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Loan Settlement Agreement

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LOAN SETTLEMENT AND CONVERSION AGREEMENT | Document Parties: KID CASTLE EDUCATIONAL CORP | SUANG-YI PAI | MIN-TAN YANG You are currently viewing:
This Settlement Agreement involves

KID CASTLE EDUCATIONAL CORP | SUANG-YI PAI | MIN-TAN YANG

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Title: LOAN SETTLEMENT AND CONVERSION AGREEMENT
Governing Law: Florida     Date: 1/4/2007
Industry: Misc. Financial Services    

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LOAN SETTLEMENT AND CONVERSION AGREEMENT

 

among

 

SUANG-YI PAI

 

MIN-TAN YANG

 

and

 

KID CASTLE EDUCATIONAL CORPORATION

 

 

 

December 28, 2006

 


 

LOAN SETTLEMENT AND CONVERSION AGREEMENT

 

This Loan Settlement and Conversion Agreement, effective as of December 28, 2006, (the “ Agreement ”) is entered into by Suang-Yi Pai (“ Pai ”), Min-Tan Yang (“ Yang ”), and Kid Castle Educational Corporation (the “ Company ”).

 

Background

 

This Agreement is entered into based on the following facts and circumstances, which the parties stipulate are an accurate recitation of the facts:

 

1.  

During the fourth quarter of 2005, the Company experienced financial difficulties and was incapable of generating cash flows sufficient to sustain its operations. With the threat of insolvency looming, the Company’s management team at the time - Chief Executive Officer Kuo-An Wang and Chief Financial Officer Yu-En Chiu - approached Pai and Yang for financial aid and management support.

 

2.  

At the request of Wang and Chiu, Pai and Yang agreed to make or cause to be made, in aggregate, an investment in the amount of approximately US$1.8 million to the Company, based on the understanding that (a) Pai would be appointed as the Chairman of the Board and Yang the Chief Executive Officer of the Company, and (b) the investment made by Pai and Yang would be used to subscribe newly issued shares of the Company based on the valuation of the Company at the time of the investments.

 

3.  

On November 2, 2005, Pai was elected to be the Chairman of the Board of Directors of the Company and Yang was elected to be a director and the Chief Executive Officer of the Company.

 

4.  

On or about October 31, 2005, at Pai’s behest, Olympic Well International Ltd. (“Olympic”) and Chen-Chen Shih invested US$0.75 million (together, the “ Outside Investors ”). A portion of the investment made by Olympic in the amount of US$342,364 was assigned to Pai on or about December 30, 2005 in connection with settling the matter with former CFO Chiu discussed below.

 

5.  

On or about November 14, 2005, Yang invested US$1.05 million to the Company.

 

6.  

Although all parties were under the understanding that Pai, Yang and the Outside Investors would be issued Company stock when an appropriate valuation for the stock was mutually determined, the investments were not otherwise documented in written agreements.

 

7.  

Soon after Pai and Yang assumed their new management roles, they were informed by Chiu, the former CFO, that he had engaged in a practice of commingling his personal funds with Company funds. The extent of the commingling and the impact on the valuation of the Company was unknown at the time, making it more difficult to value the Company. Further, it became apparent that the Company’s then available financial information was not sufficiently reliable basis to derive a valuation for the shares.

 


 

8.  

It was then agreed by all parties that the investments made by Outside Investors, Pai and Yang would be treated as interest bearing short term loans (the “ the Management Loans ”) until the Board of Directors could be in a position to determine the value of the Company, at which time the Management Loans would be converted into shares of Company common stock based on a price approved by the Board of Directors and agreed to by the holders of the loans.

 

9.  

Upon further investigation it became apparent that Chiu owed the Company a substantial amount as of the end of 2005. Chiu was at that time in financial distress and would not be able to repay the amounts due the Company in the near future. To reduce the impact of Chiu’s debt on the Company, it was agreed that Pai and Yang would assume Chiu’s debt to the Company outstanding as of the end of 2005, when the amount of such debt could be ascertained, and in consideration an equivalent portion of the Management Loans would be forgiven.

 

10.  

It was subsequently determined that Chiu owed the Company NT$18,500,000 as of the end of 2005 and based on the above-mentioned understanding, the outstanding amount of the Management Loans was reduced to US$1,248,514 pursuant to a three-way loan settlement agreement entered into between Pai and Yang, Chiu and the Company.

 

11.  

The Company was not in a financial position to repay the Management Loans when they became due, despite the holders’ request for payment. The maturity dates of the Management Loans were extended by agreement in February, May and August 2006. Pai, Yang and the Company have been unable to reach a conclusion on a fair valuation for the shares.

 

12.  

The rema


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