EXHIBIT 10.1
Dated January 11, 2006
THE PERSONS NAMED IN SCHEDULE 1
and
COMTECH GROUP
and
HUAMENG ENGINEERING LTD.
SUBSCRIPTION AND SHAREHOLDERS' AGREEMENT
TABLE OF CONTENTS
CONTENTS PAGE
1 Interpretation......................................................2
2 Subscription........................................................6
3 Conditions..........................................................7
4 Warranties..........................................................8
5 Covenants up to Completion..........................................9
6 Completion.........................................................10
7 Use of the Subscription Monies.....................................11
8 Business of the Company............................................11
9 Board of the Company...............................................12
10 Reserved Matters...................................................12
11 Continuing Obligations.............................................12
12 Pre-emptive Rights.................................................13
13 Restrictions on Transfer...........................................14
14 Confidentiality....................................................16
15 Costs and Expenses.................................................17
16 Announcements........................................................
17 Duration...........................................................17
18 Notices............................................................18
19 Severability.......................................................19
20 General............................................................19
21 Whole Agreement....................................................20
22 Governing Law......................................................21
Schedule 1 (A) The Captable (Pre Investment)..................................22
Schedule 1 (B) The Captable (Post Investment).................................22
Schedule 2 (A) Particulars of the Company (Pre Investment)....................23
Schedule 2 (A) Particulars of the Company (Post Investment)...................23
Schedule 2 (B) Particulars of the Subsidiaries (Pre and Post Investment)......26
Schedule 3 Warranties.........................................................30
Schedule 4 Reserved Matters...................................................42
Schedule 5 Continuing Obligations.............................................44
Schedule 6 Terms and Conditions of the Series A Preferred Shares..............47
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THIS AGREEMENT is made on January 11, 2006
BETWEEN:
(1) THE PERSONS named in Schedule 1 (A) (together the "EXISTING
SHAREHOLDERS" and each an "EXISTING Shareholder"); and
(2) COMTECH GROUP, a company incorporated in the Cayman Islands whose
registered office is at Century Yard, Cricket Square, ▇▇▇▇▇▇▇▇ Drive,
PO Box 2681, ▇▇▇▇▇▇ Town, Grand Cayman (the "SUBSCRIBERS"); and
(3) HUAMENG ENGINEERING SERVICES LTD., a company incorporated in British
Virgin Islands whose registered office is at ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (the "COMPANY").
WHEREAS:
(A) The Company is a company limited by shares, particulars of which are
set out in Schedule 2 (A).
(B) The Subscribers intend to invest in the Company in an aggregate sum of
USD2,500,000, which will be used for working capital purpose to finance
the expansion of the Business
(C) The Subscriber' investment will initially be represented by Series A
Preferred Shares to be issued by the Company.
(D) The Subscriber, the Existing Shareholders and the Company have agreed
to enter into this Agreement for the purposes of (i) recording the
terms and conditions on which the Subscriber will subscribe for the
Series A Preferred Shares, and (ii) regulating the relationship between
the shareholders of the Company and certain aspects of the affairs of
the Company.
IT IS AGREED as follows:
1 INTERPRETATION
1.1 In this Agreement:
"ACCOUNTS" means the unaudited financial statements of the Group for
the period ended 30 November 2005;
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"AFFILIATE" of a person means, any other person which directly or
indirectly controls, is controlled by, or is under common control with
such other person;
"ARTICLES" means the articles of incorporation of the Company as
amended from time to time subsequently by the Shareholders;
"BOARD" means the board of directors of the Company;
"BUSINESS" means the business of the Company as referred to in Clause
9;
"COMMON SHARES" means ordinary shares of the Common Stock of the
Company;
"COMMON SHARES EQUIVALENTS" means the Series A Preferred Shares, and
all other shares, warrants, options and other rights convertible into
or exercisable for Common Shares;
"COMPLETION" means completion of the subscription of the Series A
Preferred Shares;
"CONDITIONS" means the conditions precedent set out in Clause 3;
"CONFIDENTIALITY AND NON-COMPETITION AGREEMENT" means certain
Confidentiality and Non-Competition Agreements to be entered into
between the Group and its key employees in the form attached hereto
marked "A";
"DIRECTORS" means the director of the Company appointed pursuant to
this Agreement and the Articles;
"GROUP" or "GROUP COMPANIES" means the Company and its subsidiaries
from time to time and "GROUP Company" means any of them;
"HONG KONG" means the Hong Kong Special Administrative Region of the
PRC;
"INTELLECTUAL PROPERTY" means patents, trade marks, service marks,
trade names, logos, get-up, patents, inventions, design rights,
copyrights (including rights in computer software), rights in know-how,
semi-conductor topography rights, rights of extraction relating to
databases, confidential information and other intellectual property or
similar proprietorship rights, in each case whether registered or
unregistered and including applications for the grant of such rights
and all rights or forms of protection having equivalent or similar
effect anywhere in the world;
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"MATERIAL" means material to the business, operations, financial
conditions or prospects of the Group as a whole;
"MATERIAL ADVERSE EFFECT" means any condition, circumstance, change or
effect that is materially adverse to the business, prospects, operation
or financial condition of the Group as a whole;
"PRC" means the People's Republic of China;
"PRO RATA SHARE" with respect to any Shareholder, means the ratio of:
(a) the total number of Common Shares held by that Shareholder
(including any Common Shares Equivalents) to (b) the total number of
Common Shares and Common Shares Equivalent outstanding at the time the
determination is made (on a fully diluted as converted basis);
"PURCHASE PRICE" means USD4.57 per Series A Preference Shares;
"QUALIFYING IPO" means a firm commitment underwritten initial public
offering of the Common Shares (including, as the case may be, in the
form of depository receipts) that has been registered under the
Securities Act of 1933, as amended at a public offering price of not
less than USD15 per shares and gross proceeds to the Company in excess
of US20 million or in a similar public offering of Common Shares in a
jurisdiction and on a recognised securities exchange outside of the
United States, provided such public offering in terms of price,
offering proceeds and regulatory approvals is reasonably equivalent to
the aforementioned public offering in the United States;
"REDEMPTION PRICE" means USD4.57 for each Series A Preference Shares;
"REGISTRATION RIGHTS AGREEMENT" means the agreement in the agreed form
marked "B" under which the Company grants to the holders of Series A
Preferred Shares certain registration rights;
"RE-ORGANISATION" means, including without limitation, the proper and
valid transfer of item (i) to (iv) to the Company shall have been
completed in the form and substance with the satisfaction of Comtech:-
(i) 100% shareholding in subsidiary registered in PRC, namely [chinese
name] and 100% shareholding in subsidiary registered in Hong Kong,
namely Oriental Intelligence Technologies Co., Limited (collectively
"the Subsidiaries"), (ii) account receivables and other receivables of
the Subsidiaries, (iii) fixed assets of the Subsidiaries and (iv) cash
and bank balances of the Subsidiaries as reflected in the un-audited
management accounts of the Subsidiaries at 30 November 2005.
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On the completion of re-organisation, these 2 subsidiaries will become
a wholly owned subsidiary of the Company.
In addition to that, the Company will incorporate a wholly owned
subsidiary in Thailand and Malaysia on or before 31 January 2005.
"SERIES A PREFERRED SHARES" means the shares of the Company's Series A
Preferred Stock, each of which is convertible into one Common Share;
"SHAREHOLDER" means a person registered in the books of the Company as
the holder of any Share;
"SHARES" means Common Shares and Series A Preferred Shares;
"SUBSIDIARY" shall have the meaning given to it in Section 2 of the
Companies Ordinance, Cap. 32, Laws of Hong Kong;
"TAXATION" means (i) any liability to any form of taxation, duty,
impost, levy, rate, or other amount payable to any revenue, customs or
fiscal authorities whenever created or imposed and of any part of the
world, including, without limitation, profits tax, provisional profits
tax, interest tax, salaries tax, property tax, taxes on income, estate
duty, capital duty, stamp duty, payroll tax, rates, customs and excise
duties and other similar liabilities, (ii) all interest, penalties,
costs, charges and expenses incidental or relating to the liability to
Taxation;
"USD" means United States dollars; and
"WARRANTIES" means the representations and warranties given under
Clause 4 and "WARRANTY" shall be construed accordingly.
1.2 Any reference, express or implied, to an enactment includes
references to:
(a) that enactment as re-enacted, amended, extended or applied by
or under any other enactment (before or after the signature of
this Agreement);
(b) any enactment which that enactment re-enacts (with or without
modification);
(c) any subordinate legislation made (before or after the
signature of this Agreement) under that enactment, as
re-enacted, amended, extended or applied as described in
paragraph (a) above, or under any enactment referred to in
paragraph (b) above; and
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(d) "enactment" includes any legislation in any jurisdiction.
1.3 In this Agreement:
(a) words importing the singular shall include the plural and vice
versa;
(b) words denoting persons shall include bodies corporate and
unincorporated associations of persons and vice versa;
(c) references to a party to this Agreement shall include
successors and permitted assigns of that party;
(d) references to issued share capital or shareholding in the
Company "on a fully-diluted basis" are references to the
issued share capital or shareholding in the Company including
only (i) the Common Shares issued, allotted and outstanding
and (ii) the aggregate number of Common Shares issuable were
all of the Common Shares Equivalents in issue converted into
and/or exercised for Common Shares in accordance with the
rights attached to them; and
(e) references to "liabilities" include actual and contingent
liabilities and incurred whether solely or jointly with other
persons and in the case of liabilities of a Group Company
whether or not incurred in the ordinary course of its
business.
1.4 Sub-clauses 1.1 to 1.3 apply unless the contrary intention
appears.
1.5 The headings in this Agreement do not affect its
interpretation.
1.6 Any schedule or annex to this Agreement shall take effect as
if set out in this Agreement and references to this Agreement
shall include its schedules, annexes and the recitals.
2 SUBSCRIPTION
2.1 Subject to the terms and conditions of this Agreement, the
Subscriber shall subscribe and the Company shall allot to the
Subscriber the number of Series A Preferred Shares set out in
the table below:
6
NAME NUMBER OR SERIES A TOTAL SUBSCRIPTION PRICE
PREFERRED SHARES (USDm)
Comtech 547,000 2.5
2.2 The Series A Preferred Shares are subject to the rights and
limitations set out in Schedule 6.
3 CONDITIONS
3.1 The subscription of the Series A Preferred Shares by the
Subscriber under this Agreement is conditional on the
following conditions being fulfilled to the satisfaction of
the Subscriber:
(a) the Subscriber notifying the Company that without prejudice to
any claims for breach of the Warranties or otherwise in this
Agreement, they are satisfied upon inspection and
investigation as to the respective corporate, taxation and
financial position and operation of the Group;
(b) the delivery of evidence in form and substance satisfactory to
the Subscribers that the existing Articles of the Company have
been amended in a form acceptable to the Subscriber;
(c) the delivery to the Subscriber of a certified copy of the
resolutions of the Board and shareholders of the Company
adopting the new Articles in the form annexed hereto marked
"C", authorising the issue of the Series A Preferred Shares to
the Subscribers, approving the execution by the Company of
this Agreement, the Registration Rights Agreement and the
Confidentiality and Non-Competition Agreement and the
appointment of the additional Directors as set out in Clause
6.1(a)(ii);
(d) the delivery to the Subscriber of the duly executed
Registration Rights Agreement and the Confidentiality and
Non-Competition Agreements;
(e) the delivery to the Subscriber of a copy of the register of
members of the Company as at the date of Completion duly
certified by an officer of the Company to be true, complete
and correct.
(f) the delivery to the Subscriber of an opinion in form and
substance satisfactory to the Subscribe from the Company's
British Virgin Islands counsel confirming, inter alia, the due
incorporation and establishment of the Company.
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(g) the delivery of evidence in form and substance satisfactory to
the Subscriber that the reorganization has been completed, and
a certified copy of resolutions of the Board and shareholders
of the Subsidiaries as exhibit in Schedule 2(B) in approving
to transfer 100% shareholding to the Company and adopting the
new Articles in the form annexed hereto marked "D".
(h) the delivery of evidence in form and substance satisfactory to
the Subscriber that the shareholders of the Subsidiaries as
exhibit in Schedule 2(B) are holding the shares as trustee of
the Company and will waive all interest in the subsidiaries on
or after 30 November 2005.
(i) the delivery of evidence in form and substance satisfactory to
the Subscriber that the Company has obtained, including
without limitation, government approval in each jurisdiction
region where the subsidiary to conduct business in respect of
the legitimate of the nature of business activities and the
shareholding structure of the subsidiaries.
3.2 The Subscribers may waive all or any of the Conditions in
whole or in part at any time by notice in writing to the
Company.
3.3 The Company shall use all reasonable endeavours to procure
that the Conditions are fulfilled on or before 31 January 2006
or such later date as the Company and the Subscriber may agree
in writing from time to time.
3.4 If all the Conditions are not fulfilled or waived on or before
the date specified in Sub-clause 3.3, then notwithstanding any
contrary provisions in this Agreement, this Agreement will
terminate and no party shall have any rights or obligations
under this Agreement (except in respect of any antecedent
breach of any of the provisions contained in Sub-clause 3.3
and Clauses 4 and 5).
4 WARRANTIES
4.1 The Company hereby represents, warrants and undertakes to the
Subscribers in the terms of Sub-clause 4.2 and acknowledges
that the Subscribers are entering into this Agreement and
subscribing for the Series A Preferred Shares in reliance upon
the same.
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4.2 The Company represents, warrants and undertakes that each of
the statements in Schedule 3 is true and accurate at the date
hereof and at all times subsequent to the date hereof up to
and including the date of Completion as if repeated on each
day immediately prior to Completion.
4.3 Each of the Warranties is separate and independent and except
as expressly provided to the contrary in this Agreement is not
limited:
(a) by reference to any other paragraph of Schedule 3; or
(b) by anything in this Agreement;
and none of the Warranties shall be treated as qualified by any
constructive knowledge on the part of any of the Subscribers or any of
their respective agents.
4.4 The Company agrees (for itself and as trustee for each Group
Company) to waive any rights or claims which it may have in
respect of any misrepresentation, inaccuracy or omission in or
from any information or advice supplied or given by any Group
Company or its employees in connection with the giving of the
Warranties.
5 COVENANTS UP TO COMPLETION
5.1 The Company shall procure that unless with the prior written
consent of the Subscriber, none of the Group Companies shall
before Completion:
(a) declare, make or pay any dividend or other distribution,
dispose of any of its Material assets (including shares in any
Subsidiary) or do or allow to be done anything which renders
its financial position and/or prospects materially less
favourable than at the date of this Agreement; or
(b) create, issue, purchase or redeem any class of share or loan
capital; or
(c) agree, conditionally or otherwise, to do any of the foregoing;
or
(d) in any other way depart from the ordinary course of its
day-to-day business; or
9
(e) grant any option or right of pre-emption over, or mortgage,
charge or otherwise encumber, any of its shares or any
securities convertible or exchangeable into its shares; or
(f) pass any resolution or change its articles of incorporation
(or equivalent constitutional documents); or
(g) do or omit to do or cause or allow to be done or omitted to be
done any act or thing which would result (or be likely to
result) in a material breach of any of the Warranties.
5.2 Save as required by this Agreement or unless with the prior
written consent of the Subscribers, the Existing Shareholders
shall not before Completion, dispose of any interest in the
Shares or any of them or grant any option or right of
pre-emption over, or mortgage, charge or otherwise encumber
the Shares or any of them.
5.3 The Company shall immediately notify each of the Subscribers
in writing of any matter or thing which arises or becomes
known to them before Completion which:
(a) constitutes (or would after the lapse of time constitute) a
misrepresentation or a breach by the Company of any of the
Warranties or the undertakings or other provisions set out in
this Agreement; or
(b) has, or would be likely to have, after Completion, a Material
Adverse Effect.
6 COMPLETION
6.1 Subject to the fulfilment of the Conditions, on Completion:
(a) board resolutions of the Company shall be passed authorising
and approving:
(i) the allotment and issue of the Series A Preferred
Shares to the Subscribers in the proportions and for
the subscription price set out in Clause 2 and as
soon as practicable thereafter entry of the
Subscribers in the register of members of the Company
as the holders of, and issue share certificates in
respect of, the Series A Preferred Shares in the said
proportions;
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(ii) the appointment of ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
as additional directors of the Company.
(b) the following documents shall be delivered to the Subscribers:
(i) certified true copies of the register of members and
register of directors in respect of the Company as at
Completion;
(ii) duly executed copies of the Registration Rights
Agreement and Non-Compete and Non-Disclosure
Agreements.
6.2 Upon completion of the matters referred to in Sub-clause 6.1,
the Subscribers shall cause payment to be made to the Company
in immediately available funds in settlement of the
subscription money payable to the Company in respect of the
subscription of Series A Preferred Shares under this
Agreement.
6.3 If for any reason the provisions of Sub-clause 6.2 are not
fully complied with, the Subscribers may elect (which election
shall be binding on all the Subscribers) (in addition and
without prejudice to all other rights or remedies available to
the Subscribers) to rescind this Agreement or to fix a new
date for Completion.
7 USE OF THE SUBSCRIPTION MONIES
The Company undertakes to the Subscribers to apply the proceeds of the
subscription of Series A Preferred Shares for working capital to
finance the expansion of the Business.
8 BUSINESS OF THE COMPANY
The business of the Company shall be the provision of technology and
engineering services, business process outsourcing, network system
integration as well as the provision of related training and
maintenance services.
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9 BOARD OF THE COMPANY
9.1 As from Completion, the Subscriber and all Existing
Shareholders shall vote their shares in the Company such that
the board of directors of the Company (the "BOARD") will be
constituted in the following manner:
(a) the Board will consist of five (5) directors to be nominated
by the Shareholders. So long as at least 10% of the Series A
Preferred Shares remain outstanding, the holders of the Series
A Preferred Shares shall be entitled to elect four members of
the Board. The Existing Shareholders shall be entitled to
elect one members of the Board;
(b) any director appointed pursuant to this Sub-clause 9.1 may be
removed by the same Shareholder who appointed him and may be
replaced by another person nominated by such Shareholder so
long as that Shareholder remains entitled to appoint a
director under this Sub-clause 9.1;
(c) the chairman of the Board will be appointed by the Directors;
(d) in the case of equality of votes, the chairman of the Board
shall not have a second or casting vote;
(e) at the sole election of the holders of Series A Preferred
Shares, such holders can appoint a representative to attend
all meetings of the Board and committees thereof as an
observer; and
(f) the foregoing rights and obligations shall cease upon a
Qualifying IPO.
10 RESERVED MATTERS
The Company undertakes to the Subscribers that, it shall not, and shall
procure that none of its subsidiaries shall, do any of the things
listed in Schedule 4 unless the same have been approved by Comtech.
11 CONTINUING OBLIGATIONS
The Company undertakes to the Subscribers that it shall comply with all
the obligations set out in Schedule 5.
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12 PRE-EMPTIVE RIGHTS
12.1 If the Company desires to issue Common Shares and/or Common
Shares Equivalents in a transaction or series of transactions
intended to raise capital ("FUND RAISING ISSUANCE") for the
Company or any of its Subsidiaries, then the Shareholders
shall procure that the Company shall first notify the holders
of Series A Preferred Shares of the terms and conditions of
such proposed issue and shall permit each holder of Series A
Preferred Shares (without obligation) to subscribe (on such
terms and subject to such conditions) up to the fraction of
such securities being offered equal to (a) the number of
Common Shares owned by such holders of Series A Preferred
Shares plus the aggregate number of Common Shares then
issuable were all of such holders of Series A Preferred Shares
Common Shares Equivalents (if any) converted into and/or
exchanged for Common Shares, divided by (b) the aggregate
number of Common Shares then outstanding plus the aggregate
number of Common Shares then issuable were all of the
Company's outstanding Common Shares Equivalents converted into
and/or exchanged for Common Shares.
12.2 For the avoidance of doubt, "Fund Raising Issuance" for the
purpose of Sub-clause 12.1 excludes any issuance of Common
Shares and/or Common Shares Equivalents:
(a) to employees of Group Companies pursuant to purchase or share
option plans approved by the Board, which shall not exceed 20
per cent of all shares of the Company on a fully diluted basis
immediately subsequent to the completion of the financing
contemplated hereby; or
(b) upon (i) conversion of any Series A Preferred Shares or (ii)
conversion or exchange of any other Common Shares Equivalents
if such Common Shares Equivalents were either offered to the
Shareholders pursuant to Sub-clause 12.1 or were exempt from
such offer pursuant to the terms hereof; or
(c) in a Qualifying IPO.
12.3 The holders of Series A Preferred Shares shall have fifteen
(15) Business Days after receipt of such notice referred to in
Clause 12.1 (or such longer period as the Company may specify)
to irrevocably elect by notice to the Company in writing
whether to subscribe for such securities on such terms. After
this period has expired, the Company shall have up to ninety
(90) days to issue any securities not subscribed by the
holders of Series A Preferred Shares; provided however, that
if during such 90 day period, the Company desires to offer
such securities on terms or conditions that are more
favourable to the holders of Series A Preferred Shares thereof
in any material respect, it shall first reoffer such
securities to the holders of Series A Preferred Shares
pursuant to the procedures set forth in this Clause 13.
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13 RESTRICTIONS ON TRANSFER
13.1 Subject to Clause 13.4, if any Shareholder (the "TRANSFERRING
SHAREHOLDER") proposes to sell, pledge, or otherwise transfer
any Shares (the "STOCK") or any interest therein to any person
or entity then the other holders of any Series A Preferred
Shares at the time (the "NON-TRANSFERRING SHAREHOLDERS") shall
have a right of first refusal (the "RIGHT OF FIRST REFUSAL")
to purchase some or all of the Stock proposed to be sold. The
Transferring Shareholder shall give a written notice (the
"TRANSFER NOTICE") to the Non-transferring Shareholders
describing fully the proposed transfer, including the number
of Stock proposed to be transferred, the proposed transfer
price, the name and address of the proposed transferee, and
whether the Company has exercised its right of first refusal,
if any, with respect to that Stock. The Transfer Notice shall
be signed both by the Transferring Shareholder and by the
proposed transferee, and shall constitute a binding commitment
of both parties for the transfer of that Stock. Each
Non-transferring Shareholder shall then have the right to
purchase the ratio of (a) the total number of Common Shares or
Common Shares Equivalents of a Non-transferring Shareholder to
(b) the total number of Common Shares and Common Share
Equivalents held by all Non-transferring Shareholders of the
Stock subject to the Transfer Notice at a price per share
equal to the proposed per share transfer price, by delivery of
a notice of exercise of its Right of First Refusal within 20
days after the date the Transfer Notice is delivered to the
Non-transferring Shareholder. To the extent the
Non-transferring Shareholders exercise their Right of First
Refusal in accordance with the terms and conditions set forth
in this Clause 13, the number of Shares that the Transferring
Shareholder may sell to the proposed transferee in the
transaction shall be correspondingly reduced.
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13.2 If the Transferring Shareholder proposes to sell, pledge, or
otherwise transfer any Stock or any interest therein to any
person or entity, including another Shareholder, and not all
Non-transferring Shareholders have elected to exercise their
Right of First Refusal under Clause 13.1, then each
Non-transferring Shareholder shall have the right, exercisable
upon written notice to the Transferring Shareholder within 20
days after the date the Transfer Notice is delivered to the
Non-transferring Shareholders, to participate in the sale of
Stock on the same terms and conditions as the Transferring
Shareholder to the extent of that Non-transferring
Shareholder's Pro-Rata Share (the "CO-SALE RIGHT"). Notice of
exercise of a Co-Sale Right shall indicate the number of
Shares the Non-transferring Shareholder wishes to sell under
its Co-Sale Right. Any Non-transferring Shareholder may elect
to sell all or some of the shares of Stock then held by that
Non-transferring Shareholder (or issuable upon conversion or
exercise of any convertible debt, warrants, or similar
securities then held by the Non-transferring Shareholders). To
the extent the Non-transferring Shareholders exercise their
Co-Sale Right in accordance with the terms and conditions set
forth in this Clause 13.2, the number of Shares that the
Transferring Shareholder may sell in the transaction shall be
correspondingly reduced.
13.3 If the Non-transferring Shareholders do not exercise their
Right of First Refusal or their Co-Sale Right with respect to
the sale of the Stock subject to the Transfer Notice, the
Transferring Shareholder may, not later than 60 days following
delivery to the Company and the Non-transferring Shareholders
of the Transfer Notice, conclude a transfer of all of the
Stock covered by the Transfer Notice on terms and conditions
not more favourable to the transferor than those described in
the Transfer Notice. Any proposed transfer on terms and
conditions more favourable than those described in the
Transfer Notice, as well as any subsequent proposed transfer
of any Stock by the Transferring Shareholder, shall again be
subject to the Right of First Refusal and Co-Sale Right of the
Non-transferring Shareholders and shall require compliance by
the Transferring Shareholder with the procedures described in
this Clause 13.
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13.4 Notwithstanding the above, each of the Subscribers may
transfer all or any of their Shares to their Affiliates
provided always that the transferee shall agree in writing
with the Company (for itself and as trustee for all the
Shareholders), as a condition to such transfer, to be bound by
all of the provisions of any shareholders agreement relating
to the Company then subsisting to the same extent as if such
transferee were the transferor Shareholder.
13.5 Any sale, assignment, transfer or disposal of Common Shares or
Common Shares Equivalents not permitted by or in accordance
with this Agreement or the Articles shall be null and void.
14 CONFIDENTIALITY
14.1 Each party hereto undertakes with the others that it shall use
all reasonable endeavours to ensure that any information of a
secret or confidential nature (including, without limitation,
any of the Group Companies' business plan, dealings,
transactions, affairs, proposals, inventions, business, etc.)
received by it relating to the others or any of the others'
Affiliates shall be treated as confidential and shall not be
disclosed to any third party or utilised for personal gain or
interest or for the benefit or interest of third parties
except as required by law or any competent regulatory body or
to the extent that such information is in the public domain
other than through breach of this Sub-clause 14.1 or except in
the ordinary and proper course of the business and operation
of the Group Companies or, except, in the case of the
Subscriber, the disclosure of information relating to the
Company and its business to persons concerned in the
management of the Subscriber, its own investors and any
advisers acting on their behalf.
14.2 A Shareholder shall not be in breach of Sub-clause 14.1 by
virtue of any Director passing to the Shareholder who
appointed him any information he receives as a director of the
Company, or of any subsidiary of the Company, but nothing
contained in this Agreement shall require such disclosure
where the Director's fiduciary duty to the Company, or of any
such subsidiary, would be breached as a result.
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14.3 Nothing in this Clause 14 shall prohibit the Company or any
Shareholder from disclosing any of the information referred to
in Sub-clause 14.1 which is reasonably required in connection
with, in the case of the Company, raising equity or debt
funding for any Group Company or, in the case of any
Shareholder, selling its Shares to a potential purchaser
permitted under this Agreement and the Articles, provided that
in each case the party receiving such information shall have
first executed an undertaking to keep confidential such
information in a form acceptable to the Company and shall have
first provided a copy of the same to the Company.
15 COSTS AND EXPENSES
Each party shall bear its own cost and expense (including, without
limitation, legal fees and consultancy expenses) incurred in relation
to the preparation and negotiation of this Agreement and the documents
referred to herein provided that subject to Completion the Company
shall, out of the proceeds of the subscription monies to be paid by the
Subscriber at Completion, pay the legal fees and consultancy expenses
incurred by the Subscriber.
16 ANNOUNCEMENTS
16.1 No party shall make or permit any person connected with it to
make any announcement concerning this Agreement or any
ancillary matter before, on or after completion except as
required by law or any competent regulatory body or with the
prior written approval of the other parties, such approval not
to be unreasonably withheld or delayed.
17 DURATION
17.1 This Agreement shall continue at all times after Completion
and thereafter shall terminate only upon the consummation of a
Qualifying IPO.
17.2 Notwithstanding Sub-clause 17.1 but subject to Sub-clause
17.3, a Shareholder shall cease to have any further rights or
obligations under this Agreement on ceasing to hold Shares at
any time following Completion.
17
17.3 Sub-clause 17.2 shall not affect any of the rights or
liabilities of any parties in connection with any breach of
this Agreement which may have occurred before that Shareholder
ceased to hold Shares.
18 NOTICES
In the case of any notice required, desired or permitted to be given
hereunder to any of the parties, such notice shall be either delivered
personally, sent by courier, sent by registered post or transmitted by
facsimile to the following address (or other address as the respective
parties may specify in a notice given herein) and shall be deemed to
have been received, in the case of personal delivery or courier
service, on the date on which it was left at such address, or in the
case of registered post, five Business Days after being deposited in
the post, or in the case of transmission by facsimile, when received:
Comtech Group
Address : Century Yard, Cricket Square, ▇▇▇▇▇▇▇▇
Drive, PO Box 2681, ▇▇▇▇▇▇ Town, Grand
Cayman
Facsimile : ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone : 0755 852 2155 2688
For the attention of : ▇▇▇▇▇▇▇ ▇▇▇▇
HUAMENG ENGINEERING SERVICES LTD.
Address : ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile : ▇▇▇ ▇▇▇▇▇▇▇▇
Telephone : 852 25247106
For the attention of : [chinese name]
Existing Shareholders as per the official records of the
Company
18
19 SEVERABILITY
The provisions contained in each clause and sub-clause of this
Agreement shall be enforceable independently of each of the others and
its validity shall not be affected if any of the others is invalid. If
any of those provisions is void but would be valid if some parts of the
provision were deleted, the provision in question shall apply with such
modification as may be necessary to make it valid.
20 GENERAL
20.1 Save as provided otherwise in this Agreement, none of the
rights or obligations under this Agreement may be assigned or
transferred without the prior written consent of Comtech.
20.2 Nothing in this Agreement shall be deemed to constitute a
partnership between any of the parties nor constitute any
party the agent of any other party for any purpose.
20.3 This Agreement may be executed in any number of counterparts,
all of which together shall constitute one and the same
agreement, and any party may enter into this Agreement by
executing a counterpart.
20.4 The Shareholders agree, as between themselves, that they shall
procure the convening of all meetings and the giving of all
waivers and consents and the passing of all resolutions and
shall otherwise exercise all powers and rights available to
them in order to give effect to the provisions of this
Agreement.
20.5 The Shareholders agree, as between themselves, that if any
provisions of the memorandum and/or articles of association or
incorporation or by-laws of any Group Company at any time
conflict with any provisions of this Agreement, the provisions
of this Agreement shall prevail and the shareholders shall
exercise all powers and rights available to them to procure
the amendment of such memorandum and/or articles of
association or by-laws to the extent necessary to permit such
Group Company and its affairs to be regulated as provided in
this Agreement.
19
20.6 Each of the obligations, representations, warranties and
undertakings set out in this Agreement which is not fully
performed at Completion will continue in force after
Completion.
20.7 If any Subscriber sells or transfers its Shares at any time in
accordance with this Agreement and the Articles, the benefit
of each of the obligations, representations, warranties and/or
undertakings undertaken or given by the Company and the
Existing Shareholders may be assigned to the purchaser or
transferee of such Shares who may enforce them as if he had
been named in this Agreement as the transferor Subscriber and
the purchaser or transferee shall, as a condition of the sale
or transfer, undertake to each of the parties to this
Agreement in a form satisfactory to them to be bound by all
the obligations of the seller or transferor under this
Agreement.
20.8 Save as provided otherwise, where any obligation,
representation, warranty or undertaking in this Agreement is
expressed to be made, undertaken or given by two or more
persons, such person shall be jointly and severally
responsible in respect of it.
20.9 Time is of the essence in relation to this Agreement, both as
regards the dates and periods mentioned in this Agreement and
as regards any dates and periods which may be substituted for
them in accordance with this Agreement or by agreement in
writing between the parties.
20.10 Each of the parties hereto agrees to use all best efforts to
ensure that the rights granted hereunder are effective and
that the respective parties hereto enjoy the benefits thereof.
Each of the parties hereto will not avoid or seek to avoid the
observance or performance of any of the terms to be performed
hereunder by the Company or Subsidiaries, as the case may be,
but will at all times in good faith assist in the carrying out
of all of the provisions of this Agreement and in the taking
of all such actions as may be necessary, appropriate or
reasonably requested by the other party(ies) in order to
protect the rights of such requesting party(ies) against
impairment
21 WHOLE AGREEMENT
21.1 This Agreement and the documents referred to in it contain the
whole agreement between the parties relating to the
transactions contemplated by this Agreement and those
documents and supersede all previous agreements between the
parties relating to these transactions.
20
21.2 Each of the parties acknowledges that, in agreeing to enter
into this Agreement, it has not relied on any representation,
warranty, collateral contract or other assurance (except those
set out in this Agreement and the documents referred to in it)
made by or on behalf of any other party before the signature
of this Agreement. Each of the parties waives all rights and
remedies which, but for this Sub-clause 21.2, might otherwise
be available to it in respect of any such representation,
warranty, collateral contract or other assurance, provided
that nothing in this Sub-clause 21.2 shall limit or exclude
any liability for fraud.
22 GOVERNING LAW
22.1 This Agreement shall be governed by and construed under the
laws of the Hong Kong Special Administrative Region of the
Peoples' republic of China ("Hong Kong").
21
SCHEDULE 1 (A)
THE CAPTABLE (PRE INVESTMENT)
NAME NUMBER OF COMMON SHARES OWNERSHIP (%)
[chinese] 310,000 59.27
[chinese] 90,000 17.21
Asia Pacific Technology Service Ltd. 123,000 23.52
------------------------ -------------
Total 523,000 100.0
======================== =============
22
SCHEDULE 1 (B)
THE CAPTABLE (POST INVESTMENT)
NAME NUMBER OF NUMBER OF OWNERSHIP (%)
PREFERENCE SHARES COMMON SHARES
Comtech Group 547,000 51.12
[chinese] 310,000 28.97
[chinese] 90,000 8.41
Asia Pacific Technology
Service Ltd. 123,000 11.50
----------------- -------------- --------------
Total 547,000 523,000 100.0
================= ============== ==============
23
SCHEDULE 2 (A)
PARTICULARS OF THE COMPANY (PRE INVESTMENT)
NAME: Huameng Engineering Services Ltd.
REGISTERED OFFICE: ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
PLACE OF INCORPORATION: British Virgin Islands
DIRECTORS: [chinese]
AUTHORISED SHARE CAPITAL: Five Hundreds and Twenty Three
Thousands (523,000) of common shares
with par value of USD0.01 per share
SHAREHOLDERS NAME NUMBER OF COMMON SHARES SHAREHOLDING %
[chinese] 310,000 59.27
[chinese] 90,000 17.21
Asia Pacific Technology Service Ltd. 123,000 23.52
----------------------- --------------
523,000 100.0
======================= ==============
24
SCHEDULE 2 (A) (CONT')
PARTICULARS OF THE COMPANY (POST INVESTMENT)
NAME: Huameng Engineering Services Ltd.
REGISTERED OFFICE: ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
PLACE OF INCORPORATION: British Virgin Islands
DIRECTORS: Kang ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇,
▇▇▇▇▇, ▇▇ ▇▇▇▇▇, [chinese]
AUTHORISED SHARE CAPITAL: One Million and Seventy Thousands
(1,070,000) shares of stock, consisting
of Five Hundreds and Forty Seven
Thousand (547,000) shares of Series A
Preferred Stock and Five Hundreds and
Twenty Three Thousands (523,000) of
Common Shares
SHAREHOLDERS NAME NUMBER OF NUMBER OF SHAREHOLDING %
PREFERENCE SHARES COMMON SHARES
Comtech Group 547,000 51.12
[chinese] 310,000 28.97
[chinese] 90,000 8.41
Asia Pacific Technology Service Ltd. 123,000 11.50
----------------- -------------- ---------------
547,000 523,000 100.0
================= ============== ===============
25
SCHEDULE 2(B)
PARTICULARS OF THE SUBSIDIARIES (PRE RE-ORGANISATION)
NAME: [chinese]
Shenzhen Huameng Software Co. Ltd.
REGISTERED OFFICE: [chinese]
▇/▇, ▇-▇ ▇▇▇▇▇▇▇▇, ▇▇ Que Ling Industrial
Estate, High Tech Industrial Park, ▇▇▇ ▇▇▇▇,
Shenzhen, PRC
PLACE OF INCORPORATION: [chinese], PRC
DIRECTORS: [chinese]
AUTHORISED SHARE CAPITAL: RMB10,000,000
SHAREHOLDERS NAME SHAREHOLDING %
[chinese] 25
[chinese] 56
[chinese] 9
[chinese] 10
---------------
100
===============
26
SCHEDULE 2(B) (CON'T)
PARTICULARS OF THE SUBSIDIARIES (POST RE-ORGANISATION)
NAME: [chinese]
Shenzhen Huameng Software Co. Ltd.
REGISTERED OFFICE: [chinese]
▇/▇, ▇-▇ ▇▇▇▇▇▇▇▇, ▇▇ Que Ling Industrial
Estate, High Tech Industrial Park, ▇▇▇ ▇▇▇▇,
Shenzhen, PRC
PLACE OF INCORPORATION: [chinese], PRC
DIRECTORS: [chinese] and ▇▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇
AUTHORISED SHARE CAPITAL: RMB10,000,000
SHAREHOLDERS NAME SHAREHOLDING %
Huameng Engineering Services Ltd. 100
--------------
100
==============
27
SCHEDULE 2(B) (CON'T)
PARTICULARS OF THE SUBSIDIARIES (PRE RE-ORGANISATION)
NAME: Oriental Intelligence Technologies Co., Limited
REGISTERED OFFICE: Unit A, 6/F, ▇▇▇ ▇▇▇▇▇ Building, ▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
PLACE OF INCORPORATION: Hong Kong
DIRECTORS: [chinese]
AUTHORISED SHARE CAPITAL: HKD10,000 divided into 10,000 shares of HKD1.00
each
SHAREHOLDERS NAME SHAREHOLDING %
[chinese] 98
[chinese] 2
--------------
100
==============
28
SCHEDULE 2(B) (CON'T)
PARTICULARS OF THE SUBSIDIARIES (POST RE-ORGANISATION)
NAME: Oriental Intelligence Technologies Co., Limited
REGISTERED OFFICE: Unit A, 6/F, ▇▇▇ ▇▇▇▇▇ Building, ▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
PLACE OF INCORPORATION: Hong Kong
DIRECTORS: [chinese], ▇▇▇▇▇ ▇▇▇▇
AUTHORISED SHARE CAPITAL: HKD10,000 divided into 10,000 shares of HKD1.00
each
SHAREHOLDERS NAME SHAREHOLDING %
Huameng Engineering Services Ltd. 100
--------------
100
==============
29
SCHEDULE 3
WARRANTIES
WARRANTIES BY THE COMPANY
1 AUTHORITY OF THE GROUP COMPANIES
The Company has full power and authority to execute, deliver and
perform this Agreement and all of the agreements, instruments and
documents being or to be executed and delivered under this Agreement or
in connection therewith ("ANCILLARY DOCUMENTS"). The execution,
delivery and performance of this Agreement and the Ancillary Documents
by each of the Group Companies (where applicable) have been duly
authorised by all necessary corporate action on the part of the
relevant Group Companies.
2 NO CONFLICT
Neither the execution and delivery of this Agreement or the Ancillary
Documents, by any of the Group Companies or the consummation of any of
the transactions contemplated hereby or thereby nor compliance with or
fulfilment of the terms, conditions and provisions hereof or thereof
will:
(a) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or
an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the
creation or imposition of any encumbrance upon any of the
assets or properties of any Group Company under (1) the
constitutional documents of any Group Company; (2) any
contractual obligation applicable to any Group Company; (3)
any court order applicable to any Group Company; or (4) any
requirements of law or regulation applicable to any Group
Company; or (4) any requirements of law or regulation
applicable to any Group Company and in each case, gives or
might give rise to a Material Adverse Effect; or
(b) require the approval, consent, authorisation or act of, or the
making by any Group Company of any declaration, filing or
registration with, any person.
30
3 ORGANISATION AND CAPITAL STRUCTURE OF COMPANY
On completion of "Re-organisation", the Company will acquire 100%
shareholding of [chinese] at a consideration of RMB6.8M. and Oriental
Intelligence Technologies Co., Limited at a consideration of
HKD765,000. The re-organisation shall have been completed in form and
substance satisfactory to Comtech within 60 days after the signing of
this agreement.
Also, the Company shall delivery to the Subscriber of a certified copy
of the resolutions of the Board and shareholders of the Company and all
of its subsidiaries in approving the transfer of 100% shareholding from
subsidiaries to the Company.
The Company shall also delivery to the Subscribe of a certified copy of
government approval in each jurisdiction region where the subsidiary to
conduct business in respect of the legitimate of the nature of business
activities and the shareholding structure of the subsidiaries.
3.1 The Company is a corporation duly organized and validly existing under
the laws of British Virgin Islands. The Company has full power and
authority to own [chinese] and Oriental Intelligence Technologies Co.,
Limited directly and to otherwise carry on its business as currently
conducted and as presently proposed to be conducted.
3.2 All particulars of the Company set out in Schedule 2 (A) are true and
accurate. Except as disclosed in this Agreement, there are no
agreements, arrangements, options, warrants, calls, rights or
commitments of any character relating to the issuance, sale, purchase
or redemption of any shares of capital stock of the Company. Except as
set out in this Agreement, no person has any preemptive, stock purchase
or other rights to acquire shares. All of the outstanding Common Shares
are validly issued, fully paid and non-assessable and were not issued
in violation of any pre-emptive or similar rights. The legal and
beneficial ownership of the Common Shares are set out in Schedule 2
(A).
3.3 True, complete and up-to-date copies of the constitutional documents of
the Company, including without limitation its Articles, its register of
stockholders, register of directors and register of charges, have been
made available to the Subscribers.
31
4 ORGANISATION AND CAPITAL STRUCTURE OF SUBSIDIARIES
4.1 [chinese] will be re-organised to become a wholly owned subsidiary of
the Company. It is duly incorporated and validly existing under the
laws of the PRC. It has conducted its business and corporate affairs in
accordance with its business license and with all applicable laws and
regulations and has made the relevant payment of the registered capital
in accordance with all applicable requirements. The existing
organisation and capital structure of the subsidiary is exhibit on
Schedule 2(B) hereto.
4.2 Oriental Intelligence Technologies Co., Limited will be re-organised to
become a wholly owned subsidiary of the Company. It is duly
incorporated and validly existing under the laws of the Hong Kong. It
has conducted its business and corporate affairs in accordance with its
business license and with all applicable laws and regulations and has
made the relevant payment of the registered capital in accordance with
all applicable requirements. The existing organisation and capital
structure of the subsidiary is exhibit on Schedule 2(B) hereto.
4.3 The Company will incorporate a wholly owned subsidiary in Thailand and
Malaysia on or before 31 January 2005. They are duly incorporated and
validly existing under the laws of Thailand and Malaysia. It has
conducted its business and corporate affairs in accordance with its
business license and with all applicable laws and regulations and has
made the relevant payment of the registered capital in accordance with
all applicable requirements.
5 THE SERIES A PREFERRED SHARES
The Series A Preferred Shares and the Common Shares issuable upon
conversion of the Series A Preferred Shares ("CONVERSION SHARES") to be
issued have been or will have been prior to Completion duly and validly
authorised for issuance under the laws of the British Virgin Islands,
and in accordance with the Articles of the Company. The Series A
Preferred Shares when issued and delivered by the Company against
payment in full of the consideration set out in this Agreement will be
duly and validly issued and fully paid and non-assessable and will rank
PARI PASSU in all respects with each other and will have attached to
them the rights and benefits specified in the Articles and save as
provided in this Agreement and the Articles will not be subject to any
pre-emptive or other binder rights in relation to their transfer, will
be free from any lien, charge, encumbrance or other security interest
or third party rights or interests. The Conversion Shares when issued
and delivered by the Company against delivery of the Series A Preferred
Shares being converted, will be duly and validly issued and fully paid
and non-assessable and will rank PARI PASSU in all respects with the
other Common Shares then in issue and will not be subject to any
pre-emptive or other similar rights in relation to their transfer, will
be free from any lien, charge, encumbrance or other security interest
or third party rights or interests.
32
6 SUBSIDIARIES AND INVESTMENTS
The Company does not have any directly or indirectly-owned subsidiaries
apart from [chinese] and Oriental Intelligence Technologies Co.,
Limited nor does it directly or indirectly, own any outstanding voting
securities or other equity interests in or control any corporation,
limited liability company, partnership, trust, joint venture or other
entity apart from shares or equity interest in [chinese] and Oriental
Intelligence Technologies Co., Limited.
7 INFORMATION SUPPLIED
The Company has provided each Subscriber with all the information
reasonably available to it without undue expense that such Subscriber
has requested for deciding whether to purchase the Shares and all
information that the Company reasonably believes is necessary to enable
such Investor to make such decision. Neither this Agreement nor any
other agreements, written statements or certificates made or delivered
in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements
herein or therein not misleading.
8 NO UNDISCLOSED LIABILITIES
To the knowledge and information of the Company after having made all
reasonable enquiries, except for liabilities incurred in the ordinary
course of business of the Group Companies and up to an aggregate amount
not exceeding US$100,000, none of the Group Companies is subject to any
liability.
33
9 AVAILABILITY OF ASSETS
The assets owned, leased or licensed by the Group Companies constitute
all assets and properties necessary for the operation of their
respective businesses as presently conducted.
10 REAL PROPERTY
None of the Group Companies own any real property.
11 INTELLECTUAL PROPERTY
11.1 Each Group Company either (i) owns the entire right, title and interest
in and to all Intellectual Property and software included in its assets
and properties that are used in their respective businesses, free and
clear of any encumbrance, or (ii) has the perpetual, royalty-free right
to use the same in their respective businesses.
11.2 To the knowledge and information of the Company after having made all
reasonable enquiries, no claim of any infringement of any Intellectual
Property of any other person has been received or intimated in respect
of the operations of the respective businesses of the Group Companies;
and no proceedings are pending or threatened which challenge the
validity, ownership or use of any intellectual property owned by the
Group Companies.
11.3 There are no outstanding options, licenses, or agreements of any kind
granted by the Company relating to its Intellectual Property, nor is
the Company bound by or a party to any options, licenses or agreements
of any kind with respect to the Intellectual Property of any other
person or entity, except, in either case, for standard end-user
agreements with respect to commercially readily available Intellectual
Property such as "off the shelf" computer software.
11.4 The Company is not aware that any of its officers or employees is
obliged under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court of administrative agency, that
would interfere with the use of his or her best efforts to promote the
interests of the Company or that would conflict with the Group's
business as proposed to be conducted or that would prevent such
officers or employees from assigning to the Group inventions conceived
or reduced to practice in connection with services rendered to the
Group. Neither the execution nor delivery of this Agreement, the
Confidentiality and Non-Competition Agreement, the Registration Rights
Agreement nor the carrying on of the Group's business by the employees
of the Group will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant, or instrument
under which any of such employees is now obligated. The Company does
not believe it is or will be necessary to utilize any inventions of any
of its employees (or people it currently intends to hire) made prior to
or outside the scope of their employment by the Company.
34
12 EMPLOYEES AND RELATED PARTY TRANSACTIONS
12.1 There is no existing or threatened or pending industrial dispute
involving any Group Company and any of its employees and there is no
arrangement between any Group Company and any trade union or
organisation representing any such employees.
12.2 There are no outstanding payments or benefits (actual or contingent) of
any kind due to any present or former directors or the employees of the
Group including compensation and arrears due, incentives, benefits or
bonuses which remain unpaid and which will not have been settled as at
Completion other than remuneration accrued due or for reimbursement of
business expenses.
12.3 There are no existing service or other agreements or contracts between
any Group Company and any directors or executive or employees which
cannot be fairly terminated by three calendar months' notice or less
without giving rise to any claim for damages or compensation and the
Group has complied in all material respects with all its obligations
under all ordinances and regulations, codes, orders, awards and
agreements in connection with its employees.
12.4 No former employee of the Group has a claim for compensation, wrongful
dismissal or for unfair dismissal or to a redundancy or long service
payment from the Group.
12.5 To the best of the Company's knowledge, no employee, officer,
stockholder or director of the Company or member of his of her
immediate family has any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which
the Company has a business relationship, or any firm or corporation
that competes with the Company, except that employees, stockholders,
officers, or directors of the Company and members of their immediate
families may own stock in publicly traded companies that may compete
with the Company. To the best of the Company's knowledge, no officer,
director, or stockholder or any member of their immediate families is,
directly or indirectly, interested in any material contract with the
Company (other than such contracts as relate to any such person's
ownership of capital stock or the securities of the Company).
35
13 CONTRACTS
The Company is not a party to or bound by any of the following types of
contracts, agreements and instruments:
(a) any contract, agreement, commitment, understanding or
instrument which is Material and not entered into in the
ordinary course of business; and
(b) any contract, agreement, commitment, undertaking or instrument
with a Shareholder or an Affiliate of any Shareholder or any
of the directors of the Company regardless of whether any such
contract is entered into by any Group Company in its ordinary
course of business and whether or not on arms-length basis,
involving an aggregate consideration of over US$50,000 (for all of the
Group Companies together).
14 NO LITIGATION OR REGULATORY ACTION AND NO INSOLVENCY
14.1 There are no lawsuits, claims, suits, proceedings or investigations
pending or (to the knowledge of the Company after having made all
reasonable enquiries) threatened against or affecting any Group Company
or any of the directors of the Company, and there are no lawsuits,
suits or proceedings pending in which any Group Company or any of the
directors of any Group Company is the plaintiff or claimant.
14.2 No liquidation, provisional liquidator, receiver or other person
carrying out any similar function has been appointed anywhere in the
world in respect of the whole or any part of the assets or undertaking
of any Group Company and no appointment of like or similar persons
(including trustee in bankruptcy) have been appointed in respect of the
whole or any part of the assets of any of the directors of any Group
Company.
14.3 True and complete copies of the minute books of all the Group Companies
have been made available to the Subscribers. Such minute books contain
true and complete records of all meetings and other corporate action
taken by the board of directors and shareholders of each Group Company.
36
15 INSURANCE
None of the Group Companies have taken out any insurance cover in
respect of its business, assets and undertaking.
16 ACCOUNTS AND MANAGEMENT ACCOUNTS
16.1 The Accounts:
(a) have been prepared in accordance with the requirements of
relevant legislation and regulation and on a consistent basis
(without changes in the policies of accounting);
(b) show, in all material respects, a true and fair view of the
assets, liabilities, capital commitments and the state of
affairs of the Company as at 30 November 2005 and of the
profits or losses of the Company for the period concerned;
(c) contain either provisions adequate to cover, or full
particular in notes, of all Material Taxation (including
deferred Taxation) and other Material liabilities of the
Company as at 30 November 2005 ; and
(d) are not affected by any unusual or non-recurring items.
16.2 POSITION SINCE 30 NOVEMBER 2005 ("LAST ACCOUNTS DATE")
(a) Since the Last Accounts Date and compared to the Accounts,
there has been no material adverse change in the financial or
trading position or any Group Company and no event, fact or
matter has occurred which is likely to give rise to any such
change.
(b) Since the Last Accounts Date and compared to the Accounts:
(i) the business of each Group Company has been carried
on in the ordinary and usual course and no Group
Company has made or agreed to make any payment other
than routine payments in the ordinary and usual
course of trading;
(ii) no dividend or other distribution has been declared,
paid or made by any Group Companies;
37
(iii) there has been no material change in the level of
borrowing or in the working capital requirements of
any Group Company;
(iv) save in the ordinary course of business, no debtor
has been released by any Group Company on terms that
it pays less than the book value of its debt and no
material debt owing to any Group Company has been
deferred, subordinated or written off or has proved
to any extent irrecoverable;
(v) no change has been made in terms of employment and
any benefits in kind payable to employees and other
employment related matters by any Group Company
(other than those required by law) which could
materially increase the total costs attributable to
employment and employee benefits of the Group
Companies;
(vi) no resolution of the members of any Group Company has
been passed whether in general meeting or otherwise.
16.3 ACCOUNTING AND OTHER RECORDS
(a) The books of account and records of each Group Company are
up-to-date, complete and accurate and have been maintained in
accordance with all applicable laws and generally accepted
accounting practices on a proper and consistent basis.
(b) All accounts, documents and returns required by law to be
delivered or made by any Group Company to any government
authority or regulatory body or any other authority have been
duly and correctly delivered or made.
16.4 All shareholders of the subsidiaries exhibit on Schedule 2(B) hereto
collectively waive all interests in the Subsidiaries operating results
with effective from 1 December 2005 and all of them are holding their
shares as a trustee of the Company with effective from 1 December 2005
until the completion of the re-organisation.
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17 TAXATION
17.1 Each of the Group Companies has filed on or before the date hereof (or
will timely file) all tax returns which are required to be filed on or
before the date hereof.
17.2 All such tax returns are (or will be) complete and accurate in all
material respects and disclose all Taxation required to be paid by each
of the Group Companies for the periods covered thereby and all Taxation
shown to be due on such tax returns have been (or will be) timely paid.
17.3 All Taxation (whether or not shown on any tax return) owed by each of
the Group Companies and required to be paid on or before Completion
have been (or will be) timely paid or, in the case of Taxation which
any Group Company is presently contesting in good faith, the relevant
Group Company has established an adequate reserve for such Taxation in
the Accounts.
17.4 None of the Group Companies has waived any statute of limitations in
respect of any Taxation or agreed to any extension of time with respect
to a tax assessment or deficiency.
17.5 There is no action, suit, investigation, audit, claim or assessment
pending or proposed or, to the knowledge and information of the
Company, threatened with respect to Taxation in any Group Company.
17.6 All tax sharing arrangements and tax indemnity arrangements will
terminate prior to Completion and none of the Group Companies will have
any liability thereunder on or after Completion.
17.7 There are no liens for Taxation upon the assets of any Group Company
except liens relating to current Taxation not yet due.
17.8 All Material Taxation which any Group Company is required by law to
withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued, reserved against and entered
on the books of the relevant Group Company.
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18 GOVERNMENTAL APPROVALS
18.1 Each of the Group Companies owns, holds or possesses all licenses,
franchises, permits, privileges, immunities, approvals and other
authorizations from all relevant governmental authorities in any
jurisdiction which are necessary to entitle it to own or lease, operate
and use its assets and to carry on and conduct their respective
businesses substantially as currently conducted (herein collectively
called "GOVERNMENTAL APPROVALS").
18.2 Each Group Company has fulfilled and performed its obligations under
each of such Governmental Approvals. No notice of cancellation, of
default or of any dispute concerning any Governmental Approval as has
been received by any of the Group Companies. There are no circumstances
which indicate that any of the Government Approvals will or are likely
to be revoked or not renewed, in whole or in part.
18.3 Each of the Governmental Approvals is valid, subsisting and in full
force and effect and will continue to be in full force and effect
immediately after Completion, in each case without the occurrence of
any breach, default or forfeiture of rights thereunder, or the consent,
approval, or act of, or the making of any filing with, any governmental
authority.
19 EMPLOYEE BENEFIT PLANS
19.1 To the knowledge and information of the Company, there are no pension,
provident, superannuation or retirement benefit funds, schemes or
arrangements under which a Group Company is obliged to provide to any
of its employees, officers or directors retirement benefits of any
kind.
19.2 There are no plans, agreements or arrangements under which a Group
Company provides medical insurance benefits or disability benefits to
its employees.
20 LABOUR UNIONS
None of the Group Companies is bound by or subject to any contract,
commitment or arrangement with any labour union, and, to the Company's
knowledge, no labour union has requested, sought or attempted to
represent any employees, representatives or agents of the Group
Companies. There is no strike or other labour dispute involving the
Group Companies pending nor, to the Company's knowledge, threatened,
nor is the Company aware of any labour organisation activity involving
its employees, and the Company is not aware of any existing or imminent
labour disturbance by the employees of any of its principal suppliers,
manufacturers, customers or contractors.
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21 NO VIOLATION
21.1 Each Group Company has, to its knowledge, complied with all
requirements of laws, rules and regulations and court orders (if any)
which are applicable to its assets, operations, employees and/or
businesses.
21.2 Each Group Company is not in violation or default of any provision of
its articles of association, or in any material respect of any
instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound, or to the best of its knowledge, of any
provision of any federal, central or state, municipal or provincial
statue, rule or regulation applicable to any of the Group Companies.
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SCHEDULE 4
RESERVED MATTERS
1 Any amendment or change of the rights, preferences, privileges or
powers of, or the restrictions provided for the benefit of the holders
of the Series A Preferred Shares.
2 Any action that authorised, created or issued any class of the
Company's securities having preferences superior to or on a parity with
the Series A Preferred Shares or any other securities of the Company.
3 Any action that reclassified any outstanding shares into shares having
preferences or priority as to dividends or assets senior to or on a
parity with the preference of the Series A Preferred Shares.
4 Any action that repurchases, redeems or retires any of the Company's
voting shares other than pursuant to contractual rights to repurchase
Common Shares or Preferred Shares by employees, directors or
consultants of the Company or its subsidiaries upon termination of
their employment or services or pursuant to the exercise of a
contractual right of first refusal held by the Company.
5 Any material amendment of the Company's constitutional documents that
adversely affects the rights of the Series A Preferred Shares.
6 Consolidation or merger with or into any other business entity (other
than a wholly owned subsidiary) or the sale of all or substantially all
the Company's assets or disposal of more than fifty per cent (50%) of
the voting power of the Company by means of any transaction or series
of related transactions.
7 The liquidation or dissolution of the Company.
8 The declaration or payment of a dividend on the Common Shares.
9 Incurrence of indebtedness in excess of US$100,000.
10 Any loans by the Company to any director, officer or employee.
11 The purchase or lease by the Company of any asset valued in excess of
US$50,000.
12 The purchase by the Company of any securities of any other company in
excess of US$100,000 in a twelve (12) month period.
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13 The increase in compensation of any of the five (5) most highly
compensated employees of the Company and/or any of the Company's
subsidiaries by more than 15% in a twelve (12) month period.
14 Any transaction or series of transactions between the Company and any
holder of Common Shares, director, office or employee of the Company
and any director, officer or employee of the Company's subsidiaries
that is not in the ordinary course of business or for which the
aggregate value exceeds US$25,000.
15 Other than in the ordinary course of business, any transaction that
result in a pledge of any assets of the security interest, lien or
other encumbrances or any assets of, or the Company.
16 Any material change in the Company's business plan.
17 The appointment by the Company of any directors of any of its
subsidiaries.
18 The hiring of any management member or consultants with annual
remuneration over US$80,000.
19 Directly or indirectly transfer or pledge any economic interest in any
of its Subsidiaries or their respective businesses.
20 Cause or permit any of its Subsidiaries to take any of the following
actions:
20.1 any amendment to such Subsidiary's Articles of Association or other
constitutional document;
20.2 any liquidation, termination or dissolution of such Subsidiary;
20.3 any change in the capital structure of such Subsidiary, either by
increase or decrease of its registered capital or issuance of stock or
otherwise;
20.4 any sale of substantially all the assets of such Subsidiary or
reorganization, merger or consolidation of such Subsidiary with any
other economic organization; or
20.5 any change in the business scope or plan of such Subsidiary.
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SCHEDULE 5
CONTINUING OBLIGATIONS
1 BUSINESS PLAN
The Company shall provide each Shareholder holding at least 5%
shareholding of Series A Preferred Shares with a business plan
including marketing, development, management and financial programs and
an annual budget for the next financial year of the Company which it
shall submit to the Shareholder (in the case of the business plan for
the year commencing on 1 January 2006 within 30 days from Completion
and in the case of the business plans for each subsequent year not less
than 30 days before the commencement of each such subsequent year).
2 INFORMATION
The Company shall provide holder of Series A Preferred Shares with:
(a) monthly accounts and progress reports within 30 days after the
end of each month which shall include a profits and loss
account, a balance sheet, a cashflow statement and a summary
of the business and developments of the Group;
(b) quarterly accounts of the Company and each of its subsidiaries
within 45 days after the end of each fiscal quarter;
(c) consolidated audited annual accounts of the Company and each
of its subsidiaries within 90 days after the end of each
fiscal year, which shall have been audited by a independent
public accountant firm nominated by Comtech;
(d) an annual budget and a revision within 30 days prior to the
end of each half fiscal year;
(e) such further information as each holder of Series A Preferred
Shares may from time to time reasonably require as to all
matters relating to the businesses or affairs or the financial
position of the Group Companies;
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3 INSPECTION RIGHTS
3.1 Holders of at least 100,000 Series A Preferred Shares shall have
standard inspection rights of the facilities of the Company and any of
its subsidiaries, including, without limitation, discussing the
business, operations and conditions of the Company and any subsidiaries
with its directors, officers, employees, accountants, legal counsel and
investment bankers.
3.2 These information and inspection rights described in Clauses 1, 2 and 3
shall terminate upon a Qualifying IPO.
3.3 Following an initial public offering, the Company shall deliver to each
holder of Series A Preferred Shares or Common Shares issued upon
conversion of Series A Preferred Shares, promptly after filing, copies
of the Company's annual reports, interim reports and/or quarterly
reports to shareholders and all other filings required to be made with
the SEC or other relevant securities exchange, regulatory authority or
governmental agency.
4 BOARD MEETINGS
The Company shall procure that meetings of the directors of Group
Companies are held at least every six (6) months and that a notice of
each such meeting, an agenda of the business to be transacted at the
meeting and all papers to be circulated at or presented to the meeting
are sent to all directors entitled to receive notice of the meeting and
to each Shareholder at least seven days before the meeting and a copy
of the minutes of the meeting are sent to such persons within seven
days after the meeting.
5 ACCOUNTING RECORDS
Each Group Company shall maintain accurate and complete accounting and
other financial records and shall procure that such accounting records
are, during normal business hours, available for inspection by each
Shareholder or its authorised representatives.
6 CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
6.1 The Company shall ensure that each key officer and employee of the
Company and its subsidiaries shall enter into a confidentiality and
non-competition agreement.
6.2 The Company shall use its best efforts to procure that the remainder of
its and its subsidiaries' employees and officers enter into such an
agreement.
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6.3 The form of such an agreement shall be subject to the approval of the
Subscribers.
6.4 The Company will use its best efforts to prevent any violation of the
Confidentiality and Non-Competition Agreement by the employees.
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SCHEDULE 6
TERMS AND CONDITIONS OF THE SERIES A PREFERRED SHARES
The Series A Preferred Shares shall bear the following terms and conditions:
1 DIVIDENDS
1.1 No dividend, whether in cash, in property or in shares of the capital
of the Company, shall be paid on any other class or series of shares of
the Company unless and until a dividend in like amount is first paid in
full on the Series A Preferred Shares (on an as-converted basis).
1.2 The holders of Series A Preferred Shares shall be entitled to
participate fully in any non-cash distributions declared by the Board,
on an as-converted basis.
2 LIQUIDATION, DISSOLUTION OR WINDING UP
2.1 In the event of the liquidation, dissolution or winding up or other
return of capital of the Company, the holders of Series A Preferred
Shares shall be entitled to receive out of the assets of the Company
available for distribution to members in preference to holders of
Common Shares or any other class or series of shares an amount per
Series A Preferred Share equal to USD4.57 (the "PREFERENCE AMOUNT").
The remaining assets legally available for distribution, if any, shall
be distributed to the holders of Common Shares and Series A Preferred
Shares pro rata on an as-converted basis.
2.2 Any merger, acquisition or other transaction in which control of the
Company is transferred shall be deemed for these purposes to be a
liquidation. Any merger or consolidation of the Company in which its
shareholders do not retain a majority of the voting power in the
surviving entity, or a sale of all or substantially all the Company's
assets, would each be deemed a liquidation, dissolution or winding up
of the Company.
3 REDEMPTION
Subject to any applicable legal restrictions on the Company's
redemption of its share capital, beginning on a date five years from
Completion, the holders of a majority of the then outstanding Series A
Preferred Shares may require the Company to redeem all of the
outstanding Series A Preferred Shares. The redemption price for each
Series A Preferred Share shall be USD4.57 (the "REDEMPTION PRICE"). The
Redemption Price shall be proportionally adjusted for share splits,
share dividends, recapitalizations and the like. If on the redemption
date, the number of Series A Preferred Shares that may be legally
redeemed by the Company, is less than the number of such Series A
Preferred Shares to be redeemed, then such excess number of Series A
Preferred Shares shall be carried forward and redeemed as soon as the
Company has legally available funds therefor.
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4 VOTING AT GENERAL MEETINGS
Holders of Series A Preferred Shares shall have the right to receive
notice of general meetings of the Company and to attend, speak or vote
at any general meeting of the Company. Each Series A Preferred Share
shall have that number of votes equal to the number of Common Shares
which would then be issuable upon conversion of such Series A Preferred
Shares.
The holders of Series A Preferred Shares shall generally vote together
with the holders of Common Shares and not as a separate class, except
as provided in Schedule 4 under the heading Reserved Matters.
5 CONVERSION
5.1 Holders of Series A Preferred Shares shall have the right to convert
the Series A Preferred Shares, at any time after Completion, into
Common Shares. The initial conversion rate shall be 1:1, subject to
adjustments provided below.
5.2 Each Series A Preferred Share shall automatically be converted into
Common Shares, at the then applicable conversion rate, upon the closing
of a Qualifying IPO or upon the consent of more than two-thirds of the
holders of Series A Preferred Shares.
5.3 If and whenever the Company shall subdivide its outstanding share
capital into a greater number of Common Shares or consolidate its
outstanding share capital into a smaller number of Common Shares, the
rate of conversion shall be adjusted proportionately so that holders of
Series A Preferred Shares shall thereafter be entitled to receive upon
conversion of the Series A Preferred Shares the number of Common Shares
to which a holder of the number of Common Shares delivered upon
conversion of the Series A Preferred Shares held by such holder would
have been entitled on such subdivision or consolidation.
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5.4 The holders of Series A Preferred Shares shall give notice in writing
to the Company setting out proposed adjustments to the conversion rate.
If the Company disagrees with the adjustment proposed by the holders of
Series A Preferred Shares, the parties shall procure that the auditors
of the Company for the time being determine as soon as practicable what
adjustment, if any, to the conversion rate is appropriate. If either
party disputes on the determination by the auditor, either party may
refer the question of what adjustment, if any, to the conversion rate
is appropriate, to an independent investment bank of international
repute to be appointed by, and at the cost and expense of the Company
(the Company and the holders of Series A Preferred Shares having agreed
the identity of such investment bank or in default of agreement, the
investment bank having been selected by the holders of Series A
Preferred Shares) which investment bank shall make a determination
within twenty one (21) days after its appointment. The decision of the
investment bank shall (save for any manifest error) be final and
binding on the parties.
6 ANTI-DILUTION
6.1 Subject to paragraph 6.2 below, the conversion ratio of the Series A
Preferred Shares will be subject to adjustment for issuances of any
securities of the Company at a purchase price less than 200% of the
then effective conversion price for the Series A Shares such that the
conversion price shall be adjusted to equal 50% of the purchase price
of such newly issued shares or USD2.29 per Share, whichever is higher.
Holders of more than two-thirds of the Series A Preferred Shares may
elect to waive the anti-dilution adjustments set forth in this
paragraph 6.1. The conversion ratio will also be subject to
proportional adjustment for stock splits, stock dividends,
recapitalisation and the like.
6.2 The Board shall have the right to issue shares to employees, officers,
Directors and consultants pursuant to share purchase or share option
plans or agreements or other incentive share arrangements approved by
the Board provided that the total shares issued under such share option
plan and/or share option agreements shall not at any time exceed 20 per
cent. of all outstanding shares of the Company on a fully-diluted basis
immediately subsequent to the completion of the financing contemplated
hereby.
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This Agreement was signed by the parties on the date first written above.
SIGNED by )
for and on behalf of )
COMTECH GROUP )
in the presence of:
SIGNED by )
for and on behalf of )
HUAMENG ENGINEERING SERVICES LTD. )
in the presence of:
SIGNED by )
for and on behalf of )
ASIA PACIFIC TECHNOLOGY SERVICE LTD. )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
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SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
SIGNED by )
for and on behalf of )
ORIENTAL INTELLIGENCE TECHNOLOGIES CO., LIMITED )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
SIGNED by )
for and on behalf of )
[chinese] )
in the presence of:
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