FINANCIAL ADVISORY AGREEMENT
Exhibit
10.23
THIS
FINANCIAL ADVISORY AGREEMENT ("Agreement" or "FAA") is made and entered into
on
the 15th of March, 2006, by and between HFG International, Limited, a Hong
Kong
corporation ("HFG"), and Wonder
Auto Group,
a Hong
Kong corporation (the "Company").
W
I T N E
S S E T H:
WHEREAS,
the Company desires to engage HFG to provide certain financial advisory and
consulting services as specifically enumerated below commencing as of the date
hereof related to the Restructuring, the Going Public Transaction and the
Post-Transaction Period (each as hereinafter defined), and HFG is willing to
be
so engaged; and
WHEREAS,
HFG will advise the Company with regard to matters related to their efforts
to
complete a capital raising transaction generating gross offering proceeds of
$20
million USD (the "Financing"), $12 million for the Company and $8million to
purchase shares from current shareholders of the Company.
NOW,
THEREFORE, for and in consideration of the covenants set forth herein and the
mutual benefits to be gained by the parties hereto, and other good and valuable
consideration, the receipt and adequacy of which are now and forever
acknowledged and confessed, the parties hereto hereby agree and intend to be
legally bound as follows:
1. Retention.
As of
the date hereof, the Company hereby retains and HFG hereby agrees to be retained
as the Company's exclusive financial advisor during the term of this Agreement.
The Company acknowledges that HFG shall have the right to engage third parties
to assist it in its efforts to satisfy its obligations hereunder. In its
capacity as a financial advisor to the Company, HFG will:
A.
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Restructuring
and Going Public Transaction.
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(i) consult
on the implementation of a restructuring plan (the "Restructuring") resulting
in
an organizational structure that will allow the Company to complete the Going
Public Transaction;
(ii) assist
the Company in evaluating the manner of effecting a going public transaction
with a public shell corporation ("Pubco") domiciled in the United States of
America, quoted on the "OTC BB" (a "Going Public Transaction"). Subject to
completion of the due diligence, which demonstrates to HFG's sole satisfaction
that the Company is a suitable candidate for the Going Public Transaction,
the
Company's timely completion of a U.S. GAAP audit by April 30, 2006, and all
required legal filings and review, HFG will use its best efforts to complete
the
Going Public Transaction and the Financing by May 31, 2006.
HFG
acknowledges that the Pubco has no assets or liabilities of any kind and is
not
subject to any contingent legal liabilities, and HFG shall be responsible for
any loss suffered by the Company as a result of any legal liabilities in the
Pubco prior to the date of Going Public Transaction.
(iii) The
Company acknowledges that it has presented HFG with financial projections (the
"2006 Projections") indicating that the Company will report net income of at
least $8.57 million, with an allowable 5% grace margin equating to Net Income
of
$8.14 million USD for the fiscal year ending December 31, 2006 (the "2006
Projected NI"), based upon an audit conducted in conformity with US GAAP and
US
based auditing standards. Actual reported net income for 2006 shall be referred
to herein as ("2006 ARNI"),
If
2005
ARNI equals $6.5 million USD or greater, the completion of the Going Public
Transaction will result in the investors in the Financing, the current
shareholders of Pubco and HFG (collectively, the "New Shareholders")
controlling, in the aggregate, 41.8% of Pubco's issued and outstanding stock
following consummation of the Going Public Transaction.
The
company acknowledges that in the event that 2005 ARNI comes in below $6.5
million, HFG shall have the right, in its sole discretion, to either terminate
this Agreement or renegotiate its terms.
The
Company and its shareholders further acknowledge that in the event the Company
fails to meet the 2006 Projected NI, its current shareholders will deliver
to
the investors in the Financing and HFG shares of Pubco that they will receive
as
a result of their participation in the Going Public Transaction (the "Make
Good
Provision") based on the following:
The
Company's shareholders shall place into escrow that number of shares of Pubco,
to which they shall be entitled upon consummation of the Going Public
Transaction, representing an amount of shares equal to 30% of the total shares
outstanding following the closing of the Going Public Transaction (the "Make
Good Shares"). In the event the Company fails to report net income of $8.14
million USD for fiscal 2006 the escrow agent will transfer collectively to
the
investors in the Financing and to HFG that number of Make Good Shares based
from
the following formula:
(($8.14
million- 2006 ARNI)/$8.14 million) X Make Good Shares
The
Company will ensure that the Make Good Shares will be delivered within ten
business days of the date the audit for fiscal 2006 is completed and will be
registered under Section 5 of the Securities Act of 1933 for purposes of resale,
which registration statement shall be filed with the SEC within 30 days of
the
delivery of the Make Good Shares. The registration statement shall remain
effective and the prospectus constituting a part thereof available for delivery
in connection with the resale of the Make Good Shares for a period of 12 months
commencing on the delivery date of the Make Good Shares.
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For
the
purpose of the Make Good Provision, in calculation of the 2006 ARNI, one time
shell cost and one time legal expenses associated with the Going Public
Transaction will not be deducted.
For
the
purpose of the Make Good Provision, "Force Majeure" shall mean all events,
which
were unforeseeable at the time this Agreement is signed, the occurrence and
consequences of which cannot be avoided or overcome, and which arises after
this
Agreement is signed and prevent total or partial performance by any Party of
this Agreement. Such events shall include earthquakes, typhoons, flood, fire,
war, failures of international or domestic transportation, acts of government
or
public agencies, epidemics, civil disturbances, strikes and any other instances
which cannot be foreseen, avoided or overcome. If an event of Force Majeure
occurs, the Company's shareholders' obligations under this Make Good Provision
affected by such an event shall be excused, without assuming the liability
of
breach of this Agreement. The Party claiming Force Majeure shall promptly inform
the other Party in writing and shall furnish within 30 days sufficient evidence
of the occurrence and duration of such Force Majeure.
B.
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Post
Transaction Period
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Upon
consummation of the Going Public Transaction, HFG agrees to:
(i) coordinate
and supervise a training program for the purpose of facilitating new
management's operation of Pubco (the Company agrees that all costs and expenses
charged by third party consultants introduced by HFG and engaged by the Company
will be the sole responsibility of the Company);
(ii) if
necessary, coordinate the preparation by the Company's legal counsel of an
information statement to be filed with the SEC to change Pubco's name and to
in
turn assist in obtaining a new CUSIP number and stock symbol for
Pubco;
(iii) oversee
third party development by third parties of Pubco's investor relations efforts,
which effort shall include (a) establishing a program for communicating with
brokerage professionals, investment bankers and market makers; and (b) creating
a complete investor relations strategy to be implemented in English and Chinese.
The Company agrees that all costs and expenses charged by investor relations
and
press relations firms introduced by HFG and engaged by Pubco or the Company
will
be the sole responsibility of the Company;
(iv) coordinate
with the Company's legal counsel in the preparation and assembly of application
materials for the listing of Pubco's common stock on a national exchange or
quotation medium that may include, but shall not necessarily be limited to,
the
American Stock Exchange or the NASDAQ Stock Market;
(v) assist
in
coordinating future capital raising transactions; and
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(vi) provide
Pubco with such additional financial advisory services as may be reasonably
requested, to the extent HFG has the expertise or legal right to render such
services.
2. Financing.
The
Financing will be accomplished under terms and conditions that are mutually
agreeable to the issuer and the investors. Following the completion of the
Financing and Going Public Transaction, assuming 2005 ARNI of $6.5 million,
the
resulting percentage ownership of the Pubco will be as follows:
Previous
Company Shareholders
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58.2%
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New
Shareholders
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41.8%
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3. Financing
Consideration.
Subject
to applicable law, any parties who facilitate the Financing will be paid a
total
cash amount equal to seven percent (7%) of the gross proceeds delivered upon
consummation of a Financing.
Company
will also agree to reimburse any facilitators of the Financing for all
documented travel, lodging and other expenses incurred while completing the
Financing during the term of this Agreement on the condition that such expenses
are agreed in advance by the Company. Reimbursement is to be made within 10
days
of receipt of a written request for reimbursement submitted to the
Company.
4. Financing
Conditions.
A.
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The
Company acknowledges that the closing of a Financing will be contingent
upon (a) the Company's commitment to ensure that Pubco files a
registration statement with the U.S. Securities and Exchange Commission
for the purpose of registering either the shares purchased in the
Financing, or any security for which the purchased shares are exchanged,
for resale, with offering proceeds not to be released from escrow
until
the registration statement is filed, (b) consummation of the Going
Public
Transaction in accordance with this FAA, and (c) the agreement by
the
Company that $500,000 of the net proceeds of the Financing will be
placed
into escrow and used for financial public and investor relations
activities and the engagement of a US domiciled spokesperson(s)
recommended by HFG for a period of at least 12 months following the
closing of the Financing.
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B.
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HFG
acknowledges that special permission must be obtained from the Company
in
the event that (a) an investor, other than the China Pinnacle Fund,
wishes
to make an investment that would result in a greater than 20% ownership
in
the Company after the Financing and Going Public Transaction and/or
(b)
less than 3 separate investors are participating in the
Financing.
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5. Exclusivity.
HFG
shall have the exclusive right for a period of twelve months (the "Exclusivity
Period") from the date of this Agreement to effect a Financing on behalf of
the
Company. However, the right of exclusivity granted hereunder shall terminate
in
the event HFG advises the Company that it either unwilling or unable to
facilitate the Financing. In addition, the Company agrees that in the event
that
this Agreement is terminated for any reason, other than upon the completion
of a
Financing, it shall not enter into discussions or negotiations with or close
a
financing, regardless of terms, with any party introduced by HFG as a possible
investor or placement agent for the Financing, each of which shall be listed
on
Schedule "A" to this Agreement at the time of introduction, for a period of
two
years following the date of termination of this Agreement.
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6. Authorization.
Subject
to the terms and conditions of this Agreement, the Company hereby appoints
HFG
to act on a best efforts basis as its consultant during the Authorization Period
(as hereinafter defined). HFG hereby accepts such appoint, with it being
expressly acknowledged that HFG is acting in the capacity of independent
contractor and not as agent of either the Company, affiliates of the Company
resulting from the Restructuring, or Pubco.
In
addition, except in the event of an act constituting either willful misconduct
or gross negligence on the part of HFG, the Company agrees that it will not
hold
HFG responsible in the event that either the Restructuring, the Financing or
the
Going Public Transaction is not consummated, nor shall it hold HFG liable for
any damages suffered by the Company as a result of the Company's inability
to
consummate either the Restructuring, the Financing or the Going Public
Transaction. However, in the event HFG commits an act constituting either
willful misconduct or gross negligence which makes it impossible to complete
either the Financing or the Going Public Transaction, HFG shall indemnify the
Company against all costs, including legal, accounting and other fees and
expenses, arising from the Company's efforts to complete the Financing and
the
Going Public Transaction. It is expressly acknowledged by the Company that
HFG
shall not render legal or accounting advice in connection with the services
to
be provided herein. HFG shall have the right to recommend the legal and
accounting professionals for the transactions contemplated herein.
7. Authorization
Period.
HFG's
engagement hereunder shall become effective on the date hereof (the "Effective
Date") and will automatically terminate (the "Termination Date") on the first
to
occur of the following: (a) either party exercises their right of termination
as
provided for in this FAA, (b) the Company's breach of its covenants herein
or
(c) 12 months from the Effective Date. This Agreement may be extended beyond
the
Termination Date if both parties mutually agree in writing. Except as to certain
obligations of the Company under Section 5. hereof, this Agreement shall also
terminate immediately upon the mutual decision of the parties not to move
forward with the Restructuring, the Financing or the Going Public
Transaction.
8. Fees
and Expenses.
Simultaneous with the closing of the Going Public Transaction, the Company
shall
pay to HFG a fee of US $450,000 (the "Fee"), via wire transferred funds,
directly from the proceeds of the Financing.
In
addition, the Company shall reimburse HFG for all documented travel and lodging
expenses incurred by HFG personnel for providing the services under this
Agreement during the term of this Agreement on the condition that such expenses
are agreed in advance by the Company. Reimbursement is to be made within 10
days
of receipt of a written request for reimbursement submitted to the
Company.
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9. Due
Diligence and Auditabilty.
HFG
shall have the right to perform a due diligence investigation of the Company
that demonstrates to HFG's sole satisfaction that the Company is a suitable
candidate for the Going Public Transaction, which due diligence investigation
shall include consultation with the Company's independent audit firm regarding
the auditablity of the Company in accordance with US GAAP. HFG shall have the
right to terminate this Agreement in the event it determines that there exists
a
material and non-curable due diligence matter. The Company shall also have
the
right to perform a due diligence investigation of the Pubco.
10. Indemnification.
The
parties hereto shall indemnify each other to the extent provided for in this
paragraph. Except as a result of an act of gross negligence or willful
misconduct on the part of a party hereto, no party shall be liable to another
party, or its officers, directors, employees, shareholders or affiliates, for
any damages sustained as a result of an act or omission taken or made under
this
Agreement. In those cases where gross negligence or willful misconduct of a
party is alleged and proven, the non-damaged party agrees to defend, indemnify
and hold the damaged party harmless from and against any and all reasonable
costs, expenses and liabilities suffered or sustained as a result of the act
of
gross negligence or willful misconduct.
11. Governing
Law.
This
Agreement shall be governed by the laws of the Peoples Republic of China and
any
dispute arising hereunder shall be submitted for binding arbitration to the
China Foreign Trade Commission Arbitration Committee in Beijing.
It
is
understood that this Agreement will be prepared and executed in both the English
and Chinese languages, with both versions having legal efficacy. If a dispute
arises as to the interpretation of a particular provision of this Agreement
because of differences between the Chinese and English languages, the dispute
shall be resolved in accordance with the provisions of the preceding paragraph
of this Section
11.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year
first above written.
HFG:
HFG
International, Limited
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By: | /s/Xxxxxxx X. Xxxxxx | |
Xxxxxxx X. Xxxxxx, |
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Its: President |
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The
Company:
Wonder
Auto Group
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By: | /s/ Xxxx Xxxx Jie | |
Name: Xx. Xxxx QingJie |
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Its: Chairman |
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SCHEDULE
A
NAME
OF POTENTIAL INVESTOR
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DATE
INTRODUCED
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