EXHIBIT 10.5
CDC Mobile Media Corporation
▇▇▇▇▇▇▇▇.▇▇▇ Corporation
Palmweb Inc.
Certain of the Related Entities
(as defined herein)
The Institutional Sellers
(as defined herein)
The Management Sellers
(as defined herein)
and
The Other Sellers
(as defined herein)
---------------------------------------------------------------------------
SHARE PURCHASE AGREEMENT
---------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
SECTION 1 DEFINITIONS AND PRINCIPLES OF CONSTRUCTION................................................... 1
1.01 Defined Terms................................................................................ 1
1.02 Principles of Construction................................................................... 10
SECTION 2 SALE AND PURCHASE OF THE SHARES AND CONSIDERATION............................................ 10
2.01 Sale and Purchase of the Shares.............................................................. 10
2.02 Consideration................................................................................ 10
2.03 Closing...................................................................................... 11
2.04 Post-Closing Operation of the Company........................................................ 12
2.05 Right to Set-off............................................................................. 15
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS, THE COMPANY AND THE
RELATED ENTITIES............................................................................. 15
3.01 Authority.................................................................................... 15
3.02 Organization of the Company.................................................................. 16
3.03 Total Equity................................................................................. 16
3.04 Subsidiaries................................................................................. 17
3.05 No Conflicts................................................................................. 19
3.06 Governmental Approvals and Filings........................................................... 19
3.07 Legal Proceedings............................................................................ 19
3.08 Compliance with Laws and Order............................................................... 20
3.09 Brokers or Finders........................................................................... 20
3.10 No Bankruptcy or Insolvency.................................................................. 20
3.11 Financial Representations.................................................................... 21
3A Representations and Warranties of Non-Management Sellers..................................... 22
3A.01 Authority.................................................................................... 22
3A.02 Related Party Transactions in Respect of Institutional Sellers............................... 22
3B Representations and Warranties of the Management Sellers, the Company and
the Related Entities......................................................................... 23
3B.01 Authority.................................................................................... 23
3B.02 No Undisclosed Indebtedness.................................................................. 23
3B.03 Taxes........................................................................................ 23
3B.04 Employment and Benefits...................................................................... 24
3B.05 Real Property and Business Premises.......................................................... 26
3B.06 Tangible Personal Property and Plant & Equipment............................................. 26
3B.07 Intellectual Property........................................................................ 26
3B.08 Contracts.................................................................................... 29
3B.09 Licenses..................................................................................... 31
3B.10 Insurance.................................................................................... 31
3B.11 Disclosure and Information................................................................... 31
3B.12 Systems Integration Business................................................................. 32
3B.13 Absence of Changes........................................................................... 32
1
PAGE
3B.14 Powers of Attorney........................................................................... 33
3B.15 Product, Services and Assets................................................................. 34
3B.16 Substantial Customers and Suppliers.......................................................... 34
3B.17 Related Party Transactions................................................................... 35
3C Exclusivity of Representations............................................................... 35
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............................................. 36
4.01 Organization of the Purchaser................................................................ 36
4.02 No Conflict.................................................................................. 36
4.03 Consents and Approvals....................................................................... 36
SECTION 5 COVENANTS OF THE SELLERS, AND THE COMPANY AND THE RELATED ENTITIES........................... 36
5.01 Financial Statements......................................................................... 36
5.02 Books and Records; Investigation............................................................. 37
5.03 Fulfillment of Conditions.................................................................... 37
5.04 Notice and Cure.............................................................................. 37
5.05 Conduct of Business in Ordinary Course....................................................... 38
5.06 Indebtedness................................................................................. 38
5.07 Regulatory and Other Approvals............................................................... 38
5.08 Tax Returns.................................................................................. 38
5.09 Insurance.................................................................................... 38
5.10 No Solicitation.............................................................................. 38
5.11 Employee Matters............................................................................. 39
5.12 Treatment of Employee Share Options.......................................................... 40
5.13 Related Entities............................................................................. 40
5.14 Waiver of Right of First Refusal............................................................. 41
5.15 Taxes........................................................................................ 41
5.16 Beneficial Ownership of Management Sellers................................................... 41
SECTION 6 COVENANTS OF THE PURCHASER................................................................... 41
6.01 Notice and Cure.............................................................................. 41
6.02 Fulfillment of Conditions.................................................................... 42
6.03 Regulatory and Other Approvals............................................................... 42
6.04 Investigation................................................................................ 42
6.05 Non-Solicitation............................................................................. 42
6.06 Cancellation of Loans........................................................................ 42
SECTION 7 CONDITIONS TO OBLIGATIONS OF THE PURCHASER................................................... 42
7.01 Representations and Warranties............................................................... 42
7.02 Performance.................................................................................. 43
7.03 Certificates................................................................................. 43
7.04 Consents and Approvals....................................................................... 43
7.05 Opinion of Counsel........................................................................... 43
7.06 Key Employees................................................................................ 43
7.07 Board........................................................................................ 43
7.08 Stock Exchange Clearance..................................................................... 43
2
PAGE
SECTION 8 CONDITIONS TO OBLIGATIONS OF THE SELLERS, THE COMPANY AND EACH RELATED ENTITY................ 43
8.01 Representations and Warranties............................................................... 43
8.02 Performance.................................................................................. 44
8.03 Consents and Approvals....................................................................... 44
8.04 Approval of the Purchaser's Board of Directors or Delegated Subcommittee..................... 44
8.05 Special Dividend............................................................................. 44
SECTION 9 INDEMNIFICATION; LIMITATIONS OR LIABILITIES.................................................. 44
9.01 Survival of Representations and Warranties................................................... 44
9.02 Indemnification.............................................................................. 44
9.03 Method of Asserting Claims................................................................... 45
SECTION 10 TERMINATION.................................................................................. 45
10.01 Termination.................................................................................. 45
10.2 Effect of Termination........................................................................ 46
SECTION 11 MISCELLANEOUS................................................................................ 46
11.01 Termination of Shareholders Agreement........................................................ 46
11.02 Notices...................................................................................... 46
11.03 Expenses..................................................................................... 49
11.04 Public Announcements......................................................................... 49
11.05 Waiver....................................................................................... 49
11.06 Amendment.................................................................................... 49
11.07 No Third Party Beneficiary................................................................... 49
11.08 Assignment; Binding Effect................................................................... 49
11.09 Invalid Provisions........................................................................... 50
11.10 Governing Law................................................................................ 50
11.11 Jurisdiction................................................................................. 50
11.12 Counterparts................................................................................. 50
11.13 Confidentiality.............................................................................. 50
11.14 Exercise of Rights........................................................................... 50
11.15 Rule of Construction......................................................................... 51
11.16 Further Assurances........................................................................... 51
11.17 Absence of Joint and Several Liability....................................................... 51
Schedule A Related Entities Parties to this Agreement
Schedule B Institutional Sellers
Schedule C Management Sellers
Schedule D Other Sellers
Schedule E Share Ownership Interests of Sellers
Schedule F First Installment Allocation Schedule
Schedule G Existing Employment Agreement
3
Exhibit 2.04(a) Budget
Exhibit 5.11(b) Additional Retained Employees
Exhibit 5.13 Beijing Newpalm Equity Transfer Agreement
Exhibit 5.14 Beijing Wisecom Equity Transfer Agreement
Exhibit 7.03(a) Certificate of Palmweb Inc.
Exhibit 7.03(b) Certificate of Newpalm (China) Information Technology Co., Ltd.
Exhibit 7.03(c) Certificate of Beijing Newpalm Information Technology Co., Ltd.
Exhibit 7.03(d) Certificate of Beijing Wisecom Information Technology Co., Ltd.
Exhibit 7.04 Governmental Approvals
Exhibit 7.05 Forms of Legal Opinions
Exhibit 7.06(a) Form of Employment Agreement (▇▇▇▇ ▇▇▇▇)
Exhibit 7.06(b) Form of Employment Agreement (other Key Employees)
Exhibit 7.06(c) Form of Performance Undertaking
4
This SHARE PURCHASE AGREEMENT, dated as of March 14, 2003, is made by
and among CDC Mobile Media Corporation, a company organized and existing under
the laws of the British Virgin Islands (the "Purchaser"); ▇▇▇▇▇▇▇▇.▇▇▇
Corporation, a company organized and existing under the laws of the Cayman
Islands ("Parent"); Palmweb Inc., a company organized and existing under the
laws of the Cayman Islands (the "Company"); the Related Entities listed on
Schedule A; such institutional sellers of the Company as are listed on Schedule
B attached hereto (the "Institutional Sellers"); such management sellers of the
Company as are listed on Schedule C attached hereto (the "Management Sellers")
and such other sellers of the Company as are listed on Schedule D attached
hereto (the "Other Sellers" and, together with the Institutional Sellers and the
Management Sellers collectively, the "Sellers"); all of whom may be collectively
referred to herein as the "Parties" or individually as a "Party".
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Parties agree as follows:
Section 1. Definitions and Principles of Construction
1.01 Defined Terms. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"$" or "US$" shall mean the U.S. dollar, the legal currency of the U.S.
"2003 Actual Net Income" shall mean the pro forma combined net income
after tax and Minority Interests of the Company, the PRC WFOE and the Related
Entities for the fiscal year 2003, as reflected on the pro forma combined net
income statement included in the 2003 Financial Statements.
"2004 Actual Net Income" shall mean the pro forma combined net income
after tax and Minority Interests of the Company, the PRC WFOE and the Related
Entities for the fiscal year 2004, as reflected on the pro forma combined net
income statement included in the 2004 Financial Statements.
"2002 Financial Statements" shall mean the pro forma combined financial
statements of the Company, the PRC WFOE and the Related Entities for the year
ended and as of December 31, 2002, including the audited balance sheets of each
of the Company, the PRC WFOE and the Related Entities and the related audited
statements of operations, shareholders' equity and cash flow statements for such
period prepared in accordance with GAAP, together with a true and correct copy
of the report on such audited information along with all existing management
letters from the auditors, with respect to the results of such audits.
"2003 Financial Statements" shall mean the pro forma combined financial
statements of the Company, the PRC WFOE and the Related Entities for the year
ended and as of December 31, 2003, including the audited balance sheets of each
of the Company, the PRC WFOE and the Related Entities and the related audited
statements of operations, shareholders' equity and cash flow statements for such
period prepared in accordance with GAAP, together with a true and correct copy
of the report on such audited information along with all existing management
letters from the auditors, with respect to the results of such audits, where
such audit shall have been performed by a recognized independent public
accounting firm mutually acceptable to the Company and the Parent and approved
by each of the Selling Shareholder
5
Representatives.
"2004 Financial Statements" shall mean the pro forma combined financial
statements of the Company, the PRC WFOE and the Related Entities for the year
ended and as of December 31, 2004, including the audited balance sheets of the
Company, the PRC WFOE and the Related Entities and the related audited
statements of operations, shareholders' equity and cash flow statements for such
period prepared in accordance with GAAP, together with a true and correct copy
of the report on such audited information along with all existing management
letters from the auditors, with respect to the results of such audits, where
such audit shall have been performed by a recognized independent public
accounting firm mutually acceptable to the Company and the Parent and approved
by the Selling Shareholder Representative.
"Actual Net Income" shall mean 2003 Actual Net Income or 2004 Actual
Net Income, as the case may be.
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control of a
Person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
"Agreement" shall mean this Share Purchase Agreement, the exhibits and
schedules hereto, the certificates and Disclosure Schedule delivered in
accordance herewith, as the same may be amended, supplemented or modified from
time to time.
"Arbitrating Accountant" shall have the meaning set forth in Section
2.04(f).
"Assets" shall mean all assets and properties of the Company, the PRC
WFOE and each Related Entity of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person, including without limitation cash, cash equivalents, investment assets,
accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods, Intellectual Property,
the IP Assets, the Material Contracts, the Equipment Leases, and the Property
Leases.
"Assignment Agreement" shall have the meaning set forth in Section
5.13(c).
"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of any
class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Baring Asia" shall have the meaning set forth in Section 2.04(a)ii).
"Beijing Newpalm" shall mean Beijing Newpalm Information Technology Co.
Ltd. [Chinese characters].
"Beijing Newpalm Equity Transfer Agreement" shall have the meaning set
forth in
6
Section 5.13(a).
"Beijing Wisecom" shall mean Beijing Wisecom Information Technology Co.
Ltd. [Chinese characters].
"Beijing Wisecom Equity Transfer Agreement" shall have the meaning set
forth in Section 5.13(b).
"Benefit Plan" means any plan, scheme or arrangement established by the
Company, the PRC WFOE or any Related Entity, or any predecessor or Affiliate of
any of the foregoing, existing at the Effective Date or prior thereto, to which
the Company, the PRC WFOE or any Related Entity, as the case may be, contributes
or has contributed, or under which any employee, former employee or director of
the Company, the PRC WFOE or any Related Entity or any beneficiary thereof is
covered, is eligible for coverage or has benefit rights whether provided by the
Company, the PRC WFOE or any Related Entity or pursuant to any governmental
program, or otherwise.
"Board" shall mean the board of directors of the Company.
"Budget" shall have the meaning set forth in Section 2.04(a)(i).
"Business Combination" means with respect to any Person any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other equity interests
of such Person, or any sale, dividend or other disposition of all or
substantially all of the Assets of such Person.
"Business Day" shall mean a day other than Saturday, Sunday or any day
on which banks located in Hong Kong are authorized or obligated to close.
"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, Assets and prospects of the
Company, the PRC WFOE and the Related Entities taken as a whole.
"Business Premises" shall have the meaning given in Section 3B.05(c).
"Closing" shall have the meaning given to such term in Section 2.03.
"Closing Date" shall mean the later of:
(a) April 2, 2003, subject to the date the conditions precedent set out
in Section 7 being satisfied as determined by the Purchaser or waived
by the Purchaser, in its sole and absolute discretion and the
conditions precedent set out in Section 8 being satisfied as determined
by the Sellers or waived by the Sellers, in their sole and absolute
discretion; and
(b) such other date as the Purchaser and the Sellers shall agree in
writing.
"Company" shall have the meaning given the preamble.
"Consideration" shall have the meaning given to such term in Section
2.02.
"Constitution" shall mean the memorandum of association, articles of
7
association, certificate or articles of incorporation and by-laws, or similar
charter documents, as may be amended from time to time.
"contract" shall mean any agreement, instrument, written contract or
other arrangement, together with any related amendments, waivers, supplements,
schedules, exhibits, work orders, notices as to termination or change
thereunder.
"Determination Period" shall mean the period from January 1, 2003 to
December 31, 2004.
"Disclosure Schedule" shall mean a schedule delivered to the Purchaser
by the Sellers and the Company herewith and dated as of the Effective Date
containing all lists, descriptions, exceptions, qualifications and other
information and materials as are required to be included therein by the Sellers
pursuant to this Agreement. For the avoidance of doubt, all references to any
Schedule herein are to be produced by the Sellers and deemed to be produced by
them.
"Earnout Payments" shall mean the Second Installment and the Third
Installment, as specified in Section 2.02(a).
"EIP" shall mean the 2001 Equity Incentive Plan of the Company whereby
officers and employees of the Company have been granted options to acquire
Option Shares.
"Effective Date" shall mean the date of this Agreement.
"Employee Litigation" shall have the meaning given in Section 3B.04(g).
"Employee Share Options" means options to purchase Ordinary Shares,
issued under, and in accordance with, the EIP.
"Employment Agreements" shall mean each of the new or amended
employment agreements to be entered into between the Key Employees and the
Company and/or its designated subsidiary upon or prior to Closing.
"Equipment Leases" shall mean leases of, and agreements to hire,
equipment (including motor vehicles) to the Company including, without
limitation, those listed in Section 3B.08(c) of the Disclosure Schedule.
"Equity Transfer Agreements" shall mean, collectively, the Beijing
Newpalm Equity Transfer Agreement and the Beijing Wisecom Equity Transfer
Agreement.
"Financial Statements" shall mean, collectively, the 2002 Financial
Statements, 2003 Financial Statements, 2004 Financial Statements and such
unaudited monthly and unaudited quarterly financial statements as are called for
hereunder.
"First Installment" shall have the meaning given in Section 2.02(a)(i).
"GAAP" shall mean generally accepted accounting principles of the
United States.
"GEM Listing Rules" shall mean the Rules Governing the Listing of
Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong
Limited.
8
"Governmental Licenses" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"Governmental or Regulatory Authority" shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇, ▇▇▇▇ ▇▇▇▇ or any applicable foreign country or any
domestic or foreign state, county, city or other political subdivision.
"Hong Kong" shall mean Hong Kong Special Administrative Region of the
People's Republic of China.
"Inception Date" shall mean March 2, 2000, the date of incorporation of
the Company.
"Indebtedness" means, with respect to any Person: (a) all indebtedness
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with GAAP
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any share capital of such Person or any warrants, rights or
options to acquire such share capital, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (g) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any encumbrance on
property including, without limitation, accounts and contract rights owned by
such Person (including Assets as relates to the Company, the PRC WFOE and each
Related Entity), even though such Person has not assumed or become liable for
the payment of such Indebtedness.
"Indemnified Party" shall have the meaning set forth in Section 9.02.
"Indemnifying Party" shall have the meaning set forth in Section 9.02.
"Installments" shall mean the First Installment and the Earnout
Payments and "any Installment" shall mean any of the First Installment or either
Earnout Payment.
"Institutional Sellers" shall have the meaning given in the preamble.
"Intellectual Property" shall mean: (a) all copyrightable works,
copyrights and
9
design rights including all applications, registrations, and renewals in
connection therewith; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (c) all inventions, discoveries and patents (whether patentable or
unpatentable and whether or not reduced to practice); (d) all trade secrets and
confidential information (including ideas, research and development, know-how,
formulas, manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals); (e) all computer
software (including data and related documentation) or source or object code,
including all improvements, revisions, amendments, modifications or
alternations; (f) all other proprietary, intellectual and industrial rights in
whatever form or medium, including moral rights; and (g) the IP Assets.
"IP Assets" shall mean (a) the computer software created, developed,
designed and owned by the Company, the PRC WFOE and/or the Related Entities,
including but not limited to "MIP(tm)" (Mobile Internet Platform),
"PalmMail(tm)", "MOHO(tm)" (Mobile Office, Home Office), "PalmLottery(tm)",
"PalmStock(tm)", "PalmMap(tm)"; "PalmNavigation(tm)", "PalmAd(tm)",
"PalmGuard(tm)", "PalmSMSGW(tm)", "PalmPIM(tm)", "PalmUM(tm)", "MCS(tm)" (Mobile
Content System), "MAP(tm)" (Mobile Application Portal), and "MIG(tm)" (Mobile
Internet Gateway) and all improvements, revisions, amendments, modifications or
alterations thereto; (b) the platform, carrier and/or protocol specific
applications of "X-City V3.x", "JOKE V3.x", "RT/PIC Download V2.x", "Alumni
V1.x", "Stock V2.x", "Weather V1.x", "City Lover V2.x", "WAP Joking V2.x",
"Strategy Game V2.x" and "RPG Game V1.x"; (c) the localization versions of
software embedded with content owned by third parties, namely "IFate V2.x" and
"Game Package V2.x"; and (d) Menu Engine PRC and SMS Gateway Solution (each of
which are subject to PRC patent applications); and all improvements, revisions,
amendments, modifications or alterations thereto.
"Key Employees" shall mean the employees listed in Section 3B.06(k) of
the Disclosure Schedule.
"Law" shall mean all laws, statutes, rules, regulations, ordinances,
Orders and other pronouncements having the effect of law of the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇, ▇▇▇▇ ▇▇▇▇ and any foreign country or any domestic or foreign state, county,
city or other political subdivision or of any Governmental or Regulatory
Authority, other than any non-public or "internal" (AU(2)?) policy, rule, order,
guidance or administrative practice of, or applied by, any Governmental or
Regulatory Authorities except to the extent that any such non-public or internal
policy, rule, order, guidance or administrative practice is actually known to
any relevant Person.
"Liability" as used either singularly or in the plural shall mean any
liability, debt or obligation of the Company, the PRC WFOE or any Related
Entity, including any drawdowns under any loans made to the Company, the PRC
WFOE or any Related Entity after the Closing Date.
"Lien" shall mean any lien, pledge, hypothecation, mortgage, charge,
security interest, claim, lease, charge, option, right of first refusal, right
to acquire, pre-emptive rights, conversion rights, easement, encroachment,
transfer restriction, or other encumbrance or commitment of any kind.
"Loss" shall mean any and all damages, fines, fees, penalties,
obligations, judgments,
10
deficiencies, losses and expenses (including without limitation interest, actual
court costs, reasonable fees of attorneys, reasonable retainers, reasonable fees
of accountants and other experts or other reasonable expenses of litigation,
reasonable witnesses costs/expenses or other proceedings or of any claim,
default or assessment).
"Management Accounts" shall mean: (i) the unaudited pro forma combined
balance sheet of the Company, the PRC WFOE and the Related Entities for the year
ended and as of December 31, 2002, and the related unaudited pro forma combined
statements of income, retained earnings, stockholders' equity and changes in
financial position of the Company, the PRC WFOE and the Related Entities,
together with all related notes and schedules thereto, for the fiscal year ended
as of December 31, 2002, and (ii) the unaudited pro forma combined balance sheet
of the Company, the PRC WFOE and the Related Entities as of February 28, 2003,
and the related unaudited pro forma combined statements of income, retained
earnings, stockholders' equity and changes in financial position of the Company,
the PRC WFOE and the Related Entities, together with all related notes and
schedules thereto for the two months ended as of February 28, 2003. The
Management Accounts shall include all existing management letters from the
auditors, with respect to the results of audits or procedures with respect to
the above, where such audit or procedures shall have been performed by a
recognized independent public accounting firm.
"Management Sellers" shall have the meaning given in the preamble.
"Material Adverse Effect" shall mean any event, change in or effect on
the Company, the PRC WFOE or the Related Entities that, individually or in the
aggregate, has had or is reasonably expected to have a material adverse effect
on the Business or Condition of the Company; provided, however, that any
material adverse effect arising out of or resulting from (a) an event or series
of events or circumstances affecting the economy of the PRC generally in a
material negative manner, (b) a change or changes in the fee rates of mobile
communications operators in China for mobile data value-added services as a
result of a change in the regulations, rules or policies of the Ministry of
Information Industry of the PRC, any affiliate of China Mobile Communications
Corporation or any affiliate of China Unicom Co. Limited unless such change or
changes would result in a decrease of more than 35% in the monthly revenue of
the Company, the PRC WFOE and the Related Entities taken as a whole or (c) the
entering into of this Agreement or the transactions contemplated hereby or the
announcement thereof, except in each case to the extent that the Management
Shareholders have knowledge of such event or circumstances after due inquiry,
shall be excluded in determining whether a Material Adverse Effect has occurred.
"Material Contracts" shall have the meaning given in Section 3B.08(e).
"Material Customer" shall have the meaning given in Section 3B.16(a).
"Material Supplier" shall have the meaning given in Section 3B.16(b).
"Minority Interest" shall mean shall mean an ownership interest less
than fifty percent (50%) of the voting interest in a business enterprise.
"Net Asset Value" shall mean at any date the pro forma combined balance
sheet assets less the pro forma combined balance sheet liabilities of the
Company, the PRC WFOE and the Related Entities as of such date.
11
"Non-Management Sellers" shall mean, collectively, the Institutional
Sellers and the Other Sellers.
"Option Agreements" shall mean, collectively, (a) the option agreement
dated November 1, 2001 between the PRC WFOE and ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU,
pursuant to which the PRC WFOE shall have an option to acquire the equity
interests held by ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU in Beijing Newpalm to the extent
permissible by PRC law, and (b) the option agreement dated June 1, 2002 between
the PRC WFOE and ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU, pursuant to which the PRC WFOE shall
have an option to acquire the equity interests held by ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU
in Beijing Wisecom to the extent permissible by PRC law.
"Option Holder" means each of the Persons who hold Employee Share
Options, whether vested or unvested, granted pursuant to the EIP.
"Option Shares" shall mean the Ordinary Shares underlying the options
granted by the Company pursuant to the EIP.
"Order" shall mean any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Ordinary Shares" means the Company's ordinary shares, par value
US$0.01 per share.
"Other Sellers" shall have the meaning given in the preamble.
"Palm-Lottery" shall mean Beijing Palm-Lottery Information Technology
Co., Ltd. [Chinese characters].
"Parent" shall have the meaning given in the preamble.
"Performance Undertaking" shall mean the performance undertaking
specified in Section 7.06(c), jointly and severally executed and delivered by
▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU in favor of the Purchaser and Parent in respect of the
performance by the Management Sellers of their respective obligations under this
Agreement and under the applicable Transaction Documents.
"Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
"Plant and Equipment" shall have the meaning given in Section 3B.06(b).
"PRC" shall mean the People's Republic of China.
"PRC WFOE" shall mean Newpalm (China) Information Technology Co., Ltd.
[Chinese characters].
"Preferred Shares" means the Company's Series A Preferred Shares, par
value US$0.01 per share.
"pro forma combined" shall have the same meaning as "consolidated" as
if each of the Related Entities were a wholly owned Subsidiary of the Company.
12
"Proceeding" shall have the meaning given in Section 3.07.
"Property Leases" shall mean all property leases executed by the
Company, the PRC WFOE or any Related Entity that are effective as of the
Effective Date.
"Purchaser" shall have the meaning given in the preamble.
"Records" shall mean originals or copies, of all books, files, reports
or records of or relating to or used in connection with the Company, the PRC
WFOE and each Related Entity and including, without limitation: (a) minute
books, statutory books and registers, books of account and copies of taxation
returns; (b) major sales literature, market research reports, brochures and
other major promotional material; (c) all sales and purchasing records; and (d)
lists of all regular suppliers and customers.
"Related Entities" shall mean Beijing Newpalm and Beijing Wisecom.
"Representatives" shall have the meaning given in Section 5.02.
"Restricted Period" shall have the meaning given in Section 5.12.
"Second Installment" shall have the meaning given in Section
2.02(a)(ii).
"Sellers" shall have the meaning given in the Recitals hereto and
"Seller" shall mean any of the Sellers, with the exception of the participants
under the EIP, that are collectively listed in Schedule E to this Agreement
which also sets forth the Shares to be sold to the Purchaser.
"Selling Shareholder Representatives" shall mean Baring Asia II
Holdings (6) Ltd., as Board representative of the Non-Management Sellers, and
▇▇▇▇ ▇▇▇▇, as Board representative of the Management Sellers.
"Shareholders Agreement" shall mean that certain shareholders agreement
dated as of October 23, 2000 among Baring Asia II Holdings (6) Limited, EDB
Ventures Pte Ltd., M-Commerce Ventures Pte Ltd., Palmweb Inc., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇.
"Shares" shall mean those shares (excluding the Option Shares in
accordance with Section 5.12) representing 100% of the total issued and
outstanding equity in the capital of the Company on a fully diluted basis as of
the Closing.
"Special Dividend" shall have the meaning set forth in Section 8.05.
"Subsidiaries" when used in plural or "Subsidiary" when used singly
shall mean, in relation to the Company, a corporate entity (a) whose voting
shares or equity interests are owned more than 50% by the Company and (b) over
which managing body the Company exercises control, directly or indirectly.
"Tax" and "Taxes" means and includes any and all taxes (including,
without limitation, any and all income, franchise, sales, use, excise,
withholding, employment, payroll, social security, property, fringe benefits,
capital gains, goods and services, group and stamp and custom duties taxes) and
similar assessments, customs, duties, charges and fees (including interest,
penalties and additions to such taxes, assessments, customs, duties, charges and
fees, penalties for failure to file or late filing of any return, report or
other filing, and any interest in respect of such
13
penalties and additions) imposed or assessed by any federal, state or local
taxing authority, including without limitation, Cayman Islands, the PRC or the
United States (or any political subdivision thereof or therein).
"Tax Return" shall mean any declaration, statement, report, returns,
computations, notices and information required to be made or provided by the
Company, the PRC WFOE or any Related Entity related to Taxes (including
information required to be supplied to a governmental entity in respect of such
report or return) including, if applicable, combined or consolidated returns for
any group of entities that includes the Company, the PRC WFOE and each Related
Entity.
"Tax Claim" shall mean any assessment notice (including a notice of
adjustment of a loss in a manner adversely affecting the Company, the PRC WFOE
or any Related Entity), demand or other document issued or action taken by or on
behalf of any Governmental or Regulatory Authority, whether before or after the
date of this Agreement relating to or based up any facts or circumstances (or
part thereof) arising or existing prior to Closing, as a result of which the
Company, the PRC WFOE or any Related Entity is liable to make a payment for any
tax, levy, impost, deduction, charges, withholdings and duties (excluding stamp
duties) or has suffered a lost, together with related interest, penalties, fines
and other statutory charges whether accrued before or after Closing.
"Third Installment" shall have the meaning given in Section
2.02(a)(iii).
"Third Party Claims" shall have the meaning given in Section 9.03.
"Transaction Documents" shall mean this Agreement (and all relevant
share transfers, share certificates, board and shareholder resolutions and any
other ancillary documents required for the consummation of this Agreement), the
Employment Agreements, the Equity Transfer Agreements, the Assignment Agreement,
the Performance Undertaking and any documents modifying or supplementing the
contractual arrangements between the PRC WFOE or the Company and the Related
Entities.
"Transfer" shall mean the making of any sale, exchange, assignment or
gift, the granting of any security interest, pledge or other encumbrance in, or
the creation of, any voting trust or other agreement or arrangement with respect
to the transfer of voting rights in the Shares, or the creation of any other
claim thereof or any other transfer or disposition whatsoever, whether voluntary
or involuntary, affecting the right, title or interest or possession in or of
the Shares.
"U.S." or "US" shall mean the United States of America.
1.02 Principles of Construction.
(a) All references to sections, schedules and exhibits are to
sections, schedules and exhibits in or to this Agreement unless otherwise
specified. The words "hereof," "herein," and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.
(b) All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles in the
United States.
(c) The singular terms include the plural and the plural
terms include the
14
singular.
(d) The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(e) Any reference to a Person's "knowledge" shall be deemed to
include an additional statement that all due and careful inquiry has been made.
Section 2. Sale and Purchase of the Shares and Consideration.
2.01 Sale and Purchase of the Shares. Subject to the terms and
conditions hereof, and in reliance upon the representations, warranties and
covenants contained in this Agreement as of the date hereof and on the Closing
Date each Seller shall Transfer and deliver to the Purchaser, and the Purchaser
shall purchase, the Shares owned by such Seller set forth opposite such Seller's
name on Schedule E.
2.02 Consideration.
(a) Subject to Section 2.02(b), the consideration to be paid
for the Shares by the Purchaser (the "Consideration") shall be paid in the
following manner:
(i) the Purchaser shall pay $14,000,000 at Closing to
the Sellers and to the Company on behalf of the Option Holders for
apportionment among them as set forth in Schedule F (the "First
Installment"); provided that the aggregate payments to be received by
the Management Sellers under the First Installment shall not exceed
US$1,200,000, in the apportioned amounts among them as set forth in
Schedule F, less the US dollar equivalent of RMB2,000,000 determined
using the basic inter-bank exchange rate published by the People's
Republic of China on the business day immediately preceding the Closing
Date and apportioned in accordance with the payments received by ▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇ DU under the Equity Transfer Agreements;
(ii) within 15 days of the certification by the Board
of the 2003 Financial Statements and delivery to the Purchaser, the
Purchaser shall (A) pay to each Non-Management Seller an amount in cash
equal to the product of 2003 Actual Net Income multiplied by 9.4
multiplied by 50% multiplied by the shareholding percentage held by
such Non-Management Seller in the Company as set forth in Schedule E,
(B) pay to each Management Seller an amount in cash equal to the
product of 2003 Actual Net Income multiplied by 9.4 multiplied by 25%
multiplied by the shareholding percentage held by such Management
Seller in the Company as set forth in Schedule E and (C) pay to the
Company on behalf of the Option Holders an amount in cash equal to the
product of 2003 Actual Net Income multiplied by 9.4 multiplied by 25%
multiplied by the shareholding percentage attributed to the Option
Holders in the Company (the "Second Installment") as set forth in
Schedule E. For avoidance of doubt, the Purchaser shall not be
obligated to pay any Second Installment obligation if the 2003 Actual
Net Income is not greater than US$0.00;
(iii) within 15 days of the certification by the
Board of the 2004 Financial Statements and delivery to the Purchaser,
the Purchaser shall (A) pay to each Management Seller an amount in cash
equal to the product of 2004 Actual Net Income multiplied by 9.4
multiplied by 25% multiplied by the shareholding percentage held by
such Management Seller in the Company as set forth in Schedule E and
15
(B) pay to the Company on behalf of the Option Holders an amount in
cash equal to the product of 2004 Actual Net Income multiplied by 9.4
multiplied by 25% multiplied by the shareholding percentage attributed
to the Option Holders in the Company (the "Third Installment") as set
forth in Schedule E. For avoidance of doubt, the Purchaser shall not be
subject to pay any Third Installment obligation if the 2004 Actual Net
Income is not greater than US$0.00;
(iv) each of the Sellers agrees that there shall be
no re-allocation of the Consideration among the Sellers in any manner
that is inconsistent with this Section 2.02(a).
(b) Each payment referred to in this Section 2 shall be paid
in US$ in cash by wire transfer; provided, however, that the sum of the
Installments paid hereunder shall not exceed $55,000,000.
(c) In the event that the Purchaser fails to make either
Earnout Payment when due under this Section 2.02, interest at a rate of 2% per
month shall accrue on any unpaid portion of such Earnout Payment until it is
paid in full; provided, however, that such Earnout Payment shall not be deemed
due under this Section 2.02(c) when it is being contested in good faith pursuant
to Sections 2.04(f), 2.05 or 9 of this Agreement.
(d) The Management Sellers undertake that the representations
and warranties made by the Management Sellers in Sections 3B.01 and 5.15 shall
be true and correct as of the date of each Earnout Payment, as though made on
each such date, and that ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU shall have performed in
accordance with, and shall be in compliance with, the non-competition,
non-solicitation, non-disclosure and Intellectual Property assignment provisions
set forth in their respective Employment Agreements, as of each such date.
2.03 Closing. The closing for the purchase and sale of the Shares and
the payment of the First Installment (the "Closing") shall take place on the
Closing Date at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ in Hong Kong or at such other
time, date and place as the Parties may agree. At the Closing, each of the
Sellers shall present the share certificate(s) representing the Shares owned and
to be sold hereunder by such Seller set forth opposite such Seller's name on
Schedule E for cancellation and the Company shall deliver to the Purchaser duly
executed share certificate(s) evidencing the Shares in favor of the Purchaser
together with all duly executed documents and forms required in respect of the
conveyance of the Shares to the Purchaser in accordance with the Company's
Constitution. Concurrently, the Purchaser shall deliver a copy of such necessary
bank document evidencing the wire transfer of the payment for the First
Installment.
2.04 Post-Closing Operation of the Company.
(a) General.
(i) The Company has prepared and delivered and Parent
has accepted and agreed the financial plan attached hereto as Exhibit
2.04(a) (the "Budget") for the Company for the Determination Period;
(ii) during the Determination Period, the Selling
Shareholder Representatives will be entitled to appoint two members of
the Board; provided that the director appointed by Baring Asia II
Holdings (6) Ltd. ("Baring Asia") will resign upon the later to occur
of (x) payment of the Second Installment and (y) the resolution of
16
any good faith dispute related to the payment of any portion of the
Second Installment; provided, further, that upon Baring Asia's
resignation in accordance with this Section 2.04(a)(ii), no other
Seller shall have a right to designate a member of the Board; and
provided, further, that if ▇▇▇▇ ▇▇▇▇ voluntarily resigns from his
executive position with the Company, except as a result of a material
reduction in his responsibilities by the Parent or the Company, he will
no longer be entitled to serve on the Board;
(iii) during the Determination Period, the Company,
the PRC WFOE and each Related Entity will not and the Parent will not
cause the Company, the PRC WFOE or any Related Entity to take any
actions inconsistent with the Budget (except in accordance with Section
2.04(c)) or which will lead to a Material Adverse Effect occurring.
During the Determination Period, with the exception of the transactions
contemplated herein, the Company, the PRC WFOE and each Related Entity
will carry on (and the Parent shall cause the Company, the PRC WFOE and
each Related Entity to carry on) their business in the ordinary course
in substantially the same manner as conducted prior to Closing and, to
the extent consistent with such business, use efforts consistent with
past practice and policies to preserve intact their respective present
business organizations, keep available the services of their respective
present officers, consultants and employees and preserve their
relationships with customers, suppliers and distributors and others
having business dealings with them. The Parent shall cause the officers
of the Company, the PRC WFOE and each Related Entity to confer with the
Selling Shareholder Representatives at such times as the Selling
Shareholder Representatives may reasonably request to report on
operational matters of a material nature and to report on the general
status of the ongoing operations of the business of the Company. Upon
the completion of the Equity Transfer Agreements, the Parent shall
cause its nominated transferees or any of their respective successors
to fully comply with the provisions hereunder and refrain from taking
any action affecting or causing any changes to the management
composition and the operations of the Related Entities;
(iv) during the Determination Period, Parent shall
cause all transactions between Parent and subsidiaries of Parent, on
the one hand, and the Company, on the other hand, to be conducted on an
arm's length basis on terms and conditions at least as favorable to the
Company as the Company could obtain from an independent third-party;
(v) Parent shall be entitled to appoint the Vice
President - Finance of the Company, reporting to the Parent and the
Board. For the avoidance of doubt, such person shall be the most senior
finance officer of the Company; and
(vi) Each of the Purchaser and the Sellers agree that
any respective designated member of the Board shall act in such
capacity in good faith to uphold the interests of the Company and the
Parent, taken as a whole.
(b) Operation of the Company During the Determination
Period.
(i) Parent and the Company acknowledge and agree that
the Earnout Payments are a significant aspect of the consideration
payable in the sale and purchase of the Shares, and that both the
Sellers and Parent expect to derive significant financial benefits if,
during the Determination Period, the Actual Net Income of the Company
achieves the financial targets set forth in the Budget. Based on this
acknowledgement, the Selling Shareholder Representatives and Parent
will cooperate with
17
one another following the Closing Date in attempting to meet such
financial targets and to achieve the types of product integration
contemplated by the parties hereto.
(ii) The Budget shall:
(1) set forth reasonable and appropriate
levels of sales, costs and expenses based on ▇▇▇▇ ▇▇▇▇'▇ and
the Selling Shareholder Representatives' best estimates
consistent with prior experience; and
(2) in the case of discretionary
expenditures, not materially deviate from past practices in a
manner which would adversely affect the Earnout Payments;
(iii) The operational principles for the Company
during the Determination Period shall:
(1) eliminate any and all fees, expenses,
charges or transactions where such fees, charges or expenses
are allocated or implemented by Parent or any subsidiaries of
Parent following the Closing;
(2) reflect that all transactions between
Parent and subsidiaries of Parent, on the one hand, and the
Company, on the other hand, shall be conducted on a
revenue-sharing basis on terms and conditions at least as
favorable to the Company could obtain from an independent
third party;
(3) reflect that any transactions conducted
on a basis other than a revenue-sharing basis may proceed only
upon the approval of the Selling Shareholder Representatives
pursuant to Section 2.04(c); and
(4) require that any related-party
transactions, other than with members of the Parent's
consolidated group of companies, will be subject to approval
by the Board of Directors of the Company.
(iv) The computation of Actual Net Income for purposes of
determining the Earnout Payments shall exclude or eliminate (w) without
duplication of any positive reversal specified in clause (y) below, the
impact of any net income that is attributable to the systems
integration business and that is recorded in the 2003 Financial
Statements or the 2004 Financial Statements, which, subject to Sections
3.11(f) and 3B.12, shall be distributed to each of the Sellers in
proportion to the percentage set forth opposite such Seller's name on
Schedule E, (x) any amortization of goodwill or intangible assets
relating to the purchase of the Shares, (y) the impact of any positive
reversal of any asset impairment or other impairment, accounts
receivable or inventory write-downs, or any other positive reversal of
charges or impairments recorded in the 2002 Financial Statements and
(z) any overhead allocations except for such shared costs as may be
agreed from time to time by the Selling Shareholder Representatives in
accordance with Section 2.04(c).
(v) The Company will prepare the 2003 Financial Statements and
the 2004 Financial Statements consistently with Parent's operating
requirements and reporting practices. Consistent with Parent's public
reporting obligations, the Company shall prepare the 2003 Financial
Statements and the 2004 Financial Statements in
18
accordance with GAAP as promptly as practical following the end of each
fiscal year within the Determination Period. In addition, consistent
with Parent's internal reporting procedures, the Company shall prepare
the financial statements as promptly as practical following the end of
each calendar month within the Determination Period, but in no event
later than 8 days following the close of each such month. Copies of all
such financial statements shall be delivered to Parent.
(c) General Protective Provisions. From and after the Closing
Date through the last day of the Determination Period, unless otherwise agreed
to in writing by each of the Selling Shareholder Representatives acting in their
capacities as directors of the Company (which agreement in any event shall not
be unreasonably withheld), Parent shall:
(i) not cause or permit the Company, the PRC WFOE or
any Related Entity (except as contemplated by the Budget) to: (A) sell
all or substantially all of its assets, (B) sell or transfer or
otherwise dispose of any asset that is material, necessary or required
in connection with the production of income, (C) merge or consolidate
with any person, (D) liquidate or dissolve, (E) purchase all or
substantially all of the assets or share capital of any person, (F)
purchase any division or line of products or services from any person,
(G) add any subsidiary or (H) change any remuneration, bonus, benefits
or other compensation scheme in respect of any Management Shareholder;
(ii) not, and shall cause any subsidiary of Parent
(other than Moeasy and the Parent's Web portal) not to, compete in the
PRC with the Company in the short messaging services or multimedia
messaging services business as it exists on the date hereof; provided,
that Parent will attempt in good faith to refer to the Company requests
from customers and potential customers of Parent and its subsidiaries
(other than the Company) for any products or services of Parent or
subsidiaries (including Company) relating to mobile data services in
the People's Republic of China;
(iii) cause all transactions between Parent and
subsidiaries of Parent, on the one hand, and the Company, on the other
hand, to be conducted on a revenue-sharing basis on terms and
conditions at least as favorable to the Company as the Company could
obtain from an independent third-party;
(iv) not allocate any overhead expenses to the
Company other than that for which the replacement cost is not greater
than the Company's existing overhead expenses;
(v) subject to reasonable confidentiality agreements,
permit each Selling Shareholder Representative and their respective
agents, attorneys and accountants to have reasonable access to all
books and records of the Company and deliver to such Selling
Shareholder Representative (A) the unaudited monthly financial
statements of the Company within 15 days after the end of each calendar
month, (B) the unaudited quarterly financial statements of the Company
within 20 days after the end of each calendar quarter and (C) the 2003
Financial Statements and the 2004 Financial Statements within 30 days
after the completion of the relevant audit; and
(vi) not take any action that is not in good faith
with respect to the Company and that could reasonably be construed to
have as its purpose or likely result
19
the artificial reduction of Actual Net Income.
(d) Support from Parent. From and after the Closing Date,
Parent shall provide the Company, on a revenue-sharing basis, with the benefits
of those of Parent's own products and services as may be agreed between the
Company, the PRC WFOE or any Related Entity, on the one hand, and Parent, on the
other hand, from time to time. Initially, Parent shall use its best efforts to
include in such products and services the news feed, online dating and online
gaming services, and other logistical support necessary to enable the Company to
operate the most profitably and efficiently after the Closing Date.
(e) Information Sharing. Subject to reasonable confidentiality
agreements, each of the Parent and the Company expressly consents to the
communication by either Selling Shareholder Representative to any Seller which
it represents hereunder of any information delivered or made available to such
Selling Shareholder Representative under this Section 2.04. The benefit of this
provision shall inure to Baring Asia to any individual designated by Baring Asia
to serve as a director of the Company.
(f) Disputes. In the event that Parent or either Selling
Shareholder Representative disputes the calculation of an Earnout Payment and
the parties cannot mutually agree on the Earnout Payment within fifteen (15)
days of notice to Parent or such Selling Shareholder Representative, as the case
may be, of such dispute, the parties shall mutually select a public accounting
firm, of international recognition (the "Arbitrating Accountant"), who shall be
empowered to arbitrate and decide such matter. The fees of the Arbitrating
Accountant shall be borne equally by the Parent, on the one hand, and the
Sellers, on the other, but excluding the Non-Management Sellers in the event
that such dispute relates to the Third Installment.
2.05 Right to Set-off. Purchaser's payment of the Earnout Payments will
be subject to set-off for the settlement of the indemnification obligations set
forth in Section 9, subject to the limitations set forth therein; provided,
however, that (a) payments thereof to Non-Management Sellers shall be subject to
set-off only for indemnification claims arising from the breach of
representations or warranties made by Non-Management Sellers, including those
set forth in Sections 3.01 to 3.09 and 3A and (b) payment to the Management
Sellers shall be subject to set-off for indemnification claims arising from the
breach of representations or warranties made by the Management Sellers,
including those set forth in Section 3 and Section 3B, but not Section 3A.
Section 3. Representations and Warranties of the Sellers, the Company
and the Related Entities. Each of the Management Sellers, the Company and the
Related Entities, jointly and severally, and each of the Non-Management Sellers,
jointly and several as among themselves, but severally and not jointly as
between themselves, on the one hand, and the Management Sellers, the Company and
the Related Entities, on the other hand (and, with respect to Section 3.08, to
the knowledge of such Non-Management Seller), represent and warrant to and for
the benefit of the Purchaser, the following:
3.01 Authority. The Company has all requisite corporate power and
authority required to enter into, execute and deliver this Agreement and the
Transaction Documents to which the Company is a party and to perform its
obligations hereunder and each of the other documents required to be entered
into pursuant hereto. The Board will have at the Closing approved the
transactions contemplated by this Agreement and each of the Transaction
Documents to which the Company is a party. This Agreement and the Transaction
Documents to which the Company is a party have been duly and validly executed
and delivered by the Company and constitutes
20
a legal, valid and binding obligation of the Company enforceable against the
Company (and the Sellers as appropriate) in accordance with there terms subject
to bankruptcy, reorganization, insolvency, moratorium, restructuring or similar
levels of general applicability relating to or affecting creditors' generally
and to general principles of equity. No meeting has been convened or resolution
proposed, or petition presented, and no order has been made, for the winding-up
of the Company. No distress, execution or other similar order or process has
been levied on any of the Assets of the Company, the PRC WFOE or any Related
Entity. No voluntary arrangement has been proposed or reached with any creditors
of the Company, the PRC WFOE or any Related Entity. No receiver, manager,
provisional liquidator, or other officer of the court has been appointed in
relation to the Company, the PRC WFOE or any Related Entity.
3.02 Organization of the Company. (a) The Company is a corporation duly
organized and validly existing under the laws of the Cayman Islands, and has
full corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its assets and properties. The Company
was formed primarily to acquire and hold an equity interest in the PRC WFOE and
since its Inception Date, except as disclosed in Section 3.02(a) of the
Disclosure Schedule, has not engaged in any business.
(b) The Company is duly qualified, licensed or admitted to do
business in each of such jurisdiction to the extent that such qualification,
licensure or admission is required by that jurisdiction's laws. The Company has
full corporate power to own its properties, assets and business and to carry on
its business operations and has done everything necessary to do business
lawfully in the aforementioned jurisdictions.
(c) The name of each director and officer of the Company on
the date hereof, and the position with the Company held by each, are listed in
Section 3.02(c) of the Disclosure Schedule.
(d) Prior to the Effective Date, the Sellers and the Company
have made available to the Purchaser true and complete copies of the
Constitution and Records of the Company as in effect on the Effective Date. The
Records are: (i) complete, true and accurate in all material respects; (ii) give
a true and fair view of the trading transactions, financial and contractual
position of the Company and of its assets and liabilities; (iii) as far as is
relevant, have been prepared in accordance with applicable Law; and (iv) are in
the possession of the Company in their original form.
(e) The issued and outstanding share capital of the Company
consists of 38,235,294 shares, of which 26,000,000 Ordinary Shares are issued
and outstanding and 12,235,294 Preferred Shares, all of which are issued and
outstanding. The Company has issued 1,721,100 Employee Share Options to the
Persons set forth on Section 3.02(e) of the Disclosure Schedule which further
sets forth the quantities, exercise price and the date of commencement for each
such Person. None of the 1,721,100 Employee Share Options have been exercised as
of the Effective Date, and all such Employee Share Options shall be cancelled
and replaced with cash awards as provided in Section 5.12. The Shares as of the
Effective Date are duly authorized, validly issued, fully paid and
non-assessable. Except for this Agreement, the aforementioned 1,721,100 Employee
Share Options, there are no outstanding Employee Share Options or Share Options
with respect to the Company. Except as otherwise disclosed in Section 3.02(e) of
the Disclosure Schedule, none of the issued Shares being sold to the Purchaser
hereunder are subject to any preemptive rights, put or call rights or
obligations, rights of first refusal, anti-dilution
21
rights or liquidation rights or other rights to subscribe for or purchase
securities of the Company.
(f) The Company, the PRC WFOE and each Related Entity has
filed and/or registered all annual returns and other Records as and where
required to be filed and/or registered.
3.03 Total Equity. (a) Aside from the Shares, there are no issued
or outstanding shares of the Company. The Shares comprise the whole of the
issued ordinary and preferred share capital of the Company as of the Effective
Date. The Sellers are the registered holders and beneficial owners of the
Shares.
(b) The Shares are being sold to the Purchaser by the Sellers
free and clear of any Lien or other interests of any other third party
whatsoever. The delivery of a certificate or certificates at the Closing
representing the Shares in the manner provided in Section 2.01 will transfer to
Purchaser good and valid title to the Shares, free and clear of all Liens.
(c) Except as otherwise disclosed in Section 3.02, there are
no commitments in place under which the Company is obligated at any time to
issue any shares or other securities of the Company.
(d) Other than the Employee Share Options, there are no
outstanding options with respect to the Company or the Shares.
(e) There will be at the Closing no restriction(s) on the
sale or transfer of any of the Shares to the Purchaser whatsoever.
3.04 Subsidiaries. (a) Except for the PRC WFOE, which is 100% owned by
the Company, the Company has no direct Subsidiaries. The PRC WFOE is a wholly
foreign-owned enterprise duly organized and validly existing under the Laws of
the PRC and has full corporate power and authority to conduct its business as
and to the extent now conducted and to own, use and lease its assets and
properties. The business scope of the PRC WFOE specified in its business license
is: "the development, production and sale of computer software, network
application software ad network products and of information technology; to
provide solutions and technical assistance for electronic commerce and for
information services using cable and wireless networks; to provide system
integration services and corresponding maintenance and repair services; to
provide commercial consulting, training and other related services." Such
business scope is sufficient for the PRC WFOE to conduct its business to the
extent it has been and is currently conducted.
(b) The name of each director and officer of the PRC WFOE on
the date hereof, and the position with the PRC WFOE held by each, are listed in
Section 3.04(b) of the Disclosure Schedule.
(c) Prior to the execution of this Agreement, the Sellers and
the Company have made available to the Purchaser true and complete copies of the
Constitution and Records of the PRC WFOE as in effect on the Effective Date. The
Records are: (i) complete, true and accurate in all material respects; (ii) give
a true and fair view of the trading transactions, financial and contractual
position of the PRC WFOE and of its assets and liabilities; (iii) as far as is
relevant, have been prepared in accordance with the applicable Law; and (iv) are
in the possession of the Company in their original form.
(d) The registered capital of the PRC WFOE has been fully paid
and the equity interest held by the Company in the PRC WFOE is not subject to
any preemptive
22
rights, put or call rights or obligations, rights of first refusal,
anti-dilution rights or liquidation rights or other rights to subscribe for the
registered capital of the PRC WFOE. All of the equity interests in the PRC WFOE
are owned, beneficially and of record, by the Company free and clear of all
Liens. The PRC WFOE has properly reserved the reserve fund and staff bonus and
welfare fund from its after-tax profits (if any) each fiscal year in accordance
with applicable Law.
(e) Other than the PRC WFOE and the Related Entities, there
are no other corporations, partnerships, joint ventures, associations or other
entities in which the Company owns, of record or beneficially, any direct or
indirect equity or other interest or any right (contingent or otherwise) to
acquire the same. Neither the Company nor the PRC WFOE is a member of (nor is
any part of the business conducted through) any partnership nor is the Company
or the PRC WFOE a participant in any joint venture or similar arrangement.
3.04A Related Entities. (a) Each Related Entity is a limited liability
company duly organized and validly existing under the Laws of the PRC and has
full corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its assets and properties. Section
3.04A(a) of the Disclosure Schedule sets forth the business scope of each
Related Entity as specified in its business license. Each such business scope is
sufficient for the relevant Related Entity to conduct its business to the extent
it has been and is currently conducted.
(b) The name of each director and officer of each Related
Entity on the date hereof, and the position with each respective Related Entity
held by each, are listed in Section 3.04A(b) of the Disclosure Schedule.
(c) Prior to the execution of this Agreement, the Sellers and
the Company have made available to the Purchaser true and complete copies of the
Constitution and Records of each Related Entity as in effect on the date hereof.
The Records are: (i) complete, true and accurate in all material respects; (ii)
give a true and fair view of the trading transactions, financial and contractual
position of the each Related Entity and of its assets and liabilities; (iii) as
far as is relevant, have been prepared in accordance with the applicable Law;
and (iv) are available to the Company in their original form.
(d) Except as disclosed in Section 3.04A(d) of the Disclosure
Schedule, the registered capital of each Related Entity has been fully paid and
the equity interest in each Related Entity is not subject to any preemptive
rights, put or call rights or obligations, rights of first refusal,
anti-dilution rights or liquidation rights or other rights to subscribe for the
registered capital of each Related Entity. Except as disclosed in Section
3.04A(d) of the Disclosure Schedule, the equity interest in each Related Entity
is owned, beneficially and of record, by the shareholders identified in Section
3.04A(d) of the Disclosure Schedule free and clear of all Liens. Each Related
Entity has properly reserved from its after-tax profits (if any) in each fiscal
year the amounts required by applicable Law in the PRC to the reserve fund and
staff bonus and welfare fund.
(e) Except as Palm-Lottery, there are no other corporations,
partnerships, joint ventures, associations or other entities in which any
Related Entity owns, of record or beneficially, any direct or indirect equity or
other interest or any right (contingent or otherwise) to acquire the same.
Except as Palm-Lottery, neither of the Related Entities is a member of (nor is
any part of the business conducted through) any partnership nor is any Related
Entity a participant in any joint venture or similar arrangement.
(f) Palm-Lottery is a limited liability company duly organized
and
23
valid existing under the Laws of the PRC and has full power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties. Section 3.04A(f) of the Disclosure Schedule
sets forth the business scope of Palm-Lottery as specified in its business
license. Each such business scope is sufficient for Palm-Lottery to conduct its
business to the extent it has been and is currently conducted. The name of each
shareholder, director and officer of Palm-Lottery on the date hereof, and the
position with Palm-Lottery held by each, are listed in Section 3.04(f) of the
Disclosure Schedule. The registered capital of Palm-Lottery has been fully paid
and the equity interest held by Beijing Newpalm in Palm-Lottery is not subject
to any preemptive rights, put or call rights or obligations, rights of first
refusal, anti-dilution rights or liquidation rights or other rights to subscribe
for the registered capital of Palm-Lottery, except as under Article 35 of the
Company Law of the PRC or under Article 10 of the Articles of Association of
Palm-Lottery. All of the equity interests held by Beijing Newpalm in
Palm-Lottery are owned, beneficially and of record, by Beijing Newpalm free and
clear of all Liens, except as under Article 35 of the Company Law of the PRC or
under Article 10 of the Articles of Association of Palm-Lottery. The liability
or obligations of Beijing Newpalm in respect of Palm-Lottery are limited to the
capital contribution of Beijing Newpalm to the registered capital of
Palm-Lottery. Other than a RMB500,000 loan advanced by Beijing Newpalm to
Palm-Lottery which is convertible into equity interests in Palm-Lottery, there
are no commitments in place under which Palm-Lottery is obligated at any time to
provide additional funding or make additional capital contributions to the
registered capital of Palm-Lottery.
3.05 No Conflicts. The execution and delivery by the Sellers, the
Company, the PRC WFOE and each Related Entity of this Agreement and the
Transaction Documents to which they are parties do not, and the performance by
the Sellers and the Company of their respective obligations under this Agreement
and such Transaction Documents and the consummation of the transactions
contemplated hereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the Constitution or any resolutions of
the shareholders or directors of the Company, the PRC WFOE or any Related
Entity;
(b) conflict with or result in a violation or breach of any
term or provision of any Law or Order of any Governmental or Regulatory
Authority of the PRC, the Cayman Islands, Hong Kong or any other governmental,
administrative or regulatory bodies applicable to any Seller, the Company, the
PRC WFOE or any Related Entity or any of their respective assets and properties
except for such conflicts, violations or breaches as would not, individually or
in the aggregate, have a Material Adverse Effect (disregarding for purposes of
this Section 3.05 clause (c) of the proviso in the definition thereof); or
(c) (i) conflict with or result in a violation or breach of,
(ii) constitute a default under, (iii) require the Sellers, the Company, the PRC
WFOE or any Related Entity to obtain any consent, approval or action under, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon the Sellers, the Company, the PRC WFOE or any
Related Entity or any of their respective Assets under, any Material Contract or
Governmental License to which the Sellers, the Company, the PRC WFOE or any
Related Entity is a party or holder of or by which any of their respective
Assets are bound, except for such conflicts, violations, breaches, defaults,
requirements to obtain consent, approval or action, rights of termination,
cancellation, acceleration or modification, payments or Liens as would not have
a Material Adverse
24
Effect (disregarding for purposes of this Section 3.05 clause (c) of the proviso
in the definition thereof).
3.06 Governmental Approvals and Filings. Other than as otherwise
disclosed in Section 3.06 of the Disclosure Schedule, no consent, approval or
action of, filing with or notice to any applicable Governmental or Regulatory
Authority on the part of the Company, the PRC WFOE or any Related Entity is
required in connection with the execution, delivery and performance of this
Agreement, the Transaction Documents or the consummation of the transactions
contemplated hereby.
3.07 Legal Proceedings. (a) There is no action, suit, arbitration
proceeding, inquiry, claim or investigation either before or brought by any
Governmental or Regulatory Authority or other Person pending or threatened in,
or before any court or quasi-judicial or administrative agency of any
jurisdiction or before any arbitrator (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) (any "Proceeding"),
against or affecting the Company or any Seller (as it relates to the Company).
So far as the Company and each Management Seller is aware, having made due and
proper inquiries, there are no facts likely to give rise to any Proceeding.
(b) Neither the Company nor any Seller (as it relates to the
Company) has commenced or settled any legal proceedings including ordinary
routine litigation incidental to the Company's business. There are no
outstanding Orders by which the Company or any Seller (as it relates to the
Company) or any of their securities, assets, properties or businesses are bound.
(c) No material claim has been made against the Company, the
PRC WFOE or any Related Entity in connection with any defective product or
services supplied by it in the course of carrying on its business and the
Company has maintained insurance that is customary to the applicable industry
and type of business.
(d) There does not exist any actual written threat or any
action, proceeding or other application pending before any court or Governmental
or Regulatory Authority brought by any Person or Governmental or Regulatory
Authority: (i) challenging or seeking to restrain or prohibit the consummation
of the transactions contemplated by this Agreement, or seeking to obtain any
material damages from any of the Parties or their Affiliates as a result of such
transactions; (ii) seeking to prohibit or impose any limitations on the
Purchaser's ownership or operation of all or any portion of the Shares or the
underlying assets of the Company, or to compel the Purchaser's to dispose of or
hold separate all or any portion of its or the Shares or the Company's business
or assets as a result of the transactions contemplated by the Agreement; or
(iii) that would cause any of the transactions contemplated by this Agreement to
be rescinded following consummation.
3.08 Compliance with Laws and Orders. Except as disclosed in Section
3.08 of the Disclosure Schedule, the Company, the PRC WFOE and each Related
Entity and each Seller has complied in all material respects with applicable Law
and Order and none of the Company, the PRC WFOE, any Related Entity or any
Seller and their respective Affiliates is or has at any time since the Inception
Date been, or has received any notice that it is or has at any time been, in
violation of or in default under, in any material respect, any Law or Order
applicable to the Company, the PRC WFOE or any Related Entity or any of their
respective Assets.
3.09 Brokers or Finders. Except as disclosed in Section 3.09 of the
Disclosure Schedule, none of the Company, the PRC WFOE or any Related Entity has
incurred, or will incur,
25
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement. For the
avoidance of doubt, any brokerage, finders' fee, agents' commissions or any
similar charge(s) in relation to or associated with this Agreement, will be paid
by the Sellers.
3.10 No Bankruptcy or Insolvency. (a) No order has been made, or
petition presented, or resolution passed for the winding-up of the Company, the
PRC WFOE or any Related Entity or any Seller. None of the Company, the PRC WFOE
or any Related Entity or any Seller has had:
(i) any petition or order for winding-up filed
against it;
(ii) any appointment of a receiver over the whole
or part of the undertaking of its assets;
(iii) any petition or order for administration
against it;
(iv) any voluntary arrangement between any
creditor and it;
(v) any distress or execution or other process
levied in respect of it which remain undischarged; or
(vi) any unfulfilled or unsatisfied judgment or
court order against it over the amount of US$100,000.
(b) None of the Company, the PRC WFOE or any Related Entity or
any Seller is insolvent and each can pay its debts as and when they fall due.
(c) There are no circumstances which would entitle any Person
to present a petition for the winding-up or administration of the Company, the
PRC WFOE or any Related Entity or any Seller or to appoint a receiver over the
whole or any part of the undertaking or assets of the Company, the PRC WFOE or
any Related Entity or any Seller.
3.11 Financial Representations. (a) Complete and unaltered copies of
the Management Accounts have been delivered by the Company to the Purchaser. The
Management Accounts (i) were prepared in accordance with the books of account
and other financial records of the Company, the PRC WFOE and the Related
Entities, (ii) present fairly the combined financial condition and results of
operations of the Company, the PRC WFOE and the Related Entities as at the dates
thereof or for the respective periods covered thereby, (iii) have been prepared
in accordance with GAAP applied on a basis consistent with the past practices of
the Company, the PRC WFOE and the Related Entities (except as may be indicated
in the notes thereto and except that the Management Accounts do not contain
footnotes and are subject to normal and recurring period-end adjustments, which
adjustments would not have a Material Adverse Effect) and (iv) include all
adjustments that are necessary for a fair presentation of the consolidated
financial condition of the Company, the PRC WFOE and the Related Entities and
the results of the operations of the Company, the PRC WFOE and the Related
Entities as of the dates thereof or for the periods covered thereby. There are
no Liabilities of the Company, the PRC WFOE or any Related Entity, other than
Liabilities that are reflected or reserved against on the unaudited combined
balance sheets of the Company, the PRC WFOE and the Related Entity for the
period ended as of February 28, 2003 and would not have a Material Adverse
Effect.
(b) The books of account and other financial records of the
Company,
26
the PRC WFOE and the Related Entities: (i) reflect all items of income and
expense and all assets and Liabilities required to be reflected therein in
accordance with GAAP applied on a basis consistent with the past practices of
the Company, the PRC WFOE and the Related Entities, respectively, (ii) are in
all material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices.
(c) Section 3.11(c) of the Disclosure Schedule sets forth each
and every account maintained by each of the Company, the PRC WFOE and the
Related Entities at a bank or other financial institution, including the name of
such bank or financial institution, account number and the amount of balance on
such account.
(d) All forecasts and projections of any future financial
results or sales pipeline activities of the Company, the PRC WFOE and the
Related Entities provided to the Purchaser by or on behalf of the Company, any
of the Company's, the PRC WFOE's or any Related Entity's management or any
Seller including, without limitation, those for the 12 months ending December
31, 2003 (by month) and those set out in Section 3.11(d) of the Disclosure
Schedule were prepared in good faith and were based upon reasonable estimates
and assumptions.
(e) The Net Asset Value reflected on the unaudited pro forma
combined balance sheet in the Management Accounts for the year ended and as of
December 31, 2002 is US$8,402,000, before payment of the Special Dividend, and
the Net Asset Value that will be reflected on the pro forma combined balance
sheet included in the 2002 Financial Statements will be no less than
US$6,500,000 before payment of the Special Dividend. During the 6-month period
after Closing, the Company will have sufficient working capital for normal
operations as well as payment of all outstanding liabilities.
(f) Any adjustments that may be necessary to the accounts
receivable, inventory and accounts payable associated with the systems
integration business (including as related to ▇▇ ▇▇▇▇ Network Communications
Co., Ltd., Openwave Systems Inc., China Unicom Communication Co., Ltd.,
Datacraft (China) Ltd. and Hurray Solutions Limited) will not result in any
requirement for any additional working capital funding from the Parent to the
Company, the PRC WFOE or any Related Entity.
(g) The unaudited pro forma combined revenue for the Company,
the PRC WFOE and the Related Entities for the 3-month period ending December 31,
2002 attributable to the SMS business is not less than US$1,800,000.
(h) The indemnification rights specified in Section 9 hereof
will cover any claim asserting that the Net Asset Value as of December 31, 2002
as reflected in the 2002 Financial Statements is less than US$6,500,000 before
payment of the Special Dividend. In such event, the Loss to be indemnified shall
equal the amount by which the Net Asset Value is less than US$6,500,000 before
payment of the Special Dividend.
Section 3A. Representations and Warranties of Non-Management Sellers.
Each of the Non-Management Sellers, in respect of itself only, represents and
warrants, severally and not jointly, to and for the benefit of the Purchaser,
the following:
3A.01 Authority. (a) Each Non-Management Seller has full legal
capacity, power and authority to enter into, execute and deliver this Agreement
and, where applicable, the Transaction Documents to which it is a party, and to
perform each of its obligations hereunder,
27
thereunder and under each of the other documents required to be entered into
pursuant hereto. This Agreement and each applicable Transaction Document to
which such Non-Management Seller is a party have been duly and validly executed
and delivered by such Non-Management Seller and will constitute a legal, valid
and binding obligation of such Non-Management Seller enforceable against such
Non-Management Seller in accordance with its terms subject to bankruptcy,
reorganization, insolvency, moratorium, restructuring or similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity. No meeting has been convened or resolution
proposed, or petition presented, and no order has been made, for the winding-up
of such Non-Management Seller. No voluntary arrangement has been proposed or
reached with any creditors of such Non-Management Seller. Such Non-Management
Seller is able to pay its debts as and when they fall due and is solvent.
(b) The name of each beneficial holder of each Other Seller
and the respective share ownership percentage position with each respective
Other Seller held by each, are listed in Section 3A(b) of the Disclosure
Schedule.
3A.02 Related Party Transactions in Respect of Institutional Sellers.
Except as disclosed in Section 3A.02 of the Disclosure Schedule, (i) there are
no intercompany Liabilities between the Company, the PRC WFOE or any Related
Entity, on the one hand, and any Institutional Seller, or officer, director,
Affiliate or Associate of such Institutional Seller or any Associate of any such
officer, director or Affiliate (other than the Company, the PRC WFOE or any
Related Entity), on the other, (ii) neither any such Institutional Seller nor
any such officer, director, Affiliate or Associate provides or causes to be
provided any assets, services or facilities to the Company, the PRC WFOE or any
Related Entity, (iii) none of the Company, the PRC WFOE or any Related Entity
provides or causes to be provided any assets, services or facilities to any
Institutional Seller or any officer, director, Affiliate or Associate of any
Seller and (iv) none of the Company, the PRC WFOE or any Related Entity
beneficially owns, directly or indirectly, any Assets of any Institutional
Seller or any such officer, director, Affiliate or Associate of any
Institutional Seller. Except as disclosed in Section 3A.02 of the Disclosure
Schedule, all transactions engaged in by the Company, the PRC WFOE or any
Related Entity, any Institutional Seller and any Associate or Affiliate thereof,
was incurred or engaged in, as the case may be, on an arm's-length basis. Except
as disclosed in Section 3A.02 of the Disclosure Schedule, since the December 31,
2002, all settlements of intercompany Liabilities between the Company, the PRC
WFOE or any Related Entity, on the one hand, and any Institutional Seller or any
officer, director, Affiliate or Associate of any Institutional Seller, on the
other, have been made, and all allocations of intercompany expenses have been
applied, in the ordinary course of business consistent with past practice.
Section 3B. Representations and Warranties of the Management Sellers,
the Company and the Related Entities. Each Management Seller, the Company and
the Related Entities, jointly and severally (except that the representations and
warranties set forth in Section 3B.01 are made by each Management Seller
severally and not jointly with respect to the other Management Seller),
represents and warrants to, and for the benefit of the Purchaser, the following:
3B.01 Authority. (a) Each Management Seller has full legal capacity,
power and authority to enter into, execute and deliver this Agreement and, where
applicable, the Transaction Documents to which it is a party, and to perform
each of its obligations hereunder, thereunder and under each of the other
documents required to be entered into pursuant hereto. This Agreement and each
applicable Transaction Documents to which such Management Shareholder is a party
have been duly and validly executed and delivered by each such Management Seller
and
28
will constitute a legal, valid and binding obligation of such Management Seller
enforceable against such Management Seller in accordance with its terms subject
to bankruptcy, reorganization, insolvency, moratorium, restructuring or similar
laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. No meeting has been convened or
resolution proposed, or petition presented, and no order has been made, for the
winding-up of such Management Seller. No voluntary arrangement has been proposed
or reached with any creditors of such Management Seller. Such Management Seller
is able to pay its debts as and when they fall due and is solvent.
(b) The name of each beneficial holder of each Management
Seller and the respective share ownership percentage position with each
respective Management Seller held by each, are listed in Section 3B.01(b) of the
Disclosure Schedule.
3B.02 No Undisclosed Indebtedness. Except as disclosed in Section 3B.02
of the Disclosure Schedule, none of the Company, the PRC WFOE or any Related
Entity has any material liability for Indebtedness in excess of US$50,000 that
has not been reflected or disclosed in the Management Accounts for the year
ended and as of December 31, 2002.
3B.03 Taxes. (a) The Company, the PRC WFOE and each Related Entity have
duly filed all Tax Returns for any period on or before the Closing Date and the
same have been made or given in good faith within the requisite periods and on a
proper basis and when made were true and accurate in all material respects and
are up to date and none of them contains any statement that is false or
misleading in any material respects or omits to refer to any material matter
which is required to be included or without which the statement is false or
misleading. None of such Tax Return is or, to the knowledge of the Management
Sellers, is likely to be the subject of any dispute with any tax authority.
(b) The Company, the PRC WFOE, and each Related Entity have
paid when due, and have withheld, deducted and accounted to the relevant
authorities for, all Taxes which they have become liable to pay, withhold,
deduct or account for on or before the date hereof. For the purposes of this
Section 3B.03(b) "a liability to pay" includes a liability to pay any penalty or
interest. None of the Company, the PRC WFOE, any Related Entity, or any
respective director or officer thereof has paid or become liable to pay any
fine, penalty, surcharge or interest in relation to tax in relation to the
activities of the Company, the PRC WFOE, and any Related Entity.
(c) The Company, the PRC WFOE and each Related Entity have
complied in all material respects with all legislation, regulations, executive
orders and directions relating to or associated with any Taxes.
(d) There are no outstanding or likely disputes or questions
or demands between the Company, the PRC WFOE, and each Related Entity, on the
one hand, and any Governmental or Regulatory Authority or agent thereof, on the
other hand, concerning any Tax liability. There are no Tax liens on any of the
Assets of the Company, the PRC WFOE or any Related Entity. None of the Company,
the PRC WFOE or the Related Entities has received any claim from any taxing
authority in a jurisdiction in which the Company, the PRC WFOE or any Related
Entity is or may be subject to taxation and in which the Company, the PRC WFOE
or any Related Entity has failed to file Tax Returns required by that
jurisdiction. Section 3B.03(d) of the Disclosure Schedule lists all
jurisdictions in which Tax Returns are filed with respect to any of the Company,
the PRC WFOE and the Related Entities and indicates those Tax Returns that have
been audited or that are currently the subject of audit. The Management Sellers
have made available to the Purchaser correct and complete copies of all Tax
Returns, examination reports,
29
and statements of deficiencies assessed against or agreed to by any of the
Company, the PRC WFOE and the Related Entities since the Inception Date.
(e) Other than pursuant to this Agreement, none of the
Company, the PRC WFOE or any Related Entity has ever been a party to or bound by
any Tax indemnity, Tax sharing or similar agreement and none of the Company, the
PRC WFOE nor any Related Entity has any material liability for any Taxes of any
other person.
3B.04 Employment and Benefits. (a) The Company has already provided to
the Purchaser: (i) the names and commencement date of employment of all current
employees, and directors of the Company, the PRC WFOE and each Related Entity
who will serve in such capacity on the Closing Date and the names and
commencement date of all contractors who are serving in such capacity; (ii) the
monthly salary of each such employee and (iii) any bonus or commission scheme
and any other benefits provided or which the Company, the PRC WFOE or any
Related Entity is bound to provide (whether now or in the future) to all such
employees or otherwise.
(b) Section 3B.04(b) of the Disclosure Schedule contains an
accurate and complete list of each Benefit Plan of the Company, the PRC WFOE and
each Related Entity and none of the Company, the PRC WFOE or the Related
Entities has made any commitments to establish new or to expand Benefit Plans as
set forth therein.
(c) The Company, the PRC WFOE and each Related Entity have
complied with all applicable Laws relating to each Benefit Plan. All
contributions or payments required to be made by the Company, the PRC WFOE or
any Related Entity with respect to each Benefit Plan (including proper
allocation of after-tax profit to the reserve fund and staff bonus and welfare
fund each year put to the PRC law) have been made on or before their due dates.
All such contributions and payments required to be made by any employees of the
Company, the PRC WFOE or any Related Entity with respect to the relevant Benefit
Plan have been fully deducted and paid to the relevant Governmental or
Regulatory Authorities on or before their due dates, and no such deductions have
been challenged or disallowed by any Governmental or Regulatory Authority or any
employee of the Company, the PRC WFOE or any Related Entity.
(d) With respect to each agreement with employees and
contractors of the Company, the PRC WFOE and each Related Entity, the Company,
the PRC WFOE and each Related Entity have duly performed and complied with all
of their obligations (including, but not limited to, the making all payments for
services rendered and other benefits). The Company, the PRC WFOE and each
Related Entity has duly complied with applicable employment regulations in all
material respects. Each of the contracts entered into with employees,
consultants or contractors of the Company, the PRC WFOE and each Related Entity
is enforceable against the parties to it and there is no party in breach of, or
in default under, such contract which would have a Material Adverse Effect. For
the avoidance of doubt, each of the staff at the Company's call center operation
based in Tianjin for each of the two most recent years is a contractor.
(e) Each of the employees of the Company, the PRC WFOE and
each Related Entity has executed an employment agreement containing or
addressing confidentiality obligations, copyright, technology-invention
ownership and non-competition matters, in the form attached as Schedule G
hereto. No employee or contractor has any rights to the Company's, the PRC
WFOE's or any Related Entity's Intellectual Property and IP Assets, including
the right to receive royalties or other payments from the Company, the PRC WFOE
or any Related Entity. The contractors do not have access to the IP Assets or
Intellectual Property in a manner that could
30
materially impair or jeopardize the business of the Company, the PRC WFOE and
each Related Entity.
(f) None of the Company, the PRC WFOE or any Related Entity or
any Management Seller has offered, promised or agreed for the future any
material variation in any employment or contractor/service agreement other than
performance-based adjustments pursuant to the existing policy of the Company,
the PRC WFOE or any Related Entity, as the case may be, in the ordinary course
of its business. Without limiting the generality of the preceding sentence,
there has been no material change in the remuneration or benefits of any
executives, directors, officers or Key Employees of the Company, the PRC WFOE or
any Related Entity within the past 12 months.
(g) There is no action or dispute threatened or existing or
anticipated in respect of or concerning any of the employees of the Company, the
PRC WFOE or any Related Entity relating to or based on any facts or
circumstances (or part thereof) arising or existing prior to the Effective Date
("Employee Litigation"). To the best knowledge of each Management Seller, there
are no facts or circumstances which are likely to result in such a dispute.
(h) To the knowledge of the Management Sellers, each full-time
employee of the Company, the PRC WFOE or any Related Entity has been devoting
100% of his/her business time during the Company's, the PRC WFOE's or such
Related Entity's business hours to the conduct of the Company's, the PRC WFOE's
or Related Entity's business, as the case may be. Each contractor of the
Company, the PRC WFOE or any Related Entity has been devoting 100% of his/her
contracted time (as specified in his/her service or contractor agreement) to the
conduct of the Company's, the PRC WFOE's or such Related Entity's business, as
the case may be.
(i) No loans or other advances have been made to any director,
officer, employee or contractor of the Company, the PRC WFOE or any Related
Entity, other than for travel allowances and other expenses in the ordinary
course of business.
(j) Since December 31, 2002, the Company has not considered
dismissing any employee of the Company, the PRC WFOE or any Related Entity.
(k) Section 3B.04(k) of the Disclosure Schedule contains a
list of the key employees of the Company and summary of key terms including the
expiration of their current term of employment as at Closing (the "Key
Employees").
3B.05 Real Property and Business Premises. (a) None of the Company,
the PRC WFOE or any Related Entity owns any real property whatsoever.
(b) All of the commercial leases and subleases executed by the
Company, the PRC WFOE or any Related Entity are in full force and effect, and
none of the Company, the PRC WFOE or any Related Entities has received notice of
any claim of any sort that is currently outstanding and that has been asserted
by anyone adverse to the rights of the Company, the PRC WFOE or any Related
Entity under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company, the PRC WFOE or any Related Entity to the
continued possession of the commercial leased or subleased premises under any
such commercial lease or sublease.
(c) Section 3B.05(c) of the Disclosure Schedule accurately in
all material
31
respects describes all the business premises leased or occupied by the Company,
the PRC WFOE or any Related Entity (the "Business Premises"). The Company, the
PRC WFOE and each Related Entity, as the case may be, has exclusive occupation
of the Business Premises. None of the Company, the PRC WFOE or any Related
Entity is in breach of any term or obligation of any leases or licenses relating
to the Business Premises. None of the Company, the PRC WFOE and the Related
Entities has been in default with respect to any payments required by and has
otherwise failed to comply with the terms of each of the leases and/or licenses
relating to the Business Premises, except for any default or failure as would
not have a Material Adverse Effect. There are no current disputes relating to
any of the Business Premises or their use.
3B.06 Tangible Personal Property and Plant & Equipment. (a) The
Company, the PRC WFOE and each Related Entity is in possession of and has good
title to, or has valid leasehold interests in or valid rights under contract to
use, all tangible personal property including all plant and equipment used in
the conduct of its business, including all tangible personal property reflected
on the balance sheets included in the Financial Statements of the Company and
tangible personal property acquired since the Inception Date other than property
disposed of since such date in the ordinary course of business. All such
tangible personal property including all plant and equipment that is owned or
leased by the Company, the PRC WFOE and each Related Entity is free and clear of
all Liens and is in good working order and condition, ordinary wear and tear
excepted, and its use complies in all material respects with all applicable
Laws.
(b) Section 3B.06(b) of the Disclosure Schedule is a complete
list of all items of plant and equipment owned by the Company, the PRC WFOE and
each Related Entity with a written down value in excess of RMB2,000 as at
December 31, 2002 ("Plant and Equipment"). Except as set forth in Section
3B.08(b) of the Disclosure Schedule, each item of Plant and Equipment is in good
repair taking into account normal wear and tear, is in satisfactory working
condition and capable of doing the work for which it is designed and is
physically in the possession of the Company, the PRC WFOE and each Related
Entity.
(c) Section 3B.06(c) of the Disclosure Schedule is a complete
list of all Equipment Leases. The Company, the PRC WFOE and each Related Entity
has made all payments required by and has otherwise complied with the terms of
each of the Equipment Leases, except for such failure thereof as would not have
a Material Adverse Effect.
3B.07 Intellectual Property. (a) The Company, the PRC WFOE and each
Related Entity owns or has the right to use pursuant to license, sublicense,
agreement or permission all the Intellectual Property set out in Section
3B.07(c) and 3B.07(d) of the Disclosure Schedule. The Company, the PRC WFOE and
each Related Entity has taken all necessary, proper and reasonable steps and
actions to maintain and protect its own Intellectual Property.
(b) To the knowledge of the Management Sellers, none of the
Company, the PRC WFOE or any Related Entity has, on its own behalf or through an
agent, infringed upon, misappropriated, or used without a required license, any
Intellectual Property of third parties, or received any written charge,
complaint, claim, demand, or notice alleging any such infringement,
misappropriation, or misuse that has not been finally resolved (including any
claim that the Company, the PRC WFOE or any Related Entity must license or
refrain from using any Intellectual Property of any third party). To the
knowledge of the Management Sellers, no third party has infringed upon,
misappropriated, or otherwise misused any Intellectual Property of the Company,
the PRC WFOE or any Related Entity.
(c) Section 3B.07(c) of the Disclosure Schedule identifies
each registered
32
and unregistered (as indicated) Intellectual Property that is materially related
to the core business of, and is owned by, the Company, the PRC WFOE or any
Related Entity and identifies each license, agreement, or other permission
currently in effect pursuant to which the Company, the PRC WFOE or any Related
Entity has granted to any third party rights with respect to any of such
Intellectual Property other than in the ordinary course of business. The Company
has delivered to the Purchaser correct and complete copies of all written
documentation evidencing ownership and prosecution (if applicable) of rights of
each such Intellectual Property that is in the possession of the Company. With
respect to each item of Intellectual Property identified in Section 3B.07(c) of
the Disclosure Schedule:
(i) the Company, the PRC WFOE and each Related Entity
possess all right, title, and interest in and each item, or has the
valid right to use each item, free and clear of any Liens and none of
the Company, the PRC WFOE or any Related Entity has assigned or in any
way disposed of any right, title or interest in any item;
(ii) each item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand has been filed or is
threatened which challenges the legality, validity, enforceability,
use, or ownership of each item; and
(iv) the Company, the PRC WFOE and each Related
Entity has taken all commercially reasonable steps to obtain and
maintain appropriate registrations (if applicable) for each item and to
protect and defend each item.
(d) Section 3B.07(d) of the Disclosure Schedule lists the
items of Intellectual Property that any third party owns and that the Company,
the PRC WFOE and each Related Entity use pursuant to applicable licenses,
sublicenses, agreements, or permission (other than pursuant to shrink-wrap
software licenses, shareware/open source or site licenses). With respect to each
item of Intellectual Property identified on Section 3B.07(d) of the Disclosure
Schedule:
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable according to
the applicable terms under the applicable license, sublicense,
agreement, or permission, and in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms immediately following the
consummation of the transactions contemplated hereby;
(iii) to the knowledge of the Management Sellers,
after due inquiry, none of the Company, the PRC WFOE or any Related
Entity is in breach or default of any such license, sublicense,
agreement or permission, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) to the knowledge of the Management Sellers,
after due inquiry, no current or former customer to such license,
sublicense, agreement or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute
a breach or default or permit termination, modification, or
acceleration
33
thereunder;
(v) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof by written notice to
the Company, the PRC WFOE or any Related Entity or any representatives
thereof;
(vi) to the knowledge of the Management Sellers,
after due inquiry, no underlying item of Intellectual Property is
subject to any outstanding injunction, judgment, order, decree, ruling
or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand has been filed or is
pending against the Company, the PRC WFOE or any Related Entity in
relation to any underlying item of Intellectual Property and, to the
knowledge of the Management Sellers, no owner of such Intellectual
Property has threatened any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property;
(viii) none of the Company, the PRC WFOE or any
Related Entity has granted any sublicense or similar right with respect
to the license, sublicense, agreement or permission other than in the
ordinary course of business; and
(ix) none of the Company, the PRC WFOE or any Related
Entity has taken any action or inaction or assisted any other person to
take any action or inaction with such Intellectual Property that
infringes upon, misappropriate, or otherwise misuses any such
Intellectual Property.
(e) To the best knowledge of the Management Sellers, after due
inquiry, there has not been:
(i) any misuse or unauthorized disclosure of the
Company's, the PRC WFOE's or any Related Entity's confidential
information in any material respect; or
(ii) any other act which may affect the validity or
enforceability of the Intellectual Property rights of the Company, the
PRC WFOE or any Related Entity in any material respect.
(f) None of the Company, the PRC WFOE or any Related Entity or
any Management Seller is aware, having made due and proper inquiries, of any
inappropriate, improper, unpermitted or infringing use by any other person of
any of the business names or the trade marks owned or used by the Company, the
PRC WFOE or any Related Entity.
3B.08 Contracts.
(a) [Intentionally left blank]
(b) There are no contracts or obligations, agreements or
arrangements involving the Company, the PRC WFOE or any Related Entity and no
practices in which the Company, the PRC WFOE or any Related Entity is engaged,
which are void, illegal, unenforceable, registerable or under which contravene
in any material respect, any fair competition legislation or regulations of any
applicable Governmental or Regulatory Authority, nor has the Company, the
34
PRC WFOE or any Related Entity received any threat or complaint or request for
information or investigation in relation to or in connection with any such
legislation or regulations.
(c) The Company, the PRC WFOE and each Related Entity has duly
performed and complied in all material respects with its obligations under all
Material Contracts. None of the Company, the PRC WFOE or the Related Entities
has made any offers, tenders or quotations which are still outstanding and
capable of giving rise to a contract by the unilateral act of a third party,
other than in the ordinary course of business and on customary terms.
(d) Except as set forth in Section 3B.08(d) of the
Disclosure Schedule, with respect to the Material Contracts:
(i) each Material Contract is valid and binding
on the parties thereto and is in full force and effect;
(ii) upon consummation of the transactions
contemplated by this Agreement and the Transaction Documents, each
Material Contract shall continue in full force and effect without
penalty or Material Adverse Effect (disregarding for purposes of this
Section 3B.08(d)(ii) clause (c) of the proviso in the definition
thereof). None of the Company, the PRC WFOE or any Related Entity is in
breach of, or default under, any Material Contract;
(iii) none of the Company, the PRC WFOE or any
Related Entity has received any notice of termination, cancellation,
breach or default under any Material Contract and, to the best
knowledge of the Management Sellers, no party to any Material Contract
is in breach thereof or default thereunder.
(e) Section 3B.08(e) of the Disclosure Schedule contains a
true and correct complete list of all of the following agreements, instruments,
written contract or other arrangement, together with any related amendments,
waivers, supplements, schedules, exhibits, work orders, notices as to
termination or change thereunder, to which the Company, the PRC WFOE, any
Related Entity or any Management Seller (as it relates to the Company) is a
party (the "Material Contracts"):
(i) each contract, agreement, invoice, purchase order
and other arrangement for the furnishing of services to the Company,
the PRC WFOE or any Related Entity or otherwise related to the Company,
the PRC WFOE, or any Related Entity, under the terms of which the
Company, the PRC WFOE or any Related Entity: (A) is likely to pay or
otherwise give consideration of more than US$50,000 in the aggregate
during the calendar year ended December 31, 2002, (B) is likely to pay
or otherwise give consideration of more than US$50,000 in the aggregate
over the remaining term of such contract or (C) except in the case of
employment agreements with employees of the Company, the PRC WFOE or
the Related Entities, cannot cancel without penalty or further payment
and without more than 30 days' notice. For avoidance of doubt, this
shall include all support agreements (or group of related agreements)
including but not limited to the contracts covering maintenance of
Company, the PRC WFOE or any Related Entity portal or development of
website content or sourcing of website content;
(ii) each contract, agreement, invoice, sales order
and other arrangement, for the furnishing of services by the Company,
the PRC WFOE
35
or any Related Entity which: (A) is likely to involve consideration of
more than US$50,000 in the aggregate during the calendar year ended
December 31, 2002, (B) is likely to involve consideration of more than
US$50,000 in the aggregate over the remaining term of the contract or
(C) cannot be cancelled by the Company, the PRC WFOE or any Related
Entity without penalty or further payment and without more than 30
days' notice. For avoidance of doubt, regardless of the revenue amount
to the Company, the PRC WFOE or any Related Entity, this shall include
all the agreements between the Company, the PRC WFOE or any Related
Entity, on the one hand, and provincial or regional mobile operator
regarding the Short Message delivery cooperation, on the other hand;
(iii) each contract, agreement, lease and sublease
concerning the use, occupancy, management or operation of any real
property;
(iv) all franchise, agency, sales promotion,
market research, marketing, consulting and advertising contracts and
agreements in excess of US$50,000;
(v) all management contracts and contracts with
independent contractors or consultants (or similar arrangements) in
excess of US$50,000 which are not cancelable without penalty or further
payment and without more than 30 days' notice;
(vi) all contracts and agreements relating to
Indebtedness or Liabilities of the Company, the PRC WFOE or any Related
Entity in excess of US$20,000;
(vii) all contracts and agreements with any
Governmental or Regulatory Authority;
(viii) all contracts and agreements that limit or
purport to limit the ability of the Company, the PRC WFOE or any
Related Party to compete in any line of business or with any Person or
in any geographic area or during any period of time;
(ix) all contracts and agreements providing for
benefits under any Benefit Plan (other than the employment agreement
with each employee of the Company, the PRC WFOE or any Related Entity);
(x) all agreements included in the licenses
related to the Intellectual Property licensed or owned by the Company,
the PRC WFOE or any Related Entity;
(xi) all agreements providing for exclusive
cooperation or exclusive business relationship or similar arrangement;
(xii) all contracts and agreements between or among
the Company, the PRC WFOE or any Related Entity, on one hand, and a
Seller or any Affiliate or Associate, on the other hand; and
(xiii) all other contracts and agreements, whether or
not made in the ordinary course of business, which are material to the
Company, the PRC WFOE or any Related Entity, taken as a whole, or the
business of the Company, the PRC WFOE or any Related Entity, or the
absence of which would have a Material Adverse Effect.
3B.09 Licenses. (a) Section 3B.09 of the Disclosure Schedule contains a
true and
36
complete list of all Governmental Licenses used in and material to the business
or operations of the Company, the PRC WFOE or any Related Entity, setting forth
the owner, the function and the expiration and renewal date of each. Prior to
the execution of this Agreement, the Company has made available to Purchaser
true and complete copies of all such Governmental Licenses. Except as disclosed
in Section 3B.09 of the Disclosure Schedule:
(i) The Company, the PRC WFOE and each Related
Entity owns or validly holds all Governmental Licenses that are
material to its business or operations;
(ii) each Governmental License listed in Section
3B.09 of the Disclosure Schedule is valid, binding and in full force
and effect;
and
(iii) none of the Company, the PRC WFOE or any
Related Entity is, or has received any notice that it is, in default
(or with the giving of notice or lapse of time or both, would be in
default) under any such Governmental Licenses.
(b) Without limiting the generality of paragraph (a) above,
all Governmental Licenses required under PRC law for the due and proper
establishment and operation of businesses of the Company, the PRC WFOE and each
Related Entity and for the conduct of the business of the Company, the PRC WFOE
and each Related Entity have been duly obtained from the relevant PRC
authorities and are in full force and effect. All filings and registrations with
the relevant PRC authorities required in respect of Company, the PRC WFOE and
each Related Entity and its operations, including but not limited to
registration with the Ministry of Information Industry, Ministry of Foreign
Trade and Economic Cooperation, the State Administration of Industry and
Commerce, the State Administration of Foreign Exchange or their respective
authorized local agencies, and the relevant tax bureau, customs authorities and
product registration authorities, have been duly completed in accordance with
the relevant PRC rules and regulations.
3B.10 Insurance. Each of the PRC WFOE and the Related Entities has, and
for the past two years has, maintained valid and, except for insurance policies
that have expired under their terms in the ordinary course, currently effective
statutory employment-related insurance policies issued in favor of the PRC WFOE
or each Related Entity, as the case may be, in each case with responsible
insurance companies, in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies in the PRC
engaged in businesses and operations similar to those of the PRC WFOE or such
Related Entity, as the case may be.
3B.11 Disclosure and Information. (a) No representation or warranty
contained in this Agreement or in any other Transaction Document and given by,
or on behalf of, any Seller, the Company, the PRC WFOE, any Related Entity or
any Key Employee and no statement contained in the Disclosure Schedule, any
certificates delivered pursuant hereto or the 2002 Financial Statements
delivered pursuant to this Agreement contains any material misstatement or omits
to state a material fact necessary in order to make the statements herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) To the best knowledge of the Management Sellers, there are
no facts or circumstances that could materially adversely affect the Shares, the
Company, the PRC WFOE, any Related Entity, any Seller (as it relates to the
Company), any of the Assets or the
37
condition (financial or otherwise), operations, profitability or prospects of
the Company, the PRC WFOE or any Related Entity which have not been fully and
properly disclosed to the Purchaser.
(c) The Constitution, minute books and other similar records
of the Company, the PRC WFOE and each Related Entity as made available to the
Purchaser prior to the Effective Date contain a true and complete record, in all
material respects, of all actions taken at all meetings and by all written
consents in lieu of meetings of the shareholders, the boards of directors and
committees of the boards of directors of the Company, the PRC WFOE and the
Related Entities. The share transfer ledgers and other similar records of the
Company, the PRC WFOE and the Related Entities as made available to the
Purchaser prior to the Effective Date accurately reflect all record transfers
prior to such date in the share capital of the Company and the registered
capital of each of the PRC WFOE and the Related Entities. Except as those
maintained by the Company's registration agent or the relevant Government and
Regulatory Authorities, none of the Company, the PRC WFOE or any Related Entity
has any of its Books and Records recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company, the PRC WFOE or an
Related Entity.
3B.12 Systems Integration Business. Any adjustments that may be
necessary to the accounts receivable, inventory and accounts payable associated
with the systems integration business will not result in any requirement for any
additional working capital funding from the Parent to the Company, the PRC WFOE
or any Related Entity; provided, that the indemnification rights specified in
Section 9 hereof will cover up to US$3,162,000 of any accounts payable that the
Company must pay for which it is unable to collect upon the corresponding
accounts receivable, in each case as associated with the systems integration
business.
3B.13. Absence of Changes. Since December 31, 2002, there has not been
any change in the Business or Condition of the Company that would result in a
Material Adverse Effect and each of the Company, the PRC WFOE and the Related
Entities has been conducting its business only in the ordinary course and in a
manner consistent with past practice. Without limiting the generality of the
foregoing, since December 31, 2002, none of the Company, the PRC WFOE or any
Related Entity has:
(a) amended, terminated, canceled or compromised any
material claims of, or waive any other rights of substantial value to, the
Company, the PRC WFOE or any Related Entity;
(b) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed, with a
value in excess of US$50,000 individually or US$100,000 in the aggregate
(including, without limitation, leasehold interests and intangible property);
(c) issued or sold any share capital, equity interests, notes,
bonds or other securities, or any option, warrant or other right to acquire the
same, of the Company, the PRC WFOE or any Related Entity;
(d) redeemed any of the share capital or, except with respect
to the dividend to be declared and paid on or prior to Closing in accordance
with applicable Law, declared, made or paid any dividends or distributions
(whether in cash, securities or other property) to the holders of the securities
or the equity interests of the Company, the PRC WFOE or any Related
38
Entity or otherwise, other than dividends, distributions and redemptions
declared, made or paid by the PRC WFOE or any Related Entity solely to the
Company;
(e) merged with, entered into a consolidation with or acquired
an interest in any Person or acquire a substantial portion of the assets or
business of any Person or any division or line of business thereof, or otherwise
acquired any material assets other than in the ordinary course of business
consistent with past practice;
(f) made any capital expenditure or commitment for any capital
expenditure in excess of US$10,000 individually or US$100,000 in the aggregate
except as related to the establishment and operations of the customer services
call center located in Tianjin, the PRC;
(g) incurred any Indebtedness in excess of US$50,000
individually or US$100,000 in the aggregate;
(h) failed to pay any creditor any amount owed to such
creditor when due;
(i) (i) granted any increase, or announce any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other benefits
payable by the Company, the PRC WFOE or any Related Entity to any of its
employees, including, without limitation, any increase or change pursuant to any
plan, or (ii) established or increase or promise to increase any benefits under
any plan, in either case, except as required by any applicable Law or any
collective bargaining agreement and involving ordinary increases consistent with
the past practices of the Company in accordance with the Company's operating
budget, the PRC WFOE or any Related Entity or involving amounts not in excess of
US$10,000 per month in the aggregate;
(j) entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or with any
relative, beneficiary, spouse or Affiliate of such Persons);
(k) allowed any Permit that was issued or relates to the
Company, the PRC WFOE or any Related Entity or otherwise relates to the business
thereof to lapse or terminate or failed to renew any insurance policy or Permit
that is scheduled to terminate or expire within 45 calendar days of the Closing
Date;
(l) amended, modified or consented to the termination of any
Material Contract or the Company's, the PRC WFOE's or any Related Entity's
rights thereunder;
(m) amended or restated the Constitution of the Company, the
PRC WFOE or any Related Entity;
(n) changed any content of the Books and Records; or
(o) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3B.13 and to grant any options to
purchase, rights of first refusal, rights of first offer or any other similar
rights or commitments with respect to any of the actions specified in this
Section 3B.13, except as expressly contemplated by this Agreement and the
Ancillary Agreements.
3B.14. Powers of Attorney. There are no outstanding powers of attorney
executed on
39
behalf of the Company, the PRC WFOE or any Related Entity or comparable
delegations of authority outstanding.
3B.15. Product, Services and Assets.
(a) There are no current or threatened disputes with regards
to the Company's, the PRC WFOE's or any Related Entity's IP Assets. The
Company's, the PRC WFOE's and each Related Entity's products, as the case may
be, have been successfully installed and utilized by customers of the Company,
the PRC WFOE or each Related Entity, as the case may be, or have been delivered
successfully and satisfactorily to all such customers of the Company, the PRC
WFOE or each Related Entity, as the case may be.
(b) No IP Assets sold, leased or delivered by the Company, the
PRC WFOE or any Related Entity and no support or service provided by the
Company, the PRC WFOE or any Related Entity to customers on or prior to the
Effective Date is subject to any express guaranty, express warranty or other
indemnity (including without limitation as to product or service reliability,
security, interoperability, compatibility (forward and backward), upgrade path
or upgrade timing) except as expressly set forth on those contracts with
customers copies of which have been provided to the Purchaser and are listed in
Section 3B.15(b) of the Disclosure Schedule.
(c) Each of the Company, the PRC WFOE and the Related Entities
is the legal and beneficial owner of, or has valid right to use, all its Assets
and there are no Lien over or affecting such Assets.
(d) The Assets are sufficient to enable the effective conduct
of the business of the Company, the PRC WFOE and each Related Entity after
Closing as it is carried on at the date of this agreement and at Closing.
3B.16 Substantial Customers and Suppliers. (a) For purposes of this
Section 3B.16(a), a "Material Customer" shall mean all 38 customers of the
Company, the PRC WFOE and each Related Entity at the provincial level of China
Mobile and China Unicom and the five additional customers that account for the
highest attributed revenues for the year ended December 31, 2002. Section
3B.16(a) of the Disclosure Schedule lists the Material Customers (whether direct
or indirect) and applicable contracts of the Company, the PRC WFOE and each
Related Entity. Each of the Material Customers, related contracts and attributed
revenues are not duplicative or redundant. With respect to the applicable
contracts with Material Customers, there exists no event of default and, to the
best knowledge of the Management Sellers, no event has occurred which would
result in any such event of default or prevent the Company, the PRC WFOE or any
Related Entity from obtaining the benefit thereunder. The Company's, the PRC
WFOE's and each Related Entity's relationship with each Material Customer is
good and, to the best knowledge of the Company, the PRC WFOE or any Related
Entity or any Seller, there are no facts or circumstances (i) relating to any
dispute threatened, actual or pending between the Company, the PRC WFOE or any
Related Entity and any Material Customer that cannot be settled in the ordinary
course of business, (ii) relating to any desire or plan of any Material Customer
to terminate or modify or not to renew such relationship or (iii) which, in
connection with any Material Customer in respect of which any relevant contract
has not been executed or has expired, have come to the attention of the
Management Sellers indicating that such contract will not be executed or
renewed, as the case may be.
(b) For purposes of this Section 3B.16(b), a "Material
Supplier"
40
shall mean any of the top ten (10) third party suppliers of the Company, the PRC
WFOE and the Related Entities, taken as a whole with the highest attributed
costs or the basis of costs for the year ended December 31, 2002. Section
3B.16(b) of the Disclosure Schedule lists the material suppliers. With respect
to the applicable contracts with Material Suppliers, there exists no event of
default and, to the knowledge of the Management Sellers, no event has occurred
which would result in any such event of default or prevent the Company, the PRC
WFOE or any Related Entity from obtaining the benefit thereunder. The Company's,
the PRC WFOE's and each Related Entity's relationship with each Material
Supplier is good and, to the knowledge of the Company, the PRC WFOE, any Related
Entity or any Seller, there are no facts or circumstances relating to (i) any
dispute threatened, actual or pending between the Company, the PRC WFOE or any
Related Entity and any Material Supplier; or (ii) any desire or plan of any
Material Supplier to terminate or modify or not to renew such relationship.
(c) The total paying users for the Company as of February 28,
2003 was not less than 2,600,000 and as of March 10, 2003 was not less than
2,800,000. The total number of subscribers for the X-City and City Love as of
January 31, 2003 was not less than 1,500,000 and as of March 10, 2003 was not
less than 1,800,000. The total number of subscribers for iFate as of January 31,
2003 was not less than 250,000 and as of March 10, 2003 was not less than
400,000.
(d) To the best knowledge of the Management Sellers, there is
no existing Material Customer of the Company, the PRC WFOE or any Related Entity
who is likely to materially reduce its trading with the Company, the PRC WFOE or
any Related Entity as a result of the acquisition of the Shares by the
Purchaser.
(e) There are no outstanding accounts payable over 90 days to
iFate or other Material Suppliers as relates to iFate's product with respect to
China Unicom.
(f) Except as disclosed in Section 3.17(e) of the Disclosure
Schedule, no shareholder, officer or director of the Company, the PRC WFOE or
any Related Entity and no relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such shareholder, officer or director
has any direct or indirect financial interest in any Material Supplier or
Material Customer.
3B.17 Related Party Transactions. Except as disclosed in Section 3B.17
of the Disclosure Schedule, (i) there are no intercompany Liabilities between
the Company, the PRC WFOE or any Related Entity, on the one hand, and any
Seller, or officer, director, Affiliate or Associate of such Seller or any
Associate of any such officer, director or Affiliate (other than the Company,
the PRC WFOE or any Related Entity), on the other, (ii) neither any such Seller
nor any such officer, director, Affiliate or Associate provides or causes to be
provided any assets, services or facilities to the Company, the PRC WFOE or any
Related Entity, (iii) none of the Company, the PRC WFOE or any Related Entity
provides or causes to be provided any assets, services or facilities to any
Seller or any officer, director, Affiliate or Associate of any Seller and (iv)
none of the Company, the PRC WFOE or any Related Entity beneficially owns,
directly or indirectly, any Assets of any Seller or any such officer, director,
Affiliate or Associate of any Seller. Except as disclosed in Section 3B.17 of
the Disclosure Schedule, all transactions engaged in by the Company, the PRC
WFOE or any Related Entity, any Seller and any Associate or Affiliate thereof,
was incurred or engaged in, as the case may be, on an arm's-length basis. Except
as disclosed in Section 3B.17 of the Disclosure Schedule, since the December 31,
2002, all settlements of intercompany Liabilities between the Company, the PRC
WFOE or any Related Entity, on the one hand, and any Seller or any officer,
director, Affiliate or Associate of any Seller, on the other, have been made,
and all allocations of intercompany expenses have
41
been applied, in the ordinary course of business consistent with past practice.
3C. Exclusivity of Representations. The representations and warranties
made by the Sellers in this Agreement are in lieu of and are exclusive of all
other representations and warranties, including without limitation any implied
warranties. The Sellers hereby disclaim any such other implied representations
and warranties.
Section 4. Representations and Warranties of the Purchaser.
4.01 Organization of the Purchaser. The Purchaser represents and
warrants that the Purchaser is a corporation duly organized validly existing and
in good standing under the laws of the British Virgin Islands and has all
requisite power and authority to enter into and perform its obligations under
this Agreement. Once executed by the Purchaser, this Agreement and the
Transaction Documents required to be executed by the Purchaser have been duly
and validly executed and delivered by the Purchaser and when duly executed will
constitute a legal, valid and binding obligation of the Purchaser enforceable
against such Purchaser subject to bankruptcy, reorganization, insolvency,
moratorium, restructuring or similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity. No
meeting has been convened or resolution proposed, or petition presented, and no
order has been made, for the winding-up of the Purchaser. No distress, execution
or other similar order or process has been levied on any of the property or
assets of the Purchaser. No voluntary arrangement has been proposed or reached
with any creditors of the Purchaser. No receiver, manager, provisional
liquidator, or other officer of the court has been appointed in relation to the
Purchaser.
4.02 No Conflict. The execution and delivery of this Agreement and the
Transaction Documents by the Purchaser do not, and the performance of this
Agreement and the Transaction Documents by the Purchaser will not, (i) violate,
conflict with or result in the breach of any provision of the Memorandum and
Articles of Association of the Purchaser, (ii) conflict with or violate (or
cause an event which could have a material adverse effect on the Purchaser as a
result of) any Law or Order applicable to the Purchaser or any of the
Purchaser's respective assets, properties or businesses, or (iii) conflict with,
result in any breach of, constitute a default (or event which with the giving of
notice or lapse of time, or both, would become a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of any note, bond, mortgage
or indenture, contract, agreement, lease, sublease, license, permit, franchise
or other instrument or arrangement to which the Purchaser is a party, which
would adversely affect the ability of the Purchaser to carry out its obligations
under, and to consummate the transactions contemplated by, this Agreement or by
the Transaction Documents, except, in the case of clauses (ii) and (iii) above,
for conflicts, violations, breaches, defaults, rights of termination, amendment,
acceleration or cancellation, or encumbrances as would not, individually or in
the aggregate, have a material adverse effect on the Purchaser.
4.03 Consents and Approvals. The execution and delivery of this
Agreement and each Transaction Document by the Purchaser do not, and the
performance of this Agreement and each Transaction Document by the Purchaser
will not, require any consent, approval, authorization or other action by, or
filing with or notification to, any Governmental or Regulatory Authority, except
(a) where failure to obtain such consent, approval, authorization or action, or
to make such filing or notification, would not prevent the Purchaser from
performing any of its material obligations under this Agreement and the
Transaction Documents, (b) as may be necessary as a result of any facts or
circumstances relating solely to the Company, (c) a filing or submission
pursuant to the requirements of the Exchange Act and filings pursuant to the
relevant
42
requirements of Nasdaq as a result of and in connection with the execution of
this Agreement and (d) any announcements and circulars submitted to The Hong
Kong Stock Exchange for approval pursuant to the GEM Listing Rules.
Section 5. Covenants of the Sellers, the Company and the
Related Entities.
5.01 Financial Statements. (a) On or prior to March 31, 2003, the
Company and the Sellers shall deliver to the Purchaser true and complete copies
of the: (i) 2002 Financial Statements and (ii) monthly management accounts for
the Company, the PRC WFOE and the Related Entities for each month up to and
including the most recently completed month prior to the Closing. The 2002
Financial Statements will be prepared in accordance with or reconciled to GAAP,
and such management accounts will be prepared in accordance with GAAP, and will
fairly present the financial condition and results of the pro forma combined
operations of the Company, the PRC WFOE and the Related Entities as of the
respective dates thereof and for the respective period covered thereby.
(b) Prior to Closing, the Company and the Sellers shall
deliver to the Purchaser: (i) the Company's updated projected consolidated
statements of operations, shareholders' equity and cash flows for the calendar
year 2003; and (ii) the Company's and the PRC WFOE's updated operating budget
for calendar year 2003 (by month). Such projections noted in Sections 5.01(b)(i)
and (ii) were prepared based on assumptions which in the Company's determination
were reasonable and made in good faith.
5.02 Books and Records; Investigation. From the Effective Date until
the Closing, the Company and each Related Entity shall cause its officers,
directors, employees, agents and representatives to (a) provide the Purchaser
and its officers, directors, employees, agents, counsel, accountants, financial
advisors, consultants and other representatives (together "Representatives")
with full access, upon reasonable prior notice and during normal business hours,
to all officers, directors, employees, agents, accountants, customers and
suppliers of the Company, the PRC WFOE and the Related Entities and their Assets
and Books and Records, and (b) furnish Purchaser and such other Persons with all
such information and data (including without limitation copies of Material
Contracts, Benefit Plans, Constitutions and Records) concerning the business and
operations of the Company, the PRC WFOE and the Related Entities as Purchaser or
any of such other Persons may reasonably request in connection with such
investigation.
5.03 Fulfillment of Conditions. From the date hereof until the Closing,
each Seller, the Company, the PRC WFOE and each Related Entity will execute and
deliver at the Closing each instrument that such Seller or the Company is
required to execute and deliver hereunder as a condition to the Closing, shall
take all commercially reasonable steps necessary or desirable and proceed
diligently and in good faith to satisfy all other conditions to the obligations
of the Purchaser contained in this Agreement and shall not permit the Company to
take, or fail to take, any action that could reasonably be expected to result in
the non-fulfillment of any such condition. Without limiting the generality of
the foregoing, each Seller and the Company shall not take or omit to take any
reasonable action, or permit such action or omission if it reasonably can be
expected that as a result of such action or omission, any representation or
warranty made by the Sellers or the Company under this Agreement shall not be
true and correct in all respects at and as of the Closing Date as if made on
that date.
5.04 Notice and Cure. From the Effective Date until the Closing, the
Sellers, the Company, the PRC WFOE and each Related Entity shall notify the
Purchaser promptly in writing of, and contemporaneously, shall provide true and
complete copies of any and all information or
43
documents relating to, and will use all commercially reasonable efforts to cure
before the Closing, any event, transaction or circumstance occurring after the
Effective Date that causes or shall cause any covenant or agreement of the
Sellers, the Company, the PRC WFOE or any Related Entity under this Agreement to
be breached or that renders or shall render untrue any representation or
warranty of such party contained in this Agreement as if the same were made on
or as of the date of such event, transaction or circumstance. At any time until
the Closing, the Company and the Sellers shall notify the Purchaser promptly in
writing of, and shall use all commercially reasonable efforts to cure, before
the Closing, any violation or breach of any representation, warranty, covenant
or agreement made by such party in this Agreement, whether occurring or arising
before, on or after the Effective Date. No notice given pursuant to this Section
5.04 shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein or shall in any way limit the right of the
Purchaser to seek indemnity under this Agreement.
5.05 Conduct of Business in Ordinary Course. From the Effective Date
until the Closing Date, the Company, the PRC WFOE, and each Related Entity will
not, and the Sellers will cause the Company, the PRC WFOE and each Related
Entity not to, take any actions inconsistent with Section 3B.13 or which will
lead to a Material Adverse Effect occurring. With the exception of the
provisions set forth in this Agreement and the transactions contemplated hereby,
each of the Company, the PRC WFOE and each Related Entity will carry on (and the
Sellers shall cause the Company, the PRC WFOE and each Related Entity to carry
on) its business in the ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use
efforts consistent with past practice and policies to preserve intact their
respective present business organization, keep available the services of their
respective present officers, consultants and employees and preserve their
relationships with customers, suppliers and distributors and others having
business dealings with them. The Sellers shall cause the officers of the
Company, the PRC WFOE and each Related Entity to confer at such times as the
Purchaser may reasonably request with representatives of the Purchaser to report
operational matters of a material nature and to report the general status of the
ongoing operations of the business of the Company, the PRC WFOE and each Related
Entity.
5.06 Indebtedness. From the Effective Date until the Closing Date,
without obtaining the prior written consent of the Purchaser (which shall not be
unreasonably withheld) none of the Company, the PRC WFOE or any Related Entity
will: (a) incur any Indebtedness; (b) cause any existing debt facility to be
drawn down.
5.07 Regulatory and Other Approvals. The Sellers will, and will cause
the Company, the PRC WFOE and each Related Entity to, (a) take all commercially
reasonable steps necessary or desirable, and proceed diligently and in good
faith and use all commercially reasonable efforts, as promptly as practicable to
obtain all consents, approvals or actions of, to make all filings with and to
give all notices to Governmental or Regulatory Authorities or any other Person
required of Sellers, the Company, the PRC WFOE or any Related Entity to
consummate the transactions contemplated hereby and by the Transaction
Documents, (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other Persons as Purchaser or such
Governmental or Regulatory Authorities or other Persons may reasonably request,
(c) cooperate with Purchaser as promptly as practicable in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
Purchaser to consummate the transactions contemplated hereby and by the
Transaction Documents and (d) execute all documents, papers, forms,
authorizations, declarations or oaths required of Sellers, the Company, the PRC
WFOE or any
44
Related Entity to consummate the transactions contemplated hereby and by the
Transaction Documents. Sellers will provide prompt notification to Purchaser
when any such consent, approval, action, filing or notice referred to in clause
(a) above is obtained, taken, made or given, as applicable, and will advise
Purchaser of any communications (and, unless precluded by Law, provide copies of
any such communications that are in writing) with any Governmental or Regulatory
Authority or other Person regarding any of the transactions contemplated by this
Agreement or any of the Transaction Documents.
5.08 Tax Returns. The Company, the PRC WFOE and each Related Entity
will make available to the Purchaser copies of all Tax Returns that have been
filed or are filed prior to the Closing Date.
5.09 Insurance. The Company, the PRC WFOE and each Related Entity will
maintain in force up to the Closing Date policies of insurance of the same
character and coverage as those described in Section 3B.10 of the Disclosure
Schedule, and the Sellers will promptly notify the Purchaser in writing of any
changes in such insurance coverage occurring prior to the Closing Date.
5.10 No Solicitation. The Sellers will not permit the Company and the
PRC WFOE or any Affiliate of the Sellers to take, between the Effective Date and
the Closing, and the Management Sellers will not take, nor will they permit any
Related Entity or any Affiliate of the Management Sellers to take, at any time
during the period set forth in the Employment Agreements, directly or
indirectly, any action to initiate, assist, solicit, receive, negotiate,
encourage or accept any offer or inquiry from any Person (a) to engage in any
Business Combination with the Company, the PRC WFOE or any Related Entity, (b)
to reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise attempt to consummate, any Business Combination with the Company, the
PRC WFOE or any Related Entity or (c) to furnish or cause to be furnished any
information with respect to the Company, the PRC WFOE or any Related Entity to
any Person (other than as contemplated by Section 5.02) who Sellers, the
Company, the PRC WFOE or any Related Entity or such Affiliate (or any such
Person acting for or on their behalf) knows or has reason to believe is in the
process of considering any Business Combination with the Company, the PRC WFOE
or any Related Entity. If Sellers, the Company, the PRC WFOE or any Related
Entity or any such Affiliate (or any such Person acting for or on their behalf)
receives from any Person (other than Purchaser or any other Person referred to
in Section 5.02) any offer, inquiry or informational request referred to above,
Sellers will promptly advise such Person, by written notice, of the terms of
this Section 5.10 and will promptly, orally and in writing, advise Purchaser of
such offer, inquiry or request and deliver a copy of such notice to Purchaser.
5.11 Employee Matters.
(a) From the Effective Date until the Closing, except as may
be required by Law, the Sellers will refrain, and will cause the Company, the
PRC WFOE and each Related Entity to refrain, from directly or indirectly:
(i) making any representation or promise, oral or
written, to any officer, employee or consultant of the Company, the PRC
WFOE or any Related Entity concerning any Benefit Plan, except for
statements as to the rights or accrued benefits of any officer,
employee or consultant under the terms of any existing Benefit Plan;
45
(ii) making any increase in the salary, wages or
other compensation of any officer, employee or consultant of the
Company, the PRC WFOE or any Related Entity;
(iii) adopting, entering into, amending, modifying or
terminating (partially or completely) any Benefit Plan except to the
extent required by applicable Law and, in the event compliance with
legal requirements presents options, only to the extent that the option
which the Company, the PRC WFOE or any Related Entity reasonably
believes to be the least costly is chosen;
(iv) establishing or modifying any (i) targets,
goals, pools or similar provisions in respect of any fiscal year under
any Benefit Plan, employment contract or other employee compensation
arrangement or (ii) salary ranges, increase guidelines or similar
provisions in respect of any Benefit Plan, employment contract or other
employee compensation arrangement; or
(v) entering into, amending, modifying or terminating
(partially or completely), any contract that is, or had it been in
existence on the date of this Agreement would have been required to be,
disclosed to the Purchaser.
(b) Within 30 days after the Closing, the Management Sellers
shall use their best efforts to cause each employee identified in Exhibit
5.11(b) to enter into the Employment Agreement with the PRC WFOE, in the form
and substance as set forth in Exhibit 7.06(b) attached hereto.
Prior to the Closing, the Sellers will cause the Company, the PRC WFOE
and each Related Entity to administer each Benefit Plan, or cause the same to be
administered, in all material respects in accordance with applicable Laws. The
Company, the PRC WFOE and each Related Entity will promptly notify Purchaser in
writing of each receipt by the Company, the PRC WFOE or any Related Entity, as
the case may be, and furnish Purchaser with copies of any notice of
investigation or administrative proceeding involving any Benefit Plan. Prior to
the Closing, the Sellers will cause the Company, the PRC WFOE and each Related
Entity to provide for, or to pay, applicable social and other employee benefits
to applicable employees and consultants of the Company, the PRC WFOE and each
Related Entity, respectively, in the manner as required by applicable Law.
5.12 Treatment of Employee Share Options. Prior to or concurrently with
the Closing, the Company shall, and the Sellers shall cause the Company to,
cancel all outstanding Employee Share Options and to issue cash awards to the
Option Holders. These cash awards shall treat each Employee Share Option as if
it had been fully accelerated and provide the Option Holders with treatment
comparable to the Ordinary Shareholders, in as much as the Option Holders,
subject to continuing service requirements, shall receive a pro rata portion of
the Consideration paid by Purchaser, in up to three installments as provided in
Section 2.02 above. The Company shall agree, and the Sellers shall cause the
Company, to deliver these cash awards to the Option Holders who are employees in
good standing at the time of payment or otherwise eligible in accordance with
the terms of a notice of substitution of award issued pursuant to Section 9 of
the EIP, such notice shall be satisfactory to the Purchaser. From and after the
Effective Date, the Company shall not, and the Sellers shall cause the Company
not to, issue any additional Employee Share Options and shall cause the Company
to terminate the EIP, conditional upon the completion of the Closing. Prior to
the Closing, the Sellers will cause the Company, the PRC WFOE and each Related
Entity to provide for, or to pay, applicable social and other employee
46
benefits applicable employees and consultants of the Company, the WFOE and each
Related Entity, respectively, in the manner as required by applicable Law.
5.13 Related Entities.
(a) The Management Sellers shall cause, prior to the Closing,
▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU, who collectively hold 100% equity interests in Beijing
Newpalm, to enter into an equity transfer agreement, substantially in such form
and substance as set forth in Exhibit 5.13 attached hereto, with two PRC
individuals designated by the PRC WFOE (the "Beijing Newpalm Equity Transfer
Agreement"). Pursuant to the Beijing Newpalm Equity Transfer Agreement, ▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇ DU shall agree to transfer all their equity interests in Beijing
Newpalm to such two PRC individuals designated by the PRC WFOE at an aggregate
price of RMB1,000,000; provided, for the avoidance of doubt, that neither the
Purchaser nor Parent shall have any obligation to pay or reimburse such price or
any portion thereof.
(b) The Management Sellers shall cause, prior to the Closing,
▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU, who collectively hold 100% equity interests in Beijing
Wisecom, to enter into an equity transfer agreement, substantially in such form
and substance as set forth in Exhibit 5.14 attached hereto, with two PRC
individuals designated by the PRC WFOE (the "Beijing Wisecom Equity Transfer
Agreement"). Pursuant to the Beijing Wisecom Equity Transfer Agreement, ▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇ DU shall agree to transfer all their equity interests in Beijing
Wisecom to such two PRC individuals designated by the PRC WFOE at an aggregate
price of RMB1,000,000; provided, for the avoidance of doubt, that neither the
Purchaser nor Parent shall have any obligation to pay or reimburse such price or
any portion thereof.
(c) The Management Sellers shall cause, concurrently with the
execution of the Equity Transfer Agreements, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU to enter
into an assignment agreement with the PRC WFOE and the two PRC individuals
designated by the Purchaser (the "Assignment Agreement"), pursuant to which the
parties shall agree that all of the obligations of ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU under
the Option Agreements shall be duly and validly assigned to such two PRC
individuals upon the completion of the equity transfers under the Equity
Transfer Agreements.
(d) As promptly as practicable after the Closing, each of the
Management Sellers shall use their best efforts to take all such actions as
necessary to effect the equity transfers as contemplated under the Equity
Transfer Agreements, including but not limited to, obtaining the approval from
the Telecommunication Administrative Bureau of Beijing Municipality in
connection with the equity transfer and filing all necessary documents with the
Administration of Industry and Commerce of Beijing Municipality.
5.14 Waiver of Right of First Refusal. Each of the Sellers, by its
execution and delivery hereof, irrevocably waives any right of first refusal,
co-sale right or other similar right it enjoys with respect to the Shares,
including without limitation, such right of first refusal, co-sale right or
other similar right as is set forth in the Shareholders Agreement, the
Constitution or any other documents related to their rights as a shareholder of
the Company.
5.15 Taxes. Payment by the Purchaser of the Consideration to each
Seller and the consummation of the transactions contemplated hereunder will not
be subject to any withholding or deduction of Taxes (including without
limitation, income tax, capital gains tax, transfer tax and stamp duty) under
any applicable Laws. Each Seller specifically instructs the Purchaser to pay the
Consideration as contemplated herein without any such withholding or deduction
of Taxes
47
and hereby agrees and undertakes to the Purchaser that such Seller will pay any
such Taxes in accordance with applicable Law and will indemnify the Purchaser,
and hold the Purchaser harmless, against its failure to withhold or deduct Taxes
from the Consideration.
5.16 Beneficial Ownership of Management Sellers. Each of the Management
Sellers and the Other Sellers shall, for so long as the Management Sellers have
any outstanding performance obligations under this Agreement or any applicable
Transaction Documents, ensure that the beneficial ownership of each such
Management Seller or each Other Seller, as the case may be, shall remain
unchanged unless the assignee, transferee or successor of such beneficial
ownership shall have agreed in writing to the satisfaction of the Purchaser to
assume all the obligations of ▇▇▇▇ ▇▇▇▇ and/or ▇▇▇▇▇▇ DU under the Performance
Undertaking and have waived in writing to the satisfaction of the Company and
the Purchaser any claims or liability against the Company or the Purchaser.
Section 6. Covenants of the Purchaser.
6.01 Notice and Cure. From and after the Effective Date until the
Closing, the Purchaser shall notify the Company in writing of, and
contemporaneously, shall provide true and complete copies of any and all
information or documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or circumstance
occurring after the Effective Date that causes or shall cause any covenant or
agreement of the Purchaser under this Agreement to be breached or that renders
or shall render untrue any representation or warranty of such party contained in
this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. The Purchaser shall notify the Company promptly in
writing of, and shall use all commercially reasonable efforts to cure, before
the Closing, any violation or breach of any representation, warranty, covenant
or agreement made by such party in this Agreement, whether occurring or arising
before, on or after the Effective Date. No notice given pursuant to this Section
6.01 shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein or shall in any way limit the right of the
Company or the Sellers to seek indemnity under this Agreement.
6.02 Fulfillment of Conditions. From and after the Effective Date until
the Closing, the Purchaser will execute and deliver at the Closing each
instrument that the Purchaser is required to execute and deliver as a condition
to the Closing, shall take all commercially reasonable steps necessary or
desirable and proceed diligently and in good faith to satisfy all other
conditions to the obligations of the Sellers and the Company contained in this
Agreement and shall not permit the Company to take, or fail to take, any action
that could reasonably be expected to result in the non-fulfillment of any such
condition.
6.03 Regulatory and Other Approvals. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby and by the Transaction Documents, (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as a designated Seller or such Governmental or Regulatory Authorities or other
Persons may reasonably request, (c) cooperate with Sellers as promptly as
practicable in obtaining all consents, approvals or actions of, making all
filings with and giving all notices to Governmental or Regulatory Authorities or
other Persons required of Seller to consummate the transactions contemplated
48
hereby and by the Transaction Documents and (d) execute all documents, papers,
forms, authorizations, declarations or oaths required of Purchaser to consummate
the transactions contemplated hereby and by the Transaction Documents. Purchaser
will provide prompt notification to a designated Seller when any such consent,
approval, action, filing or notice referred to in clause (a) above is obtained,
taken, made or given, as applicable, and will advise a designated Seller of any
communications (and, unless precluded by Law, provide copies of any such
communications that are in writing) with any Governmental or Regulatory
Authority or other Person regarding any of the transactions contemplated by this
Agreement or any of the Transaction Documents.
6.04 Investigation. The Purchaser acknowledges and agrees that, subject
to the performance by the Company, the Sellers, the PRC WFOE and each Related
Entity of their respective obligations under this Agreement and based on the
affirmation by the Company, the Sellers, the PRC WFOE and each Related Entity
that the representations, warranties and undertakings made by them herein are
accurate and complete in all material respects, the Purchaser (i) has made its
own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Company, the PRC WFOE and the Related
Entities, and (ii) has been furnished with or given access to such information
about the Company, the PRC WFOE and the Related Entities as it has requested.
6.05 Non-Solicitation. In the event that the Closing shall not have
occurred for any reason, the Purchaser shall undertake not to employ or solicit
for employment, directly or indirectly, any of the employees of the Company for
a period of 12 months from the date this Agreement is executed.
6.06 Cancellation of Loans. The Purchaser or Parent shall cause the
Company to terminate and cancel, and discharge ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ DU from, any
outstanding loans owed by either of them respectively to the Company upon the
completion under the Equity Transfer Agreements.
Section 7. Conditions to Obligations of the Purchaser. The obligations
of the Purchaser under this Agreement are subject to the fulfillment, at or
before the Closing of each of the following conditions (all or any of which may
be waived in whole or in part by the Purchaser in its sole discretion):
7.01 Representations and Warranties. Each of the representations and
warranties made by the Sellers, the Company and/or each Related Entity in this
Agreement and the Transaction Documents and all facts and statements specified
in the Disclosure Schedules shall be true and correct in all respects in which
they are given as of the Closing Date and if specified on any other date, on
such date, as though such representation or warranty was made on each of those
dates.
7.02 Performance. Each Seller, the Company, the PRC WFOE and each
Related Entity shall have performed and complied with, each agreement, covenant
and obligation required by this Agreement and the Transaction Documents to be so
performed or complied with by the Company, the PRC WFOE, any Related Entity or
any Seller at or before the Closing.
7.03 Certificates. Each of the Company, the PRC WFOE, Beijing Newpalm
and Beijing Wisecom shall have delivered to the Purchaser a certificate duly
executed by the Chairman of its board of directors, substantially in the form
and substance as set forth in Exhibits 7.03(a), (b), (c) and (d).
49
7.04 Consents and Approvals. All such consents, approvals and actions
of, filings with and notices to any third party, Governmental or Regulatory
Authority necessary to permit each Seller and the Company to perform their
respective obligations under this Agreement and each of the Transaction
Documents and to consummate the transactions contemplated hereby and thereby as
set out in Exhibit 7.04 attached hereto shall have been duly obtained, made or
given, and shall be in full force and effect as at the Closing Date.
7.05 Opinions of Counsel. The Purchaser shall have received the opinion
of the Company's and the Sellers' PRC, Hong Kong and Cayman Islands legal
counsel on the Closing Date, substantially in the forms and to the effect of
Exhibit 7.05 attached hereto.
7.06 Key Employees. ▇▇▇▇ ▇▇▇▇ shall have executed an Employment
Agreement that contains non-competition, confidentiality, assignment of
inventions and non-solicitation provisions substantially in the form of Exhibit
7.06(a) attached hereto. Each of the other Key Employees shall have executed an
Employment Agreement that contains non-competition, confidentiality, assignment
of inventions and non-solicitation provisions substantially in the form of
Exhibit 7.06(b) attached hereto. Each of the Management Sellers shall have
executed and delivered a Performance Undertaking substantially in the form of
Exhibit 7.06(c) attached hereto.
7.07 Board. Effective as of the Closing Date, the designees of the
Purchaser shall have been elected to the Board and the board of directors of the
PRC WFOE and each Related Entity and the current directors as requested in
writing by the Purchaser of the Company, the PRC WFOE and each Related Entity
shall have resigned; provided that a properly constituted board of directors of
the Company, the PRC WFOE and each Related Entity shall be in existence at all
times.
7.08 Stock Exchange Clearance. The Purchaser and the Parent shall have
received all consents and approvals as required under the GEM Listing Rules
relating to the transactions contemplated hereunder or shall have been granted
waivers from strict compliance with the GEM Listing Rules.
Section 8. Conditions to Obligations of the Sellers, the Company and
each Related Entity. The obligations of the Sellers and the Company hereunder
are subject to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part by
the Sellers, the Company and each Related Entity in their sole discretion):
8.01 Representations and Warranties. Each of the representations and
warranties made by the Purchaser in this Agreement shall be true and correct in
all respects in which they are given on and as of the Closing Date as though
such representation or warranty was made on and as of the Closing Date.
8.02 Performance. The Purchaser shall have performed and complied with
each agreement, covenant and obligation required by this Agreement to be so
performed or complied with by such Purchaser at or before the Closing.
8.03 Consents and Approvals. All consents, approvals and actions of,
filings with and notices to any third party, Governmental or Regulatory
Authority necessary to permit the Purchaser to perform its obligations under
this Agreement and to consummate the transactions contemplated hereby and
thereby shall have been duly obtained, made or given, and shall be in full force
and effect.
50
8.04 Approval of the Purchaser's Board of Directors or Delegated
Subcommittee. The board of directors of the Purchaser or its delegated
subcommittee shall have authorized and approved each of: (i) the terms and
conditions of this Agreement and each Transaction Document; and (ii) the
execution and performance of this Agreement and each Transaction Document by a
duly authorized officer or director of the Purchaser and the transactions
contemplated herein and therein.
8.05 Special Dividend. Provided that the Board believes that sufficient
cash available for working capital purposes in accordance with its then existing
operating plan and that such declaration and payment are otherwise in compliance
with applicable Law and Constitutions, the Company shall duly declare and pay a
special dividend on the Company's Series A Preferred Shares in the amount of
US$6,000,000 (the "Special Dividend").
Section 9. Indemnification; Limitations on Liabilities
9.01 Survival of Representations and Warranties. The representations
and warranties, contained in this Agreement shall survive the Closing until 30
days following the payment of the Second Installment; provided, however, that
the representations and warranties contained in Section 3B shall survive until
30 days following the payment of the Third Installment and that the
representations and warranties contained in Section 3B.03 shall survive until
the 120th day following the expiration of the applicable statute of limitations
with respect to the Tax liabilities in question; and provided, further, that the
representations and warranties contained in Sections 3.02(e), 3.03 and 3.09
shall survive indefinitely. None of the representations and warranties set forth
herein shall be reduced or extinguished by any investigation made at any time by
or on behalf of any Party hereto.
9.02 Indemnification. Subject to Section 9.02A, each Seller, severally
and not jointly (each an "Indemnifying Party" and collectively "Indemnifying
Parties"), shall indemnify the Company, the Purchaser and the Purchaser's and
the Company's officers, directors, shareholders, agents and Affiliates (each an
"Indemnified Party" and collectively "Indemnified Parties") in respect of, and
hold each of them harmless from and against, any and all Loss or liability
actually suffered or incurred by any of them, resulting from or arising out of
the breach of any representation or warranty or the breach of any covenant or
agreement on the part of such Seller contained in this Agreement or the
Transaction Documents.
9.02A Limitation on Liabilities. The provisions of this Section 9.02A
shall operate to limit the liability of the Sellers under or in connection with
or arising out of Section 9.02 and any other representation or warranty or
covenant or agreement given under this Agreement. No claim shall be made under
Section 9.02 or under any other representation or warranty or covenant or
agreement given under this Agreement unless the sum of all Losses thereunder as
finally determined pursuant to Section 9.03, shall exceed US$150,000 (including
for such Losses up to US$150,000). In addition, the total liability of all
Sellers for claims for breach of any representation or warranty or breach of any
covenant or agreement hereunder shall not exceed 20% of the Consideration;
provided, however, that the limitation on total liability of the relevant
Sellers set forth in this Section 9.02A shall not apply in respect of any Loss
arising out of or resulting from (w) fraud committed by any Seller, the Company,
the PRC WFOE or the Related Entities prior to the Closing, (x) in respect of the
Management Sellers, any Tax Claim that relates to an act or omission of the
Company, the PRC WFOE or any Related Entities or occurrence affecting the
Company, the PRC WFOE or any Related Entities prior to the Closing Date, (y) in
respect of the Management Sellers, any claim arising from a breach of the
representations and warranties set forth in Section 3B.07 and Section 3B 12 or
(z) any Tax (including such
51
Tax indemnification set forth in Section 5.15 hereof) payable but not paid on a
timely basis by any Seller, the Company, the PRC WFOE or the Related Entities in
connection with the transactions contemplated in this Agreement.
9.03 Method of Asserting Claims. An Indemnified Party shall give the
Sellers notice of any matter which such Indemnified Party has reasonably
determined has given or could give rise to a claim under this Agreement, within
30 days of such determination, stating the amount of the Loss, if known, and
method of computation thereof, and containing a reference to the provisions of
this Agreement in respect of which such claim is made or arises. The obligations
and Liabilities of the relevant Sellers under this Section 9 with respect to
Losses arising from claims of any third party which are subject to the
indemnification provided for in this Section 9 ("Third Party Claims") shall be
governed by and be contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, such Indemnified Party shall give the relevant Sellers notice of such
Third Party Claim within 30 days of the receipt by the Indemnified Party of such
notice; provided, however, that the failure to provide such notice shall not
release the relevant Sellers from, or provide a defense against, any of their
obligations under this Section 9 except to the extent that the relevant Sellers
are materially prejudiced by such failure. If the relevant Sellers acknowledge
in writing their obligation to indemnify the Indemnified Party hereunder against
any Losses that may result from such Third Party Claim, then the relevant
Sellers shall be entitled to assume and control the defense of such Third Party
Claim at their expense and through counsel of their choice if they give notice
of their intention to do so to the Indemnified Party within five days of the
receipt of such notice from the Indemnified Party; provided, however, that if
there exists or is reasonably likely to exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the Indemnified Party in its
sole and absolute discretion for the same counsel to represent both the
Indemnified Party and the relevant Sellers, then the Indemnified Party shall be
entitled to retain its own counsel in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of the relevant
Sellers. In the event that the relevant Sellers exercise the right to undertake
any such defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the relevant Sellers in such defense and
make available to the relevant Sellers all witnesses, pertinent records,
materials and information in the Indemnified Party's possession or under the
Indemnified Party's control relating thereto as is reasonably required by the
relevant Sellers. Similarly, in the event the Indemnified Party is, directly or
indirectly, conducting the defense against any such Third Party Claim, the
relevant Sellers shall cooperate with the Indemnified Party in such defense and
make available to the Indemnified Party all such witnesses, records, materials
and information in the possession of the relevant Sellers or under their control
relating thereto as is reasonably required by the Indemnified Party. No such
Third Party Claim may be settled by the relevant Sellers without the prior
written consent of the Indemnified Party.
Section 10. Termination
10.01 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time after April 30, 2003 in the event that Closing
has not taken place by that date, by either the Purchaser or by Sellers holding
a majority of the outstanding shares upon written notice to the other; or
(b) at any time before the Closing, by the Sellers holding a
majority of the outstanding shares or the Purchaser, in the event (i) of a
material breach hereof by any non-
52
terminating party if such non-terminating party fails to cure such breach within
ten (10) Business Days following notification thereof by the terminating party
or (ii) upon notice to the non-terminating party by the terminating party that
the satisfaction of any material condition to the terminating party's
obligations under this Agreement becomes impossible or impracticable with the
use of commercially reasonable efforts if the failure of such condition to be
satisfied is not caused by a material breach hereof by the terminating party
(but not otherwise).
10.02 Effect of Termination. If this Agreement is terminated pursuant
to Section 10.01, there will be no liability or obligation on the part of any
non-defaulting Party (or any of its officers, directors, employees, agents or
other representatives or Affiliates) and each of the provisions hereof,
including without limitation Section 5.14, shall be of no further force or
effect; provided, however, that (i) the obligations set forth in Sections 6.05,
11.03 and 11.13 shall continue to apply following any such termination, and (ii)
any such termination shall not relieve any defaulting Party from liability in
respect of its default under this Agreement.
Section 11. Miscellaneous
11.01 Termination of Shareholders Agreement. Upon the Closing, the
Shareholders Agreement shall terminate automatically as to all parties thereto
without requiring any action from any Person.
11.02 Notices. All notices, requests, demands, consents, instructions
or other communications required or permitted hereunder shall be in writing and
by Fedex or other courier or fax to each party as follows:
If to the Company, to:
▇/▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: The Board of Directors
Facsimile No.: (8610) 8580-3022
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Entertainment Building, 21st Floor
▇▇ ▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
53
If to the Sellers, to:
Baring Asia II Holdings (6) Limited
Alexander House, P.O. Box 431
13-15 Victoria Road
▇▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇/▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No.: (▇▇) ▇▇▇-▇▇▇▇-▇▇▇
with copies to:
Baring Private Equity Partners (HK) Ltd.
39th Floor, One International Finance Centre
▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇
Facsimile No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
EDB Ventures and M-Commerce
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
#▇▇-▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Attention: The General Manager, EDB Investments Pte Ltd.
Facsimile No.: (▇▇) ▇▇▇-▇▇▇▇
China Web Technology Inc.
▇/▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇/▇▇▇▇▇▇ ▇▇▇▇▇▇ DU
Facsimile No.: (8610) 8580-3022
Mobile21 Ltd.
▇/▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (8610) 8580-3022
54
▇▇▇.▇▇▇ Consultants Inc.
▇/▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (8610) 8580-3022
Asia Internet Inc.
▇/▇ ▇▇▇▇▇▇▇ (▇▇▇▇▇) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (8610) 8580-3022
Bestgrand Industrial Investment Ltd.
c/o Newpalm (China) Information Technology Co., Ltd.
▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, the PRC
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (8610) 8580-3022
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Entertainment Building, 21st Floor
▇▇ ▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
If to the Purchaser, to:
CDC Mobile Media Corporation/▇▇▇▇▇▇▇▇.▇▇▇ Corporation
34/F Citicorp Centre
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇
Attention: Company Secretary
Facsimile No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
55
If to Parent, to:
▇▇▇▇▇▇▇▇.▇▇▇ Corporation
▇▇/▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇
Attention: Company Secretary
Facsimile No.: (▇▇▇) ▇▇▇▇-▇▇▇▇
All such notices, requests, demands, consents, instructions or other
communications shall be effective: (a) when sent by Fedex or other overnight
service of recognized standing, on the second business day following the deposit
with such service; and (b) when faxed, upon confirmation of receipt regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section. Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
11.03 Expenses. Each of Sellers (and not the Company) shall pay for
each of their costs and expenses relating to the negotiation, execution and
closing of this Agreement and the Transaction Documents and the transactions
contemplated hereby. Notwithstanding the foregoing, Sellers shall pay the costs
and expenses of the Purchaser, incurred in connection with the negotiation,
execution and closing of this Agreement and the Transaction Documents and the
transactions contemplated, hereby and thereby, in the amount of US$75,000 on the
Closing Date.
11.04 Public Announcements. Subject to the subsequent sentences, at all
times at or before the Closing, each Seller, the Company, the PRC WFOE and the
Purchaser shall not issue or make any reports, statements or releases to the
public or generally to the employees, customers, suppliers or other Persons to
whom the Company, the PRC WFOE or any Related Entity provides services or with
whom the Company, the PRC WFOE or any Related Entity otherwise has significant
business relationships with respect to this Agreement, the Transaction Documents
or the transactions contemplated hereby and thereby without the consent of the
other parties, which consent shall not be unreasonably withheld. If any party
proposes to make any such disclosure, such disclosing party will deliver a copy
of the text of the proposed disclosure, as far in advance of its disclosure as
is practicable, and will in good faith consult with and consider the suggestions
of the other non-disclosing parties (provided that if the Sellers are the
non-disclosing parties that the Sellers designate one point of contact)
concerning the nature and scope of the information disclosing party proposes to
disclose. Any disclosures in respect of this Agreement and the Transaction
Documents and the transactions contemplated, hereby and thereby, made by the
Purchaser in its regulatory filings, shall not be subject to the provisions of
this Section 11.04; provided, however, that the Selling Shareholder
Representatives shall be furnished with an advance copy of any press release
proposed to be issued by the Purchaser or Parent and shall be given a reasonable
opportunity to comment on the text thereof.
11.05 Waiver. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this
56
Agreement on any future occasion.
11.06 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
11.07 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person.
11.08 Assignment; Binding Effect. Subject always to the subsequent
sentence, neither this Agreement nor any right, interest or obligation hereunder
may be assigned by any party hereto without the prior written consent of the
other party hereto and any attempt to do so will be void, except for assignments
and transfers by operation of Law. At any time after the execution of this
Agreement, the Purchaser may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Section 10)
provided that, each such assignee agrees in writing to be bound by all of the
terms, conditions and provisions contained herein. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
11.09 Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby: (a) such provision will be fully
severable; (b) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom; and (c) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
11.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of Hong Kong, SAR without giving effect to the
conflicts of laws principles thereof.
11.11 Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be brought against
any of the parties in the courts of Hong Kong, SAR and each of the parties
hereby consents to the exclusive jurisdiction of such courts in any such suit,
action or proceeding and waives any objection to venue laid therein. For
purposes of this Agreement, process in any such suit, action or proceeding in
any such courts may be served on the parties hereto anywhere in the world.
11.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
11.13 Confidentiality. Each party hereto will hold, and will use its
reasonable endeavors to cause its Affiliates to hold, in strict confidence from
any Person (other than any such Affiliate, unless: (i) compelled to disclose by
judicial or administrative process (including without limitation in connection
with obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law; or (ii) disclosed in any action, suit, proceeding, inquiry,
investigation either before or brought by Governmental or Regulatory Authority
or otherwise, brought by
57
a party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, all documents and information concerning the other party or any of
its Affiliates furnished to it by the other party in connection with this
Agreement or the transactions contemplated hereby, including, without
limitation, the terms and conditions of this Agreement except to the extent that
such documents or information can be shown to have been: (a) previously known by
the party receiving such documents or information; (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party; or (c) later acquired by
the receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential. In the event the transactions
contemplated hereby are not consummated, upon the request of the other party,
each party hereto shall, and shall cause its Affiliates to, promptly redeliver
or cause to be redelivered all copies of documents and information furnished by
the other party in connection with this Agreement or the transactions
contemplated hereby and destroy or cause to be destroyed all notes, memoranda,
summaries, analyses, compilations and other writings related thereto or based
thereon prepared by the party furnished such documents and information.
11.14 Exercise of Rights. A party may exercise a right, power or remedy
at its discretion, and separately or concurrently with another right, power or
remedy. A single or partial exercise of a right, power or remedy by a party does
not prevent a further exercise of that or of any other right, power or remedy.
Failure by a party to exercise or delay in exercising a right, power or remedy
does not prevent its exercise. Subject to the limitation of liability set forth
in Section 9.02A, the rights, powers and remedies provided in this Agreement are
cumulative with and not exclusive of the rights, powers or remedies provided by
law independently of this Agreement.
11.15 Rule of Construction. As each of the parties has reviewed this
Agreement and has had the opportunity to make revisions, the parties agree that
any rule of construction to the effect that any ambiguities are to be construed
against the drafting party shall not apply in the interpretation of this
Agreement or any of the Transaction Documents.
11.16 Further Assurances. Each party agrees, at its own expense, on the
request of any other party, to do everything reasonably necessary to give effect
to this Agreement and the transactions contemplated by it (including, without
limitation, the execution of documents) and to use all reasonable endeavors to
cause relevant third parties to do likewise.
11.17 Absence of Joint and Several Liability. Each of the
representations, warranties, undertakings and obligations on the part of the
Non-Management Sellers hereunder is made or entered into jointly and severally
as among themselves, but severally and not jointly as between themselves, on the
one hand, and the Management Sellers, the Company and the Related Entities, on
the other hand; provided that in any case where any Non-Management Seller is
finally determined to have any liability hereunder, such liability shall be
equal to the relevant Loss multiplied by the shareholding percentage held by
such Non-Management Seller in the Company as set forth in Schedule E attached
hereto.
58
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officer of each party hereto, and shall be effective as
of the date first above written.
Palmweb Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: CEO
CDC Mobile Media Corporation
By: /s/ ▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: Authorized Signatory
▇▇▇▇▇▇▇▇.▇▇▇ Corporation
By: /s/ ▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: CEO and Executive Director
Baring Asia II Holdings (6) Ltd.
By: /s/ P H Touzeau
--------------------------------
Name: Mr P H Touzeau as alternate Director for
▇▇. ▇ ▇ ▇▇▇▇▇▇
Title: Director
EDB Ventures Pte Ltd.
By: /s/ Liow Voon Kheong
--------------------------------
Name: LIOW Voon Kheong
Title: General Manager
59
M-Commerce Ventures Pte Ltd.
By: /s/ Liow Voon Kheong
--------------------------------
Name: LIOW Voon Kheong
Title: Director
China Web Technology Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ /s/ ▇▇▇▇▇▇ Du Yan Min
---------------------------------- ---------------------------
Name: ▇▇▇▇ ▇▇▇▇ Xiang ▇▇▇▇ ▇▇▇▇▇▇ Du Yan Min
Title: Director
Mobile21 Ltd.
By: /s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
Title: Sole Director
▇▇▇.▇▇▇ Consultants Inc.
By: /s/ Du ▇▇▇▇ ▇▇
--------------------------------
Name: Du ▇▇▇▇ ▇▇
Title: Sole Director
Asia Internet Inc.
By: /s/ ▇▇▇ ▇▇▇ Kuen
--------------------------------
Name: ▇▇▇ ▇▇▇ ▇▇▇▇
Title: Sole Director
60
Bestgrand Industrial Investment Ltd.
By: /s/ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
Title: Chairman
Beijing Newpalm Information Technology Co., Ltd.
By: /s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
Title: General Manager
Beijing Wisecom Information Technology Co., Ltd.
By: /s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
Title: General Manager
61