AGREEMENT AND PLAN OF MERGER
EXHIBIT
2.1
AGREEMENT
AND PLAN OF MERGER
by
and among
CHINA
NETWORKS MEDIA LIMITED,
MEDIAINV
LTD.,
XXXXX
XXXXXXX
AND
THE OTHER PERSONS SIGNATORY HERETO
Dated
as of August 13, 2008
TABLE
OF CONTENTS
Page
|
THE
REDOMESTICATION MERGER
|
2
|
|
|
1.1
|
The
Redomestication Merger
|
2
|
|
1.2
|
Effective
Time
|
2
|
|
1.3
|
Effect
of the Redomestication Merger
|
2
|
|
1.4
|
Memorandum
and Articles of Association
|
2
|
|
1.5
|
Directors
and Officers of the China Networks Surviving Corporation
|
2
|
|
1.6
|
Effect
on Capital Stock
|
3
|
|
1.7
|
Surrender
of Certificates
|
4
|
|
1.8
|
Lost,
Stolen or Destroyed Certificates
|
4
|
|
1.9
|
Status
of Redomestication Merger for Tax Purposes
|
5
|
|
1.10
|
Taking
of Necessary Action; Further Action
|
5
|
|
ARTICLE
II
|
THE
BUSINESS COMBINATION
|
5
|
|
2.1
|
Business
Combination
|
5
|
|
2.2
|
Closing;
Effective Time
|
5
|
|
2.3
|
Effect
of the Business Combination
|
6
|
|
2.4
|
[Intentionally
Omitted]
|
6
|
|
2.5
|
Memorandum
and Articles of Association
|
6
|
|
2.6
|
Directors
of China Networks II Surviving Corporation
|
6
|
|
2.7
|
Effect
on Capital Stock
|
6
|
|
2.8
|
Surrender
of Certificates
|
10
|
|
2.9
|
Lost,
Stolen or Destroyed Certificates
|
10
|
|
2.10
|
Status
of Business Combination for Tax Purposes
|
11
|
|
2.11
|
Taking
of Necessary Action; Further Action
|
11
|
|
2.12
|
Withholding
Rights
|
11
|
|
2.13
|
Shares
Subject to Appraisal Rights
|
11
|
|
2.14
|
Restriction
on Disposal of Shares
|
12
|
|
2.15
|
Payment
Procedures
|
12
|
|
ARTICLE
III
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
13
|
|
3.1
|
Organization,
Standing and Power; Framework Agreements
|
14
|
|
3.2
|
Subsidiaries
|
15
|
|
3.3
|
Capital
Structure
|
15
|
|
3.4
|
Authority
|
16
|
|
3.5
|
No
Conflict
|
16
|
|
3.6
|
Consents
and Approvals
|
16
|
|
3.7
|
Financial
Statements
|
17
|
|
3.8
|
Absence
of Certain Changes
|
17
|
|
3.9
|
Absence
of Undisclosed Liabilities
|
17
|
-
i -
TABLE
OF CONTENTS
(continued)
Page
|
3.10
|
Litigation
|
17
|
|
3.11
|
Restrictions
on Business Activities
|
17
|
|
3.12
|
Governmental
Authorization
|
18
|
|
3.13
|
Title
to Property
|
18
|
|
3.14
|
Intellectual
Property
|
18
|
|
3.15
|
Taxes
|
18
|
|
3.16
|
Employee
Benefit Plans
|
20
|
|
3.17
|
Labor
Matters
|
20
|
|
3.18
|
Interested
Party Transactions
|
20
|
|
3.19
|
Insurance
|
20
|
|
3.20
|
Material
Company Contracts
|
20
|
|
3.21
|
Compliance
With Laws
|
22
|
|
3.22
|
Foreign
Corrupt Practices Act
|
22
|
|
3.23
|
Money
Laundering Laws
|
22
|
|
3.24
|
Governmental
Inquiry
|
23
|
|
3.25
|
Minute
Books
|
23
|
|
3.26
|
Real
Property
|
23
|
|
3.27
|
Brokers’
and Finders’ Fees
|
23
|
|
3.28
|
Vote
Required
|
23
|
|
3.29
|
Board
Approval
|
23
|
|
3.30
|
Representations
Complete
|
23
|
|
ARTICLE
IV
|
REPRESENTATIONS
AND WARRANTIES OF PARENT, MERGER SUB I AND MERGER
SUB II
|
23
|
|
4.1
|
Organization,
Standing and Power
|
24
|
|
4.2
|
Capital
Structure
|
25
|
|
4.3
|
Authority
|
26
|
|
4.4
|
No
Conflict
|
26
|
|
4.5
|
Consents
and Approval
|
27
|
|
4.6
|
SEC Documents;
Financial Statements
|
27
|
|
4.7
|
Xxxxxxxx-Xxxxx
Act of 2002
|
28
|
|
4.8
|
Absence
of Certain Changes
|
29
|
|
4.9
|
Absence
of Undisclosed Liabilities
|
29
|
|
4.10
|
Litigation
|
29
|
|
4.11
|
Restrictions
on Business Activities
|
29
|
|
4.12
|
No
Interest in Property
|
30
|
|
4.13
|
Employee
Benefit Plans
|
30
|
|
4.14
|
Labor
Matters
|
30
|
|
4.15
|
Interested
Party Transactions
|
30
|
|
4.16
|
Insurance
|
30
|
|
4.17
|
Compliance
With Laws
|
30
|
|
4.18
|
Brokers’
and Finders’ Fees
|
30
|
-
ii -
TABLE
OF CONTENTS
(continued)
Page
|
4.19
|
Minute
Books
|
30
|
|
4.20
|
Vote
Required
|
31
|
|
4.21
|
Board
Approval
|
31
|
|
4.22
|
ASE
Quotation
|
31
|
|
4.23
|
Trust
Account Funds
|
31
|
|
4.24
|
Representations
Complete
|
31
|
|
ARTICLE
V
|
CONDUCT
PRIOR TO THE BUSINESS COMBINATION EFFECTIVE TIME
|
31
|
|
5.1
|
Conduct
of Business
|
31
|
|
5.2
|
Restrictions
on Conduct of Business
|
32
|
|
5.3
|
Joint
Ventures and Framework Agreements
|
34
|
|
ARTICLE
VI
|
COVENANTS
|
34
|
|
6.1
|
Merger
Proxy/Prospectus; Special Meeting
|
34
|
|
6.2
|
Form 8-K
|
35
|
|
6.3
|
Action
of Company’s Shareholders
|
36
|
|
6.4
|
Employment
Agreements
|
36
|
|
6.5
|
Registration
Rights Agreement
|
36
|
|
6.6
|
Fiscal
Year
|
36
|
|
ARTICLE
VII
|
ADDITIONAL
AGREEMENTS
|
36
|
|
7.1
|
No
Claim Against Trust Account
|
36
|
|
7.2
|
Access
to Information
|
37
|
|
7.3
|
Confidential
Information; Non-Solicitation or Negotiation
|
37
|
|
7.4
|
Public
Disclosure
|
39
|
|
7.5
|
Consents;
Cooperation
|
40
|
|
7.6
|
Legal
Requirements
|
40
|
|
7.7
|
Blue
Sky Laws
|
40
|
|
7.8
|
Indemnification
|
41
|
|
7.9
|
Best
Efforts and Further Assurances
|
42
|
|
ARTICLE
VIII
|
CONDITIONS
TO THE BUSINESS COMBINATION
|
42
|
|
8.1
|
Conditions
Precedent to the Obligation of the Parent to Consummate the Business
Combination
|
42
|
|
8.2
|
Conditions
Precedent to the Obligation of the Company to Consummate the Business
Combination
|
45
|
|
ARTICLE
IX
|
POST-CLOSING
COVENANTS
|
49
|
-
iii -
TABLE
OF CONTENTS
(continued)
Page
|
9.1
|
MANDATORY
REGISTRATION OF CLOSING SHARES
|
49
|
|
9.2
|
Registration
of Performance Shares
|
49
|
|
9.3
|
D&O Insurance
|
49
|
|
ARTICLE
X
|
INDEMNIFICATION;
REMEDIES
|
49
|
|
10.1
|
Survival
|
49
|
|
10.2
|
Indemnification
by the Principal Shareholders
|
50
|
|
10.3
|
Limitations
on Amount
|
52
|
|
10.4
|
Determining
Damages
|
52
|
|
ARTICLE
XI
|
TERMINATION,
AMENDMENT AND WAIVER
|
52
|
|
11.1
|
Termination
|
52
|
|
11.2
|
Effect
of Termination
|
53
|
|
11.3
|
Expenses
and Termination Fees
|
54
|
|
11.4
|
Amendment
|
54
|
|
11.5
|
Extension;
Waiver
|
55
|
|
ARTICLE
XII
|
GENERAL
PROVISIONS
|
55
|
|
12.1
|
Notices
|
55
|
|
12.2
|
Interpretation/Definitions
|
56
|
|
12.3
|
Counterparts
|
56
|
|
12.4
|
Entire
Agreement; Nonassignability; Parties in Interest
|
56
|
|
12.5
|
Severability
|
57
|
|
12.6
|
Remedies
Cumulative; Specific Performance
|
57
|
|
12.7
|
Governing
Law
|
57
|
|
12.8
|
Rules
of Construction
|
58
|
-
iv -
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (the “Agreement”)
is
made and entered into as of August 13, 2008, by and among Alyst Acquisition
Corp., a Delaware corporation (including its successors and assigns, the
“Parent”),
China
Networks Media Limited, a British Virgin Islands corporation (including its
successors and assigns, the “Company”),
MediaInv Ltd., a British Virgin Islands corporation and Xxxxx Xxxxxxx (each
a
“Principal
Shareholder,”
and
together with their successors and assigns from the date hereof until the
Business Combination Effective time (as defined below), collectively the
“Principal
Shareholders”)
and
each of the other persons signatories hereto.
RECITALS
WHEREAS,
Parent has formed a wholly-owned subsidiary in the British Virgin Islands
(“Merger
Sub I”),
solely for the purpose of a merger of Parent with and into Merger Sub I,
in
which Merger Sub I will be the surviving corporation (the “Redomestication
Merger”).
The
name of Merger Sub I is or is in the process of being changed to China Networks
International Holdings, Ltd.;
WHEREAS,
immediately after the formation of Merger Sub I, Merger Sub I formed a
wholly-owned subsidiary in the British Virgin Islands (“Merger
Sub II”),
solely for the purpose of a merger of Merger Sub II with and into the Company
in
which the Company will be the surviving corporation (the “Business
Combination”).
The
name of Merger Sub II is China Network Merger Co., Ltd.;
WHEREAS,
pursuant to and in connection with the Business Combination, and as part
of the
same integrated transaction (such that neither the Business Combination nor
the
Redomestication Merger shall occur without the other), Parent and Merger
Sub I
shall consummate the Redomestication Merger, pursuant to which, among other
things, (i) the outstanding shares of common stock of the Parent, U.S.
$0.0001 par value (the “Parent
Common Stock”)
shall
be converted into shares in Merger Sub I, U.S. $0.0001 par value
(the “Surviving
Corporation Shares”)
and
(ii) all warrants and other rights to purchase Parent Common Stock then
outstanding (the “Parent
Stock Rights”)
shall
be exchanged for substantially equivalent securities of Merger Sub I at the
rate
set forth herein (“Surviving
Corporation Stock Rights”);
and
WHEREAS,
as part of the same integrated transaction (such that neither the Business
Combination nor the Redomestication Merger shall occur without the other)
Merger
Sub II and the Company shall consummate the Business Combination, pursuant
to
which, among other things, (i) the outstanding common shares of the Company,
U.S. $.0005 par value (“Company
Shares”),
shall
be converted into Surviving Corporation Shares and the right to receive the
other consideration referred to herein and (ii) the Class A Preferred
Shares of the Company, U.S. $.0005 par value issued in the Financing referred
to
herein (“Preferred
Shares”,
and
together with the Company Shares, the “Company
Securities”)
shall
be converted into Surviving Corporation Shares, in each case at the rate
set
forth herein.
-
1 -
NOW,
THEREFORE, in consideration of the foregoing premises, and the mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto
agree as follows:
ARTICLE
I
THE
REDOMESTICATION MERGER
1.1 The
Redomestication Merger.
At the
Effective Time (as defined below) and subject to and upon the terms and
conditions of this Agreement and the Redomestication Plan of Merger and Articles
and Plan of Merger to be prepared by the Parent, and in accordance with the
applicable provisions of the Delaware General Corporation Law (“Delaware
Law”)
and
the BVI Business Companies Act, 2004 (“BVI
Law”),
respectively, Parent shall be merged with and into Merger Sub I, the separate
corporate existence of Parent shall cease and Merger Sub I shall continue
as the
surviving corporation. Merger Sub I as the surviving corporation after the
Redomestication Merger is hereinafter sometimes referred to as the “China
Networks Surviving Corporation.”
1.2 Effective
Time.
The
parties hereto shall cause the Redomestication Merger to be consummated by
filing the Certificate of Merger with the Secretary of State of the State
of
Delaware, in accordance with the relevant provisions of Delaware Law, and
the
Articles and Plan of Merger with the British Virgin Islands Registrar of
Corporate Affairs, in accordance with the relevant provisions of BVI Law
(the
time of such filings, or such later time as specified in the Certificate
of
Merger and the Articles and Plan of Merger, being the “Effective
Time”).
1.3 Effect
of the Redomestication Merger.
At the
Effective Time, the effect of the Redomestication Merger shall be as provided
in
this Agreement, the Certificate of Merger, the Articles and Plan of Merger
and
the applicable provisions of Delaware Law and BVI Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
all the
property, rights, privileges, agreements, powers and franchises, debts,
liabilities, duties and obligations of the Parent and Merger Sub I shall
become
the property, rights, privileges, agreements, powers and franchises, debts,
liabilities, duties and obligations of the China Networks Surviving Corporation,
which shall include the assumption by China Networks Surviving Corporation
of
any and all agreements, covenants, duties and obligations of the Parent set
forth in this Agreement to be performed after the Closing, and all Surviving
Corporation Shares issued and outstanding as a result of the conversion under
Section 1.6(a)
hereof
shall be listed on the American Stock Exchange (“ASE”),
or
such other public trading market on which the Surviving Corporation Shares
may
be trading at such time.
1.4 Memorandum
and Articles of Association.
At the
Effective Time, the Certificate of Incorporation and By-Laws of the Parent,
as
in effect immediately prior to the Effective Time, shall cease and the
Memorandum and Articles of Association (“MOA”)
of
Merger Sub I, as in effect immediately prior to the Effective Time, shall
be the
MOA of the China Networks Surviving Corporation.
1.5 Directors
and Officers of the China Networks Surviving
Corporation.
Immediately after the Effective Time, the board of directors of the China
Networks Surviving
-
2 -
Corporation,
shall, unless otherwise mutually agreed by the Parent and the Company, consist
of three designees of the Parent (the “Parent
Designees”)
and
four designees of the Company (the “Company
Designees”)
and
the officers of the China Networks Surviving Corporation shall be Li Shuangqing
as Chief Executive Officer and Co-Chairman, Xxxx Xxxxxx as Co-Chairman and
Xxxx
Xxxxxxxxxx as Vice President of Sales and Marketing.
1.6 Effect
on Capital Stock.
By
virtue of the Redomestication Merger and without any action on the part of
Merger Sub I, the Parent or the holders of any of the following
securities:
(a) Conversion
of Parent Common Stock.
At the
Effective Time, each share of the Parent Common Stock issued and outstanding
immediately prior to the Effective Time (other than those described in
Section
1.6(c)
below)
shall be converted automatically into one Surviving Corporation Share (the
“Conversion
Ratio”),
subject to any adjustments made pursuant to Section
1.6(d).
At the
Effective Time, all shares of Parent Common Stock shall cease to be outstanding
and shall automatically be canceled and retired and shall cease to exist.
The
holders of certificates previously evidencing shares of Parent Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Parent Common Stock, except as provided
herein or by law. Each certificate previously evidencing Parent Common Stock
shall be exchanged for a certificate representing such number of Surviving
Corporation Shares calculated by multiplying the Conversion Ratio then in
effect
by the number of shares of Parent Common Stock previously evidenced by the
canceled certificates upon the surrender of such certificate in accordance
with
Section 1.7.
(b) Parent
Stock Rights.
At the
Effective Time, each Parent Stock Right shall be converted into one
substantially equivalent option, warrant or other Surviving Corporation Stock
Right. At the Effective Time, the Parent Stock Rights shall cease to be
outstanding and shall automatically be canceled and retired and shall cease
to
exist. Each of the Surviving Corporation Stock Rights shall have, and be
subject
to, the same terms and conditions set forth in the applicable agreements
governing the Parent Stock Rights (the “Parent
Stock Rights Agreements”)
which
are outstanding immediately prior to the Effective Time, except that in the
event of an adjustment made pursuant to Section
1.6(d),
(i)
each of the Surviving Corporation Stock Rights will be exercisable for that
number of whole Surviving Corporation Shares equal to the product of the
number
of shares of Parent Common Stock that were issuable upon exercise of such
option
or warrant immediately prior to the Effective Time multiplied by the Conversion
Ratio then in effect and rounded down to the nearest whole number of Surviving
Corporation Shares, and (ii) the per share exercise price for the Surviving
Corporation Shares issuable upon exercise of such Surviving Corporation Stock
Rights will be equal to the quotient determined by dividing the exercise
price
per share of Parent Common Stock at which each such option or warrant was
exercisable immediately prior to the Effective Time by the Conversion Ratio
then
in effect, rounded down to the nearest whole cent. At or prior to the Effective
Time, Merger Sub I shall take all corporate action necessary to reserve for
future issuance, and shall maintain such reservation for so long as any of
the
Surviving Corporation Stock Rights remain outstanding, a sufficient number
of
Surviving Corporation Shares for delivery upon the exercise of such Surviving
Corporation Stock Rights.
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3 -
(c) Cancellation
of Parent Common Stock Owned by Parent.
At the
Effective Time, if there are any shares of Parent Common Stock that are owned
by
the Parent as treasury stock or any shares of Parent Common Stock owned by
any
direct or indirect wholly owned subsidiary of the Parent immediately prior
to
the Effective Time, such shares shall be canceled and extinguished without
any
conversion thereof or payment therefor.
(d) Adjustments
to Conversion Ratio.
The
Conversion Ratio shall be adjusted to reflect fully the effect of any share
sub-division or combination, stock dividend (including any dividend or
distribution of securities convertible into Merger Sub I Common Stock or
Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Merger Sub I Common Stock or Parent Common Stock occurring after
the
date hereof and prior to the Effective Time, so as to provide holders of
Parent
Common Stock and Merger Sub I Common Stock the same economic effect as
contemplated by this Agreement prior to such share sub-division or combination,
stock dividend, reorganization, recapitalization or like change.
(e) Transfers
of Ownership.
If any
certificate for Surviving Corporation Shares is to be issued in a name other
than that in which the certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the certificate
so surrendered will be properly endorsed and accompanied by a duly executed
instrument of transfer and otherwise in proper form for transfer and that
the
person requesting such exchange will have paid to China Networks Surviving
Corporation or any agent designated by it any transfer or other taxes required
by reason of the issuance of a certificate for Surviving Corporation Shares
in
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of China Networks Surviving
Corporation or any agent designated by it that such tax has been paid or
is not
payable.
(f) No
Liability.
Notwithstanding anything to the contrary in this Section
1.6,
none of
the China Networks Surviving Corporation, or any party hereto shall be liable
to
any person for any amount properly paid to a public official pursuant to
any
applicable abandoned property, escheat or similar law.
1.7 Surrender
of Certificates.
All
Surviving Corporation Shares issued upon the surrender of shares of Parent
Common Stock in accordance with the terms hereof, and all Surviving Corporation
Stock Rights issued upon surrender of Parent Stock Rights in accordance with
the
terms hereof, shall be deemed to have been issued in full satisfaction of
all
rights pertaining to such securities, provided that any restrictions on the
sale
and transfer of Parent Common Stock shall also apply to the Surviving
Corporation Shares so issued in exchange.
1.8 Lost,
Stolen or Destroyed Certificates.
In the
event any certificates or Parent Stock Rights Agreements shall have been
lost,
stolen or destroyed, China Networks Surviving Corporation shall issue in
exchange for such lost, stolen or destroyed certificates or Parent Stock
Rights
Agreements, as the case may be, upon the making of an affidavit of that fact
by
the holder thereof, such Surviving Corporation Shares or Surviving Corporation
Stock Rights, as may be required pursuant to Section
1.7;
provided, however, that China Networks Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require
the
owner of such lost, stolen or destroyed certificates or Parent Stock Rights
Agreement to deliver a bond in
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4 -
such
sum
as it may reasonably direct as indemnity against any claim that may be made
against China Networks Surviving Corporation with respect to the certificates
or
Parent Stock Rights Agreements alleged to have been lost, stolen or
destroyed.
1.9 Status
of Redomestication Merger for Tax Purposes.
For
U.S. federal income tax purposes, the Redomestication Merger is intended
to
constitute a “reorganization” within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the “Code”)
and
the parties thereto do hereby (i) adopt this Agreement as a “plan of
reorganization” within the meaning of Section 1.368-2(g) of the United States
Treasury Regulations and (ii) agree to take all such actions incident thereto
as
shall be necessary or appropriate. Notwithstanding the foregoing or anything
else to the contrary contained in this Agreement, the parties acknowledge
and
agree that no party is making any representation or warranty as to the
qualification of the Redomestication Merger as a reorganization under Section
368 of the Code, as to the effect, if any, that any transaction consummated
on,
after or prior to the Effective Time has or may have on any such reorganization
status or the Tax (as defined below) implications of qualification of the
Redomestication Merger as a reorganization. Each of the parties acknowledge
and
agree that each (i) has had the opportunity to obtain independent legal and
tax
advice with respect to the transactions contemplated by this Agreement, and
(ii)
is responsible for paying its own Taxes.
1.10 Taking
of Necessary Action; Further Action.
If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the China Networks
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Parent and Merger
Sub
I, the officers and directors of Parent and Merger Sub I are fully authorized
in
the name of their respective corporations or otherwise to take, and will
take,
all such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE
II
THE
BUSINESS COMBINATION
2.1 Business
Combination.
Immediately after the consummation of the Redomestication Merger, and subject
to
the terms of this Agreement and the Business Combination Plan of Merger and
Articles and Plan of Merger to be prepared by the Company (the “Business
Combination Articles and Plan of Merger”),
and
in accordance with BVI Law, Merger Sub II shall be merged with and into the
Company, the separate corporate existence of Merger Sub II shall cease and
the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Business Combination is hereinafter sometimes
referred to as the “China
Networks II Surviving Corporation.”
2.2 Closing;
Effective Time.
The
closing of the Business Combination (the “Closing”)
shall
take place immediately after the consummation of the Redomestication Merger,
which shall take place as soon as practicable after the satisfaction or waiver
of each of the conditions set forth in Article
VIII
hereof
or at such other time as the parties hereto agree (the “Closing
Date”).
The
Closing shall take place at the offices of Loeb & Loeb LLP, 000 Xxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, or at such other location as the parties hereto
agree.
On the Closing Date:
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5 -
(a) Merger
Sub I and Parent shall cause the Redomestication Merger to be immediately
consummated by filing the Certificate of Merger with the Secretary of State
of
the State of Delaware, in accordance with the relevant provisions of Delaware
Law, and the Articles and Plan of Merger with the British Virgin Islands
Registrar of Corporate Affairs, in accordance with the relevant provisions
of
BVI Law; and
(b) Upon
the
completion of the Redomestication Merger, Merger Sub II and the Company shall
cause the Business Combination to be immediately consummated by filing the
Business Combination Articles and Plan of Merger with the British Virgin
Islands
Registrar of Corporate Affairs, in accordance with the relevant provisions
of
BVI Law (the “Business
Combination Effective Time”).
2.3 Effect
of the Business Combination.
At the
Business Combination Effective Time, the effect of the Business Combination
shall be as provided in this Agreement, the Business Combination Articles
and
Plan of Merger and the applicable provisions of BVI Law. Without limiting
the
generality of the foregoing, and subject thereto, at the Business Combination
Effective Time, all the property, rights, privileges, agreements, powers
and
franchises of the Company and Merger Sub II shall vest in the China Networks
II
Surviving Corporation, and all debts, liabilities and duties of the Company
and
Merger Sub II shall become the debts, liabilities and duties of the China
Networks II Surviving Corporation, and all Surviving Corporation Shares issued
in exchange for Company Securities upon conversion in accordance with
Section
2.7(a)
shall,
subject to the restrictions contained in Section
2.14
and
applicable securities laws, be eligible for quotation on the ASE, or such
other
public trading market on which the Surviving Corporation Shares may be trading
at such time.
2.4 [Intentionally
Omitted]
2.5 Memorandum
and Articles of Association.
At the
Business Combination Effective Time, the MOA of Merger Sub II, as in effect
immediately prior to the Closing Date, shall cease and the MOA of the Company,
as in effect immediately prior to the Business Combination Effective Time,
shall
be the MOA of China Networks II Surviving Corporation.
2.6 Directors
of China Networks II Surviving Corporation.
Immediately after the Business Combination Effective Time, the board of
directors of China Networks II Surviving Corporation, shall consist of the
same
individuals designated as directors of China Networks Surviving Corporation
pursuant to Section
1.5
hereof.
2.7 Effect
on Capital Stock.
By
virtue of the Business Combination and without any action on the part of
Merger
Sub II, the Company or the holders of any of the following
securities:
(a) Conversion
of Company Securities.
At the
Business Combination Effective Time, (i) each Company Share issued and
outstanding immediately prior to the Business Combination Effective Time
(other
than those described in Section
2.123
below)
shall be converted automatically into (A) a number of Surviving Corporation
Shares determined as follows: (x) 1,900,000 divided
by
(y) the
total number of Company Shares issued and outstanding immediately prior to
the
Business Combination Effective Time, plus
(B) the
right to
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receive
a
cash amount determined as follows: (x) U.S. $10,000,000 divided
by
(y) the
total number of Company Shares issued and outstanding immediately prior to
the
Business Combination Effective Time, plus
(C) the
additional consideration described in Sections 2.7(f),
(g)
and
(h),
(the
“CS
Per
Share Amount”),
and
(ii) each Preferred Share issued and outstanding immediately prior to the
Business Combination Effective Time shall be converted automatically into
(A) a
number of Surviving Corporation Shares determined as follows: (x) the number
of
Preferred Shares issued in the Financing to the bridge investors divided
by
(y) the
total number of Preferred Shares issued and outstanding immediately prior
to the
Business Combination Effective Time (collectively, the “Business
Combination Conversion Ratio”),
subject to any adjustments made pursuant to Section
2.7(c),
plus
(B) the
right to receive a cash amount equal to $7.143, plus
(C) the
additional consideration described in Section 2.7(f)
and
(h),
(the
“PS
Per
Share Amount”).
At
the Business Combination Effective Time, all Company Securities shall cease
to
be outstanding and shall automatically be canceled and retired and shall
cease
to exist. The holders of certificates previously evidencing the Company
Securities outstanding immediately prior to the Business Combination Effective
Time shall cease to have any rights with respect to such Company Securities,
except as provided herein or by law. Each certificate previously evidencing
Company Securities shall be exchanged for such number of Surviving Corporation
Shares calculated by multiplying the applicable Business Combination Conversion
Ratio by the number of Company Securities previously evidenced by the canceled
certificates and cash in an amount equal to the CS Per Share Amount or the
PS
Per Share Amount, as the case may be, upon the surrender of such certificate
in
accordance with the terms hereof.
(b) Cancellation
of Merger Sub II Common Stock Owned by Merger Sub II.
At the
Business Combination Effective Time, if any shares of Merger Sub II Common
Stock
are held by Merger Sub II as treasury shares or any shares of Merger Sub
II
Common Stock are owned by any direct or indirect wholly owned subsidiary
of
Merger Sub II immediately prior to the Business Combination Effective Time,
such
shares shall be canceled and extinguished without any conversion thereof
or
payment therefor.
(c) Adjustments
to Business Combination Conversion Ratio.
Each
Business Combination Conversion Ratio shall be adjusted to reflect fully
the
effect of any share sub-division or combination, stock dividend (including
any
dividend or distribution of securities convertible into Surviving Corporation
Shares or Company Securities), reorganization, recapitalization or other
like
change with respect to Surviving Corporation Shares and Company Securities
occurring after the date hereof and prior to the Business Combination Effective
Time, so as to provide holders of Company Securities the same economic effect
as
contemplated by this Agreement prior to such share sub-division or combination,
stock dividend, reorganization, recapitalization or like change.
(d) Transfers
of Ownership.
If any
certificate for Surviving Corporation Shares is to be issued in a name other
than that in which the certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the certificate
so surrendered will be properly endorsed and accompanied by a duly executed
instrument of transfer and otherwise in proper form for transfer and that
the
person requesting such exchange will have paid to China Networks II Surviving
Corporation or any agent designated by it any transfer or other taxes required
by reason of the issuance of a certificate for Surviving Corporation Shares
in
any name other than that of the registered holder of the
Certificate
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7 -
surrendered,
or established to the satisfaction of China Networks II Surviving Corporation
or
any agent designated by it that such tax has been paid or is not
payable.
(e) No
Liability.
Notwithstanding anything to the contrary in this Section
2.7,
none of
China Networks II Surviving Corporation or any party hereto shall be liable
to
any person for any amount properly paid to a public official pursuant to
any
applicable abandoned property, escheat or similar law.
(f) Deferred
Cash Payments.
(i) In
accordance with Section
2.7(a),
each
holder of Company Shares as of the Business Combination Effective Time (each,
a
“Closing
Holder”)
shall
be entitled to receive from China Networks Surviving Corporation deferred
cash
payments contingent upon the achievement by China Networks Surviving Corporation
of the amounts of Net Income (as defined below) set forth below in this
Section
2.7(f)
(the
“Deferred
Cash Payments”).
(ii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall
be
entitled to receive from China Networks Surviving Corporation cash payments
on
or prior to December 31, 2009 equal to an aggregate amount of U.S. $3,000,000,
solely and exclusively upon China Networks Surviving Corporation earning
Net
Income of at least U.S. $15,000,000 during the four fiscal quarters immediately
preceding such payment, to be allocated among such holders based on their
percentage ownership of the Company Shares immediately prior to the Business
Combination Effective Time (the “Percentage
Allocations”).
(iii) China
Networks Surviving Corporation hereby agrees that Closing Holders shall be
entitled to receive from China Networks Surviving Corporation additional
cash
payments on or prior to December 31, 2010 equal to an aggregate amount of
U.S.
$3,000,000, solely and exclusively upon China Networks Surviving Corporation
earning Net Income of at least U.S. $25,000,000 during the four fiscal quarters
immediately preceding such payments, to be allocated among the holders of
Company Shares in accordance with their respective Percentage
Allocations.
(iv) As
used
herein, “Net
Income”
means
the net income of China Networks Surviving Corporation and its subsidiaries
as
determined in accordance with U.S. generally accepted accounting principles
(“GAAP”)
excluding equity-based compensation charges, extraordinary one-time charges
and
charges related to the Business Combination or impairment of goodwill;
provided that,
with
respect to any acquisitions of businesses or persons after the Business
Combination Effective Time, in order for the net income generated by such
acquired businesses or persons to be included in the foregoing definition
of Net
Income, such acquisitions must be accretive on a Net Income per share basis.
In
calculating Net Income per share, China Networks Surviving Corporation shall
use
China Networks Surviving Corporation’s audited or reviewed financial statements
for the fiscal period in question. For the acquisition to be accretive, the
pro
forma Net Income per share on a post-acquisition basis must be greater than
the
pro forma Net Income per share immediately prior to the acquisition.
(v) Any
Deferred Cash Payments due and payable pursuant to the foregoing shall be
paid
to Closing Holders on the later of (i) the date 30 days after
preparation
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8 -
and
completion of China Networks Surviving Corporation’s audited or reviewed
financial statements for the fiscal period in question and (ii) the tenth
business day after the determination of Net Income for purposes of this
Agreement with respect to the fiscal period in question.
(g) Deferred
Stock Payment.
(i) In
accordance with Section
2.7(a),
each
Closing Holder shall be entitled to receive deferred stock payments contingent
upon the achievement by China Networks Surviving Corporation of the amounts
of
Net Income set forth below in this Section
2.7(g)
(the
“Deferred
Stock Payments”).
(ii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall
be
entitled to receive from China Networks Surviving Corporation an additional
2,850,000 newly issued Surviving Corporation Shares solely and exclusively
upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$20,000,000 during the fiscal year ending December 31, 2009, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(iii) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall
be
entitled to receive from China Networks Surviving Corporation an additional
3,075,000 newly issued Surviving Corporation Shares solely and exclusively
upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$30,000,000 during the fiscal year ending December 31, 2010, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(iv) China
Networks Surviving Corporation hereby agrees that the Closing Holders shall
be
entitled to receive from China Networks Surviving Corporation an additional
3,075,000 newly issued Surviving Corporation Shares solely and exclusively
upon
China Networks Surviving Corporation earning Net Income of at least U.S.
$40,000,000 during the fiscal year ending December 31, 2011, to be allocated
among the Closing Holders in accordance with their respective Percentage
Allocations.
(v) Any
Deferred Stock Payments due and payable pursuant to the foregoing shall be
issued to the Closing Holders on the later of the (i) 30 days after preparation
and completion of China Networks Surviving Corporation’s audited year-end
financial statements for the fiscal period in question and (ii) tenth business
day after the determination of Net Income for purposes of this Agreement
with
respect to the fiscal period in question.
(vi) In
the
event that the Net Income target for any fiscal year is achieved during a
fiscal
year that is prior to the year corresponding to such Net Income target, the
Closing Holders shall be entitled to receive, in addition to the Deferred
Stock
Payment for the then current fiscal year, the Deferred Stock Payment for
any
additional future fiscal year with respect to which the Net Income target
has
also been achieved.
(vii) All
Surviving Corporation Shares issued hereunder shall be duly authorized, fully
paid and nonassessable and issued in compliance with all applicable foreign,
federal and state securities laws.
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(viii) All
Surviving Corporation Shares issued hereunder shall be subject to any lock-up,
voting or similar agreement, including the Lock-Up Agreement, including the
restrictions on transfer therein set forth, that each Closing Holder may
be a
party to at the time of its receipt of any Surviving Corporation Shares
hereunder.
(ix) The
number of Surviving Corporation Shares set forth in this Section
2.7(g)
shall be
adjusted for any stock split, reverse stock split, stock dividend,
reclassification, recapitalization, merger or consolidation or like capital
adjustment affecting the Surviving Corporation Shares
(h) Warrant
Exercise Proceeds.
In
accordance with Section
2.7(a),
China
Networks Surviving Corporation hereby agrees that the Closing Holders and
holders of Preferred Shares as of the Closing (“Preferred
Share Closing Holders”)
shall
be entitled to receive from the Company, cash payments (the “Warrant
Payments”)
equal
to a maximum aggregate amount of U.S. $22,110,000 plus 10% of the aggregate
gross proceeds received in the Financing from the bridge investors, solely
and
exclusively upon China Networks Surviving Corporation’s receipt of cash proceeds
from the exercise of the Parent Warrants and the Insider Warrants (collectively,
the “Warrants”),
payable in accordance with this Section
2.7(h).
The
Warrant Payments shall be allocated among such holders of Closing Holders
and
Preferred Share Closing Holders based on their percentage ownership of the
sum
of (a) the Company Shares, and (b) the Preferred Shares immediately prior
to the
Business Combination Effective Time (the “WEP Percentage
Allocations”).
Upon
exercise of any Warrants, as soon as practicable after receipt of the actual
cash proceeds received therefrom by China Networks Surviving Corporation
(but in
any event within 10 days) (the “Cash
Proceeds”),
China
Networks Surviving Corporation shall make a cash payment to each Closing
Holder
and Preferred Share Closing Holder equal to 66% of the Cash Proceeds then
available for distribution pursuant to the foregoing sentence multiplied
by the
WEP Percentage Allocation of such holder. The Company shall retain and apply
to
its general corporate purposes 34% of the Cash Proceeds. In no event shall
the
maximum aggregate amount payable pursuant to this Section
2.7(h)
to any
such holder exceed (x) U.S. $22,110,000 plus 10% of the aggregate gross proceeds
received in the Financing from the bridge investors multiplied by (y) the
WEP
Percentage Allocation of such holder.
(i) Stock
Option Plan.
Subject
to the approval of the Incentive Plan Proposal (as defined below), Parent
shall
implement an incentive stock option plan (the “Incentive Stock Option Plan”)
pursuant to which directors, officers and employees of China Networks Surviving
Corporation or its subsidiaries may be granted options to purchase up to
2,500,000 Surviving Corporation Shares.
2.8 Surrender
of Certificates.
All
Surviving Corporation Shares issued upon the surrender of shares of Company
Securities in accordance with the terms hereof, shall be deemed to have been
issued in full satisfaction of all rights pertaining to such securities,
other
than any additional rights pursuant to this Agreement, provided that any
restrictions on the sale and transfer of Company Securities shall also apply
to
the Surviving Corporation Shares so issued in exchange.
2.9 Lost,
Stolen or Destroyed Certificates.
In the
event any certificates shall have been lost, stolen or destroyed, China Networks
II Surviving Corporation shall cause to be issued
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in
exchange for such lost, stolen or destroyed certificates upon the making
of an
affidavit of that fact by the holder thereof, such Surviving Corporation
Shares
as may be required pursuant to Section
2.7(a);
provided, however, that China Networks II Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require
the
owner of such lost, stolen or destroyed certificates to deliver a bond in
such
sum as it may reasonably direct as indemnity against any claim that may be
made
against China Networks II Surviving Corporation with respect to the certificates
alleged to have been lost, stolen or destroyed.
2.10 Status
of Business Combination for Tax Purposes.
For U.S.
federal income tax purposes, the Business Combination is intended to constitute
a taxable transaction and the parties to this Agreement shall act accordingly
in
respect of their Tax return filings and otherwise. Each of the parties
acknowledge and agree that each (i) has had the opportunity to obtain
independent legal and tax advice with respect to the transactions contemplated
by this Agreement, and (ii) is responsible for paying its own
Taxes.
2.11 Taking
of Necessary Action; Further Action.
If, at
any time after the Business Combination Effective Time, any further action
is
necessary or desirable to carry out the purposes of this Agreement and to
vest
China Networks II Surviving Corporation with full right, title and possession
to
all assets, property, rights, privileges, powers and franchises of the Company
and Merger Sub II, the officers and directors of Company and Merger Sub II
are
fully authorized in the name of their respective corporations or otherwise
to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
2.12 Withholding
Rights.
China
Networks Surviving Corporation shall be entitled to deduct and withhold from
the
cash and Surviving Corporation Shares otherwise deliverable under any and
all
provisions of this Agreement, such amounts as China Networks Surviving
Corporation reasonably determines it is required to deduct and withhold with
respect to such delivery and payment under the Code or any provision of state,
local, provincial or foreign tax law. To the extent that any amounts are
so
withheld all appropriate evidence of such deduction and withholding, including
any receipts or forms required in order for the person with respect to whom
such
deduction and withholding occurred to establish the deduction and withholding
and payment to the appropriate authority as being for its account with the
appropriate authorities shall be delivered to the person with respect to
whom
such deduction and withholding has occurred, and such withheld amounts shall
be
treated for all purposes as having been delivered and paid to the person
otherwise entitled to the cash and/or Surviving Corporation Shares in respect
of
which such deduction and withholding was made by China Networks Surviving
Corporation.
2.13 Shares
Subject to Appraisal Rights.
(a) Notwithstanding
Section
2.7(a),
BVI
Dissenting Shares (as defined below) shall not be converted into a right
to
receive Surviving Corporation Shares and the holders thereof shall be entitled
only to such rights as are granted by BVI Law. Each holder of BVI Dissenting
Shares who becomes entitled to payment for such shares pursuant to BVI Law
shall
receive payment therefor from China Networks II Surviving Corporation in
accordance with the BVI Law, provided, however, that, subject to BVI Law,
(i) if
any shareholder who asserts appraisal rights in connection with the Business
Combination (a “BVI
Dissenter”)
has
failed to
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11 -
establish
his entitlement to such rights as provided in BVI Law, or (ii) if any such
BVI
Dissenter has effectively withdrawn his demand for payment for such shares
or
waived or lost his right to payment for his shares under the appraisal rights
process under BVI Law the shares of Company Securities held by such BVI
Dissenter shall be treated as if they had been converted, as of the Business
Combination Effective Time, into a right to receive Surviving Corporation
Shares
and as provided in Section
2.7.
The
Company shall give Parent and Chardan Capital Markets LLC prompt notice of
any
demands for payment received by the Company from a person asserting appraisal
rights, and Parent shall have the right to participate in all negotiations
and
proceedings with respect to such demands. The Company shall not, except with
the
prior written consent of Parent, make any payment with respect to, or settlement
or offer to settle, any such demands.
(b) As
used
herein, “BVI
Dissenting Shares”
means
any shares of Company Securities held by shareholders who are entitled to
appraisal rights under BVI Law, and who have properly exercised, perfected
and
not subsequently withdrawn or lost or waived their rights to demand payment
with
respect to their shares in accordance with BVI Law.
2.14 Restriction
on Disposal of Shares.
As a
condition to the closing of the transactions contemplated by this Agreement,
each Principal Shareholder shall execute a lock-up agreement (the “Lock-Up
Agreement”),
in a
form reasonably agreed to by the Parent and the Principal Shareholders, whereby
each shall agree that until the six month anniversary of the Business
Combination Effective Time (the “Trade
Commencement Date”),
each
Principal Shareholder shall not directly or indirectly offer, sell, contract
to
sell, gift, exchange, assign, pledge or otherwise encumber or dispose of
any
Surviving Corporation Shares received by such Principal Shareholder in
connection with this Agreement on the Closing Date (or enter into any
transaction which is designed to, or might reasonably be expected to, result
in
the disposition, (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Principal Shareholders
or any affiliate of Principal Shareholders, or any person in privity with
Principal Shareholders or any affiliate of Principal Shareholders, directly
or
indirectly, including the establishment or increase in a put equivalent position
or liquidation or decrease in a call equivalent position within the meaning
of
Section 16 of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder (each of the foregoing referred to as a “Disposition”).
Thereafter, until the six month anniversary of the Trade Commencement Date,
each
Principal Shareholder shall not engage in a Disposition of more than fifty
percent (50%) of the Surviving Corporation Shares received by such Principal
Shareholder in connection with this Agreement on the Closing Date. Thereafter,
until the twelve month anniversary of the Trade Commencement Date, each
Principal Shareholder shall not engage in a Disposition of more than twenty
five
percent (25%) of the Surviving Corporation Shares received by such Principal
Shareholder in connection with this Agreement on the Closing Date. Additional
terms and conditions relating to the Disposition of the Surviving Corporation
Shares received by the Principal Shareholders pursuant to this Agreement
are set
forth in the Lock-Up Agreement. The foregoing restriction is intended to
preclude the Principal Shareholders from engaging in any hedging transaction,
which is designed to or is reasonably expected to lead to or result in such
a
Disposition during such periods even if the relevant Surviving Corporation
Shares would be disposed of by someone other than the Principal
Shareholders.
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12 -
2.15 Payment
Procedures.
(a) Merger
Stock Consideration.
Upon
surrender of a certificate that, immediately prior to the Business Combination
Effective Time, evidenced the outstanding Company Shares, for cancellation
to
China Networks Surviving Corporation, together with such other customary
documents as may be required by China Networks Surviving Corporation, the
holder
of such certificate of Company Shares shall be entitled to receive in exchange
therefor the Per Share Amount and a certificate evidencing their respective
Surviving Corporation Shares, in accordance with Section
2.7
(the
“Merger
Stock Consideration”),
and
the certificate evidencing the Company Shares so surrendered shall forthwith
be
cancelled. Until surrendered as contemplated by this Section
2.15,
each
certificate of Company Shares shall be deemed at anytime after the Business
Combination Effective Time to evidence only the right to receive upon such
surrender the Merger Stock Consideration.
(b) Paying
Agent.
As of
the Business Combination Effective Time, the Parent shall deposit, or shall
cause to be deposited, with a bank theretofore designated by the Company
and the
Parent (the “Paying
Agent”),
for
the benefit of the holders of shares of Company Securities, for payment in
accordance with this Article II, through the Paying Agent, cash and Surviving
Corporation Shares in amounts equal to the consideration payable to the holders
of Company Securities pursuant to Section
2.7(a)
(such
cash being hereinafter referred to as the “Payment
Fund”).
The
Paying Agent shall, pursuant to irrevocable instructions, deliver the cash
and
Surviving Corporation Shares contemplated to be paid and transferred to the
holder of Company Securities pursuant to this Article II out of the Payment
Fund. The Payment Fund shall not be used for any other purpose.
(c) Payment
Procedures.
Upon
surrender of a certificate that, immediately prior to the Business Combination
Effective Time, evidenced outstanding Company Securities (other than shares
described in Section
2.7(b)
and BVI
Dissenting Shares) (a “Certificate”)
for
cancellation to the Paying Agent, together with such other customary documents
as may be required by the Paying Agent, the holder of such Certificate shall
be
entitled to receive in exchange therefor the applicable Business Combination
Conversion Ratio multiplied by the number of Company Securities represented
by
such Certificate, and the Certificate so surrendered shall forthwith be
canceled. Until surrendered as contemplated by this Section
2.8,
each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the consideration described
in
Section
2.7(a).
(d) Termination
of Payment Fund.
Any
portion of the Payment Fund that remains undistributed to the holders of
Company
Securities for 30 days after the Effective Time shall be delivered to China
Networks Surviving Corporation, upon demand, and any holders of Company
Securities that have not theretofore complied with this Article II shall
thereafter look only to China Networks Surviving Corporation for the
consideration described in Section
2.7(a)
to which
they are entitled.
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ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
In
this
Agreement, any reference to a “Material
Adverse Effect”
with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person
and
its subsidiaries, taken as a whole. Notwithstanding the foregoing, the
definition of Material Adverse Effect shall not include events caused by
general
economic conditions (and solely with respect to this Article III, shall
include economic conditions solely or principally applicable to the television
and advertising industries, or to locations in which the Company and its
Subsidiaries operate.)
In
this
Agreement, any reference to the Company’s “knowledge”
means
the actual knowledge after reasonable inquiry of Li Shuangqing, the Company’s
Chief Executive Officer, (the “Knowledge
Person”)
.
Except
as
set forth in the disclosure schedule delivered by the Company to Parent
concurrently with the execution of this Agreement (the “Company
Disclosure Schedule”),
which
shall identify exceptions by specific section references, the Knowledge Person
and the Company, hereby, jointly and severally, represent and warrant to
the
Parent, as follows:
3.1 Organization,
Standing and Power; Framework Agreements.
(a) The
Company and each of the entities listed on Schedule 3.1(a) (the “Subsidiaries”),
is a
corporation duly organized, validly existing and in good standing, and no
certificates of dissolution have been filed under the laws of their respective
jurisdictions of organization. Each of the Company and its Subsidiaries has
all
requisite authority and power (corporate and other), governmental licenses,
authorizations, consents and approvals to carry on their respective businesses
as presently conducted and to own, hold and operate their respective properties
and assets as now owned, held and operated, except where the failure to be
so
organized, existing and in good standing or to have such authority and power,
governmental licenses, authorizations, consents or approvals would not have
a
Material Adverse Effect. The Company has delivered or made available to Parent
a
true and correct copy of the MOA of the Company and the organizational documents
of each of the Subsidiaries, each as amended to date. Neither the Company
nor
any of the Subsidiaries is in violation of any of the provisions of its
respective MOA, bylaws or equivalent organizational documents.
(b) Attached
hereto on Schedule 3.1 are true and correct copies of each of the framework
agreements to which Advertising Network Limited, a subsidiary of the Company,
is
a party with each of Kunming Television Station, a People’s Republic of China
(“PRC”)
television station (“Kunming”)
and
China Yellow River Television Station, a PRC television station (“Yellow
River”)
setting forth the terms and conditions for the formation of two joint ventures
(each a “Framework
Agreement”).
Each
Framework Agreement is a legal, valid and binding agreement, enforceable
against
each of the parties thereto in accordance with its terms, and is in full
force
and effect. None of the parties to any Framework Agreement is in breach or
default thereunder. To the Company’s knowledge, no event has occurred or
circumstance exists
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14 -
that
(with or without notice or lapse of time), would (i) contravene, conflict
with
or result in a violation or breach of, or become a default or event of default
under, any provision of any Framework Agreement or (ii) permit the Company,
Advertising Network Ltd. or any other party to any Framework Agreement the
right
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate or modify, any Framework Agreement.
Neither the Company nor Advertising Network Ltd. has received notice of the
pending or threatened cancellation, revocation or termination of any Framework
Agreement; and (d) there are no renegotiations of, or attempts to renegotiate,
or outstanding rights to renegotiate any material terms of any Framework
Agreement.
3.2 Subsidiaries.
Except
for the Subsidiaries, and those entities set forth on Schedule 3.2,
the
Company does not directly or indirectly own any equity or similar interest
in,
or any interest convertible or exchangeable or exercisable for, any equity
or
similar interest in, any corporation, partnership, joint venture or other
business association or entity. The Company is the direct or indirect owner
of
all outstanding shares of capital stock of each of its subsidiaries and all
such
shares are duly authorized, validly issued, fully paid and nonassessable.
All of
the outstanding shares of capital stock of each such subsidiary are owned
by the
Company free and clear of all liens, charges, claims or encumbrances or rights
of others. Except as set forth in Schedule 3.2,
there
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements
of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating the Company or any such
subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire
any
such securities.
3.3 Capital
Structure.
(a) The
authorized capital stock of the Company consists of (i) 2,950,000 shares,
$.0005 par value, of which there are issued and outstanding, 1,900,000 ordinary
shares and an amount of Preferred Shares equal to (x) the aggregate gross
proceeds received in the Financing from the bridge investors multiplied by
.035.
Except as set forth on Schedule
3.3(a)
of the
Company Disclosure Schedule, there are no other outstanding shares or voting
securities and no outstanding commitments to issue any shares or voting
securities after the date hereof. All outstanding Company Securities are
duly
authorized, validly issued, fully paid and non-assessable and are free of
any
liens or encumbrances other than any liens or encumbrances created by or
imposed
upon the holders thereof, and are not subject to preemptive rights or rights
of
first refusal created by statute, the MOA of the Company or any agreement
to
which the Company is a party or by which it is bound. Except as set forth
on
Schedule
3.3(a)
and in
connection with the Financing (as defined below), there are no options,
warrants, calls, rights, commitments or agreements of any character to which
the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the Company or obligating the Company
to
grant, extend, change the price of, or otherwise amend or enter into any
such
option, warrant, call, right, commitment or agreement. Except as set forth
on
Schedule 3.3(a)
and in
connection with the Financing, there are no contracts, commitments or agreements
relating to voting, purchase or sale of the Company’s shares (x) between or
among the Company and any of its shareholders, and (y) to the best of the
Company’s knowledge, between or among any of the Company’s
shareholders.
-
15 -
(b) Set
forth
on Schedule
3.3(b)
is the
following: (i) the name and address of each person owning any capital stock
or
other equity interest in the Company; (ii) the certificate number of each
certificate evidencing shares of capital stock or any other equity interest
issued by the Company, (iii) the number of shares of capital stock or any
other
equity interest evidenced by each such certificate, (iv) the date of issuance
thereof and, in the case of cancellation, the date of cancellation. Each
Principal Shareholder represents and warrants that such person has good,
valid
and marketable title to, all the equity interests of the Company designated
on
Schedule
3.3(b)
as owned
by such Principal Shareholder.
3.4 Authority.
i)
The
Company has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, subject
only
to the adoption of this Agreement by the Company’s shareholders holding a
majority of the outstanding shares of Company Shares, as contemplated by
Section
8.1(d).
The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the adoption
of
this Agreement by the Company’s shareholders holding a majority of the
outstanding shares of Company Shares, as contemplated by Section
8.1(d).
This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company enforceable against
the
Company in accordance with its terms, except as enforceability may be limited
by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity.
(b) Each
Principal Shareholder and Li Shuangqing has all legal capacity and authority
to
execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly executed and delivered by each such person and
constitutes the legal, valid and binding obligation of each such person,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity.
3.5 No
Conflict.
The
execution, delivery and performance of this Agreement by the Company does
not,
and the consummation of the transactions contemplated hereby do not and will
not, conflict with, or result in any violation of, or default under (with
or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (a) any provision of the MOA or bylaws of the Company or any
of
the organizational documents of its Subsidiaries, as amended, (b) any Law
or
Governmental Order applicable to the Company, its Subsidiaries or any Principal
Shareholder or (c) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company, any
of
its Subsidiaries or any Principal Shareholder or any of their properties
or
assets, except where such conflict, violation, default, termination,
cancellation or acceleration with respect to the foregoing provisions of
(c)
would not have had and would not reasonably be expected to have a Material
Adverse Effect on the Company.
3.6 Consents
and Approvals.
No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (“Governmental
Entity”)
is
required by or with respect to any Principal Shareholder, the Company or
any of
its Subsidiaries in connection with the
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16 -
execution
and delivery of this Agreement, or the consummation of the transactions
contemplated hereby and thereby, except for (a) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the securities laws of
any
country other than the United States set forth on Schedule
3.6;
and (c)
such other consents, authorizations, filings, approvals and registrations
which,
if not obtained or made, would not have a Material Adverse Effect on the
Company
and would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
3.7 Financial
Statements.
Attached hereto at Schedule
3.7
are the
copies of the financial statements received by the Company from each of Kunming
and Yellow River in connection with the Framework Agreements.
3.8 Absence
of Certain Changes.
Except
for the Framework Agreements, and the transactions and arrangements contemplated
thereby, since December 31, 2007 (the “Company
Balance Sheet Date”),
the
Company and each of its Subsidiaries, has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (i) any
change,
event or condition (whether or not covered by insurance) that has resulted
in,
or is reasonably likely to result in, a Material Adverse Effect to the Company;
(ii) any acquisition, sale or transfer of any material asset of the Company
or
any of its Subsidiaries other than in the ordinary course of business and
consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies
or
rates) by the Company or any revaluation by the Company of any of its or
any of
its Subsidiaries’ assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of the Company,
or any
direct or indirect redemption, purchase or other acquisition by the Company
of
any of its shares of capital stock; (v) any material contract entered into
by
the Company or any of its Subsidiaries, other than in the ordinary course
of
business and as provided or made available to Parent, or any amendment or
termination of, or default under, any material contract to which the Company
or
any of its Subsidiaries is a party or by which it is bound; (vi) any amendment
or change to the MOA or bylaws of the Company or any Subsidiary; or (vii)
any
increase in or modification of the compensation or benefits payable, or to
become payable, by the Company or its Subsidiaries to any of its directors
or
employees, other than pursuant to scheduled annual performance reviews, provided
that any resulting modifications are in the ordinary course of business and
consistent with the Company’s and its Subsidiaries past practices. Neither the
Company nor its Subsidiaries has agreed since December 31, 2007 to take any
of
the actions described in the preceding clauses (i) through (vii) and are
not
currently involved in any negotiations to do any of the things described
in the
preceding clauses (i) through (vii) (other than the Framework Agreements,
the Financing and negotiations with Parent and its representatives regarding
the
transactions contemplated by this Agreement).
3.9 Absence
of Undisclosed Liabilities.
The
Company and the Subsidiaries have no material obligations or liabilities
of any
nature (matured or unmatured, known or unknown, fixed or contingent) other
than
(i) obligations or liabilities not in excess of $250,000 in the aggregate;
(ii) those incurred pursuant to the terms of this Agreement, (iii) those
incurred in connection with the Financing, and (iv) those incurred pursuant
to
the terms of any Framework Agreement.
3.10 Litigation.
There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation (“Proceeding”)
pending before any agency, court, arbitrator or
-
17 -
tribunal,
foreign or domestic by or against the Company or any of its Subsidiaries,
or any
of their respective properties or any of their respective shareholders, officers
or directors (in their capacities as such) nor, to the knowledge of the
Company, is any such Proceeding threatened against any Principal Shareholder,
the Company or its Subsidiaries.
3.11 Restrictions
on Business Activities.
There
is no agreement, judgment, injunction, order or decree binding upon the Company
or any of its Subsidiaries which has or reasonably would be expected to have
the
effect of prohibiting or materially impairing any business practices of the
Company or any of its Subsidiaries, any acquisition of property by the Company
or any of its Subsidiaries or the conduct of business by the Company or any
of
its Subsidiaries.
3.12 Governmental
Authorization.
The
Company and each of its Subsidiaries have obtained as of the date hereof
each
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Company or any of its Subsidiaries
currently operates or holds any interest in any of its properties or (ii)
that
is required for the operation of Company’s or any of its Subsidiaries’ business
or the holding of any such interest, ((i) and (ii) herein collectively called
“Company
Authorizations”),
and
all of such Company Authorizations are in full force and effect, except where
the failure to obtain or have any of such Company Authorizations or where
failure of such Company Authorizations to be in full force and effect would
not
reasonably be expected to have a Material Adverse Effect on the
Company.
3.13 Title
to Property.
The
Company and its Subsidiaries have good and valid title to all of their
respective properties, interests in properties and assets, real and personal,
reflected in the Company Balance Sheet or acquired after the Company Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or in the case of leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges,
charges
or encumbrances of any kind or character, except (i) the lien of current
taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use
of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, (iii) liens securing debt
which
is reflected on the Company Balance Sheet, and (iv) liens that in the aggregate
would not have a Material Adverse Effect on the Company. The property and
equipment of Company and its Subsidiaries that are used in the operations
of
their businesses are in good operating condition and repair, except where
the
failure to be in good operating condition or repair would not have a Material
Adverse Effect. All properties used in the operations of Company and its
Subsidiaries are reflected in the Company Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. Schedule
3.13
of the
Company Disclosure Schedule identifies each parcel of real property owned
or
leased by Company or any of its Subsidiaries.
3.14 Intellectual
Property.
Except
as set forth on Schedule
3.14
of the
Company Disclosure Schedule, the Company and its Subsidiaries own, or have
a
license to use or otherwise possess legally enforceable and unencumbered
rights
to use, any patents, trademarks, trade names, service marks, domain names,
copyrights, and any applications therefor, trade secrets, computer software
programs, and tangible or intangible proprietary information or
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18 -
material
that are used in the business of the Company and its Subsidiaries (“Company
Intellectual Property”).
3.15 Taxes.
(a) For
purposes of this Agreement, the following terms have the following meanings:
“Tax”
(and,
with correlative meaning, “Taxes”
and
“Taxable”)
means
(i) any levy, impost, net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or
other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional
amount
imposed by any Governmental Entity (a “Tax
authority”)
responsible for the imposition of any such tax (domestic or foreign);
(ii) any liability for the payment of any amounts of the type described in
(i) as a result of being a member of an affiliated, consolidated, combined
or
unitary group for any Taxable period; and (iii) any liability for the
payment of any amounts of the type described in (i) or (ii) as a result of
being
a transferee of or successor to any person, as a result of any express or
implied obligation to indemnify any other person, including pursuant to any
Tax
sharing or Tax allocation agreement, as a result of being a responsible person,
or otherwise. “Tax
Return”
means
any return, declaration, election, statement, report or form (including,
without
limitation, claims for refunds or credits, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns)
filed
or required to be filed with respect to Taxes.
(b) (i)
All
Tax Returns required to be filed by or on behalf of the Company or its
Subsidiaries have been timely filed and all Tax Returns filed by or on behalf
of
the Company or its Subsidiaries were (at the time they were filed) and are
true,
correct and complete in all material respects; (ii) all Taxes of Company
and its
Subsidiaries (whether or not reflected on any Tax Return) have been fully
and
timely paid, (iii) no waivers or extensions of statutes of limitation have
been
given or requested with respect to Company or its Subsidiaries in connection
with any Tax Returns or with respect to any Taxes payable by it; (iv) no
Governmental Entity in a jurisdiction where Company or its Subsidiaries do
not
file Tax Returns has made a claim, assertion or threat to Company or its
Subsidiaries that it is or may be subject to taxation by such jurisdiction;
(v)
each of the Company and its Subsidiaries has duly and timely collected or
withheld, and paid over and reported to the appropriate Governmental Entity
all
amounts required to be so collected or withheld and paid over for all periods
under all applicable laws; (vi) there are no liens with respect to Taxes
on the
Company or its Subsidiaries or any of their property or assets; (vii) there
are
no Tax rulings, requests for rulings, or closing agreements relating to the
Company or its Subsidiaries for any period (or portion of a period) that
would affect any period after the date hereof; and (viii) any adjustment
of
Taxes of the Company or its Subsidiaries made by a Governmental Entity in
any
examination that the Company or its Subsidiaries is required to report to
the
appropriate Tax Authority has been reported, and any additional Taxes due
with
respect thereto have been paid.
(c) There
is
no pending Proceeding with respect to any Taxes of the Company or its
Subsidiaries, nor, to the knowledge of the Company, is any such Proceeding
threatened. The Company has made available to the Parent prior to the date
of
this Agreement, true, correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies
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19 -
assessed
or asserted against or agreed to by the Company or its Subsidiaries since
their
inception and any and all correspondence with respect to the
foregoing.
(d) Except
as
disclosed on Schedule
3.15(e),
neither
the Company nor its Subsidiaries is a party to any Tax allocation or sharing
agreement.
(e) The
Company is treated as a foreign corporation for U.S. federal income tax
purposes.
3.16 Employee
Benefit Plans.
The
Company does not maintain and has not maintained any employee compensation,
incentive, fringe or benefit plans, programs, policies, commitments or other
arrangements (whether or not set forth in a written document) covering any
active or former employee, director or consultant of Company, or any trade
or
business (whether or not incorporated) which is under common control with
Company, with respect to which the Company has or would reasonably be expected
to have liability. Neither the execution and delivery of this Agreement nor
the
consummation of the transactions contemplated hereby will result in any payment
(including severance, unemployment compensation, golden parachute, bonus
or
otherwise) becoming due to any shareholder, director or employee of the
Company.
3.17 Labor
Matters.
Except
as set forth in Schedule
3.17,
(a)
neither the Company nor any Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
the
Company or any Subsidiary; (b) the Company and each Subsidiary are currently
in
compliance in all material respects will all applicable Laws relating to
the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by the appropriate governmental authority; (c) there is no claim with respect
to
payment of wages, salary or overtime pay that has been asserted or is now
pending or threatened before any Governmental Authority with respect to any
Person currently or formerly employed by the Company or any Subsidiary; and
(d)
neither the Company nor any Subsidiary is a party to, or otherwise bound
by, any
consent decree with, or citation by, and Governmental Authority relating
to
employees or employment practices.
3.18 Interested
Party Transactions.
Except
as disclosed in Schedule
3.18
of the
Company Disclosure Schedule, none of the Company nor any of its Subsidiaries
is
indebted to any director or officer of the Company or any of its Subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement
of
ordinary expenses), and no such person is indebted to the Company or any
of its
Subsidiaries and there are no other transactions of the type required to
be
disclosed pursuant to Items 402 or 404 of Regulation S-K under the Securities
Act and the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
3.19 Insurance.
Neither
the Company nor its Subsidiaries maintain any insurance policies on their
respective properties or assets.
3.20 Material
Company Contracts.
(a) The
Company has made available to the Parent, prior to the date of this Agreement,
true, correct and complete copies of each written agreement, contract,
arrangement, lease, commitment or otherwise of the type set forth below (each,
a
“Material
Company
-
20 -
Contract”),
including each amendment, supplement and modification relating thereto to
which
the Company or any Subsidiary is a party.
(i) each
contract, agreement, invoice, and other arrangement, for the furnishing of
services to, or the sale of property to, the Company or any Subsidiary under
the
terms of which the Company or any Subsidiary: (A) is likely to pay or otherwise
give consideration of more than $750,000 in the aggregate during the calendar
year ended December 31, 2008, (B) is likely to pay or otherwise give
consideration of more than $750,000 in the aggregate over the remaining term
of
such contract, or (C) cannot be cancelled by the Company or any Subsidiary
without penalty or further payment and without more than 30 days’
notice;
(ii) each
contract, agreement, invoice, and other arrangement for the furnishing of
services by the Company or any Subsidiary that: (A) is likely to involve
consideration of more than $750,000 in the aggregate during the calendar
year
ending December 31, 2008, (B) is likely to involve consideration of more
than
$750,000 in the aggregate over the remaining term of the contract, or (C)
cannot
be cancelled by the Company or any Subsidiary without penalty or further
payment
and without more than 30 days’ notice;
(iii) all
agreements or letters of intent relating to the acquisition of any business
enterprise whether by acquisition of stock, acquisition of assets, joint
venture
or merger or other form of business combination;
(iv) all
broker, distributor, dealer, manufacturer’s representative, franchise, agency,
sales promotion, market research, marketing, consulting and advertising
contracts and agreements to which the Company or any Subsidiary is a
party;
(v) all
management contracts and contracts with independent contractors or consultants
(or similar arrangements) to which the Company or any Subsidiary is a party
and
which cannot be cancelled by the Company or any Subsidiary without penalty
or
further payment and without more than 30 days’ notice;
(vi) all
contracts and agreements relating to indebtedness of the Company or any
Subsidiary in an amount in excess of $150,000 individually or $500,000 in
the
aggregate;
(vii) all
contracts and agreements with any Governmental Authority to which the Company
or
any Subsidiary is a party;
(viii) all
contracts and agreements that limit or purport to limit the ability of any
Principal Shareholder, the Company or any Subsidiary to compete in any line
of
business or with any Person or in any geographic area or during any period
of
time;
(ix) all
contracts and agreements between or among the Company or any Subsidiary,
on the
one hand, and the Principal Shareholders or any affiliate thereof, on the
other
hand;
(x) any
material lease pursuant to which the Company or any Subsidiary leases any
material real property;
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21 -
(xi) any
shareholder agreement, registration rights agreement, voting agreement or
other
agreement governing the rights of the holders of any equity security issued
by
the Company or any Subsidiary; and
(xii) all
other
contracts and agreements, whether or not made in the ordinary course of
business, which are material to the Company or any Subsidiary or the conduct
of
their business, or the absence of which would have a Material Adverse
Effect.
(b) Each
Material Company Contract is a legal, valid and binding agreement, and is
in
full force and effect, and (a) none of the Company nor its Subsidiaries is
in
breach or default of any Material Company Contract to which it is a party
in any
material respect; (b) no event has occurred or circumstance has existed that
(with or without notice or lapse of time), would (i) contravene, conflict
with or result in a violation or breach of, or become a default or event
of
default under, any provision of any Material Company Contract or (ii) permit
the
Company, any Subsidiary or any other person the right to declare a default
or
exercise any remedy under, or to accelerate the maturity or performance of,
or
to cancel, terminate or modify any Material Company Contract; (c) neither
the
Company nor its Subsidiaries have received notice of the pending or threatened
cancellation, revocation or termination of any Material Company Contract
to
which it is a party; and (d) there are no renegotiations of, or attempts
to
renegotiate, or outstanding rights to renegotiate any material terms of any
Material Company Contract.
3.21 Compliance
With Laws.
(a) To
the
Company’s knowledge, each of the Company and each of its Subsidiaries has
complied in all respects with, is not in violation of, and has not received
any
notices of violation with respect to, any Law applicable thereto or to the
conduct, ownership or operation of their respective businesses, except for
such
violations or failures to comply as would not be reasonably expected to have
a
Material Adverse Effect on the Company.
(b) The
Framework Agreements and the other contractual agreements described in
Section
3.20(a)(i)
through
(xii),
were
validly entered into by the parties and are in compliance with relevant PRC
Laws
and regulations and all necessary approvals in connection with such contractual
arrangements have been obtained.
3.22 Foreign
Corrupt Practices Act.
Neither
the Company, nor its Subsidiaries, nor any director, officer, key employee,
or
other person associated with or acting on behalf of the Company or its
Subsidiaries, has used any corporate funds for any unlawful contribution,
gift,
entertainment or other unlawful expense relating to political activity; made
any
direct or indirect unlawful payment to any Governmental Entity from corporate
funds; or made any bribe, rebate, payoff, influence payment, kickback or
other
unlawful payment in connection with the operations of the Company or its
Subsidiaries. Neither the Company nor its Subsidiaries, nor any director,
officer, key employee, or other person associated with or acting on behalf
of
the Company or its Subsidiaries has committed any acts or omissions which
would
constitute a breach of relevant BVI or PRC criminal Laws, including but not
limited to corruption Laws.
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22 -
3.23 Money
Laundering Laws.
The
operations of the Company and the Subsidiaries are and have been conducted
at
all times in compliance with money laundering statutes in all applicable
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
Governmental Entity (collectively, the “Money
Laundering Laws”)
and no
proceeding involving the Company or any of its Subsidiaries with respect
to the
Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.
3.24 Governmental
Inquiry.
Neither
the Company nor its Subsidiaries has received any material written inspection
report, questionnaire, inquiry, demand or request for information from a
Governmental Entity.
3.25 Minute
Books.
The
minute books of Company and its Subsidiaries made available to Parent contain
in
all material respects a complete and accurate summary of all meetings of
directors and shareholders or actions by written consent of Company and its
Subsidiaries through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
3.26 Real
Property.
None of
the Company nor any Subsidiary owns any real property.
3.27 Brokers’
and Finders’ Fees.
The
Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’ commissions or investment
bankers’ fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby, except in connection with the
Financing.
3.28 Vote
Required.
The
affirmative vote of the Company’s shareholders holding a majority of the
outstanding shares of Company Shares (subject to any provision in the Company’s
MOA requiring a higher voting threshold) is the only vote of the holders
of any
of Company’s capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
3.29 Board
Approval.
The
Board of Directors of the Company has (a) approved this Agreement and the
Business Combination, (b) determined that this Agreement and the Business
Combination are advisable and in the best interests of the stockholders of
Company and are on terms that are fair to the shareholders and (c) recommends
that the shareholders of Company approve this Agreement and consummation
of the
Business Combination.
3.30 Representations
Complete.
None of
the representations or warranties made by Company herein or in any Company
Disclosure Schedule, or certificate furnished by Company pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material
fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light
of the
circumstances under which made, not misleading.
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ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT,
MERGER
SUB I AND MERGER SUB II
In
this
Agreement, any reference to Parent’s knowledge means the actual knowledge, after
reasonable inquiry, of Xxxxxxx X. Xxxxxx. The defined term “Material Adverse
Effect” shall have the same meaning as in Article III.
Except
as
set forth in the disclosure schedule delivered by Parent to the Company
concurrently with the execution of this Agreement (the “Parent
Disclosure Schedule”),
which
shall identify exceptions by specific section references, Parent, hereby
represents and warrants to the Company, on behalf of itself, and on behalf
of
Merger Sub I and Merger Sub II as follows:
4.1 Organization,
Standing and Power.
(a) Each
of
Parent, Merger Sub I and Merger Sub II is, a corporation duly organized,
validly
existing and in good standing, and no certificates of dissolutions have been
filed under the laws of its jurisdiction of organization. Each of Parent,
Merger
Sub I and Merger Sub II has the corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing
would
have a Material Adverse Effect on Parent, Merger Sub I or Merger Sub II,
as the
case may be. Merger Sub I was formed for the sole purpose of effecting the
Redomestication Merger and the Business Combination. Accordingly prior to
the
Effective Time, Merger Sub I had no material business, operations, property
or
assets. Merger Sub II was formed for the sole purpose of effecting the Business
Combination. Accordingly, prior to the Business Combination Effective Time,
Merger Sub II will have had no business, operations, property or assets.
Each of Parent, Merger Sub I, and Merger Sub II has made available to the
Company, a true and correct copy of the Certificate of Incorporation and
the
By-Laws, or other organizational documents thereof, as applicable, each as
amended to date. As of the date hereof and as of the Effective Time, none
of
Parent, Merger Sub I or Merger Sub II is in violation of any of the provisions
of its Certificate of Incorporation or bylaws, or organizational documents,
as
applicable. Except for Merger Sub I and Merger Sub II, Parent does not directly
or indirectly own any equity or similar interest in, or any interest convertible
or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity.
(b) Parent
is
the owner of all outstanding shares of capital stock of Merger Sub I and
all
such shares are duly authorized, validly issued, fully paid and nonassessable.
All of the outstanding shares of capital stock of Merger Sub I are owned
by
Parent free and clear of all liens, charges, claims or encumbrances or rights
of
others. At the Effective Time, there will be no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued
or
unissued shares or other securities of Merger Sub I, or otherwise obligating
Parent or Merger Sub I to issue, transfer, sell, purchase, redeem or otherwise
acquire any such securities.
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(c) Merger
Sub I is the owner of all outstanding shares of capital stock of Merger Sub
II
and such shares are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of Merger Sub II are owned by
Merger Sub I free and clear of all liens, charges, claims or encumbrances
or
rights of others. At the Business Combination Effective Time, there will
be no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of Merger
Sub II, or otherwise obligating Merger Sub I or Merger Sub II to issue,
transfer, sell, purchase, redeem or otherwise acquire any such
securities.
4.2 Capital
Structure.
(a) The
authorized capital stock of Parent consists of 30,000,000 shares of common
stock, $.0001, par value, and 1,000,000 shares of preferred stock, $.0001
par
value, of which, as of the date hereof, there were issued and outstanding,
9,794,400 shares of common stock and no shares of preferred stock. There
are no
other outstanding shares or voting securities of the Parent and no outstanding
commitments to issue any shares of capital stock or voting securities of
the
Parent after the date hereof, other than (i) pursuant to this Agreement,
(ii)
8,044,400 shares of Parent Common Stock issuable upon the exercise of the
Parent’s Redeemable Common Stock Purchase Warrants (“Parent
Warrants”)
issued
in Parent’s initial public offering (“IPO”),
(iii) 1,820,000 shares of Parent Common Stock issuable upon the exercise of
warrants issued to initial stockholders of Parent (the “Insider
Warrants”)
and
(iv) 600,000 shares of Parent Common Stock issuable upon the exercise of
the unit purchase option granted by Parent to certain underwriters of its
initial public offering and the Parent Warrants issuable thereunder (the
“Underwriter
Option”).
All
outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first refusal created
by
statute, the Certificate of Incorporation or bylaws of Parent or any agreement
to which Parent is a party or by which it is bound. Parent has reserved
10,464,400 shares of common stock for issuance upon exercise of Parent Warrants
and the Insider Warrants. Except for (i) the rights created pursuant to this
Agreement, (ii) the Parent Warrants, (iii) the Insider Warrants, and
(iv) the Underwriter Option, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Parent is a party
or
by which it is bound obligating Parent to issue, deliver, sell, repurchase
or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed,
any
shares of capital stock of Parent or obligating Parent to grant, extend,
accelerate the vesting and/or repurchase rights of, change the price of,
or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except for the obligation of Parent’s initial stockholders to vote
in accordance with the majority of the Parent’s stockholders with respect to the
Business Combination, there are no contracts, commitments or agreements relating
to voting, purchase or sale of Parent’s capital stock (i) between or among
Parent and any of its stockholders and (ii) to the best of Parent’s knowledge,
between or among any of Parent’s stockholders.
(b) The
authorized shares of Merger Sub I consist of 75,000,000 shares, U.S. $0.0001
par
value, of which there are issued and outstanding 100 shares, owned by Parent.
There are no other issued and outstanding shares or voting securities and
no
outstanding
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25 -
commitments
to issue any shares or voting securities of Merger Sub I, other than pursuant
to
this Agreement. The shares of China Networks Surviving Corporation to be
issued
in connection with the Redomestication Merger and the Business Combination,
when
issued, will be duly authorized, validly issued, fully paid and non-assessable,
free of any liens or encumbrances.
(c) The
authorized shares of Merger Sub II consist of 50,000 shares, U.S. $0.0001
par
value, of which there are issued and outstanding one share owned by Merger
Sub
I. There are no other issued and outstanding shares or voting securities
and no
outstanding commitments to issue any shares of or voting securities of Merger
Sub II.
4.3 Authority.
(a) Parent
has all requisite corporate power and authority to enter into this Agreement
and
to consummate the transactions contemplated hereby, subject only to the adoption
of this Agreement and approval of the Business Combination by Parent’s
stockholders, as contemplated by Section
8.1.
The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the adoption of this
Agreement, approval of the Merger and the Business Combination by Parent’s
stockholders, as contemplated by Section
8.1.
This
Agreement has been duly executed and delivered by Parent and constitutes
the
legal, valid and binding obligation of Parent, subject only to the adoption
of
this Agreement, approval of the Merger and the Business Combination by Parent’s
stockholders, as contemplated by Section
8.1,
enforceable against Parent in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the
rights
and remedies of creditors generally and general principles of
equity.
(b) Merger
Sub I has the requisite corporate power and authority to enter into this
Agreement and the other agreements necessary and required to consummate the
Redomestication Merger and the Business Combination, and has been duly
authorized by all necessary corporate power on the part of Merger Sub I to
consummate the Redomestication Merger and the Business Combination. The
execution and delivery of this Agreement and the consummation of the
Redomestication Merger and the Business Combination transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part
of Merger Sub I, subject only to the adoption of this Agreement, approval
of the
Merger and the Business Combination by Parent’s stockholders, as contemplated by
Section 8.1.
This
Agreement has been duly executed and delivered by Merger Sub I and constitutes
the legal, valid and binding obligation of Merger Sub I and is enforceable
against Merger Sub I in accordance with its terms, except as enforceability
may
be limited by bankruptcy and other laws affecting the rights and remedies
of
creditors generally and general principles of equity.
(c) Merger
Sub II has the requisite corporate power and authority to enter into this
Agreement and the other agreements necessary and required to consummate the
Business Combination, and has been duly authorized by all necessary corporate
power on the part of Merger Sub II to consummate the Business Combination.
The
execution and delivery of this Agreement and the consummation of the Business
Combination transactions contemplated hereby has been duly authorized by
all
necessary corporate action on the part of Merger Sub II,
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26 -
subject
only to the adoption of this Agreement, approval of the Merger and the Business
Combination by Parent’s stockholders, as contemplated by Section 8.1.
This
Agreement has been duly executed and delivered by Merger Sub II and constitutes
the legal, valid and binding obligation of Merger Sub II and is enforceable
against Merger Sub II in accordance with its terms, except as enforceability
may
be limited by bankruptcy and other laws affecting the rights and remedies
of
creditors generally and general principles of equity.
4.4 No
Conflict.
The
execution and delivery of this Agreement by Parent does not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or
result in any violation of, or default under (with or without notice or lapse
of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (a) any
provision of the Certificate of Incorporation or bylaws of Parent, or any
of its
subsidiaries, as amended, or the organizational documents of Merger Sub I
or
Merger Sub II (b) any Law or Governmental Order or (c) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent, Merger Sub I or Merger
Sub
II, or any of its subsidiaries or their properties or assets, except where
such
conflict, violation, default, termination, cancellation or acceleration with
respect to the foregoing provisions of (c) would not have had and would not
reasonably be expected to have a Material Adverse Effect on Parent, Merger
Sub I
or Merger Sub II.
4.5 Consents
and Approval.
No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any Governmental Entity, is required by or with respect to Parent,
Merger Sub I or Merger Sub II, or any of their respective subsidiaries in
connection with the execution and delivery of this Agreement by Parent, the
consummation by Parent and Merger Sub I of the Redomestication Merger, or
the consummation by Merger Sub I and Merger Sub II of the Business
Combination, contemplated hereby, except for (i) the filing of the Certificate
of Merger as provided in Section
1.2;
(ii)
the filing of the Articles and Plan of Merger as provided in Section 1.2,
(iii)
the filing of the Business Combination Articles and Plan of Merger as provided
in Section 2,
(iv)
the filing with, and clearance by the SEC of a Registration Statement on
Form S-4 containing a merger proxy/prospectus (the “Merger
Proxy/Prospectus”)
pursuant to which Parent’s stockholders must vote at a special meeting of
stockholders to approve, among other things this Agreement, the Redomestication
Merger and the Business Combination; (v) the filing of a Form 8-K with the
SEC within four (4) business days after each of (A) the execution of this
Agreement and (B) the Closing Date; (vi) any filings as may be required
under applicable state securities laws and the securities laws of any foreign
country; (vii) any filings required with the ASE with respect to the shares
of
(A) Surviving Corporation Shares issuable upon conversion of the Company
Securities in the Business Combination and (B) Surviving Corporation Shares
issuable upon conversion of the Parent Common Stock in the Redomestication
Merger; and (viii) such other consents, authorizations, filings, approvals
and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Parent or China Networks Surviving Corporation and would not
reasonably be expected to prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
4.6 SEC Documents;
Financial Statements.
A true
and complete copy of each statement, report, registration statement (with
the
prospectus in the form filed pursuant to Rule 424(b) of the Securities
Act), definitive proxy statement, and other filings of Parent filed
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27 -
with
the
SEC by Parent since its inception have been, and, prior to the Business
Combination Effective Time will be available to Company on the SEC’s website at
xxx.xxx.xxx, and at the Parent’s executive offices, further, complete copies of
any additional documents filed with the SEC by Parent prior to the Business
Combination Effective Time will be available at xxx.xxx.xxx and at Parent’s
executive offices (collectively, the “Parent
SEC Documents”).
Parent has timely filed all forms, statements and documents required to be
filed
by it with the SEC since its inception. In addition, Parent has made available
to Company all exhibits to the Parent SEC Documents filed prior to the date
hereof, and will promptly make available to Company all exhibits to any
additional Parent SEC Documents filed prior to the Business Combination
Effective Time. All documents required to be filed as exhibits to the Parent
SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those that have expired in accordance
with
their terms, and neither Parent nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Parent SEC Document.
None
of Parent’s subsidiaries is required to file any forms, reports or other
documents with the SEC. The financial statements of Parent, including the
notes
thereto, included in the Parent SEC Documents (the “Parent
Financial Statements”)
were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-QSB, as permitted by Form 10-QSB of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition
and
operating results of Parent and its subsidiaries at the dates and during
the
periods indicated therein (subject, in the case of unaudited statements,
to
normal, recurring year-end adjustments).
4.7 Xxxxxxxx-Xxxxx
Act of 2002.
Parent
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of
2002
(the “Xxxxxxxx-Xxxxx
Act”)
applicable to it as of the date hereof and the Business Combination Effective
Time. There has been no change in Parent’s accounting policies since its
inception except as described in the notes to the Parent Financial Statements.
Each required form, report and document containing financial statements that
has
been filed with or submitted to the SEC since inception, was accompanied
by the
certifications required to be filed or submitted by Parent’s chief executive
officer and chief financial officer pursuant to the Xxxxxxxx-Xxxxx Act, and
at
the time of filing or submission of each such certification, such certification
was true and accurate and materially complied with the Xxxxxxxx-Xxxxx Act
and
the rules and regulations promulgated thereunder. Neither Parent nor, to
the
knowledge of the Parent, any director, officer, employee, auditor, accountant
or
representative of Parent or any of its subsidiaries has received or otherwise
had or obtained knowledge of any complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Parent or their respective internal
accounting controls, including any complaint, allegation, assertion or claim
that Parent has engaged in questionable accounting or auditing practices,
except
for (A) any
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complaint,
allegation, assertion or claim as has been resolved without any resulting
change
to Parent’s accounting or auditing practices, procedures methodologies or
methods of Parent or its internal accounting controls and (b) questions
regarding such matters raised and resolved in the ordinary course in connection
with the preparation and review of Parent’s financial statements and periodic
reports. To the knowledge of Parent, no attorney representing Parent, whether
or
not employed by Parent, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation by Parent
or any
of its officers, directors, employees or agents to the Board of Directors
of
Parent (“Parent
Board”)
or any
committee thereof or to any director or officer of Parent. To the knowledge
of
Parent, no employee of Parent has provided or is providing information to
any
law enforcement agency regarding the commission or possible commission of
any
crime or the violation or possible violation of any applicable law.
4.8 Absence
of Certain Changes.
Since
December 31, 2007 (the “Parent
Balance Sheet Date”),
Parent has conducted its business in the ordinary course consistent with
past
practice and there has not occurred: (i) any change, event or condition (whether
or not covered by insurance) that has resulted in, or is reasonably likely
to
result in, or to the best of Parent’s knowledge any event beyond Parent’s
control that is reasonably likely to result in, a Material Adverse Effect
to
Parent; (ii) any acquisition, sale or transfer of any material asset of Parent
or any of its subsidiaries other than in the ordinary course of business
and
consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies
or
rates) by Parent or any revaluation by Parent of any of its or any of its
subsidiaries’ assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Parent, or any
direct or indirect redemption, purchase or other acquisition by Parent of
any of
its shares of capital stock; (v) other than this Agreement, any material
contract entered into by Parent or any of its subsidiaries, other than in
the
ordinary course of business and as provided to Company, or any amendment
or
termination of, or default under, any material contract to which Parent or
any
of its subsidiaries is a party or by which it is bound; (vi) any amendment
or
change to Parent’s Certificate of Incorporation or bylaws; or (vii) any
increase in or modification of the compensation or benefits payable, or to
become payable, by Parent to any of its directors or employees, other than
pursuant to scheduled annual performance reviews, provided that any resulting
modifications are in the ordinary course of business and consistent with
Parent’s past practices. Parent has not agreed since December 31, 2007 to do any
of the things described in the preceding clauses (i) through (vii) and is
not
currently involved in any negotiations to take any of the actions described
in
the preceding clauses (i) through (vii) (other than negotiations with the
Company and its representatives regarding the transactions contemplated by
this
Agreement).
4.9 Absence
of Undisclosed Liabilities.
Parent
has no material obligations or liabilities of any nature (matured or unmatured,
known or unknown, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet included in Parent’s Quarterly
Report on Form 10-QSB for the period ended December 31, 2007 (the “Parent
Balance Sheet”), (ii) those incurred in the ordinary course of business and not
required to be set forth in the Parent Balance Sheet under GAAP, (iii) those
incurred in the ordinary course of business since the Parent Balance Sheet
date
and not reasonably likely to have a Material Adverse Effect on Parent and
(iv)
those incurred in connection with this Agreement.
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29 -
4.10 Litigation.
There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation pending before any agency, court or tribunal, foreign
or
domestic, or, to the knowledge of Parent or any of its subsidiaries, threatened
against Parent or any of its subsidiaries or any of their respective properties
or any of their respective officers or directors (in their capacities as
such).
There is no injunction, judgment, decree, order or regulatory restriction
imposed upon Parent or any of its subsidiaries or any of their respective
assets
or business, or, to the knowledge of Parent and its subsidiaries, any of
their
respective directors or officers (in their capacities as such).
4.11 Restrictions
on Business Activities.
Except
as may be contemplated by this Agreement, there is no agreement, judgment,
injunction, order or decree binding upon Parent or any of its subsidiaries
which
has or reasonably would be expected to have the effect of prohibiting or
materially impairing any business practice of Parent, or its subsidiaries,
any
acquisition of property by Parent, or its subsidiaries, or the conduct of
business by Parent, its subsidiaries.
4.12 No
Interest in Property.
Except
as set forth on Schedule 4.12,
Parent,
Merger Sub I and Merger Sub II do not have any interest in any real property,
tangible personal property and/or intellectual property as an owner, licensee,
lessee or tenant (as applicable).
4.13 Employee
Benefit Plans.
Parent
does not maintain and has not maintained any employee compensation, incentive,
fringe or benefit plans, programs, policies, commitments or other arrangements
(whether or not set forth in a written document) covering any active or former
employee, director or consultant of Parent, or any trade or business (whether
or
not incorporated) which is under common control with Parent, with respect
to
which the Parent has or would reasonably be expected to have liability. Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Parent.
4.14 Labor
Matters.
Parent
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Parent nor does Parent know of
any
activities or proceedings of any labor union to organize any such
employees.
4.15 Interested
Party Transactions.
Except
as disclosed in the Parent SEC Documents, Parent is not indebted to any director
or officer of Parent (except for amounts due as normal salaries and bonuses
and
in reimbursement of ordinary expenses), and no such person is indebted to
Parent, and there are no other transactions of the type required to be disclosed
pursuant to Items 402 or 404 of Regulation S-K under the Securities Act and
the
Exchange Act.
4.16 Insurance.
Parent
maintains no insurance of any kind, other than directors and officers liability
coverage in the amount of $5,000,000.
4.17 Compliance
With Laws.
Parent,
Merger Sub I and Merger Sub II have complied with, are not in violation of,
and
have not received any notices of violation with respect to, any Law applicable
thereto or to the conduct, ownership or operation of their respective
businesses,
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30 -
except
for such violations or failures to comply as would not be reasonably expected
to
have a Material Adverse Effect on the Parent.
4.18 Brokers’
and Finders’ Fees.
Parent
has not incurred, nor will it incur, directly or indirectly, any liability
for
brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or
any similar charges in connection with this Agreement or any transaction
contemplated hereby other than fees payable to Chardan Capital Markets, LLC
(“Chardan”)
and
SMH Capital Inc., except as disclosed by the Parent to the Company or its
representatives or to any of the Principal Shareholders with respect to such
liability or charges prior to the date hereof and as approved by the Company
or
any Principal Shareholder following the date hereof.
4.19 Minute
Books.
The
minute books of Parent made available to Company contain in all material
respects a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent of Parent since inception and
through
the date of this Agreement, and reflect all transactions referred to in such
minutes accurately in all material respects.
4.20 Vote
Required.
The
approval of Parent’s and Merger Sub I’s Board of Directors, the affirmative vote
of the sole stockholder of Merger Sub II and the approval of Parent’s
stockholders in accordance with Section
8.1
hereof,
are the only approvals or votes necessary to approve this Agreement, the
Redomestication Merger and the Business Combination and the transactions
contemplated hereby.
4.21 Board
Approval.
The
Parent Board has approved this Agreement, the Redomestication Merger and
the
Business Combination and determined that this Agreement, the Redomestication
Merger and the Business Combination are in the best interests of the Parent,
Merger Sub I and Merger Sub II. The Parent Board has determined that the
fair
market value of the Company is equal to at least 80% of the Parent’s assets. The
Board of Directors of Merger Sub I has approved this Agreement, the
Redomestication Merger and the Business Combination and shall have recommended
to the sole stockholder of Merger Sub I to approve this Agreement, the
Redomestication Merger and the Business Combination. The Board of Directors
of
Merger Sub II has approved this Agreement and the Business Combination and
shall
have recommended to Merger Sub I to approve this Agreement and the Business
Combination.
4.22 ASE
Quotation.
Parent
Common Stock is listed on the ASE. There is no action or proceeding pending
or,
to Parent’s knowledge, threatened against Parent by ASE to prohibit or terminate
the listing of Parent Common Stock on the ASE. The Parent Common Stock is
registered pursuant to Section 12(b) of the Exchange Act and Parent has taken
no
action designed to, or which is likely to have the effect of, terminating
the
registration of the Parent Common Stock under the Exchange Act nor has Parent
received any notification that the SEC is contemplating terminating such
registration.
4.23 Trust
Account Funds.
As of
December 31, 2007, there was $63,154,286, including interest thereon, held
in
the trust account established in connection with Parent’s IPO
(the “Trust
Account”)
for
use by the Parent in connection with a business combination as set forth
in
Parent’s Certificate of Incorporation. Amounts in the Trust Account are invested
in
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31 -
U.S. Government
securities or in money market funds meeting the conditions of Rule 2a-7 of
the
Investment Company Act of 1940, as amended.
4.24 Representations
Complete.
None of
the representations or warranties made by Parent herein or in any Parent
Disclosure Schedule, or certificate furnished by Parent pursuant to this
Agreement, or the Parent SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Business Combination
Effective Time any untrue statement of a material fact, or omits or will
omit at
the Business Combination Effective Time to state any material fact necessary
in
order to make the statements contained herein or therein, in the light of
the
circumstances under which made, not misleading.
ARTICLE
V
CONDUCT
PRIOR TO THE BUSINESS COMBINATION EFFECTIVE TIME
5.1 Conduct
of Business.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement or the Business Combination Effective Time,
each of Parent and the Company agree (except to the extent expressly
contemplated by this Agreement or as consented to in writing by the other
party), to carry on its and its subsidiaries’ business, in the ordinary course
in substantially the same manner as heretofore conducted, to pay and to cause
its subsidiaries to pay debts and Taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform other obligations when due, and
to
use all reasonable efforts consistent with past practice and policies to
preserve intact its and its subsidiaries’ present business organizations, use
its reasonable best efforts consistent with past practice to keep available
the
services of its, and in the case of the Company, its subsidiaries’ present
officers and key employees and use its reasonable best efforts consistent
with
past practice to preserve its and its Subsidiaries’ relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, and its Subsidiaries, to the end that its and
its
subsidiaries’ goodwill and ongoing businesses shall be unimpaired at the
Business Combination Effective Time. Each of Parent and the Company agrees
to
promptly notify the other of any material event or occurrence not in the
ordinary course of its business and the business of its subsidiaries, and
of any
event that would have a Material Adverse Effect on Parent or the
Company.
5.2 Restrictions
on Conduct of Business.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement or the Business Combination Effective Time,
except as expressly contemplated by this Agreement, none of Parent or the
Company shall do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries, to do, cause or permit any of the following,
without the prior written consent of the other:
(a) Charter
Documents.
Cause
or permit any amendments to its Certificate of Incorporation, bylaws, MOA
or
other equivalent organizational documents, other than pursuant to the
Continuation (as defined below);
(b) Dividends;
Changes in Capital Stock.
Declare
or pay any dividends on or make any other distributions (whether in cash,
stock
or property) in respect of any of its capital
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stock,
or
split, combine or reclassify any of its capital stock or issue or authorize
the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly
or
indirectly, any shares of its capital stock;
(c) Material
Contracts.
Enter
into any new material contract, or violate, amend or otherwise modify or
waive
any of the terms of any existing material contract, other than upon prior
consultation with, and prior written consent (which shall not be unreasonably
withheld) of the other parties to this Agreement, or specifically in the
event
of future acquisitions of businesses by the Company, upon prior written consent
of the Parent;
(d) Issuance
of Securities.
Except
pursuant to the Financing or the Continuation, issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible
into,
or subscriptions, rights, warrants or options to acquire, or other agreements
or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(e) Intellectual
Property.
Transfer or license to any person or entity any rights to any Intellectual
Property other than the license of non-exclusive rights to Intellectual Property
for use by the Company or any subsidiary in its business in the ordinary
course
of business consistent with past practice;
(f) Dispositions.
Sell,
lease, license or otherwise dispose of or encumber any of its properties
or
assets which are material, individually or in the aggregate, to its and its
Subsidiaries’ business, taken as a whole, except in the ordinary course of
business consistent with past practice;
(g) Indebtedness.
Except
in its ordinary course of business, and pursuant to the Financing, incur
any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or
sell any debt securities or guarantee any debt securities of others in excess
of
$100,000 in the aggregate;
(h) Payment
of Obligations.
Pay,
discharge or satisfy in an amount in excess of $100,000 in any one case,
any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than (i) in the ordinary course of
business, and (ii) with respect to the Parent, the payment, discharge or
satisfaction of liabilities reflected or reserved against in the Parent
Financial Statements;
(i) Capital
Expenditures.
Make
any capital expenditures, capital additions or capital improvements except
in
the ordinary course of business and consistent with past practice that do
not
exceed $100,000 individually or in the aggregate;
(j) Acquisitions.
Acquire
by merging or consolidating with, or by purchasing a substantial portion
of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire any assets which are material, individually or in the aggregate,
to its
and its Subsidiaries’ business, taken as a whole, or acquire any equity
securities of any corporation, partnership, association or business
organization, other than future acquisitions of a television station
or
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33 -
advertising
operating business by the Company in China, upon prior written consent of
the
Parent, not to be unreasonably withheld or delayed;
(k) Taxes.
In the
case of the Company or its Subsidiaries, change any election in respect of
Taxes, change any accounting method in respect of Taxes, file any amendment
to a
Tax Return, enter into any closing agreement, settle any claim or assessment
in
respect of Taxes, or consent to any extension or waiver of the limitation
period
applicable to any claim or assessment in respect of Taxes;
(l) Accounting
Policies and Procedures.
Make
any change to its financial accounting methods, principles, policies, procedures
or practices, except as may be required by GAAP, Regulation S-X promulgated
by
the SEC or applicable statutory accounting principles;
(m) Other.
Take or
agree in writing or otherwise to take, any of the actions described in
Sections
5.2(a)
through (l)
above,
or any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from performing
or
cause it not to perform its covenants hereunder;
provided
however,
that
from the date hereof until July 15, 2008, none of the foregoing Sections
5.2(a)
through (l)
shall in
any way limit or restrict any action taken by the Company or any Subsidiary
to
enter into any framework agreements or joint venture agreements with television
stations or advertising operating businesses located in the PRC (the
“Initial
Acquisitions”).
5.3 Joint
Ventures and Framework Agreements.
(a) From
and
after the date hereof until the Closing Date, the Company shall use its
commercially reasonable efforts to consummate the joint ventures contemplated
by
each Framework Agreement on substantially the terms and conditions set forth
therein.
(b) From
and
after the date hereof until the Closing Date, the Company shall use its
commercially reasonable efforts to enter into additional framework agreements
and joint ventures with television stations located in the PRC on terms and
conditions comparable to those set forth in the Framework Agreements, in
each
case subject to the prior written approval of Parent, not to be unreasonably
withheld or delayed.
ARTICLE
VI
COVENANTS
6.1 Merger
Proxy/Prospectus; Special Meeting.
(a) As
soon
as is reasonably practicable after receipt by Parent from the Company of
all
financial and other information required in a Registration Statement on
Form S-4, containing the Merger Proxy/ Prospectus, Parent shall prepare and
file with the Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended (the “Securities
Act”),
and
with all other applicable regulatory bodies, the Registration Statement for
the
purpose of soliciting proxies from holders of Parent Common Stock to vote
at a
special meeting of the stockholders of Parent (the “Special
Meeting”)
in
favor of (i) the adoption of this
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34 -
Agreement
and the approval of the Business Combination, whereby the Company will become
a
wholly-owned subsidiary of the China Networks Surviving Corporation (the
“Business
Combination Proposal”),
(ii)
the approval of the Redomestication Merger for the purpose of redomesticating
the Parent to the British Virgin Islands, and in connection with such merger
changing the Parent’s name to China Networks International Holdings, Ltd.
(the “Redomestication
Proposal”),
and
(iii) to adopt an equity incentive plan in the form of the Incentive Stock
Option Plan (the “Incentive
Plan Proposal”).
The
effectiveness of the Business Combination shall be conditioned upon the approval
of the Redomestication Proposal, and the effectiveness of the Redomestication
Merger shall be conditioned upon the approval of the Business Combination
Proposal. The approval of the Incentive Plan Proposal shall not be a condition
to the consummation of the Redomestication Merger or the Business Combination.
Such materials shall be in the form of the Merger Proxy/Prospectus to be
used
for the purpose of soliciting such proxies from holders of Parent Common
Stock
and registering the Surviving Corporation Shares to be issued, upon consummation
of the Redomestication Merger, in exchange for the Parent Common Stock
outstanding immediately prior to the Redomestication Merger. The Merger
Proxy/Prospectus shall include the registration of the shares underlying
the
Surviving Corporation Stock Rights to be issued in connection with the Business
Combination. The Company shall furnish to Parent all information concerning
the
Company and its Subsidiaries and their business required to be set forth
in the
Merger Proxy/Prospectus. The Company and its counsel shall be given an
opportunity to review and comment on the Merger Proxy/Prospectus prior to
its
filing with the SEC. Parent, with the assistance of the Company, shall promptly
respond to any SEC comments on the Merger Proxy/Prospectus and shall otherwise
use commercially reasonable efforts to complete the SEC review process as
promptly as practicable. Parent shall retain a reputable proxy solicitation
firm.
(b) As
soon
as practicable following the completion of the SEC review process, Parent
shall
distribute the Merger Proxy/Prospectus to the holders of Parent Common Stock
and, pursuant thereto, shall call the Special Meeting in accordance with
Delaware Law and, subject to the other provisions of this Agreement, solicit
proxies from such holders to vote in favor of the adoption of this Agreement
and
the approval of the Merger and the other matters presented to the stockholders
of Parent for approval or adoption at the Special Meeting.
(c) Parent
shall comply in all material respects with the applicable provisions of and
rules under the Securities Act, Exchange Act and the applicable provisions
of
the Delaware Law in the preparation, filing and distribution of the Merger
Proxy/Prospectus, the solicitation of proxies thereunder, and the calling
and
holding of the Special Meeting (provided that Parent shall not be responsible
for the accuracy or completeness of any information relating to the Company
or
its Subsidiaries and their business or any other information specifically
furnished by the Company in writing for inclusion in the Merger
Proxy/Prospectus). Without limiting the foregoing, Parent shall ensure that
the
Merger Proxy/Prospectus does not, as of the date on which it is first
distributed to stockholders of Parent, and as of the date of the Special
Meeting, contain any untrue statement of a material fact or omit to state
a
material fact necessary in order to make the statements made, in light of
the
circumstances under which they were made, not misleading (provided that Parent
shall not be responsible for the accuracy or completeness of any information
relating to the Company or its Subsidiaries and their business or any other
information specifically furnished by the Company in writing for inclusion
in
the Merger Proxy/Prospectus). The Company represents and warrants that the
information relating to the
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35 -
Company
and its Subsidiaries and their business specifically supplied in writing
by the
Company for inclusion in the Merger Proxy/Prospectus will not as of the date
on
which the Merger Proxy/Prospectus (or any amendment or supplement thereto)
is first distributed to stockholders of Parent or at the time of the Special
Meeting contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect
to any
material fact, or omits to state any material fact required to be stated
therein
or necessary in order to make the statement therein not false or misleading.
The
Company shall in good faith provide Parent with a letter, dated the date
of the
Merger Proxy/Prospectus and in form and substance reasonably acceptable to
Parent, attaching the Merger Proxy/Prospectus and confirming that all the
information included in the Merger Proxy/Prospectus has been specifically
furnished by the Company in writing for inclusion therein. Any subsequent
changes to such sections of the Merger Proxy/Prospectus without the consent
of
the Company shall be the responsibility of Parent.
6.2 Form 8-K.
At
least five (5) days prior to Closing, Parent shall prepare a draft Form 8-K
announcing the Closing, together with, or incorporating by reference, the
financial statements prepared by the Company and its accountant, and such
other
information that may be required to be disclosed with respect to the Merger
in
any report or form to be filed with the SEC (“Merger
Form 8-K”),
which
shall be in a form reasonably acceptable to the Company. Prior to Closing,
Parent and the Company will prepare the press release announcing the
consummation of the Merger hereunder (“Press
Release”).
Simultaneously with the Closing, Parent shall file and distribute the Press
Release. Within four (4) business days of the Closing, Parent shall file
the
Merger Form 8-K with the SEC.
6.3 Action
of Company’s Shareholders.
(a) The
Company shall within five Business Days after the date hereof, take all action
necessary in accordance with BVI Law and its MOA and by-laws and shall use
its
reasonable best efforts to secure the vote or consent of shareholders required
to effect the Business Combination from and after the execution of this
Agreement.
(b) Until
the
termination of this Agreement pursuant to Section
11
below,
at every meeting of the shareholders of the Company called with respect to
any
of the following, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company with respect
to
any of the following, each Principal Shareholder shall cause the Company
Securities held by such Principal Shareholder to be voted (i) in favor of
adoption and approval of this Agreement and approval of the Business Combination
and (ii) against approval of (A) any proposal made in opposition to or in
competition with consummation of the Business Combination, (B) any merger,
consolidation, sale of assets, reorganization or recapitalization with any
party
other than Parent or its affiliates, (C) any liquidation or winding up of
the
Company and (D) any other proposal having the intent of hindering or delaying
the consummation of the Business Combination. Until the termination of this
Agreement pursuant to Section
11.1
below,
each Principal Shareholder agrees not to transfer any Company Securities,
unless
each transferee to which any of such Company Securities, or any interest
in any
of such Company Securities, is or may be transferred shall have executed
an
agreement in form and substance reasonably satisfactory to Parent requiring
such
transferee to abide by the covenants contained in this Section
6.3
on the
same basis as each Principal Shareholder.
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36 -
6.4 Employment
Agreements.
Parent
and Li Shuangqing shall use reasonable efforts to agree upon definitive terms
with respect to the employment agreement to be executed, by each of them,
as a
condition to the Closing.
6.5 Registration
Rights Agreement.
The
Parent and the Principal Shareholders shall use reasonable efforts to agree
upon
definitive terms with respect to the Registration Rights Agreement to be
executed as a condition to the Closing and generally reflecting the matters
referred to in Section 9.1 hereof.
6.6 Fiscal
Year.
Prior
to the Business Combination Effective Time, or as soon as practicable
thereafter, the Parent shall change its fiscal year end to December
31.
ARTICLE
VII
ADDITIONAL
AGREEMENTS
7.1 No
Claim Against Trust Account.
The
Company and each Principal Shareholder hereby waives all rights against Parent
to collect from the Trust Account any moneys that may be owed to the Company
or
any Principal Shareholder by Parent for any reason whatsoever, including
but not
limited to a breach of this Agreement by Parent or any negotiations, agreements
or understandings with Parent (other than as a result of the consummation
of the
Business Combination, pursuant to which the Company would have the right
to
collect certain of the monies in the Trust Account), and will not seek recourse
against the Trust Account for any reason whatsoever.
7.2 Access
to Information.
(a) Except
as
prohibited by applicable law, each of Parent and Company shall afford the
other
and its accountants, counsel and other representatives (the “Representatives”),
reasonable access during normal business hours during the period prior to
the
Business Combination Effective Time to (i) all of such party’s and its
Subsidiaries’ properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
such
party and its Subsidiaries as the other party may reasonably request. Each
of
Parent and Company agrees to provide to the other and its accountants, counsel
and other representatives copies of internal financial statements promptly
upon
request.
(b) Subject
to compliance with applicable law, from the date hereof until the Effective
Time, each of Parent and Company shall confer on a regular and frequent basis
with one or more representatives of the other party to report operational
matters of materiality and the general status of ongoing
operations.
(c) No
information or knowledge obtained in any investigation pursuant to this
Section
7.2
or
otherwise shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
(d) Each
of
Parent and Company shall provide the other, and the Company shall cause each
of
the Subsidiaries to provide Parent and its Representatives reasonable access,
during normal business hours during the period prior to the Effective Time,
to
all of such party’s
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37 -
and
its
Subsidiaries’ Tax Returns and other records and workpapers relating to Taxes,
and shall also provide the following information upon the request of the
other
party: (i) a schedule of the types of Tax Returns filed by Parent or Company,
as
applicable, and in the case of the Company, each of its Subsidiaries in each
taxing jurisdiction, (ii) a schedule of the year of the commencement of the
filing of each such type of Tax Return, (iii) a schedule of all closed years
with respect to each such type of Tax Return filed in each jurisdiction,
(iv) a
schedule of all Tax elections filed in each jurisdiction by Parent or Company,
as applicable, and each of the Subsidiaries, and (v) receipts or other
appropriate evidence for any Taxes paid to foreign Tax authorities.
7.3 Confidential
Information; Non-Solicitation or Negotiation.
(a) Confidential
Information.
Except
in connection with any dispute between the parties and subject to any obligation
to comply with (i) any applicable law, (ii) any rule or regulation of any
Governmental Entity or securities exchange, or (iii) any subpoena or other
legal
process to make information available to the persons entitled thereto, whether
or not the transactions contemplated herein shall be concluded, all information
obtained by any party about any other, and all of the terms and conditions
of
this Agreement, shall be kept in confidence by each party, and each party
shall
cause its stockholders, directors, officers, managers, employees, agents
and
attorneys to hold such information confidential. Such confidentiality shall
be
maintained to the same degree as such party maintains its own confidential
information and shall be maintained until such time, if any, as any such
data or
information either is, or becomes, published or a matter of public knowledge;
provided, however, that the foregoing shall not apply to any information
obtained by a party from a source not known by such party to be bound by
a
confidentiality agreement with, or other contractual, legal or fiduciary
obligation of confidentiality to, the other party, nor to any information
obtained by a party which is generally known to others engaged in the trade
or
business of such party. In the event a party to this Agreement becomes legally
compelled to disclose any such information, it shall promptly provide the
others
with written notice of such requirement so that the other parties to this
Agreement may seek a protective order or other remedy. If this Agreement
shall
be terminated for any reason, the parties shall return or cause to be returned
to the others all written data, information, files, records and copies of
documents, worksheets and other materials obtained by such parties in connection
with this Agreement.
(b) No
Solicitation or Negotiation by Parent.
Unless
and until this Agreement is terminated, from and after July 15, 2008 Parent
and
Merger Sub I shall not suffer or permit their directors, officers, stockholders,
employees, representatives, agents, investment bankers, advisors, accountants
or
attorneys of Parent or Merger Sub I, to initiate or solicit, directly or
indirectly, any inquiries or the making of any offer or proposal that
constitutes or would be reasonably expected to lead to a proposal or offer
(other than by the Company) for a stock purchase, asset acquisition, merger,
consolidation or other business combination involving Parent or Merger Sub
I or
any proposal to acquire in any manner a direct or indirect substantial equity
interest in, or all or any substantial part of the assets of, Parent or Merger
Sub I (an “Alternative
Proposal”)
from
any person and/or entity, or engage in negotiations or discussions relating
thereto or accept any Alternative Proposal, or make or authorize any statement,
recommendation or solicitation in support of any Alternative Proposal. Parent
shall notify the Company orally and in writing of the receipt of any such
inquiries, offers or proposals (including
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38 -
the
terms
and conditions of any such offer or proposal, the identity of the person
and/or
entity making it and a copy of any written Alternative Proposal), as promptly
as
practicable and in any event within 48 hours after the receipt thereof, and
shall keep the Company informed of the status and details of any such inquiry,
offer or proposal. Parent and Merger Sub I shall immediately terminate any
existing solicitation, activity, discussion or negotiation with any person
and/or entity hereafter conducted by them or by any officer, employee, director,
stockholder or other representative thereof with respect to the foregoing.
Notwithstanding the foregoing, if the Parent Board determines, in its good
faith
judgment and based upon written advice from its legal counsel (who may be
Parent's regularly engaged legal counsel), that it is required to make a
change
in its recommendation regarding the Business Combination or the Redomestication
Merger to comply with its fiduciary obligations to the Parent and its
stockholders under applicable Law, the Parent Board may make a change in
its
recommendation, including recommending that stockholders vote against the
Business Combination and the Redomestication Merger. No disclosure that Parent
Board may determine in good faith (upon written advice from its legal counsel,
who may be Parent's regularly engaged counsel) that it or Parent is required
to
make under applicable Law will constitute a violation of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, the
obligation of Parent to call, give notice of, convene and hold the Special
Meeting shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission to it of any Alternative Proposal,
or by
any change in the Parent Board recommendation regarding the Business Combination
or the Redomestication Merger.
Notwithstanding
the preceding paragraph, prior to the satisfaction of the condition set forth
in
Section
8.1(l)(i),
the
Parent or its representatives may furnish information with respect to the
Parent
and its business and operations, and negotiate or otherwise engage in
discussions with, any person that has made, after the date hereof, an
unsolicited and bona fide written Alternative Proposal, if and only to the
extent that (i) such Alternative Proposal did not result from or arise from
the
breach of the obligations of the Parent set forth in the first sentence of
the
preceding paragraph, and (ii) the Parent Board determines in good faith,
based
upon written advice received from counsel (who may be Parent’s regularly engaged
counsel), that (x) such Alternative Proposal is, or is reasonably likely
to lead
to, a Superior Proposal (as defined below) and (y) the failure to do so would
be
inconsistent with its fiduciary duties under applicable Law. For purposes
of the
foregoing, “Superior
Proposal”
means
any bona fide written Alternative Proposal that did not result from a breach
of
this Section
7.3(b)
by the
Parent and on terms that the Parent Board determines in good faith (based
upon
written advice from its financial advisor), to be more favorable to the
stockholders of the Parent from a financial point of view than the Business
Combination, taking into account all the terms and conditions of such proposal
and this Agreement (including any changes to the terms of this Agreement
proposed by the Company in good faith to the Parent in response to such proposal
or otherwise).
(c) No
Solicitation or Negotiation by Company or the Principal
Shareholders.
Unless
and until this Agreement is terminated, the Company and the Principal
Shareholders (which solely and exclusively for purposes of this Section
7.3
shall be
deemed to include Li Shuangqing) shall not and shall not suffer or permit
their
directors, officers, stockholders, employees, representatives, agents,
investment bankers, advisors, accountants or attorneys of the Company, to
initiate or solicit, directly or indirectly, any inquiries or the making
of any
offer or proposal that constitutes or would be reasonably expected to lead
to a
proposal or
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39 -
offer
(other than by the Parent) for an stock purchase, asset acquisition, merger,
consolidation or other business combination involving the Company or any
proposal to acquire in any manner a direct or indirect substantial equity
interest in, or all or any substantial part of the assets of, the Company
(a
“Company
Alternative Proposal”)
from
any person and/or entity, or engage in negotiations or discussions relating
thereto or accept any Company Alternative Proposal, or make or authorize
any
statement, recommendation or solicitation in support of any Company Alternative
Proposal. The Company and the Principal Shareholders shall notify the Parent
of
the receipt of any such inquiries, offers or proposals (including the terms
and
conditions of any such offer or proposal, the identity of the person and/or
entity making it and a copy of any written Company Alternative Proposal),
as
promptly as practicable, and shall keep the Parent informed of the status
and
details of any such inquiry, offer or proposal. The Company and the Principal
Shareholders shall immediately terminate any existing solicitation, activity,
discussion or negotiation with any person and/or entity hereafter conducted
by
them or by any officer, employee, director, stockholder or other representative
thereof with respect to the foregoing.
7.4 Public
Disclosure.
Unless
otherwise permitted by this Agreement, Parent and Company shall consult with
each other before issuing any press release or otherwise making any public
statement or making any other public (or non-confidential) disclosure (whether
or not in response to an inquiry) regarding the terms of this Agreement and
the
transactions contemplated hereby, and neither shall issue any such press
release
or make any such statement or disclosure without the prior approval of the
other
(which approval shall not be unreasonably withheld), except as may be required
by law, in which case the party proposing to issue such press release or
make
such public statement or disclosure shall use its commercially reasonable
efforts to consult with the other party before issuing such press release
or
making such public statement or disclosure.
7.5 Consents;
Cooperation.
(a) Each
of
Parent and Merger Sub I shall promptly apply for or otherwise seek, and use
its
reasonable best efforts to obtain, all consents and approvals required to
be
obtained by it for the consummation of the Redomestication Merger.
(b) Each
of
Parent, Merger Sub II and Company shall promptly apply for or otherwise seek,
and use its reasonable best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Business Combination.
Company shall use its reasonable best efforts to obtain all necessary consents,
waivers and approvals under any of its Material Company Contracts in connection
with the Business Combination for the assignment thereof or
otherwise.
(c) Notwithstanding
anything to the contrary in Section
7.5(a),
(i) neither Parent nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or
agree
to take any other action or agree to any limitation on its operations that
would
reasonably be expected to have a Material Adverse Effect on Parent or of
Parent
combined with the China Networks II Surviving Corporation after the Business
Combination Effective Time and (ii) neither Company nor its subsidiaries
shall
be required to divest any of their respective businesses, product lines or
assets, or to take or agree to take any
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40 -
other
action or agree to any limitation that would reasonably be expected to have
a
Material Adverse Effect on Company.
7.6 Legal
Requirements.
Each of
Parent, Merger Sub I, Merger Sub II and the Company will, and will cause
their
respective subsidiaries to, take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated by this Agreement and
will
promptly cooperate with and furnish information to any party hereto necessary
in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with,
any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this
Agreement.
7.7 Blue
Sky Laws.
Parent
shall use its reasonable best efforts to comply with the securities and blue
sky
laws of all jurisdictions which are applicable to the issuance of the Parent
Common Stock and other securities of Parent in connection with the
Redomestication Merger and the Business Combination. The Company shall use
its
reasonable best efforts to assist Parent as may be necessary to comply with
the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock and other securities
of
Parent in connection with the Redomestication Merger and the Business
Combination.
7.8 Indemnification.
(a) After
the
Business Combination Effective Time, China Networks Surviving Corporation
will
fulfill and honor in all respects the obligations of the Company pursuant
to the
indemnification provisions of the Company’s MOA, in each case as in effect on
the date hereof; provided that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. Without limitation
of
the foregoing, in the event any person so indemnified (a “Company
Indemnified Party”)
is or
becomes involved in any capacity in any action, proceeding or investigation
in
connection with any matter relating to this Agreement or the transactions
contemplated hereby occurring on or prior to the Business Combination Effective
Time, China Networks Surviving Corporation shall, or shall cause the China
Networks II Surviving Corporation to, pay as incurred such Company Indemnified
Party’s reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith to the fullest
extent permitted by BVI Law. Any Company Indemnified Party wishing to claim
indemnification under this Section
7.8,
upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent and the China Networks II Surviving
Corporation.
(b) To
the
extent there is any claim, action, suit, proceeding or investigation (whether
arising before or after the Business Combination Effective Time) against
a
Company Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as director, officer, employee, fiduciary
or
agent of the Company occurring prior to the Business Combination Effective
Time,
or arises out of or pertains to the transactions contemplated by
this
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Agreement
for a period lasting until the expiration of five years after the Business
Combination Effective Time (whether arising before or after the Business
Combination Effective Time), in each case for which such Company Indemnified
Party is indemnified under this Section
7.8,
such
Company Indemnified Party shall be entitled to be represented by counsel,
which
counsel shall be counsel of Parent (provided that if use of counsel of China
Networks Surviving Corporation would be expected under applicable standards
of
professional conduct to give rise to a conflict between the position of the
Company Indemnified Person and of China Networks Surviving Corporation, the
Company Indemnified Party shall be entitled instead to be represented by
counsel
selected by the Company Indemnified Party and reasonably acceptable to China
Networks Surviving Corporation) and, following the Business Combination
Effective Time, China Networks II Surviving Corporation and China Networks
Surviving Corporation shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received and China Networks
II
Surviving Corporation and China Networks Surviving Corporation will cooperate
in
the defense of any such matter; provided, however, that neither the China
Networks II Surviving Corporation nor China Networks Surviving Corporation
shall
be liable for any settlement effected without its written consent; and provided,
further, that, in the event that any claim or claims for indemnification
are
asserted or made prior to the expiration of such five year period, all rights
to
indemnification in respect to any such claim or claims shall continue until
the
disposition of any and all such claims. The Company Indemnified Parties as
a
group may retain only one law firm (in addition to local counsel) to represent
them with respect to any single action unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the position of any two or more Company Indemnified Parties.
(c) The
provisions of this Section
7.8
are
intended to be for the benefit of, and shall be enforceable by, each Company
Indemnified Party, his or her heirs and representatives.
7.9 Best
Efforts and Further Assurances.
Each of
the parties to this Agreement shall use its commercially reasonable best
efforts
to effectuate the transactions contemplated hereby and to fulfill and cause
to
be fulfilled the conditions to closing under this Agreement. Each party hereto,
at the reasonable request of another party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may
be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE
VIII
CONDITIONS
TO THE BUSINESS COMBINATION
8.1 Conditions
Precedent to the Obligation of the Parent to Consummate the Business
Combination
The
obligations of Parent to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at
or
prior to the Business Combination Effective Time of each of the following
conditions, (any of which may be waived, in writing, by Parent, with the
exception of the conditions set forth in Sections
8.1(a),
(b),
(c)and
(d) :
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(a) Business
Combination Proposal.
The
Business Combination Proposal shall have been duly approved and adopted by
the
stockholders of Parent by the requisite vote under the Parent’s Certificate of
Incorporation.
(b) Parent
Common Stock.
Holders
of less than thirty percent (30%) of the shares of Parent Common Stock issued
in
Parent’s IPO outstanding immediately before the Closing shall have exercised
their rights to convert their shares into a pro rata share of the Trust Account
in accordance with the Parent’s Certificate of Incorporation.
(c) Redomestication
Proposal.
The
Redomestication Proposal shall have been duly approved and adopted by the
requisite vote of the holders of Parent Common Stock under Delaware Law and
the
Redomestication Merger shall have been consummated.
(d) Company
Shareholder Approval.
This
Agreement and the Business Combination shall have been approved and adopted
by
the Company board and the Company shareholders holding a majority of the
Company
Securities in excess of 50%, voting together as one class.
(e) Documents.
The
following documents to be delivered to the appropriate parties, in a form
acceptable to Parent:
(i) the
Lock-Up Agreement executed by the Principal Shareholders;
(ii) the
Incentive Stock Option Plan for China Networks Surviving
Corporation;
(iii) the
registration rights agreement, by and between China Networks Surviving
Corporation, the Principal Shareholders and certain stockholders of the Parent
(the “Registration
Rights Agreement”)
executed by the Principal Stockholders;
(iv) executed
Plan of Merger, by and between the Parent and Merger Sub I;
(v) Certificate
of Merger with respect to the Redomestication Merger to be filed in accordance
with Delaware law as of the Effective Time;
(vi) executed
Articles and Plan of Merger to be filed in accordance with BVI Law as of
the Effective Time;
(vii) executed
Plan of Merger, by and between the Merger Sub II and the Company;
(viii) executed
Business Combination Articles and Plan of Merger to be filed in accordance
with
BVI Law at the Business Combination Effective Time;
(ix) a
certificate of good standing or equivalent under BVI Law of the
Company;
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(x) each
of
the documents to which the Company or its Subsidiaries is a party, duly
executed;
(xi) an
employment agreement between Parent and Li Shuangqing in form and substance
reasonably satisfactory to Parent, executed by Li Shuangqing;
(xii) a
copy of
the (i) audited consolidated financial statements (including any related
notes
thereto) for the fiscal years ended December 31, 2007, 2006 and 2005,
(collectively, the “Audited
Financial Statements”)
and
(ii) unaudited consolidated financial statements for the three month period
ended March 31, 2008 (or if the Closing occurs more than 30 days after the
completion of a fiscal period, for that period of time from December 31,
2007 to
such fiscal period) with respect to the businesses conducted by the Company
as
of the Business Combination Effective Time (collectively, the “Interim
Financial Statements,
and
together with the Audited Financial Statements, the “Company
Financial Statements”);
and
such other financial statements of the Company or entities controlled by
the
Company as shall be necessary to allow Parent to complete the Merger
Proxy/Prospectus, which (A) with respect to the Audited Financial Statements,
shall be prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), (B) with respect to the Company Financial Statements, shall fairly
present in all material respects the financial position of the Company and
of
its Subsidiaries at the respective dates thereof and the results of their
respective operations and cash flows for the periods indicated; and (C) with
respect to the Interim Financial Statements, shall show aggregate obligations
or
liabilities of the Company or its Subsidiaries of less than $250,000 (other
than
obligations or liabilities incurred pursuant to the terms of this Agreement,
and
those incurred pursuant to the terms of any framework agreement, other joint
venture or acquisition or the Financing); and
(xiii) such
other documents as the Parent may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of the Principal
Shareholders, the Company or its Subsidiaries pursuant to Section
8.1(f),
(ii)
evidencing the performance by the Company or its Subsidiaries of, or the
compliance by the Company or its Subsidiaries with, any covenant or obligation
required to be performed or complied with by the Company or its Subsidiaries,
(iii) evidencing the satisfaction of any condition referred to in this
Section
8.1,
or
(iv) otherwise facilitating the consummation of any of the transactions
contemplated by this Agreement.
(f) Representations,
Warranties and Covenants.
(1)
The
representations and warranties of the Principal Shareholders and the Company
in
this Agreement shall be true and correct in all material respects (except
for
such representations and warranties that are qualified by their terms by
a
reference to materiality, which representations and warranties as so qualified
shall be true and correct in all respects) both when made and on and as of
the
Business Combination Effective Time as though such representations and
warranties were made on and as of such time (provided that those representations
and warranties which address matters only as of a particular date shall be
true
and correct as of such date) and (ii) the Company and the Principal Shareholders
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Business Combination Effective Time.
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44 -
(g) Certificate
of Officer.
Parent
shall have been provided with a certificate executed on behalf of Company
by its
Executive Chairman and Chief Executive Officer certifying that the conditions
set forth in Section
8.1(f)
shall
have been fulfilled.
(h) Injunctions
or Restraints on Conduct of Business.
No
temporary restraining order, preliminary or permanent injunction or other
order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Company’s or its Subsidiaries’
conduct or operation of the business of Company and its Subsidiaries following
the Redomestication Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other Governmental Entity, domestic
or foreign, seeking the foregoing be pending.
(i) No
Proceedings.
Since
the date of this Agreement, there must not have been commenced or threatened
against the Parent, the Merger Sub I, Merger Sub II, the Company, Company’s
Subsidiaries, the Principal Shareholders, or any affiliate thereof, any
Proceeding (which Proceeding remains unresolved as of the Effective Time)
that
may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the transactions contemplated hereby.
(j) No
Material Adverse Changes.
There
shall not have occurred any Material Adverse Effect on Company, or any change
that has a Material Adverse Effect on Company.
(k) Financing.
The
Company shall have entered into definitive documentation for a bridge loan
in an
amount of not less than U.S.$20,000,000 and not more than U.S. $40,000,000
on
terms and conditions reasonably satisfactory to Parent (the “Financing”),
including, a covenant requiring the Company to use its best efforts to
consummate the Business Combination and an event of default triggered upon
the
failure of the Company to consummate the Business Combination prior to June
29,
2009.
(l) Joint
Ventures; Capital Structure.
(2)
The
Company shall have entered into joint ventures pursuant to the definitive
agreements (each a “Joint
Venture Agreement”)
contemplated by the Framework Agreements or such other framework agreements
as
may be entered into between the date hereof and Closing, in any case containing
terms and conditions that are reasonably satisfactory to Parent and with
at
least two joint venture partners satisfactory to Parent. In the event Parent
does not exercise its right to terminate this Agreement pursuant to Section
11.3
upon the Initial Acquisitions, then such Initial Acquisitions and the terms
and
conditions thereof shall be deemed to be reasonably satisfactory to
Parent.
(ii) The
capital structure and corporate structure of the Company and its Subsidiaries,
and the structure of the Company’s direct and indirect interest in each Joint
Venture Agreement, shall be reasonably satisfactory to Parent.
(iii) China
Networks Surviving Corporation shall not be obligated to issue more than
an
aggregate amount of 2,950,000 Surviving Corporation Shares at the Business
Combination Effective Time pursuant to this Agreement (and each of the documents
delivered hereunder) and the Financing (and each of the documents delivered
thereunder).
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45 -
(m) Governmental
Approvals.
Company
and its Subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of
or in
connection with this Agreement, the Business Combination and the Joint Venture
Agreements, including such approvals, waivers and consents as may be required
under BVI Law and PRC Law.
8.2 Conditions
Precedent to the Obligation of the Company to Consummate the Business
Combination.
The
obligations of Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at
or
prior to the Business Combination Effective Time of each of the following
conditions, any of which may be waived, in writing, by Company, with the
exception of the conditions set forth in Sections 8.2(a)-(d):
(a) Business
Combination Proposal.
The
Business Combination Proposal shall have been duly approved and adopted by
the
stockholders of Parent by the requisite vote under the Parent’s Certificate of
Incorporation.
(b) Parent
Common Stock.
Holders
of less than thirty percent (30%) of the shares of Parent Common Stock issued
in
Parent’s IPO outstanding immediately before the Closing shall have exercised
their rights to convert their shares into a pro rata share of the Trust Account
in accordance with the Parent’s Certificate of Incorporation.
(c) Company
Shareholder Approval.
This
Agreement and the Business Combination shall have been approved and adopted
by
the Company board and the Company shareholders holding a majority of the
Company
Securities in excess of 50%, voting together as one class.
(d) Redomestication
Proposal.
The
Redomestication Proposal shall have been duly approved and adopted by the
requisite vote of the holders of Parent Common Stock under the Delaware Law
and
the Redomestication Merger has been consummated.
(e) Adoption
of Performance Share Proposal.
The
Performance Share Proposal shall have been duly approved and adopted by the
requisite vote of the holders of Parent Common Stock under Delaware
Law.
(f) Representations,
Warranties and Covenants.
(i) The
representations and warranties of Parent, Merger Sub I and Merger Sub II
in this
Agreement shall be true and correct in all material respects (except for
such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall
be
true and correct in all respects) both when made and on and as of the Effective
Time or the Business Combination Effective Time, as applicable, as though
such
representations and warranties were made on and as of such time (provided
that
those representations and warranties which address matters only as of a
particular date shall be true and correct as of such date) and (ii) Parent,
Merger Sub I and Merger Sub II shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time
or
the Business Combination Effective Time, as applicable.
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46 -
(g) Certificate
of Officer.
The
Company shall have been provided with a certificate executed on behalf of
Parent
by its Chief Executive Officer and Chief Financial Officer certifying that
the
conditions set forth in Section
8.2(f)
shall
have been fulfilled.
(h) Secretary’s
Certificate.
The
Company shall have been provided with a Secretary’s Certificate, dated the
Closing Date, certifying attached copies of (A) the Certificate of Incorporation
and bylaws of the Parent, Merger Sub I and Merger Sub II, (B) the resolutions
of
the Board of Directors of the Parent approving this Agreement and the
transactions contemplated hereby; and (C) the incumbency of each authorized
officer of Parent, Merger Sub I and Merger Sub II signing this Agreement
and/or
any other agreement or instrument contemplated hereby to which Parent, Merger
Sub I or Merger Sub II is a party.
(i) Documents.
The
following documents to be delivered to the appropriate parties, in a form
acceptable to the parties:
(i) the
Lock-Up Agreement executed by Parent;
(ii) the
incentive stock option plan for China Networks Surviving
Corporation;
(iii) an
employment agreement, by and between the Parent and Li Shuangqing, in form
and
substance reasonably satisfactory to Li Shuangqing, executed by
Parent;
(iv) the
Registration Rights Agreement executed by Parent;
(v) share
certificates evidencing the Surviving Corporation Shares to be issued to
the
holders of the Company Securities in the Business Combination;
(vi) executed
Plan of Merger, by and between the Parent and Merger Sub I;
(vii) Certificate
of Merger with respect to the Redomestication Merger to be filed in accordance
with Delaware law as of the Effective Time;
(viii) executed
Articles and Plan of Merger to be filed in accordance with BVI Law as of
the Effective Time;
(ix) executed
Plan of Merger, by and between Merger Sub II and the Company;
(x) executed
Business Combination Articles and Plan of Merger to be filed in accordance
with
BVI Law as of the Business Combination Effective Time;
(xi) a
certificate of good standing of the Parent in the State of
Delaware;
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(xii) a
certificate of good standing of Merger Sub I in the British Virgin
Islands;
(xiii) a
certificate of good standing of Merger Sub II in the British Virgin Islands;
and
(xiv) such
other documents as the Company may reasonably request for the purpose of
(i)
evidencing the accuracy of any representation or warranty of the Parent,
Merger
Sub I and Merger Sub II pursuant to Section
8.1(e),
(ii)
evidencing the performance by the Parent, Merger Sub I and Merger Sub II
of, or
the compliance by the Parent, Merger Sub I and Merger Sub II with, any
covenant or obligation required to be performed or complied with by the Parent,
Merger Sub I and Merger Sub II, (iii) evidencing the satisfaction of any
condition referred to in this Section
8.2,
or (iv)
otherwise facilitating the consummation of any of the transactions contemplated
by this Agreement.
(j) Injunctions
or Restraints on Conduct of Business.
No
temporary restraining order, preliminary or permanent injunction or other
order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent’s conduct or operation of the
business of Parent and its Subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(k) No
Material Adverse Changes.
There
shall not have occurred any Material Adverse Effect on Parent, or any change
that has a Material Adverse Effect on Parent and there shall have been no
decrease in the amount of funds in trust from that reflected in Section
4.23.
(l) No
Proceedings.
Since
the date of this Agreement, there must not have been commenced or threatened
against the Parent, Merger Sub I and Merger Sub II, the Company, the Company’s
Subsidiaries, any Principal Shareholder, or against any affiliate thereof,
any
Proceeding (which Proceeding remains unresolved as of the Effective Time)
(a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, or (b) that
may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the transactions contemplated hereby.
(m) Stock
Quotation.
The
Parent Common Stock at Closing shall be listed on the ASE, and there will
be no
action or proceeding pending or threatened against Parent by the ASE to prohibit
or terminate the listing of Parent Common Stock on the ASE.
(n) SEC Compliance.
Immediately prior to the Closing, Parent shall be in compliance with the
reporting requirements under the Exchange Act, and shall have timely filed
all
Exchange Act reports for the twelve month period preceding the
Closing.
(o) Accounting
for Deferred Expenses of Parent.
At the
time of the Closing, the aggregate deferred business and operating expenses
of
Parent that will be assumed by China Networks Surviving Corporation and paid
from the proceeds of the Trust Account disbursed to the China Networks Surviving
Corporation, shall not exceed $1,000,000 excluding legal fees payable to
XxXxxxxxx Will & Xxxxx LLP, unless Parent shall have received
approval
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from
the
Company (such approval not to be unreasonably withheld) prior to incurring
expenses that would cause such aggregate amount to exceed
$1,000,000.
(p) Disbursement
of Trust Account.
Parent
shall have made all necessary arrangements, including notice to Continental
Stock Transfer & Trust, the trustee of the Trust Account, prior to the
Business Combination Effective Time, for the disbursement of the proceeds
of the
Trust Account to be made at the Business Combination Effective Time, subject
to
any amounts to be held for the redemption of any shares of Parent Common
Stock.
(q) Governmental
Approvals.
Parent,
Merger Sub I and Merger Sub II shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with this Agreement, the Redomestication Merger and the
Business Combination, including such approvals, waivers and consents as may
be
required under the BVI Law.
ARTICLE
IX
POST-CLOSING
COVENANTS
9.1 Mandatory
Registration of Closing Shares.
Without
limitation on the restrictions on transfer set forth in Section
2.14
and the
Lock-Up Agreements, the Parent hereby agrees that no later than 30 days
following the consummation of the Business Combination (the “Filing
Date”),
it
shall prepare and file with the SEC a “resale” registration statement (the
“Registration
Statement”),
providing for the resale of all of the Surviving Corporation Shares issued
pursuant to Section 2.7 upon Closing (but not including any Returned Shares
(as
defined below) returned) (the “Closing
Shares”)
for an
offering to be made on a continuous basis pursuant to Rule 415, subject to
the
terms and conditions of the Registration Rights Agreement. Such Registration
Statement shall be on Form S-3 (except if the Parent is not then eligible
to
register for resale the Closing Shares on Form S-3 in which case such
registration shall be on another appropriate form in accordance herewith
and the
Securities Act and the rules promulgated thereunder). The Parent shall use
its
best efforts to cause such Registration Statement to be declared effective
under
the Securities Act as promptly as possible after the filing thereof, but
in any
event prior to the earlier of (A) the ninetieth (90th)
day
following the Filing Date or (B) in the event the Registration Statement
receives a “full review” by the SEC, the one hundred twentieth (120th)
day
following the Filing Date, or in either case any additional filing dates
(as
applicable) or (C) the date which is within three (3) Business Days after
the
date on which the SEC informs the Parent that (i) the SEC will not review
the
Registration Statement, or (ii) Parent may request the acceleration of the
effectiveness of the Registration Statement and the Parent makes such request;
provided,
that,
if such date falls on a Saturday, Sunday or any other day which shall be
a legal
holiday or a day on which the SEC is authorized or required by law or other
government actions to close, the effectiveness date shall be the following
business day.
9.2 Registration
of Shares.
After
the consummation of the Business Combination, China Networks Surviving
Corporation shall prepare and file with the SEC a registration statement
on Form
S-8, registering the shares to be issued under Section
2.7(g)
and the
Incentive Stock Option Plan.
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49 -
9.3 D&O Insurance.
China
Networks Surviving Corporation will take all necessary steps required to
have
all of the officers and directors of the Surviving Corporation included on
Parent’s directors and officers liability coverage after the Business
Combination Effective Time.
ARTICLE
X
INDEMNIFICATION;
REMEDIES
10.1 Survival.
All
representations, warranties, covenants, and obligations in this Agreement
shall
survive the Closing and expire on the first anniversary of the Closing Date
(the
“Survival
Period”).
The
right to indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected
by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy
of
any representation or warranty, or on the performance of or compliance with
any
covenant or obligation, will not affect the right to indemnification, payment
of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
10.2 Indemnification
by the Principal Shareholders.
(a) From
and
after the Effective Time until the expiration of the Survival Period, the
Principal Shareholders shall, severally and not jointly, subject to the terms
hereof, indemnify and hold harmless the China Networks Surviving Corporation
and
its subsidiaries, affiliates, officers, directors, employees, agents, successors
and assigns (each an “Indemnified
Party”)
from
and against any liabilities, losses, claims, damages, fines, penalties, expenses
(including costs of investigation and defense and reasonable attorneys’ fees
incurred in connection with such matters and any action hereunder to enforce
the
provisions of this Article X) or diminution of value, including Taxes
(collectively, “Damages”)
arising, directly or indirectly, from or in connection with:
(i) any
breach of any representation or warranty made by the Company or any Principal
Shareholder in this Agreement or in any certificate delivered by the Company
pursuant to this Agreement;
(ii) any
breach by the Company, or the Principal Shareholders, of its covenants or
obligations in this Agreement; or
(iii) the
operation of the business of the Company and its Subsidiaries, prior to the
Effective Time.
(b) For
a
period of six months from the Business Combination Effective Time (the
“First
Return Shares Indemnification Period”),
the
amount of any and all Damages suffered by the China Networks Surviving
Corporation shall be recoverable solely by the return to the China Networks
Surviving Corporation of any Surviving Corporation Shares received by such
Principal Shareholder in connection with this Agreement on the Closing Date
(the
“First
Returned Shares”).
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(c) For
a
period of six months commencing from the end of the First Return Shares
Indemnification Period (the “Second
Return Shares Indemnification Period”),
the
amount of any and all Damages suffered by the China Networks Surviving
Corporation shall be recovered solely by the return to the China Networks
Surviving Corporation of up to fifty percent (50%) of the Surviving Corporation
Shares received by such Principal Shareholder in connection with this Agreement
on the Closing Date (the “Second
Returned Shares”);
(d) For
a
period of six months commencing from the end of the Second Return Shares
Indemnification Period, the amount of any and all Damages suffered by the
China
Networks Surviving Corporation shall be recovered solely by the return to
the
China Networks Surviving Corporation of twenty five percent (25%) of the
Surviving Corporation Shares received by such Principal Shareholder in
connection with this Agreement on the Closing Date (the “Third
Returned Shares”,
and
collectively with the First Returned Shares and Second Returned Shares, the
“Returned
Shares”).
(e) The
number of Returned Shares to be returned by the Principal Shareholders to
the
Indemnified Parties pursuant to this Section
10.2
shall be
equal to the aggregate amount of the Damages suffered by the Indemnified
Parties, divided by the market value of the Surviving Corporation Shares
to be
calculated using the average of the closing bid price as quoted on the ASE
(or
such other public trading market on which the Surviving Corporation Shares
may
be trading at such time) for the thirty (30) trading days immediately prior
to
the date that such amount of Damages is determined by a court of competent
jurisdiction or pursuant to a binding settlement agreement among the Indemnified
Parties and the Principal Shareholders.
(f) All
claims of the China Networks Surviving Corporation pursuant to this Section
10.2
shall be
brought by Xxxxxxx X. Xxxxxx or his designee on behalf of the China Networks
Surviving Corporation (or if he is no longer living, then the other Parent
Designees) and those persons who were stockholders of the Parent immediately
prior to the Closing.
10.3 Limitations
on Amount.
The
Indemnified Parties shall not be entitled to indemnification pursuant to
Section
10.2,
unless
and until the aggregate amount of Damages to the Indemnified Parties with
respect to such matters under Section
10.2
exceeds
$500,000, at which time, subject to the Cap (as defined below), the China
Networks Surviving Corporation and the other Indemnified Parties shall be
entitled to indemnification for the amount of such excess. The liability
of all
Principal Shareholders for Damages arising pursuant to Section
10.2(a)
shall
not exceed 250,000 Returned Shares in the aggregate (the “Cap”).
10.4 Determining
Damages.
Solely
for the purposes of this Article
X,
materiality qualifications to any representations and warranties shall not
be
taken into account. To the extent Damages are recoverable by insurance, Parent
shall take commercially reasonable efforts to obtain maximum recovery from
such
insurance.
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ARTICLE
XI
TERMINATION,
AMENDMENT AND WAIVER
11.1 Termination.
At any
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Business Combination by the
stockholders of Company, this Agreement may be terminated:
(a) by
mutual
written consent of Parent and Company;
(b) by
either
Parent or Company, if, at the Special Meeting (including any adjournments
thereof), this Agreement and the Business Combination Proposal shall fail
to be
approved and adopted by the affirmative vote of the holders of Parent Common
Stock required under Parent’s Certificate of Incorporation, or the holders of
30% or more of the number of shares of Parent Common Stock issued in Parent’s
IPO and outstanding as of the date of the record date of the Special Meeting
exercise their rights to convert the shares of Parent Common Stock held by
them
into cash from the Trust Account, in accordance with Parent’s Certificate of
Incorporation;
(c) by
either
Parent or Company, if, at the Special Meeting (including any adjournments
thereof), the Redomestication Proposal shall fail to be approved and adopted
by
the affirmative vote of the holders of Parent Common Stock required to vote
on
such proposal under Delaware Law;
(d) by
either
Parent or Company, if, without fault of the terminating party, the Closing
shall
not have occurred on or before June 29, 2009, or such later date as may be
agreed upon in writing by the parties hereto;
(e) by
Parent, if Company does not: (a) consummate the transactions contemplated
by the
Framework Agreements with
respect to Kunming and Yellow River; or (b) consummate a joint venture of
the
type contemplated by the Framework Agreements with at least one television
station operating in the PRC and generating positive net income (as determined
in accordance with GAAP) for the most recently completed 12 months, in each
case
on or prior to August 15, 2008;
(f) by
Parent, if Company breaches any of its representations, warranties or
obligations hereunder to an extent that would cause the condition set forth
in
Section
8.1(g)
not to
be satisfied and such breach shall not have been cured within ten (10) business
days of receipt by Company of written notice of such breach (and Parent has
not
willfully breached any of its covenants hereunder, which breach is not
cured);
(g) by
Company, if Parent breaches any of its representations, warranties or
obligations hereunder to an extent that would cause the condition set forth
in
Section
8.2(f)
not to
be satisfied and such breach shall not have been cured within ten (10) business
days of receipt by Parent of written notice of such breach (and Company has
not
willfully breached any of its covenants hereunder, which breach is not
cured); or
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(h) by
either
Parent or Company if (i) any permanent injunction or other order of a court
or
other competent authority preventing the consummation of the Redomestication
Merger or Business Combination shall have become final and nonappealable
or (ii)
the required approval of the stockholders of Company shall not have been
obtained by reason of the failure to obtain the required vote upon a vote
held
at a duly held meeting of stockholders or at any adjournment thereof (provided
that the right to terminate this Agreement under this subsection (ii) shall
not be available to Parent or Company where the failure to obtain such
stockholder approval shall have been caused by the action or failure to act
of
Parent or Company and such action or failure constitutes a breach by Parent
or
Company of this Agreement).
11.2 Effect
of Termination.
In the
event of termination of this Agreement as provided in Section
11.1,
this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Company, the Principal Shareholders, or
their
respective officers, directors, stockholders or affiliates, except to the
extent
that such termination results from the breach by a party hereto of any of
its
representations, warranties or covenants set forth in this Agreement; provided
that, the provisions of Section
7.3
(Confidentiality), Section 11.3
(Expenses and Termination Fees) and this Section
11.2,
and
Article XII, shall remain in full force and effect and survive any termination
of this Agreement. Nothing herein shall relieve any party from liability
in
connection with a breach by such party of the representations, warranties
or
covenants of such party to this Agreement.
11.3 Expenses
and Termination Fees.
(a) Subject
to subsections (b) and (c) of this Section
11.3,
whether
or not the Business Combination is consummated, all costs and expenses
(including transfer and other similar Taxes) incurred in connection with
this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense.
(b) If
Parent
terminates this Agreement pursuant to Section
11.1(f)
then
Company shall promptly reimburse Parent for all of the out-of-pocket costs
and
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees
and
expenses of its advisors, accountants and legal counsel).
(c) If
Company terminates this Agreement pursuant to Section
11.1(g)
Parent
shall promptly reimburse Company for all of the out-of-pocket costs and expenses
incurred by Company in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses
of its
advisors, accountants and legal counsel).
(d) In
the
event this Agreement is terminated by (i) the Parent pursuant to subsection
(e)
or (f) of Section
11.1(f)
or by
(ii) the Company pursuant to 11.1(g),
in each
case subsequent to August 15, 2008 and prior to June 29, 2009, then (A) in
the
event the Company is the terminating party and the Parent enters into a binding
agreement to consummate, or consummates, an Alternative Proposal any time
prior
to June 29, 2009, the Parent shall pay to the Company a one-time termination
fee
of $1,000,000, and (B) in the event the Parent is the
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terminating
party and the Company enters into a binding agreement to consummate, or
consummates, a Company Alternative Proposal any time prior to June 29, 2009,
the
Company shall pay to the Parent a one-time termination fee of $3,000,000
(either
such payment, a “Termination
Fee”).
(Any
Termination Fee shall be deemed to include the reimbursement for all of the
out-of-pocket costs and expenses incurred by the terminating party in connection
with this Agreement and the transactions contemplated hereby, including,
without
limitation, the fees and expenses of its advisors, accountants and legal
counsel.)
11.4 Amendment.
The
Boards of Directors of the Parent and the Company and the Principal
Shareholders, may cause this Agreement to be amended at any time by execution
of
an instrument in writing signed on behalf of each of the parties hereto;
provided that an amendment made subsequent to adoption of the Agreement by
the
stockholders of Parent or Company shall not (i) alter or change the amount
or
kind of consideration to be received on conversion of the Parent Common Stock
(except with the consent of the holders of a majority of Parent Common Stock)
or
the Company Securities (except with the consent of the holders of majority
of
the Company Securities), (ii) alter or change any term of the MOA of the
Merger
Sub I to be effected by the Business Combination, or (iii) alter or change
any
of the terms and conditions of the Agreement if such alteration or change
would
materially adversely affect the holders of Company Securities.
11.5 Extension;
Waiver.
At any
time prior to the Effective Time any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations
or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in
any
document delivered pursuant hereto and (iii) waive compliance with any of
the
agreements or conditions for the benefit of such party contained herein.
Any
agreement on the part of a party hereto to any such extension or waiver shall
be
valid only if set forth in an instrument in writing signed on behalf of such
party.
11.6 Knowledge
of Parent.
To the
knowledge of Parent, Parent is not aware of any facts or circumstances that
would serve as the basis for a claim by Parent against Company or any Principal
Shareholder based upon a breach of any of the representations and warranties
of
the Company and the Principal Shareholders contained in this Agreement or
breach
of any of the Company’s or any Principal Shareholders’ covenants or agreements
to be performed by any of them at or prior to Closing. Parent shall be deemed
to
have waived in full any breach of any of the Company’s and Principal
Shareholders’ representations and warranties and any such covenants and
agreements of which Parent has knowledge at the Closing. As usual herein,
“knowledge of Parent” means the actual knowledge of the Chief Financial Officer
of Parent.
ARTICLE
XII
GENERAL
PROVISIONS
12.1 Notices.
All
notices and other communications hereunder shall be in writing and shall
be
deemed given if delivered personally or by commercial delivery service, or
mailed by registered or certified mail (return receipt requested) or sent
via
facsimile (with confirmation of
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receipt)
to the parties at the following address (or at such other address for a party
as
shall be specified by like notice):
(a) if
to
Parent, to:
000
Xxxx
00xx Xxxxxx, #0X
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxxx Xxxxxx
Facsimile
No.: 000-000-0000
Telephone
No.: 000-000-0000
with
a
copy (which shall not constitute notice to Parent) to:
XxXxxxxxx
Will & Xxxxx
000
Xxxxxxx Xxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxx Finger
Facsimile
No.: 000-000-0000
Telephone
No.: 000-000-0000
(b) if
to the
Company or the Principal Shareholders, to:
China
Networks Media, Ltd.
Suite
A-16E, Oriental Kenzo, Xx. 00, Xxxxxxxxxxxxx Xxxxxx, Xxxxxxxxx Xxxxxxxx,
Xxxxxxx, Xxxxx
Attention:
Li Shuangqing
Facsimile
No.: (00)-000-00000000
Telephone
No.: (00)-000-00000000
with
a
copy (which shall not constitute notice to the Company) to:
Chardan
Capital Markets, LLC
00
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxx Xxxxxxx
Fax:
x0
(000) 000-0000
and
Loeb &
Loeb LLP
000 Xxxx
Xxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxxxx X. Xxxxxxxx, Esq.
Facsimile
No.: (000) 000-0000
Telephone
No.: (000) 000-0000
and
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00 -
XxxxxXxxx
Xxxxxxx
Xxxxx 0000
Xxxxx World Tower 1
0 Xxxxxxxxxxxxx
Xxxxxx
Xxxxxxx
000000, Xxxxx
Attention:
Xxxxxx Xx
Facsimile
No.: 00-00-0000-0000/98
Telephone
No.: 00-00-0000-0000
12.2 Interpretation/Definitions.
When a
reference is made in this Agreement to Exhibits or Schedules, such reference
shall be to an Exhibit or Schedule to this Agreement unless otherwise indicated.
The words “include,” “includes” and “including” when used herein shall be deemed
in each case to be followed by the words “without limitation.” The phrase “made
available” in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is
to be
made available. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of
this Agreement.
For
the
purposes of this Agreement, the following terms shall have the following
definitions:
(a) “Governmental
Order”
means
any order, writ, judgment, injunction, decree, stipulation, determination
or
award entered by or with any Governmental Entity.
(b) “Law”
means
any federal, national, supranational, state, provincial, local or similar
statute, law, ordinance, regulation, rule, code, order, requirement or rule
of
law (including common law).
12.3 Counterparts.
This
Agreement may be executed in one or more counterparts, including by facsimile
or
PDF, all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of
the
parties and delivered to the other parties, it being understood that all
parties
need not sign the same counterpart.
12.4 Entire
Agreement; Nonassignability; Parties in Interest.
This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits,
the
Company Disclosure Schedules and the Parent Disclosure Schedules (a) constitute
the entire agreement among the parties with respect to the subject matter
hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, except for the
Non-Disclosure and Confidentiality Agreements, dated October 18, 2007 and
November 12, 2007, by and between the Parent and Chardan (each on behalf
of the
Company), which shall continue in full force and effect, and shall survive
any
termination of this Agreement or the Closing, in accordance with its terms;
(b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Section
2.13;
and (c)
shall not be assigned, except by operation of law as a result of the
Redomestication Merger, pursuant to Section 1.3
and the
Business Combination pursuant to Section
2.3
or as
otherwise specifically provided. Notwithstanding the foregoing, Parent shall
have the right, without the consent of any other
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56 -
party,
to
assign its rights to receive the Termination Fee hereunder to some or all
of the
persons that, as of the date hereof, are holders of the Insider Warrants.
No
representations, warranties, inducements, promises or agreements, oral or
written, by or among the parties not contained herein shall be of any force
of
effect.
12.5 Severability.
If any
provision of this Agreement, or the application thereof, becomes or is declared
by a court of competent jurisdiction to be illegal, void or unenforceable,
the
remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto.
The
parties further agree to replace such void or unenforceable provision of
this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
12.6 Remedies
Cumulative; Specific Performance.
(a) Except
as
otherwise provided herein, any and all remedies herein expressly conferred
upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by
a
party of any one remedy will not preclude the exercise of any other remedy.
The
parties agree that irreparable damage would occur in the event that any of
the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.
(b) It
is
accordingly agreed that the parties hereto shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any state having jurisdiction, this being in addition to
any
other remedy to which they are entitled at law or in equity.
12.7 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws
of the
State of Delaware, without regard to the laws that might otherwise govern
under
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of Delaware in connection with any matter based upon or arising
out of
this Agreement or the matters contemplated herein, agrees that process may
be
served upon them in any manner authorized by the laws of the State of Delaware
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such
process.
12.8 Rules
of Construction.
The
parties hereto agree that they have been represented by counsel during the
negotiation, preparation and execution of this Agreement and, therefore,
waive
the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document will be construed
against the party drafting such agreement or document.
[SIGNATURE
PAGE FOLLOWS]
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57 -
IN
WITNESS WHEREOF, each of the undersigned has caused this Agreement and Plan
of
Merger to be executed and delivered by their respective officers, and
individually, as applicable, thereunto duly authorized, all as of the date
first
written above.
By:
/s/
Xxxxxxx X. Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
Chief Operating Officer and Chief
Financial Officer
CHINA
NETWORKS INTERNATIONAL HOLDINGS LTD.
By:
/s/
Xxxxxxx X. Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
Sole Director
CHINA
NETWORKS MERGER CO. LTD.
By:
/s/
Xxxxxxx X. Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
Sole Director
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58 -
CHINA
NETWORKS MEDIA, LTD.
By:
/s/
Li
Shuangqing
Name:
Li
Shuangqing
Title:
CEO and Co-Chairman
MEDIAINV
LTD.
By:
/s/C.C.N.
Ng
Name:
C.C.N. Ng
Title:
Director
XXXXX
XXXXXXX
/s/
Xxxxx
Xxxxxxx
Name:
Xxxxx Xxxxxxx
LI
SHUANGQING
/s/
Li
Shuangqing
Name:
Li
Shuangqing
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59
-
