EXHIBIT 10.40
----------
AGREEMENT
FOR THE SALE AND PURCHASE OF EQUITY INTEREST
IN
BEIJING CENTURY MEDIA CULTURE CO., LTD.
----------
Among
ALL OF THE SHAREHOLDERS
OF
BEIJING CENTURY MEDIA CULTURE CO., LTD.
and
XINHUA FINANCE LIMITED
Dated as 9 of September, 2005
1
THIS is made between the following parties in Shanghai, People's Republic of
China ("PRC"):
(1) Xx. Xx Gang, a citizen of the People's Republic of China and holder of PRC
passport number X00000000 with an address of Xxxx 00-000, Xx. 0, Xxxxxxxxxx
Xxxx Xxxx, Xxxxxxxx District, Beijing 100024 PRC ("Transferor 1");
(2) Xx. Xxx Huai, a citizen of the People's Republic of China and holder of PRC
passport number 000000000000000000 with an address of Xxxx 00-000, Xx. 0,
Xxxxxxxxxx Xxxx Xxxx, Xxxxxxxx Xxxxxxxx, Xxxxxxx 100024 PRC ("Transferor
2", and, together with Transferor 1, the "Transferors").
(3) Xinhua Finance Limited (the "PURCHASER"), a limited liability company duly
incorporated and existing under the laws of Cayman Islands and having its
registered office situated at the offices of Codan Trust Company (Cayman)
Limited, Century Yard, Cricket Square, Xxxxxxxx Drive, P.O. Box 2681GT,
Xxxxxx Town, Grand Cayman, British West Indies.
The Transferors and the Purchaser are collectively referred to as "PARTIES".
WITNESSETH
WHEREAS:
(A) Beijing Century Media Culture Co., Ltd. (the "COMPANY"), a limited
liability company incorporated in PRC whose registered office is situated
at 18-338 Jianshe Road, Kaixuan Avenue, Liangxiang Village, Fangshan
District, Beijing, PRC, with registered capital of 1,000,000 Renminbi
("RMB"), is engaged in the business of the production of radio and
television programs for the PRC market.
(B) Transferor 1 is the legal and record owner of 55% of the equity interests
in the registered capital of the Company, and Transferor 2 is the legal and
record owner of 45% of the equity interests in the registered capital of
the Company, which, collectively, represent 100 % of the outstanding equity
interests of the Company.
(C) The Purchaser wishes to purchase (through its nominees), and the
Transferors wish to sell one hundred percent (100%) of all the equity in
the registered capital of the Company (the "SALE EQUITY").
2
NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth, the Purchaser and the Transferors hereby agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01 Certain Defined Terms
As used in this Agreement, the following terms shall have the following
meanings:
"2005 Consideration Amount" has the meaning set forth in Section 2.02.
"2006 Consideration Amount" has the meaning set forth in Section 2.02.
"2007 Consideration Amount" has the meaning set forth in Section 2.02.
"2005 Financials" has the meaning set forth in Section 2.02.
"2006 Financials" has the meaning set forth in Section 2.02.
"2007 Financials" has the meaning set forth in Section 2.02.
"2005 Net Income" has the meaning set forth in Section 2.02.
"2006 Net Income" has the meaning set forth in Section 2.02.
"2007 Net Income" has the meaning set forth in Section 2.02.
"Action" means any claim, litigation, arbitration or
inquiry, or judicial, administrative,
regulatory or other proceeding, brought by or
before (or in the case of a claim, capable of
being brought by or before) any court,
government agency or other Governmental
Authority or any person.
"Accounts" has the meaning set forth in Schedule 2.
"Affiliates" means (a) in relation to any corporate or
non-corporate legal person, any other person
which, directly or indirectly, controls or is
controlled by or is under common control with
such person and for the purposes of this
definition "CONTROL" when used with respect to
any specified person means the power to direct
the management and policies
3
of such person, directly or indirectly, whether
through the ownership of voting securities, by
contract or otherwise, and the terms
"CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing, and (b) in
relation to any natural person, his or her
spouse, children, parents and parents-in-law.
"Business" has the meaning set forth in Section 6.02(a).
"Business Day" means any day that is not a Saturday, a Sunday
or other day on which banks are required or
authorized by Law to be closed in Hong Kong or
Shanghai, PRC.
"Clients" has the meaning set forth in Section 6.02(b).
"Closing" has the meaning set forth in Section 2.04.
"Closing Date" has the meaning set forth in Section 2.04.
"Confidential Information" has the meaning set forth in Section 6.03 and
Schedule 2.
"Dollars" means United States dollars.
"Encumbrance" has the meaning set forth in Schedule 2.
"First Subsequent
Consideration Payment Date" has the meaning set forth in Section 2.02.
"Force Majeure" has the meaning set forth in Section 10.07(a).
"Government Approval" means any approval, consent or authorization
from, registration or filing with, notice to,
or license, permit or certification from, any
Governmental Authority. Government Approvals
with respect to any Action to be taken by any
party hereunder means such Government Approvals
as are required for the Action under applicable
Law. Whenever any form of requirement of
"GOVERNMENT APPROVAL" is referred to herein, it
shall be interpreted and construed to include
the requirement that such approval be in form
and substance reasonably acceptable to the
parties hereto.
4
"Governmental Authority" means any government, governmental, regulatory
or administrative authority, agency or
commission or any court, tribunal, or judicial
or arbitral body.
"Governmental Order" means any order, judgment, injunction or award
entered by or with any Governmental Authority.
"Initial Consideration" has the meaning set forth in Section 2.03 (a).
"Last Accounting Date" has the meaning set forth in Schedule 2.
"Law" means any (i) national, provincial, state, or
local statutes, regulations, ordinances, rules,
codes, judgments, awards, orders or policies of
Governmental Authorities, and any other rules,
standards or specifications having the force or
effect of law, whether PRC or non-PRC; and (ii)
treaties, conventions, protocols and other
promulgations having transnational legal
effect.
"Leases" has the meaning set forth in Schedule 2.
"Licensed IP" has the meaning set forth in paragraph 8.3(b)
Schedule 2.
"Licensed Software" has the meaning set forth in paragraph 9.1 of
Schedule 2.
"Losses" has the meaning set forth in Section 9.02.
"Market Value" has the meaning set forth in Section 2.02.
"Material Adverse Change" means any change that results or could result
in a Material Adverse Effect.
"Material Adverse Effect" means any effect which, alone or together with
any other such effect, (i) is materially
adverse to the business, operations, assets or
liabilities, employee relationships, customer
or supplier relationships, prospects, results
of operations or the condition (financial or
otherwise) of the Company or any of the
Subsidiaries; (ii) materially impairs the
ability of the Company or the Subsidiaries to
conduct its business in the ordinary course of
business; or (iii) materially
5
impairs the ability of the Transferors or the
Company to perform their obligations under this
Agreement.
"Merger Consideration" has the meaning set forth in Section 2.02.
"Owned IP" has the meaning set forth in paragraph 8.3(a)
of Schedule 2.
"Owned Software" has the meaning set forth in paragraph 9.1 of
Schedule 2.
"Person" means a natural person, partnership, limited
liability partnership, corporation, joint stock
company, trust, unincorporated association,
joint venture or other entity, and pronouns
have a similarly extended meaning.
"Pro Rata Portion" has the meaning set forth in Section 2.02.
"Restricted Period" has the meaning set forth in Section 6.02.
"Second Subsequent
Consideration Payment Date" has the meaning set forth in Section 2.02.
"Subsequent Consideration" has the meaning set forth in Section 2.02.
"Subsequent Consideration
Payment Date" has the meaning set forth in Section 2.02.
"Tax" means any tax, levy, duty or other charges of
any kind imposed by any Governmental Authority,
including without limitation, taxes and charges
upon or in respect of income, payroll,
employment, excise, severance, stamp,
occupation, education, stock transfer, capital
gains, withholding, social security, property,
sales, use, license or registration; value
added taxes; customs duties and tariffs; and
any interest, penalty or addition thereto,
whether disputed or not.
"Termination Date" has the meaning set forth in Section 8.02(b).
"Third Subsequent
Consideration Payment Date" has the meaning set forth in Section 2.02.
6
"Transferee" has the meaning set forth in Section 2.01.
"Transaction" has the meaning set forth in Section 2.01.
"Transferor Indemnified
Person" has the meaning set forth in Section 9.03.
"Warranties" means the warranties, representations and
undertakings of the Transferors contained in or
referred to in Article IV and Schedule 2.
"the Purchaser Indemnified
Person" has the meaning set forth in Section 9.02.
"XFL Ordinary Shares" means ordinary shares in the capital of the
Purchaser ranking equally with the ordinary
shares of the Purchaser listed on the Tokyo
Stock Exchange.
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01 Purchase and Sale of the Sale Equity. Upon the terms and subject to
the conditions of this Agreement, the Purchaser shall (through its nominees or
such other parties identified by the Purchaser to the Transferors (the
"TRANSFEREE")), purchase from each Transferor, and each Transferor shall procure
the sale to the Purchaser, of the Sale Equity (the "TRANSACTION") which in
aggregate shall represent one hundred percent (100%) of the total equity of the
Company, free from all charges, liens, encumbrances and other third party claims
and interests and together with all rights now or hereafter attached to them,
including any and all rights and benefits arising from or associated with such
equity interests (including, but not in anyway limited to, all rights and
benefits in connection with the Company's retained earnings, and any dividend or
other distribution declared, made or paid after the date of this Agreement).
SECTION 2.02 Merger Consideration Amount. Each Transferor shall be entitled to
receive, subject to the provisions of this Agreement, his Pro Rata Portion of
the Initial Consideration and the Subsequent Consideration (together, the
"MERGER CONSIDERATION") in the manner, at the times and in the amounts set forth
in this Section 2.02. The "INITIAL CONSIDERATION" shall be $3,000,000 (three
million Dollars), and shall be payable to the Transferors at Closing. "PRO RATA
PORTION" means, with respect to Transferor 1, 55% (fifty-five percent), and with
respect to Transferor 2, 45% (forty-five percent).
(a) The "SUBSEQUENT CONSIDERATION" shall consist of the 2005 Consideration
Amount, the 2006 Consideration Amount and the 2007 Consideration
Amount, and shall be determined and paid as follows:
7
(i) The "2005 CONSIDERATION AMOUNT" shall be an amount equal to the
product of ((A) 2005 Net Income, (B) 8.5 and (C) 0.50)) minus
$3,000,000, and shall be paid by the Purchaser no later than
twenty (20) days after receipt by the Purchaser and the
Transferors of the 2005 Financials (the date of such payment, the
"FIRST SUBSEQUENT CONSIDERATION PAYMENT DATE").
(ii) The "2006 CONSIDERATION AMOUNT" shall be an amount equal to the
product of ((A) 2006 Net Income, (B) 8.5 and (C) 0.25)), and
shall be paid by the Purchaser no later than twenty (20) days
after receipt by the Purchaser and the Transferors of the 2006
Financials (the date of such payment, the "SECOND SUBSEQUENT
CONSIDERATION PAYMENT DATE").
(iii) The "2007 CONSIDERATION AMOUNT" shall be an amount equal to the
product of ((A) 2007 Actual Net Income, (B) 8.5 and (C) 0.25)),
and shall be paid by the Purchaser no later than ten (10) days
after receipt by the Purchaser and the Transferors of the 2007
Financials (the date of such payment, the "THIRD SUBSEQUENT
CONSIDERATION PAYMENT DATE" and, together with the First
Subsequent Consideration Payment Date, and the Second Subsequent
Consideration Payment Date, the "SUBSEQUENT CONSIDERATION PAYMENT
Dates").
(iv) "2005 NET INCOME", "2006 NET INCOME" and "2007 NET INCOME" shall
mean the Company's aggregate net income for the financial years
ended 2005, 2006 and 2007, respectively, as set out in the 2005
Financials, 2006 Financials and 2007 Financials, respectively, in
each case, excluding the professional fees paid to the auditors
for preparing said financial statements.
(v) "2005 FINANCIALS", "2006 FINANCIALS" and "2007 FINANCIALS" means
the Company's audited financial statements for each such
financial year, in each case prepared by a firm of qualified
auditors in the PRC selected by the Purchaser in accordance with
the general accepted accounting principles and standards of the
PRC.
(vi) On Each Subsequent Consideration Payment Date the Purchase shall
pay to each Transferor (or their respective nominees) his Pro
Rata Portion of the 2005 Consideration Amount, the 2006
Consideration Amount and 2007 Consideration Amount, respectively.
The Initial Consideration and each such Subsequent Consideration
Amount shall be paid by the Purchaser issuing to each Transferor
(or their respective nominees) a number of XFL Ordinary Shares,
free from any encumbrances, equal to (x) the amount payable to
him divided by (y) the Market Value, rounded to the nearest whole
XFL Ordinary Share; provided, however, that the Purchaser may, in
its sole discretion, deliver to one or both Transferors cash in
Dollars in lieu of all or a portion of
8
the portion of the Subsequent Consideration otherwise payable to
such Transferor in XFL Ordinary Shares.
(vii) "MARKET VALUE" shall mean, with respect to the XFL Ordinary
Shares, the average of the closing price of the XFL Ordinary
Shares on the Tokyo Stock Exchange for the fifteen (15) trading
days up to and including the third trading day prior to the
applicable payment date (adjusted to give effect to any stock
splits, dividends or other recapitalizations occurring during
such fifteen-day period), calculated using the closing
Dollar/Japanese yen exchange rate as reported by Bloomberg for
the date immediately preceding the applicable payment date.
(b) In the event the XFL Ordinary Shares payable to the Transferors as a
portion of any Subsequent Consideration are not actively traded on the
Tokyo Stock Exchange or a comparable public trading market, then the
Purchaser shall, not less than ten (10) business days prior to the
applicable Subsequent Consideration Payment Date, so notify each
Transferor, and each Transferor may, by notice to be delivered to the
Purchaser not less than three (3) business days prior to the relevant
Subsequent Consideration Payment Date, elect to receive cash in
Dollars in lieu of his respective Pro Rata Portion of the Subsequent
Consideration that would otherwise be payable in the form of XFL
Ordinary Shares.
(c) Notwithstanding any other provision contained herein, at least three
(3) days in advance of any Subsequent Consideration Payment Date, the
Transferors will in writing advise the Purchaser of the manner in
which the Purchaser should deliver such Subsequent Consideration
payment. Specifically, the Transferors will advise the Purchaser of
the persons to whom such payments should be made and where to send
such payments.
(d) Any portion of the Subsequent Consideration that is payable by the
Purchaser to a Transferor in cash pursuant to Section 2.02(b) shall be
transferred by the Purchaser to such Transferor by wire transfer of
immediately available funds pursuant to wire transfer instructions
delivered to the Purchaser by such Transferor no later than three (3)
business days in advance of the applicable Subsequent Consideration
Payment Date.
(e) Within 60 calendar days of each of the fiscal years ended December 31,
2005, December 31, 2006 and December 31, 2007, the Purchaser shall
cause to be prepared and shall deliver the 2005 Financials, the 2006
Financials and the 2007 Financials to the Transferor.
9
(f) Any dispute regarding the determination of the 2005 Net Income, 2006
Net Income or the 2007 Net Income will be resolved in accordance with
Section 10.05.
SECTION 2.03 Closing. Subject to the provisions of Section 5.01 and Section 5.02
and other terms and conditions of this Agreement, the sale and purchase of the
Sale Equity contemplated by this Agreement shall take place at a closing (the
"CLOSING") to be held at the business office of the Company at 10:00 A.M. Hong
Kong time on the fifth (5th) Business Day following satisfaction or waiver in
writing of the conditions to the Closing by the relevant parties set forth in
Article V, or at such other place or at such other time or on such other date as
the Transferors and the Purchaser may agree upon in writing (the day on which
the Closing takes place being the "CLOSING DATE").
SECTION 2.04 Deliveries by the Transferors. At the Closing, the Transferors
shall deliver or cause to be delivered to the Purchaser:
(a) Duly executed instrument evidencing the transfer of the Sale Equity
and all such applicable documents in respect of the Sale Equity in
favor of the Transferee together with the duly executed powers of
attorney or other authorities under which any of the transfers have
been executed;
(b) duly executed instrument evidencing the alteration to the Company's
registration at its original registration authority has been
completed, and each Transferee has been duly registered in the records
and files of such registration authority as a shareholder of the
Company owning and holding, in aggregate, 100% of the Company's total
equity interest;
(c) certified copy of the minutes of a shareholders meeting approving the
transfer of the Sale Equity to the Transferees;
(d) copies of executive service agreements signed by each of Yu Gang, Ding
Bin and Xxxx Xxxx reasonably acceptable to the Company and each party,
for a period of five years;
(e) written consents signed and delivered to the Transferees by YU Gang
and XIA Huai respectively, in the form satisfactory to the Purchaser,
expressly waiving their respective pre-emptive right in terms of the
Sale Equity;
(f) certified copies of the minutes of the Company recording the
resolution of the Board of Directors of the Company approving and
authorising the Transaction, as well as the Company seal;
(g) the legal seal for each of the Company and the Subsidiaries; and
10
(h) such other documents as may be required at the discretion of the
Purchaser to give to the Transferees good title to the Sale Equity and
to enable the Transferees to become the registered holder thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Transferors as follows:
SECTION 3.01 Authority to Execute and Perform this Agreement. The execution and
delivery of this Agreement by the Purchaser, the performance by the Purchaser
and of its obligations hereunder and the consummation by the Purchaser of the
Transaction have been duly authorized by all requisite action on the part of the
Purchaser. This Agreement has been duly executed and delivered by the Purchaser,
and (assuming due authorization, execution and delivery by the Transferors)
constitutes a legal, valid and binding obligation of the Purchaser enforceable
against it in accordance with its terms.
SECTION 3.02 No Conflict. The execution, delivery and performance of this
Agreement by the Purchaser do not and will not (a) violate, conflict with or
result in the breach of any provision of the Articles of Association of the
Purchaser or (b) conflict with or violate any Law or Governmental Order
applicable to the Purchaser or any of their assets, properties or businesses.
SECTION 3.03 Ordinary Shares. All outstanding XFL Ordinary Shares are, and, the
XFL Ordinary Shares to be issued as part of the Subsequent Consideration will,
when issued, be, duly authorized and validly issued and are fully paid and
non-assessable and not issued in violation of, and not subject to, any
preemptive or similar rights and shall be, when issued, freely tradable in Japan
by the Transferors or their respective nominees without any minimum holding
period, volume limitation, lock-up or other restriction, other than customary
lock-up periods applicable to employees and insiders of XFL and applicable
xxxxxxx xxxxxxx laws and regulations and other than the administrative
requirement for all shareholders to transfer securities into the Japan
Securities Settlement & Custody, Inc. trading system for the purpose of trading
securities on the Tokyo Stock Exchange.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS
SECTION 4.01 In consideration of the Purchaser entering into this Agreement,
each of the Transferors hereby warrants and represents to and undertakes with
the Purchaser on a joint and several basis that each of the Warranties is now
and will at all times from the date hereof be complete, true and accurate in all
respects and will not be in any way misleading.
11
SECTION 4.02 The Transferors acknowledge that the Purchaser has entered into
this Agreement on the basis of the Warranties and that the Purchaser is relying
on the Warranties. Each Warranty shall be construed independently.
SECTION 4.03 The Purchaser's right or ability to make a claim under or in
respect of the Warranties or to damages or other relief in respect of any breach
of the Warranties shall not be affected or limited, and the amount recoverable
shall not be reduced, by any other information of which the Purchaser has or may
have actual or constructive or imputed knowledge and, in particular the rights
and remedies of the Purchaser shall not be affected or limited in any way by any
investigation made by or on behalf of the Purchaser into the Company.
SECTION 4.04 The right or ability of the Purchaser to make a claim under or in
respect of the Warranties shall be without prejudice to any other right of the
Purchaser to damages or other relief in respect of any breach of the Warranties.
SECTION 4.05 The execution and delivery of this Agreement by the Transferors,
the performance by the Transferors of their obligations hereunder and the
consummation by the Transferors of the Transaction have been duly authorized by
all requisite action on the part of the Transferors. This Agreement has been
duly executed and delivered by the Transferors, and (assuming due authorization,
execution and delivery by the Purchaser) constitutes a legal, valid and binding
obligation of the Transferors enforceable against the Transferors in accordance
with its terms.
SECTION 4.06 The execution, delivery and performance of this Agreement by the
Transferors do not and will not (a) violate, conflict with or result in the
breach of any provision of the organizational documents of the Company; or (b)
conflict with or violate any PRC Law or Governmental Order applicable to the
Transferors or the Company, or any of their assets, properties or businesses.
SECTION 4.07 The execution, delivery and performance of this Agreement by the
Transferors do not and will not require any consent, approval, authorization or
other order of, action by, filing with or notification to, any Governmental
Authority or its designated organizations, except for the Company's registration
alteration at its company registration authority for the completion of the
transfer of the Sale Equity to the Transferees and the recording of the
Transferees as legal shareholders of the Company owning and holding, in
aggregate, 100% of the Company's total equity interest.
SECTION 4.08 Each of the Transferors represents and warrants to the Purchaser
that each of the statements contained in Schedule 2 are correct and complete as
of the date of this Agreement.
12
ARTICLE 5
CONDITIONS TO OBLIGATIONS
SECTION 5.01 Conditions to Obligations of the Transferors. The obligations of
the Transferors to consummate the Transaction shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) The representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date, with the same force and effect as if made as of the
Closing Date except where any such failure of the representations and
warranties in the aggregate to be true and correct in all respects
would not reasonably be expected to have a Material Adverse Effect on
the Company;
(b) No Action shall have been commenced or threatened by or before any
Governmental Authority or Non-governmental Authority against the
Transferors or the Purchaser, seeking to restrain the Transaction
which, in the reasonable, good faith determination of the Transferors,
is likely to render it impossible or unlawful to consummate such
transactions; provided, however, that the provisions of this Section
5.01(b) shall not apply if any of the Transferors has directly or
indirectly solicited or encouraged any such Action;
(c) Since the date of this Agreement, no fact, circumstance, event or
change shall have occurred, or be reasonably likely to occur, which
has had, or could reasonably be expected to have, a Material Adverse
Effect;
(d) the Purchaser shall have performed in all material respects each
obligation and agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it
under this Agreement at or prior to the Closing Date.
SECTION 5.02 Conditions to Obligations of the Purchaser. The obligation of the
Purchaser to consummate the Transaction shall be subject to the fulfillment of
each of the following conditions:
(a) The Warranties shall be true and correct in all material respects on
the Closing Date with the same force and effect as if made as on each
such date, except where any such failure of the representations and
warranties in the aggregate to be true and correct in all respects
would not reasonably be expected to have a Material Adverse Effect;
(b) On each of the Closing Date, and each Subsequent Consideration Payment
Date, no Action shall have been commenced or threatened by or before
any Governmental Authority against the Transferors or the Purchaser
seeking to restrain the Transaction which, in the reasonable, good
faith determination of
13
the Purchaser, is likely to render it impossible or unlawful to
consummate such transactions;
(c) At or prior to the Closing Date, each of Yu Gang, Ding Bin and Xxxx
Xxxx shall have signed an executive service agreement with the Company
reasonably acceptable to the Company and each party, for a period of
five years;
(d) Since the date of this Agreement, no fact, circumstance, event or
change shall have occurred, or be reasonably likely to occur, which
has had, or could reasonably be expected to have, a Material Adverse
Effect;
(e) Each of the Transferors shall have performed in all material respects
each obligation and agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it
under this Agreement at or prior to the Closing Date;
(f) each of the Transferors have waived any pre-emptive rights it may have
relating thereto by the current articles of association of the
Company;
(g) the shareholders, the executive director and/or equivalent internal
power authority of the Parties have approved the Transaction;
(h) the Purchaser shall have completed its due diligence inquiry of the
Company and be reasonably satisfied with the results thereof;
(i) all outstanding loans from the Company and each Subsidiary to any of
the Transferors shall have been waived;
(j) The Company or any of its Subsidiaries shall have obtained a
television program production licenses to the satisfaction of the
Purchaser prior to the Third Subsequent Payment Date;
(k) The Company shall have obtained and owned at least 90% equity interest
of Beijing Workshop Communications Co., Ltd. ("BWC"), with the
remaining equity interest of BWC owned by the Transferors, and all
necessary registration and government procedures with respect thereto
shall have been properly completed to the satisfaction of the
Purchaser; and
The Company shall have obtained and owned at least 90% equity interest
of Beijing Golden Ways Culture Development Co., Ltd. ("BGW"), with the
remaining equity interest of BGW owned by the Transferors, and all
necessary registration and government procedures with respect thereto
shall have been properly completed to the satisfaction of the
Purchaser.
14
The Parties shall make best efforts to fulfill the conditions set out in this
section 5.02, obtain all relevant approvals from the government or other
relevant authorities for the purpose of the Transaction and complete the
Transaction within two 2) months from the execution of this Agreement. If due to
either party the transaction is not completed on the stipulated date, the Party
which is not at default has the right to terminate this Agreement by giving
written notice to the other Parties.
ARTICLE 6
NON COMPETITION
SECTION 6.01 Acknowledgements. Each of the Transferors hereby acknowledges and
agrees as follows:
(a) the Transferors' relationship with the Company involves and has
involved the understanding of and access to certain trade secrets and
confidential information pertaining to the property, business and
operations of the Company and its Affiliates;
(b) the Transferors' competition with the Company and/or its Affiliates,
the solicitation of Company Clients (as defined in Section 6.02(b) or
employees of the Company, the Purchaser or their Affiliates, or the
Transferors' disclosure of trade secrets or confidential information
relating to the Company, the Purchaser, and their Affiliates,
following the transfer of the Sale Equity to the Transferee, would
substantially and negatively impact the results and success of the
operation of the Company and/or such Affiliates beyond that which
would arise from the competition of an unrelated third party;
(c) all Clients of the Company and its Affiliates, regardless of when or
by whom acquired, are the assets of the Company and its Affiliates,
and not assets of the Transferors;
(d) the Transferors have carefully considered the restrictions contained
in this Article VI, and each of the Transferors specifically agrees
that the same are reasonable, necessary and essential to the
preservation of the business of the Company and its Affiliates for the
benefit of the Purchaser after the Transaction is completed; and
(e) the Transferors' covenants set forth in this Article VI are an
essential part of the inducement of the Purchaser to enter into this
Agreement, and but for the covenants contained herein, the Purchaser
would not have entered into this Agreement.
SECTION 6.02 Non Compete. Each of the Transferors agrees with the Purchaser that
he will not, and will procure that each of its Affiliates will not, directly or
indirectly,
15
whether by itself, by its employees or agents and whether on its own account or
on behalf of or in conjunction with or through the medium of, or as manager,
adviser, consultant or agent for, any other person or otherwise howsoever, for a
period of five (5) years from the date of this Agreement (the "RESTRICTED
PERIOD"), without the express written permission of the Purchaser or pursuant to
the performance of its duties and obligations under this Agreement:
(a) engage in, assist or have any active interest in a business located in
PRC or any other place in which the Company carries on business, on
his or her own behalf or for others, that provides, sells, develops,
markets or conducts a business that directly or indirectly competes
with or is substantially similar to the business conducted by the
Company on the date hereof, and/or of the Company or the Purchaser
during the Restricted Period (the "BUSINESS"); or
(b) solicit or canvass or otherwise deal with any person, firm, company or
other organisation which at any time during the three (3) years prior
to the date of this Agreement was a customer of any of the Company or
its Affiliates in relation to the Business or any of them or was, at
such the date in the process of negotiating or contemplating doing
business with any of the Company or its Affiliates in relation to any
the Business ("CLIENTS");
(c) solicit or entice away or endeavour to solicit or entice away from the
Company or employ or otherwise engage any of the Company's employees,
whether or not such person would commit any breach of his contract of
employment by reason of his leaving the service of the Company;
(d) engage or assist in any manner in any trade or business using, or be
associated with any person engaged in any trade or business using
(whether as a corporate name or trading name or trademarks or
otherwise) any of the names, trademarks, logos, design, get up or
packaging used by the Company or any names, trade marks, logos,
design, get up or packaging which are confusingly similar to any
names, trade marks, logos, design, get up or packaging used by the
Company; or
(e) in the course of carrying on any trade or business, claim, represent
or otherwise indicate any present association with the Business or,
for the purpose of obtaining or retaining any business or custom,
claim, represent or otherwise indicate any past association with the
Business.
SECTION 6.03 Confidential Information. Without the prior written consent of the
Purchaser, the Transferors shall not use, whether for itself or on behalf of any
third party, or divulge to any third party other than the Company, the
Purchaser, or any of their Affiliates or their or the Transferors respective
professional advisers, employees, officers and directors for the benefit of the
Company, the Purchaser, or their Affiliates, any trade secrets or other
Confidential Information (as defined below) learned or obtained by such
Transferor, whether prior to, on or after the date of the execution of this
Agreement. As
16
used herein, the term "CONFIDENTIAL INFORMATION" means information disclosed to
or known by the Transferors (whether before, on or after the date of this
Agreement) as a consequence of the Transferors' relationship with the Company
and not generally known in the industry in which the Company, the Purchaser, or
any Affiliate of theirs is engaged and that in any way relates to the business
of the Company, the Purchaser, or any Affiliate of theirs, and regardless of the
format in which it is presented or embodied (written, graphic, electromagnetic
or otherwise). The term "CONFIDENTIAL INFORMATION," as used herein, does not
include information (a) which was already in the public domain through
authorized disclosures, or (b) which is disclosed as a matter of right by a
third party source after the date of this Agreement provided that such third
party source is not bound by confidentiality obligations in favour of the
Company, the Purchaser, or their Affiliates.
SECTION 6.04 Limitations. While the parties hereto consider that the aforesaid
non-compete restrictions are reasonable in all the circumstances, it is agreed
that if such restrictions by themselves or taken together shall be adjudged to
go beyond what is reasonable in all the circumstances for the protection of the
interests of the Company but would be adjudged reasonable if part or parts of
the wording thereof were deleted or the periods thereof were reduced or the
range of businesses or area dealt with thereby were reduced in scope, the
relevant restriction or restrictions shall apply with such modifications as may
be necessary to make it or them valid and effective.
ARTICLE 7
ADDITIONAL AGREEMENT
SECTION 7.01 Further Action. Each of the Parties shall (a) take all reasonable
actions necessary to comply promptly with all legal and regulatory requirements
which may be imposed on any of them with respect to the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed on
any of them in connection with the transactions contemplated hereby and (b) take
all reasonable actions necessary to obtain (and shall cooperate with each other
in obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Authority or other public or private third party, required
to be obtained by any of the Parties in connection with the transactions
contemplated by this Agreement.
SECTION 7.02 Continuing Business. For the period commencing on the date of this
Agreement through and including the Third Subsequent Consideration Payment Date
(the "EARNOUT PERIOD"), YU Gang shall act in good faith with regard to operating
the Company's business in a manner that is consistent with past practice. During
the Earnout Period, YU Gang shall not, without the prior written approval of the
Purchaser, (i) require or permit the Company to incur any financial expenditures
or commitments (including employee benefit costs) outside the ordinary course of
business consistent with past practice; (ii) impose any consolidated group costs
or expenses in the operation of the Company's business that are not approved by
the Purchaser; (iii) engage in the trading of
17
securities; (iv) increase its indebtedness for borrowed money or make any loan
or advance or assume, guarantee or otherwise become liable with respect to the
liabilities or obligations of any other Person outside the ordinary course of
business consistent with past practice; (v) make any bonus or profit sharing
distribution or similar payment of any kind outside the normal course of
business; or (vi) pay or declare any dividends. During the Earnout Period,
without prejudice to the foregoing and subject to any other covenants and
provisions in this agreement, Yu Gang shall have primary responsibility and
reasonable control over operating expenses, the hiring and firing of employees
and pricing, in each case relating to the Company's business, in each case
subject to the requirements of the Purchaser with respect to the overall
business (as defined below) as conducted by the Purchaser and its subsidiaries
and subject to the oversight of the board of directors of the Purchaser. During
the Earn-Out Period, except as otherwise specifically contemplated by this
Agreement, or with the prior written consent of Yu Gang, the Purchaser will not
(a) require the Company to incur any financial expenditures or commitments
(including employee benefit costs) outside the ordinary course of business
consistent with past practice, unless such expenditures or commitments are
incurred after the prior approval of Yu Gang; (b) impose any Purchaser or
consolidated group costs or expenses in the operation of the Company business
that are not reasonably approved by YU Gang.
SECTION 7.03 The Transferors undertake that after the signing of this Agreement
they will cause the Company to provide, on an ongoing basis, in such formats and
at such time as requested by the Purchaser with information in relation to the
Company, including but not limited to its operations, financial affairs or
management sufficient to enable the Purchaser to meet its ongoing budgeting and
audit requirements.
SECTION 7.04 At any time after the Closing, the Purchaser shall have the right
to, at its sole discretion, cause the Transferee to sell and transfer any
portion or all of the Sale Equity to one or more non-Chinese entities designated
by the Purchaser, and to restructure and convert the Company to a Chinese
foreign-invested company. The Transferors hereby undertake to the Purchaser that
they will fully cooperate with the Purchaser, the Transferee and the
entity/entities designated by the Purchaser to consummate the transfer and
corporate restructure and conversion.
SECTION 7.05 For the period commencing on the Closing Date through and including
the date of payment of the Third Subsequent Consideration Amount pursuant to
Section 2.02, and provided that the Transferors are not in material default of
the provisions of this Agreement, the Transferors shall be entitled to appoint
one director to the board of directors of the Company. Immediately following the
Closing Date, the Purchaser shall be entitled to appoint the legal
representative of the Company and each Subsidiary, the directors of the Company
and each Subsidiary, and a finance controller for the Company, and the Parties
agree to take all reasonable steps to effect such appointments.
18
ARTICLE 8
EFFECTIVE DATE AND TERMINATION
SECTION 8.01 Effective Date. This Agreement shall come into effect on the date
of execution.
SECTION 8.02 Termination. This Agreement may be terminated at any time prior to
the Closing in accordance with the following provisions:
(a) By mutual written consent of the Purchaser and the Transferors;
(b) By either the Transferors or the Purchaser if the Closing does not
occur on or before the date that is four months after the date hereof
(the "TERMINATION DATE"); provided, however, that the right to
terminate this Agreement pursuant to this Section 8.02(b) shall not be
available to any party whose breach of any provision of this Agreement
has been the cause of, or resulted in, the failure of the Transaction
to be consummated by the Termination Date;
(c) Subject to Section 10.06, either the Transferors or the Purchaser
shall be entitled to elect not to complete the sale and purchase of
the Sale Equity and, accordingly, to terminate this Agreement upon
written notice to the other parties hereto if on or before the Closing
Date:
(i) it becomes aware that one or more of the representations or
warranties of the other party contained in this Agreement is or
are untrue, incorrect or misleading in any material respect; or
(ii) there is a material breach of any covenant or obligation of the
other party under this Agreement; or
(iii) any Action shall have been commenced or threatened by or before
any Governmental Authority or Non-governmental Authority against
the Transferors or the Purchaser, seeking to restrain the
Transaction which, in its reasonable, good faith determination,
is likely to render it impossible or unlawful to consummate such
transactions; provided, however, that the provisions of this
Section 8.02(c)(iii) may not be invoked by a party which has
directly or indirectly solicited or encouraged such Action; or
(iv) The party desiring to terminate this Agreement pursuant to this
Section 8.02 (other than pursuant to Section 8.02(a)) shall give
written notice of such termination to the other party.
19
ARTICLE 9
WAIVER, RELEASE OF CLAIMS AND INDEMNIFICATION
SECTION 9.01 Waiver. Either party to this Agreement may (a) extend the time for
the performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant hereto
or (c) waive compliance with any of the terms or conditions of the other party
contained therein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby. Any waiver
of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition, of this Agreement. The failure of either party to
assert any of its rights hereunder shall not constitute a waiver of any of such
rights.
SECTION 9.02 Indemnification by the Purchaser. The Purchaser shall indemnify,
defend and hold harmless the Transferors (each, a "PURCHASER INDEMNIFIED
PERSON") from and against all actions, causes of action, suits, debts,
obligations, losses, damages, amounts paid in settlement, liabilities, costs and
expenses (including but not limited to interest, penalties and reasonable
attorneys' fees and expenses) ("LOSSES") arising out of, in connection with or
in relation to:
(a) the material breach of any representation or warranty made by the
Purchaser contained in this Agreement;
(b) the material breach of any covenant or agreement by the Purchaser
contained in this Agreement;
SECTION 9.03 Indemnification by the Transferors. The Transferors shall
indemnify, defend and hold harmless each of the Purchaser and the Company and
their employees, officers and directors (each, a "TRANSFEROR INDEMNIFIED
PERSON") from and against all Losses arising out of, in connection with or in
relation to:
(a) the breach of any representation or warranty made by the Transferors
contained in this Agreement;
(b) the breach of any covenant or agreement by the Transferors contained
in this Agreement; or
(c) (i) any and all Taxes (or the non-payment thereof) of the Company for
all taxable periods ending on or before the Closing Date and the
portion through the end of the Closing Date for any taxable period
that includes (but does not end on) the Closing Date ("PRE-CLOSING TAX
Period"), and (ii) any and all Taxes of any person (other than the
Company) imposed on the Company as a transferee or successor, by
contract or pursuant to any law, rule, or regulation, which Taxes
relate to an event or transaction occurring before the Closing.
20
Payment in full of any amount due from the Transferors under this
Section 9.03 (c) shall be made to the Purchaser Indemnified Person in
immediately available funds at least two business days before the date
payment of the Taxes to which such payment relates is due, or, if no
Tax is payable, within fifteen days after written demand is made for
such payment.
SECTION 9.04 Deductible; Limitations on Liability.
(a) None of the Purchaser Indemnified Person or Transferor Indemnified
Person shall be entitled to indemnification for any Losses under
Section 9.02 or Section 9.03, respectively, unless and until the
aggregate amount of Losses suffered, sustained, or incurred by all of
the Purchaser Indemnified Persons or the Transferor Indemnified
Persons, as the case may be, and giving rise to a claim for
indemnification hereunder exceeds U.S. $25,000, calculated on a
cumulative basis and not on a per item basis and then only to the
extent of such excess.
(b) No the Purchaser Indemnified Person or Transferor Indemnified Person
shall be entitled to more than one recovery for any single Loss even
though such Loss may have resulted from the breach or inaccuracy of
more than one of the representations, warranties, covenants and
agreements made by the Purchaser or Transferor, as the case may be, in
or pursuant to this Agreement
SECTION 9.05 Joint and Several Liability of the Transferors. For purposes of
this Agreement, the Transferors shall be considered as one entity. The
Transferors shall be jointly and severally responsible for all of the
Transferors' obligations and covenants hereunder and jointly and severally
liable for any and all damages or liabilities relating to this Agreement.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 Expenses. All costs and expenses, including but not limited to,
fees and disbursements of counsel, financial advisors and accountants, incurred
in connection with this Agreement and the Transaction shall be paid by the party
incurring such costs and expenses.
SECTION 10.02 Notices. Notices and communications between the parties hereunder
shall be in writing and shall be sent by personal delivery, prepaid registered
or certified first class mail, prepaid air courier or facsimile to the parties'
addresses set forth below. Any notice given by personal delivery, registered or
certified mail or air courier shall be deemed to have been received on the date
of receipt; and any notice given by facsimile shall be deemed received after
electronic answerback has been received and twenty-four (24) hours have elapsed
at the place of the party receiving such notice.
21
To the Transferors: To the Purchaser:
Attention: YU Gang Attention: Mr. Xxxx XxXxxx
Title: General Counsel
Xinhua Finance Limited
#301702, Jianwai XXXX, Xx.00 Xxxxx 0000-0 Xxxxxxx Plaza,
Dongsanhuan Xxxxx Xx, Beijing 000 Xxx Xxxxx Xxxx Xxxxxxx,
000000 XXX Xxxx Xxxx
Tel: (0000)00000000 Tel: (000) 0000 0000
Fax: (0000)00000000 Fax: (000) 0000 0000
SECTION 10.03 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
SECTION 10.04 Amendment. This Agreement may not be amended or modified except by
an instrument in writing signed by, or on behalf of, the Transferors and the
Purchaser.
SECTION 10.05 Governing Law and Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of Hong Kong. Any dispute arising out
of or in connection with this Agreement, including a dispute as to the validity
or existence of this Agreement, shall be submitted to International Chamber of
Commerce Court of Arbitration and resolved by arbitration in Hong Kong conducted
in English by a single arbitrator of International Chamber of Commerce Court of
Arbitration in accordance with the rules of the United Nations Commission on
International Trade Law (UNCITRAL); provided, that, unless the parties agree
otherwise: (i) each party shall be required only to produce specific, identified
documents which are relevant to the dispute; and (ii) the parties agree the
arbitration award shall be final. In addition, the parties hereto agree that no
party shall have any right to commence or maintain any suit or legal proceeding
concerning a dispute hereunder until the dispute has been determined in
accordance with the arbitration procedure provided for herein and then only to
enforce or facilitate the execution of the award rendered in such arbitration.
The parties agree not to contest or seek relief from the award in any court.
SECTION 10.06 Prevailing Party Attorneys' Fees. If any action or proceeding is
commenced to construe or enforce this Agreement or the rights and duties of the
parties hereunder, then the party prevailing in that action, and any appeal
thereof, shall be entitled to recover its attorneys' fees and costs in that
action or proceeding, as well as all costs and fees of any appeal or action to
enforce any judgment entered therein.
22
SECTION 10.07 Force Majeure.
(a) "FORCE MAJEURE" shall mean any act or event which is reasonably
unforeseeable or unavoidable and which is beyond the control of the
affected party, including, but not limited to, earthquake, storm,
lightning, typhoon, fire, flood, outbreak to escalation of
hostilities, declaration of national emergency, war, insurrection or
similar military actions, strikes and any other act or event which is
generally accepted as Force Majeure in international commercial
practice.
(b) If a party has been prevented from performing its obligations provided
in this Agreement because of an event of Force Majeure, it shall
notify the other party in writing promptly after the occurrence of the
event of Force Majeure. If an event of Force Majeure occurs, neither
party shall be responsible for any damage, increased costs, or losses
which the other party may sustain by reason of the failure or delay in
performance. The party claiming Force Majeure shall take appropriate
means to minimize or remove the effects of Force Majeure and, within
the shortest possible time, attempt to resume performance of the
obligation affected by Force Majeure. If the affected party is unable
to perform all or part of its obligations under this Agreement for six
(6) months after the date of the notice of the occurrence of Force
Majeure, any party shall have the right to terminate this Agreement.
SECTION 10.08 Survival of Warranties. The Warranties of the Parties contained in
this Agreement shall be operative and in full force and effect, regardless of
any investigation made at any time with respect thereto, and shall remain in
full force and effect until the date falling ten (10) years after the date of
the execution of this Agreement.
SECTION 10.09 Assignment. This Agreement may not be assigned to any third party,
except Affiliates of the Purchaser, by operation of Law or otherwise without the
express written consent of the Transferors and the Purchaser.
SECTION 10.10 Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and undertakings, both written and oral, among the
Transferors and the Purchaser with respect to the subject matter hereof.
SECTION 10.11 Headings. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which
23
when executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.13 Right of Set-Off. Notwithstanding anything in this Agreement to
the contrary, the Purchaser shall have the right to set-off any indemnification
payment obligation of which any Purchaser Indemnified Person has given notice of
to the Transferors pursuant to this Agreement against any other payment to be
made to any Transferor. No exercise by the Purchaser of such right of set-off
shall constitute a default in the payment of any amount against which such
set-off is made.
THE REST OF THE PAGE HAS BEEN INTENTIONALLY LEFT BLANK
24
IN WITNESS WHEREOF, the Transferors and the Purchaser have caused this
Agreement to be executed by their duly authorized representatives as of the date
first written above.
TRANSFERORS:
[Chinese Characters]: /s/ YU Gang
---------------
[Chinese Characters]: YU Gang
[Chinese Characters]: /s/ XIA Huai
---------------
[Chinese Characters]: XIA Huai
THE PURCHASER
XINHUA FINANCE LIMITED
Signature: /s/
--------------------------
Name:
-------------------------------
Title:
------------------------------
25
SCHEDULE 1
CORPORATE DETAILS OF
THE COMPANY AND SUBSIDIARIESCOMPANY
Item Details
---- -------
Registration Number 1101112708733(1-1)
Name Beijing Century Media Culture Co., Ltd.
Legal Address 18-338 Jianshe Road, Kaixuan Avenue, Liangxiang Village,
Fangshan District, Beijing
Date of Establishment June 25, 2004
Type of Company Domestic Limited Liability Company
Legal Representative Yu Gang
Registered Capital RMB 1,000,000
Term of Operation 30 years (June 25, 2004 to June 24, 2034)
Business Scope To conduct the business that do not require special
approvals at its own choice, but (i) not to conduct
businesses prohibited by national laws and regulations,
and (ii) to conduct businesses which require special
permits only after obtaining such permits.
26
SUBSIDIARIES
Item Details
---- -------
Registration Number 1101112734215(1-1)
Name Beijing Workshop Communications Co., Ltd.
Legal Address 105# Yanfang Industrial Park, Yancun Town, Fangshan
District, Beijing
Date of Establishment July 21, 2004
Type of Company Domestic Limited Liability Company
Legal Representative Ding Bin
Registered Capital RMB 1,000,000
Term of Operation 30 years (July 21, 2004 to July 20, 2034)
Business Scope To conduct the business that do not require special
approvals at its own choice, but (i) not to conduct
businesses prohibited by national laws and regulations,
and (ii) to conduct businesses which require special
permits only after obtaining such permits.
Equity Ownership Beijing Century Media Culture Co., Ltd 90%;
Yu Gang 5%;
XIA Huai 5%
Item Details
---- -------
Registration Number 0000000000000(1-1)
Name Beijing Golden Ways Culture Development Co., Ltd.
Xxxxx Xxxxxxx Xxxxx 000, Xxxxxxxxxxxxxxxxx X0, Xxxxxxxxxxxxx, Datun
Road, Chaoyang District, Beijing.
Date of Establishment July 31, 2001
Type of Company Domestic Limited Liability Company
Legal Representative Xxxx Xxxx
Registered Capital RMB 300,000
Term of Operation 20 years (July 31, 2001 to July 30, 2021)
Business Scope To organize cultural exchange activities (except
performance), enterprise feature design, exhibitions,
graphic design and making by computers, movie planning,
design and making of advertisement, photography, house
decoration, lease of movie instruments (except those not
approved specially)
Equity Ownership Beijing Century Media Culture Co., Ltd 90%
Yu Gang 5%;
XIA Huai 5%
27
SCHEDULE 2
TRANSFERORS' WARRANTY
In this Schedule 2, terms defined in the main text of this Agreement shall have
the same meanings, and the following terms shall have the following meanings:
"ACCOUNTS" means the audited accounts of the Company and each of the
Subsidiaries for the period ending on the Last Accounting Date and all notes,
reports and other documents attached to the audited accounts.
"CONFIDENTIAL INFORMATION" means all know-how, lists of customers or suppliers,
trade secrets, technical processes or other confidential information belonging
to the Company or to any third party.
"ENCUMBRANCE" means a mortgage, charge, pledge, lien, option, restriction, right
of first refusal, right of pre-emption, third-party right or interest, other
encumbrance or security interest of any kind, or any other type of preferential
arrangement (including without limitation a title retention or trust
arrangement) having similar effect.
"LAST ACCOUNTING DATE" means 31 December 2004.
"LEASES" mean the leases, sub-leases, tenancy agreements, sub-tenancy
agreements, licenses or other documents (including any options for extension
relating thereto) granted or agreed to be granted to the Company or pursuant to
which the Company holds or occupies any property.
"SUBSIDIARY" shall mean any corporation or other form of legal entity of which
the Company beneficially owns, either directly or through its Affiliates, 50% or
more of the total combined voting power of all classes of voting securities of
such entity.
"TAX" means any form of taxation, withholding, levy, duty, charge, contribution,
including without limitation any impost of whatever nature (including any fine,
penalty, surcharge or interest in relation thereto) imposed by a central, local,
municipal, provincial, governmental, state, federal or other fiscal, revenue,
customs, excise or other authority, body or official in the PRC or otherwise.
1. CAPACITY AND AUTHORITY
1.1 The Transferors have the right, power and authority and has taken all
actions necessary to execute and deliver, and to exercise its rights and
perform its obligations under, this Agreement and each document to be
executed at or before the Closing Date.
1.2 Each of the Company and the Subsidiaries has the right, power and authority
to conduct its business as conducted at the date of this Agreement.
28
2. INFORMATION
2.1 All information given by, or on behalf of, the Transferors to the
Purchaser, its advisers or agents before or during the negotiations leading
to this Agreement is true, complete, accurate and not misleading.
2.2 All information about the Sale Equity, the Company and the Subsidiaries
which might be material for disclosure to a buyer of the Sale Equity has
been disclosed to the Purchaser in writing.
3. SALE EQUITY
3.1 The Transferors are the legal and record owner of the Sale Equity. There is
no Encumbrance and there is no agreement, arrangement or obligation to
create or give an Encumbrance, in relation to the Sale Equity or any part
of it. No person has claimed to be entitled to an Encumbrance in relation
to the Sale Equity or any part of it.
3.2 Subsidiaries. Schedule 1 sets forth a complete list of the Subsidiaries,
indicating their respective jurisdictions of incorporation or organization
and, for each Subsidiary, the number of authorized and outstanding shares
of capital stock or other equity interests (including partnership
interests) in or voting securities of each class and the name of, and
number of shares or other equity interests in or voting securities owned
by, each holder as at Closing.
(a) The Company does not directly or indirectly own any voting or equity,
membership or similar interest in, or any interest convertible into,
exchangeable or exercisable for, or carrying the rights to acquire,
any voting, equity, membership or similar interest in, any
corporation, partnership, joint venture or other business association
or entity other than the Subsidiaries;
(b) All the outstanding shares of capital stock of, or other ownership
interests (including partnership interests) in, the Subsidiaries have
been validly issued and are fully paid and non-assessable, have not
been issued in violation of, and are not subject to, any preemptive or
similar rights, and are owned solely by the Company, free and clear of
any Encrumbrances;
(c) Other than shares of capital stock or other equity securities held of
record or beneficially by the Company or a wholly-owned Subsidiary
thereof, there are no shares of capital stock or other equity
securities of any of the Subsidiaries authorized, issued or
outstanding; and
29
(d) There are no securities outstanding, convertible into, exchangeable
for or carrying the right to acquire, or any voting agreements with
respect to, any securities of any of the Subsidiaries or any
subscriptions, warrants, options, rights or other arrangements
obligating any of the Subsidiaries to issue or acquire any of its
equity securities.
4. ACCOUNTS
4.1 GENERAL
(a) The Accounts have been prepared and audited on a proper and consistent
basis in accordance with the laws and applicable standards, principles
and practices generally accepted in the PRC.
(b) The Accounts show a true and fair view of the assets, liabilities,
capital commitments and the state of affairs of the Company and the
Subsidiaries as at the Last Accounting Date and of the profits and
losses of the Company and the Subsidiaries, respectively, for the
period concerned.
4.2 DEBTS AND LIABILITIES
(a) Adequate provision for bad and doubtful debts and all liabilities
(whether actual, contingent or otherwise) and all financial
commitments in existence at the Last Accounting Date have been made in
the Accounts.
(b) All liabilities (actual, contingent or otherwise) and all financial
commitments of the Company and the Subsidiaries have been accurately
reflected and disclosed in the Accounts.
4.3 PROVISION FOR TAX
The Accounts reserve in full for all Taxes to which the Company or the
Subsidiaries may become liable under PRC law, for all periods starting on
or before the Last Accounting Date. The Accounts reserve in full for
contingent or deferred liabilities to Tax for all periods starting on or
before the Last Accounting Date.
4.4 ACCOUNTING RECORDS
The accounting records of the each of the Company and the Subsidiaries are
up-to-date, in the Company's possession or under its control and fully and
accurately completed in accordance with PRC law and applicable standards,
principles and practices generally accepted in the PRC.
30
5. CHANGES SINCE THE LAST ACCOUNTING DATE
5.1 GENERAL
Since the Last Accounting Date:
(a) each of the Company and the Subsidiaries business has been operated in
the usual way so as to maintain it as a going concern;
(b) there has been no adverse change in the financial or trading position
or prospects of each of the Company and the Subsidiaries; and
(c) no material change has occurred in the assets and liabilities shown in
the Accounts and there has been no reduction in the value of the net
tangible assets of each of the Company and the Subsidiaries on the
basis of the valuations used in the Accounts.
5.2 SPECIFIC
Since the Last Accounting Date:
(a) other than in the usual course of its business, none of the Company or
the Subsidiaries has:
(i) acquired or disposed of, or agree to acquire or dispose of, any
asset; or
(ii) assumed or incurred, or agreed to assume or incur, any liability,
obligation or expense (actual or contingent);
(b) none of the Company or the Subsidiaries has factored, sold or agreed
to sell a debt other than in the usual course of its business;
(c) neither the Company nor any of the Subsidiaries business has been
materially and adversely affected by the loss of a customer or
supplier, or by termination or a change in the terms of an agreement,
or by an abnormal factor not affecting similar businesses, and to the
best of the Transferors' knowledge, information and belief, no fact or
circumstances exists which might have a Material Adverse Affect; and
(d) no dividends, bonuses or distributions have been declared, paid or
made except as provided for in the Accounts.
31
6. TAX
6.1 GENERAL
(a) Each of the Company and the Subsidiaries has paid all Taxes which it
has become liable to pay and is not, and has not been liable to pay a
penalty, surcharge, fine or interest in connection with any Tax.
(b) There is no existing, contingent or deferred liability for Tax other
than any liability for Tax which arises solely in the ordinary course
of its business.
(c) Each of the Company and the Subsidiaries is not and does not expect to
be involved in a dispute in relation to Tax. No tax authority has
investigated or indicated that it intends to investigate the Tax
affairs of the Company or the Subsidiaries and there are no facts
which are likely to cause such an investigation to be instituted.
(d) The tax preferential treatments that the Company and the Subsidiaries
is enjoying were legally and validly granted by the relevant tax
authorities, and the Company and the Subsidiaries will continue to
enjoy such tax preferential treatments.
(e) The Company and each Subsidiary has fully withheld and paid within the
statutory time limit to the relevant tax authority the individual
income tax on the salaries, wages, and other taxable benefits provided
to its directors, officers and employees.
6.2 ENTERPRISE INCOME TAX
(a) Each of the Company and the Subsidiaries has paid all enterprise
income tax which it has become liable to pay and has not been liable
to pay a penalty, surcharge, fine or interest in connection with the
enterprise income tax.
(b) Each of the Company and the Subsidiaries has timely filed the
enterprise income tax returns as required under the PRC laws and
regulations.
(c) Each of the Company and the Subsidiaries has made, given, obtained and
kept up-to-date full and accurate records, invoices, approvals and
documents appropriate or required for the purpose of the enterprise
income tax returns under PRC laws and regulations.
32
(d) Each of the Company and the Subsidiaries has adopted appropriate or
required procedures and treatment for the enterprise income tax which
is in compliance with the PRC laws and regulations.
(e) There is no existing, contingent or deferred liability for the
enterprise income tax of any of the Company and the Subsidiaries.
6.3 BUSINESS TAX
Each of the Company and the Subsidiaries:
(a) is validly registered with the relevant tax authority for the purpose
of PRC business tax laws and regulations;
(b) has made, given, obtained and kept up-to-date, full and accurate
records, invoices and documents appropriate or required for the
purposes of payment of business tax under PRC laws and regulations;
(c) is not in arrears with payment or returns of business tax due under
PRC laws and regulations.
7. ASSETS
7.1 Each asset included in the Accounts or acquired by each of the Company and
the Subsidiaries since the Last Accounting Date (other than inventories
subsequently disposed of in the ordinary course of business) and all assets
used by the Company and the Subsidiaries:
(a) are legally and beneficially owned by it free from any Encumbrance;
(b) are not the subject of any agreement for lease, hire, hire purchase or
sale on deferred terms; and
(c) where capable of possession, are in the exclusive possession or under
the exclusive control of it.
7.2 The assets owned, possessed or used by each of the Company and the
Subsidiaries comprise all the assets required to enable it to carry on its
business fully and effectively in the ordinary course.
7.3 All machinery, vehicles and equipment owned, possessed or used by the each
of the Company and the Subsidiaries are in good condition, repair and
working order and have been regularly and properly maintained. None is in
need of renewal or replacement.
33
8. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
8.1 None of the Company and the Subsidiaries uses any processes or is engaged
in any activities which involve the misuse of any Confidential Information
belonging to any third party. All agreements and/or arrangements under
which Confidential Information belonging to any third party is made
available to the Company and the Company is not in breach of any such
agreement or arrangement and is not aware of the existence of any
circumstances under which its right to use such Confidential Information
may be terminated.
8.2 The Company is not aware of any actual or alleged misuse by any person of
any of its Confidential Information. The Company has not disclosed to any
person any of its Confidential Information except where such disclosure was
properly made in the normal course of the Company's business and was made
subject to an agreement under which the recipient is obliged to maintain
the confidentiality of such Confidential Information and is restrained from
further disclosing it or using it other than for the purposes for which it
was disclosed by the Company.
8.3 All Intellectual Property used in the business or businesses of each of the
Company and the Subsidiaries:
(a) is owned by it as the sole legal and beneficial owner, free of any
license or encumbrance in favour of a third party ("OWNED IP"); or
(b) is used by it in accordance with the terms of a current license from
the owner of that Intellectual Property ("LICENSED IP")
9. COMPUTER SYSTEMS AND SOFTWARE
9.1 In this paragraph 9, the expression "THE SOFTWARE" means all of the
computer programs used by the Company or its Subsidiaries, whether owned by
the it ("OWNED SOFTWARE") or licensed to it by a third party ("LICENSED
SOFTWARE").
9.2 Each of the Company and the Subsidiaries has absolute title and right to
and copyright in each item of the Owned Software including source code and
object code, user and other manuals, tapes, indices, descriptive memoranda,
original listings, development working papers, calculations and all other
relevant documents, media and confidential information free of all
encumbrances and adverse claims and no property rights of it in such Owned
Software have been sold, assigned, licensed or disposed of to any party
other than by the granting of non-exclusive licenses to customers of it in
the ordinary course of its business.
10. DEBTORS
10.1 No debt (including a receivable) shown in the Accounts or accounting
records is the subject of an arrangement not made in the usual course of
each of the
34
Company and the Subsidiaries business. None of the Company or the
Subsidiaries has released a debt (including a receivable) shown on the
Accounts or accounting records so that the debtor has paid or will pay less
than the debt's book value. None of those debts (including receivables) has
been deferred, subordinated or written off or become irrecoverable to any
extent. The Transferors have no reason to believe that any of those debts
(including receivables) will fail to realise its book value in the usual
course of collection.
11. EFFECT OF TRANSFER
Neither the execution nor the performance of this Agreement or any document
to be executed at or before Closing will:
11.1 result in any of the Company and the Subsidiaries losing the benefit of an
asset, licence, permit, right, grant, privilege, preferential treatment or
subsidy which it enjoys at the date of this Contract in any jurisdiction,
including without limitation any rights in its own or third party owned
Intellectual Property; or
11.2 conflict with, or result in a breach of, or give rise to an event of
default under, or requires the consent of a person, or relieve a person
from an obligation under, any agreement or arrangement to which any of the
Company and the Subsidiaries is a party or any legal or administrative
requirement by which the it is bound.
12. INSURANCE
12.1 Each of the Company and the Subsidiaries has purchased and maintained
commercial insurance for personal accident and serious disease of its
employees.
12.2 Each of the current insurance and indemnity policies in respect of which
each of the Company and the Subsidiaries has an interest is valid and
enforceable and is not void or voidable. None of Company or the
Subsidiaries has not done anything or omitted to do anything which might
make any such policies void or voidable. Closing will not have the effect
of terminating, or entitling any insurer to terminate cover under any such
policies.
13. LEASES
13.1 The Leases are properly completed and stamped and are in the possession and
under the control of the Company. All necessary consents for the grant of
the Leases were obtained before such grant and the landlords named in the
Leases were and still are the registered legal and beneficial owners
thereof. The Leases contain no unusual or onerous provisions and no right
of termination by the landlord thereof except on grounds of non-payment of
rent or breach of covenant by the Company. The Leases comprise all
properties held or occupied by the Company and the Subsidiaries.
35
13.2 The properties subject to the Leases are not:
(a) subject to any outgoings other than water rates, rent, management
charges of a non-capital nature and utility charges, and the Company
is not responsible for payment of government rent,
(b) subject to any options or rights of pre-emption or first refusal in
favour of any third parties;
(c) adversely affected or likely to be adversely affected by any planning,
highways, transport, utility or other proposals;
(d) in violation of any insurance policy.
13.3 Policies of insurance relating to the properties subject to the Lease are
current and valid, cover the full reinstatement value thereof and are not
subject to any special or unusual terms or restrictions or to the payment
of any premium in excess of the normal rate for policies of the same kind.
13.4 The Transferors and the Company know of no reason why the properties
subject to the Lease will not be or are likely not to be renewed on their
expiry on similar terms to those in the existing Leases, save as regards
reasonable commercial increases in rent.
13.5 Neither the Company nor the Subsidiaries owns any real estate properties.
14. ENVIRONMENTAL MATTERS
14.1 Neither the Company nor the Subsidiaries has committed any breach of PRC
legal or regulatory requirements for the protection of the environment or
of human health or amenity, and has acted at all times in conformity with
all relevant PRC laws, regulations, codes of practice, guidance, notes,
standards and other advisory materials issued by any local and national
governmental authority in the PRC with regard to environmental protection
and the protection of human health or amenity.
15. AGREEMENTS
Save for the agreements with respect to office lease of the Company,
15.1 Neither the Company nor the Transferors have any knowledge of the
invalidity of, or a ground for termination, avoidance or repudiation of, a
contract, an agreement, arrangement or obligation to which the Company or a
Subsidiary is a party. No party with whom the Company or a Subsidiary has
entered into a contract, an agreement, arrangement or obligation has given
notice of its intention
36
to terminate, or has sought to repudiate or disclaim, the contract,
agreement, arrangement or obligation.
15.2 No party with whom the Company or a Subsidiary has entered into a contract,
an agreement or arrangement is in material breach of the contract,
agreement or arrangement. No fact or circumstance exists which might give
rise to a breach of this type.
15.3 Neither Company nor a Subsidiary is a party to any contract, agreement or
arrangement which by reason of this Transfer or by reason of any provision
of this Contract, gives any other contracting party the right to terminate
that contract, agreement or arrangement, or create or increase any
obligation on the Company (whether to make payment or otherwise) to any
person.
15.4 Neither the Company nor any Subsidiary is a party to or is liable under a
long-term, onerous or unusual contract, agreement, arrangement or
commitment, including without limitation:
(a) a contract, agreement, arrangement or commitment entered into other
than in the usual course of business;
(b) a contract, agreement, arrangement or commitment entered into other
than by way of a bargain at arm's length;
(c) a contract, agreement, arrangement or commitment restricting the
freedom of the Company to operate the whole or part of its business or
exploit any of its assets as it decides; or
(d) a contract, agreement, arrangement or commitment which the Company or
a Subsidiary cannot comply with on time or without undue or unusual
expenditure of money or effort.
16. CREDITORS
Each of the Company and the Subsidiaries has paid its creditors within the
times agreed with them. No customer or supplier of the Company or a
Subsidiary has:
16.1 stopped, or indicated an intention to stop, trading with or supplying the
Company or a Subsidiary;
16.2 reduced, or indicated an intention to reduce, substantially its trading
with or supplies to the Company or a Subsidiary; or
16.3 changed, or indicated an intention to change, substantially the terms on
which it is prepared to trade with or supply the Company or a Subsidiary.
37
17. LICENCES AND STATUTORY COMPLIANCE
17.1 Each of the Company and the Subsidiaries has obtained all licences,
permits, approvals and other authorisations as are necessary in order to
enable it to own, operate, and use all its assets, to conduct its business
as it is currently being conducted, and to sell and provide products and
services as they are currently sold and provided. All such licences,
permits, approvals, and authorisations are in full force and effect. No
violations have been recorded or alleged in respect of any such licences,
permits, approvals or authorisations, and no proceeding is pending or, to
the knowledge of the Transferors, threatened or contemplated with respect
to the revocation or limitation of the same.
17.2 Each of the Company and the Subsidiaries has conducted its business and its
corporate affairs in accordance with all applicable PRC laws and has not
done or omitted to do anything in contravention or breach of any law of the
PRC or elsewhere applicable to it or the business of it which would have a
material adverse effect upon the assets or business of the Company.
17.3 Each of the Company and the Subsidiaries has at all times carried on
business in all respects in accordance with, and all acts and things done
or performed by it are within, the scope of business specified in the
Articles and the business licence of the Company or its Subsidiaries,
respectively.
18. EMPLOYEES
18.1 None of the Company and the Subsidiaries has received notice of resignation
from any member of senior management.
18.2 There is no employment or other contract of engagement between the Company
or a Subsidiary and any person which is in suspension or has been
terminated but is capable of being revived or enforced or in respect of
which it has a continuing obligation.
18.3 Each of the Company and the Subsidiaries has in relation to each of its
employees (and, so far as relevant, to each of its former employees):
(a) complied with applicable national and local labour regulations, and
all other obligations imposed on it by, and all orders and awards made
under all regulations, codes of conduct and practice, collective
agreements, customs and practices relevant to the relations between it
and its employees or any trade union or the conditions of service of
its employees;
(b) maintained current, adequate and suitable records regarding the
service of each of its employees; and
38
(c) entered into appropriate agreements with each employee stating that
all work product, inventions (patentable or unpatentable), trade
secrets and copyrights, together with any applications for patents and
the patents which may issue thereunder and registrations of
copyrights, to which he has made a creative contribution to a
substantive feature of any invention which he made in connection with
the performance of tasks under his employment contract or made mainly
by making use of the Company's money, equipment, parts, materials or
technical data not disclosed to the public are the property of the
Company and agreeing to treat all Company information or third party
owned confidential information as confidential.
18.4 Each of the Company and the Subsidiaries has fully paid or contributed to
pension, medical care, unemployment and all other social security funds or
employees benefits required by law or agreement, and there is no dispute or
potential dispute in connection with any such funds or benefits. Each of
the Company and the Subsidiaries has paid and contributed to housing
provident fund for some of its employees.
19. LIABILITIES
19.1 INDEBTEDNESS
Except as disclosed in the Accounts, each of the Company and the
Subsidiaries does not have outstanding and has not agreed to create or
incur loan capital, borrowing or indebtedness in the nature of borrowing.
19.2 THIRD PARTY SECURITY
Save as disclosed in the Accounts, each of the Company and the Subsidiaries
is not a party to and is not liable (including, without limitation,
contingently) under a mortgage, pledge, guarantee, indemnity or other
agreement to secure or incur a financial or other obligation with respect
to another person's obligation.
19.3 EVENTS OF DEFAULT
No event has occurred or been alleged to have occurred which:
(a) constitutes or will constitute an event of default, or otherwise gives
rise to an obligation to repay, under an agreement relating to
borrowing or indebtedness in the nature of borrowing; or
(b) will lead to an Encumbrance created or constituted in connection with
borrowing or indebtedness in the nature of borrowing, a guarantee, an
indemnity or other obligation of any of the Company and the
Subsidiaries becoming enforceable.
39
20. INSOLVENCY
20.1 No order has been made or application for bankruptcy presented to the
People's Court or resolution passed for the winding up of each of the
Company and the Subsidiaries; no distress, execution or other process has
been levied on any of its assets; it has not stopped payment or become
unable to pay its debts or become insolvent under PRC law and it has not
applied for conciliation in order to settle its debts; no liquidation
committee has been appointed by it, the People's Court or any other person
for the purpose of liquidating the business or assets of it or any part
thereof; no meeting of the creditors of it has been held or is in prospect;
no ruling declaring the bankruptcy of it has been made and no public
announcement in respect of the same has been pronounced by the People's
Court, and there is no unfulfilled or unsatisfied judgement or order of the
People's Court outstanding against it; and there has been no delay by it in
the payment of any obligation due for payment.
21. LITIGATION AND COMPLIANCE WITH LAW
21.1 LITIGATION
Neither the Company, the Subsidiaries nor a person for whose acts or
defaults the any of them may be vicariously liable is involved in a civil,
criminal, arbitration, administrative or other proceeding or dispute in any
jurisdiction. No civil, criminal, arbitration, administrative or other
proceeding or dispute in any jurisdiction is pending or threatened by or
against the Company, the Subsidiaries or a person for whose acts or
defaults any of them may be vicariously liable.
21.2 COMPLIANCE WITH LAW
Each of the Company and the Subsidiaries has conducted its business and
dealt with its assets in all material respects in accordance with all
applicable legal and administrative requirements in any relevant
jurisdiction.
22. ARRANGEMENTS WITH CONNECTED PERSONS ETC.
22.1 All amounts outstanding and appearing in the books of the Company and the
Subsidiaries as loan accounts or as due to directors or shareholders wholly
represent money or money's worth paid or transferred to the Company or the
Subsidiaries as the case may be or remuneration accrued due and payable for
services rendered. All amounts outstanding between the Transferors and the
Company and the Subsidiaries are specifically disclosed in the Accounts.
22.2 There is not outstanding and there has not at any time been outstanding any
contract or arrangement to which any of the Company and the Subsidiaries is
a party and in which any of the Transferors or directors or officers of the
Company or the Subsidiaries is or has been interested, whether directly or
indirectly, other
40
than arm's length service contracts and the Company or the Subsidiaries is
not a party to, nor have its profits or financial position at any time been
adversely affected by, any contract or arrangement which is not of an
entirely arm's length nature; save as aforesaid, there are no agreements or
understandings (whether legally enforceable or not) between the Company or
the Subsidiaries and any person who is a shareholder or the beneficial
owner of any interest in any of the them or any other company controlled by
any such person relating to the management of the Company's or a
Subsidiary's business or the appointment or the removal of its directors or
the ownership or transfer of ownership or the letting of any of its assets
or the provision of finance, goods, services or other facilities to or by
the Company or a Subsidiary or otherwise howsoever relating to the Company,
a Subsidiary or its affairs.
22.3 All costs incurred by the Company and the Subsidiaries have been charged to
the Company or the Subsidiaries, respectively.
22.4 None of the Transferors (or any person connected with the Transferors) is
at the date hereof either individually or collectively or with any other
person or persons engaged in any other business or concerned or interested
in any way whatsoever in any other business of a similar nature to or
competitive with that carried on by the Company or the Subsidiaries.
23. CONSTITUTION AND RETURNS
23.1 The shareholders agreement and the articles of association were duly
executed and delivered by the parties thereto and are legal, valid, binding
and enforceable in accordance with their respective terms. There is no
circumstance which would give rise to the early termination of the articles
of association or the term of operation of the Company as stated in its
business licence and no order or petition has been made or presented.
23.2 Each of the Company and the Subsidiaries is operating and has always
operated its business in all respects in accordance with the shareholders
agreement, the articles of association and its business licence.
23.3 All returns, particulars, resolutions and other documents required to be
filed with or delivered to the State Administration for Industry and
Commerce or any other authority in respect of the Company and the
Subsidiaries have been properly filed or delivered.
THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
41
