THIS AGREEMENT is made on 22nd June, 1999 and is made
BETWEEN:-
(1) KARTEK INTERNATIONAL HOLDINGS LIMITED, a corporation
incorporated in the British Virgin Islands and having its registered
office at Akara Building, Suite # 8, Wickhams Cay I, Road Town,
Tortola, the British Virgin Islands ("Kartek");
(2) ZHANJIANG POST BUREAU) of 55 ("ZPB") ;
(3) ZHANJIANG TELECOMMUNICATIONS BUREAU of ("ZTB"); and
(4) XXXXXXXX HOLDINGS INC., a company incorporated in the Bahamas
with limited liability with its registered office at Xxxxxxxxxx Xxxxx,
Xxxxxxxx Xxxxxx, X.X. Xxx X-0000 Nassau, the Bahamas (the
"Purchaser").
WHEREAS:-
(A) Information concerning (Zhanjiang Kingtone Cable
Enterprises Limited) (the "Company") is set out in Part A of Schedule
1.
(B) The Vendors are the registered and beneficial owners of
registered capital of the Company in such percentage as set opposite
their respective names in column (2) of Part B of Schedule 1. Part C
of Schedule 1, contains background information concerning the
ownership of the Company.
(C) Subject to the terms of this Agreement, each of the Vendors has
agreed to sell and the Purchaser has agreed to purchase the respective
portions of the registered capital of the Company owned by the Vendors
as set opposite the name of the Vendors in Column (3) of Part B of
Schedule 1, which collectively amount to an aggregate of 60% of the
registered capital of the Company.
IT IS HEREBY AGREED:-
1. INTERPRETATION
(A) In this Agreement, the Schedules and the Recitals hereto, unless
the context requires otherwise, the following expressions shall have
the following meanings:-
" Accounts" the audited balance sheet of the Company as at the
Accounts Date and the audited profit and loss account of the Company
for the financial year ended on the Accounts Date, in each case
including the notes thereto and together with the reports and other
documents required by law or relevant accounting standards or
practices to be annexed or attached to them, true and complete copies
of which are annexed hereto marked "A";
"Accounts Date" - 31st December, 1998
"Adjusted Retained Consideration" the amount payable by the Purchaser
to the Vendors in accordance with Clause 4(C) and Clause 10 and
calculated in accordance with Clause 10;
"Articles of Association" - the articles of association of the Company
for the time being;
"Business" - the business of the Company as carried on by the Company
as at the date hereof; a day (other than a Saturday) on which banks in
Hong Kong are generally open for business;
"Claim" - any claim for breach of a Warranty;
"Completion" - the performance by each of the Vendors and the
Purchaser of their respective obligations in accordance with the
provisions of Clause 9(A);
"Completion Date" - subject to Clause 2(D), the tenth Business Day
following the date of notification, as stated in Clauses 2A(x), by the
Purchaser to the Vendors;
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"Conditions" - the conditions set out in Clause 2(A);
"Consent" - includes, inter alia, any licence, approval,
authorisation, permission, waiver, order or exemption;
"Corporate Documents" - in relation to the Company, its current
business licence, approval letters and certificates issued by the
relevant PRC authorities; records and minute books written up to date
as at the Completion Date; common seal, chops and all rubber stamps;
cheque books, cheque stubs and bank statements; receipt books; all
other accounting records; contractual documents, leases and title
documents in respect of the Property, copies of all tax returns and
assessment, if any, (receipted where the due dates for payment fell on
or before the Completion Date); all correspondence, if any, with its
lawyers, accountants or the PRC Tax Bureau; all other documents and
correspondence, if any, relating to the affairs of the Company; and
all copies of the memorandum, articles of association and joint
venture agreements including the Joint Venture Contract, the Articles
of Association;
"Deed of Indemnity" - the deed in the form set out in Schedule 4;
"Doubtful Debts" such amount of indebtedness owing by the Company's
debtors to the Company which has been overdue for more than 12 months
and has been classified as doubtful debts as shown in the Final
Accounts;
"Encumbrance" - any mortgage, pledge, charge, ledge, lien, assignment
by way of security, hypothecation, equities, adverse claims, third
party rights or interest, or other encumbrance, priority or security
interest, other security agreement arrangement or other rights or
interest of whatsoever nature or other security agreement arrangement
whether relating to existing or future assets, security or any
obligation of any relevant person and "Encumber" shall be construed
accordingly;
"Final Accounts" - the audited balance sheet of the Company as at the
Management Accounts Date and the audited profit and loss account of
the Company for the 16 month period ended on the Management Accounts
Date prepared in accordance with Clause 10;
"Hong Kong" - the Hong Kong Special Administrative Region of the PRC;
"Initial Consideration" - the respective amounts (or its US dollar
equivalent) as set opposite the names of the Vendors in column (5) of
Part B of Schedule 1 payable by the Purchaser to the Vendors in
accordance with Clause 4(B);
"Intellectual Property Rights" - all industrial and intellectual
property, including without limitation, patents, trade marks, service
marks, trade names, designs, copyrights and the copyright in all
drawings, plans, specifications, designs and computer software
(including in each application therefor) in any part of the world and
whether or not registered or registrable and all know-how, inventions,
formulae, trade secrets, confidential or secret processes and
information, business names and domain names and any similar rights
situated in any country; and the benefit (subject to the burden) of
any and all licences in connection with any of the foregoing
(including all documents relating thereto);
"Joint Venture Contract" - the joint venture contract dated 12th
January, 1993 entered into between Far East Kartek Enterprises Limited
and Zhanjiang Post and Telecommunications Bureau as supplemented by
various agreements dated 8th October, 1995, 13th August, 1998, and 4th
June, 1999 respectively, true and complete copies of which are annexed
hereto marked "B";
"Management Accounts" - the unaudited balance sheet of the Company as
at the Management Accounts Date and the unaudited profit and loss
account of the Company for the 4 months ended on the Management
Accounts Date, true and complete copies of which are annexed hereto
marked "C";
"Management Accounts Date" - 30th April, 1999;
"Material Adverse Change - any change (or effect), the consequence of
which(or Effect)" - is to materially and adversely affect the
financial position, the Business or Property, results of operations,
business prospects or assets of the Company;
"PRC" - the People's Republic of China;
52
"Property" - the property interests of the Company which are set out
in Schedule 2;
"Purchase Price" - subject to adjustments provided in Clause 10, the
respective aggregate consideration payable by the Purchaser for the
purchase of the relevant portions of Sale Capital as set opposite each
Vendor's name in column (4) in Part B of Schedule 1 and provided in
Clause 4;
"Purchaser's Accountants" - Xxxxxx Xxxxxxx of 7th Floor, Allied Kajima
Building, 000 Xxxxxxxxxx Xxxx, Xxxx Xxxx;
"Purchaser's Solicitors" - Xxxxxxxx Xxxxxx of 20th Floor, Xxxxxxxxx
Xxxxx, 00-00 Xxxxxx Xxxx, Xxxxxxx, Xxxx Xxxx;
"Retained Consideration" - in respect of the relevant portion of the
Sale Capital, the aggregate sum (or its US dollars equivalent) set
opposite each Vendor's name in column (7) of Part B of Schedule 1;
"Sale Capital" - collectively the 28 per cent. of the registered
capital of the Company to be sold by Kartek, the 13.68 per cent. of
the registered capital of the Company to be sold by ZPB and 18.32 per
cent. of the registered capital of the Company to be sold by ZTB to
the Purchaser (as set out in Column (3) of Part B of Schedule 1)
pursuant to the terms and conditions or this Agreement;
"Subsidiary" - in relation to a company or entity, a company in
respect of which such company or entity:-
(i) holds more than half of the issued share capital (excluding any
part of it which carries no right to participate beyond a specified
amount in a distribution of either profits of capital); or
(ii) controls the composition of the board of directors; or
(iii) controls more than half of the voting power,
and shall include any company which is a subsidiary (on the basis set
out above) of another company which is itself a subsidiary of such
company or entity;
"Supplemental Contract" - the supplemental contract in the form set
out in Schedule 5;
"Taxation" - has the meaning given thereto in the Deed of Indemnity;
"Vendors" - collectively, Kartek, ZPB and ZTB and "Vendor" shall mean
any one of them;
"Warranties" - the warranties, representations and undertakings given
by
the Vendors referred to in Clause 8 and Schedule 3;
"RMB" - Renminbi, the lawful currency of the PRC; and
"US$" or "US dollars" - United States dollars, the lawful currency of
the United States of America.
(B) References herein to statutory provisions shall be construed as
references to those provisions as amended or re-enacted or as their
applications are modified by other provisions (whether before or after
the date hereof) from time to time and shall include any provisions of
which they are re-enactments (whether with or without modification).
(C) References herein to "Clauses" and "Schedules" are to clauses of
and schedules to this Agreement unless the context requires otherwise
and the Schedules to this Agreement form an integral part of this
Agreement.
(D) The expressions "the Vendors" and "the Purchaser" in this
Agreement shall, where the context permits, include their respective
successors, personal representatives and permitted assigns.
(E) The table of contents and Clause headings are inserted for
convenience only and shall not affect the construction or
interpretation
of this Agreement.
53
(F) Unless the context requires otherwise, in this Agreement words
importing the singular include the plural and vice versa and words
importing gender or the neuter include both genders and the neuter.
(G) For the purposes of this Agreement, amounts quoted in RMB and
which require to be converted into US dollars (for the purpose of
payment or otherwise) shall be converted at the rate of US$1 to RMB
8.20.
2. CONDITIONS
(A) Completion of this Agreement is conditional upon the following
conditions being fulfilled and remaining fulfilled as at Completion:-
(i) where required pursuant to the terms of any contracts,
agreements or any loan or finance documentation, the counter parties
thereto having confirmed that they will not seek to terminate or vary
any term therein or make a claim thereunder as a result of, or treat
as a breach of any terms thereof, any change in the boards of
directors, the management or shareholding of the Company any other
changes or transactions contemplated under or arising out of or in
connection with this Agreement and all other necessary Consents and
authorisations which may be required to implement and complete this
Agreement having been obtained;
(ii) all Consents which are required for the entering into or the
implementation or completion of this Agreement by the relevant
Vendors, and/or the Company having been obtained, including, without
limitation, the Consents (if appropriate or required) of the
respective shareholders and the respective boards of directors of the
relevant Vendors and the Company and other relevant third parties in
the PRC which are required for the entering into and the
implementation of this Agreement having been made; all applicable
statutory or other legal obligations having been complied with;
(iii) all government or regulatory approvals required in the PRC
by the Vendors and the Company in respect of the sale and purchase of
the Sale Capital on the terms set out in this Agreement having been
obtained;
(iv) the term of the Joint Venture Contract having been legally
and validly extended from 20 years to 31 years;
(v) the Supplemental Contract having been entered into by the
relevant parties;
(vi) the Articles of Association having been revised to reflect
the corporate changes caused by the Supplemental Contract;
(vii) resolutions having been passed by all the directors of the
Company approving:
(a) the execution of the Supplemental Contract;
(b) the revision of the Articles of Association of the Company
referred to in Sub-clause 2(vi) above;
(c) the transfer of an aggregate 60% of the registered capital of
the Company from the Vendors to the Purchaser;
(d) the appointment of a new Chairman and legal representative
nominated by the Purchaser, and the appointment of new directors in
accordance with Clause 9(A)(ii)(a);
(e) such change of the authorised users of the Company's bank
accounts and chops (with effect from Completion) as the Purchaser may
request;
(viii) Execution of necessary documents by the original approval
authority in the PRC approving:-
(a) the Supplemental Agreement;
(b) the revision of the Articles of Association of the Company in
accordance with Sub-clause 2(vi) above;
(c) the transfer of an aggregate of 60% of the registered capital of
the Company from the Vendors to the Purchaser;
55
(d) the extension of the term of the Joint Venture Contract
referred to in Clause 2(A)(iv) above;
(ix) the issuance by the State Administration of Industry and
Commerce of the PRC of an amended business licence of the Company; and
(x) the Purchaser in its absolute discretion notifying the
Vendors in writing of its readiness to complete.
(B) Each of the Vendors and the Purchaser (in so far as it is within
their respective powers and capacities so to do) shall provide all
assistance, where relevant, as may be reasonably required by the other
parties hereto to procure the fulfillment of the Conditions set out in
Clause 2(A).
(C) The Purchaser may waive all or any of such Conditions at any
time by notice in writing to the Vendors.
(D) In the event that the Conditions shall not have been fulfilled,
or waived on or before 15th September, 1999, or Completion shall not
have taken place on or before that date (or such later date as the
Vendors and the Purchaser may determine), this Agreement and all
documents executed ancillary thereto shall lapse and be of no further
effect, and no party to this Agreement shall have any claim against or
liability to the other party but without prejudice to the rights and
obligations of the parties under Clause 5(C).
3. SALE AND PURCHASE
(A) Subject to the terms and conditions of this Agreement, each of
the Vendors as legal and beneficial owner shall sell the percentage of
the Sale Capital set opposite its name in Column (3) of Part B of
Schedule 1 and the Purchaser shall purchase such percentage of the
Sale Capital from each of the Vendors, free from all liens, claims,
equities, charges, Encumbrances or third party rights of whatsoever
nature and with all rights now or hereafter becoming attached thereto
(including the right to receive all dividends and distributions
declared, made or paid on or after the date hereof).
(B) The Purchaser shall not be obliged to complete the purchase of
any of the Sale Capital unless the sale and purchase of the Sale
Capital is completed simultaneously.
4. PURCHASE PRICE
(A) The total consideration for the relevant portion of the Sale
Capital shall be up to the respective amounts set opposite each
Vendor's name in column 4 of Part B of Schedule 1 subject to
adjustment in accordance with Clause 10 so that the Purchase Price
equals the sum of the Initial Consideration and the Adjusted Retained
Consideration.
(B) The Initial Consideration shall be payable to each of the
Vendors in the amounts set opposite their respective names in column
(5) of Part B of Schedule 1 on Completion in accordance with the
provisions in Clause 9.
(C) The Adjusted Retained Consideration payable to ZPB and ZTB shall
be payable and calculated in accordance with the provisions in Clause
10 and the Retained Consideration payable to Kartek shall be payable
as agreed between the relevant parties.
5. TERMINATION
(A) If at any time prior to Completion:-
(i) the Purchaser shall be aware of any matter or event showing
that any of the Warranties was or may have been, when given, untrue or
inaccurate in any respects or would or may be untrue or inaccurate in
any respects if repeated as at the date on which the Purchaser becomes
so aware; or
(ii) any of the Vendors commits any material breach of or omits
to observe any of the other obligations or undertakings expressed to
be assumed by it under this Agreement; or
56
(iii) any creditor makes a valid demand for repayment or payment
of any indebtedness of the Company prior to its stated maturity which
constitutes a Material Adverse Change (or Effect); or
(iv) without prejudice to any other provisions of this Clause,
between the date hereof and Completion any of the provisions of Clause
9 is not satisfied or has not been duly and promptly fulfilled,
observed or performed in any material respect due to a deliberate
default of the
Vendors; or
(v) the Company shall sustain any loss or damage which, in the
reasonable opinion of the Purchaser, constitutes a Material Adverse
Change (or Effect); or
(vi) a petition is presented for the winding up or liquidation of
the Company, or the Company makes any composition or arrangement with
its creditors or enters into a scheme of arrangement or any resolution
is passed for the winding up of the Company or a provisional
liquidator, receiver or manager is appointed over all or part of the
assets or undertaking of the Company or, anything analogous thereto
occurs in respect of the Company,then the Purchaser may in its
absolute discretion without any liability on its part, by notice in
writing to the Vendors, terminate this Agreement. The right to
terminate this Agreement under each of sub-Clauses (i) to (vi) above
is a separate and independent right to any other right to terminate
this Agreement.
(B) Upon the giving of notice pursuant to Clause 5(A) by the
Purchaser, all obligations of the Purchaser hereunder shall cease and
determine and no party shall have any claim against the other parties
in respect of any matter or thing arising out of or in connection with
this Agreement save and except the parties' obligations under Clause
5(C).
(C) If this Agreement is terminated for any reason or Completion
does not take place on 15th September, 1999 or such other date as
provided in Clause 2(D), each party hereto shall forthwith upon such
termination or 15th September, 1999 (whichever is earlier), provide
all assistance and sign and do all necessary documents and things as
such other party may reasonably require for the cancellation and
removal (as the case may be) of all documentation (including without
limitation the Supplemental Contract) that may have been entered into
between the relevant Vendors or the Company and the Purchaser, all
Consents or other approvals that may have been obtained pursuant to
the terms of this Agreement and all appointments of any nominees of
the Purchaser as officers of or other positions in the Company that
may have been made in connection with or pursuant to the terms or
arrangements under this Agreement.
6. DUE DILIGENCE REVIEW PRIOR TO COMPLETION
(A) The Purchaser and its appointed representatives and professional
advisers shall have the right to visit all facilities and office
premises of the Company and check the existence and condition of
assets thereat and to carry out a review and investigation of,
including but not limited to, the assets, liabilities, financial
condition, contracts, commitments, business and prospects of the
Company for the sole purpose of enabling the Purchaser satisfying
itself on all matters relating to the Company and completing the
purchase of the Sale Capital herein and on a strictly confidential
basis. In order to facilitate such review, as from the date of this
Agreement and prior to Completion, each of the Vendors shall (in so
far as it is within their respective powers and capacities so to do)
procure that the Purchaser and/or its appointed representatives and/or
professional advisers will be given all such information relating to
the Company and such access to the facilities and office premises and
Corporate Documents of the Company as the Purchaser or its appointed
representatives or professional advisers may reasonably request for
the above purpose and on the above basis and that the directors and
employees of the Company shall be instructed to give promptly all
information and explanations to the Purchaser or any such person as it
may reasonably request.
(B) Where the consent of any party would be required as a consequence
of Completion pursuant to any contract or agreement to which the
Company is a party, the Vendors shall procure (in so far as it is
within their respective powers and capacities so to do) that such
consent be obtained so that no Material Adverse Change (or Effect) on
the Company's continued operations will be caused by Completion.
57
7. CONDUCT OF BUSINESS PRIOR TO COMPLETION
(A) Each of the Vendors, hereby undertakes to procure (in so far as
it is within their respective powers and capacities so to do) that the
Business will continue to be operated in a normal and prudent basis
and in the ordinary course of day-to-day operations having regard to
the working capital available to the Company and they will not do or
omit to do (or allow to be done) or to be omitted to be done any act
or thing (in either case whether or not in the ordinary course of day-
to-day operations) which is material in the context of the Company
and/or the Business taken as a whole and in particular (but without
limiting the generality of the foregoing) will procure that the
Company shall not prior to Completion, without having first obtained
from the Purchaser its prior written consent:-
(i) increase or reduce the registered capital or total amount of
investment the Company;
(ii) issue any debentures or other securities convertible into
debentures;
(iii) borrow or raise money other than on normal commercial terms
in the ordinary course of its business;
(iv) make any advances or other credits to any person or give any
guarantee or indemnity or act as surety for or otherwise secure or
accept any direct or indirect liability for the liabilities or
obligations of any person;
(v) factor or assign any of its book debts;
(vi) alter the terms of any financing/lending documents or
security arrangements;
(vii) create or permit to arise any mortgage, charge (fixed or
floating), lien, pledge, other form of security or Encumbrance or
equity of whatsoever nature, whether similar to the foregoing or not,
on or in respect of any part of its undertaking, property or assets
other than liens arising by operation of law in amounts which are not
material in its ordinary course of business;
(viii) declare, pay or make any dividends or other distributions;
(ix) make any capital expenditure in excess of RMB50,000;
(x) sell, transfer, lease, assign or otherwise dispose of or
agree to sell, transfer, lease, assign or otherwise dispose of any
asset or of any part of its undertaking, property or assets (or any
interest therein), otherwise than in the ordinary course of business;
(xi) let or agree to let or otherwise part with possession or
ownership of the whole or any part of the Property nor purchase, take
on lease or assume possession of any real property;
(xii) acquire any material assets on hire purchase or deferred
terms;
(xiii) enter into or amend any contract or other transaction or
capital commitment or undertake any contingent liability which exceeds
a monetary value of RMB50,000;
(xiv) terminate any agreement or waive any right thereunder;
(xv) enter into or amend any service agreements with directors or
officers or increase the remuneration payable thereto;
(xvi) other than as envisaged herein, appoint any new directors;
(xvii) hire any new employee or consultant or terminate any
employee's contract of employment or appoint or terminate the services
of any consultant or vary the terms of employment of any employee or
of service of or consultant, in each case where the monthly salary
(including benefits) of that employee is or would be in excess of
RMB2,000 per month;
58
(xviii) establish any pension, retirement scheme, share option
scheme, profit sharing or bonus scheme or any other benefit scheme
operated by the Company;
(xix) grant any power of attorney or in any way delegate any of
the directors' powers;
(xx) undertake anything which would have the consequence of
requiring claim, action, demand or dispute or waive any right in
relation to any of the foregoing, which in each case is or can be
expected to be material in the context of the Business;
(xxii) release, compromise or write off any material amount
recorded in the books of account of the Company as owing by any
debtors of the Company;
(xxiii) terminate or allow to lapse any insurance policy now in
effect;
(xxiv) carry on any business other than the Business;
(xxv) enter into any partnership or joint venture arrangement;
(xxvi) establish or open or close any branch or office;
(xxvii) dispose of the ownership, possession, custody or control
of any corporate or other books or records;
(xxviii)save for the passing of any resolutions contemplated in
this Agreement propose or pass any shareholders' resolution other than
a resolution at any annual general meeting which is not special
business;
(xxix) enter into any transaction or arrangement, which is not
for full consideration and on arm's length terms;
(xxx) change its auditors;
(xxxi) alter its financial year end;
(xxxii) to the extent it has the power to prevent it, allow or
permit the occurrence of any Material Adverse Change (or Effect); or
(xxxiii) do, allow or procure any act or permit any omission which
would or might constitute a breach of any of the Warranties or any of
the undertakings set out in this Agreement.
8. REPRESENTATIONS, WARRANTIES, UNDERTAKINGS AND INDEMNITIES
(A) Subject to the terms and conditions herein contained, each of
the Vendors hereby represents, warrants and undertakes to the
Purchaser (to the intent that the provisions of this Clause shall
continue to have full force and effect notwithstanding Completion) in
the terms set out in Schedule 3 and acknowledges that the Purchaser in
entering into this Agreement is relying on such representations,
warranties and undertakings and the Purchaser shall be entitled to
treat the same as conditions of this Agreement.
(B) Each of the Warranties shall be separate and independent to the
intent that the Purchaser shall have a separate claim and right of
action in respect of any breach thereof and save as expressly provided
herein shall not be limited by reference to anything else in this
Agreement.
(C) The Vendors shall not do, allow or procure any act or permit any
omission by the Company before the Completion Date which would
constitute a breach of any of the Warranties if they were given at the
time of such act or omission on or at the Completion Date or which
would make any of the Warranties inaccurate or misleading if they were
so given. Each of the Vendors undertakes to disclose to the Purchaser
in writing any matter occurring prior to the Completion Date which
constitutes or may lead to a breach of or is inconsistent with any of
the Warranties or which may render any of the Warranties inaccurate or
misleading (or which would constitute a breach of or be inconsistent
with any of the Warranties, or renders any of them inaccurate or
misleading in any respect, if the Warranties were given at the time of
such occurrence) immediately upon becoming aware of the same.
59
(D) In addition to the Purchaser's rights at common law in respect
of any breach of any of the Warranties and notwithstanding whether all
or any of the transactions contemplated by this Agreement shall have
been completed, each of the Vendors covenants with the Purchaser to
hold the Purchaser fully indemnified on demand against any loss or
liability suffered by the Purchaser as a result of or in connection
with any breach of such Warranties and in respect of any depletion in
the assets, loss or allowance, set off or deduction of the Company
occasioned or suffered in connection with or in the rectifying of any
breach of the Warranties together with all costs, charges, interest,
penalties and expenses incidental or relating thereto.
(E) Where a Warranty is made or given "so far as the Vendors are
aware", such Warranty shall be deemed to be given to the best of the
knowledge, information and belief of the Vendors after making due and
careful enquiries before giving such Warranty of the appropriate
directors, employees and professional advisers best placed to confirm
the accuracy of such Warranty so given and having used their best
endeavours to ensure that the matters so warranted by them are true
and accurate in all respects.
(F) The Purchaser has entered into this Agreement upon the basis of
the Warranties and the same together with any provision of this
Agreement which shall not have been fully performed at Completion
shall remain in full force notwithstanding that Completion shall have
taken place.
(G) The Warranties are given only subject to matters which have been
disclosed to the Purchaser and none of the Warranties shall be deemed
in any way modified or discharged by reason of any investigation or
inquiry made or to be made by or on behalf of the Purchaser at any
time prior to Completion, and no information relating to the Company
of which the Purchaser has knowledge (whether actual, constructive or
otherwise) shall prejudice any claim which the Purchaser shall be
entitled to bring or shall operate to reduce any amount recoverable by
the Purchaser hereunder, and it shall not be a defence to any claim
against the Vendors that the Purchaser had knowledge (whether actual,
constructive or otherwise) of any information relating to the
circumstances giving rise to such claim.
(H) If it is found on or prior to Completion that any of the
Warranties is in any respect untrue, incorrect or unfulfilled or if
the Purchaser becomes aware of the occurrence of a Material Adverse
Change (or Effect), the Purchaser shall be entitled by notice in
writing to the Vendors to rescind this Agreement but shall not be
entitled to any damages in respect thereof.
(I) The obligations of the Vendors under this Clause 8 and the
Warranties are several.
(J) The liability for each of the Vendors under this Agreement shall
be limited as follows:-
(i) None of the Vendors shall be liable for a Claim for beach of any
of the Warranties to the extent that the subject matter of the Claim
which the Purchaser has actual knowledge or the subject matter of the
Claim arises or occurs pursuant to any request of the Purchaser.
(ii) No individual Claim shall be made against any of the Vendors
unless the Vendors' liability under that Claim exceeds RMB 10,000.00.
However, the Vendors shall be liable in respect of any Claims if the
aggregate liability of the Vendors for all such Claims exceed RMB
30,000.
(iii) The aggregate maximum liabilities of the respective Vendors in
respect of all claims made against the Vendor concerned in connection
with this Clause 8, this Agreement, the Deed of Indemnity or any
documents entered into or obligations incurred pursuant to this
Agreement shall not exceed the amount equivalent to the respective
amounts of Retained Consideration set out opposite each of the
Vendors' name in Column (7) of Part B of Schedule 1.
(iv) No claim in relation to this Clause 8, this Agreement or any
documents entered into or obligations incurred pursuant to this
Agreement shall be made by the Purchaser against any of the Vendors
later than 18 months after the Completion Date except for any claim in
relation to Taxation under the Deed of Indemnity for which the
Purchaser shall not make any claim against any of the Vendors later
than 3 years after the Completion Date.
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9. COMPLETION
(A) Subject to satisfaction of all the Conditions in full (save for
any Condition the full compliance or satisfaction of which has been
waived by the Purchaser) and the provisions under Clauses 2 and 5,
Completion shall take place on the Completion Date at the offices of
the Company at 3.00 p.m. or at such other place and time as shall be
mutually agreed by the parties hereto (time in either case being of
the essence) when all (but not part only) of the following business
shall be transacted:-
(i) the Vendors shall (so far as it is within their respective
powers and capacities so to do) deliver or cause to be delivered to
the Purchaser:-
(a) certified true copies of the documents referred to in Clauses
2(A) (vi) to (ix);
(b) the Deed of Indemnity duly executed by each of the Vendors;
(c) evidence to the satisfaction of the Purchaser that the term of
the Joint Venture Contract has been validly extended from 20 years to
31 years;
(d) certified true copies of such legal opinions to the satisfaction
of the Purchaser (in form and substance) as the Purchaser may request;
(ii) the Vendors (so far as it is within their respective powers and
capacities so to do) shall procure that with effect from Completion:
(a) 5 persons nominated by the Purchaser be appointed as new
directors of the Company;
(b) the General Manager, Chief Accountant, and such other managerial
personnel as nominated by the Purchaser be appointed by the board of
directors of the Company in accordance with the meeting rules of the
Company;
(c) the resignation of such number of directors of the Company so
that the number of directors in the new board of the Company after the
appointments referred to in Clause 9(A)(ii)(a) above shall be 8; and
(d) the resignation of such managerial personnel as the Purchaser
may request;
(iii) the Vendors shall (so far as it is within their respective
powers and capacities so to do) produce evidence to the satisfaction
of the Purchaser that save for those related party transactions which
have been disclosed in writing by the Vendors, any arrangements and
agreements between the Vendors and the Company shall be terminated
with effect from the Completion Date by mutual agreement between the
respective parties thereto without liability on the part of the
Company ;
(iv) the Vendors shall (so far as it is within their respective
powers and capacities so to do) return or deliver and cause to be
returned or delivered to the Company or the Purchaser all Corporate
Documents of the Company;
(v) the Vendors shall (so far as it is within their respective
powers and capacities so to do) deliver and cause to be delivered to
the Purchaser written confirmation that the Vendors are not aware of
any matter or thing which is in breach of any of the Warranties when
they take effect on Completion;
(vi) the Vendors shall deliver such other documents to the
Purchaser as may be required to give the Purchaser good title to the
Sale Capital and to enable the Purchaser or its nominees to become the
owner thereof;and
(vii) the Purchaser shall procure that the Purchaser's Solicitors
shall pay to each of the Vendors the Initial Consideration in cash or
in the manner as the Vendors and the Purchaser shall have agreed and
as the Purchaser shall have been notified in writing at least two
Business Days prior to the Completion Date, such notification shall in
any event be binding on each of the Vendors.
61
(B) The Purchaser shall not be obliged to complete this Agreement
or perform any obligations hereunder unless the Vendors comply fully
with the requirements of Clause 9(A). Without prejudice to any other
remedies which may be available to the Purchaser hereunder, if any
provision of this Clause 9 is not complied with by the Vendors on the
Completion Date, the Purchaser may:-
(i) defer Completion to a date falling not more than 28 days
after the original Completion Date (so that the provisions of this
Clause 9 shall apply to the deferred Completion) provided that, time
shall be of the essence as regards the deferred Completion and if
Completion is not effected on such deferred date, the Purchaser may
rescind this Agreement; or
(ii) proceed to Completion so far as practicable (but without
prejudice to the Purchaser's rights hereunder) insofar as the Vendors
shall not have complied with their obligations hereunder; or
(iv) treat this Agreement as terminated for breach by the Vendors
of any of the Conditions of this Agreement.
10. FINAL ACCOUNTS & PURCHASE PRICE ADJUSTMENT
(A) For the Purchaser's own purpose and on its own account, the
Purchaser shall forthwith upon the signing of this Agreement instruct
the Purchaser's Accountants to prepare the Final Accounts in
accordance with this Clause as soon as practicable.
(B) The Final Accounts shall be prepared by the Purchaser's
Accountants in accordance with the following provisions:
(i) preparation by the Purchaser's Accountants of the Final Accounts
shall be completed within 60 days of the Completion Date unless the
Purchaser's Accountants shall request a longer period for such
preparation whereupon the parties hereto shall agree to such
extension;
(ii) the Vendors shall procure to be supplied to the Purchaser's
Accountants such information and records and accord the Purchaser's
Accountants such access to their properties and facilities of the
Company as the Purchaser's Accountants may reasonably require for
their preparation of the Final Accounts; and
(iii) the Purchaser's Accountants shall, in their audit of the Final
Accounts, apply such accounting practice, standards and principles as
are generally accepted in the United States of America.
(C) The Vendors agree to reimburse to the Purchaser the costs and
expenses of the Purchaser's Accountants in preparation of the Final
Accounts such amounts to be borne solely by the Company in accordance
with Clause 13(A).
(D) Within seven (7) Business Days from the completion of the
preparation of the Final Accounts by the Purchaser's Accountants, the
Purchaser shall procure the delivery to the Vendors of the Final
Accounts. The Final Accounts shall contain details of the Doubtful
Debts including the corresponding dates on which such Doubtful Debts
should have been payable.
(E) As from Completion, the Vendors shall use (in so far as it is
within their respective powers and capacities so to do) their best
endeavours to arrange for the collection of or procure the collection
of the Doubtful Debts.
(F) For every six month's interval commencing from the date of
delivery of the Final Accounts until the expiry of a 18-month period
from the date of delivery of the Final Accounts:
(i) the parties shall endeavor to prepare an account of the Doubtful
Debts recovered during each such 6-month period ("Recovered Debts")
identifying each amount of Recovered Debts; and
(ii) subject to any other arrangements agreed between any of the
Vendors and the Purchaser and to Clause 10(G), the Purchaser shall pay
to ZPB and ZTB as Adjusted Retained Consideration, in respect of any
amount of Recovered Debts, a total of 28% of the aggregate amount of
such Recovered Debts provided that the aggregate amount of Adjusted
Retained Consideration payable to each of ZPB and ZTB under this
62
Clause 10(F)(ii) shall not in any event exceed the Retained
Consideration as set out opposite their respective names in Column (7)
of Part B of Schedule 1. Other than the payment of Adjusted Retained
Consideration, the Purchaser shall not be liable to pay to any of the
Vendors any further sum/amount pursuant to this Agreement.
(G) Notwithstanding anything in this Clause 10, no adjustment shall
be made to the Retained Consideration payable to Kartek which shall be
payable in a manner other than in cash. The manner of payment shall
be agreed in writing between the Purchaser and Kartek.
11. POST COMPLETION UNDERTAKINGS
(A) To the extent permitted by the relevant laws and regulations,
each of ZPB and ZTB undertakes to the Purchaser that within 10 years
from the Completion Date it shall, and it shall procure that all of
its affiliated enterprises and organizations shall, purchase products
of the Company on an exclusive basis at the then prevailing market
price.
(B) Subject to the relevant laws and regulations, ZPB and ZTB
undertake to the Purchaser that for 12 months from the Completion
Date, ZPB and ZTB (on one part) and the Company (on the other part)
shall not cancel any financial and other guarantees in respect of the
other party's obligations.
(C) ZPB and ZTB shall continue to support the Business and shall
second relevant employees to the Company in accordance with its needs.
(D) The Vendors acknowledge and confirm that this Agreement is
entered into between them in a spirit of mutual co-operation, trust
and confidence and that it is the intention that the business,
profitability and reputation of the Company, shall be extended and
maximised by all reasonable and proper means and each party undertakes
to the other parties to use all reasonable commercial efforts to
continue to promote the Company's business in the PRC and elsewhere.
In particular, ZPB and ZTB shall ensure that the Company's
relationship with the relevant authorities governing the post,
telecommunications and other related industries in the PRC shall not
be tarnished or affected in any way by reason of this Agreement or the
changes made therein.
(E) The parties shall procure that the board of the Company shall
meet at least four times annually and that:-
(i) the quorum for each such board meeting shall comprise of at
least 6 directors present throughout the meeting;
(ii) not less than 14 days' notice shall be given to all directors
of the Company of the convening of any such board meeting;
(iii) all business discussed at any such board meeting shall be
subject to the provisions of confidentiality contained in Clause 12
below.
(F) It is hereby agreed by the parties that for so long as the Joint
Venture Contract remains in effect;
(i) the Purchaser shall be entitled to appoint 5 directors to the
board of directors of the Company; and
(ii) the General Manager, Chief Accountant, and such other
managerial personnel of the Company as nominated by the Purchaser
shall be appointed by the board of directors of the Company in
accordance with the meeting rules of the Company.
(G) It is hereby agreed by the parties that they will procure that
the Joint Venture Contract and the Articles of Association of the
Company shall be amended to give effect to this Agreement (and in
particular to incorporate the provisions in Clauses 11 (E) and 11(F)).
12. CONFIDENTIALITY
The terms contained in this Agreement shall be and remain
confidential save for disclosure to professional advisers and (if
required) regulatory authorities and where required by law. Where any
press or other announcement is required by law, the party proposing to
make the announcement shall so far as practicable obtain the consent
from the other parties hereto regarding the terms of such announcement
prior to its release.
63
13. COSTS AND EXPENSES
(A) The parties agree that the fees and expenses incurred by the
Purchaser on its financial and legal due diligence exercise on the
Company shall be payable and borne by the Company provided that the
maximum amount payable to the Purchaser shall not exceed US$200,000.
(B) If Completion fails to take place, Clause 13(A) shall not apply
or have any effect and each party shall bear its own cost incurred in
relation to the negotiation and the preparation of this Agreement.
14. MISCELLANEOUS
(A) Subject to any express provision of this Agreement to the
contrary, each party to this Agreement shall pay its own costs and
disbursements of and incidental to the preparation, negotiation and
completion of this Agreement and the sale and purchase hereby agreed
to be made.
(B) Each notice, demand or other communication given or made under
this Agreement shall be in writing and delivered or sent to the
relevant party at its address or fax number set out below (or such
other address or fax number as the addressee has by two (2) Business
Days' prior written notice specified to the other parties):-
To Kartek:-
Xxxxxxx Xxxxx X, 00/X, Xxxxxxxxxxxxx Xxxxxxxxxx Xxxxxx
0-0 Xxxx Xxx Xxxxxx, Xx Xxx
Xxx Xxxxxxxxxxx, Xxxx Xxxx
Fax Number (000) 0000-0000
Attention: Xx. Xxxxxxx Xxx
To ZPB:-
Address 24022
Fax Number: 000-00-000-0000000
Attention
To ZTB:-
Address: 24022
Fax Number: 000-00-000-0000000
Attention:
To the Purchaser:-
Address:
20th Floor, Xxxxxxxxx Xxxxx
00-00 Xxxxxx Xxxx
Xxxxxxx, Xxxx Xxxx
Fax Number: (000) 0000-0000
Attention: Xx. Xxxxxxx Xx (Ref: CJW/FFYC/WWLK/B277-002)
Any such notice or other document shall be deemed to have been duly
given upon receipt if delivered by hand or if sent by facsimile
transmission upon the receipt of machine printed confirmation and in
the case of a notice sent by post it shall be deemed to have been
given on the fifth Business Day after posting if the address is in the
PRC and on the tenth Business Day after posting if the address is
outside the PRC. In proving the giving of a notice it shall be
sufficient to prove that the notice was left or that the envelope
containing such notice was properly addressed and posted or that the
applicable means of telecommunication was properly received (as the
case may be).
(C) This Agreement constitutes the whole agreement between the
parties hereto and shall supersede the terms of any agreement, whether
oral or otherwise, made prior to the entering into of this Agreement.
It is expressly declared that no purported variations hereof shall be
effective unless made in writing and signed by all the parties
affected by such variations.
(D) The provisions of this Agreement, insofar as the same shall not
have been fully performed at Completion, shall remain in full force
and effect notwithstanding Completion.
64
(E) The Vendors shall at the reasonable request of the Purchaser do
and execute or procure to be done and executed all such further acts,
deeds, things and documents as may be necessary to give effect to the
provisions of this Agreement.
(F) No waiver by any party to this Agreement of any breach by any
other party of any provision hereof shall be deemed to be a waiver of
any subsequent breach of that or any other provision hereof and any
forbearance or delay by the relevant party in exercising any of its
rights hereunder shall not be constituted as a waiver thereof.
(G) Time shall be of the essence as regards any time, date or period
mentioned in this Agreement and any time, date or period substituted
for the same by agreement of the parties hereto or otherwise.
(H) The illegality, invalidity or unenforceability of any part of
this Agreement shall not affect the legality, validity or
enforceability of any other part of this Agreement.
(I) The provisions of this Agreement shall be binding on and shall
enure for the benefit of the successors and assigns and personal
representatives (as the case may be) of each party provided that the
Vendors may not assign or transfer their respective rights or
obligations hereunder without the prior written consent of the
Purchaser.
(J) The parties have signed both the English and Chinese versions of
this Agreement and it is agreed that both language versions shall be
of the same force and effect.
15. SETTLEMENT OF DISPUTES
(A) In the event a dispute arises in connection with the
interpretation, implementation or performance of this Agreement, the
parties hereto shall attempt in the first instance to resolve such
dispute through friendly consultations. If such dispute is not
resolved in this manner within 21 days after the commencement of
discussions, then any party hereto may submit the dispute for
arbitration in Singapore for final decision pursuant to the provisions
of UNCITRAL with instructions that the arbitration be conducted in the
manner set forth in Clause 15(B) hereof.
(B) Arbitration shall be conducted as follows:-
(i) the arbitrators may refer to both the English and Chinese
texts of this Agreement;
(ii) all proceedings in any such arbitration shall be conducted
in English and translated into Chinese; and
(iii) there shall be three (3) arbitrators all of whom shall be
fluent in English. The Purchaser and the Vendors (collectively)
shall each select one (1) arbitrator. The third arbitrator shall be
chosen as provided in the UNCITRAL Arbitration Rules and shall serve
as chairman of the panel.
(C) The arbitration awards shall be final and binding on the
parties, and the hereto agree to be bound thereby and to act
accordingly.
(D) The costs of arbitration shall be borne by the losing party,
unless otherwise determined by the arbitration award.
(E) Whenever any dispute occurs or is under arbitration, the
parties hereto shall continue to exercise their remaining respective
rights, and fulfill their remaining respective obligations, in such
manner in accordance with the provisions of this Agreement.
16. GOVERNING LAW AND JURISDICTION
This Agreement is governed by and shall be construed in accordance
with the laws of the PRC.
IN WITNESS WHEREOF this Agreement has been executed on 22nd June, 1999
at Zhanjiang City, Guangdong Province, the PRC.
65
SCHEDULE 1
PART A
THE COMPANY
Name: Zhanjiang Kingtone Cable Enterprises Limited
Date of establishment: 28th February, 1993
Class of company: Sino-foreign joint venture
Legal address: Xx. 00 Xxxxxx Xxxxxx,
Xxxxxx Xxxxxxxxx ETDZ,
Zhanjiang 524022
Guangdong, PRC
Total investment: US$27,253,859
Registered capital: US$13,080,000
Shareholder(s): Kartek
ZPB
ZTB
Other securities/
debentures in issue: NIL
Directors:
Legal representative:
Financial year : 31st December
Auditors: Zhanjiang Economic & Technological Development Zone
Auditor's
Office
Outstanding mortgage(s) or
encumbrance(s): NIL
Business: manufacture of telecommunications related cables
(Copper Coax/Fibre Optics etc.)
Place of business: PRC
Subsidiaries: NIL
PART C
OWNERSHIP BACKGROUND
(a) Far East Kartek Enterprises Limited ("Far East Kartek") and
Zhanjiang Post and Telecommunications Bureau ("ZPTB") entered into the
Joint Venture Contract and the Articles of Association on 12th
January, 1993 for the purpose of establishing the Company.
(b) On 29th January, 1993 Zhanjiang Administration Commission of
Economic and Technology Development Zone approved the JV Contract and
the Articles of Association. On 28th February, 1993, the Guangdong
people's Government issued the Approval Certificate to Kingtone and
the State Administrative for Industry and Commerce issued the
Business Licence. Kingtone also made tax registration and foreign
registration with the relevant authorities.
(c) On 31st March, 1997 an investment verification report was issued
to Kingtone confirming all the registered capital had been injected
into Kingtone by the parties.
(d) On 8th October, 1995, Far East Kartek transferred equity
interest in the Company to Kartek.
(e) On 13th August, 1998 a supplemental joint venture contract
("Supplemental Contract") was entered into to change the percentage of
equity held by Kartek and ZPTB from 48:52 to 38:62.
(h) On 26th August, 1998 Zhanjiang Administration Commission of
Development of Economic and Technology Zone approved the Supplemental
Contract.
66
(i) Pursuant to the reorganisation of ZPTB in 1998, ZPTB was
separated into ZPB and ZTB and the ZPTB's equity interest in the
Company was taken over by ZPB and ZTB in the proportion of 26.5% and
35.5% respectively.
SCHEDULE 2
PROPERTY
SCHEDULE 3
THE WARRANTIES
Subject to the matters referred to herein or within the actual
knowledge of the Purchaser, each of the Vendors hereby represents and
warrants and undertakes to the Purchaser that all representations and
statements of fact set out in this Schedule 3 or otherwise contained
in this Agreement are and will be true and accurate in all respects as
at the date hereof and as at Completion.
1. General information and powers of the Vendors
(A) Each of the Vendors has full power to enter into this Agreement
and to exercise its rights and perform its obligations hereunder and
(where relevant) all corporate and other actions required to authorise
its execution of this Agreement and this Agreement will, when executed
by it, be a legal, valid and binding agreement on it and enforceable
in accordance with the terms thereof.
(B) So far as the Vendors are aware, the execution, delivery and
performance of this Agreement by the Vendors does not and will not
violate in any respect any provision of (i) any law or regulation or
any order or decree of any governmental authority, agency or court
applicable to the Vendors or the Company or any part thereof
prevailing as at the date of this Agreement and as at Completion; (ii)
the laws and documents incorporating and constituting the Vendors
prevailing as at the date of this Agreement and as at Completion; or
(iii) any mortgage, contract or other undertaking or instrument to
which any of the Vendors is a party or which is binding upon it or
any of its assets, and does not and will not result in the creation or
imposition of any Encumbrance on any of its assets pursuant to the
provisions of any such mortgage, contract or other undertaking or
instrument.
(C) So far as the Vendors are aware, no Consent of or filing or
registration with or other requirement of any governmental department
authority or agency in Hong Kong, the PRC or any jurisdiction in
which any of the Vendors is incorporated or resides or any part
thereof is required by the Vendors in relation to the valid execution,
delivery or performance of this Agreement (or to ensure the validity
or enforceability thereof) and the sale of the Sale Capital.
(D) Neither the execution of this Agreement nor the performance by
the Vendors of their respective obligations hereunder will violate (i)
the Joint Venture Contract (ii) any provision of the business licence
of the Company or Articles of Association or other constitutional
documents (including directors' resolutions passed or purported to be
passed) of the Company.
(E) As at the date of this Agreement and immediately prior to
Completion, the information set out in Schedules 1 and 2 is true,
accurate and complete.
(F) The information set out in the Recitals to this Agreement is
true, complete and accurate in all respects and not misleading.
2. Sale Capital
(A) Each of the Vendors is the registered and beneficial owner of
its relevant Sale Capital free from any Encumbrances and together with
all rights and entitlements attaching thereto.
(B) Each of the Vendors are entitled to transfer the full legal and
beneficial ownership of the relevant Sale Capital to the Purchaser and
once the Conditions are satisfied and Completion takes place, the
Purchaser will legally and validly become the owner of 60 per cent.
Of the registered capital of the Company.
67
(C) The Sale Capital represents 60 per cent. of the registered
capital of the Company.
(D) There is no option, right to acquire, mortgage, charge, pledge,
lien or other form of security, Encumbrance or third party rights on,
over or affecting any part of the Sale Capital or any part of the
registered capital of the Company and there is no agreement or
commitment to give or create any of the foregoing and no claim has
been made by any person to be entitled to any of the foregoing which
has not been waived by such person in its entirety or satisfied in
full.
(E) There is no agreement or commitment outstanding which calls for
the issue of or accords to any person the right to call for the issue
of any registered capital in the Company.
3. Corporate Matters
(A) Compliance has been made with all legal and procedural
requirements and other formalities in connection with the Company
concerning (i) its business licence and the Articles of Association
and other constitutional documents (including directors' resolutions
passed or purported to be passed); (ii) the filing of all documents by
the Company as required by the laws of the PRC to be filed with
relevant governmental authorities in the PRC; (iii) the increase of
its registered capital and total investment; (iv) payments of interest
and dividends and making of other distributions, and (v) directors and
other officers.
(B) None of the provisions of the Joint Venture Contract have been
breached by the Vendors, each party has performed on time its
obligations thereunder and no event has occurred which may lead to the
invocation of any of the termination provisions thereunder. So far as
the Vendors are aware, none of the parties to the Joint Venture
Contract have infringed any laws or regulations of the PRC with
respect to their dealings with the Company or with each other or their
investment in the Company.
(C) The minute books of directors' meetings and of shareholders'
meetings respectively contain full and accurate records of all
resolutions passed by the directors and the shareholders respectively
of the Company and no resolutions have been passed by either the
directors or the shareholders of the Company which are not recorded in
the relevant minute books.
(D) All charges in favour of the Company have (if appropriate) been
registered in accordance with the provisions of the applicable
legislation and regulations and at the relevant registries or
authorities.
(E) All accounts, books, ledgers, and other financial records of the
Company:-
(i) have been properly maintained, are in the possession of the
Company and contain due and accurate records of all matters required
by law to be entered therein;
(ii) do not contain or reflect any material inaccuracies or
discrepancies; and
(iii) give and reflect a true and fair view of the matters which
ought to appear therein and no notice or allegation that any of the
same is incorrect has been received, or if the Company has received
such notice or allegation, the incorrectness or errors have been
rectified.
(F) So far as the Vendors are aware, all documents requiring to be
filed with the Registrar of Companies in Hong Kong or the equivalent
body in the British Virgin Islands, the Bahamas, the United States of
America and the PRC or any other relevant authority by the Company
have been properly made up and filed.
(G) So far as the Vendors are aware, each of the Company and its
directors (in their capacity as such) has complied with all relevant
legislation and obtained and complied with all necessary Consents to
carry on business whether in the country, territory or state in which
it is incorporated or elsewhere, including (but without limitation)
legislation relating to companies and securities, real property and
Taxation and have complied with all legal requirements in relation to
any transactions to which it is or has been a party prior to
Completion.
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4. The Company
(A) The information in respect of the Company set out in Part A of
Schedule 1 is true and accurate and not misleading.
(B) The Company is a Sino-foreign equity joint venture validly
constituted and established and has the requisite power to carry on
and is carrying on its business in the manner and in the places within
the scope of its business licence and approval certificate and there
are no circumstances which lead to the suspension or cancellation of
any such permits, authorities, licences or Consents. So far as the
Vendors are aware, the Company has complied with all necessary
registration and filing requirements under the laws and regulations of
the PRC to any of its assets and to carry on its business as presently
conducted.
(C) The business licence and approval certificate issued by the
State Administration of Industry and Commerce Bureau and the Ministry
of Foreign Trade and Economic Co-operation in Zhanjiang to the Company
and all other approvals, licences, permits and Consents in connection
with its establishment and the conduct of its business are valid and
subsisting.
(D) As at the date of this Agreement, the Company's registered
capital is 38% per cent. owned by Kartek and 26.5% per cent. owned by
ZPB and 35.5% owned by ZTB.
(E) There has not been any reduction of or increase in the
registered capital or total investment amount of the Company nor has
any application been made to the approval authority of the Company or
other PRC governmental authorities for such reduction or increase.
(F) As of the date of this Agreement, the registered capital of the
Company has been fully paid up and there is no outstanding liability
to contribute to the registered capital of the Company nor any pending
application to increase the registered capital and/or the total
investment amount of the Company beyond the amounts set out in Part B
of Schedule 1. There has not been granted to the Company and there
is no agreement to grant any shareholder loans or to provide on behalf
of the Company any guarantees or similar forms of security.
(G) The Company does not have any subsidiaries and associated
companies (in incorporation form or otherwise) or any investment of
any nature.
5. Accounts
(A) The Accounts:-
(i) were prepared in accordance with applicable laws and with
generally accepted accounting principles, standards and practices in
the PRC (including all applicable Statements of Standard Accounting
Practice) at the time they were prepared and on a consistent basis
with the audited financial statements of the Company for each of the
three financial years ended on 31st December, 1998 (the "Previous
Accounts");
(ii) are true and accurate, correctly make or include full
provision for any bad and doubtful debts and all established
liabilities, make proper and adequate provision for (or contain a note
in accordance with good accounting practice respecting) all deferred,
disputed or contingent liabilities (whether liquidated or
unliquidated) and all capital commitments of the Company as at the
Accounts Date and the reserves and provisions (if any) made therein
for all Taxation relating to any period on or before the Accounts Date
are proper and adequate;
(iii) give a true and fair view of the state of affairs and
financial and trading positions of the Company at the Accounts Date
and of the Company's results for the financial period ended on that
date;
70
(iv) correctly include all the assets of the Company as at the
Accounts Date and the rate of depreciation adopted therein is
sufficient for each of the fixed assets of the Company to be written
down to 1-3% by the end of their estimated lives in accordance with
PRC law or generally accepted accounting principles, standards and
practices in the PRC;
(v) are not adversely affected by any unusual, exceptional,
extraordinary or non-recurring items which are not disclosed in the
Accounts; and
(vi) contain full provision for the diminution in value of the
Company's properties.
(B) The Management Accounts:-
(i) (a) were prepared in accordance with applicable law,
accounting principles, standards and practices generally accepted in
the PRC at the time they were prepared and commonly adopted by
companies carrying on businesses similar in all material respects to
that carried on by the Company in preparing management accounts and
the notes, if any, set out therein, and (b) in respect of which the
accounting policies adopted by the Company in preparing the Accounts
have been consistently applied; and
(ii) fairly reflect the state of affairs and financial and
trading positions of the Company and of its fixed and current assets,
contingent liabilities and debtors and creditors, in each case as at
the Management Accounts Date and the Company's results for the
financial period ended on that date;
(C) The accounting and other books and records of the Company are
in its possession, have been properly written up and accurately
present and reflect in accordance with generally accepted accounting
principles and standards in the PRC all the transactions entered into
by the Company or to which the Company has been a party and there are
at the date hereof no material inaccuracies or discrepancies of any
kind contained or reflected in any of the said books and records, and
that at the date hereof they give and reflect a true and fair view of
the financial, trading and contractual position of the Company and of
its fixed and current and contingent assets and liabilities and
debtors and creditors.
(D) Since the Accounts Date and save as disclosed or reflected in
the Accounts:-
(i) the Company has not entered into any material contracts or
commitments binding on it (other than contracts entered into in the
ordinary course of its business) and there has not been any
acquisition or disposal by the Company of material fixed or capital
assets or any agreement to effect the same;
(ii) there has not been any creation of liabilities by the
Company (other than on normal commercial terms in the ordinary course
of its business);
(iii) no event has occurred as regards the Company which would
entitle any third party to terminate any material contract or any
material benefit enjoyed by the Company or call in any material amount
of money before the normal due date therefor or indebtedness;
(iv) the Company has not created any mortgage or charge on the
whole or any part of its assets;
(v) the Company has not borrowed except from bankers in the
ordinary course of its day to day trading operation or increased any
secured liability;
(vi) the Business has been carried on in the ordinary and usual
course and in the same manner (including nature and scope) as in the
past; no fixed asset or stock has been written up nor any debt written
off, and no unusual or abnormal contract has been entered into by the
Company; and
(vii) the loss of the Company has not been substantially higher
than that of the previous year and subject to such losses and further
write-off of assets by the auditors there has been no material adverse
change in the financial or trading position of the Company.
70
(E) So far as the Vendors are aware, no part of the amounts included
in the Management Accounts and/or the Accounts or subsequently
recorded in the books of the Company, as owing by any debtors, has
been released on terms that any debtor pays less than the full book
value of its debt, or has been written off, or has been proven to any
extent to be irrecoverable, or is now regarded by the Company (as the
case may be) as irrevocable in whole or in part.
(F) So far as the Vendors are aware, all debts due to the Company
included in the Management Accounts and/or the Accounts (being debts
in excess of bad or doubtful debts for which provision has been made
in the Management Accounts and/or the Accounts) have either prior to
the date hereof been realised or will within twelve months realise
their full amount in cash.
(G) No transaction of any material importance to which the Company
is a party has taken place which if it had taken place would have to
be reflected in the Management Accounts and/or the Accounts.
(H) Adequate provisions have been made in the Management Accounts
and/or the Accounts for all dividends (if any) or other distributions
(if any) to shareholders declared and remaining unpaid as at the date
hereof.
(I) Since 30th April, 1999, no dividend has been declared or paid or
other distributions of capital made in respect of any share capital of
the Company, and no loans or loan capital have been repaid by the
Company in whole or in part.
(J) There has been no Material Adverse Change (or Effect) of the
Company as a whole since the Accounts Date.
(K) The Company has no present intention to discontinue or write
down investments in any other businesses other than those disclosed in
the Management Accounts and/or the Accounts.
(L) The Company has not and will not distribute any dividends
payable (whether declared or not) after 30th April, 1999.
6. Business
(A) The Business of the Company is the manufacture of
telecommunications related cables for Chinese markets and
as described in its business licence.
(B) The company has obtained for the purpose of its business all
necessary consent of any governmental or other authority and any other
person and of any owner of the Intellectual Property Rights
(C) Each of the Consents referred to in paragraph (B) is valid and
in force, the Company is not in breach of the terms of any such
Consent (including breach of any requirement relating to such Consent
to make returns or reports or supply information) and there are no
circumstances (including the sale of the Sale Capital) which are
known, or which the Vendors ought to have known and which might
invalidate any such Consent or render it liable to forfeiture or
modification or (in the case of a renewable Consent) affect its
renewal.
(D) After Completion there will be no restriction on the right of
the Company to carry on its business which does not now apply to the
Company.
(E) The Company has not manufactured, sold or supplied any product
or service in the course of its business which does not in all
respects comply with all applicable laws, regulations and standards,
or which is defective or dangerous or not in accordance with any
representation, warranty or other term (whether express or implied)
given in respect of it; and it has no outstanding liability (including
a contingent liability by virtue of the terms on which the product or
service was sold) in respect of any such product or service or its
repair, maintenance or replacement.
(F) The Company has not (except for the purpose of carrying on its
business in the ordinary course and subject to an obligation of
confidentiality and legal requirements) disclosed, or agreed to
disclose, or authorized the disclosure of, any of its lists of
suppliers or customers, trade secrets or technological or confidential
72
information concerning its Business, all of which are fully and
properly recorded in writing or other appropriate form and are not
incorrect or incomplete in any way.
(G) The Business is managed exclusively by its officers and
employees, and no person has authority to bind the Company other than
its officers and employees acting in the ordinary and ostensible
course of their duties.
(H) The Company is not, or has not agreed to become, a member of any
partnership, joint venture, consortium, trade association or any other
association of persons (whether incorporated or not incorporated).
(I) The Company does not carry on business through any branch,
agency or permanent establishment outside the PRC.
(J) The Company does not carry on any business other than that
stated in its business licence.
(K) So far as the Vendors are aware, the acquisition of the Sale
Capital by the Purchaser and compliance with the terms of this
Agreement will not:-
(i) cause the Company to lose the benefit of any right or privilege
it presently enjoys or cause any person who normally does business
with the Company not to continue to do so on the same basis as
previously;
(ii) relieve any person of any obligation to the Company (whether
contractual or otherwise) or enable any person to determine any such
obligation or any right or benefit enjoyed by the Company or to
exercise any right whether under an agreement with or otherwise in
respect of any of them;
(iii) result in any present or future indebtedness of the Company
becoming due or capable or being declared due and payable prior to its
stated maturity;
(iv) give rise to or cause to become exercisable any right of pre-
emption (except pursuant to the terms of the Joint Venture Contract
and applicable laws and regulations); or
(v) adversely affect the Company's relationships with its clients,
customers, suppliers or employees.
7. Financial Matters
(A) The aggregate amount of the borrowings of the Company as at the
date hereof is RMB132,663,355.
(B) The aggregate amount of guarantees provided by the Company in
favour of other entities as at the date hereof is RMB23,000,000.
(C) Since the Accounts Date, there has not been:-
(i) any damage, destruction, or loss materially adversely
affecting the Properties or the Business;
(ii) any sale or transfer by the Company of any material tangible
or intangible asset other than in the ordinary course of business, any
mortgage or pledge or the creation of any security interest, lien, or
encumbrance on any such asset, or any lease of property, including
equipment, other than tax liens with respect to taxes not yet due and
statutory rights of customers in inventory and other assets;
(iii) any material transaction not in the ordinary course of
business of the Company;
(iv) the lapse of any patent, utility models, design, trademark,
trade name, service xxxx, copyright, or licence or any application
with respect to the foregoing by the Company which is material in the
context of the Business as a whole;
(v) the making of any material loan, advance, indemnity or
guarantee by the Company to or for the benefit of any person except
the creation of accounts receivable in the ordinary course of
business; or
73
(vi) an agreement to do any of the foregoing.
(D) The Company has no material capital commitment nor is it engaged
in any scheme or project requiring the expenditure of capital of a
significant amount.
(E) All dividends or distributions declared, made or paid by the
Company have been declared, made or paid in accordance with its
articles of association (or equivalent documents) and the applicable
statutory provisions.
(F) The Company has not as at the date hereof and will not, as at
Completion, have outstanding:-
(i) any borrowing or indebtedness in the nature of borrowing or
other credit facility save and except for the borrowing or
indebtedness disclosed to the Purchaser;
(ii) any mortgage, charge or debenture or any obligation
(including a conditional obligation) to create a mortgage, charge or
debenture save and except for the mortgages disclosed to the Purchaser
in writing (if any);
(iii) any liabilities outstanding under any guarantee or other
material contingent obligation.
8. Plant, Equipment and Assets
(A) So far as the Vendors are aware, all plant, machinery,
equipment, vehicles, material assets owned or used by the Company are
in good and safe condition and in working order (fair wear and tear
excepted) in all material respects and have been regularly and
properly maintained, would not be expected to require replacement
within 12 months after Completion.
(B) The assets included in the Management Accounts and/or the
Accounts or acquired since the Accounts Date and all assets used or
owned by or in the possession of the Company:-
(i) are legally and beneficially owned by the Company free from
any mortgage, charge, lien or similar encumbrance any hire-purchase
agreement or agreement for payment on deferred terms or bills of sale
or lien, charge or other encumbrance;
(ii) are in the possession or under the control of the Company;
(iii) where purchased on terms that title to property does not
pass until full payment has been made, have been paid for in full by
the Company;
(iv) are not subject to any hire purchase, leasing arrangements
or other arrangements of a similar nature; and
(v) comprise all the material assets, property and rights which
the Company owns or which it uses or requires for the purpose of
carrying on its Business.
(C) The amount of all debts owing to the Company (less the amount of
any provision or reserve for bad and Doubtful Debts included in the
Accounts) will be fully recoverable in the ordinary course; and no
debt is owing to the Company by the Vendors.
(D) The Company is not a party to any agreement for the hire, rent,
hire purchase or purchase on deferred terms of any asset.
(E) The Company does not own nor has it agreed to acquire, any
shares or debentures in any other undertaking or any other securities.
(F) The Company has done everything (whether by way of giving
notice, registration, filing or otherwise), required or permitted to
be done by it by applicable laws and regulations for the protection of
its title to, or for the enforcement or the preservation of any order
of priority of its title to, any property or rights (including the
benefit of any debt, mortgage or charge) owned by it.
74
(G) All records or other documents recording or evidencing any
contract, licence, consent or other right of the Company or required
for the exercise of any such right are in the possession or under the
exclusive control of the Company.
9. Insurance
The Company has effected all insurances required by law to be effected
by it for its employees and over its Business and all such insurances
are valid and in force at the date of this Agreement.
10. Taxation
(A) The Company has complied with all relevant legal requirements
relating to registration, filing or notification for Taxation
purposes.
(B) So far as the Vendors are aware, the Company has:-
(i) paid all Taxation (if any) due to be paid and is under no
liability to pay any penalty or interest in connection with any claim
for Taxation; and
(ii) taken all necessary steps to obtain any repayment of or
relief from Taxation available to it.
(C) The Company is not in dispute with any Taxation or revenue
authority and, so far as the Vendors are aware, no such dispute is
pending or threatened.
(D) The Company has submitted all claims and disclaimers which have
been assumed to have been made for the purposes of the Accounts and
the Management Accounts.
11. Contracts, Commitments and Material Transactions
(A) Since the Accounts Date, the Company has carried on its business
in the ordinary course and, save as mentioned in or as contemplated by
this Agreement, the Company has not entered into any transaction or
incurred any material liabilities except in the ordinary course of its
day-to-day business and on an arm's length basis for full value.
(B) There is not now outstanding nor, save and except for such
contracts or agreements which may be entered into by the Company
pursuant to this Agreement, will there be outstanding at Completion
with respect to the Company:
(i) any agreement (whether by way of guarantee, indemnity,
warranty, representation or otherwise) under which the Company is
under any actual or contingent liability in respect of the obligations
of any person other than the Company;
(ii) any contract to which the Company is a party which is of a
long-term (i.e. more than one year) and non-trading nature or contains
any unusual or unduly onerous provision disclosure of which could
reasonably be expected to influence the decision of the Purchaser in
purchasing any or all of the Sale Capital;
(iii) any sale or purchase option or similar agreement affecting
any assets owned or used by the Company (with a value in the books of
account of the Company in excess of RMB200,000) except those entered
into the ordinary course of day to day trading;
(iv) any material agreement in excess of RMB200,000 entered into
by the Company otherwise than by way of bargain at arm's length; and
(v) any management agreements, joint venture agreements, agency
agreements or any form of agreement whatsoever which entitles any
person to bind the Company contractually, to settle, negotiate or
compromise any accounts or claims or to collect, receive or share in
any balances or sums payable to the Company save in the ordinary
course of business.
(vi) any contract to which the Company is a party and which cannot
be terminated by it without payment of compensation by less than 90
days' notice, or imposes on the Company any obligation to be performed
by it more than 180 days from the date of the contract;
75
(vii) any contract to which the Company is a party (except contracts
with employees) and which:-
(a) requires the Company to pay a commission, finder's fee, royalty
or similar amount;
(b) is dependent on the guarantee, covenant of or security provided
by any other person; or
(c) is a contract for the sale of shares or assets which contains
warranties or indemnities under which the Company still has a
remaining liability or obligation;
(viii) any contract to which the Company is a party and which is or
may be unenforceable by it by reason of the contract being voidable at
the instance of any other party or void;
(ix) any offer, tender or quotation made or given by the Company
capable by the unilateral act of any other person of giving rise to
any contract otherwise than in the ordinary course of trading;
(x) any contract or arrangement under which any person has the
exclusive right to supply any description of goods or services to or
for the Company or, as its agent or distributor, to supply any
description of goods or services within any geographical area;
(xi) any contract or arrangement to which any of the Vendors is a
party or has the benefit which requires to be assigned to or vested in
the Company to enable the Company to carry on its business or enjoy
the rights to the same extent as carried on or enjoyed prior to the
date of this Agreement;
(xii) any contract to which the Company is a party and which may
restrict its activities or the use or disclosure by it of any
information; or
(xiii) any breach by any party of the terms of any contract to which
the Company is a party.
(C) The Company has not received any formal or informal notice to
repay under any agreement relating to any borrowing (or indebtedness
in the nature of borrowing) which is repayable on demand and which
exceeds an aggregate amount of RMB1,000,000.
(D) The Company is not under any obligation, or party to any
contract, which cannot readily be fulfilled or performed by it on time
and without undue or unusual expenditure of money or effort and which
is material in the context of the Business as a whole.
(E) There are no outstanding contracts, engagements or liabilities,
whether quantified or disputed, save for (i) as shown in the
Management Accounts and/or the Accounts or (ii) entered into in the
ordinary course of the Company's day to day business operations.
(F) With respect to the Company, there are no:-
(i) contractual arrangements between the Company and any party
which will or may be legally terminated as a result of the execution
or completion of this Agreement; or
(ii) liabilities for any statutory or governmental levy or charge
(levy or charge below RMB100,000 excepted) other than for Taxation
provision for which has been made in the Management Accounts and/or
the Accounts; or
(iii) powers of attorney or other authorities (express or implied)
which are still outstanding or effective to or in favour of any person
to enter into any contract or commitment or to do anything on its
behalf; or
(iv) agreements or arrangements entered into by it otherwise than
by way of bargain at arm's length; or
(v) contracts which are unusual or of a long-term nature or
involving or which may involve obligations on it of a nature or
magnitude calling for special mention or which cannot be fulfilled or
performed on time or without undue or unusual expenditure of money or
effort.
(G) No alteration has been made to the memorandum of association or
articles of association of the Company since establishment other than
those requested by the Purchaser or contemplated by this Agreement.
(H) No agreement or arrangement to which the Company is a party, is
required or, following the execution and completion of this Agreement,
will be required to be registered with any authority or governmental
agency.
76
(I) Since the Accounts Date, the Company has not:-
(i) issued or repaid or agreed to issue or repay any share or loan
capital;
(ii) declared, made or paid any dividends or made any other
distribution out of profits, reserves or capital and no loans or loan
capital has been repaid in whole or in part other than the $1,000,000
dividend declared and paid in February, 1999.
12. Employment Arrangements
(A) All contracts of service to which the Company is a party can be
terminated by it without payment of compensation by not more than
three months' notice or less without compensation (save and except
otherwise required by applicable laws and regulations).
(B) The Company is not a party to any provident fund save as
required by any applicable laws and regulations.
(C) The Company has not since the Accounts Date:-
(i) changed, or agreed to change, the terms of its employment
(including terms relating to pension benefits) of any person who was
on the Accounts Date entitled to remuneration at a rate in excess of
RMB15,000 per annum;
(ii) paid or given, or agreed to pay or give, to any of its officers
or employees any remuneration or benefit, except the salary or wage to
which he is contractually entitled under the terms of his employment;
or
(iii) been notified of any wage claim or agreed any general
increase in wages or wage rates.
(D) Except otherwise required by any applicable laws and
regulations, the Company is not under any legal liability or
obligation or a party to any agreement, arrangement, scheme, fund, or
promise to pay pensions, gratuities, retirement annuities, in
connection with retirement, to or for any of its past or present
officers or employees or their relatives or dependants; and there are
no retirement benefit, or pension binding on the Company.
(E) Particulars of all loans, if any, to director of the Company
have been disclosed to the Purchaser.
(F) Except otherwise required by any applicable laws and
regulations, the Company is not under any obligation (whether actual
or contingent and whether or not disputed by the Company) to any
former employee whether for breach of any contract of service, for
compensation for wrongful dismissal or for unfair dismissal or for
payment of any salaries, wages, pensions, gratuities, severance pay,
long service payment, bonuses or otherwise howsoever or whatsoever and
no tax, levy, contribution or payment in respect of any former
employee whether to any governmental authority, pension fund, scheme
or trust or otherwise howsoever or whatsoever is outstanding or
disputed.
(G ) All schemes or plans for the provision of benefits to employees
of the Company comply in all respects with all applicable legislation
and all necessary Consents in relation to such schemes and plans have
been obtained and remain in full force and effect.
(H) The Company has not given any guarantee or assumed any
obligations in relation to the employees of any other person.
(I) Complete and accurate particulars have been given in writing to
the Purchaser of the details (name, age, length of service,
remuneration) and terms of employment by the Company of its employees
(including terms implied by custom or usage of the Company or of the
trade) and the terms of engagement under which the services of any
other individual are provided for the Company.
(J ) All salaries and wages due to the officers and employees of the
Company for any period before the date of this Agreement have been
paid in full.
(K) Save as contemplated by this Agreement, no present employee of
the Company or other individual whose services are provided for the
Company has given or received notice of termination of his employment
or engagement.
77
13. Property
(A) The Property represents all the real property owned, used or
occupied by the Company or in respect of which the Company has any
estate, interest, right or liability, and, except as disclosed in the
valuation report of the Property prepared by X.X. Xxxxx & Co. ("the
Valuation Report"):-
(i) the Company is the sole owner of and has the land use rights
and building ownership of the Property and is entitled to transfer,
dispose of, sell, mortgage or otherwise deal with the Property and is
entitled to develop the Property in the manner and in accordance with
the relevant requirements of the relevant government authority subject
to applicable laws and regulations;
(ii) the Property and the land use rights and building ownership
associated therewith held by the Company are free from mortgage,
debenture, charge, lien, lease, encumbrances or any third party rights
and the Company has not entered into any agreement to do any of the
foregoing;
(iii) all land premium, purchase price, land grant fees or other
fees payable in respect of the Property and the land use rights and
building ownership associated therewith (and the fees and charges for
demolition and re-settlement in connection with the acquisition of the
land use rights of the land of the Property (if any)) have been paid
in full and will be duly paid up to the date of completion of this
Agreement and no further such premiums, price or fees are payable
under the laws of the
PRC;
(iv) so far as the Vendors are aware, and save as disclosed to
the Purchaser in writing none of the terms and conditions contained in
the relevant transfer contracts, real estate title certificate, land
use rights certificate, building ownership certificates (if any)
and/or certificate of ownership and the applicable laws, rules and
regulations in the PRC have been breached in respect of the Property;
(v) the Company has duly performed and observed all the terms and
conditions contained in the sale and purchase contracts, land use
right certificate and building ownership certificates (if any) for the
Property to be performed and observed on the part of the Company as
purchaser thereof;
(vi) so far as the Vendors are aware, all relevant legal
requirements or conventions for notarization and registration of the
sale and purchase contracts for the Property have been complied with;
(vii) the land use rights and building ownership pertaining to
the Property and all permits and approvals in respect of the town
planning, construction and/or development of the Property are valid
and subsisting and have not been amended, modified or supplemented in
any manner whatsoever;
(viii) except as disclosed to the Purchaser in writing no
contracts have been entered into by the Company to sell, assign,
subdivide, let or lease, license, charge, mortgage, partition, share,
grant any option over or otherwise dispose of an interest in or part
with the possession or occupation of the Property or any part thereof
or otherwise encumber the Property nor is there any agreement by the
Company to do any of the aforesaid;
(ix) the Company is in physical possession and actual occupation
of the Property on an exclusive basis and no right of occupation or
enjoyment has been acquired or is in the course of being acquired by
any third party or has been granted or agreed to be granted to any
third party;
(x) the Company does not have any outstanding material
liabilities under the terms and conditions upon which the land use
rights and building ownership pertaining to the Property are granted
and there is no obligation or liability on the part of the Company to
transfer any part of the Property or any interests in the Property to
any person or authority whatsoever or to undertake any urban or public
facilities in connection with the Property;
(xi) the Property is not subject to any restrictive covenants,
stipulations, easements, licences, restrictions or other like rights
vested in third parties other than those stipulated in the terms and
78
conditions upon which the land use rights and building ownership
pertaining to the Property are granted which terms and conditions are
of a usual nature with reference to such terms and conditions in the
PRC;
(xii) to the best of the Vendors' knowledge having made all
reasonable enquiries, there are no circumstances which would entitle
or require any person to exercise any powers of entry or taking
possession of the Property;
(xiii) so far as the Vendors are aware, compliance has been made
with all applicable statutory and bye-law requirements with respect to
the Property;
(xiv) so far as the Vendors are aware, all requisite licences,
certificates and authorities necessary for the existing use of the
property by the Company have been duly obtained and are in full force,
validity and effect; and
(xv) so far as the Vendors are aware, all requisite planning and
building approvals required for any government, local or public
authority with respect to the Property have been obtained and are in
full force and effect.
14. Loans
(A) There are no loans made to the Company which are outstanding
except as shown in the Accounts or the Management Accounts.
(B) The Company has not factored any of its debts or engaged in any
financing of a type which would not require to be shown or reflected
in its accounts.
(C) Save as shown in the Accounts or the Management Accounts and
save as disclosed herein, the Company does not have outstanding any
mortgages, charges, debentures or other loan capital or bank
overdrafts, loans or other similar indebtedness, financial facilities,
finance leases or hire purchase commitments or any guarantees or other
material contingent liabilities.
(D) No material outstanding indebtedness of the Company has become
payable by reason of default by the Company and no event of default
has occurred.
15. Litigation
The Company is not a party to any litigation, arbitration or
prosecutions or to any other legal or contractual proceedings or
hearings before any statutory, regulatory or governmental body,
department, board or agency or to any material disputes or to the
subject of any investigation by any authority in the place where the
Business is conducted and no litigation, arbitration, prosecution or
other legal or contractual proceedings or investigations are
threatened or pending either by or against the Company and there are
no facts or circumstances, subsisting which might give rise to any
such proceeding, investigation, hearing or to any dispute or to any
payment and there are no unfulfilled or unsatisfied judgment or court
orders against the Company.
16. Intellectual Property
(A) The Intellectual Property Rights comprise all the intellectual
property rights used or required for the purposes of the Business
which are material in the context of the Business and all of the same
are valid, in full force and effect, registered (where applicable) in
the name of the Company or the relevant licensor, and in the sole
legal and beneficial ownership or the subject of valid licenses held
by the Company.
(B) The Company has not granted and is not obliged to grant any
licences or assignments under or in respect of any Intellectual
Property Rights or to disclose or provide know-how, trade secrets,
technical assistance, confidential information or lists of customers
or suppliers to any person; and no such disclosure has been made.
79
(C) All fees for the grant or renewal of the Intellectual Property
Rights of or used in the Business and which rights are material to the
Company have been paid on demand or will be paid in due course and no
circumstances exist which might lead to the cancellation, forfeiture
or modification of any such Intellectual Property Rights or to the
termination of or any claim for damages under any licence of
Intellectual Property Rights to the Company.
17. Insolvency
(A) No order has been made or resolution passed for the winding up
of the Company and there is not outstanding:-
(i) any petition or order for the winding up of the Company;
(ii) any receivership of the whole or any part of the undertaking or
assets of the Company;
(iii) any petition or order for the administration of the Company;
or
(iv) any voluntary arrangement between the Company and any of its
creditors.
(B) There are no circumstances which are known, or would on
reasonable enquiry be known, to the Vendors and which would entitle
any person to present a petition for the winding up or administration
of the Company or to appoint a receiver of the whole or any part of
its undertaking or assets.
(C) No distress, execution or other process has been levied against
the Company or action taken to repossess goods in the possession of
the Company.
(D) No floating charge created by the Company has crystallised and
there are no circumstances likely to cause such a floating charge to
crystallise.
(E) The Company is not and has not been a party to any transaction
which may be avoided in a winding up.
18. Trading
(A) So far as the Vendors are aware, the Company has and at all
times maintained valid and current foreign exchange control and is in
compliance with and is not in breach of any PRC laws or regulations
relating to foreign exchange control. The Vendors are not aware of any
prohibition or restriction (other than those imposed by law) on the
Subsidiary in relation to its handling of foreign exchange in the PRC
(including remittance of profit or dividend and opening of bank
accounts.
19. Delinquent Acts
The Company has not committed nor is liable for any criminal, illegal,
unlawful or unauthorized act or breach of any obligation whether
imposed by or pursuant to statute, contract or otherwise.
20. Miscellaneous
(A) All representations warranties and undertakings contained in the
foregoing provisions of this Schedule shall be deemed to be repeated
immediately before Completion and to relate to the facts then
existing.
(B) So far as the Vendors are aware, the Company has neither itself
nor vicariously:
(i) committed any breach of any statutory provision, order, bye-
law or regulation binding upon it or of any provision of its
memorandum of association or articles of association or bye-laws as of
any trust deed, agreement or licence to which it is a party or of any
covenant, mortgage, charge or debenture given by it;
79
(ii) entered into any transaction which is still executory and
which is or may be unenforceable by reason of the transaction being
voidable at the instance of any other party or ultra xxxxx, void or
illegal; or
(iii) omitted to do anything required or permitted to be done by
it by the applicable laws and regulations necessary for the protection
of its respective title to or for the enforcement or the preservation
of any order or priority of any properties or rights owned by it.
(C) All information disclosed on the Purchaser for the purpose of
its due diligence exercise or otherwise prior to the signing of this
Agreement is true and correct in all material aspects and is not
misleading.
(D) All information contained in this Agreement was when given true
and accurate in all respects and there is no fact or matter which has
not been disclosed to the Purchaser, which may render any such
information or documents untrue, inaccurate or misleading at the date
of this Agreement or which if disclosed to the Purchaser might
reasonably be expected to influence adversely the Purchaser's decision
to purchase the Sale Capital on the terms of this Agreement.
SCHEDULE 4
FORM OF TAX DEED OF INDEMNITY
Date , 1999
KARTEK INTERNATIONAL HOLDINGS LIMITED
and
ZHANJIANG POST BUREAU
and
ZHANJIANG TELECOMMUNICATIONS BUREAU
and
XXXXXXXX HOLDINGS INC.
DEED OF INDEMNITY
THIS DEED OF INDEMNITY is dated , 1999
BETWEEN:-
(1) KARTEK INTERNATIONAL HOLDINGS LIMITED, a company incorporated in
the British Virgin Islands with its registered office at Akara
Building, Suite # 8, Wickhams Cay I, Road Town, Tortola, the British
Virgin Islands ("Kartek");
(2) ZHANJIANG POST BUREAU ("ZPB");
(3) ZHANJIANG TELECOMMUNICATIONS BUREAU of
55 ("ZTB"); and
(4) XXXXXXXX HOLDINGS INC., a company incorporated in the Bahamas
with limited liability, whose principal place of business is at
Xxxxxxxxxx Xxxxx, Xxxxxxxx Xxxxxx, X.X. Xxx X-0000 Nassau, the Bahamas
(the "Purchaser").
WHEREAS:-
(A) Zhanjiang Kingtone Cable Enterprises Limited is an equity joint
venture company established in the PRC (the "Company").
81
(B) By an agreement (the "Principal Agreement") dated 22nd June,
1999 made between, inter alia, the Vendors and the Purchaser, the
Purchaser agreed to purchase from the Vendors an aggregate of 60 per
cent. of the registered capital of the Company.
(C) It is a condition of the Principal Agreement that the Vendors
shall enter into this Deed to provide the Purchaser, for itself and as
trustee for the Company, with an indemnity concerning certain taxation
liabilities.
NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
(A) In this Deed, including the Recitals, the following expressions
shall have the following meanings except where the context otherwise
requires:-
"PRC" the People's Republic of China;
"Principal Agreement" the agreement referred to in Recital (B)
above;
"Reference Accounts Date" 30th April, 1999;
"Relief" includes any relief, allowance, concession, set off or
deduction in computing profits, income or expenditure against which a
Taxation is assessed, and any credit granted by or pursuant to any
legislation or otherwise relating to all forms of Taxation;
"Taxation" means:-
(i) any liability to any form of taxation whenever created or
imposed and whether of the PRC or of any other part of the world and
without prejudice to the generality of the foregoing includes profits
tax, provisional profits tax, business tax on gross income, income
tax, value added tax, interest tax, salaries tax, property tax, estate
duty, resource duty, death duty, capital duty, stamp duty, payroll
tax, withholding tax, rates, import customs and exercise duties and
generally any tax duty, impost, levy or rate or any amount payable to
the revenue, customs or fiscal authorities of local municipal,
governmental, state, provincial, federal level whether of the PRC or
of any other part of the world;
(ii) such amount or amounts as is or are referred to in Clause 1(B);
and
(iii) all costs, interest, penalties, charges and expenses
incidental or relating to the liability to Taxation or the deprivation
of Relief or of a right to repayment of Taxation which is the subject
of the indemnity contained in Clause 2 to the extent that the same
is/are payable or suffered by the Company;
"Taxation Claim" includes any assessment, notice, demand or other
documents issued or action taken by or on behalf of the Tax Bureau of
the PRC or any other statutory or governmental authority whatsoever in
Hong Kong, in PRC or any other part of the world (if relevant) from
which it appears that the Purchaser and the Company or any of them are
liable or are sought to be made liable for any payment of any form of
Taxation or to be deprived of any Relief or right to repayment of any
form of Taxation which Relief or right to repayment would but for the
Taxation Claim have been available to the Company; and
"Vendors" means collectively Kartek, ZPB and ZTB.
(B) In the event of any deprivation of any Relief or of a right to
repayment of any form of Taxation there shall be treated as an amount
of Taxation for which a liability has arisen the amount of such Relief
or repayment or (if smaller) the amount by which the liability to any
such Taxation of the Company would have been reduced by such Relief if
there had been no such deprivation as aforesaid, applying the relevant
rates of Taxation in force in the period or periods in respect of
which such Relief would have applied or (where the rate has at the
relevant time not been fixed) the last known rate and assuming that
the Company had sufficient profits, turnover or other assessable
income or expenditure against which such Relief might be set off or
given.
82
(C) In this Deed:-
(i) Save for the words and expressions defined in Clause 1(A),
words and expressions and other rules of interpretation defined, used
or set out in the Principal Agreement have the same meanings and
application in this Deed;
(ii) unless the context otherwise requires, words denoting the
singular number include the plural thereof, words importing one gender
include both genders and the neuter and references to persons include
firms, companies, and corporations, in each case vice versa;
(iii) references to Clauses are to the clauses of this Deed; and
(iv) headings are for ease of reference only and do not form part
of this Deed.
2. TAXATION INDEMNITY
(A) Without prejudice to any of the foregoing provisions of this
Deed and subject as hereinafter provided, the Vendors hereby agree
with the Purchaser, for themselves and as trustee for the Company,
that they will indemnify and at all times keep the Purchaser fully and
effectively indemnified on demand against Taxation falling on the
Company resulting from or by reference to any income, profits or gains
earned, accrued or received or any event or transaction on or before
the Reference Accounts Date whether alone or in conjunction with any
circumstances whenever occurring and whether or not such Taxation is
chargeable against or attributable to any other person, firm or
company.
(B) The indemnity given by Clause 2 does not cover any Taxation
Claim:-
(i) which would not have arisen but for any act or omission by
the Purchaser or the Company voluntarily effected after the Reference
Accounts Date; or
(ii) to the extent that provision will be made for such Taxation
in the Audited Final Accounts; or
(iii) to the extent that any Taxation Claim arises or is incurred
as a result of or owing to any matter specifically disclosed to the
Purchaser prior to Completion of the Principal Agreement.
3. NO DOUBLE CLAIMS
No claim under this Deed shall be made:-
(i) by the Purchaser and the Company in respect of the same
Taxation; or
(ii) if a claim in respect thereof has been made under the
Principal Agreement.
4. TAXATION CLAIM
In the event of any Taxation Claim arising, the Purchaser shall
give or procure that notice thereof is as soon as reasonably
practicable given to the Vendors in the manner provided in Clause 9,
provided that such notice shall not be a condition precedent to the
liability of the Vendors hereunder; and, as regards any such Taxation
Claim, the Purchaser shall procure that the Company shall at the
request of the Vendors take such action, or procure that such action
be taken, as the Vendors reasonably request to cause the Taxation
Claim to be withdrawn, or to dispute, resist appeal against,
compromise or defend the Taxation Claim and any determination in
respect thereof but subject to the Company being indemnified and
secured to its or their reasonable satisfaction by the Vendors against
all losses (including additional Taxation), costs, damages and
expenses which may be thereby incurred.
83
5. PAYMENTS
(A) If after the Vendors have made any payment pursuant to Clause 2
hereof, the Company shall receive a refund of all or part of the
relevant Taxation the Purchaser shall, so far as it lies within its
power, procure the Company (if it shall receive such refund) to repay
to the Vendors a sum corresponding to the amount of such refund less:-
(i) any expenses, costs and charges properly incurred by the
Company in recovering such refund; and
(ii) the amount of any additional Taxation which shall not have
been taken into account in calculating any other payment made or to be
made pursuant to this Clause but which is suffered by the Company in
consequence of such refund.
(B) Any payments due by the Vendors pursuant to the provisions of
this Deed shall be increased to include such interest on unpaid tax as
the Company shall be or shall have been required to pay.
6. LIMITATION OR TIME FOR INDEMNITY CLAIMS
The Vendors shall not be liable in respect of any claim under this
Deed unless a written notice of such claim shall have been given to
the Vendors or either of them on or prior to the expiry of six years
from the date of this Deed.
7. BINDING EFFECT
The indemnities, agreements and undertakings herein contained shall
bind the personal representatives and successors of the Purchaser and
each of the Vendors and shall ensure for the benefit of each party's
successors and assigns.
8. SEVERABILITY
Any provision of this Deed prohibited by or which is unlawful or
unenforceable under any applicable law actually applied by any court
of competent jurisdiction shall, to the extent required by such law,
be severed from this Deed and rendered ineffective so far as is
possible without modifying the remaining provisions of this Deed.
Where, however, the provisions of any such applicable law may be
waived, they are hereby waived by the parties hereto to the full
extent permitted by such law to the extent that this Deed shall be
valid, binding and enforceable in accordance with its terms.
9. NOTICES
Each notice, demand or other communication given or made hereunder
shall be in writing and delivered or sent to the relevant party in
accordance with the provision of Clause 14(B) of the Principal
Agreement.
10. GOVERNING LAW AND JURISDICTION
This Deed is governed by and shall be construed in accordance with the
laws of the PRC.
IN WITNESS whereof this Deed of Indemnity has been duly executed on
the day and year first above written.
THE COMMON SEAL OF)
KARTEK INTERNATIONAL HOLDINGS )
LIMITED)
was hereunto affixed)
in the presence of:-)
THE COMMON SEAL OF)
ZHANJIANG POST BUREAU)
was hereunto affixed)
in the presence of:-)
84
THE COMMON SEAL OF)
ZHANJIANG TELECOMMUNICATIONS)
BUREAU)
was hereunto affixed)
in the presence of:-)
THE COMMON SEAL OF)
XXXXXXXX HOLDINGS INC.)
was hereunto affixed)
in the presence of:-)
SCHEDULE 5
THIS SUPPLEMENTAL CONTRACT is made on , 1999
BETWEEN:
(1) Kartek International Holdings Limited ("Party A")
(2) Zhanjiang Post Bureau ("Party B")
(3) Zhanjiang Telecommunications Bureau ("Party C")
(4) Xxxxxxxx Holdings Inc. ("Party D")
In this Supplemental Contract, Party A, Party B, Party C and Party D
are collectively referred to as "Parties" and "Party" means each or
any one of them, as the context may require.
WHEREAS:
(A) Parties A, B and C are parties to a joint venture contract
dated 12th January, 1993 (as supplemented) ("Joint Venture Contract")
in respect of their rights and obligations as investors in Zhanjiang
Kingtone Cable Enterprises Limited (the "Company").
(B) Pursuant to the Joint Venture Contract, Party A, Party B and
Party C are holders of the entire registered capital of the Company
which has been fully paid up in accordance with the Joint Venture
Contract.
(C) Party A, Party B and Party C wish to transfer their respective
holding of 28%, 13.68% and 18.32% of the registered capital of the
Company to Party D, and Party D wishes to accept such transfer; and
Party A, Party B and Party C consent to such transfer.
(D) Party D also wishes to amend some provisions of the Joint
Venture Contract and the Articles of Association of the Company; and
Party A, Party B and Party C consent to such amendments.
NOW, IT IS THEREFORE AGREED as follows:
1. Definitions and Interpretation
Words and expressions which have defined meaning in the Joint Venture
Contract and the Articles of Association of the Company shall have the
same meaning, as given to them in the Joint Venture Contract and
Articles of Association, when used in this Supplemental Contract.
2. Party D as party
(A) When this Supplemental Contract becomes effective, and subject
to the provisions of this Supplemental Agreement, Party D shall become
the foreign party to the Company, shall be vested with the 60% holding
in the registered capital of the Company originally owned by Party A,
Party B and Party C respectively, and shall be entitled to all the
rights and be liable to all the obligations stated in the Schedule
hereto.
85
(B) With regard to the present transfer of the holding of 60% of the
Company's registered capital from Party A, Party B and Party C to
Party D, Party A, Party B and Party C have waived and hereby confirm
their irrevocable waiver of the irrespective preferential pre-emptive
right to acquire such holding whether such right arises under the Law
on Chinese-Foreign Equity Joint Ventures, the Joint Venture Contract,
or the Articles of Association or otherwise howsoever.
3. Fee and expenses
Each Party shall bear the fees of its professional advisors, including
accountants, auditors and lawyers, and any other expenses incurred in
relation to or for the performance of its obligations under this
Supplemental Contract.
4. Extension of Term
The term of the joint venture shall be extended to 31 years.
Management
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:
(i) the board of directors shall comprise of 8 directors and Party
A, Party B and Party C shall each be entitled to appoint 1 director
and Party D shall be entitled to appoint 5 directors;
(ii) Party D shall be entitled to nominate the General Manager,
Chief Accountant and other senior management to be appointed by the
board of directors of the Company in accordance with its meeting
rules.
6. Board Meetings
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:
(i) the board of the Company shall meet at least four times
annually;
(ii) the quorum for each such board meeting shall comprise of at
least 6 directors present throughout the meeting;
(iii) not less than 14 days' notice shall be given to all directors
of the Company for convening any such board meeting;
(iv) all business discussed at any such board meeting shall be
remain confidential save for disclosure to professional advisers and
(if required) regulatory authorities and where required by law.
7. Settlement of Disputes
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:-
In the event a dispute arises in connection with the
interpretation, implementation or performance of this Joint Venture
Agreement, the parties hereto shall attempt in the first instance to
resolve such dispute through friendly consultations. If such dispute
is not resolved in this manner within 21 days after the commencement
of discussions, then any party hereto may submit the dispute for
arbitration in Singapore for final decision pursuant to the provisions
of UNCITRAL with instructions that the arbitration be conducted in the
manner set forth below.
Arbitration shall be conducted as follows:-
(i) the arbitrators may refer to both the English and Chinese texts
of this Agreement;
(ii) all proceedings in any such arbitration shall be conducted in
English and translated into Chinese; and
(iii) there shall be three (3) arbitrators all of whom shall be
fluent in English. Party D and Parties A, B and C (collectively)
shall each select one (1) arbitrator. The third arbitrator shall be
86
chosen as provided in the UNCITRAL Arbitration Rules and shall serve
as chairman of the panel.
The arbitration awards shall be final and binding on the parties, and
the hereto agree to be bound thereby and to act accordingly.
The costs of arbitration shall be borne by the losing party, unless
otherwise determined by the arbitration award.
Whenever any dispute occurs or is under arbitration, the parties
hereto shall continue to exercise their remaining respective rights,
and fulfill their remaining respective obligations, in such manner in
accordance with the provisions of this Joint Venture Agreement.
8. Commencing of Effect
This Supplemental Agreement shall become effective when this
Supplemental Agreement together with the Amended Joint Venture
Contract (and documents annexed thereto) and Amended Articles of
Association are approved by the original examination and approval
authority of the Joint Venture Contract.
9. Miscellaneous
(A) The conclusion, validity, interpretation and execution of the
Equity Transfer Agreement and the settlement of disputes arising
therefrom shall be governed by the laws of the PRC.
(B) This Supplemental Agreement is written in both English and
Chinese in 10 original copies, 5 in English and 5 in Chinese. Both
versions are equally authentic and shall have the same force.
Executed in Zhanjiang City, Guangdong Province, the PRC by the legal
or duly authorised representatives of each of Party A, Party B, Party
C and Party D on 22nd June, 1999.
SIGNED by )
)
for and on behalf of )
KARTEK INTERNATIONAL HOLDINGS)
LIMITED in the presence of: -)
SIGNED by )
)
for and on behalf of )
ZHANJIANG POST BUREAU )
in the presence of:- )
SIGNED by )
)
for and on behalf of )
ZHANJIANG TELECOMMUNICATIONS)
BUREAU in the presence of:- )
SIGNED by )
)
for and on behalf of )
XXXXXXXX HOLDINGS INC. )
in the presence of:- )
Dated 22nd June, 1999
KARTEK INTERNATIONAL HOLDINGS LIMITED
and
ZHANJIANG POST BUREAU
and
ZHANJIANG TELECOMMUNICATIONS BUREAU
and
XXXXXXXX HOLDINGS INC.
AGREEMENT
relating to the sale and purchase
of 60 per cent. of the registered capital of
Zhanjiang Kingtone Cable Enterprises Limited
88
XXXXXXXX XXXXXX
20th Floor
Xxxxxxxxx Xxxxx
00-00 Xxxxxx Xxxx
Xxxx Xxxx
