects that it may experience rapid organic
growth. Another driving force of revenue is expected from the
acquisition of medium-sized high schools. However, Sino-Canada cannot
provide assurance that it will close any such acquisitions on favorable terms,
if at all. If Sino-Canada is unable to close acquisitions on
favorable terms in the short term, revenue will be less than
expected.
The
operating expenses for the six-month period ended June 30, 2009 was $1,743,482,
up from $1,494,049 for the six months ended June 30,2008. Sino-Canada spent more on advertising and promotion after the
increase of annual tuition fee to attract more potential students and continue
to build up its brand name, and as a result, the operating expenses increased
accordingly.
As a
result of the foregoing, the net income of six months period ended June 30, 2009
was $1,000,597, compared to $343,088 for the six months ended June 30, 2008,
indicating the healthy growth of private education business.
Due to
inflated RMB against USD, the foreign exchange translation gain was
$22,388 for six-month period ended June 30, 2009, down from $561,963 for
the six months ended June 30, 2008. Thus, foreign currency gains enhanced the
level of net comprehensive income in both periods, though the impace was less
significant in the six months ended June 30, 2009.
The
accompanying notes form an integral part of these financial
statements.
Net
revenues for fiscal 2008 were $3,892,668, representing an increase of
$1,228,988, or 46%, from $2,663,680 for fiscal 2007. The increase in net
revenues from 2007 to present was driven primarily by the increase of the number
of enrolled students from 380 to 700 with the annual tuition fee of RMB 48,000
holding steady over the periods.
In order
to serve more enrolled students, operating expenses have increased accordingly.
The operating expenses for fiscal 2008 was $2.93 million, increased from $1.66
million for fiscal 2007. The increase in operating expenses was driven primarily
by the increase of school faculty both from overseas and domestic, the more
expenditure on advertising and promotion, providing students additional
services, such as weekly shuttle buses, convenient living services,
etc.
Due to
inflated RMB against USD, the foreign exchange translation gain was $590,871 for
fiscal 2008 and $186,479 for fiscal 2007, respectively. Net income
for fiscal 2008 was $1,942,744, compared to net income of $1,326,309 in fiscal
2007, reflecting the rapid growth of Sino Canada’s businesses.
68
Liquidity
and Capital Resources
As of
June 30, 2009, cash and cash equivalents amounted to $1,188,333. As of December31, 2008, cash and cash equivalents amounted to $374,734, compared to the amount
of $1,709,353 as of December 31, 2007.
As of
June 30, 2009, December 31, 2008 and December 31, 2007, current assets on book
amounted to $8,521,238, $6,974,592 and $3,942,152, while current
liabilities amounted to $14,950,223, $15,894,655 and $9,745,781,
respectively.
Our principal sources of liquidity to
fund ongoing operations have been existing cash and cash equivalents on hand and
cash generated from operations. Based upon our current level of operations and
business conditions, we believe these sources will be sufficient to fund our
expected capital expenditures and to meet our working capital requirements along
with other cash needs over the next twelve months.
We would
need to add to our capital resources in fiscal 2009 for further expansion of our
businesses.
Consolidated
Cash Flows
The
following table summarizes our statements of cash flows for the dates
indicated:
Net
increase (decrease) in cash and cash equivalents
$
(1,408,328
)
$
767,481
Cash from
operating activities for the six-month period ended June 30, 2009 was $543,959,
as compared to the amount of $(1,647,881) for the six-month period ended June30, 2008. Cash used in operating activities for fiscal 2008 was
$1,625,773, compared to cash provided by operations of $2,830,591 in fiscal
2007.
Cash used
in investing activities for the six-month period ended June 30, 2009 was
$4,234,868, as compared to the amount of $(3,104,193) for the six months ended
June 30, 2008. Cash used in investing activities was $(8,090,887) in
fiscal 2008, as compared to $(1,769,251) used in investing activities in fiscal
2007.
Cash
provided by financing activities during 6 month period ended at June 30, 2009
was $(3,966,714), and was $3,741,375 for six-month period ended at June 30,2008. Cash provided by financing activities during fiscal 2008 was $5,056,786,
as compared to cash used in financing activities of $(293,860) during fiscal
2007.
As of
June 30, 2009, December 31, 2008 and 2007, cash and cash equivalent amounted to
$1,188,333, $374,734 and $1,709,353, respectively.
Planned
capital expenditures
We do not
project any material planned capital expenditures for fiscal 2009. After the
reverse take over transaction is completed, Sino-Canada currently
expects that it will seek external financings to expand geographically in
private high school education within China by acquiring other private schools
and integrating with the Sino-Canada High School.
Off-Balance
sheet arrangements
We have
no off-balance sheet arrangements and have no transactions involving
unconsolidated, limited purpose entities.
Seasonal
Influences
Sino-Canada’s
subsidiary, Sino Canada High School (SCHS), offers a two-semester curriculum to
enrolled students annually. SCHS charges once for the whole academic year,
including tuition and miscellaneous fees. As a result, SCHS collects
most or its cash flows in August and September each year, while recognizing
revenues collected in August and September evenly throughout for the year. Only
a small portion of tuition fees are collected at the beginning of the spring
semester, and the same revenue recognition method is applied for those
fees.
Critical
Accounting Policies and Estimates
The
preparation of the financial information contained in this proxy statement
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amount of revenue and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions. In preparing our financial statements and accounting
for the underlying transactions and balances, we apply our accounting policies
as disclosed in our notes to the consolidated financial statements. The
accounting policies discussed below are those that we consider to be critical to
an understanding of our financial statements because their application places
the most significant demands on our ability to judge the effect of inherently
uncertain matters on our financial results.
70
For all
of these policies, we caution that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment.
A summary
of the Company’s significant accounting policies consistently applied in the
preparation of the accompanying financial statements are as
follows:
Principles
of Consolidation
Per
Statement of Financial Accounting Standard (SFAS) #141, all business
combinations is accounted for by the purchase method. Acquisitions were recorded
as purchases in accordance with Accounting Principles Board Opinion No. 16 (APB
#16), “Business Combinations”, as modified, and the purchase prices were
allocated to the assets acquired, and liabilities assumed based upon their
estimated fair value at the purchase date. The excess purchase price over the
net asset value has been recorded as goodwill and is included in intangibles in
the accompanying balance sheet. The operating results of the acquired entities
are included in the Company’s consolidated financial statements from the dates
of acquisition.
The
consolidated financial statements for year ended December 31, 2008 include the
accounts of the Company and its wholly owned subsidiary SCHS, PM, and TC, that
for the year ended December 31, 2007 include the accounts of the Company and its
wholly owned subsidiary SCHS and PM. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America. The Company’s functional currency is the Chinese
Renminbi (RMB) and Canadian dollar (CAD); however the accompanying
financial statements have been translated and presented in United States Dollars
($). In the opinion of management, all adjustments considered necessary for a
fair presentation have been included.
Use
of Estimates
In
preparing of the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 5 to 45 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations.
Revenue
Recognition
The
Company recognizes its revenue in accordance with the Securities and Exchange
Commissions (“SEC”) Staff Accounting Bulletin N0. 104 “Revenue Recognition in
Financial Statements” (“SAB 104”). SAB 104 revises or rescinds portions of the
interpretive guidance included in Topic 13 of the codification of staff
accounting bulletins in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and SEC rules and
regulations. Revenue is recognized upon (i) the services are
performed, (ii) collectability is probable and (iii) such revenues are
contractually nonrefundable.
The
Company derives its revenue mainly from tuition fees and application fees.
Tuition fees is collected in advance on or before new semesters started. Tuition
fee is recognized as revenue proportionately as the instructions are delivered.
Tuition fees paid in advance are recorded as unearned revenue in balance sheet.
Company receives application fees from students to appear for the aptitude test
before the admission is granted. This application fees is a one time,
non-refundable fees. Therefore, application fees is collected and recognized as
revenue upon receipt of the fees.
71
Foreign
Currency Translation
As of
December 31, 2008, the accounts of the Company were maintained, and their
financial statements were expressed in their local currencies. Such consolidated
financial statements were translated into U.S. Dollars (USD) in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation," with the Chinese Renminbi (RMB) as the functional currency.
According to the Statement, all assets and liabilities were translated at the
exchange rate on the balance sheet date, stockholder's equity are translated at
the historical rates and statement of operations items are translated at the
weighted average exchange rate for the period or year. The resulting translation
adjustments are reported under other comprehensive income in accordance with
SFAS No. 130, "Reporting Comprehensive Income”.
Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the statement of shareholders' equity and amounted to
$902,422 and $311,466 as of December 31, 2008 and 2007,
respectively.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. This statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 160 to have
a significant impact on its results of operations or financial
position.
In March,
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows.
FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important. Based on current conditions, the Company
does not expect the adoption of SFAS 161 to have a significant impact on its
results of operations or financial position.
72
In May 0f
2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted Accounting
Principles. The pronouncement mandates the GAAP hierarchy reside in
the accounting literature as opposed to the audit literature. This
has the practical impact of elevating FASB Statements of Financial Accounting
Concepts in the GAAP hierarchy. This pronouncement will become
effective 60 days following SEC approval. The company does not
believe this pronouncement will impact its financial statements.
In May of
2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60. The scope of
the statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning
after December 31, 2008. The company does not believe this
pronouncement will impact its financial statements.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2010 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after June 15,2010.
Quantitative
and Qualitative Disclosures about Market Risk
We are
exposed to financial market risks, primarily fluctuating foreign currency
exchange rates and changes in interest rates. We do not utilize derivative
financial instruments, such as foreign currency hedges, to mitigate these
risks. We do not use derivative financial instruments for speculative
or trading purposes. The potential changes noted below are based on sensitivity
analyses performed on our financial position as of June 30,2009. Actual results may differ materially.
Foreign
Exchange Rate Risk
Since we
translate foreign currencies (primarily Chinese Yuans and Hong Kong Dollars)
into US dollars for financial reporting purposes, currency fluctuations can have
an impact on our financial results. The foreign currency translation gain was
$591 thousand and $186 thousand in 2008 and 2007 respectively, which accounted
for about 4% and 2% of total equity, because of the inflated RMB against USD.
Historically, the impact of the change of foreign exchange rate was material in
2008 and 2007.
We
strongly believe that the Chinese local currency RMB is expected to inflate
against USD in the foreseeable future, which will have positive impact on our
businesses. Although we can’t guarantee that the impact of foreign exchange rate
change will always be favorable in short term period, we estimate that, in 2009,
the impact of the change of foreign exchange rate will be favorable but not
material. We have not, and do not expect to, engage in any foreign
exchange hedging activities in fiscal 2009.
73
Risk
of Interest Rate Change
As of
June 30, 2009, we do not have any short-term investments or securities,
excluding those classified as cash and cash equivalents.
We have
both short-term and long-term bank loans as on June 30, 2009. The short-term
loan, amounting $6,574,334, bears an interest rate of 7% per annum, is payable
within a year, while the long-term loan, amounting $1,460,963, carries an
interest rate of 7% per annum and is payable after 2 years. The short-term loan
will be paid within the year and the new interest rate will be applied when we
renew the existing loan agreement. Therefore, the short-term is not subject to
interest rate risk. Since the long-term loan will be paid within 2 years and the
interest rate is fixed until the loan is due, we may have exposure to interest
rate risk, if the interest rate falls at the second year. If interest rate falls
1% at the second year, we will pay additional $80 thousand compared to market
interest rate.
74
INFORMATION
ABOUT HARTCOURT
Overview
The Hartcourt Companies, Inc. was
incorporated in Utah in 1983. Hartcourt currently focuses on the vocational
training and education market in the People’s Republic of China. Hartcourt is
incorporated in Utah and conducts business solely in China through wholly and
majority owned subsidiaries and indirectly majority owned subsidiaries in order
to comply with China's foreign ownership restrictions.
Hartcourt
wholly-owns three companies incorporated under the laws of the British Virgin
Islands, including Hartcourt Capital Inc., and AI-Asia Inc., and a third
inactive entity.
Hartcourt
Capital Inc. owns 100% of Shanghai Jiumeng Information Technology Co., Ltd.
(“Jiumeng Shanghai”), located in Shanghai, China. Jiumeng Shanghai
owns 60% of the equity interest of Beijing Yanyuan Rapido Education
Company. Founded by the Science Park of Peking University, Beijing
Yanyuan is a well-established training institution. Beijing Yanyuan offers a
program to help students rapidly improve their school grades. The program was
invented by Mr Zhenyu Hu, president of Beijing Yanyuan. Beijing Yanyuan is the
sole general agent appointed by the Science Park of Peking University to promote
and market this training program.
AI-Asia,
Inc. owns 100% of Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd (former name is AI-Asia (Shanghai) Information Technology,
Inc), a company primarily engaged in the vocational training and eduction
business in China, and is located in Shanghai, China. AI-Asia, Inc.
also owns 60% of the equity interest of China Arts and Science Academy. China
Arts and Science Academy is an online education provider in China focusing on
vocational education. The courses offered by China Arts and Science Academy
through its websites are designed to help professionals and other course
participants obtain and maintain the skills and certifications necessary to
pursue careers in various industries.
China’s
Education Markets
China’s education market is large and
growing rapidly because of favorable demographic, consumer spending trends and
the increased importance placed on higher and professional education in
China.
According
to the Ministry of Education (MOE), 29 million students will reach college age
in the next 5 years, a 40% increase. While MOE-controlled universities and
colleges still maintain dominant market share, the field is now open for private
and foreign investment capital. In addition, MOE has put priority on privatizing
all vocational schools and educational institutions that offer degrees lower
than Bachelor. However, the market is very competitive and diverse.
Business
Development
In August
2006, after reviewing its business condition, competitive position, and
opportunities in China, Hartcourt decided to change its business by focusing on
the education market in China to take advantage of the substantial market demand
for education services. Following such determination, Hartrcourt acquired three
businesses. However, currently only two of the acquired companies,
Beijing Yanyuan Rapido Education Company and China E & I Development Co.
Ltd., continue to have viable businesses.
On July23, 2008, Hartcourt completed the acquisition of 60 percent of the outstanding
equity interests of Beijing Yanyuan Rapido Education Company (“Beijing Yanyuan”)
in exchange for 69 million shares of Hartcourt restricted common stock, pursuant
to the terms of a definitive agreement entered into between the two
parties.
On
October 31, 2008, Hartcourt completed the acquisition of 60 percent of the
outstanding equity interests of China E & I Development Co. Ltd., which does
business as the China Arts and Science Academy (“China Arts and Science
Academy”), in exchange for 40 million shares of Hartcourt restricted common
stock, pursuant to the terms of a definitive agreement entered into between the
two parties.
75
Competitive
Strengths
Beijing
Yanyuan enjoys the competitive strengths from being the agent appointed by the
Science Park of Peking University, which is one of the most well known
universities in the national wide in China. Beijing Yanyuan has also built up a
sound team in teaching and management. In addition, the president of Beijing
Yanyuan Mr. Zhengyu Hu’s personal image and reputation brings certain benefits
and values to the company.
China
Arts and Science Academy’s competitiveness strengths mainly come from offering a
wide scope of training programs to its customers and satisfying all types of
needs from its customers in training and education.
Products
and Services
Hartcourt
presently focuses on the vocational tranining and non-diploma education market
in China. Its subsidiary Beijing Yanyuan offers a program to help students
rapidly improve their school grades as the general agent appointed by the
Science Park of Peking University.
China
Arts and Science Academy, the other viable business of Hartcourt, is a provider
of online education in China focusing on vocational education. The courses
offered by China Arts and Science Academy through its websites are designed to
help professionals and other course participants obtain and maintain the skills
and certifications necessary to pursue careers in China in the areas of
accounting, law, business administration, marketing, HR, international trade,
business English, computer application, information technology and other
industries. Course participants are able to access the courses through the
Internet at times and places most convenient for them, and to easily interact
with a broad online community of course participants, professionals, lecturers
and tutors.
Customers
Hartcourt
is mainly targeting at customers who are seeking for getting vocational
education or technical trainings in the Chinese market. Beijing Yanyuan is
primarily focusing on college students who are desirous to improve their grades
and other capabilities which could be helpful for their job seeking after
graduation. China Arts and Science Academy is targeting at a wider basis of
customers by providing online education to help its customers to obtain and
maintain the skills and certifications necessary to pursue careers in China in
the areas of accounting, law, business administration, marketing, HR,
international trade, business English, computer application, etc.
Sales
and Marketing
The sales
and marketing of Hartcourt current business is highly dependent on
advertisements through newspapers and television to attract more
customers.
Seasonality
The peak
season of Beijing Yanyuan’s business is in the spring time from April to June as
the graduation exams are usually scheduled in June and July and more students
choose to attend the exam preparation courses and trainings before the exams.
The high season China Arts and Science Academy’s business is usually in the
summer and winter when students are in school holidays and have more spare time
for additional professional and technical trainings, however, the seasonality of
China Arts and Science Academy’s business is in general not very
obvious.
Competition
Hartcourt
faces competition from non-profit private entities and from the public school
system and public colleges, including those that offer distance-learning
programs. Most of Hartcourt competitors in both the private and
public sector have comparatively greater financial and other resources. Many
public and private colleges and universities, as well as other private
career-oriented schools in the market, offer programs similarly, which
intensifies the competition.
76
Intellectual
Property
Due to
the acquisition of Beijing Yanyuan and China Arts and Science Academy, Hartcourt
has intellectual property in connection to the course softwares and course
materials.
Employees
As of May31, 2009, Hartcourt had approximately 40 employees, all of which were located in
China. Hartcourt believes its future success and growth will depend on its
ability to attract and retain qualified employees in all areas of its business.
Hartcourt does not currently have any collective bargaining agreements with its
employees, and believes its employee relations are generally good. Although
Hartcourt has employment-related agreements with a number of key employees,
these agreements do not guarantee continued service. Hartcourt believes it
offers reasonable compensation and a good working environment. However,
Hartcourt faces intense competition for qualified employees, and it expects to
face continuing challenges in recruiting and retention.
Facilities
Hartcourt leases its offices and
facilities under long-term, non-cancelable lease agreements expiring at various
dates through January 27, 2010. The non-cancelable operating lease agreements
provide that Hartcourt pays certain operating expenses applicable to the leased
premises according to the Chinese Law. Rental expense for the fiscal year ended
May 31, 2009 and 2008 were $90,455 and $87,391, respectively.
Hartcourt leases training centers and
administrative facilities in the markets that it serves. Hartcourt’s management
believes that its facilities are well-maintained, adequate for its current
needs, and that it will be able to locate additional facilities as
needed.
Legal
Proceedings
Hartcourt
Hi-Tech Investment (Shanghai) Inc. filed a compliant against Beijing Yi Zhi He
Lian Information Technology Co., Ltd for returning RMB 1,000,000 which it owed
the Company. On December 19, 2006, Beijing Shi Jing Shan District Court entered
the judgment in this case. The court found that Hartcourt Hi-Tech Investment
(Shanghai) Inc. has no rights to file the compliant against Beijing Yi Zhi He
Lian Information Technology Co., Ltd. unless designated by Hartcourt Capital,
Inc., which signed and was bound by the acquisition agreement. The court issued
an order overruling the complaint from Hartcourt Hi-Tech Investment (Shanghai).,
Inc. as the plaintiff. The plaintiff can appeal to Beijing No. 1 Intermediate
People’s Court if objecting to the rule. The Company has prepared additional
lawsuit material and lodged the petition to appeal to Beijing No. 1 Intermediate
People’s Court.
On August10, 2007, Hartcourt Capital Inc filed a lawsuit in the Beijing No. 1
Intermediate People’s Court against Beijing Yi Zhi He Lian Information
Technology Co., Ltd to return the RMB 1,000,000 which it owes the Company. The
lawsuit is in the initial stage and the outcome cannot be estimated as of
September 30, 2009.
Basic and diluted earnings
(losses) per weighted average
share
0.00
(0.01
)
(0.02
)
Balance
Sheet Data
Cash
and cash equivalents
102
5
21
Total
assets
5,775
47
1,416
Working
capital
68
(1,635
)
(1,157
Shareholders
equity
3,897
(1,612
)
196
Common
Stock Data
Shares
of Common Stock (Year-End)
386,967
205,762
205,082
Shares
of Common Stock (Average)
304,501
205,488
197,513
Dividends
Paid per Share
--
--
--
Book
Value Per Share (Year End)
0.00
(0.01
)
(0.02
78
HARTCOURT’S
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with Hartcourt’s Financial
Statements and footnotes thereto contained in this proxy statement.
Forward-looking
Trends
All
forward-looking statements in this document are based on the financial
information of the Company as of May 31, 2009 and we assume no obligation to
update any such forward-looking statements. The following discussion should be
read in conjunction with our audited condensed consolidated financial statements
as of May 31, 2009, May 31, 2008 and the accompanying notes.
Overview
Hartcourt
focuses on the vocational/training and education market in the People’s Republic
of China. Our operations for the fiscal years ended May 31, 2009 and 2008
primarily consisted of operations of Beijing Yanyuan (60% indirect ownership
interest) and China Arts and Science Academy (60% indirect ownership interest),
located in China.
The
Company is focusing on the growing Chinese vocational training and education
market. However, the Company is facing up with the challenges brought by the
impact of the international financial crisis, including the size shrinking of
the training market. Furthermore, most of the acquisition strategies of the
Company in the past years have been proved to be unsuccessful. The Company
currently only has two viable operations of Beijing Yanyuan and China Arts and
Science Academy generating limited revenue and profitability. Therefore, the
Company’s management is changing the focus on the diploma and curriculum
education business and is looking for mergers and acquisitions with profitable
education business so as to get a better return to the Hartcourt shareholders.
Under this background, the Company is looking forward to undertaking the reverse
takeover transaction with Sino-Canada Investment Group Inc.
The
following discussion and analysis are based on the historical figures and
information and reflect our education business.
Revenues
were $2,431,955 for the twelve months ended May 31, 2009 compared to zero for
the same period in 2008. The increased revenues were primarily due to revenue
generated by Beijing Yanyuan and China Arts & Science Academy, two
subsidiaries in which we acquired a 60% equity interest during the twelve months
ended May 31, 2009. We currently derive revenues from the following
sources:
●
educational
programs and services, which accounted for 90% of our total net revenues
as of May 31, 2009; and
●
books
and others, which accounted for 10% of our total net revenues as of May31, 2009.
Cost
of revenue:
Cost of
revenues was $368,167 for the twelve months ended May 31, 2009 compared to zero
for the same period in 2008. The increased cost of revenue was primarily due to
costs of revenue attributable to the operations of Beijing Yanyuan and China
Arts & Science Academy, two subsidiaries in which we acquired a 60% equity
interest during the year ended May 31, 2009. Cost of revenue consisted primarily
of printing costs of books and other materials and relevant sales
tax.
79
General and
administrative expenses:
Our
general and administrative expenses were $1,343,842 for the fiscal year ended
May 31, 2009 compared to $1,299,858 for the same periods in 2008, an decrease of
$43,985 or 3% compared to the fiscal year ended May 31, 2008. The increase of
expenses for the fiscal year ended May 31, 2009 and year ended May 31, 2008 were
primarily due to expenses increase by management.
Depreciation and
amortization expenses in operating expenses:
Our
depreciation and amortization expenses in operating expenses were $20,839 for
the fiscal year ended May 31, 2009 compared to $13,510 for the same periods in
2008 or 54% increase. The increase was primarily due to the acquisition of
Beijing Yanyuan and China Arts & Science Academy, two subsidiaries in which
we acquired a 60% equity interest during the twelve months ended May 31,2009.
Income (Loss)
from Continuing Operations:
Income
from continuing operations for the fiscal year ended May 31, 2009 was $699,107,
compared to loss amounted to $1,996,356 for the fiscal year ended May 31,2008. The increased income was primarily due to revenue generated by
Beijing Yanyuan and China Arts & Science Academy, two subsidiaries in which
we acquired a 60% equity interest during the twelve months ended May 31,2009.
Gain
on Settlement of Debt:
During
the fiscal years ended May 31, 2009 and 2008, the Company has gain on settlement
of debt amount of $182,687 and $0, respectively. This amount is due to the
negotiation between the Company and non related third party. The third party
agreed to settle for a lesser amount as they will continue to do business with
the Company.
Discontinued
operations:
During
the fiscal years ended May 31, 2009 and May 31, 2008, the discontinued
operations represent the operating results of Shanghai Huaqing, which was
determined by the management to be disposed in 2008.
Income
Tax:
The
Company has income tax during the fiscal years ended May 31, 2009 compared with
prior year, due to the new profitable acquisitions.
Minority
interest:
Minority
interest represented the profit shared by the minority shareholders of each of
Beijing Yanyuan and China Arts & Science (40%).
Liquidity
and Capital Resources:
As
shown in our accompanying financial statements, we had a net income of $15,146
for the fiscal year ended May 31, 2009 as compared to a net loss of $1,973,478
for the same period in 2008.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company’s assets and the satisfaction of
liabilities in the normal course of business.
The
Company has taken certain restructuring steps to provide the necessary capital
to continue its operations. These steps included:
80
·
Look
for growth opportunities through acquisitions of profitable education
businesses;
·
Raise
additional capital through public offerings or private placements;
and
·
Take
measures to control costs and operating
expenses.
However,
the Company has not realized the expected benefits of such restructuring and
acquisition steps. The acquisition of Hartcourt Princely was unsuccessful and
Hartcourt currently has only two viable operations, Beijing Yanyuan and Chia
Arts and Science Academy, of which Hartcourt owns 60% of the shareholding rights
and which generates limited size of revenues. Therefore, the Company’s strategy
in pursuing acquisitions and capital raise in the past year is considered as
unsuccessful.
Hartcourt
presently still maintains its operations in a healthy way and has realized the
revenue of $2.43 million and an income of $699 thousand through its acquired
businesses Beijing Yanyuan and China Arts & Science Academy in the past
year. Therefore, Hartcourt is able to satisfy the minimum requirement for
business running and there is no doubt on its ongoing concern at present.
Nevertheless, the management of Hartcourt could not foresee much room for
further business development based on its current viable operations and may have
to seek for further acquisitions, which might bring challenges of insufficiency
in capital to the Company as the acquisition transactions could be expensive for
the Company. The Company might need to seek for additional financing and there
is no assurance for the success of such financings. Therefore, the Company
management has determined to change the corporate strategy and to pursue a
reverse takeover merger with a viable education business.
Operating
activities:
During
the fiscal year ended May 31, 2009, net cash provided by operating activities
was $664,643, compared to net cash used in operating activities of $638,514
during the fiscal year ended May 31, 2008. The cash used in operating activities
in the fiscal year ended May 31, 2009 resulted mainly from income of $15,145 ,
and an increase of account receivable of $758,055, and an decrease of accounts
payable of $316,394, and stock option costs of $309,960, and accrued expenses
and other current liabilities of $333,078. The cash used in operating activities
in the fiscal year ended May 31, 2008 resulted from loss of $1,973,478 netted
against, among other things, stock option costs of $151,060, provision for
investment of $70,436, goodwill impairment of $682,988, and accrued expenses and
other current liabilities of $432,377.
Investing
activities:
Net cash
used in investing activities during the fiscal year ended May 31, 2009 were
$816,959 compared to net cash provided by investing activities of $524,844 for
the fiscal year ended May 31, 2008. The cash used in investing activities during
the fiscal year ended May 31, 2009 was mainly due to the loan receivable of
$822,551 and cash received upon acquisition of $6,177. The cash provided by
investment activities in the fiscal year ended May 31, 2008 was due to the cash
received upon disposal of assets of $535,704 and cash decrease due to purchase
of property and equipment of $10,860.
Financing
activities:
Cash
provided by financing activities during the fiscal year ended May 31, 2009 was
$297,719 compared to net cash provided by financing activities of $97,966 during
the fiscal year ended May 31, 2008. Net cash provided by financing activities
during the fiscal year ended May 31, 2009 was mainly due to proceeds of $900,000
paid by purchasers of shares of our common stock in private placements and
$653,139 cash dividend paid to two subsidaries. Cash provided by financing
activities during the fiscal year ended May 31, 2008 was primarily due to
$38,414 of sales of common stock and proceed of $59,552 from related
parties.
81
Off-Balance
Sheet Arrangements
During
the fiscal year ended on May 31, 2009, Hartcourt did not engage in any
off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s
Regulation S-K.
Forward-Looking
Trends
By the
fiscal year ended on May 31, 2009, the Company has generated the revenue of
$2.43 million through its current businesses. The management of the Company
forrsees that its revenue might be slightly increased for the fiscal year ended
on May 31, 2010.
On the
other hand, by pursuing a merger with Sino-Canada, the management of Hartcourt
foresees that the remaining entity after the transaction, Maple China Education
Incorporated, will integrate the private school education business of
Sino-Canada and the vocational training business of Hartcourt. Maple China will
position itself primarily at the sector of certified offshore private schools,
specifically certified offshore Canadian high schools, which is recognized by
the Ministry of Education in both China and Canada. The Hartcourt current
business will be supplementary to the core business of certified high school
education.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Short-Term
Investment Portfolio
We do not
hold derivative financial instruments in our portfolio of short-term
investments. Our short-term investments consist of instruments that meet quality
standards consistent with our investment policy. This policy specifies that,
except for direct obligations of the United States government, securities issued
by agencies of the United States government, and money market or cash management
funds, we diversify our holdings by limiting our short-term investments. As of
August 31, 2009, all our cash equivalents represent cash on hand and cash
deposit in PRC banks, the interest rate earned on our money market accounts
ranged from 0.81% to 1.71% per annum.
Interest
Rate Risk
Our cash
equivalents are subject to market risk due to changes in interest rates.
Interest rate movements affect the interest income we earn on cash
equivalents.
Impact
of Foreign Currency Rate Changes
Since we
translate foreign currencies (primarily Chinese Yuans and Hong Kong Dollars)
into US dollars for financial reporting purposes, currency fluctuations can have
an impact on our financial results. The historical impact of currency
fluctuations has generally been immaterial. We believe that our exposure to
currency exchange fluctuation risk is not significant primarily. Although the
impact of currency fluctuations on our financial results has generally been
immaterial in the past and we believe that for the reasons cited above currency
fluctuations will not be significant in the future, there can be no guarantee
that the impact of currency fluctuations will not be material in the future. As
of August 31, 2009, we did not engage in foreign currency hedging
activities.
82
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Hartcourt
Related Party Transactions
In connection with the election of the
directors nominated by the Sino-Canada shareholders, and the appointment of the
new officers of the Hartcourt, following the closing, Hartcourt and each such
person will enter into Hartcourt’s standard form of indemnification agreement
for directors and officers of Hartcourt, which generally requires Hartcourt to
indemnify and to advance expenses to him to the maximum extent that applicable
law permits a corporation to indemnify and to advance expenses to an officer of
the corporation. A copy of the form of indemnification agreement for directors
and officers has been previously filed by Hartcourt with the SEC.
Sino-Canada
Related Party Transactions
Since January 1, 2008, Sino-Canada has
not been a party to any transaction or series of similar transactions in which
the amount involved exceeded or will exceed $120,000 and in which any director,
executive officer, holder of more than five percent of Sino-Canada’s common
stock, or any member of the immediate family of any of the foregoing, had or
will have a direct or indirect material interest.
Review,
Approval or Ratification of Transactions with Related Persons
All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, including loans by our officers and directors,
will be on terms believed by us to be no less favorable to us than are available
from unaffiliated third parties. Such transactions or loans, including any
forgiveness of loans, will require prior approval by a majority of our
uninterested “independent” directors (to the extent we have any) or the members
of our board who do not have an interest in the transaction, in either case who
had access, at our expense, to our attorneys or independent legal counsel. We
will not enter into any such transaction unless our disinterested “independent”
directors (or, if there are no “independent” directors, our disinterested
directors) determine that the terms of such transaction are no less favorable to
us than those that would be available to us with respect to such a transaction
from unaffiliated third parties.
83
BENEFICIAL
OWNERSHIP OF SECURITIES
Security
Ownership of Hartcourt
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of November 11, 2009, (a) by each person known by us to own
beneficially 5% or more of our common stock, (b) by each of our current
executive officers and directors and (c) by all our executive officers and
directors as a group.
We
calculated the “Percent” based on 386,966,816 shares of common stock outstanding
on November 11, 2009. Shares of common stock
subject to options that are currently exercisable or exercisable within 60 days
of November 11, 2009 are deemed to be outstanding and to be beneficially owned
by the person holding such option for the purpose of computing the number of
shares of common stock beneficially owned by that
person, as well as the percentage ownership of that person, but they are not
treated as outstanding for the purpose of computing the
percentage ownership of any other person. We believe that all
persons named in the table have sole voting and investment power with respect to
all the shares beneficially owned by them.
Name and Address of Beneficial
Owner(1)
Number of Shares (2)
Percent
Victor
Zhou, Director and Chief Executive Officer
9,718,977
(3)
2.5%
Wilson
Li, Director and Chairman
2,693,318
(4)
*
Zhenyu
Hu, Director
46,000,000
11.9%
Stephen
Tang, Director
272,120
*
George
Xu, Director
176,644
*
Rachel
Zhang, Chief Financial Officer
271,809
*
All
directors and executive officers as a group (6 persons)
59,132,868
(5)
15.3%
*
Less
than 1% of our outstanding shares of common
stock.
(1)
Unless
otherwise indicated, the address for each stockholder listed in the
following table is c/o The Hartcourt Companies, Inc., Room 503, Jinqiao
Building, No. 2077, West Yan’an Road, Shanghai,
China.
(2)
Unless indicated in the notes,
each shareholder has sole voting and investment power for all shares
shown, subject to community property laws that may apply to
create shared voting and investment power.
(3)
Shares beneficially owned by
Victor Zhou include (a) 243,977 shares of common stock held by Mr. Zhou;
(b) options to purchase 100,000 shares of our common
stock that are currently exercisable; (c) options to purchase 9,375,000
shares of our common stock that are
currently exercisable.
(4)
Shares beneficially owned by
Wilson Li include (a) 1,593,318 shares of common stock held by Mr. Li; (b)
options to purchase 100,000 shares of our common
stock that are currently exercisable; and (c) options to purchase
1,000,000 shares of our common stock that
are exercisable currently
exercisable.
(5)
Shares
beneficially owned by all Executive Officers and Directors as a group
includes the shares held by each and options granted as in above (3) and
(4).
84
Security
Ownership of Sino-Canada
The
following table sets forth the information regarding beneficial ownership of the
capital stock of Sino-Canada as of October 31, 2009, (a) by each person known by
us to own beneficially 5% or more of our common stock, (b) by each of our
current executive officers and directors and (c) by all our executive officers
and directors as a group. We calculated the “Percentage” based on 50,000,000
shares of common stock outstanding on October 31, 2009. As of October31, 2009, no shares of common stock were subject to outstanding stock options or
warrants. We believe that all persons named in the table below have sole voting
and investment power with respect to all the shares beneficially owned by
them.
Stockholder Name and Address
(1)
Number of Shares
Percentage(2)
Ross
Yuan, Chief Executive Officer andDirector
(3)
32,000,000
64%
Yuan
Chen
5,270,000
10.54%
Wei
Xie
5,270,000
10.54%
Jianhua
Jiao
5,100,000
10.20%
Tiezhi
Zhang, President
-
*
Fusheng
Xie, Vice President
-
*
Simon
Mei, Chief Financial Officer
-
*
Sun
Meifang, Chief Accounting Officer
-
*
Jie
Zhang, Secretary
-
*
All
directors and executive officers as a group (6 persons)
50,000,000
64%
(1)
Unless
otherwise indicated, the address for each stockholder listed in the
following table is c/o Sino-Canada Investment Group, Inc., 933 West
Zhongshan Road, Shanghai, China
200051.
(2)
*
Indicates ownership of less than one
percent.
(3)
Shares
beneficially owned include 32,000,000 shares owned by Sino-Canada
Investment Incorporated. The business address of Sino-Canada Investment
Incorporation is Room 2101, 933 W. Zhongshan Road, Shanghai, China 200051.
Mr. Yuan is the Chief Executive Officer and the sole director of
Sino-Canada Investment
Incorporated.
Security
Ownership of Hartcourt after the Acquisition
The
following table sets forth information with respect to the beneficial ownership
of our common stock immediately after the consummation of the acquisition by
each person who is expected to beneficially own more than 5% of our common stock
and each post-acquisition officer, each post-acquisition director and all
post-acquisition officers and directors as a group. Immediately after
the consummation of the acquisition, assuming we acquire 100% of Sino-Canada and
the effectiveness of the reverse stock split, we will have [Ÿ] shares issued and
outstanding. The number of shares set forth in the table below assumes the
effectiveness of the reverse stock split.
85
Common
stock which an individual or group has a right to acquire within 60 days
pursuant to the exercise or conversion of options, warrants or other similar
convertible or derivative securities are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
Name and Address of Beneficial Owner
(1)
Number of shares
Percent
Ross
Yuan
Room
2101, Silver Tower, 933 West Zhongshan Road, Shanghai, China
200051
24,453,791
(2)
54.923%
Victor
Zhou
121,487
(3)
0.273%
Wilson
Li
33,666
(4)
0.076%
Zhenyu
Hu
575,000
1.291%
Stephen
Tang
3,402
0.008%
George
Xu
2,208
0.005%
Rachel
Zhang
3,398
0.008%
Changzhi
Ju
-
All
directors and executive officers as a group (8 persons)
25,192,952
56.584%
*
Less
than 1% of our outstanding shares of common
stock.
(1) Unless
otherwise indicated, the address for each stockholder listed in the following
table is Room 503, Jinqiao Building, No. 2077, West Yan’an Road, Shanghai,
China.
(2) Shares
beneficially owned include 24,453,791 shares owned by Sino-Canada Investment
Incorporated
(3) Shares
beneficially owned by Victor Zhou include (a) 3,049 shares of common stock held
by Mr. Zhou; (b) options to purchase 1250
shares of our common stock that are currently exercisable; (c) options to
purchase 117,187 shares of our common stock that are currently
exercisable.
(4) Shares
beneficially owned by Wilson Li include (a) 19,916 shares of common stock held
by Mr. Li; (b) options to purchase 1,250
shares of our common stock that are currently exercisable; and (c) options to
purchase 12,500 shares of our common stock that are exercisable
currently exercisable.
86
DESCRIPTION
OF HARTCOURT’S SECURITIES
General
We are
currently authorized to issue 424,999,000 shares of common stock, par value
$0.001, and 10,000,000 shares of Series A preferred stock, par value
$0.001.
Common
Stock
Our
stockholders are entitled to one vote for each share held of record on all
matters to be voted on by stockholders.
There is
no cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors.
Our
stockholders have no conversion, preemptive or other subscription rights, and
there are no sinking fund or redemption provisions applicable to the common
stock.
Preferred
Stock
Our
certificate of incorporation authorizes the issuance of 10,000,000 shares of
blank check Series A preferred stock with such designation, rights and
preferences as may be determined from time to time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of common stock. The preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of us. Although we do
not currently intend to issue any shares of preferred stock, we cannot assure
you that we will not do so in the future. As of the date of this
proxy statement, no shares of preferred stock are outstanding.
Transfer
Agent, Registrar and Warrant Agent
The
transfer agent and registrar for our units and common stock, and the warrant
agent for our warrants is Signature Stock Transfer.
87
STOCKHOLDER
PROPOSALS
Our 2010
annual meeting of stockholders will be held on or about June 30, 2010, unless
the date is changed by the board of directors. If you are a stockholder and you
want to include a proposal in the proxy statement for the year 2010 annual
meeting, you need to provide it to us by no later than March 31, 2010. You
should direct any proposals to our secretary at our principal
office.
WHERE
YOU CAN FIND MORE INFORMATION
We file
reports, proxy statements and other information with the SEC as required by the
Exchange Act. You may read and copy reports, proxy statements and other
information filed by us with the SEC at its public reference room located at 100
F Street, N.E., Washington, D.C. 20549-1004. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
may also obtain copies of the materials described above at prescribed rates by
writing to the SEC, Public Reference Section, 100 F Street, N.E., Washington,
D.C. 20549-1004. We file reports, proxy statements and other information
electronically with the SEC. You may access information on us at the SEC web
site containing reports, proxy statements and other information at
http://www.sec.gov. This proxy statement describes the material elements of
relevant contracts, exhibits and other information attached as annexes or
exhibits to this proxy statement. Information and statements contained in this
proxy statement are qualified in all respects by reference to the copy of the
relevant contract or other document included as an annex or exhibit to this
document.
All
information contained in this proxy statement relating to Hartcourt has been
supplied by Hartcourt, and all such information relating to Sino-Canada has been
supplied by Sino-Canada. Information provided by either of Hartcourt or
Sino-Canada does not constitute any representation, estimate or projection
relating to, attributable to or made on behalf of the other.
This
proxy statement contains important business and financial information about us
that is not included in or delivered with this document. You may
obtain this additional information, or additional copies of this proxy
statement, at no cost, and you may ask any questions you may have about the
acquisition by contacting us at the following address or telephone
number:
In order
to receive timely delivery of the documents in advance of the special meeting,
you must make your request for information no later than [_____],
2009.
88
INDEX
TO FINANCIAL STATEMENTS
THE
HARTCOURT COMPANIES, INC.
Report
of Independent Registered Public Accounting Firm
Statement
of Income for the six months ended June 30, 2009
F-60
Statement
of Cash Flows for the six months ended June 30, 2009
F-61
Notes
to Unaudited Financial Statements
F-62
F-1
THE
HARTCOURT COMPANIES, INC.
Report
of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
The
Hartcourt Companies, Inc.
We have
audited the accompanying consolidated balance sheets of The Hartcourt Companies,
Inc., a Utah Corporation and subsidiaries (the “Company”) as of May 31, 2009 and
2008 and the related consolidated statements of operations, stockholders’ equity
and cash flows for the years ended May 31, 2009 and 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of The Hartcourt Companies, Inc and
subsidiaries as of May 31, 2009 and 2008 and the results of their operations and
their cash flows for the years ended May 31, 2009 and 2008, in conformity with
accounting principles generally accepted in the United States of
America.
Income
(loss) from operations before income tax provision and minority
interest
925,442
(1,996,356
)
Provision
for income taxes
(212,791
)
-
Minority
interest, net of taxes
(697,506
)
-
Income
(loss) from continuing operations
15,145
(1,996,356
)
Discontinued
operations:
Gain/(loss)
from discontinued operations
-
22,878
Income/(loss)
from discontinued operations
-
22,878
NET
INCOME (LOSS)
15,145
(1,973,478
)
OTHER
COMPREHENSIVE ITEM:
Foreign
currency translation loss
(48,226
)
(60,754
)
NET
COMPREHENSIVE LOSS
$
(33,081
)
$
(2,034,232
)
BASIC
AND DILUTED EARNINGS/ (LOSS) PER COMMON SHARE:
Income/(loss)
from continued operations basic
$
0.00
$
(0.01
)
Income
from discontinued operations basic
$
-
$
0.00
Income/(loss)
per share basic
$
0.00
$
(0.01
)
Basic
weighted average number of shares outstanding
304,561,261
205,488,066
Income
(loss) from continued operations diluted
$
0.00
$
(0.01
)
Loss
from discontinued operations diluted
$
-
$
0.00
Income
(loss) per share diluted
$
0.00
$
(0.01
)
Diluted
weighted average number of shares outstanding
304,561,261
205,488,066
The
accompanying notes form an integral part of these consolidated financial
statements.
*
Weighted average number of shares used to compute basic and diluted loss per
share is the same as the effect of dilutive securities are anti
dilutive.
In
Conjunction with acquisition/disposal of subsidiaries:
Fair
value of shares issued
$
4,250,000
$
69,829
-
COMPANY
ACQUIRED TWO SUBSIDARIES DURING THE YEAR FORM THE ASSETS AND
LIABILITIES:
Account
receivable
$
105,189
$
-
Inventories
$
17,762
$
-
Prepaid
expenses and other current assets
$
86,487
$
-
Property
and equipment
$
54,121
$
-
The
accompanying notes form an integral part of these consolidated financial
statements.
F-7
Notes
to Financial Statements
NOTE
1 GENERAL
The
Hartcourt Companies, Inc. ("Hartcourt"“We/Our” or the "Company"), was
incorporated in Utah in 1983. Previously, we were a distributor of
internationally well known brand named IT hardware products and related services
in the People’s Republic of China (“PRC”). In August 2006, we announced our
intention to change our business by focusing on the vocational/training and
education marketplace in the People’s Republic of China.
On
May 15, 2007, we completed the purchase of 100% of the equity interests in
China Princely Education Technology Development Company Limited (“China
Princely”), an authorized accrediting organization for China vocational
education located in Beijing, PRC. Under the terms of the purchase agreement, we
paid to the shareholders of China Princely 5,400,000 shares of our restricted
common stock at closing. After closing, we changed the name of China
Princely to Hartcourt Princely Education Technology Development (Beijing) Co.,
Ltd.
On
June 13, 2008, The Hartcourt Companies, Inc. (the “Company”) entered into a
definitive agreement to purchase 60% of the equity interests in Beijing Yanyuan
Rapido Education Company (“Beijing Yanyuan”), a well-known training institution
in China. Under the terms of the definitive agreement executed between Beijing
Yanyuan and the Company, the purchase price that the Company agreed to pay to
the shareholders of Beijing Yanyuan 69 million shares of the Company’s
restricted common stock, which, pursuant to the purchase agreement, will be
payable upon closing of the acquisition. Hartcourt has the right to waive the
following commitment of profitability; Beijing Yanyuan committed that its net
profit would exceed RMB 6 million (US$827,000) for the seven months of calendar
year 2008, RMB10 million (US$1.379 million) for the calendar year 2009, and
RMB14 million (US$1.931 million) for the calendar year 2010.
On July23, 2008, The Hartcourt Companies (the “Company”) completed the acquisition of
60 percent of the outstanding equity interests of Beijing Yanyuan Rapido
Education Company (“Beijing Yanyuan”) pursuant to the terms of the definitive
agreement entered into between the two parties. Subject to the definitive
agreement between the Company and Beijing Yanyuan, the purchase price paid by
the Company in connection with its acquisition of a controlling interest in
Beijing Yanyuan was 69 million shares of the Company’s restricted common
stock.
On
October 18, 2008, the Company entered into a definitive agreement to purchase
60% of the outstanding equity interests of China Arts and Science Academy. Under
the terms of the definitive agreement executed between China Arts and Science
Academy and Hartcourt; Hartcourt has the right to waive the following commitment
of profitabilitiy; China Arts and Science Academy committed that its net profit
would exceed RMB5 million (US$735,294) for the first year (November 1, 2008 to
October 31, 2009) in which its results are consolidated with Hartcourt’s, RMB7.5
million (US$1.103 million) for the second year (November 1, 2009 to October 31,2010) in which its results are consolidated with Hartcourt’s, and RMB10 million
(US$1.471 million) for the third year (November 1, 2010 to October 31, 2011) in
which its results are consolidated with Hartcourt’s. The restricted common
shares issued by Hartcourt for the acquisition will be released to those
shareholders of China Arts and Science Academy whose equity interests were
purchased by Hartcourt in three installments based on the profit realized by
China Arts and Science Academy over the three-year period beginning on the date
of Hartcourt’s purchase of 60% of the outstanding equity interests of China Arts
and Science Academy.
F-8
On
October 31, 2008, The Hartcourt Companies Inc. (the “Company”) completed the
acquisition of 60 percent of the outstanding equity interests of China E & I
Development Co. Ltd., which does business as the China Arts and Science Academy
(“China Arts and Science Academy”), pursuant to the terms of the definitive
agreement entered into between the two parties. Under the agreement
between the Company and China Arts and Science Academy, the purchase price paid
by the Company in connection with its acquisition of a controlling interest in
China Arts and Science Academy was 40 million shares of the Company’s restricted
common stock.
As of May31, 2009, the Company owns 100% of three (3) British Virgin Island (“BVI”)
incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital Inc.,
and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding companies
for assets located in China.
As of May31, 2009, Hartcourt Capital Inc. owns 100% of the equity interest of Hartcourt
Hi-Tech Investment (Shanghai) Inc. while Hartcourt Hi-Tech Investment (Shanghai)
Inc., through nominee shareholder, owns 100% of the equity interest of Shanghai
Jiumeng Information Technology Co., Ltd. These two companies are located in
Shanghai, China. In April 2007, the Company decided to wind up Hartcourt Hi-Tech
Investment (Shanghai) Inc. As of May 31, 2008, the wind-up process was
completed. Shanghai Jiumeng Information Technology Co., Ltd owns 60% of the
equity interest of Beijing Yanyuan Rapido Education Company.
As of May31, 2009, AI-Asia, Inc., the third holding company, owns 100% of the equity
interest of Hartcourt Education Investment Management Consulting (Shanghai) Co.,
Ltd (former name is AI-Asia (Shanghai) Information Technology, Inc), located in
Shanghai, China, and owns 100% of the equity interest of Hartcourt Princely.
AI-Asia, Inc owns 60% of the equity interest of China Arts and Science
Academy.
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a) Basis
of Consolidation
For
purposes of these consolidated financial statements, the Hartcourt Companies
Inc. and subsidiaries are referred to collectively as the "Company" or
"Hartcourt". The accompanying consolidated financial statements for
the Company include the accounts balances of its majority owned
subsidiaries.
All
material inter-company balances and transactions have been eliminated in
consolidation.
b) Use of
Estimates
The
preparation of the consolidated financial statements in conformity with
Generally Accepted Accounting Principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
c) Cash
and Cash Equivalents
The
Company considers all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less to be cash equivalents. As Hartcourt’s business activities are
located in China, substantial amounts of cash are deposited in foreign banks
located in China, which do not have the protection programs similar to that of
the US (FDIC).
F-9
d) Prepaid
expenses
Prepaid
expenses are expenses that are allocated into the period in which they are
incurred and in subsequent periods, and be amortized within one year
(inclusive). They include amortization of low-valued consumables, prepaid
insurance expenses, lump-sum payment for stamps in large amount that need to be
amortized.
Prepaid
expenses generally will be amortized in equal installments and charged as costs
or expenses of periods benefiting within one year. If certain prepaid expense
item cannot benefit the Company any more, its un-amortized amount is recorded as
an expense for the current period. Prepaid expenses amounted to $3,995 and
$17,837 at May 31, 2009 and 2008 respectively and is included in “Prepaid
expenses and other current assets” in the accompanying financial
statements.
e) Inventories
Inventories
are valued at the lower of cost, determined by the first-in, first-out method,
or market value.
f)
Property and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 3 to 10 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations. Expenditures for maintenance and repairs are charged to
operations as incurred.
g)
Intangible Assets
The
Company evaluates intangible assets for impairment, at least on an annual basis
and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable from its estimated future cash flows. Recoverability of
intangible assets, other long-lived assets and, goodwill is measured by
comparing their net book value to the related projected undiscounted cash flows
from these assets, considering a number of factors including past operating
results, budgets, economic projections, market trends and product development
cycles. If the net book value of the asset exceeds the related undiscounted cash
flows, the asset is considered impaired.
h)
Impairment of Long-Lived Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of May 31, 2009, there was no impairments of its long-lived assets used
in operations. For the year ended May 31, 208, goodwill was impaired in the
amount of $682,988.
F-10
i) Revenue
Recognition
Revenue
is recognized upon the service provided. No allowance for doubtful account
derived necessary for the years ended May 31, 2009 and 2008,
respectively.
j) Income
Taxes
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
k)
Stock-Based Compensation
The
Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS
No. 123R”), under the modified-prospective transition method on June 1,2006. SFAS No. 123R requires companies to measure and recognize the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value. Share-based compensation recognized under the
modified-prospective transition method of SFAS No. 123R includes
share-based compensation based on the grant-date fair value determined in
accordance with the original provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, for all share-based payments granted prior to and not
yet vested as of June 1, 2006 and share-based compensation based on the
grant-date fair-value determined in accordance with SFAS No. 123R for all
share-based payments granted after June 1, 2006. SFAS No. 123R eliminates
the ability to account for the award of these instruments under the intrinsic
value method prescribed by Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for Stock Issued to Employees, and allowed under the
original provisions of SFAS No. 123. Prior to the adoption of SFAS
No. 123R, the Company accounted for the Company’s stock option plans using
the intrinsic value method in accordance with the provisions of APB Opinion
No. 25 and related interpretations.
l)
Foreign Currencies Translation
Assets
and liabilities in foreign currency are recorded at the balance sheet date at
the rate prevailing on that date. Items of income statement are recorded at the
average exchange rate. Gain or loss on foreign currency transactions are
reflected on the income statements. Gain or loss on financial statement
translation from foreign currency are recorded as a separate component in the
equity section of the balance sheets, as component of comprehensive income
(loss). The functional currencies of the Company are Chinese Renminbi and
Hongkong Dollars. The following companies are using Chinese Renminbi: Al-Asia
Inc., Hartcourt Princely, Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd, Beijing Yanyuan Rapido Education Company, China Arts and
Science Academy, Hartcourt Hi-Tech Investment (Shanghai) Inc., and Shanghai
Jiumeng Information Technology Co., Ltd. The following companies are using
Hongkong Dollars: Hartcourt China Inc. and Hartcourt Capital.
m) Fair
Value of Financial Instruments
Statement
of Financial Accounting Standard No. 107, Disclosures about Fair Value of
Financial Instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
The
Company’s financial instruments consists of primarily cash, accounts receivable,
loan receivables, advances, accounts payable and accrued expenses,
and other current liabilities which approximates fair value because of the
relatively short maturity of those instruments.
F-11
n) Basic
and diluted earning per share
Earning
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings Per Share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net earning per share for
all periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net earning per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
o)
Recently Issued Accounting Standards
In
December 2007, the Financial Accounting Standards Board (“FASB”) simultaneously
issued SFAS No. 141R, “Business Combinations (2007 Amendment),” and SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements, an Amendment of
ARB 51.” Both standards update United States guidance on accounting
for “noncontrolling interests,” sometimes referred to as minority interests,
which interests represent a portion of a subsidiary not attributable, directly
or indirectly, to a parent. FASB and the International Accounting Standards
Board (“IASB”) have been working together to promote international convergence
of accounting standards. Prior to promulgation of these new standards there were
specific areas in accounting for business acquisitions in which conversion was
not achieved. The objective of both standards is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in “business combinations” and consolidated financial statements
by establishing accounting and reporting standards. In business combinations it
is accomplished by establishing principles and requirements concerning how an
“acquirer” recognizes and measures identifiable assets acquired, liabilities
assumed, and noncontrolling interest in the acquiree, as well as goodwill
acquired in the combination or gain from a bargain purchase; and determines
information to be disclosed to enable users to evaluate the nature and effects
of business combinations. In consolidated financial statements the standards
require: identification of ownership interests held in subsidiaries by parties
other than the parent be clearly identified, labeled and presented in
consolidated financial position within equity (rather than “mezzanine” between
liabilities and equity) separately from amounts attributed to the parent, with
net income attributable to the parent and to the minority interest clearly
identified and presented on the face of consolidated statements of income. The
standards also provide guidance in situations where the parent’s ownership
interest in a subsidiary changes while the parent retains its controlling
financial interest. The standard also provides guidance on recording a gain or
loss based on fair value in situations involving deconsolidation of a
subsidiary. Entities must provide sufficient disclosures that distinguish
between interests of the parent and that of the noncontrolling
interest.
Both
standards are effective for fiscal years and interims beginning on or after
December 15, 2008 (that is January 1, 2009) for entities with calendar years.
Earlier adoption is prohibited. The standards shall be applied prospectively as
of the beginning of the fiscal year in which initially applied, except for the
presentation and disclosure requirements, which shall be applied retrospectively
for all periods presented. The Company does not anticipate that the adoption of
SFAS No. 141R and No. 160 will have an impact on the Company's overall results
of operations or financial position, unless the Company makes a business
acquisition in which there is a noncontrolling interest.
In June
2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that contain
rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. This FSP is effective for us beginning July 1, 2009 and the
Company does not expect that FSP EITF No. 03-6-1 would have a material impact on
the financial statements.
In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS
107-1 and APB 28-1 require companies to disclose in interim financial statements
the fair value of financial instruments within the scope of FASB Statement No.
107, Disclosures about Fair Value of Financial Instruments. However, companies
are not required to provide in interim periods the disclosures about the
concentration of credit risk of all financial instruments that are currently
required in annual financial statements. The fair-value information disclosed in
the footnotes must be presented together with the related carrying amount,
making it clear whether the fair value and carrying amount represent assets or
liabilities and how the carrying amount relates to what is reported in the
balance sheet. FSP FAS 107-1 and APB 28-1 also requires that companies disclose
the method or methods and significant assumptions used to estimate the fair
value of financial instruments and a discussion of changes, if any, in the
method or methods and significant assumptions during the period. The FSP shall
be applied prospectively and is effective for interim and annual periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity early adopting FSP FAS 107-1 and APB 28-1 must also
early adopt FSP FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. The Company
will adopt the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of FSP FAS 157-4, FSP FAS
115-2 and FAS 124-2.
F-12
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2009 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2009. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after November 15,2009.
NOTE
3 EARNINGS/(LOSSES) PER SHARE
Basic and
diluted (loss) income per common share is computed as follows:
As of May31, 2009, we had 29,200,000 options outstanding, each exercisable for one share
of our common stock. Weighted average number of shares used to compute basic and
diluted loss per share is the same as the effect of dilutive securities are anti
dilutive.
NOTE
4 SHAREHOLDERS’ EQUITY
a)
Capitalization
The total
number of shares of stock which the Company has the authority to issue is
434,999,000 consisting of 424,999,000 shares of common stock, $0.001 par value,
1,000 shares of original preferred stock, $0.01 par value (the Original
Preferred Stock), and 10,000,000 shares of Class A preferred stock. The total
number of shares of the Company’s common stock outstanding as of May 31, 2009
and May 31, 2008 are 386,966,816 and 205,761,854 respectively.
F-13
b)
Original Preferred Stock
On July,
14, 2004, the founder of Hartcourt, Dr. Alan V Phan, converted his 1,000 shares
of Original Preferred Stock into 2,000,000 shares of Hartcourt common stock.
After the conversion, no Original Preferred Stock was outstanding as of May 31,2008.
c) Class
A Preferred Stock
The
10,000,000 shares of authorized and un-issued Class A Preferred Stock may be
split with such designations, power, preferences and other rights and
qualifications, limitations and restrictions thereof as the Company’s Board of
Directors elects for a given series. No shares have been issued.
d) Equity
Transactions during the Year
Following
is the summary of equity transactions during the year ended May 31,2009.
On July22, 2008, the Company issued to the former shareholder of Beijing Yanyuan in an
offshore transaction under Regulation S an aggregate of 69 million shares of the
Company’s restricted common stock pursuant to the terms of the definitive
purchase agreement.
On
October 31, 2008, the Company issued to the former shareholders of China Arts
& Science Academy in an offshore transaction under Regulation S an aggregate
of 40,000,000 shares of the Company’s restricted common stock pursuant to the
terms of the definitive purchase agreement.
On
November 1, 2008, the Company issued 20,000,000 shares of the Company’s
restricted common stock to fund raisers for cash in an offshore transaction
under Regulation S at $0.02 per share for gross proceeds of $400,000. The
proceeds were used for working capital.
On
November 24, 2008, the Company issued 872,716 shares of the Company’s restricted
common stock valued at $31,446 to Wilson Li in lieu of cash payment for director
service compensation, which was approximately equal to the fair market value of
the stock at issue date.
On
November 24, 2008, the Company issued 272,120 shares of the Company’s restricted
common stock valued at $9,805 to Stephen Tang in lieu of cash payment for
director service compensation, which was approximately equal to the fair market
value of the stock at issue date.
On
November 24, 2008, the Company issued 176,644 shares of the Company’s restricted
common stock valued at $6,365 to George Xu in lieu of cash payment for director
service compensation, which was approximately equal to the fair market value of
the stock at issue date.
F-14
On
November 24, 2008, the Company issued 313,763 shares of the Company’s restricted
common stock valued at $11,306 to Geferry Wei in lieu of cash payment for former
director service compensation, which was approximately equal to the fair market
value of the stock at issue date.
On
January 1, 2009, the Company issued 271,809 shares of the Company’s restricted
common stock valued at $7,355 to the Chief Financial Officer in lieu of cash
payment for service compensation, which was approximately equal to the fair
market value of the stock at issue date.
On
January 1, 2009, the Company issued 297,910 shares of the Company’s restricted
common stock valued at $15,190 to the General Manager of China Princely in lieu
of cash payment for service compensation, which was approximately equal to the
fair market value of the stock at issue date.
On May 4,2009, the Company issued 50,000,000 shares of the Company’s restricted common
stock to fund raisers for cash in an offshore transaction under Regulation S at
$0.01 per share for gross proceeds of $500,000. The proceeds were used for
working capital.
Stock
Option Plan
In
November 2005, the Company adopted a stock option plan to attract and retain
qualified persons for positions of substantial responsibility as officers,
directors, consultants, legal counsel, and other positions of significance to
the Company (the “2005 Plan”). The 2005 Plan provides for the issuance of stock
options, stock appreciation rights, restricted stock, stock units, bonus stock,
dividend equivalents, other stock-related awards and performance awards that may
be settled in cash, stock, or other property. The total number of shares of our
common stock that may be subject to awards under the 2005 Plan is equal to
35,000,000 shares, plus (i) the number of shares with respect to which awards
previously granted under the 2005 Plan that terminates without the issuance of
the shares or where the shares are forfeited or repurchased; (ii) with respect
to awards granted under the 2005 Plan, the number of shares which are not issued
as a result of the award being settled for cash or otherwise not issued in
connection with the exercise or payment of the award and (iii) the number of
shares that are surrendered or withheld in payment of the exercise price of any
award or any tax withholding requirements in connection with any award granted
under the 2005 Plan. Unless earlier terminated by our Board of Directors, the
2005 Plan will terminate on the earlier of (1) ten years after the later of (x)
its adoption by our Board of Directors, or (y) the approval of an increase in
the number of shares reserved under the 2005 Plan by our Board of Directors
(contingent upon such increase being approved by our shareholders) and (2) such
time as no shares of our common stock remain available for issuance under the
2005 Plan and we have no further rights or obligations with respect to
outstanding awards under the 2005 Plan. Options granted under the 2005 Plan are
restricted as to sale or transfer.
The 2005
Plan was approved on November 23, 2005 during the annual shareholders
meeting.
The
number of shares of common stock reserved and available under the 2005 Plan was
increased from 35,000,000 to 70,000,000 at the annual meeting of shareholders on
February 24, 2007.
On
September 1, 2008, the Company granted Victor Zhou CEO of the Company, an option
to purchase the Company’s common stock at exercise price of $0.03 according to
the following vesting schedule and based on the 2005 Plan.
●
7,500,000
stock options vested pro rata over 2 years of the employment contract
period.
●
3,000,000
stock options vested upon each successful new business acquisition of the
Company.
●
3,000,000
stock options vested upon each full profitable
year.
F-15
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Weighted
average expected life of the options
6.25
years
Expected
volatility
127.39%
Expected
dividend yield
0
On
September 11 2008, the Company granted Wilson Li, Chairman of the Board, an
option to purchase 5,000,000 shares of the Company’s common stock at exercise
price of $0.03. The option will vest on September 11, 2010 and is exercisable
within five years time after vesting.
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Weighted
average expected life of the options
7.00
years
Expected
volatility
127.39%
Expected
dividend yield
0
On
September 11 2008, the Company granted each of Stephen Tang and George Xu,
independent directors of the Company, an option to purchase 1,000,000 shares of
the Company’s common stock at exercise price of $0.03. Each option will vest on
September 11, 2010 and is exercisable within five years time after
vesting.
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Expected
life of the options
7.00
years
Expected
volatility
127.39%
Expected
dividend yield
0
F-16
The
following table summarizes the activity of stock options:
Additional
information relating to stock options outstanding and exercisable at May 31,2009 summarized by the exercise price is as follows:
Weighted
Number
of
Average
Weighted
Number
Weighted
Range
of
Outstanding
at
Remaining
Average
Exercisable
at
Average
Exercise
May
31,
Contractual
Exercise
May
31,
Exercise
Price
2009
Life
Price
2009
Price
$0.03
- $0.05
29,000,000
4.84
Year
$0.04
10,375,000
$0.04
$0.09
200,000
1.77
Year
$0.09
200,000
$0.09
F-17
During
the year ended May 31, 2009, 6,812,500 vested and the Company recorded $309,960
amortization in stock based compensation expense.
Additional
information relating to stock options outstanding and exercisable at May 31,2008 summarized by the exercise price is as follows:
Weighted
Number
of
Average
Weighted
Number
Weighted
Range
of
Outstanding
at
Remaining
Average
Exercisable
at
Average
Exercise
May
31,
Contractual
Exercise
May
31,
Exercise
Price
2008
Life
Price
2008
Price
$0.04
- $0.05
29,000,000
4.2
Year
$0.05
18,250,000
$0.05
$0.09
5,300,000
2.8
Year
$0.09
5,300,000
$0.09
$1.00
300,000
0.44
Year
$1.00
300,000
$1.00
During
the year ended May 31, 2008, a total of 14,500,000 options vested and the
Company recorded $151,060 amortization in stock based compensation
expense.
b)
Warrants
There are
no warrants outstanding for the years ended May 31, 2009 and 2008.
NOTE
5 ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accrued
expenses and other current liabilities as of May 31, 2009 and 2008 are
summarized as follows:
Depreciation
expense from operating expenses for the year ended May 31, 2009 and 2008 were
$20,839 and $13,510, respectively.
The
Company expects depreciation expense for the next five years to be as
follows:
Year
ending May 31:
2010
$
23,951
2011
21,335
2012
5,608
2013
3,975
2014
1,532
Thereafter
1,239
$
57,640
F-19
NOTE
7 RELATED PARTY TRANSACTIONS
The
following is a summary of related party transactions for the year ended May 31,2009:
During
the year ended May 31, 2009, Hartcourt issued 1,321,480 shares of common stock
valued at $39,644 to its directors in lieu of cash compensation, issued 271,809
shares of common stock valued at $7,355 to its Chief Financial Officer in lieu
of cash compensation. The stocks were valued at the average market price for the
period for which service were provided.
Due to
officer amount of $246,862 for the year ended May 31, 2009 is non-interest
bearing and due on demand.
The
following is a summary of related party transactions for the year ended May 31,2008:
During
the year ended May 31, 2008, Hartcourt issued 383,120 shares of common stock
valued at $25,001 to its directors in lieu of cash compensation. The stocks were
valued at the average market price for the period for which service were
provided.
Due to
officer amount of $196,004 for the year ended May 31, 2008 is non-interest
bearing and due on demand.
NOTE 8 LOAN RECEIVABLE
Company
advanced loans to agents to market their courses to the students and individual.
As at May 31, 2009, these loans comprised of the following:
Loan
to sales agent, interest free, secured and amount due January 15,2010
$
175,634
Loan
to sales agent, interest free, secured and amount due February 15,2010
190,270
Loan
to sales agent, interest free, secured and amount due February 28,2010
175,634
Loan
to individual, 10% interest, secured and amount due March 31,2010
105,380
Loan
to individual, 10% interest, secured and amount due April 15,2010
175,634
$
822,552
F-20
All loans
are secured by pledge of building license owned by the agents and individual.
Managment expects these loans receivable to
be collectible.
NOTE
9 INTANGIBLE ASSETS
The
Company accounts for its intangible assets under the applicable guidelines of
SFAS 142 “goodwill and other intangible assets” and SFAS 144 “accounting for the
impairment or disposal of long lived assets”. Where intangible assets
have finite lives, they are amortized over their useful life unless factors
exist to indicate that the asset has been impaired. The Company
evaluates if the assets are impaired annually or on an interim basis if an event
occurs or circumstances change to suggest that the assets value has
diminished. Under SFAS 142 intangible assets with indefinite useful
lives are required to be tested annually for impairment or whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets is measured by a comparison
of the carrying amount of the assets to future net cash flows expected to be
generated by the assets. If the assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets. During year ended May31, 2009, the Company recognized no impairment. During the year ended May 31,2008, the Company impaired its goodwill in the amount of $682,988.
At May31, 2009, intangibles consist of the following:
Intangibles
Gross
Carrying
Amount
Accumulated
Amortization
Net
Course
Software
$
724,882
$
(21,057)
$
703,825
Course
Material
3,363,276
(143,745)
3,219,531
$
4,088,158
$
(164,802)
$
3,923,356
Life of
intangible assets is twenty years. Amortization expense from continuing
operation included cost of revenue for the year ended May 31, 2009 was
$164,802. We expect amortization expense for the next five years to
be as follows:
Year
ending May 31:
2010
$
204,408
2011
204,408
2012
204,408
2013
204,408
2014
204,408
Thereafter
2,901,316
$
3,923,356
F-21
NOTE
10 COMMITMENTS AND CONTINGENCIES
a) Employment
Agreements
On and
effectiveAugust 11, 2008, the Board of Directors of the Company appointed Ms.
Rachel Zhang to be the Chief Financial Officer. Ms. Zhang will be employed part
time in this capacity. Ms Zhang’s compensation is $2,000 per month.
On
September 1, 2008, The Company signed the new employment contract with Mr.
Victor Zhou. The compensation includes an annual base salary of $150,000,
payable by equal monthly installment of $12,500. In addition, Mr. Zhou was
granted stock options with exercise price of $0.03. The stock option vesting
schedule is as following.
●
7,500,000
stock options vested pro rata over 2 years of the employment contract
period.
●
3,000,000
stock options vested upon each successful new business acquisition of the
Company.
●
3,000,000
stock options vested upon each full profitable
year.
b)
Operating Leases
The
Company leases its offices and facilities under long-term, non-cancelable lease
agreements expiring at various dates through January 27, 2010. The
non-cancelable operating lease agreements provide that the Company pays certain
operating expenses applicable to the leased premises according to the Chinese
Law. Rental expense for the fiscal year ended May 31, 2009 and 2008 were $90,455
and $87,391, respectively.
The
future minimum annual lease payments required under this operating lease are as
follows:
Year
Ending May 31,
Payments
2010
$
15,807
c) Legal
Proceedings
Hartcourt
Hi-Tech Investment (Shanghai) Inc. filed a compliant against Beijing Yi Zhi He
Lian Information Technology Co., Ltd for returning RMB 1,000,000 (US $146,235)
which it owed the Company. On December 19, 2006, Beijing Shi Jing Shan District
Court entered the judgment in this case. The court found that Hartcourt Hi-Tech
Investment (Shanghai) Inc. has no rights to file the compliant against Beijing
Yi Zhi He Lian Information Technology Co., Ltd. unless designated by Hartcourt
Capital, Inc., which signed and was bound by the acquisition agreement. The
court issued an order overruling the complaint from Hartcourt Hi-Tech Investment
(Shanghai)., Inc. as the plaintiff. The plaintiff can appeal to Beijing No. 1
Intermediate People’s Court if objecting to the rule. The Company has prepared
additional lawsuit material and lodged the petition to appeal to Beijing No. 1
Intermediate People’s Court.
On August10, 2007, Hartcourt Capital Inc filed a lawsuit in the Beijing No. 1
Intermediate People’s Court against Beijing Yi Zhi He Lian Information
Technology Co., Ltd to return the RMB 1,000,000 which it owes the Company. On
December 10, 2008, The Beijing Senior People’s Court issued an order to withdraw
the civil ruling of the Beijing No. 1 Intermediate People’s Court under no.
10077, order Beijing No. 1 Intermediate People’s Court to judge
again. The lawsuit is under judgment and the outcome cannot be
estimated as of May 31, 2009.
F-22
NOTE
11 INCOME TAXES
As of the
fiscal years ended May 31, 2009 and 2008, the Company had a net operating income
(loss) for tax purposes of approximately $322,000 and ($1,349,000),
respectively. The net operating loss carry forward may be used to reduce taxable
income through the year 2027.
The gross
deferred tax asset balance as of May 31, 2009 and May 31, 2008 was $1,056,000and
$1,007,000 respectively. A 100% valuation allowance has been established against
the deferred tax assets, as the utilization of the loss carry forward cannot
reasonably be assured. Components of deferred tax asset are as
follows:
Income
tax expense (credit) at statutory rate-federal
$
(870,000
)
$
(770,000
)
State
tax expense (credit) net of federal tax
(209,000
)
(237,000
)
Valuation
allowance
1,056,000
1,007,000
Foreign
income tax
212,791
-
Income
tax expense
$
212,791
$
-
Income
tax expense for the year ended May 31, 2009 is $212,791, consists of tax on
income of the Company’s subsidiaries in China, for the year ended May 31,2008 was $0 which is none part of discontinued operations.
For all
years presented, the Company did not recognized any deferred tax assets or
liabilities. The net change in valuation allowance for the years ended May 31,2009 and 2008 were an increase of $72,000 and a decrease of $329,000,
respectively.
F-23
NOTE
12 ACQUISITION OF
BEIJING YANYUAN
On June13, 2008, the Company entered into a definitive agreement to purchase 60% of the
outstanding equity interests of Beijing Yanyuan. Under the terms of the
agreement between Beijing Yanyuan and the Company; Hartcourt has the right to
waive the following commitment of profitability; Beijing Yanyuan commitment that
its net profit would exceed RMB 6 million (US $827,000) for the seven
months of calendar year 2008, RMB 10 million (US $1.379
million) for the calendar year 2009, and RMB 14 million
(US $1.931 million) for the calendar year 2010. In connection with the
acquisition, the Company issued 69 million common shares issued to the former
shareholder of Beijing Yanyuan. As per the agreement the restriction on the
shares will be released in three installment based on the realization of profit
over the thirty-one months period from 2008 to 2010. If the profit realized by
Beijing Yanyuan in any of the three years in the period from 2008 to 2010
is less than the profit target committed by Beijing Yanyuan for such calendar
year, then the number of shares will be recalculated and equal to
the shares issuable time the percentage of profit
realized divided by the profit target. The Company has the right to take
back the rest of the shares for free.
On July23, 2008, The Hartcourt Companies (the “Company”) completed the acquisition of
60 percent of the outstanding equity interests of Beijing Yanyuan Rapido
Education Company (“Beijing Yanyuan”) pursuant to the terms of the definitive
agreement entered into between the two parties. Subject to the definitive
agreement between the Company and Beijing Yanyuan, the purchase price paid by
the Company in connection with its acquisition of a controlling interest in
Beijing Yanyuan was 69 million shares of the Company’s restricted common
stock.
The
purchase price was determined using fair market value at the closing date of the
transaction. The purchase price per share of the Company’s common stock was
$0.05. Each share of common stock was valued at $0.05 resulting in a
purchase price of $3,450,000. The assets acquired in this acquisition include
course material. A summary of the Beijing Yanyuan assets acquired and the
consideration for such assets is as follows:
Estimated
Fair Values
Current
Assets, including cash $1,505
$
63,452
Property
& equipment
23,272
Net
Assets Acquired
86,724
Shares
issued as consideration
3,450,000
Course
material
$
3,363,276
The
operating results of Beijing Yanyuan have been consolidated with those of the
Company beginning July 23, 2008. No pro-forma financial information has
been presented as the operations of Beijing Yanyuan before the acquisition, were
insignificant.
Mr.
Zhenyu Hu, was the former owner of Beijing Yanyuan and currently the
officer of Beijing Yanyuan, guaranteed, as per the terms of the agreement, if
Beijing Yanyuan will not achieve 75% of the profit target for the following
three years starting 2008 to 2010, Mr. Hu will compensate Hartcourt in cash
equivalent to the amount of profit target not achieved. In addition, as per the
terms of the agreement, if Beijing Yanyuan can not achieve 60% of the profit
target for any year starting 2008 to 2010, Hartcourt has the right to receive
the entire 69 million shares from Beijing Yanyuan which were paid as part of
purchase consideration.
F-24
NOTE
13 ACQUISITION OF CHINA ARTS & SCIENCE
ACADEMY
On
October 18, 2008, the Company entered into a definitive agreement to purchase
60% of the outstanding equity of China Arts and Science Academy. Under the terms
of the definitive agreement executed between China Arts and Science Academy and
Hartcourt; Hartcourt has the right to waive the following commitment of
profitability; China Arts and Science Academy committed that its net profit
would exceed RMB5 million (US$735,294) for the first year (November 1, 2008 to
October 31, 2009) in which its results are consolidated with Hartcourt’s, RMB7.5
million (US$1.103 million) for the second year (November 1, 2009 to October 31,2010) in which its results are consolidated with Hartcourt’s, and RMB10 million
(US$1.471 million) for the third year (November 1, 2010 to October 31, 2011) in
which its results are consolidated with Hartcourt’s. The restricted common
shares issued by Hartcourt for the acquisition will be released to those
shareholders of China Arts and Science Academy whose equity interests were
purchased by Hartcourt in three installments based on the profit realized by
China Arts and Science Academy over the three-year period beginning on the date
of Hartcourt’s purchase of 60% of the outstanding equity interests of China Arts
and Science Academy. If the profit realized by China Arts and Science
Academy in any of the three one-year periods is less than the profit target
committed to by China Arts and Science Academy for such one-year period, then
the number of shares issuable by the Company equal to the shares issuable time
the percentage of profit realized divided by the profit target. The Company has
the right to take back the rest of the shares for free.
On
October 31, 2008, The Hartcourt Companies Inc. (the “Company”) completed the
acquisition of 60 percent of the outstanding equity interests of China E & I
Development Co. Ltd., which does business as the China Arts and Science Academy
(“China Arts and Science Academy”), pursuant to the terms of the definitive
agreement entered into between the two parties. Under the agreement
between the Company and China Arts and Science Academy, the purchase price paid
by the Company in connection with its acquisition of a controlling interest in
China Arts and Science Academy was 40 million shares of the Company’s restricted
common stock.
The
purchase price was determined using fair market value at the closing date of the
transaction. The purchase price per share of the Company’s common stock was
$0.02. Each share of common stock was valued at $0.02 resulting in a purchase
price of $800,000. The assets acquired in this acquisition include course
software. A summary of the China Arts & Science Academy assets acquired and
the consideration for such assets is as follows:
Estimated
Fair Values
Current
Assets, including cash $4,672
$
65,917
Property
& equipment
9,201
Net
Assets Acquired
75,118
Shares
issued as consideration
800,000
Course
Software
$
724,882
The
operating results of China Arts and Science Academy have been consolidated with
those of the Company beginning November 1, 2008. No pro-forma financial
information has been presented as the operations of China Arts and Science
Academy before the acquisition, were insignificant.
NOTE
14 CURRENT VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS
The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy. The Company's business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other factors.
F-25
NOTE
15 SUBSEQUENT EVENTS (UNAUDITED)
On August20, 2009, Hartcourt and its subsidiaries, Maple China Education Incorporated, a
Delaware corporation, and Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China, entered into a plan of reorganization and share exchange
agreement (the “Share Exchange Agreement”) with Sino-Canada, its subsidiaries,
Sino-Canada High School, a private educational non-enterprise institution
existing under the laws of the People’s Republic of China, Wujiang Huayu
Property Management Company, a company existing under the Company Law of the
People’s Republic of China, Canadian Learning Systems Corporation, a company
existing under the laws of the British Virgin Islands, each of the shareholders
of Sino-Canada (the “Shareholders”) and Ross Yuan, in the capacity as
representative of the Shareholders. Unless the context requires otherwise,
reference herein to Hartcourt includes reference to its subsidiaries and
reference to Sino-Canada includes reference to its subsidiaries referenced
above.
Transactions
The Share
Exchange Agreement provides that Hartcourt will acquire all of the issued and
outstanding shares of Sino-Canada. Immediately prior to the closing of the
acquisition, Hartcourt will effect a reincorporation from the State of Utah to
the State of Delaware, a 1 for 80 reverse stock split and a name change, by
merging into its wholly-owned subsidiary, Maple China Education Incorporated.
The surviving corporation in the reincorporation will be Maple China Education
Incorporated.
Acquisition
Consideration
In
exchange for all of the issued and outstanding shares of capital stock of
Sino-Canada, Hartcourt will issue approximately $33,623,963, worth of shares of
its common stock at an agreed upon price of $0.88 per share (post-split) to the
Sino-Canada shareholders in exchange for all of the issued and outstanding
capital stock of Sino-Canada. Hartcourt will issue 38,209,049 shares of
Hartcourt common stock in a private placement in satisfaction of the purchase
price. The aggregate purchase price and the actual number of shares to be issued
in the exchange remain subject to potential purchase price adjustments at the
closing. The number of shares of Hartcourt common stock issued in the
transaction will be decreased in the event Sino-Canada’s working capital
(measured by current assets less current liabilities) decreases by more than
five percent at the closing as compared to March 31, 2009, and will be increased
in the event that Hartcourt’s total liabilities at closing exceeds $600,000, up
to a maximum of 45,850,859 shares. The purchase price adjustment for Hartcourt’s
outstanding liabilities at closing will exclude Hartcourt’s outstanding loan of
up to $1,300,000 from Yuan Dian Investment Inc. that will be repaid upon the
closing in accordance with its terms by issuing shares of common stock of
Hartcourt at a price of $0.88 per share.
Following
the acquisition, the former shareholders of Sino-Canada will own approximately
86% of the issued and outstanding shares of Hartcourt.
Post-Closing
Officers and Directors
Upon the
consummation of the transaction, Hartcourt’s existing officers will resign and
the new management team will take over.
Further,
upon the consummation of the acquisition, Hartcourt’s board of directors of
Hartcourt will consist of seven directors, of which Sino-Canada will designate
five members and Hartcourt will designate two members. Hartcourt and the
Shareholders will enter into a voting agreement (the “Voting Agreement”) at
closing to elect the respective parties nominees to Hartcourt’s board of
directors following closing until immediately prior to the next annual Hartcourt
meeting of stockholders.
F-26
NOTE
16 RECLASSIFICATION
Certain
prior period amounts have been reclassified to conform to the year ended May 31,2009 presentation.
BASIC
AND DILUTED EARNINGS/(LOSSES) PER COMMON SHARE:
$
(0.00
)
$
0.00
*
BASIC AND FULLY DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
386,966,816
235,761,854
*
Weighted average number of shares used to compute basic and diluted loss per
share is equivalent as the effect of dilutive securities is anti
dilutive.
The
accompanying notes form an integral part of these unaudited consolidated
financial statements.
F-28
Statements
of Cash Flows for the three months ended August 31, 2009
(Unaudited)
EFFECT
OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(2,290
)
(10,371
)
NET
INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
(29,399
)
4,783
CASH
AND CASH EQUIVALENTS -
BEGINNING
BALANCE
102,085
4,907
CASH
AND CASH EQUIVALENTS – ENDING BALANCE
$
72,686
$
9,690
SUPPLEMENTAL
DISCLOSURE OF CASH FLOWS
Cash
paid for interest
$
-
$
-
Cash
paid for income taxes
$
-
$
-
The
accompanying notes form an integral part of these unaudited consolidated
financial statements.
F-30
Notes
to Unaudited Financial Statements
NOTE
1 GENERAL
The
Hartcourt Companies, Inc. ("Hartcourt"“We/Our” or the "Company"), was
incorporated in Utah in 1983. Previously, we were a distributor of
internationally well known brand named IT hardware products and related services
in the People’s Republic of China. In August 2006, we announced our intention to
change our business by focusing on the vocational/training and education
marketplace in the People’s Republic of China.
On
May 15, 2007, we completed the purchase of 100% of the equity interests in
China Princely Education Technology Development Company Limited (“China
Princely”), an authorized accrediting organization for China vocational
education located in Beijing, PRC. Under the terms of the purchase agreement, we
paid to the shareholders of China Princely 5,400,000 shares of our restricted
common stock at closing. After closing, we changed the name of China
Princely to Hartcourt Princely Education Technology Development (Beijing) Co.,
Ltd.
On June13, 2008, The Hartcourt Companies, Inc. (the “Company”) entered into a
definitive agreement to purchase 60% of the equity interests in Beijing Yanyuan
Rapido Education Company (“Beijing Yanyuan”), a well-known training institution
in China. Under the terms of the definitive agreement executed between Beijing
Yanyuan and the Company, the purchase price that the Company agreed to pay to
the shareholders of Beijing Yanyuan 69 million shares of the Company’s
restricted common stock, which, pursuant to the purchase agreement, will be
payable upon closing of the acquisition. Hartcourt has the right to waive the
following commitment of profitability; Beijing Yanyuan committed that its net
profit would exceed RMB 6 million (US$827,000) for the seven months of calendar
year 2008, RMB10 million (US$1.379 million) for the calendar year 2009, and
RMB14 million (US$1.931 million) for the calendar year 2010.
On July23, 2008, The Hartcourt Companies (the “Company”) completed the acquisition of
60 percent of the outstanding equity interests of Beijing Yanyuan Rapido
Education Company (“Beijing Yanyuan”) pursuant to the terms of the definitive
agreement entered into between the two parties. Subject to the definitive
agreement between the Company and Beijing Yanyuan, the purchase price paid by
the Company in connection with its acquisition of a controlling interest in
Beijing Yanyuan was 69 million shares of the Company’s restricted common
stock.
On
October 18, 2008, the Company entered into a definitive agreement to purchase
60% of the outstanding equity interests of China Arts and Science Academy. Under
the terms of the definitive agreement executed between China Arts and Science
Academy and Hartcourt; Hartcourt has the right to waive the following commitment
of profitabilitiy; China Arts and Science Academy committed that its net profit
would exceed RMB5 million (US$735,294) for the first year (November 1, 2008 to
October 31, 2009) in which its results are consolidated with Hartcourt’s, RMB7.5
million (US$1.103 million) for the second year (November 1, 2009 to October 31,2010) in which its results are consolidated with Hartcourt’s, and RMB10 million
(US$1.471 million) for the third year (November 1, 2010 to October 31, 2011) in
which its results are consolidated with Hartcourt’s. The restricted common
shares issued by Hartcourt for the acquisition will be released to those
shareholders of China Arts and Science Academy whose equity interests were
purchased by Hartcourt in three installments based on the profit realized by
China Arts and Science Academy over the three-year period beginning on the date
of Hartcourt’s purchase of 60% of the outstanding equity interests of China Arts
and Science Academy.
F-31
On
October 31, 2008, The Hartcourt Companies Inc. (the “Company”) completed the
acquisition of 60 percent of the outstanding equity interests of China E & I
Development Co. Ltd., which does business as the China Arts and Science Academy
(“China Arts and Science Academy”), pursuant to the terms of the definitive
agreement entered into between the two parties. Under the agreement
between the Company and China Arts and Science Academy, the purchase price paid
by the Company in connection with its acquisition of a controlling interest in
China Arts and Science Academy was 40 million shares of the Company’s restricted
common stock.
As of
August 31, 2009, the Company owns 100% of three (3) British Virgin Island
(“BVI”) incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital
Inc., and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding
companies for assets located in China.
As of
August 31, 2009, Hartcourt Capital Inc. owns 100% of the equity interest of
Hartcourt Hi-Tech Investment (Shanghai) Inc. while Hartcourt Hi-Tech Investment
(Shanghai) Inc., through nominee shareholder, owns 100% of the equity interest
of Shanghai Jiumeng Information Technology Co., Ltd. These two companies are
located in Shanghai, China. In April 2007, the Company decided to wind up
Hartcourt Hi-Tech Investment (Shanghai) Inc. As of May 31, 2008, the wind-up
process was completed. Shanghai Jiumeng Information Technology Co., Ltd owns 60%
of the equity interest of Beijing Yanyuan Rapido Education Company.
As of
August 31, 2009, AI-Asia, Inc., the third holding company, owns 100% of the
equity interest of Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd (former name is AI-Asia (Shanghai) Information Technology,
Inc), located in Shanghai, China, and owns 100% of the equity interest of
Hartcourt Princely. AI-Asia, Inc owns 60% of the equity interest of China Arts
and Science Academy.
NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for the presentation of financial information, but do not include all
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The audited
consolidated financial statements for the fiscal year ended May 31, 2009 were
filed on September 14, 2009 with the Securities and Exchange Commission and are
hereby referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended August 31, 2009 are not necessarily indicative of the
results that may be expected for the year ended May 31, 2010.
b) Basis
of Consolidation
The
Company’s financial statements for the three months ended August 31, 2009 are
consolidated to include the accounts of The Hartcourt Companies Inc., the wholly
owned subsidiaries Hartcourt China Inc., Hartcourt Capital Inc., Hartcourt
Hi-Tech Investment (Shanghai) Inc., Ai-Asia Inc., Hartcourt Education Investment
Management Consulting (Shanghai) Co., Ltd., Shanghai Jiumeng Information
Technology Co., Ltd, Hartcourt Princely Education Technology Development Company
Limited, 60 percent owned Beijing Yanyuan Rapido Education Company and 60
percent owned China Arts and Science Academy from the date of acquisition. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
c) Cash
and Cash Equivalents
The
Company considers all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less to be cash equivalents. As Hartcourt’s business activities are
located in China, substantial amounts of cash are deposited in foreign banks
located in China, which do not have the protection programs similar to that of
the US (FDIC).
F-32
d) Prepaid
expenses
Prepaid
expenses are expenses that are allocated into the period in which they are
incurred and in subsequent periods, and be amortized within one year
(inclusive). They include amortization of low-valued consumables, prepaid
insurance expenses, lump-sum payment for stamps in large amount that need to be
amortized.
Prepaid
expenses generally will be amortized in equal installments and charged as costs
or expenses of periods benefiting within one year. If certain prepaid expense
item cannot benefit the Company any more, its un-amortized amount is recorded as
an expense for the current period. Prepaid expenses amounted to $11,057 and
$5,792 at August 31, 2009 and May 31, 2009 respectively and is included in
“Prepaid expenses and other current assets” in the accompanying financial
statements.
e) Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 3 to 10 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations. Expenditures for maintenance and repairs are charged to
operations as incurred.
f) Impairment
of Long-Lived Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. Based on its review, the Company believes
that, as of Auguat 31, 2009, there was no impairments of its long-lived assets
used in operations.
g) Income
Taxes
The
Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
h) Stock-Based
Compensation
The
Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS
No. 123R”), under the modified-prospective transition method on June 1,2006. SFAS No. 123R requires companies to measure and recognize the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value. Share-based compensation recognized under the
modified-prospective transition method of SFAS No. 123R includes
share-based compensation based on the grant-date fair value determined in
accordance with the original provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, for all share-based payments granted prior to and not
yet vested as of June 1, 2006 and share-based compensation based on the
grant-date fair-value determined in accordance with SFAS No. 123R for all
share-based payments granted after June 1, 2006. SFAS No. 123R eliminates
the ability to account for the award of these instruments under the intrinsic
value method prescribed by Accounting Principles Board (“APB”) Opinion
No. 25, Accounting for Stock Issued to Employees, and allowed under the
original provisions of SFAS No. 123. Prior to the adoption of SFAS
No. 123R, the Company accounted for the Company’s stock option plans using
the intrinsic value method in accordance with the provisions of APB Opinion
No. 25 and related interpretations.
F-33
i) Foreign
Currencies Translation
Assets
and liabilities in foreign currency are recorded at the balance sheet date at
the rate prevailing on that date. Items of income statement are recorded at the
average exchange rate. Gain or loss on foreign currency transactions are
reflected on the income statements. Gain or loss on financial statement
translation from foreign currency are recorded as a separate component in the
equity section of the balance sheets, as component of comprehensive income
(loss). The functional currencies of the Company are Chinese Renminbi and Hong
Kong Dollars. The following companies are using Chinese Renminbi: Hartcourt
Princely, Hartcourt Education Investment Management Consulting (Shanghai) Co.,
Ltd, Beijing Yanyuan Rapido Education Company, China Arts and Science Academy,
Hartcourt Hi-Tech Investment (Shanghai) Inc., and Shanghai Jiumeng Information
Technology Co., Ltd. The following companies are using Hongkong Dollars: Al-Asia
Inc., Hartcourt China Inc. and Hartcourt Capital.
j) Basic
and diluted earning per share
Earning
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings Per Share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net earning per share for
all periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net earning per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
k) Recently
Issued Accounting Standards
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2010 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after June 15,2010.
NOTE 3 LOAN RECEIVABLE
Company
advanced loans to agents to market their courses to the students and individual.
As at August 31, 2009, these loans comprised of the following:
F-34
Loan
to sales agent, interest free, secured and amount due January 15,2010
$
175,408
Loan
to sales agent, interest free, secured and amount due February 15,2010
190,025
Loan
to sales agent, interest free, secured and amount due February 28,2010
175,408
Loan
to individual, 10% interest, secured and amount due March 31,2010
182,716
Loan
to individual, 10% interest, secured and amount due April 15,2010
The
Company accounts for its intangible assets under the applicable guidelines of
SFAS 142 “goodwill and other intangible assets” and SFAS 144 “accounting for the
impairment or disposal of long lived assets”. Where intangible assets
have finite lives, they are amortized over their useful life unless factors
exist to indicate that the asset has been impaired. The Company
evaluates if the assets are impaired annually or on an interim basis if an event
occurs or circumstances change to suggest that the assets value has
diminished. Under SFAS 142 intangible assets with indefinite useful
lives are required to be tested annually for impairment or whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets is measured by a comparison
of the carrying amount of the assets to future net cash flows expected to be
generated by the assets. If the assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets. During three months
periods ended August 31, 2009, the Company recognized no
impairment.
Life of
intangible assets is twenty years. Amortization expense from continuing
operation included cost of revenue for the year ended August 31, 2009
and 2008 were $50,962 and $0, respectively. We expect
amortization expense for the next five years to be as follows:
Period
ending August 31:
2010
$
203,848
2011
203,848
2012
203,848
2013
203,848
2014
203,848
Thereafter
2,853,153
$
3,872,393
NOTE
6 DUE TO RELATED PARTY
The
amount due to directors as of August 31, 2009 and May 31, 2009 were $173,308 and
$246,862, respectively. This amount represents director fee due to the Company’s
directors. The amount due to directors is interest free, unsecured and due on
demand.
NOTE
7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
F-36
Accrued
expenses and other current liabilities as of August 31, 2009 and May 31, 2009
are summarized as follows:
As of
August 31, 2009, the Company had ,28,200,000 options outstanding, each
exercisable for one share of our common stock. These instruments were not
included in the computation of diluted earnings per share for any of the periods
presented because the Company has retained loss as of August 31,2009.
NOTE
9 SHAREHOLDERS’ EQUITY
a) Capitalization
The total
number of shares of stock which the Company has the authority to issue is
434,999,000 consisting of 424,999,000 shares of common stock, $0.001 par value,
1,000 shares of original preferred stock, $0.01 par value (the Original
Preferred Stock), and 10,000,000 shares of Class A preferred stock. The total
number of shares of the Company’s common stock outstanding as of August 31, 2009
and May 31, 2009 are 386,966,816 and 386,966,816 respectively.
F-37
b) Original
Preferred Stock
On July,
14, 2004, the founder of Hartcourt, Dr. Alan V Phan, converted his 1,000 shares
of Original Preferred Stock into 2,000,000 shares of Hartcourt common stock.
After the conversion, no Original Preferred Stock was outstanding as of August31, 2009.
c) Class
A Preferred Stock
The
10,000,000 shares of authorized and unissued Class A Preferred Stock may be
split with such designations, power, preferences and other rights and
qualifications, limitations and restrictions thereof as the Company’s Board of
Directors elects for a given series. No shares have been issued.
d) Equity
Transactions
There is
no equity transaction during the three months period ended August 31,2009.
Stock Option Plan
In
November 2005, the Company adopted a stock option plan to attract and retain
qualified persons for positions of substantial responsibility as officers,
directors, consultants, legal counsel, and other positions of significance to
the Company (the “2005 Plan”). The 2005 Plan provides for the issuance of stock
options, stock appreciation rights, restricted stock, stock units, bonus stock,
dividend equivalents, other stock-related awards and performance awards that may
be settled in cash, stock, or other property. The total number of shares of our
common stock that may be subject to awards under the 2005 Plan is equal to
35,000,000 shares, plus (i) the number of shares with respect to which awards
previously granted under the 2005 Plan that terminates without the issuance of
the shares or where the shares are forfeited or repurchased; (ii) with respect
to awards granted under the 2005 Plan, the number of shares which are not issued
as a result of the award being settled for cash or otherwise not issued in
connection with the exercise or payment of the award and (iii) the number of
shares that are surrendered or withheld in payment of the exercise price of any
award or any tax withholding requirements in connection with any award granted
under the 2005 Plan. Unless earlier terminated by our Board of Directors, the
2005 Plan will terminate on the earlier of (1) ten years after the later of (x)
its adoption by our Board of Directors, or (y) the approval of an increase in
the number of shares reserved under the 2005 Plan by our Board of Directors
(contingent upon such increase being approved by our shareholders) and (2) such
time as no shares of our common stock remain available for issuance under the
2005 Plan and we have no further rights or obligations with respect to
outstanding awards under the 2005 Plan. Options granted under the 2005 Plan are
restricted as to sale or transfer.
The 2005
Plan was approved on November 23, 2005 during the annual shareholders
meeting.
The
number of shares of common stock reserved and available under the 2005 Plan was
increased from 35,000,000 to 70,000,000 at the annual meeting of shareholders on
February 24, 2007.
On
September 1, 2008, the Company granted Victor Zhou CEO of the Company, an option
to purchase the Company’s common stock at exercise price of $0.03 according to
the following vesting schedule and based on the 2005 Plan.
●
7,500,000
stock options vested pro rata over 2 years of the employment contract
period.
●
3,000,000
stock options vested upon each successful new business acquisition of the
Company.
●
3,000,000
stock options vested upon each full profitable
year.
F-38
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Weighted
average expected life of the options
6.25
years
Expected
volatility
127.39%
Expected
dividend yield
0
On
September 11 2008, the Company granted Wilson Li, Chairman of the Board, an
option to purchase 5,000,000 shares of the Company’s common stock at exercise
price of $0.03. The option will vest on September 11, 2010 and is exercisable
within five years time after vesting.
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Weighted
average expected life of the options
7.00
years
Expected
volatility
127.39%
Expected
dividend yield
0
On
September 11 2008, the Company granted George Xu, independent director of the
Company, an option to purchase 1,000,000 shares of the Company’s common stock at
exercise price of $0.03. Each option will vest on September 11, 2010 and is
exercisable within five years time after vesting.
On
September 11 2008, the Company granted Stephen Tang, former independent director
of the company, an option to purchase 1,000,000 shares of the Company’s common
stock at exercise price of $0.03. Each option will vest on September 11, 2010
and is exercisable within five years time after vesting. The stock option was
terminated 90 days after his departure on April 11, 2009 from the
Company.
The
following assumptions were used to calculate the fair value of the options
granted:
Risk-free
interest rate
4.92%
Expected
life of the options
7.00
years
Expected
volatility
127.39%
Expected
dividend yield
0
The
following table summarizes the activity of stock options:
Additional
information relating to stock options outstanding and exercisable at August 31,2009 summarized by the exercise price is as follows:
Weighted
Number
of
Average
Weighted
Number
Weighted
Range
of
Outstanding
at
Remaining
Average
Exercisable
at
Average
Exercise
August
31,
Contractual
Exercise
August
31,
Exercise
Price
2009
Life
Price
2009
Price
$0.03
- $0.05
28,000,000
4.59
Year
$0.04
828,000
$0.04
$0.09
200,000
1.52
Year
$0.09
200,000
$0.09
F-40
During
the three months period ended August 31, 2009, no options vested and the Company
recorded $47,741 amortization in stock based compensation expense.
Additional
information relating to stock options outstanding and exercisable at August 31,2008 summarized by the exercise price is as follows:
Weighted
Number
of
Average
Weighted
Number
Weighted
Range
of
Outstanding
at
Remaining
Average
Exercisable
at
Average
Exercise
May
31,
Contractual
Exercise
May
31,
Exercise
Price
2008
Life
Price
2008
Price
$0.04
- $0.05
17,000,000
3.95
Year
$0.05
17,000,000
$0.05
$0.09
5,300,000
2.55
Year
$0.09
5,300,000
$0.09
During
the three months period ended August 31, 2008, a total of 1,875,000 options
vested and the Company recorded $7,394 amortization in stock based compensation
expense.
b) Warrants
None
NOTE
10 COMMITMENTS AND CONTINGENCIES
a) Employment
Agreements
None
b) Operating
Leases
The
Company leases its offices and facilities under long-term, non-cancelable lease
agreements expiring at various dates through January 27, 2010. The
non-cancelable operating lease agreements provide that the Company pays certain
operating expenses applicable to the leased premises according to the Chinese
Law. Rental expense for the fiscal year ended August 31, 2009 and 2008 were
$3,947 and $14,410, respectively.
The
future minimum annual lease payments required under this operating lease are as
follows:
F-41
Year
Ending May 31,
Payments
2010
$
11,840
c) Legal
Proceedings
Hartcourt
Hi-Tech Investment (Shanghai) Inc. filed a compliant against Beijing Yi Zhi He
Lian Information Technology Co., Ltd for returning RMB 1,000,000 (US $146,235)
which it owed the Company. On December 19, 2006, Beijing Shi Jing Shan District
Court entered the judgment in this case. The court found that Hartcourt Hi-Tech
Investment (Shanghai) Inc. has no rights to file the compliant against Beijing
Yi Zhi He Lian Information Technology Co., Ltd. unless designated by Hartcourt
Capital, Inc., which signed and was bound by the acquisition agreement. The
court issued an order overruling the complaint from Hartcourt Hi-Tech Investment
(Shanghai)., Inc. as the plaintiff. The plaintiff can appeal to Beijing No. 1
Intermediate People’s Court if objecting to the rule. The Company has prepared
additional lawsuit material and lodged the petition to appeal to Beijing No. 1
Intermediate People’s Court.
On August10, 2007, Hartcourt Capital Inc filed a lawsuit in the Beijing No. 1
Intermediate People’s Court against Beijing Yi Zhi He Lian Information
Technology Co., Ltd to return the RMB 1,000,000 which it owes the Company. On
December 10, 2008, The Beijing Senior People’s Court issued an order to withdraw
the civil ruling of the Beijing No. 1 Intermediate People’s Court under no.
10077, order Beijing No. 1 Intermediate People’s Court to judge
again. The lawsuit is under judgment and the outcome cannot be
estimated as of August 31, 2009.
NOTE 11 CURRENT VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS
The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy. The Company's business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other factors.
NOTE 12 SUBSEQUENT EVENTS
On August20, 2009, Hartcourt and its subsidiaries, Maple China Education Incorporated, a
Delaware corporation, and Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China, entered into a plan of reorganization and share exchange
agreement (the “Share Exchange Agreement”) with Sino-Canada, its subsidiaries,
Sino-Canada High School, a private educational non-enterprise institution
existing under the laws of the People’s Republic of China, Wujiang Huayu
Property Management Company, a company existing under the Company Law of the
People’s Republic of China, Canadian Learning Systems Corporation, a company
existing under the laws of the British Virgin Islands, each of the shareholders
of Sino-Canada (the “Shareholders”) and Ross Yuan, in the capacity as
representative of the Shareholders. Unless the context requires otherwise,
reference herein to Hartcourt includes reference to its subsidiaries and
reference to Sino-Canada includes reference to its subsidiaries referenced
above. The condition for the closure of the transaction had not occurred as of
October 20, 2009.
F-42
a) Transactions
The Share
Exchange Agreement provides that Hartcourt will acquire all of the issued and
outstanding shares of Sino-Canada. Immediately prior to the closing of the
acquisition, Hartcourt will effect a reincorporation from the State of Utah to
the State of Delaware, a 1 for 80 reverse stock split and a name change, by
merging into its wholly-owned subsidiary, Maple China Education Incorporated.
The surviving corporation in the reincorporation will be Maple China Education
Incorporated.
b) Acquisition
Consideration
In
exchange for all of the issued and outstanding shares of capital stock of
Sino-Canada, Hartcourt will issue approximately $33,623,963, worth of shares of
its common stock at an agreed upon price of $0.88 per share (post-split) to the
Sino-Canada shareholders in exchange for all of the issued and outstanding
capital stock of Sino-Canada. Hartcourt will issue 38,209,049 shares of
Hartcourt common stock in a private placement in satisfaction of the purchase
price. The aggregate purchase price and the actual number of shares to be issued
in the exchange remain subject to potential purchase price adjustments at the
closing. The number of shares of Hartcourt common stock issued in the
transaction will be decreased in the event Sino-Canada’s working capital
(measured by current assets less current liabilities) decreases by more than
five percent at the closing as compared to March 31, 2009, and will be increased
in the event that Hartcourt’s total liabilities at closing exceeds $600,000, up
to a maximum of 45,850,859 shares. The purchase price adjustment for Hartcourt’s
outstanding liabilities at closing will exclude Hartcourt’s outstanding loan of
up to $1,300,000 from Yuan Dian Investment Inc. that will be repaid upon the
closing in accordance with its terms by issuing shares of common stock of
Hartcourt at a price of $0.88 per share.
Following
the acquisition, the former shareholders of Sino-Canada will own approximately
86% of the issued and outstanding shares of Hartcourt.
c) Post-Closing Officers and
Directors
Upon the
consummation of the transaction, Hartcourt’s existing officers will resign and
the new management team will take over.
Further,
upon the consummation of the acquisition, Hartcourt’s board of directors of
Hartcourt will consist of seven directors, of which Sino-Canada will designate
five members and Hartcourt will designate two members. Hartcourt and the
Shareholders will enter into a voting agreement (the “Voting Agreement”) at
closing to elect the respective parties nominees to Hartcourt’s board of
directors following closing until immediately prior to the next annual Hartcourt
meeting of stockholders.
F-43
SINO-CANADA
INVESTMENT GROUP INC.
Report
of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Sino-Canada
Investment Group
We have
audited the accompanying consolidated balance sheets of Sino-Canada Investment
Group and its subsidiaries (the “Company”) as of December 31, 2008 and 2007, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sino-Canada
Investment Group and its subsidiaries as of December 31, 2008 and 2007, and the
results of its consolidated statements of operations, stockholders' equity, and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying notes form an integral
part of these financial statements.
F-48
Notes
to Financial Statements
NOTE
1- ORGANIZATION AND DESCRIPTION OF BUSINESS
Sino-Canada
Investment Group, Inc. (“The Company” or “Sino-Canada”), was established in
2003, in accordance with the Company Law of the People’s Republic of
China. Sino-Canada is primarily engaged in the investment and
management business in the sector of private education in
China.
Sino-Canada
operates through its wholly owned subsidiaries Sino-Canada High School (“SCHS”),
Canadian Learning Systems Corporation (“CLSC”), Wujiang Huayu Property
Management Company (“PM”), Sino-Canada Middle School (“SCMS”), and Wujiang
Fenghua Training center (“TC”)
SCHS is a
fully certified Canadian Offshore High School in China, and it was established
in 2005. It provides education service based on British Columbia, Canada and
China High School Curriculum to its students. SCHS’s students are duly
registered with ministry of education of both British Columbia as well as China,
and are awarded with dual diploma from both countries upon graduation. Majority
of SCHS’s graduating students entered into universities and colleges in European
Union and North America.
Sino-Canada
provides education management services primarily through its subsidiary Canadian
Learning Systems Corporation, or CLSC. CLSC was incorporated in November 2003 in
the British Virgin Islands. CLSC has entered into an exclusive
management service agreement with Sino-Canada High School, Sino-Canada Middle
School, and Wujiang Fenghua Training Center. Under these agreements, CLSC
charges exclusive management service fee to Sino-Canada High School, Sino-Canada
Middle School and Wujiang Fenghua Training Center.
Wujiang Huayu Property Management Company (PM) provides
property management and consulting services to SCHS and outside companies other
than Sino-Canada subsidiaries. PM was
established in 2004.
Sino-Canada
Middle School (SCMS) provides private junior high school diploma education to
local Chinese students, and it was established in 2005. Wujiang Fenghua Training
Center (TC) offer students wide range of vocational or technical training
programs, and it was established in 2008.
NOTE
2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the Company’s significant accounting policies consistently applied in the
preparation of the accompanying financial statements are as
follows:
Principles
of Consolidation
Per
Statement of Financial Accounting Standard (SFAS) #141, all business
combinations is accounted for by the purchase method. Acquisitions were recorded
as purchases in accordance with Accounting Principles Board Opinion No. 16 (APB
#16), “Business Combinations”, as modified, and the purchase prices were
allocated to the assets acquired, and liabilities assumed based upon their
estimated fair value at the purchase date. The excess purchase price over the
net asset value has been recorded as goodwill and is included in intangibles in
the accompanying balance sheet. The operating results of the acquired entities
are included in the Company’s consolidated financial statements from the dates
of acquisition.
F-49
The
consolidated financial statements for year ended December 31, 2008 include the
accounts of the Company and its wholly owned subsidiary SCHS, PM, and TC, that
for the year ended December 31, 2007 include the accounts of the Company and its
wholly owned subsidiary SCHS and PM. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America. The Company’s functional currency is the Chinese
Renminbi (RMB) and Canadian dollar (CAD); however the accompanying
financial statements have been translated and presented in United States Dollars
($). In the opinion of management, all adjustments considered necessary for a
fair presentation have been included. The following companies are using Chinese
Renminbi: Sino-Canada Investment Group, Sino-Canada High School, Wujiang Huayu
Property Management Company, Sino-Canada Middle School, and Wujiang Fenghua
Training center. Canadian Learning Systems Corporation is using Canadian
dollar.
Use
of Estimates
In
preparing of the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
and Cash equivalents
The
Company considers all liquid investments with a maturity of three months or less
from the date of purchase that is readily convertible into cash and cash
equivalents. The Company maintains its cash in bank deposit accounts. As of
December 31, 2008 and 2007, cash and cash equivalent amounted to $374,734 and
$1,709,353, respectively.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 5 to 45 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations.
Intangible
Assets
The
Company applies criteria specified in SFAS No. 141, “Business Combinations”
to determine whether an intangible asset should be recognized separately from
goodwill. Intangible assets acquired through business acquisitions are
recognized as assets separate from goodwill if they satisfy either the
“contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets
with definite lives are amortized over their estimated useful life and reviewed
for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-lived Assets.” Intangible assets, such as
purchased technology, trademark, customer list, user base and non-compete
agreements, arising from the acquisitions of subsidiaries and variable interest
entities are recognized and measured at fair value upon acquisition. Intangible
assets are amortized over their estimated useful lives from one to ten years.
The Company reviews the amortization methods and estimated useful lives of
intangible assets at least annually or when events or changes in circumstances
indicate that assets may be impaired. The recoverability of an intangible asset
to be held and used is evaluated by comparing the carrying amount of the
intangible asset to its future net undiscounted cash flows. If the intangible
asset is considered to be impaired, the impairment loss is measured as the
amount by which the carrying amount of the intangible asset exceeds the fair
value of the intangible asset, calculated using a discounted future cash flow
analysis. The Company uses estimates and judgments in its impairment tests, and
if different estimates or judgments had been utilized, the timing or the amount
of the impairment charges could be different.
F-50
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal.
Unearned
Revenue
The
Company received the tuition fee from students in advance every year in
September. The tuition fee income is recognized over twelve month period. As at
December 31, 2008 and 2007, the Company recorded unearned revenue of $2,528,306
and $1,907,331, respectively.
Revenue
Recognition
The
Company recognizes its revenue in accordance with the Securities and Exchange
Commissions (“SEC”) Staff Accounting Bulletin N0. 104 “Revenue Recognition in
Financial Statements” (“SAB 104”). SAB 104 revises or rescinds portions of the
interpretive guidance included in Topic 13 of the codification of staff
accounting bulletins in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and SEC rules and
regulations. Revenue is recognized upon (i) the services are
performed, (ii) collectability is probable and (iii) such revenues are
contractually nonrefundable.
The
Company derives its revenue mainly from tuition fees and application fees.
Tuition fees is collected in advance on or before new semesters started. Tuition
fee is recognized as revenue proportionately as the instructions are delivered.
Tuition fees paid in advance are recorded as unearned revenue in balance sheet.
Company receives application fees from students to appear for the aptitude test
before the admission is granted. This application fees is a one time,
non-refundable fees. Therefore, application fees is collected and recognized as
revenue upon receipt of the fees.
Other
income
The
Company records other income on various services provided to the students, i.e.
uniform fee, registration fee, meal, utilities, school bus fee, insurances, book
fee, etc. Most of the other fees are collected together with the tuition at the
beginning of each semester year. The difference between the amount received from
the student and the amount paid to the vendor is recognized as ‘other various
services’ income at the time when payment is made to the vendor. As at December31, 2008 and 2007, other income amounted to $372,227 and $161,101,
respectively.
Foreign
Currency Translation
As of
December 31, 2008, the accounts of the Company were maintained, and their
financial statements were expressed in their local currencies. Such consolidated
financial statements were translated into U.S. Dollars (USD) in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation," with the Chinese Renminbi (RMB) as the functional currency.
According to the Statement, all assets and liabilities were translated at the
exchange rate on the balance sheet date, stockholder's equity are translated at
the historical rates and statement of operations items are translated at the
weighted average exchange rate for the period or year. The resulting translation
adjustments are reported under other comprehensive income in accordance with
SFAS No. 130, "Reporting Comprehensive Income”.
F-51
Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the statement of shareholders' equity and amounted to
$590,871 and $186,479 for the years ended December 31, 2008 and 2007,
respectively.
Income
Taxes
The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Statement
of Cash Flows
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations is calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting. The management approach model
is based on the way a company’s management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. The
Company operates in two segments, Education and Services.
Recent
Accounting Pronouncements
FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important. Based on current conditions, the Company
does not expect the adoption of SFAS 161 to have a significant impact on its
results of operations or financial position.
In May 0f
2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted Accounting
Principles. The pronouncement mandates the GAAP hierarchy reside in
the accounting literature as opposed to the audit literature. This
has the practical impact of elevating FASB Statements of Financial Accounting
Concepts in the GAAP hierarchy. This pronouncement will become
effective 60 days following SEC approval. The company does not
believe this pronouncement will impact its financial statements.
F-52
In May of
2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60. The scope of
the statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning
after December 31, 2008. The company does not believe this
pronouncement will impact its financial statements.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2010 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after June 15,2010.
NOTE
3- NOTE RECEIVABLE
The
Company has note receivable from unrelated parties. The note is due on demand,
unsecured and interest free. As on December 31, 2008 and 2007, the note
receivable amounted to $437,701 and $0, respectively.
NOTE
4-LOANS RECEIVABLE
The
Company has several loans receivable from third parties. The loans are due on
demand, unsecured and interest free. As on December 31, 2008 and 2007, the loans
receivable amounted to $5,755,471 and $2,023,517, respectively. Following is the
breakup of loans to various parties:
2008
Loan
receivable, interest free, unsecured, due on demand. Party
A
$
3,326,122
Loan
receivable, interest free, unsecured, due on demand. Party
B
1,386,052
Loan
receivable, interest free, unsecured, due on demand. Party
C
701,196
Loan
receivable, interest free, unsecured, due on demand. Party
D
342,101
Total
$
5,755,471
2007
Loan
receivable, interest free, unsecured, due on demand. Party
B
$
1,298,879
Loan
receivable, interest free, unsecured, due on demand. Party
C
656,276
Loan
receivable, interest free, unsecured, due on demand. Party
E
Depreciation
expenses for the years ended December 31, 2008 and 2007 were $550,046 and
$471,778 respectively.
NOTE
6- LAND USE RIGHTS
As per
People's Republic of China's governmental regulations, the Government owns all
land. However, the government grants the user a “land use right” (the Right) to
use the land. The Company has recognized the amounts paid for the acquisition of
rights to use land as intangible asset and amortizing over a period of forty
years.
The
company acquired land use rights on August 2006 for a total amount of
$2,479,355. The land use right is for forty years. The intangible assets consist
of the followings as of December 31, 2008 and 2007:
2008
2007
Land
use rights
$
2,645,754
$
2,479,355
Accumulated
amortization
(163,946
)
(90,062
)
$
2,481,808
$
2,389,293
Intangible
assets of the Company are reviewed annually as to whether their carrying value
has become impaired. The Company considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations. The
Company also re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
As of December 31, 2008 and 2007, the Company expects these assets to be fully
recoverable.
F-54
Total
amortization expenses for the years ended December 31, 2008 and 2007 amounted to
$66,778 and $61,036 respectively. Amortization expenses for next five years are
as follows:
2010
$
66,778
2011
66,778
2012
66,778
2013
66,778
Thereafter
2,214,696
Total
$
2,481,808
NOTE
7- LOANS PAYABLE
The
Company has loans payable to third parties.. The loans payable are due on demand,
unsecured and interest free. As on December 31, 2008 and 2007, the loans
payable amounted to $12,847,457 and $7,101,545, respectively. Following is the
breakup of loans to various parties:
2008
Loan
payable, interest free, unsecured, due on demand. Party A
$
11,029,540
Loan
payable, interest free, unsecured, due on demand. Party B
729,501
Loan
payable, interest free, unsecured, due on demand. Party C
663,846
Loan
payable, interest free, unsecured, due on demand. Party D
291,801
Loan
payable, interest free, unsecured, due on demand. Party E
124,015
Loan
payable, interest free, unsecured, due on demand. Party F
8,754
Total
$
12,847,457
2007
Loan
payable, interest free, unsecured, due on demand. Party A
$
6,828,097
Loan
payable, interest free, unsecured, due on demand. Party G
273,448
Total
$
7,101,545
F-55
NOTE 8- INCOME TAXES
The
Company is registered in China and has operations in primarily tax
jurisdictions. For certain operations in the PRC, the Company has incurred net
accumulated operating losses which can be carried forward 5 years to offset
future taxable income. The Company believes that it is more likely than not that
these net accumulated operating losses will not be utilized in the future.
Therefore, the Company has provided full valuation allowance for the deferred
tax assets and, accordingly, has no net deferred tax assets.
The
following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Statement of
Operations:
2008
2007
Foreign
income tax - PRC
25%
33%
Net
operating loss
-25%
-33%
Tax
expense at actual rate
-%
-%
People’s
Republic of China (PRC)
Pursuant
to the PRC Income Tax Laws, the Company is generally subject to Enterprise
Income Taxes ("EIT") at a statutory rate of 25%.
The
following table sets forth the significant components of the net deferred tax
assets for operation in PRC as of December 31, 2008 and
2007
2008
2007
Net
operation loss carry forward
$
2,329,968
$
746,643
Total
deferred tax assets PRC
378,273
28,882
Less:
valuation allowance
$
(378,273)
$
(28,882)
Net
deferred tax assets
$
-
$
-
NOTE 9- SEGMENT REPORTING
The
Company had two principal operating segments which were: education income and service income. These operating
segments were determined based on the nature of the services
provided. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-maker in deciding how to
allocate resources and in assessing performance. The Company's chief
executive officer and chief financial officer have been identified as the chief
operating decision makers. The Company’s chief operating decision
makers direct the allocation of resources to operating segments based on the
profitability, cash flows, and other measurement factors of each respective
segment.
F-56
The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment income before taxes. The
segments’ accounting policies are the same as those described in the summary of
significant accounting policies. The following table shows the
operations of the Company's reportable segments:
For
The Years Ended December 31
2008
2007
Revenues
Education
$
3,891,377
$
2,646,468
Service
1,291
17,212
Consolidated
$
3,892,668
$
2,663,680
Operating
income (loss)
Education
$
(1,368,651
)
$
63,527
Service
(226,687
)
(16,708
)
Corporation
2,560,611
953,131
Consolidated
$
965,273
$
999,950
Identifiable
assets:
Education
$
12,452,610
$
12,173,313
Service
9,094,462
515
Consolidated
$
21,547,073
$
12,173,828
Depreciation
and amortization:
Education
$
589,777
$
532,730
Service
27,046
84
Consolidated
$
616,824
$
532,814
Capital
expenditure:
Education
$
-
$
314,893
Service
9,032,339
-
Consolidated
$
9,032,339
$
314,893
F-57
NOTE
10 SUBSEQUENT EVENTS:
On August20, 2009, Hartcourt and its subsidiaries, Maple China Education Incorporated, a
Delaware corporation and Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China, entered into a plan of reorganization and share exchange
agreement (the “Share Exchange Agreement”) with the Company and its
subsidiaries, Sino-Canada High School, a private educational non-enterprise
institution existing under the laws of the People’s Republic of China, Wujiang
Huayu Property Management Company, a company existing under the Company Law of
the People’s Republic of China, Canadian Learning Systems Corporation, a company
existing under the laws of the British Virgin Islands, each of the shareholders
of Sino-Canada (the “Shareholders”) and Ross Yuan, in the capacity as
representative of the Shareholders. In exchange for all of the issued and
outstanding shares of capital stock of the Company, Hartcourt will issue
approximately $33,623,963, worth of shares of its common stock at an agreed upon
price of $0.88 per share (post-split) to the Company’s shareholders in exchange
for all of the issued and outstanding capital stock of the Company. Hartcourt
will issue 38,209,049 shares of Hartcourt common stock in a private placement in
satisfaction of the purchase price. The aggregate purchase price and the actual
number of shares to be issued in the exchange remain subject to potential
purchase price adjustments at the closing. The number of shares of Hartcourt
common stock issued in the transaction will be decreased in the event the
Company’s working capital (measured by current assets less current liabilities)
decreases by more than five percent at the closing as compared to March 31,2009, and will be increased in the event that Hartcourt’s total liabilities at
closing exceeds $600,000, up to a maximum of 45,850,859 shares. The purchase
price adjustment for Hartcourt’s outstanding liabilities at closing will exclude
Hartcourt’s outstanding loan of up to $1,300,000 from Yuan Dian Investment Inc.
that will be repaid upon the closing in accordance with its terms by issuing
shares of common stock of Hartcourt at a price of $0.88 per share.
Following
the acquisition, the former shareholders of the Company will own approximately
86% of the issued and outstanding shares of Hartcourt. Therefore, the
acquisition transaction would be recorded as a reversed
acquisition.
The accompanying notes form an integral
part of these unaudited financial statements.
F-59
Statement
of Income for the six months ended June 30, 2009
SINO-CANADA
INVESTMENT GROUP CONSOLIDATION
STATEMENTS
OF INCOME
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2009 & 2008
(UNAUDITED)
2009
2008
Revenue
Education
$
2,599,872$
$
1,785,336
Service
102,784
243
Net
revenue
2,702,656
1,785,579
Operating
expenses
General
and administrative expenses
1,743,482
1,494,049
Income
from operations
959,174
291,530
Other
income (expense):
Interest
income (expense)
-
(22,265
)
Other
income (expense), net
41,424
73,822
Total
other income (expense)
41,424
51,557
Net
income
1,000,597
343,088
Other
comprehensive item:
Foreign
currency translation gain (loss)
22,388
561,963
Net
comprehensive income (loss)
$
1,022,985
$
905,051
The accompanying notes form an integral
part of these unaudited financial statements.
F-60
Statement
of Cash Flows for the six months ended June 30, 2009
SINO-CANADA
INVESTMENT GROUP CONSOLIDATION
STATEMENTS
OF CASH FLOWS
FOR
THE SIX MONTH PERIODS ENDED JUNE 30, 2009 & 2008
(UNAUDITED)
2009
2008
CASH
FLOWS FROM OPERATING ACTIVITIES:
Net
income
$
1,000,597
$
343,088
Adjustments
to reconcile net income to net cash provided by operating
activities:
Depreciation
166,949
177,980
Amortization
33,973
32,447
Changes
in operating assets and liabilities:
Accounts
receivable
137,437
129,645
Other
receivable
(44,599
)
(616,634
)
Other
payable
(150,937
)
(233,757
)
Salary
payable
(46,151
)
53,488
Advance
payment by students
(31,849
)
(15,583
)
Unearned
revenue
(422,337
)
(1,228,653
)
Deposit
(99,124
)
(149,028
)
Accrued
expenses
-
(140,873
)
Net
cash provided by operating activities
543,959
(1,647,881
)
CASH
FLOWS FROM INVESTING ACTIVITIES:
Purchase
of property, plant and equipment
(62,496
)
(17,530
)
Loan
receivable
4,297,364
(3,114,941
)
Long-term
investment
-
28,278
Net
cash provided by (used in) investing activities
4,234,868
(3,104,193
)
CASH
FLOWS FROM FINANCING ACTIVITIES:
Note
receivable
438,389
-
Notes
payable
5,552,933
1,838,072
Short
term debt
6,575,842
-
Long
term debt
1,461,298
8,262
Restricted
cash
(5,551,660
)
-
Loan
to shareholder
-
2,209,478
Loan
payable
(12,443,517
)
(314,497
)
Net
cash provided by (used in) financing activities
(3,966,715
)
3,741,315
NET
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
812,112
(1,010,759
)
FOREIGN
CURRENCY TRANSLATION
1,486
77,524
CASH
& CASH EQUIVALENTS, BEGINNING BALANCE
374,734
1,709,373
CASH
& CASH EQUIVALENTS, ENDING BALANCE
$
1,188,333
$
776,138
SUPPLEMENTAL
CASH FLOW INFORMATION:
Interest
paid
$
-
$
-
Income
tax paid
$
-
$
-
The accompanying notes form an integral
part of these unaudited financial statements.
F-61
Notes
to Unaudited Financial Statements
NOTE
1- ORGANIZATION AND DESCRIPTION OF BUSINESS
Sino-Canada
Investment Group, Inc. (“The Company” or “Sino-Canada”), was established in
2003, in accordance with the Company Law of the People’s Republic of
China. Sino-Canada is primarily engaged in the investment and
management business in the sector of private education in China.
Sino-Canada
operates through its wholly owned subsidiaries Sino-Canada High School (“SCHS”),
Canadian Learning Systems Corporation (“CLSC”), Wujiang Huayu Property
Management Company (“PM”), Sino-Canada Middle School (“SCMS”), and Wujiang
Fenghua Training center (“TC”)
SCHS is a
fully certified Canadian Offshore High School in China, and it was established
in 2005.. It provides education service based on British Columbia, Canada and
China High School Curriculum to its students. SCHS’s students are duly
registered with ministry of education of both British Columbia as well as China,
and are awarded with dual diploma from both countries upon graduation. Majority
of SCHS’s graduating students entered into universities and colleges in European
Union and North America.
Sino-Canada
provides education management services primarily through its subsidiary Canadian
Learning Systems Corporation, or CLSC. CLSC was incorporated in November 2003 in
the British Virgin Islands. CLSC has entered into an exclusive
management service agreement with Sino-Canada High School, Sino-Canada Middle
School, and Wujiang Fenghua Training Center. Under these agreements, CLSC
charges exclusive management service fee to Sino-Canada High School, Sino-Canada
Middle School and Wujiang Fenghua Training Center.
Wujiang Huayu Property Management Company (PM) provides
property management and consulting services to SCHS and outside companies other
than Sino-Canada subsidiaries. PM was
established in 2004.
Sino-Canada
Middle School (SCMS) provides private junior high school diploma education to
local Chinese students, and it was established in 2005. Wujiang Fenghua Training
Center (TC) offer students wide range of vocational or technical training
programs, and it was established in 2008.
NOTE
2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the Company’s significant accounting policies consistently applied in the
preparation of the accompanying financial statements are as
follows:
Principles
of Consolidation
Per
Statement of Financial Accounting Standard (SFAS) #141, all business
combinations is accounted for by the purchase method. Acquisitions were recorded
as purchases in accordance with Accounting Principles Board Opinion No. 16 (APB
#16), “Business Combinations”, as modified, and the purchase prices were
allocated to the assets acquired, and liabilities assumed based upon their
estimated fair value at the purchase date. The excess purchase price over the
net asset value has been recorded as goodwill and is included in intangibles in
the accompanying balance sheet. The operating results of the acquired entities
are included in the Company’s consolidated financial statements from the dates
of acquisition.
F-62
The
consolidated financial statements for period ended June 30, 2009 include the
accounts of the Company and its wholly owned subsidiary CLSC, SCHS, PM, and TC.
All significant inter-company accounts and transactions have been eliminated in
consolidation.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America. The Company’s functional currency is the Chinese
Renminbi (RMB) and Canadian dollar (CAD); however the accompanying
financial statements have been translated and presented in United States Dollars
($). In the opinion of management, all adjustments considered necessary for a
fair presentation have been included. The following companies are using Chinese
Renminbi: Sino-Canada Investment Group, Sino-Canada High School, Wujiang Huayu
Property Management Company, Sino-Canada Middle School, and Wujiang Fenghua
Training center. Canadian Learning Systems Corporation is using Canadian
dollar.
Use
of Estimates
In
preparing of the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash
and Cash equivalents
The
Company considers all liquid investments with a maturity of three months or less
from the date of purchase that is readily convertible into cash and cash
equivalents. The Company maintains its cash in bank deposit accounts. As of June30, 2009 and December 31, 2008, cash and cash equivalent amounted to $1,188,333
and $374,734, respectively. The material increase of cash and cash equivalent
was due to the increase of short-term and long-term financings within the
reporting period.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 5 to 45 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations.
Intangible
Assets
The
Company applies criteria specified in SFAS No. 141, “Business Combinations”
to determine whether an intangible asset should be recognized separately from
goodwill. Intangible assets acquired through business acquisitions are
recognized as assets separate from goodwill if they satisfy either the
“contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets
with definite lives are amortized over their estimated useful life and reviewed
for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-lived Assets.” Intangible assets, such as
purchased technology, trademark, customer list, user base and non-compete
agreements, arising from the acquisitions of subsidiaries and variable interest
entities are recognized and measured at fair value upon acquisition. Intangible
assets are amortized over their estimated useful lives from one to ten years.
The Company reviews the amortization methods and estimated useful lives of
intangible assets at least annually or when events or changes in circumstances
indicate that assets may be impaired. The recoverability of an intangible asset
to be held and used is evaluated by comparing the carrying amount of the
intangible asset to its future net undiscounted cash flows. If the intangible
asset is considered to be impaired, the impairment loss is measured as the
amount by which the carrying amount of the intangible asset exceeds the fair
value of the intangible asset, calculated using a discounted future cash flow
analysis. The Company uses estimates and judgments in its impairment tests, and
if different estimates or judgments had been utilized, the timing or the amount
of the impairment charges could be different.
F-63
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
the Results of Operations for a Disposal of a Segment of a Business.” The
Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal.
Unearned
Revenue
The
Company received the tuition fee from students in advance every year in
September. The tuition fee income is recognized over twelve month period. As of
June 30, 2009 and December 31, 2008, the Company recorded unearned revenue of
$2,109,465 and $2,528,306, respectively.
Revenue
Recognition
The
Company recognizes its revenue in accordance with the Securities and Exchange
Commissions (“SEC”) Staff Accounting Bulletin N0. 104 “Revenue Recognition in
Financial Statements” (“SAB 104”). SAB 104 revises or rescinds portions of the
interpretive guidance included in Topic 13 of the codification of staff
accounting bulletins in order to make this interpretive guidance consistent with
current authoritative accounting and auditing guidance and SEC rules and
regulations. Revenue is recognized upon (i) the services are
performed, (ii) collectability is probable and (iii) such revenues are
contractually nonrefundable.
The
Company derives its revenue mainly from tuition fees and application fees.
Tuition fees is collected in advance on or before new semesters started. Tuition
fee is recognized as revenue proportionately as the instructions are delivered.
Tuition fees paid in advance are recorded as unearned revenue in balance sheet.
Company receives application fees from students to appear for the aptitude test
before the admission is granted. This application fees is a one time,
non-refundable fees. Therefore, application fees is collected and recognized as
revenue upon receipt of the fees.
Other
income
The
Company records other income on various services provided to the students, i.e.
uniform fee, registration fee, meal, utilities, school bus fee, insurances, book
fee, etc. Most of the other fees are collected together with the tuition at the
beginning of each semester year. The difference between the amount received from
the student and the amount paid to the vendor is recognized as ‘other various
services’ income at the time when payment is made to the vendor. During the six
month periods ended of 2009 and 2008, other income amounted to $41,424 and
$73,822, respectively.
Foreign
Currency Translation
As of
June 30, 2009, the accounts of the Company were maintained, and their financial
statements were expressed in their local currencies. Such consolidated financial
statements were translated into U.S. Dollars (USD) in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation," with the Chinese Renminbi (RMB) as the functional currency.
According to the Statement, all assets and liabilities were translated at the
exchange rate on the balance sheet date, stockholder's equity are translated at
the historical rates and statement of operations items are translated at the
weighted average exchange rate for the period or year. The resulting translation
adjustments are reported under other comprehensive income in accordance with
SFAS No. 130, "Reporting Comprehensive Income”.
F-64
Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the statement of shareholders' equity and amounted to
$22,388 and $561,963 for the period ended June 30, 2009 and 2008,
respectively.
Statement
of Cash Flows
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” cash flows from the Company’s operations is calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.
Recent
Accounting Pronouncements
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2010 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after June 15,2010.
NOTE
3-LOANS RECEIVABLE
The
Company has several loans receivable from third parties. The loans are due on
demand, unsecured and interest free. As on June 30, 2009 and December 31, 2008,
the loans receivable amounted to $1,466,829 and $5,755,471, respectively.
Following is the breakup of loans to various parties:
Depreciation
expense for the six months period ended June 30, 2009 and 2008 were $166,949 and
$177,980, respectively.
NOTE
5- LAND USE RIGHTS
As per
People's Republic of China's governmental regulations, the Government owns all
land. However, the government grants the user a “land use right” (the Right) to
use the land. The Company has recognized the amounts paid for the acquisition of
rights to use land as intangible asset and amortizing over a period of forty
years.
The
company acquired land use rights on August 2006 for a total amount of
$2,479,355. The land use right is for forty years. The intangible assets consist
of the followings as of June 30, 2009 and December 31, 2008:
Intangible
assets of the Company are reviewed annually as to whether their carrying value
has become impaired. The Company considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations. The
Company also re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
As of June 30, 2009 and December 31, 2008, the Company expects these assets to
be fully recoverable.
F-66
Total
amortization expense for the six months period ended June 30, 2009 and 2008
amounted to $33,973 and $32,447, respectively.
2010
$
33,973
2011
33,973
2012
33,973
2013
33,973
2014
33,973
Therefore
after
2,281,313
Total
$
2,451,178
NOTE
6- SHORT TERM LOAN
The
Company has a short term loan from a bank amounting $6,574,334 as on June 30,2009. The loan bears an interest rate of 7% per annum, is payable within a year.
The loan is secured by the property.
NOTE
7- NOTES PAYABLE AND RESTRICTED CASH
During
the six month periods ended June 30, 2009, the Company borrowed $5,551,660 from
a bank and deposited same with the bank. The cash is restricted for six months
from the date of deposit. The note payable bears an interest rate of 1.95%, is
payable in six month and secured by the restricted deposit. The deposit carries
an interest rate of 1.98%..
NOTE
8- LOANS PAYABLE
The
Company has loans payable to third parties. The loans payable are due on demand,
unsecured and interest free. As on June 30, 2009 and December 31, 2008, the
loans payable amounted of $424,062 and $12,847,457, respectively. Following is
the breakup of loans to various parties:
The
Company has a long-term loan from a Bank
amounting $1,460,963 as on June 30, 2009 The long-term loan carries an
interest rate of 7% per annum, is payable after 2 years. The loan is secured by
the property.
NOTE 10- SUBSEQUENT EVENTS
On August20, 2009, Hartcourt and its subsidiaries, Maple China Education Incorporated, a
Delaware corporation and Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China, entered into a plan of reorganization and share exchange
agreement (the “Share Exchange Agreement”) with the Company and its
subsidiaries, Sino-Canada High School, a private educational non-enterprise
institution existing under the laws of the People’s Republic of China, Wujiang
Huayu Property Management Company, a company existing under the Company Law of
the People’s Republic of China, Canadian Learning Systems Corporation, a company
existing under the laws of the British Virgin Islands, each of the shareholders
of Sino-Canada (the “Shareholders”) and Ross Yuan, in the capacity as
representative of the Shareholders. In exchange for all of the issued and
outstanding shares of capital stock of the Company, Hartcourt will issue
approximately $33,623,963, worth of shares of its common stock at an agreed upon
price of $0.88 per share (post-split) to the Company’s shareholders in exchange
for all of the issued and outstanding capital stock of the Company. Hartcourt
will issue 38,209,049 shares of Hartcourt common stock in a private placement in
satisfaction of the purchase price. The aggregate purchase price and the actual
number of shares to be issued in the exchange remain subject to potential
purchase price adjustments at the closing. The number of shares of Hartcourt
common stock issued in the transaction will be decreased in the event the
Company’s working capital (measured by current assets less current liabilities)
decreases by more than five percent at the closing as compared to March 31,2009, and will be increased in the event that Hartcourt’s total liabilities at
closing exceeds $600,000, up to a maximum of 45,850,859 shares. The purchase
price adjustment for Hartcourt’s outstanding liabilities at closing will exclude
Hartcourt’s outstanding loan of up to $1,300,000 from Yuan Dian Investment Inc.
that will be repaid upon the closing in accordance with its terms by issuing
shares of common stock of Hartcourt at a price of $0.88 per share.
F-68
Sino-Canada
Investment Group and Hartcourt Company, Inc.
Income
(loss) from continued operations before income taxes and minority
interest
1,000,597
925,443
-
1,926,040
Provision
for income taxes
-
(212,791
)
(212,791
)
Minority
interest, net of taxes
-
(697,506
)
(697,506
)
Net
income
1,000,597
15,146
-
1,015,743
Other
comprehensive item:
Foreign
currency translation gain (loss)
22,388
(48,226
)
(25,838
)
Net
comprehensive income (loss)
$
1,022,985
$
(33,080
)
$
-
$
989,905
Earning
per share
0.02
Weighted
average shares outstanding
44,523,408
(1) Source:
unaudited financial statements of Sino-Canada Investment Group as of June 30,2009 included elsewhere in this Form 8K.
(2) Source:
audited financial statements of Hartcout Company Inc. as of May 31, 2009
included in Form 10K.
See
Accompanying notes to pro forma combined financial statements
Notes 1-
BASIS OF PRESENTATION
The
accompanying pro forma combined balance sheet presents the accounts of Hartcourt
Company Inc. (“Hartcourt’) and Sino Canada Investment Group (‘SCIG’) as if the
acquisition of SCIG by Hartcourt occurred on May31,2009. The accompanying pro
forma combined statement of operations presents of hartcourt and SCIG for the
year ended May 31,2009 as if the acquisition occurred on June 1,2008. For
accounting purpose, the transaction is being accounted for as a recapitalization
of Hartcourt.
The
following adjustments would be required if the acquisition occurred as indicated
above:
a) The Company
issued 38,209,049 common shares at the price of $0.88 per share (after reverse
split 1:80) to SCIG shareholders to acquire all the issued and outstanding
shares of capital stock of SCIG;
b) The Company
effected a 1 for 80 reverse stock split.
Pro forma
- 2
ANNEX
A
PLAN
OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT
PLAN
OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT
THIS PLAN OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT (this
“Agreement”), dated as
of August 20, 2009 is entered into by and among The Hartcourt Companies, Inc., a
Utah corporation (“Purchaser”), Maple China
Education Incorporated, a Delaware corporation and wholly owned subsidiary of
Purchaser (“Merger Sub”), Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd., a company existing under
the Company Law of the People’s Republic of China and wholly owned subsidiary of
Purchaser (“Purchaser
Sub”), Sino-Canada Investment Group Inc., a company existing under the
Company Law of the People’s Republic of China (the “Company”), Sino-Canada High
School, a private educational non-enterprise institution existing under the laws
of the People’s Republic of China (“SCHS”), Wujiang Huayu Property
Management Company, a company existing under the Company Law of the People’s
Republic of China (“PM”), Canadian Learning
Systems Corporation, a company existing under the laws of the British Virgin
Islands (“CLSC”), the
individuals and entities listed on Schedule A to this Agreement
(each a “Shareholder”
and together the “Shareholders”), and Ross Yuan,
in the capacity as representative of the Shareholders as provided herein (the
“Shareholders’
Representative”). Certain capitalized terms used but not otherwise
defined herein are defined in Section 11.1.
RECITALS
A. The Shareholders are the owners of all of the issued and
outstanding shares of capital stock of the Company (the “Target Shares”), free and clear of any Liens.
B. The Boards of Directors of Purchaser and Purchaser Sub
believe it is advisable and in the best interests of Purchaser and its
stockholders, that Purchaser Sub acquire the Target Shares from the Shareholders
pursuant to the terms of this Agreement (the “Acquisition”).
C. In connection with the Acquisition and conditional upon
and immediately prior to the Acquisition, the parties desire to reincorporate
Purchaser to the State of Delaware by the merger of Purchaser with and into
Merger Sub, where Merger Sub will be the surviving corporation in the merger
(the “Reincorporation
Merger”). The surviving corporation
after the Reincorporation Merger is sometimes referred to hereinafter as the
“Surviving
Corporation.”
D. In connection with the Reincorporation Merger and
the Acquisition, Purchaser desires to effect a 1 for 80 reverse stock split in
its outstanding common shares.
E. The Board of Directors of Purchaser has approved, and
has resolved to recommend to its stockholders approval of the Reincorporation
Merger, the Acquisition and issuance of shares of Purchaser Common Stock to the
Shareholders in connection with the Acquisition (the “Share Issuance”).
F. The parties to this Agreement intend the Reincorporation
Merger to be treated as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
Annex A -
2
G. The consideration payable by the Surviving Corporation
in connection with the Acquisition is subject to increase or decrease based upon
the financial condition of Purchaser and the Company prior to the Closing
pursuant to the terms of this Agreement.
H. The Company, SCHS, PM, CLSC and the Shareholders, on the
one hand, and Purchaser, on the other hand, desire to make certain
representations, warranties, covenants and other agreements in connection with
the Acquisition.
I.
At the Closing, the
Shareholders will each enter into (i) a lock-up agreement in the form attached
hereto as Exhibit
A (the “Lock-Up Agreement”), with the Surviving Corporation whereby such
Shareholders will each agree to certain restrictions on the sale or transfer of
shares of Surviving Corporation Common Stock owned by them, and (ii) a voting
agreement in the form attached hereto as Exhibit F (the “Voting Agreement”), with the Surviving Corporation whereby such
Shareholders will each agree to vote the shares of Surviving Corporation Common
Stock owned by them in accordance with the terms thereof through the date of the
next annual meeting of stockholders of the Surviving
Corporation.
AGREEMENT
In
consideration of the mutual agreements, covenants and other promises set forth
herein, the mutual benefits to be gained by the performance thereof, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and accepted, the parties hereby agree as
follows:
ARTICLE
I
REINCORPORATION
MERGER
1.1 The
Reincorporation Merger
At the
Effective Time and subject to and upon the terms and conditions of this
Agreement and the applicable provisions of the Utah Revised Business
Corporations Act (“Utah
Law”) and the General Corporation Law of the State of Delaware (“Delaware Law”), Purchaser
shall be merged with and into Merger Sub, the separate corporate existence of
Purchaser shall cease, and Merger Sub shall continue as the surviving
corporation.
1.2 Effective
Time
Unless
this Agreement is earlier terminated pursuant to Section 9.1, the closing
of the Reincorporation Merger will take place at the offices of Hayden Bergman
Rooney, Professional Corporation, 150 Post Street, Suite 650, California,
immediately prior to the Closing. On the Closing Date, the parties hereto shall
cause the Reincorporation Merger to be consummated by filing Articles of Merger
in substantially the form attached hereto as Exhibit B, with the
Secretary of State of the State of Utah (the “Articles of Merger”), in
accordance with the applicable provisions of Utah Law, and a Certificate of
Merger in substantially the form attached hereto as Exhibit C, with the
Secretary of State of the State of Delaware (the “Certificate of Merger”), in
accordance with the applicable provisions of Delaware Law (the time of such
filing as evidenced by the Secretary of State of the State of Delaware shall be
referred to herein as the “Effective Time”).
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1.3 Effect of the
Reincorporation Merger
At the
Effective Time, the effect of the Reincorporation Merger shall be as provided in
the applicable provisions of Utah Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise agreed to pursuant to the terms of this Agreement, all of the
property, rights, privileges, powers and franchises of Purchaser and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Purchaser and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
(a) Unless
otherwise determined by Purchaser prior to the Effective Time, the certificate
of incorporation of the Surviving Corporation shall be amended and restated as
of the Effective Time to be identical to the certificate of incorporation of
Merger Sub as in effect immediately prior to the Effective Time, until
thereafter amended in accordance with Delaware Law and as provided in such
certificate of incorporation.
(b) Unless
otherwise determined by Purchaser prior to the Effective Time, the bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation at the Effective Time until thereafter
amended in accordance with Delaware Law and as provided in the certificate of
incorporation of the Surviving Corporation and such bylaws.
1.5 Directors and
Officers
(a) Directors of
Surviving Corporation. Unless otherwise determined by
Purchaser prior to the Effective Time, the directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of a director of
the Surviving Corporation in accordance with the provisions of Delaware Law and
the certificate of incorporation and bylaws of the Surviving Corporation until
their successors are duly elected and qualified. Upon the Closing, the directors
of the Surviving Corporation shall fill the vacancies on the board of directors
of the Surviving Corporation in accordance with Section 6.11.
(b) Officers of
Surviving Corporation. Unless otherwise determined by
Purchaser prior to the Effective Time, the officers of Merger Sub immediately
prior to the Effective Time shall be the officers of the Surviving Corporation
immediately after the Effective Time, each to hold office in accordance with the
provisions of the bylaws of the Surviving Corporation. Upon the Closing,
additional officers of the Surviving Corporation shall be appointed by the Board
of Directors of the Surviving Corporation in accordance with Section
6.12.
1.6 Effect on Capital
Stock
Subject
to the terms and conditions of this Agreement, at the Effective Time, by virtue
of the Reincorporation Merger and without any action on the part of Purchaser,
Merger Sub or the holders of any shares of capital stock of Purchaser, the
following shall occur:
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(a) Purchaser Common
Stock. Each share of common stock, par value $0.001 per share,
of Purchaser (“Purchaser Common
Stock”) issued and outstanding immediately prior to the Effective Time,
other than any shares of Purchaser Common Stock to be canceled pursuant to
Section 1.6(c), will be canceled and extinguished and automatically
converted into the right to receive 0.0125 validly issued, fully paid and
nonassessable share (the “Exchange Ratio”) of the common
stock, par value $0.001 per share, of the Surviving Corporation (“Surviving Corporation Common
Stock”) upon surrender of the certificate representing such share of
Purchaser Common Stock in the manner provided in Section 1.8 (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an affidavit
(and bond, if required) in the manner provided in Section 1.8).
Notwithstanding anything set forth in this Section 1.6(a), any Dissenting
Shares will be treated as set forth in Section 1.7.
(b) Repurchase
Rights. If any shares of Purchaser Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with Purchaser, then the
shares of Surviving Corporation Common Stock issued in exchange for such shares
of Purchaser Common Stock will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition, and the certificates
representing such shares of Surviving Corporation Common Stock may accordingly
be marked with appropriate legends.
(c) Cancellation of
Treasury and Purchaser Owned Stock. Each share of Purchaser
Common Stock held by Purchaser or any direct or indirect wholly-owned Subsidiary
of Purchaser immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(d) Capital Stock of
Merger Sub. Each share of common stock, par value $0.001, of
Merger Sub (the “Merger Sub
Common Stock”) issued and outstanding prior immediately to the Effective
Time shall be cancelled.
(e) Stock
Options. At the Effective Time, all Purchaser Options
outstanding under each Purchaser Stock Option Plan shall be assumed by the
Surviving Corporation in accordance with Section 6.10.
(f) Fractional
Shares. No fraction of a share of Surviving Corporation Common
Stock will be issued by virtue of the Reincorporation Merger, but in lieu
thereof each holder of shares of Purchaser Common Stock who would otherwise be
entitled to a fraction of a share of Surviving Corporation Common Stock (after
aggregating all fractional shares of Surviving Corporation Common Stock that
otherwise would be received by such holder) shall, upon surrender of such
holder’s Certificate(s), receive from the Surviving Corporation an amount of
cash (rounded to the nearest whole cent), without interest, equal to the product
of (i) such fraction, multiplied by (ii) the Per Share
Price.
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(g) Adjustments to
Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the appropriate effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into Purchaser Common Stock), reorganization, recapitalization, reclassification
or other like change with respect to Purchaser Common Stock having a record date
on or after the date hereof and prior to the Effective Time.
1.7 Dissenting
Shares
(a) Notwithstanding
any other provisions of this Agreement to the contrary, any shares of Purchaser
Common Stock held by a holder who has not effectively withdrawn or lost such
holder’s appraisal rights under Utah Law (the “Dissenting Shares”) shall not
be converted into or represent a right to receive the applicable consideration
for Purchaser Common Stock set forth in Section 1.6(a), but the holder
thereof shall only be entitled to such rights as are provided by Utah
Law.
(b) Notwithstanding
the provisions of Section 1.7(a), if any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or otherwise) such
holder’s appraisal rights under Utah Law, then, as of the later of the Effective
Time and the occurrence of such event, such holder’s shares shall automatically
be converted into and represent only the right to receive the consideration for
Purchaser Common Stock set forth in Section 1.6(a), without interest
thereon, and subject to the provisions of Section , upon surrender of the
certificate representing such shares.
1.8 Surrender of
Certificates
(a) Exchange
Agent. Purchaser shall select its transfer agent, Signature
Stock Transfer Inc., or another institution reasonably satisfactory to Purchaser
to act as the exchange agent (the “Exchange Agent”) in the
Reincorporation Merger.
(b) Surviving
Corporation to Provide Common Stock. Promptly after the
Effective Time, the Surviving Corporation shall enter into an agreement with the
Exchange Agent, which shall provide that the Surviving Corporation shall make
available to the Exchange Agent for exchange in accordance with this Section
1.8, the shares of Surviving Corporation Common Stock issuable pursuant to
Section 1.6(a) in exchange for outstanding shares of Purchaser Common Stock
and any dividends or distributions which holders of shares of Purchaser Common
Stock may be entitled pursuant to Section 1.8(c). In addition, the
Surviving Corporation shall make available as necessary from time to time after
the Effective Time as needed, cash in an amount sufficient for payment in lieu
of fractional shares pursuant to Section 1.6(f) and any dividends or
distributions which holders of shares of Purchaser Common Stock may be entitled
pursuant to Section 1.8(d). Any cash and Surviving Corporation Common Stock
deposited with the Exchange Agent shall hereinafter be referred to as the “Exchange Fund.”
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(c) Exchange
Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record (as
of the Effective Time) of a certificate or certificates (the “Certificates”) which
immediately prior to the Effective Time represented outstanding shares of
Purchaser Common Stock whose shares were converted into the right to receive
shares of Surviving Corporation Common Stock pursuant to Section 1.6(a),
cash in lieu of any fractional shares pursuant to Section 1.6(f) and any
dividends or other distributions pursuant to
Section 1.8(d): (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing whole shares of Surviving Corporation Common Stock, cash in lieu of
any fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d). Upon surrender of Certificates
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Surviving Corporation, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto and such other documents as may reasonably be required by
the Exchange Agent, the holder of such Certificates shall be entitled to receive
in exchange therefor the number of whole shares of Surviving Corporation Common
Stock (after taking into account all Certificates surrendered by such holder) to
which such holder is entitled pursuant to Section 1.6(a) (which shall be in
uncertificated book entry form unless a physical certificate is requested or is
otherwise required by applicable law or regulation) payment in lieu of
fractional shares which such holder has the right to receive pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to
Section 1.8(d), and the Certificates so surrendered shall forthwith be
canceled. Until so surrendered, outstanding Certificates will be deemed from and
after the Effective Time, for all corporate purposes, to evidence the ownership
of the number of full shares of Surviving Corporation Common Stock into which
such shares of Purchaser Common Stock shall have been so converted and the right
to receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6(f) and any dividends or other distributions
pursuant to Section 1.8(d).
(d) Distributions
With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date hereof with respect to Purchaser
Common Stock with a record date after the Effective Time and no payment in lieu
of fractional shares pursuant to Section 1.6(f) will be paid to the holders
of any unsurrendered Certificates with respect to the shares of Purchaser Common
Stock represented thereby until the holders of record of such Certificates shall
surrender such Certificates. Subject to applicable law, following surrender of
any such Certificates, the Exchange Agent shall deliver to the record holders
thereof, without interest (i) promptly after such surrender, the number of
whole shares of Surviving Corporation Common Stock issued in exchange therefor
along with payment in lieu of fractional shares pursuant to Section 1.6(f)
and the amount of any such dividends or other distributions with a record date
after the Effective Time and theretofore paid with respect to such whole shares
of Surviving Corporation Common Stock and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time and a payment date subsequent to such surrender payable with
respect to such whole shares of Surviving Corporation Common Stock.
(e) Transfers of
Ownership. If shares of Surviving Corporation Common Stock are
to be issued in a name other than that in which the Certificates surrendered in
exchange therefor are registered, it will be a condition of the issuance thereof
that the Certificates so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the Persons requesting such exchange will have
paid to Surviving Corporation or any agent designated by it any transfer or
other Taxes required by reason of the issuance of shares of Surviving
Corporation Common Stock in any name other than that of the registered holder of
the Certificates surrendered, or established to the satisfaction of Surviving
Corporation or any agent designated by it that such Tax has been paid or is not
payable.
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(f) Required
Withholding. Each of the Exchange Agent and the Surviving
Corporation shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any holder or
former holder of Purchaser Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code or under any provision of state,
local or foreign Tax law or under any other applicable Legal Requirement. To the
extent such amounts are so deducted or withheld, the amount of such
consideration shall be treated for all purposes under this Agreement as having
been paid to the Person to whom such consideration would otherwise have been
paid.
(g) No
Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither the Exchange Agent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Surviving Corporation Common
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) Investment of
Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by the Surviving Corporation on a
daily basis; provided
that no such investment or loss thereon shall affect the amounts payable
to the Purchaser stockholders pursuant to this ARTICLE I. Any interest and other
income resulting from such investment shall become a part of the Exchange Fund,
and any amounts in excess of the amounts payable to the Purchaser stockholders
pursuant to this ARTICLE I shall promptly be paid to the Surviving
Corporation.
(i) Termination of
Exchange Fund. Any portion of the Exchange Fund which remains
undistributed to the holders of Certificates one (1) year after the Effective
Time shall, at the request of the Surviving Corporation, be delivered to the
Surviving Corporation or otherwise on the instruction of the Surviving
Corporation, and any holders of the Certificates who have not surrendered such
Certificates in compliance with this Section 1.8 shall after such delivery to
Surviving Corporation look only to the Surviving Corporation for the shares of
Surviving Corporation Common Stock pursuant to Section 1.6(a), cash in lieu
of any fractional shares pursuant to Section 1.6(f) and any dividends or
other distributions pursuant to Section 1.8(d) with respect to the shares
of Purchaser Common Stock formerly represented thereby. Any such portion of the
Exchange Fund remaining unclaimed by holders of shares of Purchaser Common Stock
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity shall, to the extent permitted by
law, become the property of Surviving Corporation free and clear of any claims
or interest of any Person previously entitled thereto.
1.9 No Further
Ownership Rights in Purchaser Common Stock
All
shares of Surviving Corporation Common Stock issued upon the surrender for
exchange of shares of Purchaser Common Stock in accordance with the terms hereof
(including any cash paid in respect thereof pursuant to Section 1.6(f) and
Section 1.8(d)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Purchaser Common Stock, and there shall
be no further registration of transfers on the records of the Surviving
Corporation of shares of Purchaser Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this ARTICLE I.
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1.10 Lost, Stolen or
Destroyed Certificates
In the
event any Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such shares
of Surviving Corporation Common Stock, cash for fractional shares, if any, as
may be required pursuant to Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.8(d); provided, however, that the Surviving
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against the Surviving Corporation, Purchaser or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.11 Tax
Consequences
It is
intended by the parties hereto that the Reincorporation Merger shall constitute
a reorganization within the meaning of Section 368(a) of the
Code.
1.12 Further
Action
.
At and after the Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name and on behalf
of Purchaser and Merger Sub, any deeds, bills of sale, assignments or assurances
and to take and do, in the name and on behalf of Purchaser and Merger Sub, any
other actions and things to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Reincorporation
Merger.
ARTICLE
II
EXCHANGE
OF SHARES
2.1 Exchange of
Shares. Upon the terms and subject
to the conditions of this Agreement, and in reliance on the representations and
warranties set forth herein, at the Closing, the Shareholders agree to convey,
assign, transfer and deliver to Purchaser Sub, and Purchaser Sub agrees to
acquire from the Shareholders, all of such Shareholders’ right, title and
interest in the Target Shares owned of record or beneficially by such
Shareholders, free and clear of any Liens. Schedule A to this Agreement
sets forth the number and type of Target Shares that each of the Shareholders
will convey, assign, transfer and deliver to Purchaser Sub hereunder subject to
the terms of this Agreement.
2.2 Closing. The exchange of
the Target Shares held by the Shareholders listed on Schedule A to this Agreement
shall take place at the offices of Hayden
Bergman Rooney, Professional Corporation, 150 Post Street, Suite 650, San
Francisco, California, by the exchange of
documents and instruments by mail, courier, and facsimile to the extent mutually
acceptable to the parties hereto, at a time and date to be specified by the
parties, which shall be no later than the second (2nd) Business Day after the satisfaction or waiver of the
conditions set forth in ARTICLE
VIII (other than those that by their terms
are to be satisfied or waived at the Closing), or at such other time, date and
location as the parties hereto agree in writing (the “Closing”). The date on which the Closing occurs is referred to
herein as the “Closing
Date.”
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2.3 Purchase
Consideration.
(a) Purchase
Price. The aggregate purchase price for the Target Shares (the “Purchase Price”) shall be
equal to the sum of (i) $33,623,963.87, plus (ii) the aggregate amount of
Purchaser Closing Date Indebtedness in excess of $600,000 (excluding the
Purchaser Loan Amount repaid in accordance with Section 8.3(g)), if applicable,
and minus (iii) the aggregate amount of Sino-Canada Working Capital Deficiency,
if applicable. Notwithstanding the foregoing, in no event shall the Purchase
Price exceed $40,348,756.64.
(b) Share
Issuance. At the Closing, the Purchase Price shall be paid by the
Surviving Corporation issuing certificates to the Shareholders representing the
aggregate number of shares of Surviving Corporation Common Stock equal to (x)
the Purchase Price, multiplied by (y) a fraction whereby the numerator is the
number of Target Shares held by the Shareholders listed on Schedule A to this Agreement
and the denominator is the aggregate number of Target Shares, divided by (z) the
Per Share Price, and such certificates shall be allocated in accordance with
Section 2.4.
2.4 Mechanics of
Certificate Surrender and Payment. At the Closing, the Shareholders’
Representative shall deliver to the Surviving Corporation original share
certificates representing all of each Shareholders’ Target Shares to be
exchanged, together with duly executed stock powers, in proper form for transfer
and such other documents or instruments as are necessary to vest in the
Surviving Corporation all such Shareholder’s interests in the Target Shares in
accordance with the terms of this Agreement. At the Closing, the Surviving
Corporation shall issue certificates to each Shareholder listed on Schedule A to this Agreement
representing the number of shares of Surviving Corporation Common Stock
according to each Shareholder’s pro rata interest of the Purchase Price in
shares of Surviving Corporation Common Stock according to such Shareholder’s
Target Shares set forth opposite such Shareholder’s name. Any Shareholder
receiving Surviving Corporation Common Stock in exchange for Target Shares that
are subject to any vesting rights, repurchase rights, or other restrictions
shall receive such Surviving Corporation Common Stock with the substantially the
same vesting rights, repurchase rights, or other restrictions.
2.5 No Further
Ownership Rights in Target Shares. Following the Closing, the Shareholders
shall not have any ownership rights in or to the Target Shares sold to the
Surviving Corporation.
2.6 Lost, Stolen or
Destroyed Certificates.
In the
event any stock certificates for Target Shares shall have been lost, stolen or
destroyed, the Surviving Corporation shall
pay to the applicable Shareholder(s), in accordance with the terms and
conditions hereof, such portion of the Purchase Price as is allocable to the
Target Shares represented by such lost, stolen or destroyed certificates, upon
receipt of an affidavit of such Shareholder(s) in which such Shareholder(s)
certifies in writing as to the fact that such certificate or certificates are
lost, stolen or destroyed and undertakes to indemnify the Surviving Corporation from and against all Losses
incurred in connection with or arising out of the Purchaser Sub’s purchase of the Target Shares
evidenced thereby.
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2.7 No Fractional
Shares. No fractional shares of Surviving Corporation Common Stock shall be
issued pursuant to this Agreement. If a Shareholder or the Surviving Corporation would otherwise be entitled
to receive a fraction of a share of Surviving
Corporation Common Stock (after aggregating all fractional shares of
Surviving Corporation Common Stock issuable
to such Person) shall, in lieu of such fraction of a share, be paid in cash the
amount in U.S. Dollars (rounded up to the nearest whole cent) determined by
multiplying such fraction by the Per Share Price.
2.8 Withholding
Taxes. Notwithstanding any other provision in this Agreement,
the Surviving Corporation shall have the
right to deduct and withhold from any payments to be made hereunder if such
withholding is required by law and to request any necessary Tax forms, including
Form W-9 or the appropriate series of Form W-8, as applicable, or any similar
information, from each Shareholder and any other recipients of payments
hereunder. To the extent that amounts are so withheld, such withheld amounts
shall be treated for all purposes of this Agreement as having been delivered and
paid to each Shareholder or other recipient of payments in respect of which such
deduction and withholding was made.
2.9 Tax
Documents. Prior to the Closing, each Shareholder shall deliver to
the Purchaser all Tax documents and information requested to be provided in
connection with the Acquisition by the Surviving
Corporation.
2.10 Shareholders’
Representative.
(a) Appointment of
Shareholders’ Representative. Each of the Shareholders does hereby
irrevocably make, constitute and appoint the Shareholders’ Representative as
his, her or its agent, to act in his, her or its name, place and stead, as such
Shareholder’s attorney-in-fact, to (i) execute and deliver all documents
necessary or desirable to carry out the intent of the this Agreement (including
in the name of, or on behalf of, such Shareholder), (ii) make all elections or
decisions entered into in connection with this Agreement, (iii) hold such
Shareholder’s equity securities of the Company and transfer, exercise or convert
such equity securities, as the case may be, in accordance with the terms hereof,
(iv) act on such Shareholder’s behalf in connection with all obligations and
agreements of the Shareholders under this Agreement, (v) amend, waive or
otherwise change the terms or conditions of this Agreement on behalf of such
Shareholder, (vi) give and receive on behalf of the Shareholders any and all
notices from or to any Shareholder or Shareholders under the Agreement, and
(vii) otherwise exercise all rights of such Shareholder and otherwise act
on behalf of such Shareholder under the Agreement and in connection with the
Acquisition, in each case as if such Shareholder had personally done such act,
and the Shareholders’ Representative hereby accepts such appointment. The death,
incapacity, dissolution, liquidation, insolvency or bankruptcy of any
Shareholder shall not terminate such appointment or the authority and agency of
the Shareholders’ Representative. The power-of-attorney granted in
this Section 2.10(a) is coupled with an interest and is
irrevocable.
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(b) The
Shareholders’ Representative shall be entitled to rely, and shall be fully
protected in relying, upon any statements furnished to it by any other
Shareholder, the Company, SCHS, PM, CLSC, Purchaser or any third Person or any
other evidence reasonably deemed by the Shareholders’ Representative to be
reliable, and the Shareholders’ Representative shall be entitled to act on the
advice of counsel selected by it. The Shareholders’ Representative
shall be fully justified in failing or refusing to take any action under this
Agreement unless it shall have received such advice or concurrence of such
Shareholders as it deems appropriate or it shall have been expressly jointly and
severally indemnified to its satisfaction by the Shareholders appointing it
against any and all Losses that the Shareholders’ Representative may incur by
reason of taking or continuing to take any such action.
(c) The
Shareholders’ Representative shall be entitled to retain counsel acceptable to
it and to incur such expenses as the Shareholders’ Representative deems to be
necessary or appropriate in connection with its performance of its obligations
under this Agreement, and all such fees and expenses (including reasonable
attorneys’ fees and expenses) incurred by the Shareholders’ Representative shall
be jointly and severally borne by each Shareholder.
(d) The
Shareholders party to this Agreement hereby agree to jointly and severally
indemnify the Shareholders’ Representative (in its capacity as such) against,
and to hold the Shareholders’ Representative (in its capacity as such) harmless
from, any and all Losses of whatever kind which may at any time be imposed upon,
incurred by or asserted against the Shareholders’ Representative in such
capacity in any way relating to or arising out of its action or failures to take
action pursuant to this Agreement.
(e) Ross
Yuan shall be the initial Shareholders’ Representative and shall serve as the
Shareholders’ Representative until his resignation. Upon the resignation of the
Shareholders’ Representative, the Shareholders holding a majority of the Company
Common Shares as of immediately prior to the Closing shall appoint a new
Shareholders’ Representative. Each time a new Shareholders’ Representative is
appointed pursuant to this Agreement, such Person, as a condition precedent to
the effectiveness of such appointment, shall accept such position in writing
with a copy to the Purchaser.
(f) Absent
any notice received by the Surviving Corporation to the contrary, and absent bad
faith or willful misconduct, the Surviving Corporation (i) shall be fully
protected in relying upon and shall be entitled to rely upon, and shall have no
Loss to the Shareholders with respect to, actions, decisions and determinations
of the Shareholders’ Representative and (ii) shall be entitled to assume that
all actions, decisions and determinations of the Shareholders’ Representative
are fully authorized by all of the Shareholders.
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ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY, SCHS, PM AND CLSC
As of the
date hereof, the Company, SCHS, PM and CLSC hereby represent and warrant to
Purchaser, subject to such exceptions as are specifically disclosed in a
disclosure letter (referencing the appropriate section, subsection, paragraph
and subparagraph numbers) supplied by the Company to Purchaser concurrently with
the execution of this Agreement (the “Company Disclosure Letter”) as
follows:
3.1 Organization;
Standing; Charter Documents; Subsidiaries.
(a) Organization;
Standing and Power. Each Sino-Canada Entity
(i) is a corporation or other organization duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its incorporation or
organization (except, in the case of good standing, for entities organized under
the Laws of any jurisdiction that does not recognize such concept), (ii) has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and (iii) is duly qualified or
licensed and in good standing (except, in the case of good standing, for
entities organized under the laws of any jurisdiction that does not recognize
such concept) to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to so
qualify or to be in good standing, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company, SCHS,
PM and CLSC or adversely affect on the Company’s, SCHS’, PM’s and CLSC’s ability
to consummate the transactions contemplated by this Agreement. For purposes of
this Agreement, “Subsidiary,” when used with respect to any party, shall mean any
corporation or other business entity at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other business entity is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
(b) Charter
Documents. The Company has delivered or
made available to Purchaser true and correct copies of: (i) the articles of
incorporation (including any certificate of designations) and bylaws, or like
organizational documents, of the Company, each as amended to date (collectively,
the “Target Charter
Documents”), and (ii) the articles of
incorporation and bylaws, or like organizational documents, of each of its
Subsidiaries, each as amended to date (collectively, “Target Subsidiary Charter
Documents”), and each such instrument is in
full force and effect. The Company is not in violation of any of the provisions
of the Target Charter Documents and none of its Subsidiaries is in violation of
its respective Target Subsidiary Charter Documents.
(c) Subsidiaries. Section 3.1(c) of the
Company Disclosure Letter sets forth each Subsidiary of the Company as of the
date hereof. All the outstanding shares of capital stock of, or other equity or
voting interests in, each such Subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable and are owned by the Company and/or
a wholly-owned Subsidiary of the Company, free and clear of all pledges, liens,
charges, encumbrances, and security interests of any kind or nature whatsoever
(collectively, “Liens”), including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership interests, except
for restrictions imposed by applicable securities Laws. Other than its
Subsidiaries, the Company does not own, directly or indirectly, any securities
or capital stock of, or other equity or voting interests of any nature in, any
other Person.
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(d) Directors. Section 3.1(d) of the
Company Disclosure Letter lists the directors of each Sino-Canada Entity as of
the date hereof.
(e) Officers. Section 3.1(e) of the
Company Disclosure Letter lists the officers of each Sino-Canada Entity as of
the date hereof.
3.2 Capital
Structure.
(a) Capital
Stock.
(i) The
authorized capital stock of the Company consists of 50,000,000 shares, RMB 1.00
par value per share (the “Company Shares”). As of the
date hereof: (x) 50,000,000 Company Shares were issued and outstanding and owned
by the Persons listed on Section 3.2(a)(i) of the
Company Disclosure Letter and (y) no Company Shares were issued and held
by the Company in its treasury. No other shares of Company capital stock are
outstanding. All of the outstanding shares of capital stock of the Company are
duly authorized and validly issued, fully paid and nonassessable and not subject
to any preemptive rights.
(ii) The
authorized capital stock of SCHS consists of 300,000 shares, RMB 1.00 par value
per share (the “SCHS
Shares”). As of the date hereof: (x) 300,000 SCHS Shares were issued and
outstanding and owned by the Company and (y) no SCHS Shares were issued and held
by SCHS in its treasury. No other shares of SCHS capital stock are outstanding.
All of the outstanding shares of capital stock of SCHS are duly authorized and
validly issued, fully paid and nonassessable and not subject to any preemptive
rights.
(iii) The
authorized capital stock of PM consists of 500,000 shares, RMB 1.00 par value
per share (the “PM Shares”). As of the date
hereof: (x) 500,000 PM Shares were issued and outstanding and owned by the
Company and (y) no PM Shares were issued and held by PM in its treasury. No
other shares of PM capital stock are outstanding. All of the outstanding shares
of capital stock of PM are duly authorized and validly issued, fully paid and
nonassessable and not subject to any preemptive rights.
(iv) The
authorized capital stock of CLSC consists of 100 common shares, $1.00 par value
per share (the “CLSC
Shares”). As of the date hereof: (x) 100 CLSC Shares were issued and
outstanding and owned by the Company and (y) no CLSC Shares were issued and held
by CLSC in its treasury. No other shares of CLSC capital stock are outstanding.
All of the outstanding shares of capital stock of CLSC are duly authorized and
validly issued, fully paid and nonassessable and not subject to any preemptive
rights.
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(b) Voting
Debt. There are no bonds, debentures, notes
or other indebtedness of any Sino-Canada Entity (i) having the right to vote on
any matters on which shareholders of any Sino-Canada Entity may vote (or which
is convertible into, or exchangeable for, securities of any Sino-Canada Entity
having such right) or (ii) the value of which is any way based upon or derived
from capital or voting stock of the Company, SCHS, PM or CLSC (collectively,
“Voting Debt”), issued or outstanding.
(c) Other
Securities. As of the date hereof, the
Company has no other Subsidiaries and owns no equity in any other entity. None
of SCHS, PM or CLSC owns any equity in any entity as of the date hereof. Except
as otherwise set forth in this Section 3.2, there are no
authorized or outstanding shares of preferred stock and no securities, options,
warrants, calls, rights, Contracts, arrangements or undertakings of any kind to
which any Sino-Canada Entity is a party or by which any of them is bound
obligating any Sino-Canada Entity to (including on a deferred basis) issue,
deliver or sell, or cause to be issued, delivered or sold, or otherwise granting
any Sino-Canada Entity the right to have a third party issue, deliver or sell to
any Sino-Canada Entity, additional shares of capital stock, Voting Debt or other
voting securities of any Sino-Canada Entity, or obligating any Sino-Canada
Entity to issue, grant, extend or enter into any such security, option, warrant,
call, right, Contract, arrangement or undertaking. All outstanding shares of
capital stock of each Sino-Canada Entity have been issued and granted in
compliance in all material respects with (i) all applicable securities Laws and
all other applicable Laws and (ii) all requirements set forth in applicable
Contracts with respect to such shares to which the Company is a party. There are
no outstanding Contracts to which any Sino-Canada Entity is a party to (A)
repurchase, redeem or otherwise acquire any shares of capital stock of, or other
equity or voting interests in, any Sino-Canada Entity or (B) dispose of any
shares of the capital stock of, or other equity or voting interests in, any
Sino-Canada Entity. No Sino-Canada Entity is a party to, nor are there, any
voting agreements, irrevocable proxies, voting trusts, registration rights
agreements or other voting arrangements with respect to shares of the capital
stock of, or other equity or voting interests in, any Sino-Canada Entity. For
purposes of this Agreement, “Laws” shall mean any federal, state, provincial, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, order, 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.
3.3 Authority. The Company, SCHS, PM and CLSC have all
requisite power and authority to enter into this Agreement and any Related
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which the Company, SCHS, PM and CLSC is a party
and the consummation of the transactions contemplated hereby and thereby shall
as of the Closing have been duly authorized by all necessary corporate action on
the part of the Company, SCHS, PM and CLSC, including by the Company’s, SCHS’,
PM’s and CLSC’s Board of Directors and by the Shareholders. This Agreement and
each of the Related Agreements to which the Company, SCHS, PM and CLSC is a
party have been duly executed and delivered by the Company, SCHS, PM and CLSC,
as applicable, and assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the valid and binding obligations
of the Company, SCHS, PM and CLSC, as applicable, enforceable against it in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other Laws of general application relating to or affecting the enforcement of
creditors’ rights generally, or (ii) as limited by Laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
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3.4 No
Conflict. The execution and
delivery by the Company, SCHS, PM and CLSC of this Agreement and any Related
Agreement to which it is a party, and the consummation of the transactions
contemplated hereby and thereby, will not conflict with or result in any
violation of or default under (with or without notice or lapse of time, or both)
or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
“Conflict”): (i) any provision of the Target Charter Documents or
the Target Subsidiary Charter Documents, (ii) any written or oral mortgage,
indenture, lease, contract, permit, license, franchise, insurance policy,
agreement, instrument, or commitment (each a “Contract”) to which any Sino-Canada Entity is a party or by
which any of its properties or assets (whether tangible or intangible) are
bound, or (iii) any Law applicable to any Sino-Canada Entity or any of their
respective properties or assets (whether tangible or intangible). Following the
Closing and pursuant to the terms of those Contracts to which any of the
Sino-Canada Entities is a party as of the Closing, the applicable Sino-Canada
Entity will be permitted to exercise all of its rights under such Contracts
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the applicable Sino-Canada Entity
would otherwise have been required to pay pursuant to the terms of such
Contracts had the transactions contemplated by this Agreement not
occurred.
3.5 Consents. No consent, notices, waivers, approval, order or
authorization of, or registration, declaration or filing with any supranational,
national, state, provincial, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or commission or
other governmental entity or instrumentality, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other governmental
or quasi-governmental function (a “Governmental Entity”) or any third party, including a party to any Contract
to which any Sino-Canada Entity is a party or by which its assets are bound (so
as not to trigger any Conflict), is required to be obtained or made by any
Sino-Canada Entity in connection with the execution and delivery of this
Agreement and any Related Agreement to which any Sino-Canada Entity is a party
or the consummation of the Acquisition and other transactions contemplated
hereby and thereby, except for: (i) the consents listed on Section 3.5 of the Company
Disclosure Letter (“Company Consents”); (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal, foreign, state or provincial securities (or related) Laws
and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”) and applicable foreign pre-acquisition notice
statutes; and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on any Sino-Canada Entity or adversely affect the ability of the Company,
SCHS, PM or CLSC to consummate the Acquisition within the time frame in which
the Acquisition would otherwise be consummated in the absence of the need for
such consent, approval, order, authorization, registration, declaration or
filings.
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3.6 Company Financial
Statements. The Company has delivered or made available to Purchaser
the Company’s (i) unaudited consolidated balance sheets as of December 31, 2007,
and December 31, 2008, respectively, and the related unaudited consolidated
statements of income, cash flow and members’ equity for the respective years
then ended (the “Company
Historic Financial Statements”), and (ii)
unaudited consolidated balance sheet as of June 30, 2009 (the “Balance Sheet Date”) and the related consolidated statements of income,
cash flow and members’ equity for the three and six-month periods then ended
available at the date of this Agreement (together with the Company Historic
Financial Statements, the “Financials”). Except as set forth in Section 3.6 of the Company
Disclosure Letter, the Company Historic Financial Statements are complete and
accurate and fairly present, in conformity with GAAP applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto), in all material respects the financial condition of the Company and
the operating results and cash flows as of the dates and during the periods
indicated therein, except that the unaudited interim financial statements may
not contain all footnotes required by GAAP and were or are subject to normal and
recurring year end adjustments. The Company’s unaudited balance sheet as of the
Balance Sheet Date as delivered or made available to Purchaser is referred to
hereinafter as the “Current Balance Sheet.” The Sino-Canada Entities’ books and records have been
properly and accurately maintained in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein.
3.7 Internal
Controls. The Sino-Canada
Entities have established and maintain, adhere to and enforce a system of
internal controls over financial reporting, which are effective in providing
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements (including the Financials) for external
purposes in accordance with GAAP, including policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Sino-Canada Entities, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Sino-Canada
Entities are being made only in accordance with appropriate authorizations of
management and the Board of Directors of the Company, SCHS, PM and CLSC, as
applicable, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets, SCHS’s assets, PM’s assets or CLSC’s assets, as applicable,
that could have a material effect on the financial statements of the Sino-Canada
Entities. Neither any Sino-Canada Entity (including any Employee thereof) nor
the Company’s independent auditors or legal counsel has identified or been made
aware of (A) any significant deficiency or material weakness in the design or
operation of internal control over financial reporting utilized by the
Sino-Canada Entities, (B) any fraud, whether or not material, that involves the
management or other Employees of any Sino-Canada Entity, or (C) any claim or
allegation regarding any of the foregoing. In connection with the periods
covered by the Financials, the Company, SCHS, PM and CLSC have disclosed to
Purchaser all deficiencies and weaknesses identified by the Company, SCHS, PM or
CLSC or any of their independent auditors (whether current or former) in the
design or operation of internal controls over financial reporting utilized by
the Sino-Canada Entities.
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3.8 No Undisclosed
Liabilities. As of the date
hereof, the Sino-Canada Entities do not have any liability, indebtedness,
obligation, unpaid expense, claim, deficiency, guaranty or endorsement
(“Indebtedness”) of any type, whether accrued, absolute, contingent,
matured, unmatured or otherwise, except for those which (i) have been disclosed,
reflected, recorded or reserved against in the Current Balance Sheet, or (ii)
have arisen in the ordinary course of business consistent with past practices
since the Balance Sheet Date and prior to the date hereof and which are not in
excess of $100,000 individually. Set forth on Section 3.8 of the Company
Disclosure Letter are all leases and indebtedness of the Company, SCHS, PM and
CLSC that have been guaranteed by any of the Shareholders, together with a brief
summary describing the nature of each such guarantee.
3.9 No
Changes. From the Balance Sheet Date through the date hereof,
there has not been, occurred or arisen any (except as contemplated by this
Agreement):
(a) transaction by any Sino-Canada Entity except in the
ordinary course of business as conducted on that date and consistent with past
practices or the entry into this Agreement;
(b) modifications, amendments or changes to the Target
Charter Documents or Target Subsidiary Charter Documents;
(c) expenditure, transaction or commitment by any
Sino-Canada Entity exceeding $100,000 individually;
(d) payment, discharge, waiver or satisfaction, in any
amount in excess of $100,000 in any one case, of any claim, liability, right or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise
of any Sino-Canada Entity), other than payments, discharges or satisfactions in
the ordinary course of business or of liabilities recorded or reserved against
in the Current Balance Sheet;
(e) destruction of, damage to, or loss of any material
assets (whether tangible or intangible) of the Sino-Canada Entities (whether or
not covered by insurance);
(f) loss of any material business or customer of the
Sino-Canada Entities;
(g) employment dispute, including claims or matters raised
by any individual or Governmental Entity, or any workers’ representative
organization, bargaining unit or union regarding labor trouble or claim of
wrongful discharge or other unlawful employment or labor practice or action with
respect to the Sino-Canada Entities;
(h) adoption or change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by the
Sino-Canada Entities, except as required by GAAP, applicable Law or the SEC, or
the adoption of U.S. GAAP in connection with the preparation of the
Financials;
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(i) adoption of or change in any material election in
respect of Taxes, adoption or change in any accounting method in respect of
Taxes, agreement or settlement of any material claim or assessment in respect of
Taxes, or extension or waiver of the limitation period applicable to any claim
or assessment in respect of any material Taxes with respect to the Sino-Canada
Entities;
(j) revaluation by the Sino-Canada Entities of any of their
assets (whether tangible or intangible) from what appears on the Current Balance
Sheet, including writing down the value of intangible assets or writing off
notes or accounts receivable;
(k) declaration, setting aside or payment of any
distribution (whether in cash or property) in respect of any Company Shares,
SCHS Shares, PM Shares or CLSC Shares, any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for Company Shares, SCHS Shares, PM Shares or CLSC Shares, or any direct or
indirect repurchase, redemption, or other acquisition by any of the Sino-Canada
Entities of any Company Shares, SCHS Shares, PM Shares or CLSC Shares (or
options, warrants or other rights convertible into, exercisable or exchangeable
therefor);
(l) split, combination or reclassification of any
Sino-Canada Entity’s capital stock;
(m) (i) increase in or other change to the salary or other
compensation payable or to become payable by the Sino-Canada Entities to any
officers, employees, consultants or advisors, (ii) the declaration, payment or
commitment or obligation of any kind for the payment (whether in cash or equity)
by the Sino-Canada Entities of a severance payment, termination payment, bonus
or other additional salary or compensation to any such Person, or (iii) adoption
or amendment of any Employee Plan, or (iv) execution or amendment of any
Employee Agreement with any Employee earning more than $100,000
annually;
(n) sale, lease, license or other disposition of any of the
assets (whether tangible or intangible) or properties of the Sino-Canada
Entities, including the sale of any accounts receivable of the Sino-Canada
Entities, or any creation of any security interest in such assets or properties,
except the sale of products to customers in the ordinary course of
business;
(o) loan by any Sino-Canada Entity to any third party,
amendment to the terms of any outstanding loan agreement with respect to any
loan by a Sino-Canada Entity, or purchase by any Sino-Canada Entity of any debt
securities of any third party, except for advances to employees for travel and
business expenses in the ordinary course of business consistent with past
practices;
(p) incurrence by any Sino-Canada Entity of any
indebtedness, amendment of the terms of any outstanding loan agreement,
guaranteeing by any Sino-Canada Entity of any indebtedness of a third party,
issuance or sale of any debt securities of any Sino-Canada Entity or
guaranteeing of any debt securities of a third party, other than in connection
with the financing of ordinary course trade payables consistent with past
practice;
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(q) waiver or release of any material right or claim of any
Sino-Canada Entity, including any write-off or other compromise of any account
receivable of such Sino-Canada Entity;
(r) commencement or settlement of any Legal Proceeding by
any Sino-Canada Entity, other than the payment, discharge, settlement or
satisfaction for money, of Legal Proceedings (i) in the ordinary course of
business consistent with past practice or in amounts not in excess of $100,000
individually or $200,000 in the aggregate, or (ii) which liabilities were
recorded or reserved against in the Current Balance Sheet;
(s) the receipt by any Sino-Canada Entity of a written or
oral notice or threat of any Legal Proceeding against any Sino-Canada Entity or
relating to any of its businesses, properties or assets;
(t) receipt by any Sino-Canada Entity of written or oral
notice of any claim or potential claim of ownership, interest or right by any
Person other than a Sino-Canada Entity of any Company Intellectual Property, or
of infringement by any Sino-Canada Entity of any other Person’s Intellectual
Property;
(u) issuance, grant, delivery, transfer, sale or purchase,
or entry into a Contract to issue, grant, deliver, transfer, sell or purchase,
by any Sino-Canada Entity, of any Company Shares, SCHS Shares, PM Shares, CLSC
Shares or securities convertible into, or exercisable or exchangeable for,
Company Shares, SCHS Shares, PM Shares or CLSC Shares or any subscriptions,
warrants, options, rights or securities to acquire any of the
foregoing;
(v) event or condition of any character that has had a
Material Adverse Effect on any Sino-Canada Entity;
(w) purchase or sale of any interest in real property,
granting of any security interest in any real property or lease, license,
sublease or other occupancy of any Leased Real Property or other real property
by any Sino-Canada Entity, except in the ordinary course of business consistent
with past practice;
(x) acquisition by any Sino-Canada Entity by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or corporation, partnership, association or other
business organization or division thereof or other acquisition or agreement to
acquire any assets or any equity securities that are material, individually or
in the aggregate, to the business of the Sino-Canada
Entities;
(y) entry by any Sino-Canada Entity into a Contract with (i)
respect to any joint venture, strategic partnership or alliance, or (ii) an
Affiliate of any of the Sino-Canada Entities or of any of the
Shareholders;
(z) hiring by any Sino-Canada Entity of any employees other
than non-officer employees in the ordinary course of business consistent with
past practice and at compensation levels substantially comparable to that of
similarly situated employees, or promotion, demotion or termination or other
material change to the employment status or title of any Employee earning more
than $100,000 annually by any Sino-Canada Entity;
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(aa) to the Company’s, SCHS’, PM’s or CLSC’s Knowledge,
cancellation, amendment or renewal of any insurance policy of any Sino-Canada
Entity; or
(bb)
agreement by any Sino-Canada Entity or any
Shareholder to do any of the things described in the preceding clauses (a)
through (aa) of this Section 3.9 (other than
negotiations with Purchaser, the Sino-Canada Entities, and the Shareholders and
their representatives regarding the transactions contemplated by this Agreement
and any Related Agreements).
3.10 Accounts
Receivable.
(a) Set forth in Section 3.10 of the Company
Disclosure Letter is a list of all accounts receivable of the Sino-Canada
Entities as of the Balance Sheet Date, together with an aging schedule
indicating a range of days elapsed since invoice.
(b) All of the accounts receivable of the Sino-Canada
Entities as of the Balance Sheet Date and all of the accounts receivable of the
Company, SCHS, PM and CLSC as of the date hereof, arose in the ordinary course
of business, to the Company’s, SCHS’, PM’s and CLSC’s Knowledge are not subject
to any valid set-off or counterclaim, do not represent obligations for goods or
services subject to any repurchase or return arrangement other than in the
ordinary course of business consistent with past practice, and are to the
Company’s, SCHS’, PM’s and CLSC’s Knowledge collectible except to the extent of
reserves therefor set forth in the Current Balance Sheet. As of the date hereof,
no Person has any Lien on any accounts receivable of the Company, SCHS, PM or
CLSC and no written or oral request or agreement for deduction or discount has
been received by any Sino-Canada Entity with respect to any accounts receivable
of any Sino-Canada Entity.
3.11 Tax
Matters.
(a) Definition of
Taxes. For the purposes of this
Agreement, the term “Tax” or, collectively, “Taxes” shall mean (i) any and all federal, state, provincial,
local and foreign taxes, assessments and other like or similar governmental
charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes as well as public imposts, fees and social
security charges (including health, unemployment, workers’ compensation and
pension insurance), together with all interest, penalties and additions imposed
with respect to such amounts, (ii) any liability for the payment of any amounts
of the type described in clause (i) of this Section 3.11(a) as a result
of being a member of an affiliated, consolidated, combined or unitary group for
any period and (iii) any liability for the payment of any amounts of the type
described in clauses (i) or (ii) of this Section 3.11(a) as a result
of any express or implied obligation to indemnify any other Person or as a
result of any obligation under any agreement or arrangement with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
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(b) Tax Returns and
Audits.
(i) Each Sino-Canada Entity has (a) prepared and timely
filed all required federal, state, provincial, local, municipal and foreign
returns, estimates, information statements and reports (“Returns”) relating to any and all Taxes of the Sino-Canada
Entities and such Returns are true and correct in all material respects and have
been completed in accordance with applicable Law and (b) timely paid all Taxes
they are required to pay.
(ii) Each Sino-Canada Entity has withheld with respect to the
Employees and other third parties, all federal, state, provincial and foreign
Taxes required to be withheld, and, to the extent required, have timely paid
such Taxes withheld over to the appropriate authorities.
(iii) No Sino-Canada Entity has been delinquent in the payment
of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed in
writing against such Sino-Canada Entity, nor has any Sino-Canada Entity executed
any 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 any
Sino-Canada Entity is presently in progress, nor has any Sino-Canada Entity been
notified orally or in writing of any request for such an audit or other
examination.
(v) No Sino-Canada Entity has any liabilities for unpaid
Taxes for any period or portion of any period ending on or before the Balance
Sheet Date which have not been accrued or reserved on the Current Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and no Sino-Canada
Entity has incurred any liability for Taxes since the Balance Sheet Date other
than in the ordinary course of business.
(vi) There are (and immediately following the Closing there
will be) no Liens on the assets of any Sino-Canada Entity relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable. There
is no basis for the assertion of any claim relating or attributable to Taxes,
which, if adversely determined, would result in any Lien on the assets of any
Sino-Canada Entity.
(vii) No Sino-Canada Entity is a party to any Tax sharing,
indemnification or allocation agreement nor does any Sino-Canada Entity owe any
amount under any such agreement.
3.12 Restrictions on
Business Activities. There is no
Contract or Order to which any Sino-Canada Entity is a party or otherwise
binding upon any Sino-Canada Entity which prohibits or impairs or which may be
reasonably be expected to restrict, prohibit, or impair any business practice or
action of the Sino-Canada Entities or limits the freedom of the Sino-Canada
Entities to engage in any line of business or to compete with any Person. Set
forth in Section 3.12 of the Company Disclosure Letter is a list as of the
date hereof of each Contract to which any Sino-Canada Entity is a party or is
otherwise binding on a Sino-Canada Entity pursuant to which it is restricted
from selling, licensing or otherwise distributing any product or from providing
any service, in any geographic area, during any period of time, or in any
segment of the market, together with a brief summary of such
restriction.
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3.13 Title to
Properties; Absence of Liens and Encumbrances; Condition of Equipment;
Sufficiency of Assets.
(a) Section 3.13(a) of the
Company Disclosure Letter sets forth as of the date hereof a list of all real
property currently owned, leased, subleased or licensed by or from any
Sino-Canada Entity or otherwise used or occupied by any Sino-Canada Entity for
the operation of their businesses (the “Owned and Leased Real Property”). True and complete copies of each Ownership
Certificate and Lease Agreement have been delivered or made available to
Purchaser.
(b) Set forth in Section 3.13(b) of the
Company Disclosure Letter is a true, correct and complete list as of the date
hereof of all leases, lease guaranties, subleases, agreements for the leasing,
use or occupancy of, or otherwise granting a right in or relating to the Leased
Real Property to which any Sino-Canada Entity is a party, including all
amendments, terminations and modifications thereof (“Lease Agreements”). As of the date hereof, there are no other Lease
Agreements for real property affecting the Leased Real Property or to which any
Sino-Canada Entity is bound.
(c) Each Lease Agreements is a valid and binding agreement
of the Sino-Canada Entity party thereto, enforceable against such Sino-Canada
Entity and against each of the counterparties thereto, in accordance with its
terms, and is in full force and effect with respect to the Sino-Canada Entity
party thereto, and the other parties thereto. There is not, under any of such
Lease Agreements, any existing default, past due payment of rent, or event of
default (or event which with notice or lapse of time, or both, would constitute
a default) by any Sino-Canada Entity or, to the Company’s, SCHS’, PM’s or CLSC’s
Knowledge, the other parties thereto. No Sino-Canada Entity has received any
written or oral notice of a default, alleged failure to perform, or any offset
or counterclaim with respect to any such Lease Agreement, which has not been
fully remedied and withdrawn. The Sino-Canada Entities currently occupy all of
the Leased Real Property for the operation of their business. To the Company’s,
SCHS’, PM’s or CLSC’s Knowledge, there are no other parties occupying, or, with
a right to occupy, the Leased Real Property. No Sino-Canada Entity owes
brokerage commissions or finders fees with respect to any such Leased Real
Property, except as reserved for in the Current Balance
Sheet.
(d) The Leased Real Property is in good operating condition
and repair, free from structural, physical and mechanical defects, is maintained
in a manner consistent with standards generally followed by companies engaged in
the same or similar business as the Sino-Canada Entities with respect to similar
properties, and suitable for the conduct of the Company’s, SCHS’, PM’s and
CLSC’s business as currently conducted. The operation of the Sino-Canada
Entities’ business as currently conducted on the Leased Real Property does not,
nor does such Leased Real Property, including the improvements thereon, violate
in any material respect any applicable building code, zoning requirement or
statute relating to such property or operations thereon, and any such
non-violation is not dependent on so-called non-conforming use exceptions, other
than any violations that would not have a Material Adverse Effect on any of the
Sino-Canada Entities.
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(e) Each Sino-Canada Entity has good and valid title to, or,
in the case of leased tangible properties and assets, valid leasehold interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except (i) as
reflected in the Current Balance Sheet, (ii) Liens for Taxes not yet due and
payable, and (iii) such imperfections of title and encumbrances, if any, which
do not detract from the value or interfere with the present use of the property
subject thereto or affected thereby.
(f) All material items of equipment owned or leased by any
Sino-Canada Entity are (i) adequate for the conduct of the business of the
Sino-Canada Entities as currently conducted, and (ii) in good operating
condition, regularly and properly maintained, subject to normal wear and tear.
On the Closing Date, the tangible properties and assets owned, leased or
licensed by the Sino-Canada Entities will be sufficient with respect to tangible
properties and assets to conduct the business of the Sino-Canada Entities
immediately following the Closing in substantially the same manner as presently
conducted by the Sino-Canada Entities. The recent restructuring of the
subsidiaries of the Company in contemplation of entering into this Agreement,
including as described in Section 6.23, do not impact
the assets, rights, profits and financial condition and prospects of the Company
on a consolidated basis following the consummation of such transactions as
compared to the condition and operation of the business of the Company on a
consolidated basis prior the date of this Agreement.
3.14 Intellectual
Property.
(a) Definitions. For all purposes of this Agreement, the
following terms shall have the following respective
meanings:
“Intellectual
Property” shall mean any or all of the following (i) works of authorship
including computer programs, source code, and executable code, whether embodied
in software, firmware or otherwise, architecture, documentation, designs, files,
records, and data, (ii) inventions (whether or not patentable), discoveries,
improvements, and technology, (iii) proprietary and confidential information,
trade secrets and know how, (iv) databases, data compilations and collections
and technical data, (v) logos, trade names, trade dress, trademarks and service
marks, (vi) domain names, web addresses and sites, (vii) tools, methods and
processes, (viii) devices, prototypes, schematics, mask works, breadboards,
netlists, maskworks, test methodologies, verilog files, emulation and simulation
reports, test vectors and hardware development tools, and (ix) any and all
instantiations of the foregoing in any form and embodied in any
media.
“Intellectual
Property Rights” shall mean worldwide common law and statutory rights
associated with (i) patents and patent applications, (ii) copyrights, copyright
registrations and copyright applications, “moral” rights and mask work rights,
(iii) the protection of trade and industrial secrets and confidential
information, (iv) other proprietary rights relating to Intellectual Property,
(v) trademarks, trade names and service marks, and (vi) divisions,
continuations, renewals, reissuances and extensions of the foregoing (as
applicable).
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“Company
Intellectual Property” shall mean any and all Intellectual Property and
Intellectual Property Rights that are owned by or exclusively licensed to any
Sino-Canada Entity.
“Registered
Intellectual Property” shall mean Intellectual Property and Intellectual
Property Rights that have been registered, filed, certified or otherwise
perfected or recorded with or by any Governmental Entity.
(b) Section 3.14(b) of the
Company Disclosure Letter lists as of the date hereof (i) all Registered
Intellectual Property owned or exclusively licensed by, or filed in the name of,
any Sino-Canada Entity (the “Company Registered Intellectual
Property”), and (ii) any proceedings or
actions before any court or tribunal (including the United States Patent and
Trademark Office (the “PTO”) or equivalent or similar authority anywhere in the
world) in which any of the Company Registered Intellectual Property is
involved.
(c) The rights of the Sino-Canada Entities to each item of
Company Registered Intellectual Property is valid and enforceable. All necessary
registration, maintenance and renewal fees in connection with such Company
Registered Intellectual Property have been paid and all necessary documents and
certificates in connection with such Company Registered Intellectual Property
have been filed with the relevant patent, copyright, trademark or other
Governmental Entities for the purposes of maintaining such Registered
Intellectual Property in connection with the Company’s business as currently
conducted. In each case in which any Sino-Canada Entity has acquired any
Intellectual Property Rights from any Person, such Sino-Canada Entity has
obtained a valid and enforceable assignment of such Intellectual Property Rights
to such Sino-Canada Entity sufficient to irrevocably transfer all rights in such
Intellectual Property to the Sino-Canada Entity, and the Sino-Canada Entities
have recorded each such assignment with the relevant Governmental Entities,
including the PTO, the United States Copyright Office, or their respective
equivalents in any relevant foreign jurisdiction, as the case may be, as is
customary for companies engaged in the same or similar business as the
Sino-Canada Entities. To the Company’s, SCHS’, PM’s and CLSC’s Knowledge, no
Company Intellectual Property is subject to any proceeding or outstanding Order
adversely affecting the validity, use or enforceability of the Sino-Canada
Entities’ rights to such Company Intellectual Property as used in the
Sino-Canada Entities’ business as currently conducted.
(d) The Company, SCHS, PM or CLSC owns or, to the extent it
licenses from a third party, has rights to use in the Sino-Canada Entities’
business as currently conducted, each item of Company Intellectual Property,
including all Company Registered Intellectual Property, free and clear of any
Liens. The Company and its Subsidiaries are the exclusive owners or, to the
Company’s Knowledge to the extent the Company or its Subsidiaries licenses from
a third party, the exclusive licensee, of all Company Intellectual
Property.
(e) To the extent that any Company Intellectual Property has
been developed or created independently or jointly by any Person other than any
Sino-Canada Entity for which any Sino-Canada Entity has, directly or indirectly,
provided consideration for such development or creation, the Sino-Canada
Entities have a Contract with such Person with respect thereto, and the
Sino-Canada Entities have obtained ownership of, and is the exclusive owner of,
all such Intellectual Property therein and associated Intellectual Property
Rights by operation of law or by valid assignment, and has required the waiver
of all non-assignable rights, including all author or moral rights by such
Person.
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(f) No Sino-Canada Entity has (i) transferred ownership of,
or granted any exclusive license of or exclusive right to use, or authorized the
retention of any exclusive rights to use or joint ownership of, any Company
Intellectual Property, to any other Person or (ii) permitted the rights of the
Sino-Canada Entities in such Company Intellectual Property to enter into the
public domain.
(g) The Company Registered Intellectual Property constitutes
all of the Registered Intellectual Property (except “off-the-shelf” software)
used in or necessary to, or that would otherwise be infringed by, the conduct of
the business of the Sino-Canada Entities as currently
conducted.
(h) Section 3.14(h) of the
Company Disclosure Letter lists as of the date hereof all Contracts to which any
Sino-Canada Entity is a party with respect to the license by such Sino-Canada
Entity of any Intellectual Property Rights from a third
party.
(i) No third party that has licensed Intellectual Property
or Intellectual Property Rights to any Sino-Canada Entity has ownership rights
or license rights to improvements or derivative works made by such Sino-Canada
Entity in such licensed Intellectual Property.
(j) As of the date hereof, no Sino-Canada Entity is party to
any Legal Proceeding, and the Sino-Canada Entities have not received written or
oral notice of any violation, with respect to any Contracts between a
Sino-Canada Entity and any other Person with respect to Company Intellectual
Property or other Intellectual Property used in and/or necessary to the conduct
of the business regarding the scope of such Contract, or performance under such
Contract, including with respect to any payments to be made, or received by such
Sino-Canada Entity thereunder.
(k) To the Company’s, SCHS’, PM’s and CLSC’s Knowledge, the
operation of the business of the Sino-Canada Entities as currently conducted,
including the development, design, use, import, branding, advertising,
promotion, marketing, distribution and sale of any technology, product or
service of the Sino-Canada Entities does not infringe or misappropriate any
Intellectual Property Rights of any Person and will not infringe or
misappropriate when conducted by Purchaser or the Sino-Canada Entities following
the Closing or violate any right of any Person (including any right to privacy
or publicity), or constitute unfair competition or trade practices under the
laws of any jurisdiction. As of the date hereof, the Sino-Canada Entities have
not received written or oral notice from any Person claiming that the operation
of the business of the Sino-Canada Entities as currently conducted, including
the use, import, branding, advertising, promotion, marketing, distribution and
sale of any technology or service of the Sino-Canada Entities, infringes or
misappropriates any Intellectual Property Rights of any Person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor is
there any basis therefor).
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(l) Neither this Agreement nor the transactions contemplated
by this Agreement, including the assignment to Purchaser Sub by operation of law
or otherwise of any Contracts to which any Sino-Canada Entity is a party, will
result in: (i) the Surviving Corporation or any of its Subsidiaries granting to
any third party any right to or with respect to any Intellectual Property Rights
owned by, or licensed to, the Surviving Corporation or any of its Subsidiaries;
(ii) the Surviving Corporation or any of its Subsidiaries being bound by, or
subject to, any non-compete or other material restriction on the operation or
scope of its business; or (iii) the Surviving Corporation or any of its
Subsidiaries or the Sino-Canada Entities being obligated to pay any royalties or
other material amounts to any third party in excess of those payable by the
Sino-Canada Entities in the absence of this Agreement or the transactions
contemplated hereby.
(m) To the Company’s, SCHS’, PM’s and CLSC’s Knowledge, as
of the date hereof no Person is violating, infringing or misappropriating any
Company Intellectual Property. As of the date hereof, no Sino-Canada Entity has
received written or oral notice that any Person is violating, infringing or
misappropriating any Company Intellectual Property.
(n) The Company, SCHS, PM and CLSC have taken all reasonable
steps as are customary for companies engaged in the same or similar business as
the Sino-Canada Entities that are required or necessary to protect the rights of
the Sino-Canada Entities in confidential information and trade secrets of the
Sino-Canada Entities or provided by any other Person to the Sino-Canada
Entities.
(a)
Except as set forth in Section 3.15(a) of the
Company Disclosure Letter (specifying the appropriate subparagraph below)
(“Material
Contracts”), as of the date hereof no
Sino-Canada Entity is a party to, nor any of their assets are bound
by:
(i)
any Contract with an Employee or individual
consultant or contractor, any Contract to grant any severance or termination pay
(in cash or otherwise) to any Employee, or any contractor or consulting Contract
with a firm or other organization;
(ii) any Employee Plan or Employee Agreement, including any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of the occurrence of any of the transactions
contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond in excess
of $100,000 individually or $200,000 in the aggregate;
(iv) any lease of personal property having a value in excess
of $100,000 individually or $200,000 in the aggregate;
(v) any agreement of indemnification or
guaranty;
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(vi) any Contract obligating any Sino-Canada Entity to make
any capital expenditures and involving future payments in excess of $100,000
individually or $200,000 in the aggregate;
(vii) any Contract relating to the disposition or acquisition
of assets or any interest in any business enterprise outside the ordinary course
of business;
(viii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit involving in excess of $100,000
individually or $200,000 in the aggregate;
(ix)
any purchase order or
Contract for the purchase of materials involving in excess of $100,000
individually or $200,000 in the aggregate;
(x)
any joint marketing, strategic alliance,
affiliate or development Contract;
(xi) any Contract with an executive officer, Employee earning
more than $100,000 annually, director, stockholder or Affiliate of
any Sino-Canada Entity;
(xii) any Contract relating to the license of intellectual
property by a Sino-Canada Entity (other than “off-the-shelf” software readily
available on commercial terms and in each case for less than $1,000);
or
(xiii) any other Contract pursuant to which any Sino-Canada
Entity has any obligation to pay or expend, or reasonably expects to receive,
$100,000 individually or $200,000 in the aggregate or more and is not cancelable
without penalty by the Company within thirty (30) days.
(b) Each Material Contract is a valid and binding agreement
of the Sino-Canada Entity party thereto, enforceable against such Sino-Canada
Entity, and, to the Company’s, SCHS’, PM’s and CLSC’s Knowledge, against each of
the counterparties thereto, in accordance with its terms, and is in full force
and effect with respect to such Sino-Canada Entity, and the counterparties
thereto. Each Sino-Canada Entity is in compliance with and is not in breach,
violation or default under, has not received written or oral notice that it is
in breach, violation or default under, and there is no event that with the lapse
of time, giving of notice or both would constitute such a breach, violation or
default by such Sino-Canada Entity under, any of the terms or conditions of any
Material Contract to which it is a party. To the Company’s, SCHS’, PM’s and
CLSC’s Knowledge, as of the date hereof no counterparty to a Material Contract
is in breach, violation or default thereunder, nor as of the date hereof is
there any event that with the lapse of time, giving of notice or both would
constitute such a breach, violation or default by such counterparty. True and
complete copies of each Material Contract have been delivered or made available
to Purchaser.
(c) Each Sino-Canada Entity has fulfilled or will have
fulfilled all material obligations required to have been performed by such
Sino-Canada Entity, prior to the Closing Date pursuant to each Material Contract
to which such Sino-Canada Entity is a party or to which it is
bound.
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3.16 Interested Party
Transactions. No executive
officer, Employee, director, Affiliate, or stockholder of any Sino-Canada Entity
(nor, to the Company’s, SCHS’, PM’s or CLSC’s Knowledge, any immediate family
members or Affiliates of any of such Persons) (i) furnishes or sells services,
products, technology or Intellectual Property that any Sino-Canada Entity
furnishes or sells, (ii) purchases from or sells or furnishes to the Sino-Canada
Entities, any goods, services, products, technology or
properties (tangible or intangible), (iv) is borrowed any money from
or has loaned any money to any Sino-Canada Entity, or (iv) is party to any
Contract to which any Sino-Canada Entity is a party.
3.17 Compliance;
Permits; Exports.
(a) Compliance. No Sino-Canada Entity is in conflict with,
or in default or in violation of, any Law applicable to it or by which it or by
which any of its respective businesses or assets is bound, except for those
conflicts, defaults or violations that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on any Sino-Canada
Entity. No Sino-Canada Entity has received written or oral notice that any
investigation or review by any Governmental Entity is pending with respect to a
conflict with, default or violation of, any Law applicable to it or by which any
of its respective businesses or properties is bound, and, to the Knowledge of
the Company, SCHS, PM and CLSC, no such investigation or review has been overtly
threatened, against the Sino-Canada Entities. There is no decree, order,
judgment, writ, award, injunction, rule or consent of or by a Governmental
Entity (“Order”) to which any Sino-Canada Entity is a party which has
or would reasonably be expected to have the effect of prohibiting or materially
impairing the conduct of business by the Sino-Canada Entities as currently
conducted.
(b) Permits. The Sino-Canada Entities hold, to the
extent legally required, all consents, authorizations, permits, licenses,
variances, clearances, consents, commissions, franchises, exemptions, orders and
approvals from Governmental Entities (“Permits”) that are required for the operation of the business
of the Sino-Canada Entities as currently conducted or as reasonably contemplated
to be conducted and the ownership by the Sino-Canada Entities of their
respective assets, except for those the lack of which would not reasonably be
expected to have a Material Adverse Effect on the Company (collectively,
“Company
Permits”). The Company Permits are in full
force and effect and no suspension or cancellation of any of the Company Permits
is pending or, to the Company’s, SCHS’, PM’s and CLSC’s Knowledge, overtly
threatened. The Sino-Canada Entities are in compliance in all
material respects with the terms of the Company Permits.
(c) Export Control
Laws. Each Sino-Canada Entity is
conducting and has conducted its export transactions in accordance in all
material respects with all applicable export and re-export control Laws. Each
Sino-Canada Entity has obtained, and is in material compliance with, all export
Permits required for (A) the export and re-export of products, services,
software and technologies, and (B) releases of technologies and software to
foreign nationals located in the United States and abroad (“Export Approvals”), except as would not have a Material Adverse Effect
on the Sino-Canada Entities. There are no Legal Proceeding pending or, to the
Company’s, SCHS’, PM’s and CLSC’s Knowledge, overtly threatened against the
Sino-Canada Entities, alleging a violation of such Export Approvals or the
export control Laws of any Governmental Entity. No Export Approvals for the
transfer of export licenses to Purchaser are required for the consummation of
the Acquisition.
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3.18 Foreign Corrupt
Practices Act. Assuming the Foreign Corrupt Practices Act of
1977, as amended (the “FCPA”), was applicable to all
of the Sino-Canada Entities, to the Company’s, SCHS’, PM’s and CLSC’s Knowledge, no Sino-Canada
Entity, nor any officer, director, agent, Employee or other Person associated
with or acting on their behalf, has, directly or indirectly, violated any
provision of the FCPA, and to the Company’s, SCHS’, PM’s and CLSC’s Knowledge, none of them
has used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, made, offered or
authorized any unlawful payment to foreign or domestic government officials or
employees, or made, offered or authorized any unlawful bribe, rebate, payoff,
influence payment, kickback or other similar unlawful payment.
3.19 Litigation. As of the date hereof, there is no action,
suit, claim or proceeding (each a “Legal Proceeding”) of any nature pending or threatened in writing
against the Sino-Canada Entities, their properties (tangible or intangible) or
any of their directors or executive officers and there is no reasonable basis
therefor. To the Company’s, SCHS’, PM’s and CLSC’s Knowledge, as of the date
hereof, there is no investigation by or before any Governmental Entity pending
or overtly threatened against any of the Sino-Canada Entities, any of their
properties (tangible or intangible) or any of their directors or
officers. To the Company’s, SCHS’, PM’s and CLSC’s Knowledge, no
Governmental Entity has at any time challenged or questioned the legal right of
the Sino-Canada Entities to conduct their operations. To the
Company’s, SCHS’, PM’s and CLSC’s Knowledge, there is no Legal Proceeding of any
nature pending or overtly threatened as of the date hereof against any Person
who has a right pursuant to a Contract to which any Sino-Canada Entity is a
party or by which any of their assets are bound to indemnification from any
Sino-Canada Entity related to facts and circumstances existing prior to the
Closing.
3.20 Minute
Book. Copies of the minute books
of the Sino-Canada Entities delivered or made available to Purchaser contain
complete and accurate records of all actions taken, and all meetings held, by
the boards of directors and stockholders of the Sino-Canada Entities (and any
committees thereof) since the time of formation of each of Sino-Canada Entities.
At the Closing, the minute books of the Sino-Canada Entities will be in the
possession of such entities.
3.21 Environmental
Matters.
(a) Hazardous
Material. No Sino-Canada Entity
has: (i) operated any underground storage tanks at any property that it has at
any time owned, operated, occupied or leased; or (ii) released any amount of any
substance that has been designated by any Governmental Entity with jurisdiction
over such release or by Law applicable to such release to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment,
including PCBs, asbestos, petroleum and urea-formaldehyde, and all substances
listed as hazardous substances or contaminants pursuant to any applicable
federal, foreign, state, provincial or local Laws or constituting a hazardous
waste (a “Hazardous
Material”), but excluding office and
janitorial supplies properly and safely maintained. No Hazardous Materials are
present in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that any Sino-Canada Entity has at any
time owned, operated, occupied or leased.
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(b) Hazardous
Materials Activities. No
Sino-Canada Entity has transported, stored, used, manufactured, disposed of,
released or exposed their employees or others to Hazardous Materials, nor
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
herein as “Hazardous
Material Activities”), in each case in
violation of any Law to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity applicable to such action.
(c) Permits. The Sino-Canada Entities currently hold all
Permits necessary for the conduct of its Hazardous Material Activities, and
other businesses of the Sino-Canada Entities as such activities and businesses
are currently being conducted.
(d) Environmental
Liabilities. As of the date
hereof, no Legal Proceeding is pending, and the Sino-Canada Entities have not
received any threat of a Legal Proceeding relating to the conduct of its
Hazardous Material Activities or the handling of any Hazardous Material. No
event has occurred that would cause or be reasonably expected to cause the
Sino-Canada Entities to be involved in any environmental litigation or incur
liability.
3.22 Brokers’ and
Finders’ Fees. No Sino-Canada
Entity has incurred, nor will any of them incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’ commissions, fees related to
investment banking or similar advisory services or any similar charges in
connection with the execution and delivery of the Agreement or the consummation
of any transaction contemplated hereby, nor will Purchaser incur, directly or
indirectly, any such liability based on arrangements made by or on behalf of any
Sino-Canada Entity.
3.23 Employee Benefit
Plans and Compensation.
(a) Definitions. For all purposes of this Agreement, the
following terms shall have the following respective
meanings:
“Affiliate”
shall mean, with respect to any Person, any other Person directly or indirectly
through one or more intermediaries controlling, controlled by or under common
control with such other Person.
“Employee
Plan” shall mean any plan, program, policy, practice, contract, agreement
or other arrangement providing for compensation, severance, termination pay,
deferred compensation, performance awards, equity or equity-related awards,
welfare benefits, fringe benefits or other employee benefits or remuneration of
any kind, whether written, unwritten or otherwise, funded or unfunded, including
any arrangement for the benefit of Employees who perform services, which is or
has been maintained, contributed to, or required to be contributed to, by any
Sino-Canada Entity for the benefit of any Employee, or with respect to which any
Sino-Canada Entity has or may have any liability or obligation.
“Employee”
shall mean any current or former employee, contractor or consultant of any
Sino-Canada Entity.
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“Employee
Agreement” shall mean each management, employment, severance, consulting,
contractor, relocation, repatriation, expatriation, loan, visa, work permit or
other Contract providing for compensation or benefits between any Sino-Canada
Entity and any Employee.
“Pension
Plan” shall mean each Employee Plan which any Sino-Canada Entity is a
party to or bound by or under which any Sino-Canada Entity has any liability or
contingent liability.
(b) Schedule. The Company has made available or provided
to Purchaser as of the date hereof an accurate and complete list of each
Employee Plan and each Employee Agreement with Employees earning more than
$10,000 annually. As of the date hereof, no Sino-Canada Entity has made any plan
or commitment to establish any new Employee Plan or Employee Agreement, to
modify any Employee Plan or Employee Agreement (except to the extent required by
Law or to conform any such Employee Plan or Employee Agreement to the
requirements of any applicable Law, in each case as previously disclosed to
Purchaser in writing, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement.
(c) Employee Plan
Compliance. Each Sino-Canada
Entity has performed all obligations required to be performed by it under, is
not in default or violation of, and as of the date hereof has not received
written notice of default or violation by any other party of, any Employee Plan,
and each Employee Plan has been established and maintained in accordance with
its terms and in compliance with all applicable Laws. There are no Legal
Proceedings pending, and as of the date hereof no Sino-Canada Entity has
received threat of any Legal Proceedings (other than routine claims for
benefits), against any Employee Plan or against the assets of any Employee Plan.
Each Employee Plan can be amended, terminated or otherwise discontinued after
the Closing in accordance with its terms, without liability to Purchaser, any
Sino-Canada Entity or any Affiliate (other than ordinary administration
expenses). As of the date hereof, here are no audits, inquiries or proceedings
pending or overtly threatened by any Governmental Entity with respect to any
Employee Plan. Each Sino-Canada Entity has timely made all contributions and
other payments required by and due under the terms of each Employee
Plan.
(d) No Self-Insured
Plan. Neither any Sino-Canada
Entity nor any Affiliate of any Sino-Canada Entity has ever maintained,
established, sponsored, participated in or contributed to any self-insured plan
that provides benefits to employees (including any such plan pursuant to which a
stop-loss policy or contract applies).
(e) No
Post-Employment Obligations. No
Employee Plan or Employee Agreement provides, or reflects or represents any
liability to provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any Person for any reason, except as may be
required by applicable statute, and no Sino-Canada Entity has ever represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) or any other Person that such
Employee(s) or other Person would be provided with retiree life insurance,
retiree health or other retiree employee welfare benefits, except to the extent
required by statute.
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(f) Effect of
Transaction. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby or any
termination of employment or service in connection therewith will (i) result in
any payment (including severance, golden parachute, bonus or otherwise) becoming
due to any Employee, (ii) result in any forgiveness of indebtedness held by the
Sino-Canada Entities to an Employee, (iii) materially increase any benefits
otherwise payable by the Sino-Canada Entities under any Employment Plan, or (iv)
result in the acceleration of the time of payment or vesting of any such
benefits under any Employment Plan.
(g) Employment
Matters. Each Sino-Canada Entity (i) is in compliance with all
applicable Laws respecting employment, employment practices, terms and
conditions of employment, employee safety and wages and hours, and in each case,
with respect to Employees, (ii) has withheld and reported all amounts required
by Law or Contract to be withheld and reported with respect to wages, salaries
and other payments to Employees, (iii) is not liable for any arrears of wages,
severance pay or any Taxes or any penalty for failure to comply with any of the
foregoing, and (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any Governmental Entity, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). As of the date
hereof, there are no Legal Proceedings pending or threatened in writing against
the Sino-Canada Entities or any of the Employees relating to any Employee,
Employee Agreement or Employee Plan. As of the date hereof, there are no Legal
Proceedings pending or overtly threatened against the Sino-Canada Entities or
any Company trustee under any worker’s compensation policy. The services
provided by each of the Employees is terminable at the will of the Sino-Canada
Entity for which such Employee is employed and any such termination would result
in no liability to the Sino-Canada Entities. Section 3.23(g) of the Company
Disclosure Letter lists as of the date hereof all liabilities of the Sino-Canada
Entities to any Employee, that would result from the termination by the
Sino-Canada Entities of such Employee’s employment, a change of control of any
Sino-Canada Entity, or a combination thereof. No Sino-Canada Entity has any
direct or indirect liability solely with respect to any misclassification of any
Person as an independent contractor rather than as an employee, or with respect
to any employee leased from another employer, except as would not have a
Material Adverse Effect on the Sino-Canada Entities.
(h) Labor. No work stoppage or labor strike against
the Sino-Canada Entities is pending or, to the Company’s, SCHS’, PM’s or CLSC’s
Knowledge, overtly threatened as of the date hereof. To the Company’s, SCHS’,
PM’s or CLSC’s Knowledge, as of the date hereof there are no activities or
proceedings of any labor union to organize any Employees. As of the date hereof,
there are no Legal Proceedings pending before any Governmental Entity or overtly
threatened relating to any labor matters involving any Employee with respect to
the Sino-Canada Entities, including charges of unfair labor practices. No
Sino-Canada Entity has engaged in any unfair labor practices in violation of
applicable Law. No Sino-Canada Entity is presently, nor has it been in the past,
a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Sino-Canada Entities.
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(i) No Interference
or Conflict. To the Company’s,
SCHS’, PM’s or CLSC’s Knowledge, no stockholder, executive officer or Employee
of the Sino-Canada Entities is obligated under any Contract or any Order that
would interfere with such Person’s efforts to promote the interests of the
Sino-Canada Entities, or that would interfere with the business of the
Sino-Canada Entities. Neither the execution nor delivery of this Agreement, nor
the carrying on of the business of the Sino-Canada Entities as currently
conducted, nor any activity of such stockholder, executive officer or Employee
in connection with the carrying on of the business of the Sino-Canada Entities
as currently conducted, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any Contract to
which such Person is party, which would result in a Material Adverse Effect on
any of the Sino-Canada Entities.
3.24 Insurance. The Company has made available or provided to
Purchaser as of the date hereof all insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, executive
officers, Employees and stockholders of the Sino-Canada Entities to which any
Sino-Canada Entity is the beneficiary. As of the date hereof, there is no
pending claim of which its total value (inclusive of defense expenses) will
exceed the applicable policy limits. All premiums due and payable under all such
policies and bonds have been paid (or if installment payments are due, will be
paid if incurred prior to the Closing Date) and the Sino-Canada Entities are in
material compliance with the terms of such policies and bonds (or other policies
and bonds providing substantially similar insurance coverage). As of the date
hereof, no Sino-Canada Entity has received notice of any termination of, or
premium increase with respect to, any of such policies. No Sino-Canada Entity
has ever maintained, established, sponsored, participated in or contributed to
any self-insurance plan.
3.25 Warranties;
Guarantees; Indemnities. Except
for warranties set forth in Section 3.25 of the Company
Disclosure Schedule, including any warranties or guarantees implied by Law, no
Sino-Canada Entity has given any warranties, guarantees or indemnities for which
such Sino-Canada Entity remains liable relating to any products sold or services
rendered by such Sino-Canada Entity. Section 3.25 of the Company
Disclosure Letter contains a complete record of the warranty or guarantee claims
with respect to any products sold or services rendered by the Sino-Canada
Entities, including the date of claim, name of claimant, description of claim,
resolution or status.
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3.26 Customers and
Suppliers. As of the date hereof, no
current customer, vendor or supplier of the Sino-Canada Entities has overtly
threatened in to cancel or otherwise modify its business relationship with such
Sino-Canada Entity, which would be material to the Sino-Canada
Entities.
3.27 Complete Copies
of Materials. The documents delivered or made available to
Purchaser or included in the Company Disclosure Letter are true and complete
copies of each document (or summaries of same).
3.28 Disclosure. As of the Closing, none of the information
supplied in writing by or on behalf of the Sino-Canada Entities specifically for
inclusion or incorporation by reference in the Proxy Statement at the time the
Proxy Statement is mailed or delivered to the stockholders of Purchaser,
contained any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under with they are made, not
misleading. Each of the Sino-Canada Entities agrees to provide to Purchaser a
certificate with respect to such information provided to Purchaser for inclusion
or incorporation by reference in the Proxy Statement.
3.29 No Other
Representations or Warranties. Except for the representations and
warranties made by the Company, SCHS, PM and CLSC in this ARTICLE III, no
Sino-Canada Entity makes any representation or warranty with respect to any of
the Target Shares, any Sino-Canada Entity or its respective business,
operations, assets, liabilities, condition (financial or otherwise) or
prospects, notwithstanding the delivery or disclosure to Purchaser or its
representatives of any documentation, forecasts or other information with
respect to any one or more of the foregoing.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE SHAREHOLDERS
The
Shareholders hereby severally represent and warrant to Purchaser, subject to
such exceptions as are specifically disclosed in a disclosure letter
(referencing the appropriate section, subsection, paragraph and subparagraph
numbers) supplied by the Shareholders’ Representative to Purchaser concurrently
with the execution of this Agreement (the “Shareholders’ Disclosure
Letter”), as follows:
4.1 Organization;
Standing. Each Shareholder that is an entity (i) as of the
date hereof, is duly organized, validly existing and in good standing under the
Laws of their place of incorporation, (ii) has the requisite power and authority
to own, lease and operate their properties and to carry on their business as now
being conducted, and (iii) is duly qualified or licensed and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to so qualify or
to be in good standing, individually or in the aggregate, would not reasonably
be expected to adversely affect any Shareholder’s ability to consummate the
transactions contemplated by this Agreement.
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4.2 Ownership of
Target Shares. The Target Shares being purchased hereunder by
Purchaser are owned of record by the Shareholders listed on Schedule A to this Agreement
as owning such Target Shares, free and clear of all Liens, and upon the Closing,
Purchaser shall receive good, valid and marketable title to the Target Shares
being acquired hereunder, free and clear of all Liens. No Shareholder is a party
to any voting agreements, irrevocable proxies, voting trusts, or other voting
arrangements with respect to the Target Shares.
4.3 Authority. Each
Shareholder has all requisite corporate and other applicable power and authority
to enter into this Agreement and any Related Agreements to which each
Shareholder a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by each Shareholder of this Agreement and
any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby shall as of the Closing have been
duly authorized by all necessary corporate action on the part of any Shareholder
that is an entity, including by such Shareholder’s
Board of Directors and by its shareholders, member or partners as
applicable. This Agreement and any Related Agreements to which a
Shareholder is a party have been duly executed and delivered by such Shareholder
and assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of such
Shareholder enforceable against it in accordance with their respective terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or other Laws of general application relating
to or affecting the enforcement of creditors’ rights generally, or (ii) as
limited by Laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
4.4 No
Conflict. The execution and delivery by each Shareholder of
this Agreement and any Related Agreement to which a Shareholder is a party, and
the consummation of the transactions contemplated hereby and thereby, will not
Conflict with: (i) if an entity, any provision of the articles of incorporation
(including any certificate of designations) and bylaws, or like organizational
documents, of a Shareholder, each as amended to date, (ii) any Contract to which
a Shareholder is a party or by which any of its properties or assets (whether
tangible or intangible) are bound, or (iii) any Law applicable to any
Shareholder or any of its properties or assets (whether tangible or intangible),
in each case which would adversely affect any Shareholder’s ability to
consummate the transactions contemplated by this Agreement.
4.5 Consents. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any third party,
including a party to any Contract to which any Shareholder is a party or by
which its assets are bound (so as not to trigger any Conflict), is required to
be made by a Shareholder in connection with the execution and delivery of this
Agreement and any Related Agreements to which any Shareholder is a party or the
consummation of the transactions contemplated hereby and thereby, except for:
(i) the consents listed on Section 4.5 of the Shareholders’ Disclosure Letter
(“Shareholder
Consents”), (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign, state or provincial securities (or related) Laws and the HSR
Act and applicable foreign pre-acquisition notice statutes, and (iii) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not adversely affect the ability of any Shareholder to
consummate the Acquisition within the time frame in which the Acquisition would
otherwise be consummated in the absence of the need for such consent, approval,
order, authorization, registration, declaration or filings.
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4.6 No Other
Representations or Warranties. Except for the representations
and warranties made by the Shareholders in this ARTICLE IV, no Shareholder makes
any representation or warranty with respect to any of the Target Shares, any
Shareholder or their business, operations, assets, liabilities, condition
(financial or otherwise) or prospects, notwithstanding the delivery or
disclosure to Purchaser or its representatives of any documentation, forecasts
or other information with respect to any one or more of the
foregoing.
4.7 Acquisition of
Surviving Corporation Common Stock.
(a) Acquisition
Entirely for Own Account. Each
Shareholder is acquiring Surviving Corporation Common Stock hereunder for his,
her or its own account and not with a view to the resale or distribution of any
part thereof.
(b) Disclosure of
Information. Each Shareholder acknowledges
that all of the Purchaser SEC Documents were fully available to it, that the
Company encouraged it to review such documents, including with the assistance of
counsel, and that it had such opportunity to review all such documents. Each
Shareholder acknowledges that it has received all the information that it has
requested relating to Purchaser and the transactions contemplated by this
Agreement. Each Shareholder further represents that it has had an opportunity to
ask questions and receive answers from Purchaser regarding the terms and
conditions of its acquisition of the Purchaser Common Stock hereunder and the
transactions contemplated by this Agreement.
(c) Shareholders
Non-US Persons. Each Shareholder noted on
Schedule A to this Agreement is not a “U.S. Person” as defined in
Regulation S of the Securities Act and is not acquiring the securities for the
account or benefit of any “U.S. Person” as defined in Regulation S of the
Securities Act.
(d) Restricted
Securities. Each Shareholder understands
that the Surviving Corporation Common Stock it will acquire hereunder
constitutes “restricted securities” from the Surviving Corporation under the
United States federal securities laws and that under such laws and applicable
regulations such securities may only be sold in the United States pursuant to an
effective registration statement or an available exemption from registration.
Each Shareholder understands that, subject to certain limitations, the currently
available exemption from registration under Rule 144 requires the securities to
be held for a certain period of time before they can be sold in the United
States.
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(e) Legend. It
is understood that the certificates evidencing the Surviving Corporation Common
Stock shall the following legends:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE “U.S. SECURITIES ACT”), AND ARE RESTRICTED SECURITIES (AS
DEFINED IN RULE 144 UNDER THE U.S. SECURITIES ACT). EACH PURCHASER OF THESE
SECURITIES ARE HEREBY NOTIFIED THAT THE SELLER OF THESE SECURITIES IS RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE U.S. SECURITIES ACT
PROVIDED BY REGULATION S THEREUNDER.
THE
HOLDER OF THESE SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT: (A) THESE
SECURITIES MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY: (I)
OUTSIDE OF THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
903 OR RULE 904 UNDER THE U.S. SECURITIES ACT; (II) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER
(IF AVAILABLE); OR (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE U.S. SECURITIES ACT, IN EACH CASE (I) THROUGH (III) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES; AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THESE
SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. PRIOR TO
PERMITTING ANY TRANSFER, THE COMPANY MAY REQUEST AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS TO BE EFFECTED IN A
TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE U.S. SECURITIES
ACT OR IS EXEMPT FROM REGISTRATION. HEDGING TRANSACTIONS INVOLVING THESE
SECURITIES MAY NOT BE CONDUCTED DIRECTLY OR INDIRECTLY, UNLESS IN COMPLIANCE
WITH THE U.S. SECURITIES ACT.”
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
As of the
date hereof, Purchaser, Merger Sub and Purchaser Sub hereby represent and
warrant to the Company and the Shareholders, subject to such exceptions as are
specifically disclosed in a disclosure letter (referencing the appropriate
section, subsection, paragraph and subparagraph numbers) supplied by the
supplied by Purchaser to the Company and the Shareholders’ Representative
concurrently with the execution of this Agreement (the “Purchaser Disclosure Letter”),
as follows:
5.1 Organization;
Standing; Charter Documents; Subsidiaries.
(a) Organization;
Standing and Power. Purchaser and each of its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under the
under the laws of the jurisdiction of its incorporation or
organization (and upon Closing and completion of
the Reincorporation Merger, the Surviving Corporation will be a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware), (ii) has the requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and (iii) is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to so qualify or to be in good standing,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Purchaser or adversely affect on Purchaser’s ability
to consummate the transactions contemplated by this
Agreement.
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(b) Charter
Documents. Purchaser has
delivered or made available to the Company and the Shareholders’ Representative
true and correct copies of: (i) the articles of incorporation (including any
certificate of designations) and bylaws, or like organizational documents, of
Purchaser (collectively, the “Purchaser Charter
Documents”), and (ii) the articles of
incorporation and bylaws, or like organizational documents, of each of its
Subsidiaries, each as amended to date (collectively, “Purchaser Subsidiary Charter
Documents”), and each such instrument is in
full force and effect. Purchaser is not in violation of any of the provisions of
the Purchaser Charter Documents and none of its Subsidiaries is in violation of
its respective Purchaser Subsidiary Charter Documents.
(c) Subsidiaries. Section 5.1(c) of the
Purchaser Disclosure Letter sets forth each Subsidiary of Purchaser as of the
date hereof. All the outstanding shares of capital stock of, or other equity or
voting interests in, each such Subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable and are owned by Purchaser and/or a
wholly-owned Subsidiary of Purchaser, free and clear of Liens, including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests, except for restrictions imposed by
applicable securities Laws. Other than its Subsidiaries, Purchaser does not own,
directly or indirectly, any securities or capital stock of, or other equity or
voting interests of any nature in, any other Person.
(d) Directors. Section 5.1(d) of the
Purchaser Disclosure Letter lists the directors of Purchaser as of the date
hereof.
(e) Officers. Section 5.1(e) of the
Purchaser Disclosure Letter lists the officers of Purchaser as of the date
hereof.
5.2 Capital
Structure.
(a) Purchaser Capital
Stock. The authorized capital
stock of Purchaser consists of: (i) 424,999,000 shares of Purchaser Common
Stock, and (ii) 10,000,000 shares of Purchaser Preferred Stock. As of the date
hereof: (x) 386,966,816 shares of Purchaser Common Stock were issued and
outstanding issued and outstanding as of the date hereof, (y) no shares of
Purchaser Preferred Stock are issued and outstanding, and (z) no shares of
Purchaser Common Stock or Purchaser Preferred Stock were issued and held by
Purchaser in its treasury. No other shares of Purchaser capital stock are
issued. All of the issued and outstanding shares of capital stock of the
Purchaser are duly authorized and validly issued, fully paid and nonassessable
and not subject to any preemptive rights. No Person (other than the
Shareholders) has any right of first refusal, preemptive right, right of
participation, or any similar right with respect to Purchaser’s capital stock to
participate in any transaction contemplated by this
Agreement.
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(b) Stock
Options. As of the date hereof:
(i) 32,000,000 shares of Purchaser Common Stock are subject to issuance
pursuant to outstanding options to purchase Purchaser Common Stock under the
stock option, stock award, stock appreciation or phantom stock plans of
Purchaser (the “Purchaser Stock
Option Plans”) (stock options, stock awards, stock appreciation rights,
phantom stock awards, stock-related awards and performance awards granted by
Purchaser pursuant to the Purchaser Stock Option Plans are referred to in this
Agreement as “Purchaser
Options”), and (ii) 38,000,000 shares of Purchaser Common Stock are
reserved for future issuance under the Purchaser Stock Option Plans. Section
5.2(b) of the Purchaser Disclosure Schedule lists as of the date hereof the
Purchaser Options outstanding, including the name of the holder, number of
shares of Purchaser Common Stock subject to issuance, date of grant and vesting
terms. All shares of Purchaser Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or other similar rights with respect to
Purchaser.
(c) Voting
Debt. There are no bonds,
debentures, notes or other indebtedness of Purchaser (i) having the right to
vote on any matters on which stockholders of Purchaser may vote (or which is
convertible into, or exchangeable for, securities of Purchaser having such
right) or (ii) the value of which is any way based upon or derived from capital
or voting stock of Purchaser (collectively, “Purchaser Voting Debt”), issued or outstanding.
(d) Other
Securities. Except as otherwise
set forth in this Section 5.2, there are no securities, options, warrants, calls,
rights, Contracts, arrangements or undertakings of any kind to which Purchaser
is a party or by which it is bound obligating Purchaser to (including on a
deferred basis) issue, deliver or sell, or cause to be issued, delivered or
sold, or otherwise granting Purchaser the right to have a third party issue,
deliver or sell to Purchaser additional shares of capital stock, Purchaser
Voting Debt or other voting securities of Purchaser, or obligating Purchaser to
issue, grant, extend or enter into any such security, option, warrant, call,
right, Contract, arrangement or undertaking. All outstanding shares
of Purchaser Common Stock have been issued and granted in compliance in all
material respects with (i) all applicable securities Laws and all other
applicable Laws and (ii) all requirements set forth in applicable Contracts with
respect to such shares to which Purchaser is a party. There are no Contracts to
which Purchaser is a party to repurchase, redeem or otherwise acquire any shares
of capital stock of, or other equity or voting interests in, Purchaser.
Purchaser is not a party to, nor are there, any voting agreements, irrevocable
proxies, voting trusts, registration rights agreements or other voting
arrangements with respect to shares of the capital stock of, or other equity or
voting interests in, Purchaser.
(e) Merger Sub
Capital Stock. The authorized capital stock of Merger Sub
consists of 100,000,000 shares of common stock, par value $0.001 per share, of
which 1,000 shares issued and outstanding. Purchaser is the sole stockholder of
Merger Sub and is the legal and beneficial owner of all 1,000 issued and
outstanding shares. Merger Sub was formed by counsel to Purchaser at the
direction of Purchaser on August 18, 2009, solely for purposes of effecting the
Reincorporation Merger and the other transactions contemplated hereby. Except as
contemplated by this Agreement, Merger Sub does not hold, nor has it held, any
material assets or incurred any material liabilities nor has Merger Sub carried
on any business activities other than in connection with the Reincorporation
Merger and the transactions contemplated by this Agreement. All of the
outstanding shares of capital stock of Merger Sub have been duly authorized and
validly issued, and are fully paid and nonassessable and not subject to any
preemptive rights.
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5.3 Authority. Subject to obtaining stockholder approval,
each of Purchaser, Merger Sub and Purchaser Sub has all requisite corporate
power and authority to enter into this Agreement and any Related Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Purchaser, Merger Sub and Purchaser Sub
of this Agreement and any Related Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby shall as of the
Closing have been duly authorized by all necessary corporate action on the part
of Purchaser. The affirmative vote of the holders of a majority of the
outstanding shares of Purchaser Common Stock present in person or by proxy in
favor of the Acquisition and the Share Issuance at a meeting duly called and
held for approval of such matters are the only votes of the holders of any class
or series of Purchaser capital stock necessary to approve the Acquisition, the
Share Issuance and the transactions contemplated by this Agreement. This
Agreement and any Related Agreements to which Purchaser, Merger Sub and
Purchaser Sub is a party have been duly executed and delivered by Purchaser,
Merger Sub and Purchaser Sub, as the case may be, and assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligations of Purchaser, Merger Sub and
Purchaser Sub enforceable against it in accordance with their respective terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or other Laws of general application relating
to or affecting the enforcement of creditors’ rights generally, or (ii) as
limited by Laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
5.4 No
Conflict. The execution and
delivery by Purchaser, Merger Sub and Purchaser Sub of this Agreement and any
Related Agreement to which Purchaser, Merger Sub and Purchaser Sub is a party,
and the consummation of the transactions contemplated hereby and thereby, will
not Conflict with (assuming Purchaser obtains stockholder approval of the
Purchaser Shareholder Approval Items and amends its certificate of incorporation
to authorize a sufficient number of shares of Purchaser Common Stock): (i) any
provision of the Purchaser Charter Documents or Purchaser Subsidiary Charter
Documents, (ii) any Contract to which Purchaser, Merger Sub and Purchaser Sub is
a party or by which any of its properties or assets (whether tangible or
intangible) are bound, or (iii) any Law applicable to Purchaser, Merger Sub and
Purchaser Sub or any of their properties or assets (whether tangible or
intangible).
5.5 Consents. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or any third party, including a party to any Contract to which Purchaser,
Merger Sub and Purchaser Sub is a party or by which its assets are bound (so as
not to trigger any Conflict), is required to be made by Purchaser, Merger Sub or
Purchaser Sub in connection with the execution and delivery of this Agreement
and any Related Agreements to which Purchaser, Merger Sub and Purchaser Sub is a
party or the consummation of the transactions contemplated hereby and thereby,
except for: (i) the consents listed on Section 5.5 of the
Purchaser Disclosure Letter (“Purchaser Consents”), (ii) the Purchaser Stockholder Approval Items in
accordance with the Purchaser Charter Documents and other applicable
requirements, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign, state or provincial securities (or related) Laws and the HSR
Act and applicable foreign pre-acquisition notice statutes, (iv) the filing of
the Proxy Statement with the Securities and Exchange Commission (the
“SEC”) in accordance with the Securities Exchange Act of
1934, as amended (the “Exchange Act”), (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities or “blue sky” Laws and the securities Laws of any
foreign country with respect to the Share Issuance, and (vi) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a Material Adverse Effect on Purchaser, Merger
Sub or Purchaser Sub or adversely affect the ability of Purchaser, Merger Sub or
Purchaser Sub to consummate the Acquisition within the time frame in which the
Acquisition would otherwise be consummated in the absence of the need for such
consent, approval, order, authorization, registration, declaration or
filings.
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5.6 SEC
Documents.
(a) Purchaser has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
under of the Securities Act and Exchange Act (the “Purchaser SEC Documents”). A true and complete copy of each Purchaser SEC
Document is available on the web site maintained by the SEC at
http://www.sec.gov. As of their respective filing dates, Purchaser SEC Documents
complied in all material respects with the requirements of the Securities Act
and Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to Purchaser, and no Purchaser SEC Documents
contained on their respective filing dates any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent corrected by a
subsequently filed Purchaser SEC Document filed prior to the date of this
Agreement.
(b) Each of the financial statements of Purchaser
(including, in each case, any related notes thereto) contained in Purchaser SEC
Documents, (i) complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to Purchaser, (ii) are
complete and accurately and fairly present, in conformity with GAAP applied on a
consistent basis throughout the periods indicated therein (except as may be
indicated in the notes thereto and, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-Q, Form 8-K or any similar
or successor form under the Exchange Act), the financial condition of Purchaser
and the operating results and cash flows as of the dates and during the periods
indicated therein, except that the unaudited interim financial statements may
not contain all footnotes required by GAAP and were or are subject to normal and
recurring year end adjustments. Purchaser’s books and records have
been properly and accurately maintained in all material respects, and, to
Purchaser’s Knowledge, there are no material inaccuracies or discrepancies of
any kind contained or reflected therein.
(c) Purchaser has no Indebtedness of any type, whether
accrued, absolute, contingent, matured, unmatured or otherwise, except for those
which (i) have been disclosed, reflected, recorded or reserved against in the
unaudited balance sheet of Purchaser as of May 31, 2009 (the “Purchaser Balance Sheet
Date”) provided to Sino-Canada or (ii) have
arisen in the ordinary course of business consistent with past practices since
the Purchaser Balance Sheet Date and prior to the date hereof and which are not
in excess of $100,000 individually. Set forth on Section 5.6(c) of the
Purchaser Disclosure Letter are all leases and indebtedness of Purchaser that
have been guaranteed by a stockholder of Purchaser and the name of the
guaranteeing stockholder(s), together with a brief summary describing the nature
of each such guarantee.
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5.7 Material
Changes. Since the date of the
latest financial statements included within the Purchaser SEC Documents through
the date hereof, there has not been, occurred or arisen any (except as
contemplated by this Agreement or as specifically disclosed in a subsequent
Purchaser SEC Document filed prior to the date hereof or in connection
herewith):
(a) event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect;
(b) Purchaser
liabilities (contingent or otherwise) other than (i) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (ii) liabilities not required to be reflected in Purchaser’s
financial statements pursuant to GAAP or disclosed in filings made with the
SEC;
(c) change
in Purchaser’s method of accounting, except as required by GAAP;
(d) any
declaration, setting aside or payment of any
distribution (whether in cash or property) in respect of any Purchaser’s capital
stock, any issuance or authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of Purchaser Common Stock,
or any direct or indirect repurchase, redemption, or other acquisition by
Purchaser or any of its affiliates of any shares of Purchaser Common Stock (or
options, warrants or other rights convertible into, exercisable or exchangeable
therefor); or
(e) issuance
of any Purchaser equity securities to any officer, director or
Affiliate.
Except
for the transactions contemplated by this Agreement, no event, liability or
development has occurred or exists with respect to Purchaser or its business,
properties, operations or financial condition, that would be required to be
disclosed by Purchaser under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one (1) business day prior to the date that this representation is
made.
5.8 Tax
Matters. Purchaser filed all
material Tax Returns required to be filed by it and has paid, or has adequately
reserved (in accordance with GAAP) for the payment of, all Taxes required to be
paid (whether or not shown on any Tax Returns), and the most recent financial
statements contained in the Purchaser SEC Documents reflect an adequate reserve
(in accordance with GAAP) for all Taxes payable by Purchaser through the date of
such financial statements. No material deficiencies for any Taxes have been
asserted or assessed, or to Purchaser’s Knowledge, proposed, against Purchaser
that are not subject to adequate reserves (in accordance with GAAP) in the most
recent financial statements contained in the Purchaser SEC
Documents. There is no pending
audit, examination, investigation, dispute, proceeding or claim with respect to
any Taxes of Purchaser, nor to Purchaser’s Knowledge is there any such claim or
dispute pending or contemplated. Purchaser has delivered or made available to
the Shareholders’ Representative correct and complete copies of all Returns, if
any, filed by Purchaser, and all examination reports and statements of
deficiencies assessed or asserted against or agreed to by the Purchaser, since
its inception and any and all correspondence with respect to the
foregoing.
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5.9 Litigation. There
is no Legal Proceeding of any nature pending or, to Purchaser’s Knowledge,
threatened in writing against Purchaser, its properties (tangible or intangible)
or any of its directors or executive officers with respect to the business of
Purchaser. To Purchaser’s Knowledge, there is no investigation by or before any
Governmental Entity pending or threatened in writing against Purchaser, any of
its properties (tangible or intangible) or any of its directors or executive
officers with respect to the business of Purchasers. To Purchaser’s Knowledge,
no Governmental Entity has at any time challenged or questioned the legal right
of Purchaser to conduct its operations as currently conducted or its ability to
consummate the Acquisition. To Purchaser’s Knowledge, there is no Legal
Proceeding pending or threatened in writing against any Person who has a right
pursuant to a Contract to which Purchaser is a party or by which any of its
assets are bound to indemnification from Purchaser related to facts and
circumstances existing prior to the Closing.
5.10 Compliance;
Permits.
(a) Compliance. Purchaser is not in conflict with, or in
default or in violation of, any Law applicable to Purchaser or by which any of
its business or properties is bound, except for those conflicts, defaults or
violations that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Purchaser. Purchaser has not
received written notice that any investigation or review by any Governmental
Entity is pending with respect to a conflict with, default or violation of, any
Law applicable to Purchaser or by which any of its business or properties is
bound, and, to the Knowledge of Purchaser, no such investigation or review has
been threatened in writing, against Purchaser. There is no Order to which
Purchaser is a party which has or would reasonably be expected to have the
effect of prohibiting or materially impairing the conduct of business by
Purchaser as currently conducted or its ability to consummate the Acquisition.
Purchaser is in material compliance with all provisions of the Sarbanes-Oxley
Act of 2002 that are applicable to it as of the date hereof and as of the
Closing Date.
(b) Permits. Purchaser holds, to the extent legally
required, all Permits that are required for the operation of the business of
Purchaser as currently conducted, the consummation of the Acquisition (subject
to the consents, approvals, orders, authorizations, registrations, declarations
or filings listed or disclosed in Section 5.5), and ownership
by Purchaser of its assets (collectively, “Purchaser Permits”). To Purchaser’s Knowledge, the Purchaser Permits are
in full force and effect and no suspension or cancellation of any of the
Purchaser Permits is pending or threatened in writing. Purchaser is
in compliance in all material respects with the terms of the Purchaser
Permits.
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5.11 Internal
Controls. Purchaser has
established and maintains, adheres to and enforces a system of internal controls
over financial reporting, which are effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP, including
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Purchaser, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of
Purchaser are being made only in accordance with appropriate authorizations of
management and the Board of Directors of Purchaser, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of Purchasers assets, that could have a material effect on
the financial statements of Purchaser. Neither Purchaser (including any Employee
thereof) nor Purchaser’s independent auditors or legal counsel has identified or
been made aware of (A) any significant deficiency or material weakness in the
design or operation of internal control over financial reporting utilized by
Purchaser, (B) any fraud, whether or not material, that involves the management
or other employees of Purchaser, or (C) any claim or allegation regarding any of
the foregoing. In connection with the periods covered by the financial
statements of Purchaser, Purchaser has disclosed to the Company all deficiencies
and weaknesses identified by Purchaser or any of its independent auditors
(whether current or former) in the design or operation of internal controls over
financial reporting utilized by Purchaser.
5.12 Foreign Corrupt
Practices Act. To Purchaser’s Knowledge, neither Purchaser,
nor any officer, director, agent, employee or other Person associated with or
acting on its behalf, has, directly or indirectly, violated any provision of the
FCPA, and to Purchaser’s Knowledge, none of them has used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, made, offered or authorized any unlawful payment
to foreign or domestic government officials or employees, or made, offered or
authorized any unlawful bribe, rebate, payoff, influence payment, kickback or
other similar unlawful payment.
5.13 Minute
Book. The minutes of Purchaser
contain fair and accurate records of all actions taken, and all meetings held,
by the board of directors and stockholders of Purchaser (and any committees
thereof) since the time of formation of Purchaser. At the Closing, the minute
books of Purchaser will be in its possession.
5.14 Brokers’ and
Finders’ Fees. Purchaser has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders’ fees or agents’ commissions, fees related to investment banking or
similar advisory services or any similar charges in connection with the
execution and delivery of the Agreement or any transaction contemplated hereby,
nor will the Company, SCHS, PM, CLSC or any of the Shareholders incur, directly
or indirectly, any such liability based on arrangements made by or on behalf of
Purchaser.
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5.15 Shares of
Purchaser Common Stock. The
shares of Surviving Corporation Common Stock issuable to the Shareholders
pursuant to Sections 2.3 and 2.4, when issued
and delivered in compliance with the provisions of this Agreement, will be
validly issued, and will be fully paid and nonassessable, and not subject to any
preemptive rights or rights of first refusal. Such shares of
Purchaser Common Stock will be free of any Liens, other than any Liens created
by or imposed upon the Shareholders; provided that such shares shall be subject to certain restrictions as
set forth herein and in the Lock-Up Agreement.
5.16 Board
Approval. The Board of Directors of Purchaser has, by resolutions
duly adopted or by vote at a meeting of all directors duly called and held and
not subsequently rescinded or modified in any way prior to the date hereof, (i)
determined that the Reincorporation Merger is in the best interests of Purchaser
and its stockholders and declared the Reincorporation Merger to be advisable,
(ii) determined that the Acquisition is fair to, and in the best interests of
Purchaser and its stockholders and declared the Acquisition to be advisable,
(iii) approved this Agreement and the transactions contemplated hereby,
including the Reincorporation Merger, the reverse stock split and the
Acquisition, and (iv) recommended that the stockholders of Purchaser approve (a)
the Reincorporation Merger, (b) the reverse stock split, (c) the Acquisition,
and (d) the Share Issuance (the items described in clauses (a) through (d),
collectively, the “Purchaser Stockholder Approval
Items”), and directed that such matters be
submitted to Purchaser’s stockholders at the Purchaser Shareholders’
Meeting.
5.17 No General
Solicitation. Neither Purchaser, nor any of
its Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Purchaser Common Stock to be issued in the Share
Issuance.
5.18 Disclosure. As of the Closing, the Proxy
Statement, at the time the Proxy Statement was mailed or delivered to the
stockholders of Purchaser, shall not, other than any information about
Shareholders and the Sino-Canada Entities, have contained any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under with they are made, not misleading.
5.19 Representations
Complete
.
None of the representations or warranties made by Purchaser, Merger Sub and
Purchaser Sub (as modified by the Purchaser Disclosure Letter) in this
Agreement, and none of the statements made in the Purchaser Disclosure Letter or
any exhibit, schedule or certificate furnished by Purchaser pursuant to this
Agreement contains, or will contain at the Closing, any untrue statement of a
material fact, or omits or will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
5.20 No Other
Representations or Warranties. Except for the representations and
warranties made by Purchaser, Merger Sub and Purchaser Sub in this ARTICLE V,
Purchaser, Merger Sub and Purchaser Sub make no representations or warranties
with respect to any of the Purchaser Common Stock to be issued in the Share
Issuance, Purchaser or its business, operations, assets, liabilities, condition
(financial or otherwise) or prospects, notwithstanding the delivery or
disclosure to the Company, SCHS, PM, CLSC, the Shareholders or their
representatives of any documentation, forecasts or other information with
respect to any one or more of the foregoing.
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ARTICLE
VI
ADDITIONAL
AGREEMENTS
6.1 Proxy
Statement.
(a) As promptly as practicable after the execution of this
Agreement, Purchaser shall prepare and file with the SEC a preliminary proxy
statement relating to a meeting of Purchaser’s stockholders to be held to
consider the approval of the Purchaser Shareholder Approval Items (the
“Preliminary Proxy
Statement”).
(b) Purchaser shall use its reasonable best efforts to cause
to be filed as promptly as reasonably practicable a final proxy statement
relating to a meeting of Purchaser’s stockholders to be held to consider the
approval of the Purchaser Shareholder Approval Items (the “Final Proxy Statement” and together with the Preliminary Proxy Statement, the
“Proxy
Statement”) and shall use its reasonable
best efforts to comply with the Exchange Act and the rules and regulations of
the SEC in preparing and filing such Proxy Statement.
(c) The Company, SCHS, PM and CLSC shall promptly provide to
Purchaser such information concerning its business affairs and financial
statements and financial information as, in the reasonable judgment of Purchaser
or its counsel, may be required or appropriate for inclusion in the Proxy
Statement pursuant to this Section 6.1, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other’s counsel and auditors in the preparation of the Proxy
Statement. The Company shall cooperate with Purchaser (and its counsel) in the
preparation of the Proxy Statement and any amendment or supplement
thereto.
6.2 Reporting
Status. During the period
beginning on the date of this Agreement and ending on the earlier to occur of
the Closing Date or the termination of this Agreement pursuant to its terms,
Purchaser shall file in a timely manner all reports required to be filed with
the SEC pursuant to the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, and Purchaser shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations of the SEC promulgated thereunder would otherwise
permit such termination.
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6.3 OTCBB
Eligibility. During the period
beginning on the date of this Agreement and ending on the earlier to occur of
the Closing Date or the termination of this Agreement pursuant to its terms,
Purchaser shall take such actions as necessary to retain its eligibility for
quotation on the OTC Bulletin Board.
(a) Meeting of
Stockholders. Promptly after the filing of the Final Proxy Statement,
Purchaser will take all action necessary in accordance with the rules and
regulations of the SEC, the Purchaser Charter Documents and applicable Laws to
call, hold and convene a meeting of its stockholders to consider the approval of
the Purchaser Stockholder Approval Items (the “Purchaser Stockholders’
Meeting”) to be held as promptly as
practicable after the filing of the Final Proxy Statement. Purchaser will use
all reasonable best efforts to solicit from its stockholders proxies in favor of
the Purchaser Stockholder Approval Items, and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required by the rules and regulations of the SEC, the Purchaser Charter
Documents and applicable Laws to obtain such approvals. Purchaser shall ensure
that the Purchaser Stockholders’ Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by its in connection with the
Purchaser Stockholders’ Meeting are solicited in compliance with the rules and
regulations of the SEC, the Purchaser Charter Documents and applicable
Laws.
(b) Board
Recommendations. Purchaser shall cause the Board of Directors of
Purchaser to recommend that the stockholders of Purchaser vote in favor of the
approval the Purchaser Stockholder Approval Items at the Purchaser Stockholders’
Meeting. Purchaser shall cause the Proxy Statement to include a statement to the
effect that the Board of Directors of Purchaser has recommended that Purchaser’s
stockholders vote in favor of the Purchaser Stockholder Approval Items at the
Purchaser Stockholders’ Meeting. Subject to applicable Laws, Purchaser shall
cause the Board of Directors of Purchaser and any committee thereof to refrain
from withdrawing, amending or modifying, or proposing or resolving to withdraw,
amend or modify in a manner adverse to the other parties, the recommendation of
its Board of Directors that the stockholders of Purchaser vote in favor of the
approval of the Purchaser Stockholder Approval Items.
6.5 Board and
Stockholder Approvals. Purchaser shall cause the Board of Directors
of Purchaser any committee thereof to refrain from withdrawing, amending or
modifying, or proposing or resolving to withdraw, amend or modify in a manner
adverse to the other parties, or in any way challenge the effectiveness or
validity of the approvals of their respective Board of Directors and
stockholders approving the Acquisition.
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6.6 Confidentiality. Each of the parties hereto hereby agrees
that the information obtained in any investigation pursuant to the negotiation
and execution of this Agreement or the effectuation of the transactions
contemplated hereby, shall be governed by the confidentiality provisions of the
letter of intent entered into by Purchaser and Company on June 28, 2009 (the
“Confidentiality
Agreement”), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms
and each of Purchaser, the Company, and the Shareholders agree to be bound by
the terms of such agreement and to hold, and cause their respective directors,
officers, Employees, agents and advisors (including attorneys, accountants,
consultants, bankers and financial advisors) to hold, any non-public
information in accordance with the terms of the Confidentiality
Agreement.
6.7 Access to
Information. During the period beginning on the date of
this Agreement and ending on the earlier to occur of the Closing Date or the
termination of this Agreement pursuant to its terms, the Company shall afford
Purchaser and Purchaser’s agents reasonable access during the Company’s regular
business hours, upon reasonable advance notice, to its properties, books,
records and personnel to obtain all information concerning its business
(including the businesses of its Subsidiaries), including the status of product
development efforts, properties, results of operations and personnel, as
Purchaser may reasonably request. Purchaser shall hold all information received
pursuant to this Section 6.7 confidential in accordance with the terms of the
Confidentiality Agreement. Notwithstanding the foregoing, this Section 6.7 shall
not require any Sino-Canada Entity to permit any inspection, or to disclose any
information, that would result in (i) the waiver of any applicable
attorney-client privilege, or (ii) the violation of any Laws. No information or
knowledge obtained in any investigation or notification pursuant to this Section
6.7 or otherwise shall affect or be deemed to modify any representation or
warranty contained herein, the covenants or agreements of the Company or the
Shareholders or the conditions to the obligations of Purchaser hereto under this
Agreement.
6.8 Regulatory
Filings; Reasonable Best Efforts.
(a) Regulatory
Filings. The Company and Purchaser shall coordinate
and cooperate with one another and shall each use its reasonable best efforts to
comply with, and shall each refrain from taking any action that would impede
compliance with, all Laws, and as promptly as practicable after the date hereof,
each of Purchaser and the Sino-Canada Entities shall make all filings, notices,
petitions, statements, registrations, submissions of information, applications
or submissions of other documents required by any Governmental Entity in
connection with the Acquisition and the transactions contemplated hereby,
including: (i) filings of any pre-acquisition notification forms required by the
acquisition notification or control Laws of any applicable jurisdiction, as
agreed by the parties hereto, and (ii) any filings required under the Exchange
Act and the securities Laws of any foreign country, or any other Law relating to
the Acquisition. Each of Purchaser and the Company will cause all documents that
it is responsible for filing with any Governmental Entity under this Section
6.8(a)
to comply in all material respects with all applicable Laws.
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(b) Reasonable Best
Efforts. Upon the terms and subject to the conditions
set forth herein, each of the parties hereto and Purchaser agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Acquisition and the
other transactions contemplated by this Agreement, including using reasonable
best efforts to accomplish the following: (i) the taking of all reasonable acts
necessary to cause the conditions precedent set forth in ARTICLE VIII to be
satisfied; (ii) the obtaining of all necessary consents, approvals or waivers
from third parties; (iii) defending of any Legal Proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby; (iv)
meetings with and presentations to Purchaser’s stockholders regarding the
Acquisition; and (v) the execution or delivery of any additional instruments
reasonably necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors shall, if any
takeover statute or similar Law is or becomes applicable to the Acquisition,
this Agreement or any of the transactions contemplated by this Agreement, use
its reasonable best efforts to ensure that the Acquisition and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such Law on the Acquisition, this Agreement and the
transactions contemplated hereby.
6.9 Notification of
Certain Matters.
(a) By the Company
and the Shareholders’ Representative. The Company or the Shareholders’ Representative, as
applicable, shall give prompt written notice to Purchaser of any representation
or warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of the Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement Known to the Company or any of the
Shareholders, in each case, such that the conditions set forth in Sections
8.1
and 8.2 would not be satisfied; provided, however, that such disclosure shall not be deemed to cure any
breach of a representation, warranty, covenant or agreement or to satisfy any
condition or deemed to be an admission of the materiality of such item
disclosed. The Company or the Shareholders’ Representative shall promptly notify
Purchaser of any event or state of facts before the Closing that constitutes a
Material Adverse Effect on the Company. Any such notification shall not be
deemed to amend the schedules hereto for purposes of determining whether the
conditions set forth in ARTICLE
VIII have been satisfied and shall not be
deemed to cure any breach of any representation or warranty or to limit the
rights and remedies of the parties under this Agreement for any breach by the
other parties of such representations and warranties.
(b) By
Purchaser. Purchaser shall give prompt notice to the Company of
any representation or warranty made by it or Purchaser contained in this
Agreement becoming untrue or inaccurate, or any failure of Purchaser to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement Known to Purchaser, in
each case, such that the conditions set forth in Sections 8.1 and
8.3
would not be satisfied; provided, however, that such disclosure shall not be deemed to cure any
breach of a representation, warranty, covenant or agreement or to satisfy any
condition or deemed to be an admission of the materiality of such item
disclosed. Purchaser shall promptly notify the Company or the Shareholders’
Representative of any event or state of facts before the Closing that
constitutes a Material Adverse Effect on Purchaser. Any such notification shall
not be deemed to amend the schedules hereto for purposes of determining whether
the conditions set forth in ARTICLE
VIII have been satisfied and shall not be
deemed to cure any breach of any representation or warranty or to limit the
rights and remedies of the parties under this Agreement for any breach by the
other parties of such representations and warranties.
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(c) Third-Party
Consents. As soon as practicable following the date hereof,
Purchaser, each of the Shareholders, and the Sino-Canada Entities shall each use
its reasonable best efforts to obtain any consents, waivers or approvals under
any of its or their Subsidiaries’, as applicable, respective Contracts required
to be obtained in connection with the consummation of the Acquisition and the
transactions contemplated by this Agreement and the Related
Agreements.
6.10 Purchaser Stock
Option Plans.
(a) Assumption of
Purchaser Options. At the Effective Time, the Surviving Corporation shall
assume all outstanding Purchaser Options, whether or not exercisable at such
time and regardless of the respective exercise prices thereof, in accordance
with the terms of the Purchaser Stock Option Plans. Each Purchaser Option so
assumed by the Surviving Corporation under this Agreement will continue to have,
and be subject to, the same terms and conditions set forth in the applicable
Purchaser Option (including any applicable stock option agreement or other
document evidencing such Purchaser Option) immediately prior to the Effective
Time (including any repurchase rights or vesting provisions), except that
(i) each Purchaser Option will be exercisable (or will become exercisable
in accordance with its terms) for that number of whole shares of Surviving
Corporation Common Stock equal to the product of the number of Purchaser Common
Stock that were issuable upon exercise of such Purchaser Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Surviving Corporation Common Stock and
(ii) the per share exercise price for the shares of Surviving Corporation
Common Stock issuable upon exercise of such assumed Purchaser Option will be
equal to the quotient determined by dividing the exercise price per Purchaser
Common Stock at which such Purchaser Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
Each assumed Purchaser Option shall be vested immediately following the
Effective Time as to the same percentage of the total number of shares subject
thereto as it was vested as to immediately prior to the Effective Time, except
to the extent such Purchaser Option by its terms in effect prior to the date
hereof provides for acceleration of vesting. As soon as reasonably practicable,
the Surviving Corporation will use all reasonable efforts to issue to each
Person who holds an assumed Purchaser Option a document evidencing the foregoing
assumption and replacement of such Purchaser Option by the Surviving
Corporation.
(b) Incentive Stock
Options. The conversion of Purchaser Options provided for in this
Section 6.10, with respect to any options which are intended to be
“incentive stock options” (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
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6.11 Board of
Directors of the Surviving Corporation.
(a) The
parties hereto shall take all actions necessary in accordance with the rules and
regulations of the SEC, the certificate of incorporation and bylaws of the
Surviving Corporation and applicable Laws such that effective as of immediately
following the Closing and ending not sooner than the next annual stockholders
meeting of the Surviving Corporation, the Board of Directors of the Surviving
Corporation shall consist of seven (7) members with five (5) of the directors
nominated by the Shareholders in their discretion (the “Shareholder nominees”) and two (2) of the
directors nominated by the Purchaser Representatives (the “Purchaser nominees”). One of
the Purchaser nominees and at least three (3) of the Shareholder nominees will
be independent directors under SEC rules and regulations. Such directors shall
upon election satisfy all the requirements of all applicable Laws and director
independence requirements and the audit committee financial expert requirements
of the SEC.
(b) The
Shareholders agree, pursuant to the Voting Agreement, that, for a period
commencing from the Closing Date and ending not sooner than the next annual
stockholders meeting of the Surviving Corporation, they shall vote all Surviving
Corporation Common Stock then owned by them in favor of the persons nominated by
Purchaser Representatives.
6.12 Officers of the
Surviving Corporation. The
following officers of the Surviving Corporation shall be appointed by the board
of directors of the Surviving Corporation upon the Closing, each to hold office
in accordance with the provisions of the bylaws of the Surviving
Corporation:
Name
Position
Ross
Yuan
Chief
Executive Officer
Tiezhi
Zhang
President
Fusheng
Xie
Vice
President
Sun
Meifang
Chief
Accounting Officer
Zhang
Jie
Secretary
6.13 Public
Disclosure. The Company and Purchaser shall issue one
joint press release, in form and substance reasonably agreed to by Purchaser,
regarding the Acquisition upon execution of this Agreement. Other than the press
release referred to in the preceding sentence, neither the Company, the
Shareholders’ Representative, nor any of their respective representatives shall
issue any statement or communication to any third party (other than its agents
that are bound by confidentiality restrictions) regarding the subject matter of
this Agreement or the transactions contemplated hereby without the consent of
Purchaser. Other than the press release referred to above, Purchaser shall not
issue any statement or communication to any third party (other than its agents
that are bound by confidentiality restrictions) regarding the subject matter of
this Agreement or the transactions contemplated hereby without first consulting
with the Company, except that this restriction shall be subject to Purchaser’s
obligation to comply with applicable Laws and the rules and regulations of the
SEC.
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6.14 Additional
Documents and Further Assurances. Following the Closing, each party hereto, at
the reasonable request of another party hereto, shall use commercially
reasonable efforts to execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the Acquisition and the transactions
contemplated hereby.
6.15 Guaranty. Prior to the Closing, the Company shall (i)
cause SCHS, PM and CLSC to perform any and all of their obligations under this
Agreement and the Related Agreements and
(ii) guarantees the performance by each of SCHS, PM and CLSC of their
obligations under this Agreement and the Related Agreements.
6.16 Expenses. All fees and expenses incurred in
connection with the Reincorporation Merger and the Acquisition and/of the
transactions contemplated hereby, including all legal, accounting, financial and
tax advisory, consulting, investment banking, regulatory and all other fees and
expenses of third parties incurred by the Company, SCHS, PM, CLSC, or the Shareholders, on the one
hand, and Purchaser and its Subsidiaries, on the other hand, in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby (“Third Party Expenses”), shall
be the obligation of the Company and Purchaser, respectively.
6.17 Conveyance
Taxes. Purchaser, the Company, the Shareholders and
the Shareholders’ Representative shall cooperate in the preparation, execution
and filing of all returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer or stamp taxes, any transfer, recording, registration or
other fees or any similar taxes which become payable in connection with the
transactions contemplated by this Agreement that are required to be filed on or
before the Closing. All such taxes will be paid by the party bearing the legal
responsibility for such payment.
6.18 Merger Sub and
Purchaser Sub Compliance. Purchaser shall (i) cause each of Merger Sub
and Purchaser Sub to comply with all of their obligations under or relating to
this Agreement and the Related Agreements and (ii) guarantees the performance by
each of Merger Sub and Purchaser Sub of their obligations under this Agreement
and the Related Agreements. Merger Sub shall not engage in any
business which is not in connection with the Reincorporation Merger pursuant to
this Agreement.
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6.19 Sino-Canada
Entities Acquisition Proposals.
(a) No
Solicitation. From the date hereof until the earlier of
the termination of this Agreement pursuant to its terms or the Closing Date, the
Company, SCHS, PM, CLSC and the Shareholders agree that neither they nor any of
their Subsidiaries nor any of their officers and directors or those of their
Subsidiaries shall, and that the Company, SCHS, PM, CLSC and the Shareholders
shall use its reasonable best efforts to cause their and their Subsidiaries’
Employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) (collectively,
“Representatives”) not to (and shall not authorize any of them to),
directly or indirectly: (i) solicit, initiate, encourage, knowingly facilitate
or induce any inquiry with respect to, or the making, submission or announcement
of, any Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any nonpublic information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any Person with respect
to any Acquisition Proposal, except as to the existence of the provisions of
this Section 6.19, (iv) approve, endorse or recommend any Acquisition
Proposal, or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Proposal. The
Sino-Canada Entities and the Shareholders will immediately cease any and all
existing activities, discussions or negotiations with any third parties
conducted heretofore with respect to any Acquisition Proposal with respect to
itself. “Acquisition
Proposal” shall mean any offer or proposal,
relating to any transaction or series of related transactions involving: (A) any
purchase from the Company or acquisition by any Person or “group” (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a ten percent (10%) interest in the total outstanding
voting securities of the Sino-Canada Entities or any tender offer or exchange
offer that if consummated would result in any Person or group beneficially
owning ten percent (10%) or more of the total outstanding voting securities of
the Sino-Canada Entities or any merger, consolidation, business combination or
similar transaction involving the Sino-Canada Entities, (B) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
more than ten percent (10%) of the assets of the Sino-Canada Entities (taken as
a whole), or (C) any liquidation or dissolution of the Company; provided, however, that
neither discussions with Purchaser nor the transactions contemplated by this
Agreement shall be deemed an Acquisition Proposal.
(b) Notification of
Unsolicited Acquisition Proposals. As promptly as
practicable after receipt of any Acquisition Proposal or any request for
nonpublic information or inquiry which the Sino-Canada Entities reasonably
believe would lead to an Acquisition Proposal, the Company shall provide
Purchaser with notice of the material terms and conditions of such Acquisition
Proposal, request or inquiry, and the identity of the Person or group making any
such Acquisition Proposal, request or inquiry and a copy of all written
materials provided in connection with such Acquisition Proposal, request or
inquiry. The Company shall provide Purchaser as promptly as practicable notice
setting forth all such information as is reasonably necessary to keep Purchaser
informed in all material respects of the status and details (including material
amendments or proposed material amendments) of any such Acquisition Proposal,
request or inquiry and shall promptly provide Purchaser a copy of all written
materials subsequently provided in connection with such Acquisition Proposal,
request or inquiry.
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6.20 Purchaser
Acquisition Proposals.
(a) No
Solicitation. From the date
hereof until the earlier of the termination of this Agreement pursuant to its
terms or the Closing Date, Purchaser agrees that neither it nor any of its
Subsidiaries nor any of its officers and directors or those of its Subsidiaries
shall, and that Purchaser shall use its reasonable best efforts to cause its and
its Subsidiaries’ Representatives not to (and shall not authorize any of them
to), directly or indirectly: (i) solicit, initiate, encourage or induce any
inquiry with respect to, or the making, submission or announcement of, any
Purchaser Acquisition Proposal; (ii) participate
in any discussions or negotiations regarding, or furnish to any Person any
nonpublic information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Purchaser Acquisition Proposal; (iii) engage in
discussions with any Person with respect to any Purchaser Acquisition Proposal,
except as to the existence of the provisions of this Section 6.20; (iv)
approve, endorse or recommend any Purchaser Acquisition Proposal; or (v) enter
into any letter of intent or similar document or any Contract contemplating or
otherwise relating to any Purchaser Acquisition Proposal. Purchaser will
immediately cease any and all existing activities, discussions or negotiations
with any third parties conducted heretofore with respect to any Purchaser
Acquisition Proposal with respect to itself. “Purchaser Acquisition
Proposal” shall mean any offer or proposal, relating to any transaction
or series of related transactions involving: (A) any acquisition of any voting
securities of any Person or any merger, consolidation, business combination or
similar transaction resulting in an acquisition of voting securities, or (B) any
acquisition of the assets of any Person; provided, however, neither
the discussion of such transactions with the Shareholders and their Affiliates
and Representatives nor the transactions contemplated hereby and shall not be
deemed a Purchaser Acquisition Proposal.
(b) Notification of
Unsolicited Purchaser Acquisition Proposals. As promptly as
practicable after receipt of any Purchaser Acquisition Proposal, Purchaser shall
provide the Shareholders’ Representative with notice of the material terms and
conditions of such Purchaser Acquisition Proposal, request or inquiry, and the
identity of the Person or group making any such Purchaser Acquisition Proposal,
request or inquiry and a copy of all written materials provided in connection
with such Purchaser Acquisition Proposal, request or inquiry. Purchaser shall
provide the Shareholders’ Representative as promptly as practicable after the
occurrence of any material development with respect to such Purchaser
Acquisition Proposal notice setting forth all such information as is reasonably
necessary to keep the Shareholders’ Representative informed in all material
respects of the status and details (including material amendments or proposed
material amendments) of any such Purchaser Acquisition Proposal, request or
inquiry and shall promptly provide the Shareholders’ Representative a copy of
all written materials subsequently provided in connection with such Purchaser
Acquisition Proposal, request or inquiry.
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6.21 Indemnification.
(a) Indemnity. From and after the Closing, the Surviving
Corporation will fulfill and honor in all respects the obligations of Purchaser
pursuant to any indemnification Contracts between Purchaser and its directors
and officers immediately prior to the Closing for which true and complete copies
have been provided to the Company, subject to applicable Law. Subject to
limitations by applicable Law, the Surviving Corporation shall cause the
certificate of incorporation and bylaws of the Surviving Corporation following
the Closing will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Purchaser Charter Documents as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six (6) years from the Closing in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Closing, were directors, officers, employees or agents of Purchaser, unless such
modification is required by Law.
(b) Insurance. For a period of six (6) years after the
Closing, the Surviving Corporation will cause to be maintained directors’ and
officers’ liability insurance covering those persons who are covered by the
Surviving Corporation’s directors’ and officers’ liability insurance policy as
of the date hereof on terms comparable to those applicable to the current
directors and officers of Purchaser for a period of six (6) years after the
Closing.
(c) Third–Party
Beneficiaries. This Section 6.21 is intended to
be for the benefit of, and shall be enforceable by the directors and officers of
Purchaser described in Section 6.21(a) and their
heirs and personal representatives and shall be binding on the Surviving
Corporation and its successors and assigns. In the event the Surviving
Corporation or its successor or assign (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any Person, then, and in each case, proper
provision shall be made so that the successor and assign of the Surviving
Corporation honor the obligations set forth with respect to Purchaser in this
Section 6.21.
6.22 Company Financial
Statements. (i) The Company shall deliver to Purchaser on or before
November 30, 2009 (A) consolidated balance sheets as of December 31, 2007 and
December 31, 2008, and the related consolidated statements of income, cash flow
and members’ equity for the years then ended prepared for those periods and in
such format as may be determined by a mutually acceptable independent
financial accountant certified by the Public Company Accounting Oversight Board
(the “Independent
Accountants”), together with the
unqualified audit report of the Independent Accountants with respect to such financial statements for inclusion
in the Proxy Statement pursuant to the Exchange Act and (B) the unaudited
balance sheet as of June 30, 2009 and the related consolidated statements of
income, cash flow and members’ equity for the respective three and six-month
periods then ended, each as reviewed by the Independent Accountants, and (ii) such financials statements and any additional
unaudited financial statements must, in the opinion of Purchaser, be suitable or
readily adaptable for incorporation in the reports required to be filed by
Purchaser with the SEC pursuant to the Exchange Act.
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6.23 Shareholder
Approval. The Shareholders and the Company consent to the
Acquisition and the transactions contemplated by this Agreement and approve such
matters for all purposes under the Target Charter Documents and waive all notice
requirements thereunder.
6.24 Company
Subsidiary Divestitures. Prior to the Closing, the Company shall divest itself
of Sino-Canada Middle School, a private educational non-enterprise institution
existing under the laws of the People’s Republic of China, and Wujiang
Fenghua Training Center, a social organization existing under the laws of the
People’s Republic of China.
ARTICLE
VII
CONDUCT
OF BUSINESS
7.1 Conduct of
Business by Sino-Canada Entities prior to the Closing.
(a) Ordinary
Course. During the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Closing, the Sino-Canada Entities shall, and shall cause their Subsidiaries
to, except as otherwise expressly contemplated by this Agreement or to the
extent that Purchaser shall otherwise consent in writing, (i) carry on their
business in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance with all applicable Laws, (ii)
pay their debts and Taxes when due, and (iii) use all reasonable efforts
consistent with past practices and policies to (x) preserve intact its present
business organization, (y) keep available the services of its present executive
officers and employees, and (z) preserve its relationships with customers,
suppliers, licensors, licensees, and others with which it has business
dealings.
(b) Required
Consent. In addition, without limiting the generality of Section
7.1(a), except as expressly permitted by the terms of this
Agreement or as expressly provided in Section 7.1(b) of the
Company Disclosure Letter (referencing the applicable subparagraph below),
without the prior written consent of Purchaser, which shall not be unreasonably
withheld or delayed, during the period from the date hereof and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Closing Date, none of the Sino-Canada Entities shall do any of the
following:
(i)
enter into any new line of business material
to the Sino-Canada Entities or make a material change to any existing line of
business;
(ii) 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;
(iii) purchase, redeem or otherwise acquire, directly or
indirectly, any shares of their capital stock, except repurchases of unvested
shares 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;
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(iv) issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of their capital stock, Voting Debt or any securities
convertible into shares of their capital stock or Voting Debt, or subscriptions,
rights, warrants or options to acquire any shares of its capital stock or Voting
Debt or any securities convertible into shares of their capital stock or Voting
Debt, or enter into other agreements or commitments of any character obligating
them to issue any such securities or rights;
(v)
cause, permit or
propose any amendments to the Target Charter Documents or any of the Target
Subsidiary Charter Documents;
(vi) acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity or voting interest in or a portion of the
assets of, or by any other manner, any material business or any Person or
division thereof, or otherwise acquire or agree to acquire any material
assets;
(vii) enter into any binding agreement, agreement in
principle, letter of intent, memorandum of understanding or similar agreement
with respect to any joint venture, strategic partnership or alliance, except for
non-exclusive marketing, distributor, reseller, customer, end-user and related
agreements entered into in the ordinary course of business consistent with past
practice;
(viii) sell, lease, license, encumber or otherwise dispose of
any material properties or assets except sales of inventory and scrap material
in the ordinary course of business consistent with past
practice;
(ix)
make any loans, advances of money or capital
contributions to, or investments in, any Person, other than: (A) loans or
investments by it or a wholly-owned Subsidiary of it to or in it or any
wholly-owned Subsidiary of it, or (B) employee loans or advances for travel and
entertainment expenses made in the ordinary course of business consistent with
past practice;
(x)
except as required by GAAP or applicable legal
requirements, make any material change in its methods or principles of
accounting;
(xi) except as required by Legal Requirements, make or change
any Tax election or adopt or change any accounting method in respect of Taxes,
settle or compromise any material Tax liability or consent to any extension or
waiver of any limitation period with respect to Taxes;
(xii) except as required by GAAP or the SEC, revalue any of
its assets;
(xiii) (A) pay, discharge, settle or satisfy any claims or
litigation (whether or not commenced prior to the date of this Agreement) other
than the payment, discharge, settlement or satisfaction for money, of claims or
litigation (x) in the ordinary course of business consistent with past practice
or in amounts not in excess of $100,000 individually or $200,000 in the
aggregate or (y) to the extent subject to reserves on the Financials existing as
of the date hereof in accordance with GAAP, or (B) waive the benefits of, agree
to modify in any manner, terminate, release any Person from or knowingly fail to
enforce any confidentiality or similar agreement to which any of the Sino-Canada
Entities is a party or of which any or the Sino-Canada Entities is a
beneficiary;
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(xiv) except as required by Legal Requirements or written
Contracts currently binding on the Sino-Canada Entities, (A) increase in any
manner the amount of compensation or fringe benefits of, pay any bonus to or
grant severance or termination pay to any officer or director of the Sino-Canada
Entities, (B) make any increase in or commitment to increase the benefits or
expand the eligibility under any Employee Plan (including any severance plan),
adopt or amend or make any commitment to adopt or amend any Employee Plan or
make any contribution, other than regularly scheduled contributions or pursuant
to the terms of any existing Employee Plan, to any Employee Plan, (C) enter into
any employment, severance, termination or indemnification agreement with any
officer or director of the Sino-Canada Entities or enter into any collective
bargaining agreement, (D) grant any stock appreciation right, phantom stock
award, stock-related award or performance award (whether payable in cash, shares
or otherwise) to any Person (including any Employee) other than under any
Employee Plan, or (E) enter into any agreement with any Employee the benefits of
which are (in whole or in part) contingent or the terms of which are materially
altered upon the occurrence of a transaction involving the Sino-Canada Entities
of the nature contemplated hereby;
(xv) grant any exclusive rights to a third party with respect
to any Company Intellectual Property;
(xvi) enter into or renew any Contracts containing, or
otherwise subjecting the Sino-Canada Entities or Purchaser to, any
non-competition, exclusivity or other restrictions on the operation of the
business of the Sino-Canada Entities or Purchaser;
(xvii) enter into any Contract which would be to grant to a
third party following the Acquisition any actual or potential right of license
to any Company Intellectual Property other than in the normal course of business
consistent with past practice;
(xviii) enter into or renew any Contracts containing any
material purchase, supply, support, maintenance or service obligation, other
than those obligations in the ordinary course of business consistent with past
practice;
(xix) hire employees other than in the ordinary course of
business consistent with past practice and at compensation levels substantially
comparable to that of similarly situated employees;
(xx) incur any indebtedness for borrowed money in excess of
$100,000 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 the Sino-Canada Entities, guarantee any debt securities of another
Person, enter into any “keep well” or other agreement to maintain any financial
statement condition of any other Person (other than any wholly-owned Subsidiary
of it) or enter into any arrangement having the economic effect of any of the
foregoing, other than in connection with the financing of ordinary course trade
payables consistent with past practice;
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(xxi) enter into, modify, amend, or terminate any Material
Contract currently in effect, or waive, release or assign any material rights or
claims thereunder, in each case, in a manner materially adverse to the
Company;
(xxii) enter into any Contract obligating the Sino-Canada
Entities to pay a third party that is outside of the ordinary course of business
consistent with past practice and in excess of $100,000
individually;
(xxiii) intentionally take any action that is intended to (A)
result in any of the Company’s, SCHS’, PM’s, CLSC’s or Shareholder’s
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect (or in all respects, with respect to those
representations and warranties which are qualified as to materiality) at any
time at or prior to the Closing Date, (B) result in any of the conditions to the
Acquisition set forth in ARTICLE
VIII not being satisfied, or (C) result in
a material violation of any provision of this Agreement (or a violation in any
respect, with respect to those provisions which are qualified as to materiality)
except, in each case, as may be required by any Law; or
(xxiv) agree in writing or otherwise to take any of the actions
described in (i) through (xxiii) above.
(c) Procedures for
Requesting Purchaser Consent
.
If the Company desires to take an action which would be prohibited pursuant to
Section 7.1(b) without the written consent of Purchaser, prior to taking such
action the Company may request such written consent by sending an e-mail or
facsimile to the following individual:
Consent
shall be deemed given pursuant to this Section 6.1(c) if no response is received
within three (3) Business Days following a request for consent delivered
pursuant to this Section 6.1(c).
7.2 Conduct of
Business by Purchaser prior to the Closing.
(a) Ordinary
Course. During the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Closing, Purchaser shall, except as otherwise expressly contemplated by this
Agreement or to the extent that the Company shall otherwise consent in writing,
(i) carry on their business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance with all
applicable Laws, (ii) pay its debts and Taxes of when due, and (iii) use all
reasonable efforts consistent with past practices and policies to (x) preserve
intact its present business organization, (y) keep available the services of its
present executive officers, and (z) preserve its relationships with those with
which it has business dealings.
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(b) Required
Consent. In addition, without limiting the generality of Section
7.2(a), except as expressly permitted by the terms of this
Agreement or as expressly provided in Section 7.2(b) of the
Purchaser Disclosure Letter (referencing the applicable subparagraph below),
without the prior written consent of the Company, not to be unreasonably
withheld if a valid business purpose exists for doing so in the good faith
business judgment of Purchaser and upon presentment of relevant information and
an opportunity to assess and discuss with Purchaser, during the period from the
date hereof and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Closing Date, Purchaser shall not do any
of the following:
(i)
not pledge, sell, transfer, dispose or
otherwise encumber or grant any rights or interests to others of any kind with
respect to all or any part of the shares of capital stock of
Purchaser;
(ii)
except pursuant to existing equity
rights outstanding, not issue any shares of capital stock of Purchaser or any
options therefor or any securities convertible into or exchangeable for capital
stock of Purchaser or enter into any agreements in respect of the ownership or
control of such capital stock;
(iii) not declare any dividend or make any distribution in
cash, securities or otherwise on the outstanding shares of capital stock of
Purchaser or directly or indirectly redeem, purchase or in any other manner
whatsoever advance, transfer (other than in payment for goods received or
services rendered in the ordinary course of business), or distribute to any of
their Affiliates or otherwise withdraw cash or cash equivalents in any manner
inconsistent with established cash management practices;
(iv) except as contemplated by this Agreement, not to amend
the Certificate of Incorporation or By-laws (or other organizational documents)
of Purchaser;
(v)
not to merge or consolidate
with, or acquire any assets of, or otherwise acquire any interest in the
business operations of, any Person;
(vi) take any action or omit to take any action that may
directly or indirectly impede or affect the Acquisition and the Closing on the
terms contemplated by this Agreement;
(vii) incur any indebtedness for borrowed money in excess of
$100,000 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 Purchaser, guarantee any debt securities of another Person, enter
into any “keep well” or other agreement to maintain any financial statement
condition of any other Person (other than any wholly-owned Subsidiary of it) or
enter into any arrangement having the economic effect of any of the foregoing,
other than in connection with the financing of ordinary course trade payables
consistent with past practice;
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(viii) intentionally take any action that is intended to (A)
result in any of Purchaser’s representations and warranties set forth in this
Agreement being or becoming untrue in any material respect (or in all respects,
with respect to those representations and warranties which are qualified as to
materiality) at any time at or prior to the Closing Date, (B) result in any of
the conditions to the Acquisition set forth in ARTICLE VIII not
being satisfied, or (C) result in a material violation of any provision of this
Agreement (or a violation in any respect, with respect to those provisions which
are qualified as to materiality) except, in each case, as may be required by any
Law; or
(ix) agree in writing or otherwise to take any of the actions
described in (i) through (viii) above.
7.3 Conduct of
Business by the Shareholders prior to the Closing.
(a) Ordinary
Course. During the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Closing, the Shareholders, if entities, shall in support of the Acquisition,
except as otherwise expressly contemplated by this Agreement or to the extent
that Purchaser shall otherwise consent in writing, (i) carry on their business
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable Laws, (ii) pay its
debts and Taxes of when due, and (iii) use all reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization.
(b) Required
Consent. In addition, without limiting the generality of Section
7.3(a), except as expressly permitted by the terms of this
Agreement, without the prior written consent of Purchaser, during the period
from the date hereof and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Closing Date, none of the Shareholders
shall do any of the following:
(i)
purchase or otherwise acquire,
directly or indirectly, any shares of capital stock, Voting Debt or any
securities convertible into shares of capital stock or Voting Debt, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or Voting Debt or any securities convertible into shares of capital stock
or Voting Debt of the Company or any Sino-Canada Entity except pursuant to stock
option or purchase agreements in effect on the date hereof;
(ii)
sell, pledge or otherwise encumber any
shares of capital stock, Voting Debt or any securities convertible into shares
of capital stock or Voting Debt, or subscriptions, rights, warrants or options
to acquire any shares of capital stock or Voting Debt or any securities
convertible into shares of capital stock or Voting Debt of the
Company;
(iii) take any action or omit to take any action that may
directly or indirectly impede or affect the Acquisition and the Closing on the
terms contemplated by this Agreement;
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(iv) intentionally take any action that is intended to (A)
result in any of Shareholders’ representations and warranties set forth in this
Agreement being or becoming untrue in any material respect (or in all respects,
with respect to those representations and warranties which are qualified as to
materiality) at any time at or prior to the Closing Date, (B) result in any of
the conditions to the Acquisition set forth in ARTICLE VIII not
being satisfied, or (C) result in a material violation of any provision of this
Agreement (or a violation in any respect, with respect to those provisions which
are qualified as to materiality) except, in each case, as may be required by any
Law; or
(v) agree in writing or otherwise to take any of the actions
described in (i) through (iv) above.
ARTICLE
VIII
CONDITIONS
TO THE ACQUISITION
8.1 Conditions to
Obligations of Each Party to Effect the Acquisition. The respective obligations of the Company,
SCHS, PM, CLSC, the Shareholders and Purchaser to effect the Acquisition shall
be subject to the satisfaction, at or prior to the Closing, of the following
condition:
(a) No Order;
Injunctions; Restraints; Illegality. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any Law or Order which is in effect and
which has the effect of making the Acquisition illegal or otherwise prohibiting
or preventing consummation of the Acquisition.
(b) Stockholder
Approval. Each of the Purchaser Stockholder Approval Items shall
have been approved by the requisite vote under the Purchaser Charter Documents
and applicable Law by the stockholders of Purchaser.
(c) Reincorporation
Merger. The Reincorporation
Merger shall have been effected by filing the Articles of Merger and Certificate
of Merger.
(d) Governmental
Approval. Any necessary
approvals from any Governmental Entity shall have been timely obtained all in a
form and substance satisfactory to Purchaser.
(e) Compliance with
Securities Laws. Purchaser shall have obtained all necessary
permits and qualifications, or have the availability of exemptions therefrom,
required by the United States and any state for the Share Issuance on the terms
contemplated by this Agreement.
(f) Company
Subsidiary Divestitures. The Company Subsidiary divestitures
contemplated by Section 6.23 shall have been completed.
8.2 Additional
Conditions to Obligations of Purchaser. The obligations of Purchaser to effect the
Acquisition shall be subject to the satisfaction at or prior to each Closing
(unless otherwise provided below) of each of the following conditions, any of
which may be waived, in writing, exclusively by Purchaser:
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(a) Representations,
Warranties and Covenants. (i) The representations and warranties of
the Company, SCHS, PM, CLSC and the Shareholders contained in this Agreement
(other than the representations and warranties as of a specified date, which
shall be true and correct as of such date) shall have been true and correct on
the date they were made and shall be true and correct in all material respects
(except for those representations and warranties which are qualified as to
materiality, which shall be true and correct in all respects) on and as of the
Closing Date as though such representations and warranties were made on and as
of such time, and (ii) the Company, SCHS, PM, CLSC, and the Shareholders shall
have performed and complied in all material respects with all covenants and
obligations under this Agreement required to be performed and complied with by
such parties as of the Closing.
(b) No Material
Adverse Effect. There shall not have occurred any event or
condition of any character that has had, either individually or in the aggregate
with all such other events or conditions, a Material Adverse Effect on the
Sino-Canada Entities.
(c) Litigation. There shall be no material action, suit,
claim, order, injunction or proceeding of any nature pending, or overtly
threatened, against the Sino-Canada Entities or any of the Shareholders or their
respective properties or any of their respective officers, directors or
shareholders arising out of, or in any way connected with, the Acquisition or
the other transactions contemplated by this Agreement.
(d) Legal
Opinion. Prior to the Closing, Purchaser
shall have received a legal opinion from legal counsel to the Company, SCHS, PM
and CLSC, substantially in the form set forth as Exhibit D hereto.
(e) Estimated
Sino-Canada Closing Date Balance Sheet. The Company
shall have delivered to Purchaser an estimated closing balance sheet of the
Company, on a consolidated basis, prepared in accordance with GAAP determined as
of 11:59 p.m. on the Business Day immediately preceding the Closing Date (the
“Estimated Sino-Canada
Closing Date Balance Sheet”), which balance
sheet shall be certified as true and correct as of the Closing Date by the
Company’s chief executive officer.
(f) Company Financial
Statements. The Company Historic Financial
Statements shall have been prepared for those periods and in such format as may
be determined by the Independent Accountants, for inclusion in the Proxy Statement pursuant to the
Exchange Act and sufficient to meet the on-going public reporting requirements
of Purchaser, and (ii) the Company Historic Financial Statements are, in the
opinion of Purchaser, suitable or readily adaptable for incorporation in the
reports required to be filed by Purchaser with the SEC pursuant to the Exchange
Act.
(g) Voting
Agreement. The Shareholders shall have executed and
delivered the Voting Agreement and such agreement shall be in full force and
effect.
(h) Lock-Up
Agreement. The Shareholders shall have executed and
delivered to Purchaser the Lock-Up Agreement and such agreement shall be in full
force and effect.
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(i) Officers and
Directors. Each of the officers and directors of the Surviving
Corporation shall have been appointed and elected in accordance with Sections
1.5,
6.11
and 6.12, as the case may be, effective immediately following
the Closing.
(j) Certificate of
the Company and the Shareholders’ Representative. Purchaser shall have received a certificate,
validly executed by (i) the Chief Executive Officers of the Company, SCHS, PM
and CLSC for and on behalf of the Company, SCHS, PM and CLSC, respectively, and
(ii) the Shareholders’ Representative for and on behalf of the Shareholders
certifying that the conditions in Section 8.2(a) and
8.2(b)
with respect to the Company, SCHS, PM, CLSC or the Shareholders, as applicable,
have been met as of the Closing, and the conditions in Section 8.3 have been met
or are waived by the Shareholders, SCHS, PM, CLSC and the Company as of the
Closing.
(k) Deliveries. The Shareholders’ Representative shall have
made all of the deliveries to Purchaser pursuant to Section 2.4.
8.3 Additional
Conditions to Obligations of the Shareholders, SCHS, PM, CLSC and the
Company. The obligation of the Shareholders, SCHS,
PM, CLSC and the Company to effect the Acquisition shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by the Shareholders, SCHS, PM, CLSC and the
Company:
(a) Representations,
Warranties and Covenants. (i) The representations and warranties of
the Purchaser in this Agreement (other than the representations and warranties
as of a specified date, which shall be true and correct as of such date) shall
have been true and correct when made and shall be true and correct in all
material respects (except for those representations and warranties which are
qualified as to materiality, which shall be true and correct in all respects) on
and as of the Closing Date as though such representations and warranties were
made on and as of such time and (ii) Purchaser shall have performed and complied
in all material respects with all covenants and obligations under this Agreement
required to be performed and complied with by such parties as of the Closing
Date.
(b) No Material
Adverse Effect. There shall not have occurred any event or
condition of any character that has had, either individually or in the aggregate
with all such other events or conditions, a Material Adverse Effect on
Purchaser.
(c) Litigation. There shall be no material action, suit,
claim, order, injunction or proceeding of any nature pending, or overtly
threatened, against Purchaser or its properties or any of its respective
officers, directors or shareholders arising out of, or in any way connected
with, the Acquisition or the other transactions contemplated by this
Agreement.
(d) Purchaser
Stockholder Approval. Purchaser shall have
obtained stockholder approval of the Purchaser Stockholder Approval Items, in
accordance with the requirements of applicable Law and the Purchaser Charter
Documents.
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(e) Legal
Opinion. The Company and the Shareholders’ Representative shall
have received a legal opinion from legal counsel to Purchaser, substantially in
the form set forth as Exhibit E hereto.
(f) Purchaser Closing
Date Indebtedness. Prior to the Closing, Purchaser shall have provided to
the Company a schedule setting forth the amount of the Purchaser’s outstanding
Indebtedness (the “Purchaser Closing Date Indebtedness”), on a consolidated basis, determined in accordance
with GAAP, determined as of 11:59 p.m. California time on the Business Day
immediately preceding the Closing Date, which schedule shall be certified as
true and correct as of the Closing Date by Purchaser’s chief executive
officer.
(g) Repayment of
Certain Indebtedness. The outstanding indebtedness of Purchaser to Yuan Dian
Investment Inc. pursuant to that certain amended and restated loan agreement
dated August 18, 2009 (the “Purchaser Loan Amount”) shall be repaid upon the Closing in accordance with
its terms by payment of shares of Surviving Corporation in satisfaction of all
amounts owning thereunder based on the Per Share Price.
(h) Voting
Agreement. The Surviving Corporation shall have executed and
delivered the Voting Agreement and such agreement shall be in full force and
effect.
(i) Lock-Up
Agreement. The Surviving Corporation shall have executed and
delivered to the Shareholders the Lock-Up Agreement and such agreement shall be
in full force and effect
(j) Officers and
Directors. Each of the officers and directors of the Surviving
Corporation shall have been appointed and elected in accordance with Sections
1.5,
6.11
and 6.12, as the case may be, effective immediately following
the Closing.
(k) Certificate of
Purchaser. The Company shall have received a
certificate, validly executed the Chief Executive Officer of Purchaser for and
on behalf of Purchaser, certifying that the conditions in Section 8.3(a) and
8.3(b)
with respect to Purchaser, as the case may be, have been met as of the Closing,
and the conditions in Section 8.2 have been met
or are waived by Purchaser as of the Closing.
(l) Deliveries. Purchaser shall have made all of the
deliveries to the Shareholders’ Representative pursuant to Section 2.4.
ARTICLE
IX
TERMINATION,
AMENDMENT AND WAIVER
9.1 Termination. Notwithstanding anything to the contrary set
forth in this Agreement, this Agreement may be terminated or the transactions
contemplated hereby may be abandoned at any time prior to the Closing
Date:
(a) by mutual written consent of Purchaser and the
Shareholders’ Representative;
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(b) by Purchaser or the Company if the Acquisition shall not
have been consummated by May 31, 2010 (the “End Date”);
(c) by Purchaser or the Company if a Governmental Entity
shall have issued an Order, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Acquisition, which Order is
final and nonappealable;
(d) by Purchaser if any Sino-Canada Entity takes any action
to liquidate, dissolve or wind up;
(e) by the Company if Purchaser takes any action to
liquidate, dissolve or wind up Purchaser;
(f) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Purchaser set forth in this
Agreement, or if any representation or warranty of Purchaser shall have become
untrue, in either case such that the conditions set forth in Section
8.1 or
Section 8.3 would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue, and
such breach (to the extent curable) shall not be cured within thirty (30) days
following receipt by Purchaser of a notice describing in reasonable detail the
nature of such breach;
(g) by Purchaser, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company, SCHS, PM, CLSC, or
the Shareholders set forth in this Agreement, or if any representation or
warranty of the Company, SCHS, PM, CLSC or the Shareholders shall have become
untrue, in either case such that the conditions set forth in Section
8.1 or
Section 8.2 would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue, and
such breach (to the extent curable) shall not be cured within thirty (30) days
following receipt by the Company, SCHS, PM, CLSC or the Shareholders, as
applicable, of a notice describing in reasonable detail the nature of such
breach;
(h) by Purchaser, if a Material Adverse Effect on the
Company shall have occurred since the date hereof and be
continuing;
(i) by the Company, if a Material Adverse Effect on
Purchaser shall have occurred since the date hereof and be continuing;
and
(j) by Purchaser if the Company Historic Financial
Statements, each as audited or reviewed, as applicable, are not completed and
delivered to Purchaser on or before November 30, 2009, in accordance with
Section 6.24.
9.2 Notice of
Termination; Effect of Termination. Any termination of this Agreement under Section
9.1
above will be effective immediately upon the delivery of a valid written notice
of the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement
shall be of no further force or effect, except (i) as set forth in Section
6.6
(Confidentiality), Section 6.16 (Expenses), this Section 9.2, ARTICLE X and
ARTICLE XI, each of which shall survive the termination of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, which agreement shall
survive termination of this Agreement in accordance with its
terms.
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ARTICLE
X
GENERAL
PROVISIONS
10.1 Non-Survival of
Representations and Warranties; Covenants.
The representations and warranties of Purchaser, the Company, SCHS, PM, CLSC and
the Shareholders contained in this Agreement, or any instrument delivered
pursuant to this Agreement, shall terminate at the Effective Time. In the
case of fraud, intentional misrepresentation or active concealment, the
representations and warranties of Purchaser, the Company, SCHS, PM, CLSC and the
Shareholders shall survive indefinitely. The
covenants of the parties that by their terms survive the Effective Time shall
survive the Effective Time.
10.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed duly given (i) on the date of
delivery if delivered personally, (ii) on the date of confirmation of receipt
(or, the first Business Day following such receipt if the date is not a Business
Day) of transmission by telecopy, facsimile or email, or (iii) on the date of
confirmation of receipt (or, the first Business Day following such receipt if
the date is not a Business Day) if delivered by a nationally recognized courier
service. All notices hereunder shall be delivered as set forth below,
or pursuant to such other instructions as may be designated in writing by the
party to receive such notice:
(a) if to Purchaser, to:
The
Hartcourt Companies, Inc.
Room 503,
Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China 200336
Attention: Victor
Zhou, Chief Executive Officer
Facsimile
No.: (86 21) 5206 7613
with a
copy to (which shall not constitute notice):
(c) if
to the Shareholders, to the Shareholders’ Representative at:
Ross
Yuan
Room
2101, Silver Tower,
933 West
Zhongshan Road, Shanghai 200051
Facsimile
No.: (86 21) 5208 0210
10.3 Amendment. This Agreement may not be amended except by
execution of an instrument in writing signed on behalf of each of Purchaser, the
Company and the Shareholders’ Representative; provided that no amendment shall be made which by Law following the
approval of stockholders requires further approval by such stockholders without
such further stockholder approval.
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10.4 Extension;
Waiver. At any time prior to the Closing, Purchaser,
on the one hand, and the Company, on the other hand, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations of
the other party 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 covenants,
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.
10.5 Counterparts. This Agreement may be executed in one or
more counterparts, including by facsimile or other electronic means, 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.
10.6 Entire Agreement;
Assignment. This Agreement, the
Schedules and Exhibits hereto, the Company Disclosure Letter, the Shareholder
Disclosure Letter, the Purchaser Disclosure Letter, the Confidentiality
Agreement, and the documents and instruments and other agreements among the
parties hereto referenced herein: (i) 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 that certain memorandum of
understanding dated June 19, 2009, (ii) are not intended to confer upon any
other Person any rights or remedies hereunder, except as specifically provided,
following the Closing, in Section 6.21, and (iii)
shall not be assigned by operation of law or otherwise; provided that Purchaser may assign this Agreement in connection
with any sale of all or substantially all of its assets, merger (including the
Reincorporation Merger), consolidation, reorganization or other change of
control transaction. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
10.7 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.
10.8 Other Remedies;
Specific Performance.
(a) Other
Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by Law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached.
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(b) Specific
Performance. 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.
10.9 Governing
Law. EXCEPT AS OTHERWISE PROVIDED HEREIN, ALL
QUESTIONS AND/OR DISPUTES CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL
BE GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
DELAWARE. EACH OF THE PARTIES HERETO, BY ACCEPTANCE OF CONSIDERATION
SPECIFIED HEREIN, HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO BE SUBJECT
TO, AND HEREBY CONSENTS AND SUBMITS TO, THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND AGREES THAT ANY ACTION INVOLVING ANY EQUITABLE OR OTHER
CLAIM SHALL BE BROUGHT EXCLUSIVELY IN THE DELAWARE COURT OF
CHANCERY. IN THE EVENT THAT THE DELAWARE COURT OF CHANCERY DOES NOT
ACCEPT JURISDICTION OVER ANY SUCH ACTION, EACH OF THE PARTIES HERETO, BY
ACCEPTANCE OF CONSIDERATION SPECIFIED HEREIN, HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ANY SUCH ACTION THEN SHALL BE BROUGHT EXCLUSIVELY IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
DELAWARE.
10.10 Waiver of Jury
Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT HEREOF.
ARTICLE
XI
DEFINITIONS
AND INTERPRETATION
11.1 Definitions. For all purposes
of this Agreement, the following terms shall have the following respective
meanings:
“Acquisition” shall have the
meaning set forth in the recitals hereto.
“Acquisition Proposal” shall
have the meaning set forth in Section 6.19(a).
“Affiliate” shall have the
meaning set forth in Section 3.23(a).
“Agreement” shall have the
meaning set forth in the first paragraph.
“Articles of Merger” shall have the meaning
set forth in Section 1.2.
“Balance Sheet Date” shall have
the meaning set forth in Section 3.6.
“Business Day” shall mean any
day in Delaware other than a Saturday, Sunday or a day on which banking
institutions are authorized or obligated by Law or executive order to
close.
“Certificate of Merger” shall
have the meaning set forth in Section 1.2.
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“Certificates” shall have the meaning
set forth in Section 1.8(c).
“Closing” shall have the
meaning set forth in Section 2.2.
“Closing Date” shall have the
meaning set forth in Section 2.2.
“CLSC” shall have the meaning
set forth in the first paragraph.
“CLSC Shares” shall have the
meaning set forth in Section 3.2(a)(iv).
“Company” shall have the
meaning set forth in the first paragraph.
“Company Consents” shall have
the meaning set forth in Section 3.5.
“Company Disclosure Letter”
shall have the meaning set forth in the first paragraph of ARTICLE
III.
“Company Historic Financial
Statements” shall have the meaning set forth in Section 3.6.
“Company Intellectual Property”
shall have the meaning set forth in Section 3.14(a).
“Company Permits” shall have
the meaning set forth in Section 3.17(b).
“Company Shares” shall have the
meaning set forth in Section 3.2(a)(i).
“Company Registered Intellectual
Property” shall have the meaning set forth in Section
3.14(b).
“Confidentiality Agreement”
shall have the meaning set forth in Section 6.6.
“Conflict” shall have the
meaning set forth in Section 3.4.
“Contract” and “Contracts” shall have the
meaning set forth in Section 3.4.
“Current Balance Sheet” shall
have the meaning set forth in Section 3.6.
“Delaware Law” shall have the
meaning set forth in Section 1.1.
“Dissenting Shares” shall have
the meaning set forth in Section 1.7(a).
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“Effective Time” shall have the
meaning set forth in Section 1.2.
“Employee” shall have the
meaning set forth in Section 3.23(a).
“Employee Agreement” shall have
the meaning set forth in Section 3.23(a).
“Employee Plan” shall have the
meaning set forth in Section 3.23(a).
“End Date” shall have the
meaning set forth in Section 9.1(b).
“Estimated Sino-Canada Closing Date
Balance Sheet” shall have the meaning set forth in Section
8.2(e).
“Exchange Act” shall have the
meaning set forth in Section 5.5.
“Exchange Agent” shall have the
meaning set forth in Section 1.8(a).
“Exchange Fund” shall have the
meaning set forth in Section 1.8(b).
“Exchange Ratio” shall have the meaning set forth in Section
1.6(a).
“Export Approvals” shall have
the meaning set forth in Section 3.17(c).
“FCPA” shall have the meaning
set forth in Section 3.18.
“Final Proxy Statement” shall have
the meaning set forth in Section 6.1(b).
“Financials” shall have the
meaning set forth in Section 3.6.
“GAAP” shall mean United States
generally accepted accounting principles.
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“Governmental Entity” shall
have the meaning set forth in Section 3.5.
“Hazardous Material” shall have
the meaning set forth in Section 3.21(a).
“Hazardous Material Activities”
shall have the meaning set forth in Section 3.21(b).
“HSR Act” shall have the
meaning set forth in Section 3.5.
“Indebtedness” shall have the
meaning set forth in Section 3.8.
“Independent Accountants” shall
have the meaning set forth in Section 6.22.
“Intellectual Property” shall
have the meaning set forth in Section 3.14(a).
“Intellectual Property Rights”
shall have the meaning set forth in Section 3.14(a).
“Knowledge” of, “Known” to, and words of
similar import with respect to, (i) the Company means the actual knowledge of
the officers and directors of the Company, (ii) SCHS means the actual knowledge
of the officers and directors of SCHS, (iii) PM means the actual knowledge of
the officers and directors of PM, (iv) CLSC means the actual knowledge of the
officers and directors of CLSC, (v) the Shareholders means the actual knowledge
of the officers and directors of each Shareholder that is an entity and shall
mean the actual knowledge of each Shareholder who is an individual, and (vi)
Purchaser means the actual knowledge of the officers and directors of Purchaser,
in each case after reasonable inquiry of the senior employees of such entity who
have a material responsibility for or devote substantial time to such
matter.
“Laws” shall have the meaning
set forth in Section 3.2(c).
“Lease Agreements” shall have
the meaning set forth in Section 3.13(b).
“Leased Real Property” shall
have the meaning set forth in Section 3.13(a).
“Legal Proceedings” shall have
the meaning set forth in Section 3.19.
“Liens” shall have the meaning
set forth in Section 3.1(c).
“Lock-Up Agreement” shall have
the meaning set forth in the recitals hereto.
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“Material Adverse Effect” shall
mean any change, event or effect that is materially adverse to the business,
assets (whether tangible or intangible), financial condition, operations or
capitalization of an entity and its Subsidiaries.
“Material Contracts” shall have
the meaning set forth in Section 3.15(a).
“Merger Sub” shall have the
meaning set forth in the first paragraph.
“Merger Sub Common Stock” shall
have the meaning set forth in Section 1.6(d).
“Order” shall have the meaning
set forth in Section 3.17(a).
“Pension Plan” shall have the
meaning set forth in Section 3.23(a).
“Per Share Price” shall mean
$0.88.
“Permits” shall have the
meaning set forth in Section 3.17(b).
“Person” shall mean an
individual or entity, including a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a Governmental Entity (or any department,
agency, or political subdivision thereof).
“PM” shall have the meaning set
forth in the first paragraph.
“PM Shares” shall have the
meaning set forth in Section 3.2(a)(iii).
“Preliminary Proxy Statement”
shall have the meaning set forth in Section 6.1(a).
“Proxy Statement” shall have
the meaning set forth in Section 6.1(b).
“PTO” shall have the meaning
set forth in Section 3.14(b).
“Purchase Price” shall have the
meaning set forth in Section 2.3(a).
“Purchaser” shall have the
meaning set forth in the first paragraph.
“Purchaser Acquisition Proposal” shall
have the meaning set forth in Section 6.20(a).
“Purchaser Balance Sheet Date”
shall have the meaning set forth in Section 5.6(c).
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“Purchaser Charter Documents”
shall have the meaning set forth in Section 5.1(b).
“Purchaser Closing Date
Indebtedness” shall have the meaning set
forth in Section 8.3(f).
“Purchaser Common Stock” shall
have the meaning set forth in Section 1.6(a).
“Purchaser Consents” shall have
the meaning set forth in Section 5.5.
“Purchaser Disclosure Letter”
shall have the meaning set forth in the first paragraph of ARTICLE
V.
“Purchaser Loan Amount” shall
have the meaning set forth in Section 8.3(g).
“Purchaser Nominees” shall have
the meaning set forth in Section 6.11(a).
“Purchaser Options” shall have
the meaning set forth in Section 5.2(b).
“Purchaser Permits” shall have
the meaning set forth in Section 5.10(b).
“Purchaser Preferred Stock”
shall mean the Series A preferred stock of Purchaser, par value $0.01 per
share.
“Purchaser
Representatives” shall mean Victor Zhou and Wilson
Li.
“Purchaser SEC Documents” shall
have the meaning set forth in Section 5.6(a).
“Purchaser Stock Option Plans”
shall have the meaning set forth in Section 5.2(b).
“Purchaser Sub” shall have the
meaning set forth in the first paragraph.
“Purchaser Stockholder Approval
Items” shall have the meaning set forth in Section 5.16.
“Purchaser Stockholders’
Meeting” shall have the meaning set forth in Section 6.4(a).
“Purchaser Subsidiary Charter
Documents” shall have the meaning set forth in Section
5.1(b).
“Purchaser Voting Debt” shall
have the meaning set forth in Section 5.2(c).
“Registered Intellectual Property” shall
have the meaning set forth in Section 3.14(a).
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“Registered Intellectual Property” shall
have the meaning set forth in Section 3.14(a).
“Reincorporation Merger” shall
have the meaning set forth in the recitals hereto.
“Related Agreements” shall mean
the Lock-Up Agreement, Voting Agreement and all other agreements and
certificates entered into or executed by or on behalf of the parties hereto in
connection with the transactions contemplated herein.
“Representatives” shall have
the meaning set forth in Section 6.19(a).
“Returns” shall have the
meaning set forth in Section 3.11(b)(i).
“SEC” shall have the meaning
set forth in Section 5.5.
“Securities Act” shall mean the
Securities Act of 1933, as amended, and the applicable rules and regulations
promulgated thereunder.
“SCHS” shall have the meaning
set forth in the first paragraph.
“SCHS Shares” shall have the
meaning set forth in Section 3.2(a)(i).
“Sino-Canada Entity” or “Sino-Canada Entities” shall
mean the Company, SCHS, PM, CLSC and their Subsidiaries.
“Sino-Canada Working Capital
Deficiency” “shall mean the amount,
if any, by which (x) the sum of the total current assets minus the total current
liabilities of the Company as reflected on the Estimated Sino-Canada Closing
Date Balance Sheet is less than (y) the sum of the total current assets minus
the total current liabilities of the Company as reflected on the unaudited consolidated balance sheet of the Company as of March31, 2009 multiplied by 1.05.
“Share Issuance” shall have the
meaning set forth in the recitals hereto.
“Shareholder” or “Shareholders” shall have the
meaning set forth in the first paragraph.
“Shareholder Consents” shall
have the meaning set forth in Section 4.5.
Annex A -
77
“Shareholder nominees” shall
have the meaning set forth in Section 6.11(a).
“Shareholder Representative”
shall have the meaning set forth in the first paragraph.
“Shareholders’ Disclosure
Letter” shall have the meaning set forth in the first paragraph of
ARTICLE IV.
“Subsidiary” shall have the
meaning set forth in Section 3.1(a).
“Surviving Corporation” shall
have the meaning set forth in the recitals hereto.
“Surviving Corporation Common
Stock” shall have the meaning set forth in Section 1.6(a).
Target Charter Documents”
shall have the meaning set forth in Section 3.1(b).
“Target Shares” shall have the
meaning set forth in the recitals hereto.
“Target Subsidiary Charter
Documents” shall have the meaning set forth in Section
3.1(b).
“Tax” and “Taxes” shall have the meaning
set forth in Section 3.11(a).
“Third Party Expenses” shall
have the meaning set forth in Section 6.16.
“Utah Law” shall have the
meaning set forth in Section 1.1.
“Voting Agreement” shall have
the meaning set forth in the recitals hereto.
“Voting Debt” shall have the
meaning set forth in Section 3.2(b).
Annex A -
78
11.2 Interpretation.
(a) The language used in this Agreement shall be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any
party.
(b) Any reference to any federal, state, provincial, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires
otherwise.
(c) The parties agree that they have been represented by
counsel during the negotiation and execution of this Agreement and the documents
reference herein and, therefor, 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.
(d) As used in this Agreement reference to dollar amounts,
unless otherwise specifically indicated, shall mean the lawful money of the
United States of America.
(e) Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(f) Whenever the words “include”, “includes” or “including”
are used in this Agreement, they shall be deemed to be followed by the words
“without limitation”.
(g) Except as otherwise indicated, all references in this
Agreement to “Articles,”“Schedules,”“Sections” and “Exhibits” are intended to
refer to Articles, Schedules, Sections and Exhibits to this
Agreement.
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Annex A -
79
IN WITNESS WHEREOF, Purchaser, Merger
Sub, Purchaser Sub, the Company, SCHS, PM, CLSC, the Shareholders and the
Shareholders’ Representative have caused this Agreement to be signed, all as of
the date first written above.
THIS
VOTING AGREEMENT (this “Agreement”) is dated as of
[_________], 20[__], by and among Maple China Education Incorporated (formerly
named The Hartcourt Companies, Inc.), a Delaware corporation (the “Company”), Victor Zhou and
Wilson Li as representatives of the Company (the “Hartcourt Representatives”),
and the individuals and entities listed on Schedule A to this Agreement
(each a “Sino-Canada
Shareholders” and together the “Sino-Canada
Shareholder”). Capitalized terms used, but not defined, herein
shall have the meaning assigned to them in the Definitive Agreement (defined
below).
RECITALS
A. The
Company and the Sino-Canada Shareholders are party to that certain Plan of
Reorganization and Share Exchange Agreement (the “Definitive Agreement”), dated
August 20, 2009, by and among the Company, Hartcourt Education Investment
Management Consulting (Shanghai) Co., Ltd., a company existing under the Company
Law of the People’s Republic of China and wholly owned subsidiary of Purchaser
(“Purchaser Sub”),
Sino-Canada Investment Group Inc., a company existing under the Company Law of
the People’s Republic of China (“Sino-Canada”), Sino-Canada
High School, a private educational non-enterprise institution existing under the
laws of the People’s Republic of China, Wujiang Huayu Property Management
Company, a company existing under the Company Law of the People’s Republic of
China, Canadian Learning Systems Corporation, a company existing under the laws
of the British Virgin Islands, the Sino-Canada shareholders listed on Schedule
A thereto (the
“Sino-Canada
Shareholders”), and Ross Yuan, in the capacity as representative of the
Sino-Canada Shareholders, pursuant to which, the parties agreed, among other
things, that the Sin-Canada Shareholders will sell, transfer, convey, assign and
deliver to the Purchaser Sub, free and clear of all Liens, all their rights,
title and interest in and to all of the issued and outstanding shares of capital
stock of Sino-Canada, in exchange for shares of common stock of the
Company.
B. As
a condition to the closing of the Definitive Agreement, The Hartcourt Companies,
Inc. and the Sino-Canada Shareholders have agreed to enter into this
Agreement.
C. Each
Sino-Canada Shareholder is the record and beneficial owner of such number of
shares of capital stock of the Company set forth opposite such Sino-Canada
Shareholder’s name on Schedule
A to this Agreement (hereinafter referred to as the “Voting Shares”).
AGREEMENT
NOW
THEREFORE, in consideration of the mutual agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
Annex B -
1
1. Representations
and Warranties. Each of the parties hereto, by their
respective execution and delivery of this Agreement, hereby represents and
warrants to the other parties hereto that:
(a) such
party has the full right, capacity and authority to enter into, deliver and
perform this Agreement;
(b) this
Agreement has been duly executed and delivered by such party and is a binding
and enforceable obligation of such party, enforceable against such party in
accordance with the terms of this Agreement; and
(c) the
execution, delivery and performance of such party’s obligations under this
Agreement will not require such party to obtain the consent, waiver or approval
of any Person and will not violate, result in a breach of, or constitute a
default under any statute, regulation, agreement, judgment, consent, or decree
by which such party is bound.
2. Shares Subject to
Agreement. Each Sino-Canada Shareholder, severally and not
jointly, agrees to vote all of its Voting Shares in accordance with the
provisions of this Agreement.
3. Obligations to
Vote Voting Shares for Specific Nominee. At any annual or
special meeting called, or in connection with any other action (including the
execution of written consents) taken for the purpose of electing directors to
the board of directors of the Company (the “Board”), each of the
Sino-Canada Shareholders agrees, for a period commencing from the Closing Date
and ending on the date immediately prior to the first annual stockholder meeting
of the Company held thereafter (the “Voting Period”), to vote all
of its Voting Shares in favor of the two persons nominated by the Hartcourt
Representatives (the “Hartcourt
Directors”) and notified in writing by the Hartcourt Representatives to
the Sino-Canada Shareholders not less then 30 days in advance of the meeting
called for such purpose (or within 30 days of any requested action by written
consent).
4. Obligations to
Vote Voting Shares for Removal of Director; Filling
Vacancies. During the Voting Period, the Hartcourt
Representatives shall have the right to request the resignation or removal of
any of the Hartcourt Directors by notifying the Company and the Sino-Canada
Shareholders in writing. In such event, each of the Sino-Canada Shareholders
agrees to vote all of its Voting Shares in accordance with Section 3 in a manner
that would cause the removal of the Hartcourt Director(s), whether at any annual
or special meeting called, or, in connection with any other action (including
the execution of written consents) taken for the purpose of removing such
director. In the event of the resignation, death, removal or disqualification of
a Hartcourt Director, the Hartcourt Representatives shall promptly identify a
new director and, after written notice has been given by the Hartcourt
Representatives to the Board, the Board shall elect such nominee to the vacancy
created by the resignation, death, removal or disqualification of the Hartcourt
Director.
5. Covenant to
Vote |HiddenPara|. Each Sino-Canada Shareholder shall appear
in person or by proxy at any annual or special meeting of shareholders of the
Company for the purpose of obtaining a quorum and shall vote all Voting Shares
owned by such Sino-Canada Shareholder, either in person or by proxy, at any
annual or special meeting of shareholders of the Company called for the purpose
of voting on the election of directors or by written consent of shareholders
with respect to the election of directors, in favor of the election of the
Hartcourt Directors.
(a) Transfer
Restrictions. Each of the Sino-Canada Shareholders hereby
agrees that all transfers of the Company’s capital stock made by it shall be
made subject to this Agreement and any transferee will agree in writing to be
bound by the terms and provisions of this Agreement as a condition precedent to
any such transfer; provided that any transfers made in compliance with the
Lock-Up Agreement entered into between the Sino-Canada Shareholders and the
Company may be made without restriction and any shares so transferred shall be
re-issued without the legend set forth in Section 6(b).
(b) Legend.
Each of the Sino-Canada Shareholders hereby agrees that each certificate
representing any shares of capital stock of the Company held by such Sino-Canada
Shareholders shall be endorsed with a legend in substantially the following
form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VOTING
REQUIREMENTS AND OTHER RESTRICTIONS SET FORTH IN A VOTING AGREEMENT BETWEEN THE
HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER PARTIES. TRANSFER OF THE
SECURITIES IS SUBJECT TO THE RESTRICTIONS CONTAINED IN SUCH
AGREEMENT.
7. Additional
Shares. If, after the date hereof, the Sino-Canada Shareholders acquire
beneficial or record ownership of any additional shares of capital stock of the
Company (any such shares, “Additional
Shares”) as a result of any stock dividend or stock split of the Voting
Shares or otherwise, the provisions of this Agreement shall thereafter be
applicable to such Additional Shares as if such Additional Shares had been held
by the Sino-Canada Shareholders as of the date hereof. The provisions of the
immediately preceding sentence shall be effective with respect to Additional
Shares without action by any person or entity immediately upon the acquisition
by the Sino-Canada Shareholders of the beneficial ownership of the Additional
Shares.
8. Termination. This
Agreement shall commence on the Closing Date and continue in force and effect
until the date immediately prior to the first annual stockholder meeting of the
Company held thereafter, and on such date, except as otherwise set forth herein,
the restrictions and obligations set forth herein shall terminate and be of no
further effect, except that Sino-Canada Shareholders shall each be entitled to
receive certificate(s) representing such holder’s shares without the legend
required by Section 6 herein upon the surrender of the certificate(s)
representing such shares to the Company.
9. Governing
Law. This Agreement and the legal relations among the parties
shall be governed by, and construed in accordance with, the laws of the State of
Delaware regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof, except to the extent the laws of
Delaware are mandatorily applicable.
10. Notices. Any
notices required or permitted to be sent hereunder shall be delivered personally
or by courier service to the following addresses, or such other address as any
party hereto designates by written notice to the other party or to such other
address as any party may have furnished to the others in writing in accordance
herewith; provided,
however, a transmission
per facsimile shall be sufficient and shall be deemed to be properly served when
the facsimile is received if the signed original notice is received by the
recipient within three calendar days thereafter.
Annex B -
3
(a) If to the
Company, to:
Maple
China Education Incorporated
Room 503,
Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China 200336
Attention: Victor
Zhou, Chief Executive Officer
Facsimile
No.: (86 21) 5206 7613
with a
copy to (which shall not constitute notice):
(b) If to a
Sino-Canada Shareholder, to the address for such Sino-Canada Shareholder set
forth on Schedule B hereto.
11. Miscellaneous.
(a) Binding
Effect. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties.
(b) Amendments;
Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed by the party hereto to whom it is
being enforced. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
(c) Construction;
Interpretation. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party. This Agreement shall be construed as if drafted jointly by the
parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or the Definitive Agreement or any agreements related thereto. The
words “including,”“include” and other words of similar import shall be deemed
to be followed by the words “without limitation.”
Annex B -
4
(d) Counterparts;
Facsimile Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that parties
need not sign the same counterpart. In the event that any signature
is delivered by facsimile or electronic mail transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or electronic mail signature page were an original thereof.
(e) Entire
Agreement. The Agreement and the schedules attached thereto,
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings, discussions
and representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents and
schedules.
(f) Severability of
Provisions. The provisions of this Agreement shall be enforced
to the fullest extent permissible under the law and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, if any provision
of this Agreement would be held to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision. Notwithstanding the foregoing, if
such provision could be more narrowly drawn so as to be invalid, prohibited or
unenforceable, it shall be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision.
(g) Controlling
Agreement. To the extent the terms of this Agreement (as
amended, supplemented, restated or otherwise modified from time to time)
directly conflicts with a provision in the Definitive Agreement, the terms of
this Agreement shall control.
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Annex B -
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IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed and made and entered into
effective as of the date first set forth above.
Maple
China Education Incorporated (formerly named The Hartcourt Companies,
Inc.)
Room 503,
Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China 200336
Ladies
and Gentlemen:
Reference
is made to that certain Plan of Reorganization and Share Exchange Agreement (the
“Definitive Agreement”),
dated August 20, 2009 by and among The Hartcourt Companies, Inc., a Utah
corporation (“Purchaser”), Maple China
Education Incorporated, a Delaware corporation (the “Company”), Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd., a company existing under
the Company Law of the People’s Republic of China and wholly owned subsidiary of
Purchaser (“Purchaser
Sub”), Sino-Canada Investment Group Inc., a company existing under the
Company Law of the People’s Republic of China (“Sino-Canada”), Sino-Canada
High School, a private educational non-enterprise institution existing under the
laws of the People’s Republic of China, Wujiang Huayu Property Management
Company, a company existing under the Company Law of the People’s Republic of
China, Canadian Learning Systems Corporation, a company existing under the laws
of the British Virgin Islands, the individuals and entities listed on Schedule A
thereto (each a “Shareholder” and collectively
the “Shareholders”) and
Ross Yuan, in the capacity as representative of the Shareholders, pursuant to
which Purchaser Sub will acquire all of the outstanding capital stock of
Sino-Canada (the “Acquisition”). Capitalized
terms used in this lock-up agreement (this “Agreement”) and not otherwise
defined herein shall have the meanings ascribed to them in the Definitive
Agreement.
In order
to induce Purchaser to enter into the Definitive Agreement and to consummate the
transactions contemplated therein, the undersigned hereby agrees not to, without
the prior written consent of the Company (as the surviving corporation in the
merger of Purchaser and the Company as contemplated by the Definitive
Agreement), directly or indirectly, offer, sell, contract to sell, or otherwise
dispose of, any equity or debt securities of the Company including, without
limitation, any shares of the Company’s common stock (collectively, the “Company Securities”) that are
beneficially owned by the undersigned, or file any registration statement with
respect to any of the foregoing, or enter into any swap or other agreement that
transfers, in whole or in part, directly or indirectly, the economic
consequences of ownership of shares of Company Securities, whether any such swap
or transaction is to be settled by delivery of Company Securities or other
securities, in cash or otherwise, from and including the effective date of the
Acquisition until twelve (12) months after the Closing Date (the “Restriction Period”); provided that nothing herein
shall prohibit the undersigned from (a) acquiring any Company Securities
directly from the Company, (b) surrendering any Company Securities pursuant to
the terms of a merger or consolidation approved by the Board of Directors of the
Company and a majority of the stockholders of the Company, or (c) tendering any
Company Securities pursuant to a tender offer made in compliance with Sections
13 and 14 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder and approved by the board of directors of the
Company.
Annex C -
1
[__________],
20[__]
Page
2
By
signing and returning this Agreement, the undersigned (a) further represents and
agrees that the undersigned has full power and authority to enter into this
Agreement and that, upon request, the undersigned will execute any additional
documents necessary or desirable in connection with this Agreement and its
enforcement; and (b) understands that this Agreement is irrevocable by the
undersigned, all authority herein conferred by the undersigned or agreed to be
conferred by the undersigned shall be binding on the undersigned and the
undersigned’s successors and assigns.
[Remainder
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Annex C -
2
[__________],
20[__]
Page
3
Furthermore,
the undersigned hereby agrees and consents to the entry of stop transfer
instructions with the Company’s transfer agent against the transfer of the
Company Securities in violation of this Agreement.
___________________________________________ (Stockholder
name if an entity)
___________________________________________ (Print
title if signing on behalf of an entity)
Annex C -
3
ANNEX
D
SECTIONS
16-10(a)-1301 ET SEQ. OF THE UTAH BUSINESS CORPORATIONS ACT
16-10a-1301.
Definitions.
For
purposes of Part 13:
(1)
"Beneficial shareholder" means the person who is a beneficial owner of shares
held in a voting trust or by a nominee as the record shareholder.
(2)
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(3)
"Dissenter" means a shareholder who is entitled to dissent from corporate action
under Section 16-10a-1302 and who
exercises that right when and in the manner required by Sections 16-10a-1320 through
16-10a-1328.
(4) "Fair
value" with respect to a dissenter's shares, means the value of the shares
immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action.
(5)
"Interest" means interest from the effective date of the corporate action until
the date of payment, at the statutory rate set forth in Section 15-1-1, compounded
annually.
(6)
"Record shareholder" means the person in whose name shares are registered in the
records of a corporation or the beneficial owner of shares that are registered
in the name of a nominee to the extent the beneficial owner is recognized by the
corporation as the shareholder as provided in Section 16-10a-723.
(7)
"Shareholder" means the record shareholder or the beneficial
shareholder.
16-10a-1302.
Right to dissent.
(1) A
shareholder, whether or not entitled to vote, is entitled to dissent from, and
obtain payment of the fair value of shares held by him in the event of, any of
the following corporate actions:
(a)
consummation of a plan of merger to which the corporation is a party
if:
(i)
shareholder approval is required for the merger by Section 16-10a-1103 or the
articles of incorporation; or
(ii) the
corporation is a subsidiary that is merged with its parent under Section 16-10a-1104;
(b)
consummation of a plan of share exchange to which the corporation is a party as
the corporation whose shares will be acquired;
(c)
consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of the corporation for which a shareholder
vote is required under Subsection 16-10a-1202(1), but
not including a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale; and
(d)
consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by the corporation if
the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to Subsection 16-10a-1202(2).
(2) A
shareholder is entitled to dissent and obtain payment of the fair value of his
shares in the event of any other corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of directors so
provides.
Annex D -
1
(3)
Notwithstanding the other provisions of this part, except to the extent
otherwise provided in the articles of incorporation, bylaws, or a resolution of
the board of directors, and subject to the limitations set forth in Subsection
(4), a shareholder is not entitled to dissent and obtain payment under
Subsection (1) of the fair value of the shares of any class or series of shares
which either were listed on a national securities exchange registered under the
federal Securities Exchange Act of 1934, as amended, or on the National Market
System of the National Association of Securities Dealers Automated Quotation
System, or were held of record by more than 2,000 shareholders, at the time
of:
(a) the
record date fixed under Section 16-10a-707 to
determine the shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) the
record date fixed under Section 16-10a-704 to
determine shareholders entitled to sign writings consenting to the proposed
corporate action; or
(c) the
effective date of the corporate action if the corporate action is authorized
other than by a vote of shareholders.
(4) The
limitation set forth in Subsection (3) does not apply if the shareholder will
receive for his shares, pursuant to the corporate action, anything
except:
(a)
shares of the corporation surviving the consummation of the plan of merger or
share exchange;
(b)
shares of a corporation which at the effective date of the plan of merger or
share exchange either will be listed on a national securities exchange
registered under the federal Securities Exchange Act of 1934, as amended, or on
the National Market System of the National Association of Securities Dealers
Automated Quotation System, or will be held of record by more than
2,000 shareholders;
(c) cash
in lieu of fractional shares; or
(d) any
combination of the shares described in Subsection (4), or cash in lieu of
fractional shares.
(5) A
shareholder entitled to dissent and obtain payment for his shares under this
part may not challenge the corporate action creating the entitlement unless the
action is unlawful or fraudulent with respect to him or to the
corporation.
16-10a-1303.
Dissent by nominees and beneficial owners.
(1) A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if the shareholder dissents with respect to all
shares beneficially owned by any one person and causes the corporation to
receive written notice which states the dissent and the name and address of each
person on whose behalf dissenters' rights are being asserted. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the shareholder dissents and the other shares held of record by him were
registered in the names of different shareholders.
(2) A
beneficial shareholder may assert dissenters' rights as to shares held on his
behalf only if:
(a) the
beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) the
beneficial shareholder dissents with respect to all shares of which he is the
beneficial shareholder.
(3) The
corporation may require that, when a record shareholder dissents with respect to
the shares held by any one or more beneficial shareholders, each beneficial
shareholder must certify to the corporation that both he and the record
shareholders of all shares owned beneficially by him have asserted, or will
timely assert, dissenters' rights as to all the shares unlimited on the ability
to exercise dissenters' rights. The certification requirement must be stated in
the dissenters' notice given pursuant to Section 16-10a-1322.
Annex D -
2
16-10a-1320.
Notice of dissenters' rights.
(1) If a
proposed corporate action creating dissenters' rights under Section 16-10a-1302 is
submitted to a vote at a shareholders' meeting, the meeting notice must be sent
to all shareholders of the corporation as of the applicable record date, whether
or not they are entitled to vote at the meeting. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
part. The notice must be accompanied by a copy of this part and the materials,
if any, that under this chapter are required to be given the shareholders
entitled to vote on the proposed action at the meeting. Failure to give notice
as required by this subsection does not affect any action taken at the
shareholders' meeting for which the notice was to have been given.
(2) If a
proposed corporate action creating dissenters' rights under Section 16-10a-1302 is
authorized without a meeting of shareholders pursuant to Section 16-10a-704, any
written or oral solicitation of a shareholder to execute a written consent to
the action contemplated by Section 16-10a-704 must be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this part, by a copy of this
part, and by the materials, if any, that under this chapter would have been
required to be given to shareholders entitled to vote on the proposed action if
the proposed action were submitted to a vote at a shareholders' meeting. Failure
to give written notice as provided by this subsection does not affect any action
taken pursuant to Section 16-10a-704 for which
the notice was to have been given.
16-10a-1321.
Demand for payment -- Eligibility and notice of intent.
(1) If a
proposed corporate action creating dissenters' rights under Section 16-10a-1302 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
(a) must
cause the corporation to receive, before the vote is taken, written notice of
his intent to demand payment for shares if the proposed action is effectuated;
and
(b) may
not vote any of his shares in favor of the proposed action.
(2) If a
proposed corporate action creating dissenters' rights under Section 16-10a-1302 is
authorized without a meeting of shareholders pursuant to Section 16-10a-704, a
shareholder who wishes to assert dissenters' rights may not execute a writing
consenting to the proposed corporate action.
(3) In
order to be entitled to payment for shares under this part, unless otherwise
provided in the articles of incorporation, bylaws, or a resolution adopted by
the board of directors, a shareholder must have been a shareholder with respect
to the shares for which payment is demanded as of the date the proposed
corporate action creating dissenters' rights under Section 16-10a-1302 is
approved by the shareholders, if shareholder approval is required, or as of the
effective date of the corporate action if the corporate action is authorized
other than by a vote of shareholders.
(4) A
shareholder who does not satisfy the requirements of Subsections (1) through (3)
is not entitled to payment for shares under this part.
Annex D -
3
16-10a-1322.
Dissenters' notice.
(1) If
proposed corporate action creating dissenters' rights under Section 16-10a-1302 is
authorized, the corporation shall give a written dissenters' notice to all
shareholders who are entitled to demand payment for their shares under this
part.
(2) The
dissenters' notice required by Subsection (1) must be sent no later than ten
days after the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302, and
shall:
(a) state
that the corporate action was authorized and the effective date or proposed
effective date of the corporate action;
(b) state
an address at which the corporation will receive payment demands and an address
at which certificates for certificated shares must be deposited;
(c)
inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received;
(d)
supply a form for demanding payment, which form requests a dissenter to state an
address to which payment is to be made;
(e) set a
date by which the corporation must receive the payment demand and by which
certificates for certificated shares must be deposited at the address indicated
in the dissenters' notice, which dates may not be fewer than 30 nor more than 70
days after the date the dissenters' notice required by Subsection (1) is
given;
(f) state
the requirement contemplated by Subsection 16-10a-1303(3), if
the requirement is imposed; and
(g) be
accompanied by a copy of this part.
Annex D -
4
ANNEX
E
CERTIFICATE
OF INCORPORATION
OF
MAPLE
CHINA EDUCATION INCORPORATED
ARTICLE
I
The name
of the corporation is Maple China Education Incorporated (the
“Corporation”).
ARTICLE
II
The
address of the Corporation’s registered office in the State of Delaware is 160
Greentree Drive, Suite 101, in the City of Dover, County of Kent, State of
Delaware 19904. The name of its registered agent at such address is
National Registered Agents, Inc.
ARTICLE
III
The
nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE
IV
The total
number of shares of stock which the Corporation is authorized to issue is
100,000,000 shares, consisting all of shares of Common Stock, par value $0.001
per share (the “Common Stock”).
The
Corporation shall be entitled to treat the person in whose name any share of its
stock is registered as the owner thereof for all purposes and shall not be bound
to recognize any equitable or other claim to, or interest in, such share on the
part of any other person, whether or not the Corporation shall have notice
thereof, except as expressly provided by applicable law.
ARTICLE
V
The
business and affairs of the Corporation shall be managed by, or under the
direction of, the board of directors of the Corporation (the “Board of
Directors”). The total number of directors constituting the entire Board of
Directors shall be not less than three and not more than nine, with the
then-authorized number of directors being fixed from time to time by the Board
of Directors.
Newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled solely by the affirmative vote of a majority of the remaining
directors then in office or a sole remaining director, even though less than a
quorum of the Board of Directors. Any director so chosen shall hold office until
the next election of the class for which such director shall have been chosen
and until his successor shall be elected and qualified. No decrease in the
number of directors shall shorten the term of any incumbent
director.
Annex E -
1
Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or committee thereof, which authorizes,
approves, or ratifies such contract or transaction.
ARTICLE
VI
The authorized and treasury stock of
the Corporation may be issued at such time, upon such terms and conditions and
for such consideration as the Board of Directors shall determine. Stockholders
shall not have pre-emptive rights to acquire unissued shares of stock of the
Corporation.
ARTICLE
VII
No
contract or other transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers, are directors or officers, or have a financial interest,
shall be either void or voidable solely because of such relationship or
interest, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or a committee thereof
which authorizes such contract or transaction, or solely because such director's
or officer's votes are counted for such purpose if: (a) the material facts as to
such director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or committee
thereof, and the Board of Directors or committee thereof in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
disinterested directors, even though the disinterested directors be less than a
quorum; (b) the material facts as to such director's or officer's relationship
or interest and as to the contract or transaction are disclosed or are known to
the directors entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders.
ARTICLE
VIII
The incorporator of the Corporation is
Victor Zhou, whose mailing address is Room 503, Jinqiao Building, No. 2077, West
Yan’an Road, Shanghai, China.
ARTICLE
IX
Unless and except to the extent that
the Bylaws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
ARTICLE
X
Meetings
of stockholders may be held within or without the State of Delaware, as the
Bylaws of this Corporation may provide. The books of this Corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
Annex E -
2
ARTICLE
XI
In
furtherance and not in limitation of the powers conferred by the laws of the
State of Delaware, the Board of Directors is expressly authorized to make,
alter, rescind, amend or repeal any or all of the Bylaws of the Corporation. Any
adoption, amendment or repeal of the Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the Board of Directors.
The stockholders shall also have power to adopt, amend or repeal the Bylaws of
the Corporation.
ARTICLE
XII
A
director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director’s duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the General Corporation Law is amended after approval by the stockholders of
this Article XIII to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of this
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law as so amended.
Any
repeal or modification of the foregoing provisions of this Article XII by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director occurring prior to, such repeal or
modification.
ARTICLE
XIII
The
Corporation reserves the right at any time, and from time to time, to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of any
nature conferred upon stockholders, directors or any other persons by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article
XIII.
**************************************
Annex E -
3
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of Incorporation to
be signed by Victor Zhou, its Sole Incorporator, as of the 17th day
of August, 2009.
Section 1.1.
Registered Office and
Agent. The initial registered office of the Corporation shall be 160
Greentree Drive, Suite 101, in the City of Dover, County of Kent, State of
Delaware 19904, and the name of the initial registered agent of the
Corporation at such address shall be National Registered Agents,
Inc.
Section 1.2.
Offices. The
Corporation may also have offices at such other places both within and without
the State of Delaware as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE
II
MEETINGS
OF STOCKHOLDERS
Section 2.1.
Annual
Meetings. Annual meetings of stockholders shall be held at such date,
time and place, either within or without the State of Delaware, as may be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, for the purpose of electing a Board of Directors, and
transacting such other business as properly may be brought before the
meeting.
To be
properly brought before the annual meeting, business must be either
(i) specified in the notice of annual meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors,
(ii) otherwise brought before the annual meeting by or at the direction of
the Board of Directors, or (iii) otherwise properly brought before the
annual meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder’s notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that
less than seventy (70) days notice or prior public disclosure of the date
of the annual meeting is given or made to stockholders, notice by a stockholder,
to be timely, must be received no later than the close of business on the tenth
(10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
stockholder’s notice to the Secretary shall set forth (a) as to each matter
the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, and
(ii) any material interest of the stockholder in such business, and
(b) as to the stockholder giving the notice (i) the name and record
address of the stockholder and (ii) the class, series and number of shares
of capital stock of the Corporation which are beneficially owned by the
stockholder. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article II, Section 2. The officer of the
Corporation presiding at an annual meeting shall, if the facts warrant,
determine and declare to the annual meeting that business was not properly
brought before the annual meeting in accordance with the provisions of this
Article II, Section 2, and if such officer should so determine, such
officer shall so declare to the annual meeting and any such business not
properly brought before the meeting shall not be transacted.
Annex F -
1
Section 2.2.
Special
Meetings. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise provided by statute or by the Certificate of
Incorporation, may only be called by a majority of the Board of Directors or by
the Chairman, the Chief Executive Officer or the President. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 2.3.
Notice of
Meetings. Whenever stockholders are required or permitted to take action
at a meeting, a written notice of the meeting shall be given which shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by law, the written notice of any meeting shall be given not less than
ten (10) nor more than sixty (60) days before the date of the meeting,
to each stockholder entitled to vote at such meeting.
Section 2.4.
Quorum; Vote Required
for Action. Except as otherwise provided by law or by the Certificate of
Incorporation or these Bylaws, the presence in person or by proxy of the holders
of a majority of the outstanding shares of stock of the Corporation entitled to
vote thereat shall constitute a quorum at each meeting of the stockholders and
all questions shall be decided by a vote of the holders of a majority of the
shares so represented in person or by proxy at the meeting and entitled to vote
thereat. The stockholders present at any duly organized meeting may continue to
do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 2.5.
Adjournments.
Notwithstanding any other provisions of these Bylaws, the holders of a majority
of the shares of stock of the Corporation entitled to vote at any meeting,
present in person or represented by proxy, whether or not a quorum is present,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting originally called; provided, however, that if the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned
meeting.
Section 2.6.
Voting Rights;
Proxies. Unless otherwise provided by law or by the Certificate of
Incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period. Each proxy shall be revocable unless expressly provided therein to be
irrevocable or unless otherwise made irrevocable by law. The notice of every
meeting of the stockholders may be accompanied by a form of proxy approved by
the Board of Directors in favor of such person or persons as the Board of
Directors may select.
Section 2.7.
Action of Stockholders
Without Meeting. Unless otherwise provided by the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation’s registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
Annex F -
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Section 2.8.
List of Stockholders
Entitled to Vote. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.9.
Record Date. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders, or to receive payment of any dividend
or other distribution or allotment of any rights or to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted and which record date shall not be more than sixty (60) nor less
than ten (10) days before the date of any meeting of stockholders, nor more
than sixty (60) days prior to the time for such other action as
hereinbefore described; provided, however, that if no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and, for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.
A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted. If no record date has been fixed by the Board
of Directors and no prior action by the Board of Directors is required by the
Delaware General Corporation Law, as amended (“DGCL”), the record date shall
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation in the manner
prescribed by Article II, Section 2.7 hereof. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by the DGCL with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
Section 2.10.
Ratification.
Any transaction questioned in any stockholders’ derivative suit, or any other
suit to enforce alleged rights of the Corporation or any of its stockholders, on
the ground of lack of authority, defective or irregular execution, adverse
interest of any director, officer or stockholder, nondisclosure, miscomputation
or the application of improper principles or practices of accounting may be
approved, ratified and confirmed before or after judgment by the Board of
Directors or by the holders of common stock and, if so approved, ratified or
confirmed, shall have the same force and effect as if the questioned transaction
had been originally duly authorized, and said approval, ratification or
confirmation shall be binding upon the Corporation and all of its stockholders
and shall constitute a bar to any claim or execution of any judgment in respect
of such questioned transaction.
Annex F -
3
ARTICLE
III
BOARD OF
DIRECTORS
Section 3.1.
Powers; Number;
Qualifications. The business, affairs and property of the Corporation
shall be managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders. The
authorized number of directors of the corporation shall be fixed from time to
time exclusively by the Board pursuant to a resolution duly adopted by a
majority of the Board members then in office, but shall not be less than three.
Directors need not be stockholders of the Corporation.
Section 3.2.
Election; Term of
Office; Resignation; Removal. The directors shall be elected at the
annual meeting of the stockholders and each director shall hold office until the
next annual meeting of stockholders or until such director’s earlier
resignation, removal from office, death or incapacity.
Section 3.3.
Vacancies. Any
vacancy in the Board of Directors, including vacancies resulting from any
increase in the authorized number of directors may be filled by a vote of the
remaining directors then in office or by a sole remaining director and the
directors so chosen shall hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified, or until
their earlier death, resignation or removal.
Section 3.4.
Nominations.
Nominations of persons for election to the Board of Directors of the Corporation
at a meeting of stockholders of the Corporation may be made at such meeting by
or at the direction of the Board of Directors, by any committee or persons
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Article III, Section 3.4. Such
nominations by any stockholder shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder’s
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided however, that in the event
that less than seventy (70) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder,
to be timely, must be received no later than the close of business on the tenth
(10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder’s
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director,
(a) the name, age, business address and residence address of the person,
(b) the principal occupation or employment of the person, (c) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the person, and (d) any other information relating to
the person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to the Rules and Regulations of the Securities
and Exchange Commission under Section 14 of the Securities Exchange Act of
1934, as amended, and (ii) as to the stockholder giving the notice
(a) the name and record address of the stockholder and (b) the class
and number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The officer of the Corporation presiding at an annual meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
Annex F -
4
Section 3.5.
Resignations.
Any director may resign at any time by written notice to the Corporation. Any
such resignation shall take effect at the date of receipt of such notice or at
any later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 3.6.
Regular
Meetings. Regular meetings of the Board of Directors shall be held at
such place or places within or without the State of Delaware, at such hour and
on such day as may be fixed by resolution of the Board of Directors, without
further notice of such meetings. The time and place of holding regular meetings
of the Board of Directors may be changed by the Chairman, the Chief Executive
Officer, the President or any Vice President by giving written notice thereof as
provided in Article III, Section 3.8 hereof.
Section 3.7.
Special
Meetings. Special meetings of the Board of Directors may be held whenever
called by (i) the Chairman, the Chief Executive Officer or the President
(ii) the Chairman, the Chief Executive Officer, the President or the
Secretary on the written request of a majority of the Board of Directors; or
(iii) resolution adopted by the Board of Directors. Special meetings may be
held within or without the State of Delaware as may be stated in the notice of
the meeting.
Section 3.8.
Notice of
Meetings. Written notice of the time, place and general nature of the
business to be transacted at all special meetings of the Board of Directors, and
written notice of any change in the time or place of holding the regular
meetings of the Board of Directors, must be given to each director at least
forty-eight (48) hours prior to the day of the meeting; provided, however,
that notice of any meeting need not be given to any director if waived by him in
writing, or if he shall be present at such meeting, except when the director
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business on the grounds that the meeting
is not lawfully called or convened.
Section 3.9.
Quorum; Vote Required
for Action. Except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these Bylaws, at all meetings of the Board of
Directors or any committee thereof, a majority of the directors then in office
or of such committee, as the case may be, shall constitute a quorum for the
transaction of business and, except as otherwise provided by law or these
Bylaws, the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors or of any committee
thereof, a majority of the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 3.10.
Action by Unanimous
Consent of Directors. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the board or the
committee of the board, as the case may be, consent thereto in writing, which
may be in counterparts, and the writing or writings are filed with the minutes
of proceedings of the Board of Directors or the committee thereof. Such
writing(s) shall be manually executed if practicable, but if circumstances so
require, effect shall be given to written consent transmitted by telegraph,
telex, telecopy or similar means of visual data transmission.
Section 3.11.
Telephonic Meetings
Permitted. Members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of such board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Bylaw shall constitute presence
in person at such meeting.
Annex F -
5
Section 3.12.
Interested
Directors. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if (i) the material facts as to his or their relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders,
or (iii) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or
transaction.
Section 3.13.
Compensation.
Directors shall be entitled to such compensation for their services as may be
approved by the Board of Directors, including, if so approved by resolution of
the Board of Directors, a fixed sum and expenses of attendance at each regular
or special meeting or any committee thereof. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 3.14.
Removal. Unless
otherwise restricted by statute, the Certificate of Incorporation or these
Bylaws, any director, or all of the directors, may be removed from the Board of
Directors, but only for cause and only by the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all
the then outstanding shares of capital stock of the Corporation then entitled to
vote at the election of directors, voting together as a single
class.
Section 3.15.
Committees. The
Board of Directors may, by resolution adopted by a majority of the members of
the Board of Directors, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee. The
alternate members of any committee may replace any absent or disqualified member
at any meeting of the committee. Any such committee, to the extent provided in a
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
such power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation’s property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required. Members of special or standing committees shall be
entitled to receive such compensation for serving on such committees as the
Board of Directors shall determine.
Annex F -
6
ARTICLE
IV
NOTICES
Section 4.1.
Notices.
Whenever, under the provisions of the Certificate of Incorporation or these
Bylaws, notice is required to be given to any director or stockholder, such
notice must be in writing and may be given in person, in writing or by mail,
telegram, telecopy or other similar means of visual communication, addressed to
such director or stockholder, at his address as it appears on the records of the
Corporation, with postage or other transmittal charges thereon prepaid. Such
notice shall be deemed to be given (i) if by mail, the day when the same
shall be deposited in the United States mail, and (ii) otherwise, when such
notice is transmitted.
Section 4.2.
Waiver of
Notice. Whenever any notice is required to be given under the provisions
of the Certificate of Incorporation or these Bylaws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE
V
OFFICERS
Section 5.1.
Election;
Qualifications; Term of Office. The officers of the Corporation shall be
elected or appointed by the Board of Directors and may include, at the
discretion of the Board of Directors, a Chairman of the Board, Vice Chairman of
the Board, a President, a Chief Executive Officer, a Chief Operating Officer, a
Chief Financial Officer, a Chief Accounting Officer, a Secretary, a Treasurer
and such Executive, Senior or other Vice Presidents and other officers as may be
determined by the Board of Directors. Any number of offices may be held by the
same person and more than one person may hold the same office, unless otherwise
prohibited by law, the Certificate of Incorporation or these Bylaws. The
officers of the Corporation shall hold office until their successors are chosen
and qualified, except that any officer may resign at any time by written notice
to the Corporation and the Board of Directors may remove any officer at any time
at its discretion with or without cause.
Section 5.2.
Voting Securities
Owned by the Corporation. Powers of attorney, proxies, waivers of notice
of meeting, consents and other instruments relating to securities owned by the
Corporation may be executed in the name of and on behalf of the Corporation by
the Chief Executive Officer or any Vice President, and any such officer may, in
the name and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Annex F -
7
Section 5.3.
Chief Executive
Officer. Subject to the provisions of these Bylaws and to the direction
of the Board of Directors, the Chief Executive Officer shall have ultimate
authority for decisions relating to the general management and control of the
affairs and business of the Corporation and shall perform such other duties and
exercise such other powers which are or from time to time may be delegated to
him or her by the Board of Directors or these Bylaws, all in accordance with
basic policies as established by and subject to the oversight of the Board of
Directors.
Section 5.4.
Chief Financial
Officer. The Chief Financial Officer shall have general supervision,
direction and control of the financial affairs of the Corporation and shall
perform such other duties and exercise such other powers which are or from time
to time may be delegated to him or her by the Board of Directors or these
Bylaws, all in accordance with basic policies as established by and subject to
the oversight of the Board of Directors. In the absence of a named Treasurer,
the Chief Financial Officer shall also have the powers and duties of the
Treasurer as hereinafter set forth and shall be authorized and empowered to sign
as Treasurer in any case where such officer’s signature is
required.
Section 5.5.
Vice
Presidents. At the request of the Chief Executive Officer or in the
absence of the Chief Executive Officer, or in the event of his or her inability
or refusal to act, the Vice President or the Vice Presidents if there is more
than one (in the order designated by the Board of Directors) shall perform the
duties of the Chief Executive Officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon such office, Each Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the Chief Executive Officer or in the event of the
inability or refusal of such officer to act, shall perform the duties of such
office, and when so acting, shall have all the powers of and be subject to all
the restrictions upon such office.
Section 5.6.
Secretary. The
Secretary shall attend all meetings of the Board of Directors and all meetings
of stockholders and record all the proceedings thereat in a book or books to be
kept for that purpose; the Secretary shall also perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or he Chief Executive Officer, under whose supervision
the Secretary shall be. If the Secretary shall be unable or shall refuse to
cause or be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, then any Assistant Secretary shall perform
such actions. If there be no Assistant Secretary, then the Board of Directors or
the Chief Executive Officer may choose another officer to cause such notice to
be given. The Secretary shall have custody of the seal of the Corporation and
the Secretary or any Assistant Secretary, if there be one, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 5.7.
Treasurer. The
Treasurer shall have custody of the corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive Officer
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the
Corporation.
Annex F -
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Section 5.8.
Assistant
Secretaries. Except as may be otherwise provided in these Bylaws,
Assistant Secretaries, if there be any, shall perform such duties and have such
powers as from time to time may be assigned to them by the Board of Directors,
the Chief Executive Officer, or any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 5.9.
Assistant
Treasurers. Assistant Treasurers, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the Chief Executive Officer, any Vice President, if there be
one, or the Treasurer, and in the absence of the Treasurer or in the event of
his disability or refusal to act, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the
Corporation.
Section 5.10.
Chief Accounting
Officer. The Chief Accounting Officer shall establish and maintain the
accounting records of the Corporation in accordance with generally accepted
accounting principles applied on a consistent basis, maintain proper internal
control of the assets of the Corporation and shall perform such other duties as
the Board of Directors, the Chief Executive Officer or the Chief Financial
Officer of the Corporation may prescribe.
Section 5.11.
Other Officers.
Such other officers as the Board of Directors may choose shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors. The Board of Directors may delegate to any other officer of
the Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
Section 5.12.
Resignations.
Any officer may resign at any time by submitting his written resignation to the
Corporation. Such resignation shall take effect at the time of its receipt by
the Corporation, unless another time be fixed in the resignation, in which case
it shall become effective at the time so fixed. The acceptance of a resignation
shall not be required to make it effective.
Section 5.13.
Removal.
Subject to the provisions of any employment agreement approved by the Board of
Directors, any officer of the Corporation may be removed at any time, with or
without cause, by the Board of Directors.
ARTICLE
VI
STOCK
Section 6.1.
Certificates.
Every holder of stock in the Corporation shall be entitled to have a
certificate, signed by, or in the name of the Corporation by, (i) the
Chairman, the Chief Executive Officer, the President, or a Vice President, and
(ii) a Vice President, the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the DGCL, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Annex F -
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Section 6.2.
Certificates Issued
for Partly Paid Shares. Certificates may be issued for partly paid shares
and in such case upon the face or back of the certificates issued to represent
any such partly paid shares the total amount of the consideration to be paid
therefor, and the amount paid thereon shall be specified.
Section 6.3.
Signatures. Any
of or all the signatures on the certificate may be facsimile including, but not
limited to, signatures of officers of the Corporation and countersignatures of a
transfer agent or registrar. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of
issue.
Section 6.4.
Lost, Stolen or
Destroyed Stock Certificates; Issuance of New Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6.5.
Transfer of
Stock. Stock of the Corporation shall be transferable in the manner
prescribed by law and in these Bylaws. Transfers of stock shall be made on the
books of the Corporation only by a person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, and subject to
applicable federal and state securities laws and contractual obligations, it
shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books, unless the Corporation has a duty to inquire as to adverse claims with
respect to such transfer which has not been discharged. The Corporation shall
have no duty to inquire into adverse claims with respect to such transfer unless
(a) the Corporation has received a written notification of an adverse claim
at a time and in a manner which affords the Corporation a reasonable opportunity
to act on it prior to the issuance of a new, reissued or re-registered share
certificate and the notification identifies the claimant, the registered owner
and the issue of which the share or shares is a part and provides an address for
communications directed to the claimant; or (b) the Corporation has
required and obtained, with respect to a fiduciary, a copy of a will, trust,
indenture, articles of co-partnership, Bylaws or other controlling instruments,
for a purpose other than to obtain appropriate evidence of the appointment or
incumbency of the fiduciary, and such documents indicate, upon reasonable
inspection, the existence of an adverse claim. The Corporation may discharge any
duty of inquiry by any reasonable means, including notifying an adverse claimant
by registered or certified mail at the address furnished by him or, if there be
no such address, at his residence or regular place of business that the security
has been presented for registration of transfer by a named person, and that the
transfer will be registered unless within thirty days from the date of mailing
the notification, either (a) an appropriate restraining order, injunction
or other process issues from a court of competent jurisdiction or (b) an
indemnity bond, sufficient in the Corporation’s judgment to protect the
Corporation and any transfer agent, registrar or other agent of the Corporation
involved from any loss which it or they may suffer by complying with the adverse
claim, is filed with the Corporation.
Annex F -
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ARTICLE
VII
GENERAL
PROVISIONS
Section 7.1.
Reliance on Books and
Records. Each Director, each member of any committee designated by the
Board of Directors, and each officer of the Corporation, shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or other records of the Corporation, including reports made to
the Corporation by any of its officers, by an independent certified public
accountant, or by an appraiser selected with reasonable care.
Section 7.2.
Dividends.
Dividends upon the capital stock of the Corporation, subject to the provisions
of the Certificate of Incorporation, if any, may be declared by resolution
adopted by the Board of Directors at any regular or special meeting, pursuant to
law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the directors
shall think conducive to the interest of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was
created.
Section 7.2.
Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the Board of
Directors.
Section 7.3.
Amendments.
These Bylaws may be altered, amended or repealed or new Bylaws may be adopted
from time to time in the manner prescribed in the Certificate of
Incorporation.
Section 7.4.
Seal. The
corporate seal shall have inscribed thereon the name of the Corporation, the
year of its organization and the words “Corporate Seal, Delaware”. The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any manner reproduced.
ARTICLE
VIII
INDEMNIFICATION
Section 8.1.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
Annex F -
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Section 8.2.
The Corporation shall indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 8.3.
To the extent that a director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys’ fees) actually and reasonably incurred by him or her in
connection therewith.
Section 8.4.
Any indemnification under Sections 1 or 2 of this Article (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such section. Such determination
shall be made:
(a) By the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding;
(b) If such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion;
or
(c) By the
stockholders.
Section 8.5.
Expenses (including attorneys’ fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Section. Such expenses (including attorneys’ fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
Section 8.6.
The indemnification and advancement of expenses provided by, or granted pursuant
to the other sections of this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Annex F -
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Section 8.7.
The Corporation shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
Section 8.8.
For purposes of this Article, references to “the Corporation” shall include, in
addition to the resulting Corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this Article with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation of its separate existence had
continued.
Section 8.9.
For purposes of this Article, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to “serving at the request of the Corporation” shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner “not opposed to the best interests of the
Corporation” as referred to in this Article.
Section 8.10.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 8.11.
No director or officer of the Corporation shall be personally liable to the
Corporation or to any stockholder of the Corporation for monetary damages for
breach of fiduciary duty as a director or officer, provided that this provision
shall not limit the liability of a director or officer (i) for any breach
of the director’s or the officer’s duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director or officer derived an improper personal
benefit.
Annex F -
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ANNEX
G
FORM
OF
CERTIFICATE
OF MERGER
MERGING
THE
HARTCOURT COMPANIES, INC.
WITH
AND INTO
MAPLE
CHINA EDUCATION INCORPORATED
Pursuant to Title 8, Section 251(c) of
the Delaware General Corporation Law, the undersigned corporation executed the
following Certificate of Merger:
FIRST: The name of the
surviving corporation is Maple China Education Incorporated, a Delaware
corporation (the “Company”), and the name of the
corporation being merged into this surviving corporation is The Hartcourt
Companies, Inc., a Utah corporation (“Hartcourt”).
SECOND: The Plan of
Reorganization and Share Exchange Agreement (the “Merger Agreement”) by and among the
Company, Hartcourt, Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China and wholly owned subsidiary of Hartcourt, Sino-Canada
Investment Group Inc., a company existing under the Company Law of the People’s
Republic of China (“Sino-Canada”), Sino-Canada
High School, a private educational non-enterprise institution existing under the
laws of the People’s Republic of China, Wujiang Huayu Property Management
Company, a company existing under the Company Law of the People’s Republic of
China, Canadian Learning Systems Corporation, a company existing under the laws
of the British Virgin Islands, the shareholders of Sino-Canada (together the
“Shareholders”), and
Ross Yuan, in the capacity as representative of the Shareholders, setting forth
the terms and conditions of the merger of Hartcourt with and into the Company
(the “Merger”), has been
approved, adopted, certified, executed and acknowledged by the Company and
Hartcourt.
THIRD: The name of the
surviving corporation is Maple China Education Incorporated (the “Surviving
Corporation”).
FOURTH: Upon the effectiveness
of the Merger, the certificate of incorporation and bylaws of the Company in
existence immediately prior to the Merger shall be the bylaws and the
certificate of incorporation of the Surviving Corporation and the officers and
directors of the Company in existence immediately prior to the Merger shall be
the officers and directors of the Surviving Corporation.
FIFTH: The Merger is to become
effective at 4:30 p.m., Eastern Time, on [_____], 20[__].
Annex G -
1
SIXTH: An executed copy of the
Merger Agreement is on file at the principal place of business of the Surviving
Corporation at the following address:
Maple
China Education Incorporated
Room 503,
Jinqiao Building, No. 2077
West
Yan’an Road, Shanghai, China
SEVENTH: A copy of the Merger
Agreement will be furnished by the Surviving Corporation on request, without
cost, to any stockholder of the constituent corporations.
**********
Annex G -
2
IN WITNESS WHEREOF, the
Company has caused this Certificate of Merger to be signed by an authorized
officer, as of the [___] day of [______] 20[__].
MAPLE CHINA EDUCATION
INCORPORATED
By: /s/ Victor
Zhou
Victor
Zhou
Chief Executive
Officer
Annex G -
3
ANNEX
H
State
of Utah
DEPARTMENT
OF COMMERCE
Division
of Corporations & Commercial Code
Articles
of Merger / Share Exchange
The
Hartcourt Companies, Inc.
the non-surviving corporation
Into
Maple
China Education Incorporated
the
surviving corporation
ARTICLE
I - Surviving Corporation
Section
1
The name
of the corporation surviving the merger is
Maple
China Education Incorporated
and
such name ohas þ has not been changed as a
result of the merger.
The
principal address of the surviving corporation is:
Room
503 Jinqiao Building, No. 2077 West Yan'an Road, Shanghai, China
Address City State Zip
Section
2
A. The
surviving corporation is a domestic corporation existing pursuant to the
provisions of the Utah Revised Business Corporation
Act incorporated on_____________________________.
B. The
surviving corporation is a foreign corporation incorporated under the laws of
the State of Delaware and oqualified þnot qualified to do business
in Utah.
Note: If
application for Certificate of Authority to Transact Business is filed
concurrently herewith state "Upon approval of Application for Certificate of
Authority."
C. The
effective date of the merger described herein shall be the date upon which these
Articles are filed with the Utah Division of Corporations and Commercial Code,
or ______________________________.
ARTICLE
II - Non-surviving Corporation(s)
The name, state of incorporation, and
date incorporation or qualification (if applicable) respectively, of each Utah
domestic corporation
and/or foreign corporation, other than the survivor, which is party to the
merger are as follows:
Name of Corporation:
The
Hartcourt Companies, Inc.
State of
Domicile: Shanghai,
China Date of Incorporation / Qualification
in Utah: September
6, 1983
Name of
Corporation: _________________________________________________________________________________
State of
Domicile: ______________ Date of Incorporation /
Qualification in Utah: ___________________
Name of
Corporation: _________________________________________________________________________________
State of
Domicile: ______________ Date of Incorporation /
Qualification in Utah: ___________________
Name of
Corporation: _________________________________________________________________________________
The Plan
of Merger or Share Exchange, containing such information as required by Utah
Code 16-10a-1101, is set forth in "Exhibit A", attached hereto and made a part
hereof.
Annex H -
1
ARTICLE
IV - Manner of Adoption & Vote of Surviving Corporation (must complete
Section 1 or 2)
Section
1
oShareholder
vote not required. The merger/ share exchange was adopted by the incorporators
or board of directors without shareholder action and shareholder action was not
required.
Section
2
þ Vote of
shareholders (complete either A or B) The designation (i.e., common, preferred or any
classification where
different classes of stock exist), number of outstanding shares, number
of votes entitled to be cast by each voting group entitled to vote separately on
the merger / share exchange and the number of votes of each voting group
represented at the meeting is set forth below:
A. Unanimous
written consent executed on August
19, 2009 and signed by all
shareholders entitled to vote.
B. Vote of
shareholders during a meeting called by the Board of Directors.
TOTAL
A
B
C
Designation
of each voting group (i.e. preferred and common)
Number
of outstanding shares
Number
of votes entitled to be cast
Number
of votes represented at meeting
Shares
voted in favor
Shares
voted against
ARTICLE
V - Manner of Adoption & Vote of Non-surviving Corporation (must complete
Section 1 or 2)
Section
1
o Shareholder vote
not required. The merger/ share exchange was adopted by the incorporators or
board of directors without shareholder action and shareholder action was not
required.
Section
2
þVote of
shareholders (complete either A or B) The designation (i.e., common, preferred
or any classification where different classes of stock exist), number of
outstanding shares, number of votes entitled to be cast by each voting group
entitled to vote separately on the merger / share exchange and the number of
votes of each voting group represented at the meeting is set forth
below:
A. Unanimous
written consent executed on _______________, 20___ and signed by all
shareholders entitled to vote.
B. Vote of
shareholders during a meeting called by the Board of Directors.
TOTAL
A
B
C
Designation
of each voting group (i.e. preferred and common)
Common
Number
of outstanding shares
386,966,816
Number
of votes entitled to be cast
386,966,816
Number
of votes represented at meeting
[__]
Shares
voted in favor
[__]
Shares
voted against
[__]
In
Witness Whereof, the undersigned being the President
and Chief Executitve Officer of the
surviving corporation executes these Articles of Merger / Share Exchange and
verifies, subject to penalties of perjury that the
statements contained herein are true, this ____ day of _________________,
20____.
Victor
Zhou
Signature
Printed Name
Annex H -
2
ANNEX
I
INFORMATION
WITH RESPECT TO DIRECTOR DESIGNEES OF MAPLE CHINA EDUCATION
INCORPORATED
INFORMATION
STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
NOTICE
OF CHANGE IN THE COMPOSITION OF THE BOARD OF DIRECTORS OF THE HARTCOURT
COMPANIES, INC.
This Information Statement is attached
to the proxy statement being mailed on or about ________, 2009 to the holders of
The Hartcourt Companies, Inc. common stock, par value $___ per share, and is
being filed with the Securities and Exchange Commission and transmitted to such
holders in accordance with Rule 14f-1 of the Exchange Act. The proxy statement
to which this Information Statement is attached is incorporated herein by
reference.
We have entered into the Plan of
Reorganization and Share Exchange Agreement, dated August 20, 2009, by and among
The Hartcourt Companies, Inc., or
Hartcourt, Maple China Education Incorporated, or Maple China, a Delaware
corporation and wholly-owned subsidiary of Hartcourt, Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd., a company existing under
the Company Law of the People’s Republic of China and wholly owned subsidiary of
Hartcourt, Sino-Canada Investment Group Inc., or Sino-Canada, a company existing
under the Company Law of the People’s Republic of China, Sino-Canada High
School, a private educational non-enterprise institution existing under the laws
of the People’s Republic of China, Wujiang Huayu Property Management Company, a
company existing under the Company Law of the People’s Republic of China,
Canadian Systems Learning Corporation, a company existing under the laws of the
British Virgin Islands, the shareholders of Sino-Canada, and Ross Yuan, in the
capacity as representative of the Sino-Canada shareholders, pursuant to which,
among other things, (i) Hartcourt will effect the change in the state of its
incorporation from Utah to Delaware by merging into Maple China with Maple China
being the surviving corporation, and (ii) issue up to 45,850,860 shares,
assuming the effectiveness of the proposed reverse stock split contemplated in
the agreement, of Hartcourt common stock, in exchange for all of the issued and
outstanding capital stock of Sino-Canada.
Under the
terms of the plan of reorganization and share exchange agreement the obligations
of Sino-Canada and the Sino-Canada shareholders to effect the share exchange is
subject to, among other things, the appointment of five persons designated by
Sino-Canada and two persons designated by Hartcourt to the board of directors of
Maple China immediately following the closing of the share
exchange. Sino-Canada has designated the following persons to be
appointed to the board of directors of Maple China assuming the closing of the
share exchange: Ross Yuan, Tiezhi Zhang, Guoquan Shen, Ping Mei, Anmin
Lu. Hartcourt has designated Victor Zhou and Wilson Li to remain as
members of the board of directors of Maple China assuming the closing of the
share exchange.
This
information statement contains certain biographical and other information
concerning the Proposed Directors after the completion of the share
exchange.
NO
VOTE OR OTHER ACTION BY OUR STOCKHOLDERS IS REQUIRED IN RESPONSE TO THIS
INFORMATION STATEMENT. PROXIES ARE NOT BEING SOLICITED. HOWEVER, YOU ARE STILL
URGED TO READ THIS INFORMATION STATEMENT CAREFULLY.
As of
___, 2009, the record date for the special meeting of Hartcourt shareholders,
there were 389,015,544 outstanding shares of common stock. Each share of common
stock is entitled to one vote per proposal at the special meeting. See “The
Hartcourt Special Meeting” on page __ of the proxy statement to which this
Information Statement is attached.
Annex I -
1
If the
share exchange is completed, Sino-Canada shareholders will be entitled to
receive an aggregate maximum of 45,850,860 shares of Hartcourt common stock
(which amount assumes the consummation of the 80 for 1 reverse stock split) in
exchange for all of the outstanding shares of capital stock of Sino-Canada.
After the share exchange and assuming there is no adjustment to the purchase
price at closing, the former Sino-Canada shareholders will own approximately 86%
of the issued and outstanding shares of Hartcourt.
Security
Ownership of Certain Beneficial Owners
The following table sets forth certain
information known to us with respect to the beneficial ownership of Hartcourt
common stock as of closing of the share exchange by the post-closing directors
and all such post-closing directors as a group. We have relied exclusively upon
information provided to us by the post-closing directors for purposes of
determining the number of shares each person will beneficially own upon closing
of the share exchange. Beneficial ownership is determined in accordance with the
rules and regulations of the SEC and generally includes those persons who have
voting or investment power with respect to the securities. Except as otherwise
indicated, and subject to applicable community property laws, the persons named
in the table have sole voting and investment power with respect to all shares of
our common stock beneficially owned by them. For each individual and group
included in the table below, percentage ownership is calculated by dividing the
number of shares beneficially owned by such person or group by the sum of the
______ shares of common stock outstanding on ______, 2009 plus the number of
shares of common stock we are obligated to issue in the share
exchange.
Name and Address of Beneficial Owner
(1)
Number of shares
Percent
Ross
Yuan
Room
2101, Silver Tower, 933 West Zhongshan Road, Shanghai, China
200051
24,453,791
(2)
54.923%
Victor
Zhou
121,487
(3)
0.273%
Wilson
Li
33,666
(4)
0.076%
Zhenyu
Hu
575,000
1.291%
Stephen
Tang
3,402
0.008%
George
Xu
2,208
0.005%
Changzhi
Ju
-
All
directors and executive officers as a group (7 persons)
25,192,952
56.584%
*
Less
than 1% of our outstanding shares of common
stock.
(1) Unless
otherwise indicated, the address for each stockholder listed in the following
table is Room 503, Jinqiao Building, No. 2077, West Yan’an Road, Shanghai,
China.
(2) Shares
beneficially owned include 24,453,791 shares owned by Sino-Canada Investment
Incorporated
(3) Shares
beneficially owned by Victor Zhou include (a) 3,049 shares of common stock held
by Mr. Zhou; (b) options to purchase 1250 shares of our common stock that are
currently exercisable; (c) options to purchase 117,187 shares of our common
stock that are currently exercisable.
(4) Shares
beneficially owned by Wilson Li include (a) 19,916 shares of common stock held
by Mr. Li; (b) options to purchase 1,250 shares of our common stock that are
currently exercisable; and (c) options to purchase 12,500 shares of our common
stock that are exercisable currently exercisable.
Changes
in Control
There will be a change in control of
Hartcourt that will occur as a result of the share exchange described in the
proxy statement to which this Information Statement is attached. After the share
exchange and assuming there is no adjustment to the purchase price at closing,
the former Sino-Canada shareholders will own approximately 86% of the issued and
outstanding shares of Hartcourt, and Sino-Canada Investment Incorporated, a
former Sino-Canada shareholder and an entity wholly-owned by Ross Yuan, will own
approximately 55% of the issued and outstanding shares of
Hartcourt. See “The Plan of Reorganization and Share Exchange
Agreement” and “Risk Factors - Risks Relating to the Share
Exchange – Voting Control by the executive officers, directors and other
affiliates of the combined company may limit your ability to influence the
outcome of director elections and other matters requiring stockholder approval”
on pages __ and ___, respectively, of the proxy statement to which this
Information Statement is attached.
Annex I -
2
At the closing of the share exchange,
the former Sino-Canada shareholders, Mr. Victor Zhou and Mr. Wilson Li, as
representatives of Hartcourt, and Hartcourt will enter into a voting agreement
for the election of directors of Hartcourt. See “Certain Agreements Relating to
the Share Exchange – Voting Agreement” on page __ of the proxy statement to
which this Information Statement is attached.
DIRECTORS
AND EXECUTIVE OFFICERS
Upon consummation of the share exchange
with Sino-Canada, our board of directors and executive officers shall be as
follows:
Directors
and Executive Officers
Age
Position
/ Title with Hartcourt
Ross
Yuan
48
Chief
Executive Officer and Director
Tiezhi
Zhang
55
President
and Director
Simon
Mei
37
Chief
Financial Officer
Sun
Meifang
48
Chief
Accounting Officer
Zhang
Jie
26
Secretary
Anmin
Lu
67
Director
Victor
Zhou
40
Director
Wilson
W.S. Li
47
Director
Guoquan
Shen
44
Director
Ping
Mei
67
Director
Ross Yuan has served as the Chief Executive Officer and Director
of Sino-Canada since 2003, and has had over 10 years’ business experience in the
education field. Previously, Mr. Yuan served as Chairman of China Canada
Education Group in Canada from 1997 to 2002 and President of Tident Investment
Company in China from 1992 to 1997, respectively. Mr. Yuan received
his Bachelor’s degree in Chemical Engineering from Donghua University in 1984
and also studied and worked in Canada.
Tiezhi Zhang has served as
the President and Chief Operation Officer of
Sino-Canada since May, 2009, served for Bank of China prior to joining
Sino-Canada Investment Group for over 20 years, and acted as Vice President at
Tokyo Branch (Japan) from 1997 to 2000, as President at Jiangsu Branch (China)
from 2000 to 2004, and as Vice President at Shanghai Branch (China) from 2004 to
2009, respectively, where he managed over 10,000 employees and 200 branches of
Bank of China. Mr. Zhang received his Bachelor’s degree in Japanese language
from Fudan University, Shanghai.
Simon Mei has served as the
Chief Financial Officer of Sino-Canada since
September, 2009, and has been acting as the Executive Director at Direct
Investment and Financial Advisory Group of Shanghai Electronics Holding (Group)
Co, focusing on Pre-IPO investment, M&A advisory, corporate restructuring
and disposal of State-Owned Enterprises (SOE). Since 2003. Mr. Mei has led
investments of more than RMB 1 billion in well-established manufacturing
companies, financial firms, high-tech and other companies, and has closed
financing deals under the name of Shanghai Fortune Capital with the total value
of a billion dollars. Previously, Mr. Mei also served as Analyst for American
Growth Fund (AGF) Management Ltd. in Toronto, Canada, as Financial Supervisor
for Johnson & Johnson China and as Senior Accountant for
PricewaterhouseCoopers in Shanghai, China, respectively. Mr. Mei is a CFA
charter holder and a member of Chinese Institution of Certified Public
Accountant (CICPA). He received his MBA degree from Richard Ivey School of
Business, University of Western Ontario in Canada.
Sun Meifang has served as the
Chief Accounting Officer of Sino-Canada since May 2009. Prior to joining
Sino-Canada, Ms. Sun served as an accounting manager for Shanghai Lianxun Group
from 2008 to 2009, Shanghai Dongxin Printing Co., Ltd. from 2006 to2008, and
Shanghai Shanshan Imp & Exp Co., Ltd. from 2004 to 2006. Ms. Sun also served
as an accounting manager or a senior accountant for several other Chinese
enterprises previously and has over 20 years’ experience as an accountant since
1987. Ms. Sun received her education in accounting and finance at the
accounting department of Shanghai TV Secondary Specialized School.
Zhang Jie has served as the
Secretary of Sino-Canada since March 2009, and served as commercial and
administrative officer for the Danish Consulate General in Shanghai from March
2007 to June 2008. Ms. Zhang received her Bachelor’s degree in law and business
administration at Shanghai University of Finance and Economics, and her Master’s
degree in business law at Leiden University, the Netherlands.
Annex I -
3
Victor Zhou has been a
director of the Company since 2004. Mr. Zhou was acting Chief
Executive Officer from June 1, 2006 to August 31, 2006. On September1, 2006 Mr. Zhou was appointed Chief Executive Officer of the
Company. Previously, Mr. Zhou was the President of Fixed Assets
Investment of Huatai Securities, one of the top ten securities firms in China,
since November 2003. He was with Huatai Securities since 1997 and served in
other senior management positions with increasing responsibilities. Before
joining Huatai Securities, Mr. Zhou was the General Manager with Jiangsu
Securities from 1993 until 1997. Mr. Zhou has extensive experiences in
securities trading, private equity investment, and asset management. Mr. Zhou
received his B.A. in Economics from Hunan University and EMBA degree from China
Europe International Business School.
Wilson
W.S. Li has been a
director of Company since 2004. Dr. Li has been the First Vice
President of Shenzhen
Capital Group, the largest Chinese investment holding company, since August
1999. Prior to that, he served in the Shenzhen Planning
Bureau. Dr. Li has extensive experience in fund management, risk control,
investment, and international business. Dr. Li received
his Masters degree in Social Science from Zhongshan University, Ph.D. in
Management Science from Xian Jiaotong University and
Ph.D. in Public Administration & Government Policy from the Chinese Academy
of Social Science.
Guoquan Shen will become a
director of Maple China following the closing of the share exchange with the
Sino-Canada shareholders. Mr. Shen has been
serving as a senior partner of All Bright Law Offices, one of the most
well-known law firms in Shanghai. Mr. Shen represented Shanghai Lu Jiazui Co.
Ltd., Hu Bei Huaxing Cement Co. Ltd., Phoenix Optics Co. Ltd., Shanghai Shenhua
Equity Co. Ltd., etc. to issue and right shares (A share & B share in
Chinese securities market). Mr. Shen received his Bachelor’s and Master’s
degrees in law at East China University of Political Science and
Law.
Ping Mei, will become a
director of Maple China following the closing of the share exchange with the
Sino-Canada shareholders. Mr. Mei served as the Ambassador Extraordinary and
Plenipotentiary to Canada for the period from 1999 to 2004. Mr. Mei also served
as the Consul General with the Consulate-General of the People’s Republic of
China in New York and San Francisco for the period from 1992 to 1996. Mr.
Mei received his Bachelor’s and Master’s degrees in English at Beijing Foreign
Studies University.
Anmin Lu will become a
director of Maple China following the closing of the share exchange with the
Sino-Canada shareholders. Mr. Lu has been serving as
the counsel for Shanghai Xun Ye Law Firm since July, 2009. Previously, Mr. Lu
served as an accounting counsel and vice manager for Shanghai Shuang Ying
Investment Management Co., Ltd. from May, 2004 to July, 2009, Chairman for
Shanghai Min Xin Assets Evaluation Co., Ltd. from January, 2000 to April, 2004,
and manager in auditing department at Shanghai Jiang Nan CPAs Co. from
September, 1994 to December, 1999, respectively.
Family
Relationships
There are
no family relationships between or among any of the post-closing directors and
executive officers of Hartcourt.
Legal
Proceedings
We are not aware of any legal
proceedings in which any post-closing director, or any affiliate of any such
post-closing director, is a party adverse to Hartcourt or has a material
interest adverse to Hartcourt.
Certain
Relationships and Related Transactions
Except as described below, there have
been no transactions or proposed transactions in which the amount involved
exceeded $120,000 since the beginning of Hartcourt’s fiscal year ending May 31,2009, in which any of the post-closing directors, or any of their respective
spouses, relatives, associates or affiliates has had or will have any direct or
material indirect interest.
In
connection with the election of the directors nominated by the Sino-Canada
shareholders, and the appointment of the new officers of the Hartcourt,
following the closing, Hartcourt and each such person will enter into
Hartcourt’s standard form of indemnification agreement for directors and
officers of Hartcourt, which generally requires Hartcourt to indemnify and to
advance expenses to him to the maximum extent that applicable law permits a
corporation to indemnify and to advance expenses to an officer of the
corporation. A copy of the form of indemnification agreement for directors and
officers has been previously filed by Hartcourt with the SEC.
Annex I -
4
During the year ended May 31, 2009,
Hartcourt issued 1,321,480 shares of common stock valued at $39,644 to its
directors in lieu of cash compensation, issued 271,809
shares of common stock valued at $7,355 to its Chief Financial Officer in lieu
of cash compensation. The stocks were valued at the average
market price for the period for which service were provided.
Due to officer amount of $246,862 for
the year ended May 31, 2009 is non-interest bearing and due on
demand.
On and effective August 11, 2008, the
Board of Directors of Hartcourt appointed Ms. Rachel Zhang to be the Chief
Financial Officer. Ms. Zhang is employed part time in this
capacity. Ms. Zhang’s compensation is $2,000 per month.
On September 1, 2008, Hartcourt signed
a new employment contract with Mr. Victor Zhou. The compensation includes an
annual base
salary of $150,000, payable by equal monthly installment of $12,500. In
addition, Mr. Zhou was granted stock options to purchase a total of _____ shares
(pre-reverse stock split) of Hartcourt common stock with exercise price
of $0.03. The stock option vesting schedule is as follows:
- 7,500,000 stock options vested pro rata
over 2 years of the employment contract period.
- 3,000,000 stock options vested upon
each successful new business acquisition of the Company.
- 3,000,000 stock options vested upon
each full profitable year.
Compliance
with Section 16(a) of the Exchange Act
Based
solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons, Hartcourt believes
that, for the fiscal year ended May 31, 2009, all Section 16(a) filing
requirements applicable to its officers, directors and 10% stockholders
were complied with.
Independence
of Directors
The Hartcourt Board of
Directors has determined that each of its directors, except Mr. Zhou and Mr. Hu,
is independent within the meaning of the applicable rules and
regulations of the Securities and Exchange Commission (“SEC”) and the director
independence standards of The NASDAQ Stock Market,
Inc. (“NASDAQ’), as currently in effect. Furthermore, the Board has
determined that each of the members of each of the committees of
the Board is “independent” under the applicable rules and regulations of the SEC
and the director independence standards of NASDAQ, as
currently in effect.
Upon the
closing of the share exchange, our board of directors will consist of Messrs.
Victor Zhou, Ross Yuan, Tiezhi Zhang, Anmin Lu, Wilson Li, Guoquan Shen and Ping
Mei. Our board has determined that Messrs. Mei, Shen, Lu and Li will
be independent directors for purposes of the independence standards set forth in
Rule 10A-3 of the Exchange Act.
Annex I -
5
Audit
Committee
Hartcourt has a separately
designated standing audit committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act
of 1934, as amended. The audit committee oversees the accounting and financial
reporting process and the external audit process of
Hartcourt and
assists the board of directors in the oversight and monitoring of (i) the
integrity of the financial statements of Hartcourt, (ii) the
internal accounting and financial controls of Hartcourt, (iii)
compliance with legal and regulatory requirements, and (iv) the
qualifications, performance, and independence of Hartcourt’s
independent registered public accounting firm. In this capacity, the
audit committee is responsible for appointing, approving the compensation of,
and overseeing the work of the independent registered
public accounting firm. In addition, the audit committee reviews and approves
all work performed by the independent registered
public accounting firm. The audit committee meets regularly with management and
with our independent registered public accounting
firm, which has access to the audit committee without the presence of management
representatives. Currently, George Xu and Changzhi
Ju serve as members of the audit committee. During the fiscal year ended May 31,2009, George Xu and Stephen Tang also served
as members of the audit committee. Both Mr. Xu and Mr. Ju are independent under
applicable securities laws and regulations.
Our board
of directors has determined that Mr. Li qualifies as an “audit committee
financial expert” under Item 407(d)(5) of Regulation S-K.
Upon the
completion of the share exchange, we expect our audit committee to consist of
Mei, Shen and Li, each of whom will be independent directors for purposes of the
independence standards set forth in Rule 10A-3 of the Exchange Act.
Nominating
Committee
Currently,
Mr. Wilson Li and Mr. Changzhi Ju serve as members of the Hartcourt nominating
committee. Both Mr. Wilson Li and Mr. Changzhi Ju are independent under
applicable securities laws and regulations.
Upon the
completion of the share exchange, we expect to establish a nominating committee
consisting of Messrs. Mei, Shen and Li. We expect each of the
directors to be appointed to our nominating committee will be an independent
director for purposes of the independence standards set forth in Rule 10A-3 of
the Exchange Act.
Compensation
Committee
Currently
Mr. Wilson Li and Mr. George Xu serve as members of the Hartcourt
compensation committee. Both Mr. Wilson Li and Mr. George Xu are independent
under applicable securities laws and regulations.
Upon the
completion of the share exchange, we expect to establish a compensation
committee consisting of Messrs. Mei, Shen and Li. We expect each of
the directors to be appointed to our compensation committee will be an
independent director for purposes of the independence standards set forth in
Rule 10A-3 of the Exchange Act.
Compensation
Committee Interlocks and Insider Participation
Upon the
completion of the share exchange, we expect to establish a compensation
committee consisting of Messrs. Mei, Shen and Li. None of these
persons has at any time during the prior fiscal year been an officer or employee
of Hartcourt. None of our executive officers currently serves, or in the prior
fiscal year has served, as a member of the board of directors or compensation
committee of any entity that has one or more executive officers that will be on
our compensation committee upon the completion of the acquisition.
Annex I -
6
Compensation
of Officers and Directors
Compensation
of Officers and Directors of Hartcourt
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
Year
Salary
(US$)
Bonus
(US$)
Stock
Awards
(US$)
Option
Awards
(US$)
Non-equity
Incentive Plan Compensation
(US$)
Change
in Pension Value and Nonqualified
Deferred
Compensation Earnings
(US$)
All
Other
Compensation
(US$)
Total
Mr.
Victor Zhou, CEO
2009
2008
150,000(1)
150,000(1)
--
--
--
--
200,652(2)
--
--
--
--
--
--
--
350,652
150,000
Mr.
Yungeng Hu,
CFO
and President(3)
2009
2008
--
150,000(4)
--
--
--
--
--
--
--
--
--
--
--
--
--
150,000
Ms.
Rachel Zhang CFO
2009
19,290(5)
19,290
Explanatory
notes:
(1) On
September 1, 2006, the Board of Directors of the Company promoted Mr. Victor
Zhou to be the Chief Executive Officer. The Company signed the employment
contract with Mr. Zhou on September 1, 2006. The compensation includes an annual
base salary of $150,000, payable by equal monthly installment of US$12,500. On
September 1, 2008, The Company signed the new employment contract with Mr.
Victor Zhou. The compensation includes an annual base salary of $150,000,
payable by equal monthly installment of $12,500.
(2) On
September 1, 2008 Mr. Zhou was granted 13,500,000 stock options with an exercise
price of $0.03 under the 2005 Stock Option Plan. The stock option vesting
schedule is as follows: a) 7,500,000 stock options vest one fourth (¼) every six
months for 2 years of the employment contract period; b) 3,000,000 stock options
vested upon each successful new business acquisition of the Company; and c)
3,000,000 stock options vested upon each full profitable year. The grant date
fair value was computed in accordance with FAS 123R. (See
footnote 4 in the
Notes to Consolidated Financial Statements).
(4) On
May 31, 2006, the Board of Directors of the Company appointed Mr. Hu to be the
President & Chief Financial Officer, effective on June 1, 2006. Mr. Hu’s
employment agreement was signed on June 1, 2006. The compensation includes an
annual base salary of $150,000, payable by equal monthly installment of
US$12,500.
(5) On
August 11, 2008, the Board of Directors of the Company appointed Ms. Rachel
Zhang to be the Chief Financial Officer, effective August 11, 2008. Ms. Zhang
was employed part time in this capacity. Ms Zhang’s compensation is $2,000 per
month.
Annex I -
7
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Option
Awards
Stock
Awards
Name
Number
of Securities
Underlying
Unexercised Options
(#)
Exercisable
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
Option
Exercise Price
($)
Option
Expiration
Date
Number
of Shares or Units of Stock That Have Not Vested
(#)
Market
Value of Shares or Units of Stock That Have Not Vested
($)
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
Mr.
Victor Zhou, CEO (1)
100,000
1,875,000
1,875,000
1,875,000
1,875,000
1,875,000
1,875,000
1,875,000
1,875,000
0.09
0.05
0.05
0.05
0.05
0.03
0.03
0.03
0.03
2011-3-8
2012-2-29
2012-8-31
2013-2-28
2013-8-31
2014-2-28
2014-8-31
2015-2-28
2015-8-31
6,000,000
0.03
Explanatory
notes:
(1) 7,500,000
options were granted to Mr. Zhou on September 1, 2006 and vest pro rata every
half year over the two years employment contract period. 2,000,000 options
granted to Mr. Zhou will vest upon each successful new acquisition of the
Company and 1,500,000 options will vest upon each full profitable
year. All the options are exercisable within 5 years time after
vesting. 7,500,000 options were granted to Mr. Zhou on September 1, 2008 and
vest pro rata every half year over the two years employment contract period.
3,000,000 options granted to Mr. Zhou will vest upon each successful new
acquisition of the Company and 3,000,000 options will vest upon each full
profitable year. All the options are exercisable within 5 years time
after vesting.
(2) The
expiration date for this grant is contingent upon the vesting
date. When the conditions have been met, and the shares vest, then
the expiration date will be five years after the vesting date.
Annex I -
8
DIRECTOR
COMPENSATION
Name
Fees
Earned or
Paid
in Cash
($)
Stock
Awards
($)
Option
Awards
($)(1)
Non-Equity
Incentive
Plan Compensation ($)
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
All
Other Compensation
($)
Total
($)
Wilson
Li
-
26,181(2)
136,209
-
-
-
162,390
Stephen
Tang
-
8,164(3)
27,242
-
-
-
35,406
George
Xu
-
5,299(4)
27,242
-
-
-
32,541
(1) The
amounts provided in this column represent the compensation cost as calculated in
accordance with FAS 123R with respect to all option awards granted under the
2005 Stock Option Plan in the fiscal year ended May 31, 2009.
(2)
During the year
ended May 31, 2009, the Company issued 872,716 shares of the Company’s common
stock to Mr. Li valued at $26,181 for his director service.
(3)
During the year
ended May 31, 2009, the Company issued 272,120 shares of the Company’s common
stock to Mr. Tang valued at $8,164 for his director service. Mr. Tang did not
stand for reelection to the Company’s Board of Directors, and his term of
service ended as of the Company’s annual meeting on April 5 2009.
(4)
During the year
ended May 31, 2009, the Company issued 176,644 shares of the Company’s common
stock to Mr. Xu valued at $5,299 for his director service.
Currently,
our directors serve for a term of two years or until their earlier resignation
or removal. Independent directors are compensated $12,000 each year, through the
issuance of restricted shares of common stock at the average closing market
price of the common shares valued each month. Additionally, for
each committee that a non-employee director serves on, we compensate our
independent directors $6,000 each year, through the issuance of restricted
shares of common stock.
On
September 11 2008, the Company granted each of Stephen Tang and George Xu,
independent directors of the Company, an option to purchase 1,000,000 shares of
the Company’s common stock at exercise price of $0.03. Each option will vest on
September 11, 2010 and is exercisable within five years time after
vesting.
As of
September 11, 2008, we compensated Mr. Li, our Chairman of the Board, $50,000
each year for service on our Board of Directors, pro rated on an annual basis.
Additionally, On September 11 2008, the Company granted Wilson Li, Chairman of
the Board, an option to purchase 5,000,000 shares of the Company’s common stock
at exercise price of $0.03. The option will vest on September 11, 2010 and is
exercisable within five years time after vesting.
On August23, 2006, the Board passed a resolution that all the options granted or to be
granted cease to be exercisable after 90 days of termination of continuing
services by the option holder with the Company.
Annex I -
9
Compensation
of Officers and Directors of Sino-Canada
SUMMARY
COMPENSATION TABLE
The
following table lists, in tabular format, summary compensation figures for each
of the Sino-Canada executive officers named below.
Name
Principal
Position
Year
Salary
per Year
Non-Equity
Incentive
Plan Compensation
All
Other
Compensation
Total
Ross
Yuan
Director
and Chief Executive Officer
2009
RMB
500,000
-
-
RMB
500,000
Tiezhi
Zhang
Director,
President, Chief Operation Officer
2009
RMB
450,000
-
-
RMB
450,000
Fusheng
Xie
Vice
President
2009
RMB
400,000
-
-
RMB
400,000
Simon
Mei
Chief
Financial Officer (part-time)
2009
RMB
200,000
-
-
RMB
200,000
Meifang
Sun
Chief
Accounting Officer
2009
RMB
280,000
-
-
RMB
280,000
Post-Merger
Employment Agreements
We expect
to enter into employment arrangements with our chief executive officer and chief
financial officer following the closing of the share exchange, although no
agreements or understandings are currently in effect.
Annex I -
10
Dates Referenced Herein and Documents Incorporated by Reference