AGREEMENT AND PLAN OF REVERSE ACQUISITION

EXHIBIT 2.1

 

AGREEMENT AND PLAN OF REVERSE ACQUISITION

 

This Agreement and Plan of Reverse Acquisition (this “Agreement”) is made and entered into as of September 29, 2009 by and among ActiveWorlds Corp., a U.S. public reporting company incorporated in Delaware whose shares are traded on the OTC Bulletin Board under the symbol: AWLD (“ActiveWorlds” or the “Purchaser” ), Baytree Capital Associates, LLC, a Delaware Limited Liability Company ("Baytree" ), Wuhan Vogue-Show Jewelry Co., Ltd. (“Vogue-Show”), a People’s Republic of China (“PRC”) wholly-owned foreign enterprise (“WOFE”), Dragon Lead Group Limited (“Dragon”), a British Virgin Islands (BVI) corporation, and the stockholders of Dragon set forth on Appendix A heret o. (the “Stockholders”).

 

 

RECITALS

 

A.

WHEREAS, the Stockholders own all of the issued and outstanding capital stock of Dragon (the “Dragon Stock”).

 

B.

WHEREAS, Dragon owns all of the registered capital stock of Vogue-Show (the “Vogue-Show Stock”) (collectively, the Stockholders, Vogue-Show and Dragon shall be referred to herein as the “Seller” , and Dragon and Vogue-Show shall be referred to as the "Corporate Sellers" ).

 

C.

WHEREAS, Vogue-Show has entered into a series of captive agreements (“variable interest agreements” or “VIEs”) with Wuhan Kingold Jewelry Co., Ltd., a People’s Republic of China (“PRC”) corporation (“Kingold”) and the stockholders of Kingold under which Kingold has agreed to pay 95.83% of its profits to Vogue-Show and about 95.83% of Kingold’s shareholders have pledged their shares and delegated their voting powers in Kingold to Vogue-Show.

 

D.

WHEREAS, subject to the terms and conditions set forth herein, the Stockholders wish to sell to ActiveWorlds and ActiveWorlds desires to purchase from the Stockholders all of the Dragon Stock for the purchase price set forth below ("Reverse Acquisition") .

 

E.

WHEREAS, simultaneous with the sale and purchase of the Dragon Stock, ActiveWorlds will complete a private placement in an amount of USD 5,000,000.

 

 

AGREEMENT

 

In consideration of the terms hereof, the parties hereto agree as follows:

 

 

ARTICLE I - PURCHASE AND SALE OF STOCK;

PRIVATE PLACEMENT

 

1.1

Purchase and Sale of Stock

 

Subject to the terms and conditions hereof, on the Closing Date (as defined below), the Stockholders shall each sell, convey, transfer, assign and deliver to ActiveWorlds, and ActiveWorlds shall purchase from the Stockholders , all the issued and outstanding common shares of Dragon (the “Transaction”) .  

 

1.2

The Closing

 

The closing of this Transaction (the “Closing”) shall occur on October ____ , 2009 (the “Closing Date”) at 10:00 a.m. local time at the offices of Cyruli Shanks Hart & Zizmor, LLP, or such other time or location as the parties hereto shall agree. At the Closing, each of the parties hereto shall deliver all such documents, instruments, certificates and other items as may be required under this Agreement or the Operative Documents (as defined in Section 2.3 hereof) or otherwise.

 

1.3

Purchase Price

 

Subject to the terms and conditions of this Agreement, the total purchase price for the Dragon Stock (the “Purchase Price”) shall be 66,208,466 newly issued of ActiveWorlds Common Stock, par value USD 0.001 shares (the "Consideration Shares").  

 

1.4

Private Placement

 

It is contemplated by the parties that in connection with the Reverse Acquisition and simultaneous with the Closing, ActiveWorlds shall conduct a private placement to accredited investors of 10,041,687 shares of ActiveWorlds Common Stock (the “Investor Stock”) and 5,020,844 five year warrants with an exercise price of USD 0.498 per share (the “New Warrants”) for a total price of USD 5,000,000, utilizing a registered broker/dealer which is reasonably acceptable to the parties, as placement agent (the “Private Placement”).  

 

1.5

Assistance in Consummation of the Purchase and Sale of Stock

 

The Sellers and ActiveWorlds shall provide all reasonable assistance to, and shall cooperate with, each other to bring about the consummation of the Transaction and the other transactions contemplated herein as soon as possible in accordance with the terms and conditions of this Agreement.

 

1.6

Tax and Accounting Consequences

 

It is intended by the parties hereto that the Transaction shall constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended.  The parties hereto adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.

 

ARTICLE II - REPRESENTATIONS AND WARRANTIES

OF THE SELLERS

 

As of the date of this Agreement and as of the Closing, Dragon, Vogue-Show, and the Stockholders jointly and severally with each other, represent and warrant to ActiveWorlds (which representations and warranties shall survive the Closing to the extent provided in Section 10.3 hereof) all as follows in this Article II:

 

2.1

Good Title

 

The Stockholders own all of the issued and outstanding shares of Dragon  Stock free and clear of any lien, encumbrance, adverse claim, restriction on sale or transfer (other than restrictions imposed by applicable securities laws), preemptive right or option.

 

Dragon owns all of the registered capital of Vogue-Show free and clear of any lien, encumbrance, adverse claim, restriction on sale or transfer , preemptive right or option, in accordance with Vogue-Show’s Articles of Association and the Certificate of Approval for Establishment of Enterprise with Foreign Investment in the People’s Republic of China (Shangwaizi Jing Zi 2009 No . 3 ) issued on February 13, 2009 by Wuhan Municipal Government .

 

2.2

Organization, Good Standing

 

Each of the Corporate Sellers is a corporation duly organized, validly existing and in good standing, and no certificates of dissolution have been filed under the laws of their respective jurisdictions of organization. Each of the Sellers has all requisite authority and power (corporate and other), governmental licenses, authorizations, consents and approvals to carry on their respective businesses as presently conducted and to own, hold and operate their respective properties and assets as now owned, held and operated, except where the failure to be so organized, existing and in good standing or to have such authority and power, governmental licenses, authorizations, consents or approvals would not have a material adverse effect upon its business, business prospects, assets, operations or financial condition (a “Material Adverse Effect”).

 

Each of the Corporate Sellers has delivered or made available to ActiveWorlds a true and correct copy of, as the case may be, Certificates of Incorporation, Memorandum and Articles of Association and/or other equivalent organizational documents, each as

 

amended to date, and each accurately translated into English. None of the Corporate Sellers is in violation of any of the provisions of its respective Memorandum and Articles of Association, Bylaws or equivalent organizational documents. The organizational documents of each of the Corporate Sellers are valid and subsisting.

 

2.3

Authorization

 

Each of the Corporate Sellers has full corporate power and authority and the Stockholders have the full power, right and authority to enter into this Agreement and each of the documents to which it or he is a party in relation to the Transaction (collectively, the “Operative Documents”), and to carry out the Transaction. This Agreement is, and each Operative Document to which the Sellers are a party will be, on the Closing Date, duly executed and delivered by each of the Sellers, as applicable, and this Agreement is, and each Operative Document to which the Sellers are a party will be, on the Closing Date, a legal, valid and binding obligation of each, as applicable, enforceable against each of them in accordance with their respective terms of this Agreement and each such Operative Document, subject, as to enforceability, to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general applicability affecting the rights of creditors and to general principles of equity.

 

2.4

Authorized Capitalization

 

Dragon’s authorized capital stock consists solely of 50,000 shares of registered shares , par value USD 1.00 per share (“Dragon Common Stock”) of which 11,500 shares are issued and outstanding on the date of this Agreement and entirely held by the Stockholders.  All issued and outstanding shares of Dragon Common Stock are validly issued, fully paid and non-assessable. There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or other agreements of any character which obligate or may obligate Dragon to issue any additional shares of any of its capital stock or any securities convertible into or evidencing the right to subscribe for any shares of any such capital stock.  Except as specifically set forth in Schedule 2.8, there are no voting trusts or other agreements or understandings with respect to the capital stock of Dragon to which Dragon or the Stockholders are a party or by which the Stockholders or Dragon are bound.

 

Vogue-Show’s registered capital is HKD 1,000,000 (“Vogue-Show Registered Capital”) of which HKD 200,000 has been paid up.  Vogue-Show is a wholly foreign owned entity and the sole owner of all the equity interest in Vogue-Show is Dragon. There are no outstanding or authorized subscriptions, options, warrants, calls, rights, commitments or other agreements of any character which obligate or may obligate Vogue-Show to issue any additional shares of any of its registered capital. Except as specifically set forth in Schedule 2.8 there are no voting trusts or other agreements or understandings with respect to the capital stock of Vogue-Show   to which Vogue-Show is a party or by which Vogue-Show is bound.

 

 

2.5

Subsidiaries and Affiliates

 

A.  Dragon has no Subsidiaries except Vogue-Show. Except for Vogue-Show, Dragon does not own, directly or indirectly, any ownership, equity, profits or voting interest in, or otherwise control, any corporation, partnership, joint venture or other entity, and has no agreement or commitment to purchase any such interest.

 

B.  Vogue-Show has no Subsidiaries and except for Kingold does not own, directly or indirectly, any ownership, equity, profits or voting interest in, or otherwise control, any corporation, partnership, joint venture or other entity, and has no agreement or commitment to purchase any such interest.

 

As used in this Agreement, “Subsidiary”, when used in reference to any Person (as defined in Section 2.6 of this Agreement), shall mean any corporation of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors of such corporation are owned directly or indirectly by such Person.

 

2.6

No Approvals or Notices Required; No Conflicts With Instruments

 

The execution, delivery and performance of this Agreement and the Operative Documents by the Sellers and the consummation of the transactions contemplated hereby and thereby will not in any way which would result in a Material Adverse Effect , (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of law or any judgment, decree, order, regulation or rule of any court or other governmental authority applicable to any of the Sellers, except for such as have been obtained at or prior to the Closing (b) require any consent, approval or authorization of, or declaration, filing or registration with, any person, corporation, partnership, joint venture, association, organization, other entity or governmental or regulatory authority (a “Person”) (the consent of all such Persons to be duly obtained by the Sellers at or prior to the Closing), (c) result in a default (with or without the giving of notice or lapse of time, or both) under, acceleration or termination of, or the creation in any party of the right to accelerate, terminate, modify or cancel, any agreement, lease, note or other restriction, encumbrance, obligation or liability to which any of the Sellers is a party or by which either of them is bound or to which any of their assets are subject, (d) result in the creation of any lien or encumbrance upon the assets of any of the Sellers or upon any of the capital stock of any of the Sellers, (e) conflict with or result in a breach of or constitute a default under any provision of any organizational documents of any of the Corporate Sellers, or (f) invalidate or adversely affect any permit, license, authorization or status used in the conduct of the business of the Sellers.

 

2.7

Financial Statements

 

Dragon has delivered to ActiveWorlds audited consolidated financial statements including a consolidated balance sheet, statement of operations and comprehensive income, statements of cash flows and statements of shareholder equity of Dragon, together with the related notes thereto for the 12-month periods ended December 31,

 

2008 and 2007 (collectively, the “Audited Financial Statements”) and unauditied consolidated financial statements for the six month period ended June 30, 2009 the "Interim Financial Statements").  The Audited Financial Statements are complete and correct in all material respects and fairly present the financial condition of Dragon and its Subsidiaries as of the dates thereof and the results of their operations for the fiscal years ended on such dates and each has been prepared on a basis consistent with prior accounting periods and in accordance with United States generally accepted accounting principles and the rules of the Public Company Accounting Oversight Board consistently applied

 

Neither Dragon nor its Subsidiaries has any material liability or obligation of any nature (absolute, contingent or otherwise) which is not fully reflected or reserved against in the Audited Financial Statements, except for liability reserves or obligations incurred since the date of the Audited Financial Statements in the ordinary course of business and consistent with past practice and not in excess of USD 25,000 in the aggregate or USD 5,000 individually.

 

2.8

Absence or Certain Changes or Events

 

Except as specifically set forth in Schedule 2.8, the Audited Financial Statements, the Interim Financial Statement or as specifically contemplated by this Agreement, since June 30, 2009, neither of the Corporate Sellers nor any of their officers or directors in their representative capacity on behalf of the Corporate Sellers has:

 

(a)

taken any action or entered into or agreed to enter into any transaction, agreement or commitment other than in the ordinary course of business;

 

(b)

forgiven or canceled any material indebtedness or waived any claims or rights of material value (including, without limitation, any indebtedness owing by the Stockholders or any officer, director or employee of Vogue-Show or Dragon);

 

(c)

suffered any material adverse change in its working capital, assets, liabilities (absolute, accrued, contingent or otherwise), earnings or reserves or in its financial condition, business, business prospects or operations (a "Material Adverse Change") ;

 

(d)

borrowed or agreed to borrow any funds, assumed or become subject to, whether directly or by way of guarantee or otherwise, any obligation or liability (absolute or contingent), or incurred any liabilities or obligations (absolute, accrued, contingent or otherwise) which exceed in the aggregate USD 25,000 (counting obligations or liabilities arising from one transaction or a series of similar transactions, and all periodic installments or payments under any lease or other agreement providing for periodic installments or payments, as a single obligation or liability), except liabilities and obligations reflected in the balance sheet contained within the Interim Financial Statements (the “ June 30 Balance Sheet”) or incurred since the date of the June 30   Balance Sheet in the ordinary course of business and consistent with past practice which

 

do not exceed USD 25,000 in the aggregate, or increased, or experienced any change in any assumptions underlying or methods of calculating, any material bad debt, contingency or other reserves;

 

(e)

permitted or allowed any of its material property or assets (real, personal or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction or charge, except for (i) assessments for current taxes not yet due and payable, (ii) landlord's liens for rental payments and other lease-related performance incurred in the ordinary course of business and not yet due and payable, and (iii) mechanics', materialmen's, carriers' and other similar liens securing indebtedness that was incurred in the ordinary course of business and is not yet due and payable;

 

(f)

written down the value of any material inventory (including write-downs by reason of shrinkage or markdown) or written off as uncollectible any material notes or accounts receivable;

 

(g)

sold, transferred or otherwise disposed of any of its properties or assets (real, personal or mixed, tangible or intangible), except in the ordinary course of business and consistent with past practice;

 

(h)

disposed of or permitted to lapse any rights to the use of any trademark, trade name, patent or copyright, or trade secrets;

 

(i)

made any capital expenditure or commitment to make a capital expenditure for additions to property, plant, equipment or intangible capital assets in excess of USD 50,000.00;

 

(j)

made any change in any method of accounting or accounting practice;

 

(k)

issued any capital stock or other securities or declared, paid or set aside for payment any dividend or other distribution in respect of its capital stock or redeemed, purchased or acquired, directly or indirectly, any shares of capital stock or other securities, or otherwise permitted the material withdrawal by any of the holders of capital stock of any cash or other assets (real, personal or mixed, tangible or intangible), in compensation, indebtedness or otherwise, other than payments of compensation in the ordinary course of business and consistent with past practice;

 

(l)

paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets (real, personal or mixed, tangible or intangible), with the exception of travel or other employment related advances, to, or entered into any agreement or arrangement with, any of the holders of capital stock of Kingold , or any affiliate of such holder or any of its officers or directors, except for compensation paid to officers at rates not exceeding the rate of compensation as of January 1, 2009;

 

 

(m)

entered into or agreed to enter into, or otherwise suffered to be outstanding, any power of attorney or any obligations or liabilities (whether absolute, accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any other Person in excess of USD50,000.

 

(n)

received notice of, or otherwise obtained knowledge of:  (i) any material claim, action, suit, arbitration, proceeding or investigation involving, pending against or threatened before or by any court or governmental or non-governmental department, commission, board, bureau, agency or instrumentality, or any other Person; (ii) any valid basis for any material claim, action, suit, arbitration, proceeding, investigation or the application of any fine or penalty materially adverse before or by any Person; or (iii) any outstanding or unsatisfied judgments, orders, decrees or stipulations which relate directly to the transactions contemplated herein or which would otherwise have a Material Adverse Effect , or

 

(o)

agreed, whether in writing or otherwise, to take any action described in this Section 2.8 not otherwise specifically disclosed pursuant to this Section 2.8.

 

2.9

Taxes

 

The Sellers have (a) duly and timely filed, with the PRC and other appropriate governmental agencies (domestic and foreign) all tax returns, information returns and reports for all Taxes (as defined below) required to have been filed with respect to each Seller and (b) paid in full or provided for all Taxes, interest and other governmental charges which are shown to be due on such returns or reports. “Taxes” shall mean all taxes, charges, fees, levies or other assessments, including, but not limited to, income, severance, excise, gross receipts, property, sales, use, ad valorem, transfer, franchise, profit, license, withholding, payroll, employment, severance, stamp, occupation, windfall profit, social security and unemployment or other taxes imposed by the Chinese Government , the Government of the British Virgin Islands or any agency or instrumentality thereof, and any interest or fines, and any and all penalties or additions relating to such taxes, charges, fees, levies or other assessments. Furthermore, except as described in Schedule 2.9, (i) the reserves and provisions for Taxes reflected in the Interim Balance Sheet are adequate; (ii) no unresolved claim for assessment or collection of Taxes has been asserted or threatened against any of the Sellers and no audit or investigation by governmental authorities is under way with respect to Taxes, interest or other governmental charges; (iii) no state of facts exists or has existed which would constitute a reasonable basis for the assessment against any of the Sellers of any additional material tax liability with respect to any period for which tax returns have been filed; and (iv) none of the Sellers has filed or entered into any election, consent or extension agreement or any waiver that extends any applicable statute of limitations.  

 

 

 

 

2.10

Property

 

The Corporate Sellers, as of the date hereof, shall have good and valid title to all of their respective properties, interests in properties and assets, real and personal, reflected in the June 30 Balance Sheet or acquired after the June 30   Balance Sheet Date (except properties, interests in properties and assets sold or otherwise disposed of since the June 30   Balance Sheet Date in the ordinary course of business) (the “Real Property and Personal Property”, respectively), or in the case of leased properties and assets, valid leasehold interests in, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except (i) the lien of current taxes not yet due and payable, (ii) such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations involving such properties, (iii) liens securing debt which is reflected on the June 30   Balance Sheet, and (iv) liens that in the aggregate would not have a Material Adverse Effect on such Corporate Seller . The property and equipment of Kingold that is used in the operations of its businesses are in good operating condition and repair, except where the failure to be in good operating condition or repair would not have a Material Adverse Effect.

 

Schedule 2.10 identifies each parcel of real property owned or leased by each of the Corporate Sellers. Neither the whole nor any portion of any assets or property of the Corporate Sellers are subject to any currently outstanding governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefore, nor, has any such condemnation, expropriation or taking been proposed.

 

2.11

Contracts

 

Schedule 2.11 contains a complete and accurate list of all material contracts, oral or written, to which Kingold is a party or by which Kingold is bound, including, without limitation, security agreements, conditional sales agreements, instruments relating to the borrowing of money, and broker or distributorship agreements; provided, however, that Schedule 2.11 does not include: (a) purchase orders received by Kingold in the ordinary course of its business from its customers; (b) purchase orders issued by Kingold in the ordinary course of its business to its suppliers and subcontractors involving less than USD 500,000 in the aggregate; or (c) other contracts cancelable within 30 days without penalty or involving less than USD 5,000 individually and USD 15,000 in the aggregate.  Except as set forth in Schedule 2.11, all material contracts are valid, binding and enforceable in accordance with their terms against each party thereto, are in full force and effect, Kingold has performed all material obligations imposed upon it thereunder, and neither Kingold nor any other party thereto is in material default thereunder, nor is there any event which with notice or lapse of time, or both, would constitute a material default thereunder. True and complete copies of each such contracts have been heretofore delivered to ActiveWorlds.

 

 

 

2.12

Customers and Suppliers

 

Schedule 2.12 sets forth: (a) a list of the customers of Kingold accounting for 5% or more of Kingold 's sales during fiscal year 2008 showing the approximate total sales by Kingold to each such customer during the fiscal year last ended and (b) a current list of the suppliers of Kingold from whom Kingold has purchased more than 5% of the goods purchased by Kingold in fiscal year 2008. Kingold has no reasonable basis to expect any material modification to its relationship with any customer or supplier named in Schedule 2.12.  Except as set forth in Schedule 2.12, (i) Kingold has not had any customer who accounted, directly or indirectly, for more than 5% of its sales during fiscal years 2008 and 2007, and (ii) Kingold has no supplier from whom it has purchased more than 5% of the goods or services which it purchased during fiscal years 2008 and 2007. Kingold is not bound by any contract which prohibits the use or publication by Kingold of the name of any party to such contract and Kingold is not a party to or bound by, any contract which prohibits or in any way restricts Kingold from freely providing services to any other customer of Kingold or any potential customer of Kingold. Except as set forth in Schedule 2.12, none of Kingold's customers has canceled or substantially reduced or, to the knowledge of Kingold , is currently attempting or threatening to cancel a contract of more than USD 500,000 or materially reduce utilization of the services provided by Kingold . Schedule 2.12 sets forth all of Kingold's material vendor authorizations and vendor relationships.

 

2.13

Litigation; Claims and Legal Proceedings

 

Except disclosed in Schedule 2.13, none of the Sellers is a party to or the subject of any pending litigation, claims, decrees, orders, stipulations or governmental investigation which, if decided adversely to such Seller, would have a Material Adverse Effect , and there are no lawsuits, claims, assessments, investigations, or similar matters, against or affecting any of the Sellers, its management or its properties. Each of the Sellers has complied in all material respects with all laws, statutes, ordinances, regulations, rules, decrees or orders applicable to it.

 

Except as set forth in Schedule 2.13, there are noclaims, actions, suits, arbitrations or proceedings pending or involving or to the knowledge of the Sellers threatened against, or investigations involving any of the Sellers before or by any court or governmental or nongovernmental department, commission, board, bureau, agency or instrumentality, which, if decided adversely to such Seller, would have a Material Adverse Effect to the knowledge of the Sellers . There is no valid basis for any material claim, action, suit, arbitration, proceeding or investigation (other than as noted in Schedule 2.13) adverse to the business, business prospects, assets, operations or condition (financial or other) of any of the Sellers before or by any Person. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which any of the Sellers is a party which involve the transactions contemplated herein or which would have a Material Adverse Effect .

 

 

 

2.14

Labor Matters

 

There are no material disputes, employee grievances or disciplinary actions pending or to the knowledge of the Sellers threatened or involving Kingold or any of its present or former employees. Kingold  to the knowledge of the Sellers, is in material compliance with all applicable law relating to employment and employment practices, terms and conditions of employment, workers compensation, wages and hours, where the failure to comply with which would have a material adverse effect upon the business, business prospects, assets, operations or condition (financial or other) of Kingold. Kingold is not engaged in any unfair labor practice and has no liability for any arrears of wages or penalties for failure to comply with any such provisions of law. There is no labor strike, dispute, slowdown or stoppage pending or affecting Kingold and Kingold has not experienced any work stoppage or other labor difficulty. No collective bargaining agreement is binding on Kingold.  Kingold has no knowledge of any organizational efforts presently being made on behalf of any labor union with respect to employees of Kingold and Kingold has not been requested by any group of employees or others to enter into any collective bargaining agreement or other agreement with any labor union or other employee organization. on Kingold.

 

2.15

Employee Benefit Plans

 

Except as set forth in Schedule 2.15, Kingold has no bonus, deferred compensation, incentive, severance pay, pension, profit-sharing, retirement, stock purchase, stock option or any other employee benefit plan, employee fringe benefit plan, arrangement or practice with regard to present or former employees as to which Kingold has any material liability (“Employee Benefit Plan”).   

 

2.16

Intellectual Property.

 

Except as set forth on Schedule 2.16, Kingold owns, or has licenses to use or otherwise possesses legally enforceable and unencumbered rights to use, any patents, trademarks, trade names, service marks, domain names, copyrights, and any applications therefor, trade secrets, computer software programs, and tangible or intangible proprietary information or material that are used in Kingold's busines s.

 

2.17

Accounts Receivable

 

All accounts receivable reflected in the Audited Financial Statements, or the Interim Financial Statements or existing at the Closing, represent sales actually made in the ordinary course of business, as recognized in accordance with United States generally accepted accounting principals.  Except as described in Schedule 2.17, Sellers have no reason to believe that any such account receivable is not or shall not, be collected in the amounts shown. The bad debt reserves and sales return allowances as reflected in the Audited Financial Statements are adequate. Set forth in Schedule 2.17 is a full and complete list of all accounts receivable of Kingold existing as of the Closing Date.

 

 

2.18

Restrictions on Business Activities.    

 

Each of the Corporate Sellers has obtained, as of the date hereof, each governmental consent, license, permit, grant, or other authorization of a governmental authority (i) pursuant to which it currently operates or holds any interest in any of its properties or (ii) that is required for the operation of its business or the holding of any such interest ((i) and (ii) herein collectively called ‘‘Company Authorizations’’), and all of such Company Authorizations are in full force and effect, except where the failure to obtain or have any of such Company Authorizations or where the failure of such Company Authorizations to be in full force and effect would not reasonably be expected to have a Material Adverse Effect on such Seller .  Kingold is a member in good standing to buy gold from the Shanghai Gold Exchange and diamonds from the Shanghai Diamond Exchange.

 

2.19

Corporate Books and Records

 

Each of the Corporate Sellers has furnished to ActiveWorlds or its representatives for their examination true and complete copies of its (a) applicable organizational documents including all amendments thereto, (b) minute books, and (c) stock register books.

 

2.20

Foreign Corrupt Practices Act .    

 

None of the Sellers, nor any director, officer , or key employee , has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any governmental authority from corporate funds; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment in connection with the operations of any of the Sellers. None of the Sellers, nor any director, officer, key employee, or other person associated with or acting on behalf of either has committed any acts or omissions which would constitute a breach of relevant PRC, United States or British Virgin Islands criminal laws, including but not limited to corruption laws.

 

2.21

Applicable Laws

 

Each of the Sellers has complied, and is in compliance with, all applicable laws, rules, regulations, ordinances, decrees and orders applicable to the operation of its business, to its employees, or to the Real Property and the Personal Property, the failure to comply with which would, in the aggregate, have a Material Adverse Effect including, without limitation, all such laws, rules, regulations, ordinances, decrees and orders relating to antitrust, consumer protection, currency exchange, environmental protection, equal opportunity, health, occupational safety, pension, securities and trading- with-the-enemy matters. None of the Sellers has received any notification of any asserted present or past unremedied failure by them to comply with any of such laws, rules, regulations, ordinances, decrees or orders. as authorized by the PRC government, to own, use, lease its assets and conduct its business as described in its business license. The articles of

 

association, the business licenses and the approval certificate of Vogue-Show and Kingold are in compliance with the requirements of applicable PRC laws and regulations and are in full force and effect.

 

2.22

Insurance

 

Schedule 2.22 lists all of Kingold 's policies of insurance. Kingold maintains such policies of insurance as are appropriate to Kingold’s operations, property, and assets, in such amounts and against such risks as are customarily carried and insured against by owners of comparable businesses, properties and assets.  

 

2.23

Money Laundering Laws

 

The operations of each of the Corporate Sellers are and have been conducted at all times in compliance with money laundering statutes in all applicable jurisdictions in which it conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental authority (collectively, the ‘‘Money Laundering Laws’’) and no proceeding involving any of the Sellers with respect to the Money Laundering Laws is pending or, to its knowledge threatened.

 

2.24

Brokers and Finders

 

Each of the Sellers represents and warrants, that with the exception of WLT Brothers Capital, Inc., Daily Fortune Investment, and Baytree Capital Associates LLC, neither they nor any of them nor any director, officer, agent or employee acting on their behalf has retained any broker or finder in connection with the transactions contemplated by this Agreement and the Operative Documents. At the Closing, Daily Fortune will receive 833,335 shares of ActiveWorld’s common stock as compensation for services.  The Stockholders shall be solely responsible for any additional fees payable to WLT Brothers Capital, Inc and/or Daily Fortune.

 

2.25

Government Contracts

 

Kingold has never been, nor as a result of the consummation of the transactions contemplated by this Agreement is it reasonable to expect that it will be, suspended or debarred from bidding on contracts or subcontracts for any agency of the PRC government, nor has such suspension or debarment been threatened or action for such suspension or debarment been commenced. Kingold has not been nor is it now being audited or investigated by the PRC or any of its agencies or the United States Government.  There is no valid basis for Kingold 's suspension or debarment from bidding on contracts or subcontracts for any agency of the PRC or any of its agencies or the United States government and there is no valid basis for a claim pursuant to an audit or investigation by the PRC or any of its agencies or the United States government or the inspector general of any agency of the United States government. Kingold has never had a contract or subcontract terminated for default, nor has it ever been determined to be

 

non-responsible, by any agency of the PRC or the United States government.  Kingold has no outstanding agreements, contracts or commitments which require it to obtain or maintain any governmental security clearances.

 

2.26

Domain Names

 

Schedule 2.6 sets forth all Internet domain names registered to Kingold , whether or not such domain names are currently in use. Kingold has no knowledge of any third party regarding ownership of any such domain names or the alleged infringement of any rights of any such parties by Kingold’s ownership of such domain names.

 

2.27

Web Sites

 

The information contained on Kingold’s Web sites regarding Kingold, its employees, business and products is accurate in all material respects

 

2.28

Environmental Issues

 

Kingold is in compliance in all material respects with applicable PRC and local laws, statutes, regulations, orders, directives and decisions rendered by any legislature, department, administrative or regulatory agency relating to the protection of the environment, occupational health and safety or the use, storage, disposal, transport, handling, remediation or corrective action of any pollutants, contaminants, chemicals, deleterious substances or industrial, toxic or hazardous wastes or substances collectively, “Environmental Laws ”).

 

2.29  

Board Approval .   

 

 The Boards of Directors of each of the Corporate Sellers have approved this Agreement.

 

2.30

Insider Interests

 

Except as set forth in Schedule 2.30 neither the Stockholders nor any officer of any of the Corporate Sellers has any interest (other than as a stockholder of Dragon ) (a) in any property, real or personal, tangible or intangible, used in or directly pertaining to the business of Kingold or the corporate Sellers, including, without limitation, inventions, patents, trademarks or trade names, or (b) in any agreement, contract, arrangement or obligation relating to Kingold or the corporate Sellers, its present or prospective business or its operations.

 

2.31

Investment Representations

 

Each Seller represents on his, her or its own behalf:

 

 

(a)

Investment . Each Stockholder shall receive the Consideration Shares with no intention of distributing or reselling the Consideration Shares or any part thereof, or interest therein, in any transaction which would be in violation of the securities laws of the United States or any state thereof, without prejudice, however, to the Stockholder's rights at all times to sell or otherwise dispose of all or any part of the Consideration Shares