Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
among
▇▇▇▇.▇▇▇ INC.,
ALPHA SUB INC.
and
CHINAREN, INC.
Dated as of September 13, 2000
TABLE OF CONTENTS
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Page
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RECITALS..................................................................1
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger............................................................1
1.2. Closing...............................................................2
1.3. Effective Time........................................................2
ARTICLE II
Articles of Incorporation and By-Laws of the Surviving Corporation
2.1. The Articles of Incorporation.........................................2
2.2. The By-Laws...........................................................2
ARTICLE III
Officers and Directors of the Surviving Corporation
3.1. Directors.............................................................2
3.2. Officers..............................................................2
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
4.1. Effect on Capital Stock...............................................3
(a) Merger Consideration.........................................3
(b) Merger Consideration Adjustments.............................3
(c) Cancellation of Shares.......................................4
(d) Merger Sub...................................................4
(e) Exchange Ratios..............................................4
4.2. Exchange of Certificates for Shares...................................5
(a) At Closing...................................................5
(b) Distributions with Respect to Unexchanged Shares; Voting.....5
(c) Transfers....................................................6
(d) Fractional Shares............................................6
(e) Lost, Stolen or Destroyed Certificates.......................6
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4.3. Stock Options.........................................................6
4.4. Dissenters' Rights....................................................7
4.5. Adjustments to Prevent Dilution.......................................7
4.6. Escrow Stock..........................................................7
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company.........................8
(a) Organization, Good Standing and Qualification................8
(b) Capital Structure............................................9
(c) Corporate Authority; Approval and Fairness..................10
(d) Governmental Filings; No Violations; Certain Contracts......10
(e) Company Reports; Financial Statements.......................11
(f) Absence of Certain Changes..................................12
(g) Litigation and Liabilities..................................12
(h) Employee Benefits...........................................12
(i) Compliance with Laws; Permits...............................13
(j) Takeover Statutes...........................................14
(k) Tax Matters.................................................14
(l) Taxes.......................................................14
(m) Labor Matters...............................................15
(n) Intellectual Property.......................................15
(o) Brokers and Finders.........................................16
(p) Absence of Undisclosed Liabilities..........................16
(q) Representations Complete....................................16
(r) No Default..................................................16
(s) Title to Property...........................................17
(t) Material Contracts..........................................17
(u) Web Site Ownership..........................................17
(v) Shareholder Vote............................................18
(w) Total Assets; Net Sales.....................................18
(x) Number of Shareholders......................................18
(y) Number of Outstanding Options...............................18
(z) Number of Vested Option Holders.............................18
(aa) No Consent or Approval.....................................18
5.2. Representations and Warranties of the Parent and the Merger Sub......18
(a) Capitalization of the Merger Sub............................18
(b) Organization, Good Standing and Qualification...............19
(c) Capital Structure...........................................19
(d) Corporate Authority.........................................20
(e) Governmental Filings; No Violations.........................20
(f) Parent Reports; Financial Statements........................21
(g) Compliance with Laws; Permits...............................21
(h) Takeover Statutes...........................................22
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(i) Tax Matters.................................................22
(j) Absence of Certain Changes..................................22
ARTICLE VI
Covenants
6.1. Interim Operations...................................................23
6.2. Acquisition Proposals................................................24
6.3. Shareholders Meeting.................................................24
6.4. Other Actions; Notification..........................................24
6.5. Taxation.............................................................25
6.6. Access...............................................................25
6.7. Publicity............................................................26
6.8. Expenses.............................................................26
6.9. Takeover Statute.....................................................26
6.10. Employment Agreements...............................................26
6.11. Escrow Arrangements.................................................26
6.12. Shareholder Documents...............................................26
6.13. Option Holder Documents.............................................27
6.14. Registration of Option Shares.......................................27
6.15. Option Information to Company Employees.............................27
6.16. Domain Names........................................................27
6.17. Registration Rights.................................................27
6.18. Lock-Up Waiver......................................................27
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger...........28
(a) Shareholder Approval........................................28
(b) Regulatory Consents.........................................28
(c) Litigation..................................................28
7.2. Conditions to Obligations of Parent and the Merger Sub...............28
(a) Representations and Warranties..............................28
(b) Performance of Obligations of the Company...................29
(c) Tax Opinion.................................................29
(d) Legal Opinion...............................................29
(e) Conversion of Convertible Loans.............................29
(f) Assignment of Trade Marks and Domain Names..................29
(g) Employment Agreements.......................................29
(h) Absence of Material Adverse Change..........................30
(i) Escrow Arrangements.........................................30
(j) Shareholder Documents.......................................30
(k) Option Holder Documents.....................................30
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(l) Lock-Up Waiver..............................................30
(m) No Exercise of Options......................................30
(n) Dissenting Shares...........................................30
7.3. Conditions to Obligation of the Company..............................31
(a) Representations and Warranties..............................31
(b) Performance of Obligations of the Parent and the Merger Sub.31
(c) Consents Under Agreements...................................31
(d) Tax Opinion.................................................31
(e) Conversion of Convertible Loans.............................31
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent........................................31
8.2. Termination by Either the Parent or the Company......................32
8.3. Termination by the Company...........................................32
8.4. Termination by the Parent............................................32
8.5. Effect of Termination and Abandonment................................32
ARTICLE IX
Survival of Representations; Remedies
9.1. Survival of Representations..........................................33
9.2. Indemnification by the Founders......................................33
9.3. Third Party Claims...................................................34
9.4. No Recourse Against the Company......................................35
9.5. Specific Performance.................................................35
9.6. Remedies Cumulative..................................................36
ARTICLE X
Miscellaneous and General
10.1. Survival............................................................36
10.2. Modification or Amendment...........................................36
10.3. Waiver of Conditions................................................36
10.4. Counterparts........................................................36
10.5. GOVERNING LAW AND ARBITRATION.......................................36
10.6. Notices.............................................................37
10.7. Entire Agreement....................................................38
10.8. No Third Party Beneficiaries........................................38
10.9. Obligations of the Parent and of the Company........................38
10.10. Transfer Taxes.....................................................39
10.11. Severability.......................................................39
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10.12. Interpretation.....................................................39
10.13. Assignment.........................................................39
Exhibit 4.6 Principal Terms of Escrow Agreement
Exhibit 5.1(v) Form of Voting, Consent and Waiver Agreement
Exhibit 6.10 Principal Terms of Employment Agreements
Exhibit 6.12(a) Form of Shareholder Questionnaire
Exhibit 6.12(b) Form of Shareholder Lock-Up
Exhibit 6.12(c) Form of Investor Representation Letter
Exhibit 6.13(a) Form of Option Holder Questionnaire
Exhibit 6.13(b) Form of Option Holder Lock-Up
Exhibit 6.17 Schedule of Holders
Exhibit 7.2(d) Form of Opinion of PRC Counsel
Exhibit 7.2(g) List of Key Employees
Exhibit 7.3(c) Schedule of Consents
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AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of September 13, 2000, among ▇▇▇▇.▇▇▇ Inc., a Delaware
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corporation (the "Parent"), Alpha Sub Inc., a California corporation and a
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wholly-owned subsidiary of the Parent (the "Merger Sub"), and ChinaRen, Inc., a
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California corporation (the "Company", the Company and the Merger Sub sometimes
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being hereinafter collectively referred to as the "Constituent Corporations.")
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RECITALS
WHEREAS, the respective boards of directors of each of the
Parent and the Company have approved, and the Parent as sole stockholder of the
Merger Sub has approved, the merger of the Merger Sub with and into the Company
(the "Merger") and approved the Merger upon the terms and subject to the
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conditions set forth in this Agreement;
WHEREAS, it is intended that, for Federal income tax purposes,
the Merger shall qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
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rules and regulations promulgated thereunder; and
WHEREAS, the Company, the Parent and the Merger Sub desire to
make certain representations, warranties, covenants and agreements in connection
with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions
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set forth in this Agreement, at the Effective Time (as defined in Section 1.3)
the Merger Sub shall be merged with and into the Company and the separate
corporate existence of the Merger Sub shall thereupon cease. The Company shall
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and shall continue to be governed by the laws of
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the State of California, and the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in Article II. The
Merger shall have the effects specified in the California Corporations Code, as
amended (the "CACC").
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1.2. Closing. The closing of the Merger (the "Closing") shall
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take place (i) at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, Suite 501, China World
Trade ▇▇▇▇▇▇ ▇▇▇▇▇ ▇, ▇▇. ▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 100004, People's
Republic of China ("PRC") at 10:00 A.M. on the first business day on which the
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last to be fulfilled or waived of the conditions set forth in ArticleVII (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions) shall be satisfied
or waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and the Parent may agree in writing
(the "Closing Date").
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1.3. Effective Time. As soon as practicable following the
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Closing, the Company and the Parent will cause an Agreement of Merger (the
"Agreement of Merger") to be executed, acknowledged and filed with the Secretary
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of State of California as provided in Section 1107 of the CACC. The Merger shall
become effective at the time when the Agreement of Merger has been duly filed
with the Secretary of State of California (the "Effective Time").
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ARTICLE II
Articles of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Articles of Incorporation. The articles of
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incorporation of the Merger Sub as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law.
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2.2. The By-Laws. The by-laws of the Merger Sub in effect at
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the Effective Time shall be the by-laws of the Surviving Corporation (the "By-
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Laws"), until thereafter amended as provided therein or by applicable law.
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ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of the Merger Sub at the
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Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2. Officers. The officers of the Company at the Effective
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Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their
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successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Charter and the
By-Laws.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a
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result of the Merger and without any action on the part of the holder of any
capital stock of the Company:
(a) Merger Consideration.
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(i) The total number of shares of Common Stock, par value
US$0.001 per share, of the Parent ("Parent Common Stock"), to be issued in
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connection with the Merger, subject to any adjustment pursuant to Section
4.1(b), shall be equal to 4,366,835 shares (the "Merger Consideration").
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(ii) Each share of (A) Common Stock, no par value, of the
Company ("Common Stock"), (B) Series A Preferred Stock, no par value, of the
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Company ("Series A Preferred") and (C) Series B Preferred Stock, no par value,
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of the Company ("Series B Preferred", and together with the Common Stock and the
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Series A Preferred, each a "Share" and collectively the "Shares") issued and
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outstanding prior to the Effective Time, in each case other than Shares owned by
the Parent, the Merger Sub or any other direct or indirect subsidiary of the
Parent (collectively, the "Parent Companies") or Shares that are owned by the
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Company or any direct or indirect subsidiary of the Company and in each case not
held on behalf of third parties or Shares ("Dissenting Shares") that are owned
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by shareholders ("Dissenting Shareholders") exercising appraisal rights pursuant
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to Section 1300 of the CACC (each, an "Excluded Share" and collectively,
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"Excluded Shares"), shall be converted into, and become exchangeable for shares
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of Parent Common Stock in accordance with Section 4.1(e) below. At the Effective
Time, all Shares shall no longer be outstanding and shall be cancelled and
retired and shall cease to exist, and each certificate (a "Certificate")
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formerly representing any of such Shares (other than Excluded Shares) shall
thereafter represent only the right to a portion of the Merger Consideration and
the right, if any, to receive pursuant to Section 4.2(d) cash in lieu of
fractional shares into which such Shares have been converted pursuant to this
Section 4.1 and any distribution or dividend pursuant to Section 4.2(b). At the
Effective Time, each warrant outstanding to purchase Series B Preferred shall no
longer be outstanding and shall be cancelled and retired and shall cease to
exist.
(b) Merger Consideration Adjustments.
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(i) The Merger Consideration shall be adjusted on the Closing
Date by an amount equal to the Adjustment Amount (as defined below). If the
Adjustment Amount is positive, the Merger Consideration shall be increased by
such Adjustment Amount. If the Adjustment Amount is negative, the Merger
Consideration shall be
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reduced by such Adjustment Amount. For purposes of this Section 4.1(b): (A)
"Adjustment Amount" shall be determined by dividing the sum of the Loan
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Repayment Amount (as defined below) and the Balance of Legal Fees (as defined
below) by US$6.63; (B) "Loan Repayment Amount" shall be equal to the U.S. dollar
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equivalent of the total amount (calculated based on the noon buying rate in The
City of New York on the date that is three days prior to the Closing Date for
cable transfers in Renminbi, as certified for custom purposes by the Federal
Reserve Bank of New York) repaid in accordance with the laws of the PRC to
Sandhill Information Technology (Beijing) Co. Ltd., as of the date three days
prior to the Closing Date, by or on behalf of ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇ under the Loan Agreement, dated April 25, 2000, among ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ and Sandhill Information Technology (Beijing) Co. Ltd.; and (C)
"Balance of Legal Fees" shall be determined by subtracting the estimated fees
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and expenses of counsel for the Company in connection with the Merger (as set
forth in an invoice from such counsel to the Parent dated three days prior to
the Closing Date) from US$500,000.
(ii) All adjustments to the Merger Consideration pursuant to
Section 4.1(b) shall be finally determined by no later than the third day
preceding the Closing Date.
(c) Cancellation of Shares. Each Excluded Share shall, by
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virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be cancelled and retired without payment of any
consideration therefor, except as required pursuant to Section 4.4, and shall
cease to exist.
(d) Merger Sub. At the Effective Time, each share of Common
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Stock, par value $0.001 per share, of the Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
(e) Exchange Ratios.
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(i) Each share of Common Stock shall be converted into, and
become exchangeable for, a fraction of a share of Parent Common Stock determined
pursuant to the Common Stock Exchange Ratio (as defined below). For the purposes
of this clause (i), "Common Stock Exchange Ratio" means:
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(A) the Merger Consideration (as adjusted pursuant to Section
4.1(b)) (the "Adjusted Merger Consideration") minus the sum of (I) the Series A
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Liquidation Preference Ratio (as defined below) multiplied by the total number
of shares of Series A Preferred less any Excluded Shares thereof, and (II) the
Series B Liquidation Preference Ratio (as defined below) multiplied by the total
number of shares of Series B Preferred less any Excluded Shares thereof;
(B) divided by the sum of (I) the total number of shares of
Common Stock less any Excluded Shares thereof, (II) the total number of shares
of Series A
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Preferred less any Excluded Shares thereof and (III) 1.20 divided by 0.90
multiplied by the total number of shares of Series B Preferred less any Excluded
Shares thereof.
(ii) Each share of Series A Preferred shall be converted into,
and become exchangeable for, a fraction of a share of Parent Common Stock
determined pursuant to the Series A Preferred Exchange Ratio (as defined below).
For the purposes of this clause (ii), "Series A Preferred Exchange Ratio" means
---------------------------------
the Common Stock Exchange Ratio plus the Series A Liquidation Preference Ratio.
The "Series A Liquidation Preference Ratio" means 0.10 divided by the Parent
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Share Price (as defined below).
(iii) Each share of Series B Preferred shall be converted
into, and become exchangeable for, a fraction of a share of Parent Common Stock
determined pursuant to the Series B Preferred Exchange Ratio (as defined below).
For the purposes of this clause (iii), "Series B Preferred Exchange Ratio" means
---------------------------------
the sum of (A) 1.20 divided by 0.90 multiplied by the Common Stock Exchange
Ratio and (B) the Series B Liquidation Preference Ratio. The "Series B
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Liquidation Preference Ratio" means 1.20 divided by the Parent Share Price.
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(iv) "Parent Share Price" means the average closing price of
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Parent Common Stock on Nasdaq over the thirty-day period ending three days prior
to the Closing Date.
4.2. Exchange of Certificates for Shares.
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(a) At Closing. At the Closing and subject to the terms of the
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Escrow Agreement, upon receipt of the certificates (or affidavits of loss in
lieu thereof) representing the Shares, the Parent or the Merger Sub shall
deliver to each holder of Shares in exchange therefor for a certificate for the
number of shares of Parent Common Stock to which such holder is entitled
pursuant to Section 4.1 and a check representing any cash payment in lieu of
fractional shares pursuant to Section 4.2(d). Certificates representing the
shares of Parent Common Stock to be issued pursuant to Section 4.1 shall include
an appropriate Securities Act of 1933 legend (Rule 144 legend) providing that
the stock evidenced by the certificates are restricted certificates. Any
certificates not delivered at the Closing may be delivered to Parent and Parent
shall promptly exchange such certificates for shares of Parent Common Stock and
cash consideration for fractional shares as described above. Notwithstanding the
foregoing, none of the Parent, the Surviving Corporation or any other Person
shall be liable to any former holder of Shares for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(b) Distributions with Respect to Unexchanged Shares;
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Voting. (i) All shares of Parent Common Stock to be issued pursuant to the
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Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by the Parent in respect
of the Parent Common Stock, the record date for which is at or after the
Effective Time, that declaration shall include dividends or other distributions
in respect of all shares issuable pursuant to this Agreement. No
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dividends or other distributions in respect of Parent Common Stock shall be paid
to any holder of any unsurrendered Certificate until such Certificate is
surrendered for exchange in accordance with this Article IV. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be issued and/or paid to the holder of the certificates representing whole
shares of Parent Common Stock issued in exchange therefor, without interest, (A)
at the time of such surrender, the dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole shares of Parent Common Stock and not paid and (B) at the appropriate
payment date, the dividends or other distributions payable with respect to such
whole shares of Parent Common Stock with a record date after the Effective Time
but with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates shall be entitled
to vote after the Effective Time at any meeting of Parent stockholders the
number of whole shares of Parent Common Stock represented by such Certificates,
regardless of whether such holders have exchanged their Certificates.
(c) Transfers. After the Effective Time, there shall be no
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transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(d) Fractional Shares. Notwithstanding any other provision of
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this Agreement, no fractional shares of Parent Common Stock will be issued and
any holder of Shares entitled to receive a fractional share of Parent Common
Stock but for this Section 4.2(d) shall be entitled to receive a cash payment in
lieu thereof, which payment shall represent an amount equal to the fractional
share (rounded to the nearest one hundredth of a share) multiplied by the
closing price of Parent Common Stock on NASDAQ on the trading day immediately
prior to the Closing Date.
(e) Lost, Stolen or Destroyed Certificates. In the event any
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Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Parent, the posting by such Person
of a bond in customary amount as indemnity against any claim that may be made
against it with respect to such Certificate, the Parent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common Stock
and any cash payable and any unpaid dividends or other distributions in respect
thereof pursuant to Section 4.2(b) upon due surrender of and deliverable in
respect of the Shares represented by such Certificate pursuant to this
Agreement.
4.3. Stock Options. At the Effective Time, each outstanding
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option to purchase shares of Common Stock (an "Option"), whether vested or
unvested, shall be assumed by the Parent and shall constitute an option to
acquire, on the same terms and conditions as were applicable under such Option,
the number of shares of Parent Common Stock as if each share underlying such
option were exchanged for Parent Common Stock pursuant to Section 4.1(e) (i)
(rounded up to the nearest whole number), at a price per share (rounded down to
the nearest whole cent) equal to (y) the aggregate exercise price for the shares
of Common Stock otherwise purchasable pursuant to such
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Option divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such Option in accordance with the foregoing; provided,
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however, that in the case of any Option to which Section 422 of the Code
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applies, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, with the exceptions that the number
of shares of Parent Common Stock shall be rounded down to the nearest whole
share and the purchase price per share shall be rounded up to the nearest cent,
and further subject to such adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code and the regulations promulgated
thereunder. At or prior to the Effective Time, the Company shall make all
necessary arrangements to permit the assumption of the unexercised Options by
the Parent pursuant to this Section.
4.4. Dissenters' Rights. (a) Notwithstanding any provision of
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this Agreement to the contrary, Dissenting Shares shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 4.1 hereof,
but the holder thereof shall be entitled to only such rights as are granted by
the CACC.
(b) If any holder of Shares who demands appraisal of such
holder's Shares under the CACC effectively withdraws or loses (through failure
to perfect or otherwise), such holder's right to appraisal, then as of the
Effective Time or the occurrence of such event, whichever later occurs, such
holder's Shares shall automatically be converted into and represent only the
right to receive Parent Common Stock as provided in Section 4.1(a) hereof,
without interest, upon surrender of the Certificate or Certificates representing
such Shares pursuant to Section 4.4 hereof.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal or payment of the fair value of any Shares,
withdrawals of such demands, and any other instruments served on the Company
pursuant to the CACC received by the Company, and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under the
CACC. Except with the prior written consent of the Parent, the Company shall not
voluntarily make any payments with respect to any demands for appraisal, settle
or offer to settle such demands. Any payment in respect of shares pursuant to
the CACC shall be made by the Company out of its assets.
4.5. Adjustments to Prevent Dilution. In the event that the
-------------------------------
Company changes the number of Shares or securities convertible or exchangeable
into or exercisable for Shares, or the Parent changes the number of shares of
Parent Common Stock or securities convertible or exchangeable into or
exercisable for shares of Parent Common Stock, issued and outstanding prior to
the Effective Time as a result of a reclassification, stock split (including a
reverse split), stock dividend or distribution, recapitalization, merger,
subdivision, issuer tender or exchange offer, or other similar transaction, the
Merger Consideration shall be equitably adjusted.
4.6. Escrow Stock. Except for the shares of Parent Common
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Stock to be issued to the Founders (as defined below) pursuant to Article IV in
exchange for the
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issued and outstanding shares of Series A Preferred owned by the Founders prior
to the Effective Time, the shares of Parent Common Stock to be issued to ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇, each a founding shareholder of the Company
(each a "Founder" and collectively the "Founders"), pursuant to Article IV
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shall, upon issuance, be withheld from the Founders and placed in escrow
("Escrow Stock") for one year after the date of issuance (the "Escrow Period"),
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all pursuant to the terms and conditions of an escrow agreement among the
Parent, the Surviving Corporation, the Founders and an escrow agent designated
by the Parent and reasonably acceptable to the Company (the "Escrow Agent"), in
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a form reasonably satisfactory to the parties thereto and containing the
principal terms set forth in Exhibit 4.6 attached hereto (the "Escrow
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Agreement"). The Escrow Stock shall serve as security for the performance of (i)
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the indemnity obligations of the Founders under Article IX and (ii) the
obligations of the Founders under the employment agreements to be entered into
with the Parent and described in Section 7.2(g). The Escrow Stock shall be
deposited in escrow together with the related stock powers endorsed in blank.
The fees of the Escrow Agent shall be paid by the Parent.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as
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set forth in the corresponding sections or subsections of the disclosure letter,
dated the date hereof, delivered to the Parent by the Company on or prior to
entering into this Agreement (the "Company Disclosure Letter"), the Company
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hereby represents and warrants to the Parent and the Merger Sub that:
(a) Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and authority to
own and operate its properties and assets and to carry on its business as
presently conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation of its
assets or properties or conduct of its business requires such qualification,
except where the failure to be so organized, qualified or in good standing, or
to have such power or authority when taken together with all other such
failures, could have a Company Material Adverse Effect (as defined below). The
Company has made available to Parent a complete and correct copy of the
Company's and its Subsidiaries' certificates of incorporation and by-laws, each
as amended to date. The Company's and its Subsidiaries' certificates of
incorporation and by-laws so delivered are in full force and effect. Section
5.1(a) of the Company Disclosure Letter contains a correct and complete list of
each jurisdiction where the Company and each of its Subsidiaries is organized
and qualified to do business.
As used in this Agreement, the term (i) "Subsidiary" means,
----------
with respect to the Company, Parent or the Merger Sub, as the case may be, any
entity, whether incorporated or unincorporated, of which at least a majority of
the securities or ownership
-8-
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective Subsidiaries
and (ii) "Company Material Adverse Effect" means a material adverse effect on
-------------------------------
the financial condition, properties, prospects, business or results of
operations of the Company and its Subsidiaries taken as a whole; provided,
--------
however, that none of the following shall be deemed to constitute, and shall not
-------
be taken into account in determining the occurrence of, a Company Material
Adverse Effect: (a) any effect arising from or relating to general business or
economic conditions in the PRC which does not affect the Company in any
materially disproportionate manner, or (b) any effect relating to or affecting
the Internet industry in the PRC, which does not affect the Company in a
disproportionate manner and (iii) any effect arising from or relating to the
announcement or pendency of the Merger.
(b) Capital Structure. The authorized capital stock of the
-----------------
Company is 28,000,000 shares consisting of 20,000,000 shares of Common Stock and
8,000,000 shares of Preferred Stock (the "Preferred Shares"). There are two
----------------
classes of Preferred Stock designated in the Company's Amended and Restated
Articles of Incorporation: (i) the Series A Preferred, which consists of
2,540,000 shares and (ii) the Series B Preferred which consists of 4,849,167
shares. As of the date of this Agreement, there were outstanding 7,640,037
shares, of Common Stock 2,540,000 shares of Series A Preferred and 3,849,167
shares of Series B Preferred. All of the outstanding shares of Common Stock and
Preferred Shares have been duly authorized and are validly issued, fully paid
and nonassessable. Other than shares of Common Stock reserved for issuance for
(i) Options under the Company's 1999 Stock Option Plan, (ii) conversion of
Preferred Shares and (iii) conversion of that certain loan under the Bridge Loan
Agreement, dated as of April 19, 2000, among the Company and certain persons
(the "Convertible Loan"), the Company has no shares reserved for issuance. Other
----------------
than with respect to warrants to purchase 1,000,000 shares of Series B Preferred
(the "Warrants"), the Company has no Preferred Shares reserved for issuance. The
--------
Company Disclosure Letter contains a correct and complete list of each
outstanding Option, including the holder, date of grant, exercise price and
number of shares of Common Stock subject thereto. Each of the outstanding shares
of capital stock or other securities of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable and owned by the
Company, free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except with respect to the Options, the Preferred Shares, the
Warrants, and the Convertible Loan, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements, calls,
commitments or rights of any kind that obligate the Company or any of its
Subsidiaries to issue or sell any shares of capital stock or other securities of
the Company or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. Other than the Convertible Loan, the Company
does not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or
-9-
convertible into or exercisable for securities having the right to vote) with
the shareholders of the Company on any matter ("Voting Debt").
-----------
(c) Corporate Authority; Approval and Fairness.
------------------------------------------
(i) The Company has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate,
subject only to approval of this Agreement by the holders of a majority of the
outstanding shares of Common Stock voting separately as a single class, (x) a
majority of the outstanding Series A Preferred voting separately as a single
class, (y) a majority of the outstanding Series B Preferred voting separately as
a single class and (z) the holders of eighty percent of the shares of Common
Stock and Preferred Shares voting together as a single class (collectively, the
"Company Requisite Vote"), the Merger. This Agreement is a valid and binding
----------------------
agreement of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
---------------------
Exception").
---------
(ii) The board of directors of the Company has unanimously
approved this Agreement and the Merger and the other transactions contemplated
hereby.
(d) Governmental Filings; No Violations; Certain Contracts.
------------------------------------------------------
(i) Other than the filings and/or notices pursuant to Section
1.3, to the knowledge of the Company, no notices, reports or other filings are
required to be made by the Company with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company
from, any governmental or regulatory authority, agency, commission, body or
other governmental entity ("Governmental Entity"), in connection with the
-------------------
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Merger and the other transactions contemplated hereby, except
those that the failure to make or obtain are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement
by the Company do not, and the consummation by the Company of the Merger and the
other transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, the certificate or by-laws of the
Company or the comparable governing instruments of any of its Subsidiaries, (B)
a breach or violation of, or a default under, the acceleration of any
obligations or the creation of a lien, pledge, security interest or other
encumbrance on the assets of the Company or any of its Subsidiaries (with or
without notice, lapse of time or both) pursuant to, any agreement, lease,
license, contract, note, mortgage, indenture, arrangement or other obligation
("Contracts") binding upon the Company or any of its Subsidiaries or any Law (as
---------
defined in Section 5.1(i)) or governmental or non-governmental permit or license
to which the
-10-
Company or any of its Subsidiaries is subject or (C) any change in the rights or
obligations of any party under any of the Contracts, except, in the case of
clause (B) or (C) above, for any breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not reasonably
likely to have a Company Material Adverse Effect or prevent, materially delay or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement Section 5.1(d) of the Company Disclosure Letter
sets forth a correct and complete list of Contracts of the Company and its
Subsidiaries pursuant to which consents or waivers are or may be required prior
to consummation of the transactions contemplated by this Agreement (whether or
not subject to the exception set forth with respect to clauses (B) and (C)
above).
(iii) Neither the Company nor any of its Subsidiaries is a party to or
bound by any non-competition Contracts or other Contract that purports to limit
in any material respect either the type of business in which the Company or its
Subsidiaries (or, after giving effect to the Merger, the Parent or its
Subsidiaries) may engage or the manner or locations in which any of them may so
engage in any business.
(e) Company Reports; Financial Statements. The Company has delivered to the
-------------------------------------
Parent each report or information statement prepared by it since December 31,
1999 (the "Audit Date"), (collectively, the "Company Reports"). The Company
---------- ---------------
Reports include (i) the financial statements for Sandhill Information Technology
(Beijing) Co. Ltd. ("Sandhill"), including a balance sheet dated December 31,
--------
1999 and an income statement for the period from inception through December 31,
1999, as audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ together with an unaudited balance sheet of
Sandhill, dated as of August 31, 2000, and an unaudited income statement for
Sandhill for the eight months ended August 31, 2000 (collectively, the "Sandhill
--------
Reports"), and (ii) certain financial information concerning revenues, expenses,
-------
assets and liabilities of the Company, including unaudited consolidated and
unconsolidated balance sheets of the Company as June 30, 2000 and unconsolidated
and consolidated income statements of the Company for the six months ended June
30, 2000, (collectively, the "US Reports"). As of their respective dates, (or,
----------
if amended, as of the date of such amended) the Company Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. The US
Reports were not prepared in accordance with generally accepted accounting
principles, but do provide disclosure of all material items of revenue and
expense and all material assets and liabilities of the Company on an
unconsolidated basis. Each of the consolidated balance sheets included in or
incorporated by reference into the Sandhill Reports (including the related notes
and schedules) fairly presents, or will fairly present, the consolidated
financial position of Sandhill as of its date and each of the consolidated
statements of income and of changes in financial position included in or
incorporated by reference into the Sandhill Reports (including any related notes
and schedules) fairly presents, or will fairly present, the results of
operations, retained earnings and changes in financial position, as the case may
be, of Sandhill for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with
-11-
generally accepted accounting principles in the PRC consistently applied during
the periods involved, except as may be noted therein.
(f) Absence of Certain Changes. Except as disclosed in the Company Reports
--------------------------
provided to the Parent prior to the date hereof, since the Audit Date the
Company and its Subsidiaries have conducted their respective businesses only in,
and have not engaged in any material transaction other than according to, the
ordinary and usual course of such businesses and there has not been (i) any
change in the financial condition, properties, prospects, business or results of
operations of the Company and its Subsidiaries or any development or combination
of developments of which management of the Company has knowledge that,
individually or in the aggregate, has had or is reasonably likely to have a
Company Material Adverse Effect; (ii) any material damage, destruction or other
casualty loss with respect to any material asset or property owned, leased or
otherwise used by the Company or any of its Subsidiaries, whether or not covered
by insurance; (iii) any declaration, setting aside or payment of any dividend or
other distribution in cash, stock or property in respect of the capital stock of
the Company, except for dividends or other distributions on its capital stock
publicly announced prior to the date hereof and except as expressly permitted
hereby; or (iv) any change by the Company in accounting principles, practices or
methods. Since the Audit Date, except as provided for herein or as disclosed in
the Company Reports delivered to Parent prior to the date hereof, there has not
been any increase in the compensation payable or that could become payable by
the Company or any of its Subsidiaries to officers or key employees or any
amendment of any of the Company Compensation and Benefit Plans (as defined
below).
(g) Litigation and Liabilities. Except as disclosed in the Company Reports
--------------------------
provided to the Parent prior to the date hereof, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of the officers of the Company,
threatened against the Company or any of its Subsidiaries or (ii) obligations or
liabilities, whether or not accrued, contingent or otherwise and whether or not
required to be disclosed, including those relating to environmental and
occupational safety and health matters, or any other facts or circumstances of
which the executive officers of the Company has knowledge that could result in
any claims against, or obligations or liabilities of, the Company or any of its
Subsidiaries, except for those that are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or prevent or
materially burden or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement.
(h) Employee Benefits.
-----------------
(i) Neither the Company nor any of its Subsidiaries has maintained or
contributed to an employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
-----
which is subject to Title I of ERISA.
-12-
(ii) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, former employees or former directors of the
Company and its Subsidiaries (the "Compensation and Benefit Plans") and any
------------------------------
trust agreement or insurance contract forming a part of such Compensation and
Benefit Plans has been made available to the Parent prior to the date hereof.
The Compensation and Benefit Plans are listed in Section 5.1(h) of the Company
Disclosure Letter and any "change of control" or similar provisions therein are
specifically identified in Section 5.1(h) of the Company Disclosure Letter.
(iii) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan, except
as set forth in the Company Disclosure Letter. The Company or its Subsidiaries
may amend or terminate any such plan under the terms of such plan at any time
without incurring any material liability thereunder.
(iv) The consummation of the Merger and the other transactions contemplated
by this Agreement will not (x) entitle any employees of the Company or its
Subsidiaries to severance pay, (y) accelerate the time of payment or vesting or
trigger any payment of compensation or benefits under, increase the amount
payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Compensation and Benefit Plans.
(v) All Compensation and Benefit Plans covering current or former non-U.S.
employees or former employees of the Company and its Subsidiaries comply in all
material respects with applicable local law. The Company and its Subsidiaries
have no material unfunded liabilities with respect to any "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA that covers such
non-U.S. employees.
(i) Compliance with Laws; Permits. Except as set forth in the Company
-----------------------------
Reports filed prior to the date hereof, the businesses of each of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any U.S. Federal, state or local or other foreign law, statute, ordinance, rule,
regulation, judgment, order, injunction, decree, arbitration award, agency
requirement, license or permit of any Governmental Entity (collectively,
"Laws"), except for violations or possible violations that, individually or in
----
the aggregate, are not reasonably likely to have a Company Material Adverse
Effect or prevent or materially burden or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement. Except as
set forth in the Company Reports filed prior to the date hereof, no
investigation or review by any Governmental Entity with respect to the Company
or any of its Subsidiaries is pending or, to the knowledge of the officers of
the Company, threatened, nor has any Governmental Entity indicated an intention
to conduct the same. To the knowledge of the officers of the Company, no
material change is required in the Company's or any of its Subsidiaries'
processes, properties or procedures in connection
-13-
with any such Laws, and the Company has not received any notice or communication
of any material noncompliance with any such Laws that has not been cured as of
the date hereof. The Company and its Subsidiaries each has all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted except those the absence of which are not, individually or
in the aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Company to
consummate the Merger and the other transactions contemplated by this Agreement.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
-----------------
acquisition" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") or any anti-takeover provision in the Company's articles of
----------------
incorporation and by-laws is, or at the Effective Time will be, applicable to
the Company, the Shares, the Merger or the other transactions contemplated by
this Agreement.
(k) Tax Matters. As of the date hereof, neither the Company nor any of its
-----------
Subsidiaries has taken or agreed to take any action, nor do the officers of the
Company have any knowledge of any fact or circumstance, that would prevent the
Merger and the other transactions contemplated by this Agreement from qualifying
as a "reorganization" within the meaning of Section 368(a) of the Code.
(l) Taxes. The Company and each of its Subsidiaries (i) have prepared in
good faith and duly and timely filed (taking into account any extension of time
within which to file) all Tax Returns (as defined below) required to be filed by
any of them and all such filed Tax Returns are complete and accurate in all
material respects; (ii) have paid all Taxes (as defined below) that are required
to be paid or that the Company or any of its Subsidiaries are obligated to
withhold from amounts owing to any employee, creditor or third party, except
with respect to matters contested in good faith; and (iii) have not waived any
statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. As of the date hereof, there are
not pending or, to the knowledge of the officers of the Company, threatened in
writing, any audits, examinations, investigations or other proceedings in
respect of Taxes or Tax matters. There are not, to the knowledge of the officers
of the Company, any unresolved questions or claims concerning the Company's or
any of its Subsidiaries' Tax liability that are reasonably likely to have a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has any liability with respect to income, franchise or similar Taxes that
accrued on or before December 31, 1999 in excess of the amounts accrued with
respect thereto that are reflected in the financial statements included in the
Company Reports filed on or prior to the date hereof.
As used in this Agreement, (i) the term "Tax" (including, with
---
correlative meaning, the terms "Taxes", and "Taxable") includes all U.S.
----- -------
Federal, state and local, PRC and other foreign income, profits, franchise,
gross receipts, environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy and other taxes, duties
or assessments of any nature whatsoever, together with all interest,
-14-
penalties and additions imposed with respect to such amounts and any interest in
respect of such penalties and additions, and (ii) the term "Tax Return" includes
----------
all returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be supplied to a Tax
authority relating to Taxes.
(m) Labor Matters. Neither the Company nor any of its Subsidiaries is a
-------------
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is the Company or any of its Subsidiaries the subject of
any material proceeding asserting that the Company or any of its Subsidiaries
has committed an unfair labor practice or seeking to compel it to bargain with
any labor union or labor organization nor is there pending or, to the knowledge
of the officers of the Company, threatened, nor has there been for the past five
years, any labor strike, dispute, walk-out, work stoppage, slow-down or lockout
involving the Company or any of its Subsidiaries.
(n) Intellectual Property.
---------------------
(i) The Company and/or each of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials that are used in the business
of the Company and its Subsidiaries as currently conducted, except for any such
failures to own, be licensed or possess that, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect, and to the
knowledge of the officers of the Company all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(ii) Except as disclosed in Company Reports provided to the Parent prior to
the date hereof or as is not reasonably likely to have a Company Material
Adverse Effect:
(A) the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
material violation of any licenses, sublicenses and other agreements as to which
the Company is a party and pursuant to which the Company is authorized to use
any third-party patents, trademarks, service marks, copyrights, trade secrets or
computer software (collectively, "Third-Party Intellectual Property Rights");
----------------------------------------
(B) no claims with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade names,
and any applications therefor, trade secrets or computer software owned by the
Company or any of its Subsidiaries (collectively, the "Company Intellectual
--------------------
Property Rights"); or (II) Third-Party Intellectual Property Rights are
---------------
currently pending or, to the knowledge of the officers of the Company, are
threatened by any Person;
-15-
(C) the officers of the Company do not know of any valid grounds for any
bona fide claims (I) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company or any of its Subsidiaries, infringes on any copyright,
patent, trademark, service ▇▇▇▇ or trade secret of any Person; (II) against the
use by the Company or any of its Subsidiaries, of any Company Intellectual
Property Right or Third-Party Intellectual Property Right used in the business
of the Company or any of its Subsidiaries as currently conducted or as proposed
to be conducted; (III) challenging the ownership, validity or enforceability of
any of the Company Intellectual Property Rights; or (IV) challenging the license
or legally enforceable right to use of the Third-Party Intellectual Rights by
the Company or any of its Subsidiaries; and
(D) to the knowledge of the officers of the Company, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company or any of its Subsidiaries.
(o) Brokers and Finders. Neither the Company nor any of its officers,
-------------------
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated in this Agreement.
(p) Absence of Undisclosed Liabilities. There are no liabilities or
----------------------------------
obligations (whether absolute or contingent, matured or unmatured, known or
unknown) of Company or any Subsidiary, including but not limited to liabilities
for Taxes and that are not reflected, or reserved against, in the Company
Reports, except for those that may have been incurred after the date hereof in
the ordinary course of business or that would not be reasonably be expected to
have a Company Material Adverse Effect. Since the date hereof, neither Company
nor any Subsidiary has incurred any liabilities or obligations (whether absolute
or contingent, matured or unmatured, know or unknown) other than in the ordinary
course of business or those which would not reasonably be expected to have a
Company Material Adverse Effect.
(q) Representations Complete. None of the representations and warranties
------------------------
made by the Company nor any statement made in any Exhibit, Schedule or
certificate furnished pursuant to this Agreement, contains or will contain any
untrue statement of a material fact, or omit to state any material fact required
to be stated therein, or necessary in order to make the statements made, in
light of the circumstances under which they were made not misleading.
(r) No Default. Neither the Company nor any of its Subsidiaries is (i) in
----------
violation of its certificate of incorporation or by-laws or similar documents of
organization or (ii) in default (and no event has occurred which with notice or
lapse of time or both would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition contained in any
indenture, agreement, lease or other instrument to which it is a party or by
which it or any of its properties may be
-16-
bound, except for such defaults that would not have in the aggregate a Company
Material Adverse Effect.
(s) Title to Property. The Company and its Subsidiaries have good and
-----------------
marketable title to all properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof by them;
and the Company and its Subsidiaries hold any leased real or personal property
under valid and enforceable leases with no exception that would materially
interfere with the use made or to be made thereof by them.
(t) Material Contracts. Section 5.1(t) of the Company Disclosure Letter
------------------
sets forth a complete list, as of the date hereof, of the following agreements,
contracts, arrangements or understandings, whether written or oral, to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound (collectively, the "Material Contracts"):
------------------
(i) Each employment, severance, management, consulting and other Material
Contract involving compensation for services rendered or to be rendered, in each
case involving payments of more than US$20,000 or extending beyond December 31,
2001;
(ii) Each Material Contract relating to the licensing of any Third-Party
Intellectual Property Rights or Company Intellectual Property Rights other than
licenses which are not material;
(iii) Each lease relating to real property;
(iv) Each Material Contract that contains a covenant not to compete
(whether the Company or any of its Subsidiaries is the beneficiary or the
obligor thereunder) or other restrictive covenant that, in either case, will
materially impair the Parent's ability to conduct the business and operations of
the Company or any of its Subsidiaries as currently conducted;
(v) Each Material Contract creating a lien, encumbrance, equity or claim
securing payment of an amount in excess of US$20,000 in any one case or $100,000
in the aggregate for all such Material Contracts; and
(vi) Each Material Contract of a type not set forth above (A) involving
annual payments in excess of US$20,000 per year or (B) that is material to the
business and operations of the Company or any of its Subsidiaries.
(u) Web Site Ownership. The Company is the sole owner of a valid
------------------
registration for each of the Web sites used in the Company's business and
operations, and each Subsidiary of the Company is the sole owner of a valid
registration for each of the Web sites used in such Subsidiary's business and
operations.
-17-
(v) Shareholder Vote. Shareholders of the Company holding voting securities
----------------
representing more than fifty percent of each class of the Company's total
outstanding voting securities have agreed in writing pursuant to the Voting,
Consent and Waiver Agreement attached hereto as Exhibit 5.2(v) to vote for
approval and adoption of this Agreement and the consummation of the transactions
contemplated hereunder at any meeting of shareholders at which such approval and
adoption is voted on by the Company's shareholders. For purposes of this
subsection (v), "total outstanding voting securities" shall include all voting
-----------------------------------
securities issuable upon exercise of any options or conversion of any securities
which are exercisable or convertible within 180 days after the date hereof.
(w) Total Assets; Net Sales. The ultimate parent entity (as such term is
-----------------------
defined under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended) of the Company has fewer than US$100 million in annual net sales (as
stated on the last regularly prepared annual statement of income and expense of
such entity) or total assets (as stated on the last regularly prepared balance
sheet of such entity).
(x) Number of Shareholders. The Company has as of the date hereof, and as
----------------------
of the Closing Date will have, not more than 35 holders of Shares that are not
accredited investors (as such term is defined under Rule 501 of the Securities
Act).
(y) Number of Outstanding Options. As of the date hereof, there are not
-----------------------------
more than 1,373,300 Options granted, issued and outstanding, and as of the
Closing Date (except as permitted under Section 6.1), there will not be more
than 1,373,300 Options granted, issued and outstanding.
(z) Number of Vested Option Holders. As of the date hereof, the Company has
-------------------------------
not more than 17 holders of vested Options, and as of November 15, 2000, the
Company will have not more than 45 holders of vested Options.
(aa) No Consent or Approval. No consent or approval of any Person is
----------------------
required in order to consummate the transactions contemplated by this Agreement
under any Contract to which the Company or any of its subsidiaries is a party,
except those for which the failure to obtain such consent or approval,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect or is not reasonably likely to prevent or to materially
burden or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
5.2. Representations and Warranties of the Parent and the Merger Sub.
---------------------------------------------------------------
Except as set forth in the corresponding sections or subsections of the
disclosure letter delivered to the Company by the Parent on or prior to entering
into this Agreement (the "Parent Disclosure Letter"), the Parent and the Merger
------------------------
Sub each hereby represent and warrant to the Company that:
(a) Capitalization of the Merger Sub. The authorized capital stock of the
--------------------------------
Merger Sub consists of 1,000 shares of Common Stock, par value $0.001 per share,
all of which are validly issued and outstanding. All of the issued and
outstanding capital
-18-
stock of the Merger Sub is, and at the Effective Time will be, owned by the
Parent, and there are (i) no other shares of capital stock or voting securities
of the Merger Sub, (ii) no securities of the Merger Sub convertible into or
exchangeable for shares of capital stock or voting securities of the Merger Sub
and (iii) no options or other rights to acquire from the Merger Sub, and no
obligations of the Merger Sub to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Merger Sub. The Merger Sub has not conducted any business
prior to the date hereof and has no, and prior to the Effective Time will have
no, assets, liabilities or obligations of any nature other than those incident
to its formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of the Parent and
---------------------------------------------
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and has
all requisite corporate or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted and is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the ownership or operation of its assets or properties
or conduct of its business requires such qualification, except where the failure
to be so organized, qualified or in such good standing, or to have such power or
authority when taken together with all other such failures, is not reasonably
likely to have a Parent Material Adverse Effect (as defined below).
As used in this Agreement, the term "Parent Material Adverse Effect" means
------------------------------
a material adverse effect on the financial condition, properties, prospects,
business or results of operations of Parent and its Subsidiaries taken as a
whole; provided, however, that none of the following shall be deemed to
-------- -------
constitute, and shall not be taken into account in determining the occurrence
of, a Parent Material Adverse Effect: (a) any effect arising from or relating to
general business or economic conditions in the PRC which does not affect the
Parent in any materially disproportionate manner, or (b) any effect relating to
or affecting the Internet industry in the PRC, which does not effect the Parent
in a disproportionate manner and (iii) any effect arising from or relating to
the announcement or pendency of the Merger.
(c) Capital Structure. The authorized capital stock of the Parent consists
-----------------
of 75,400,000 shares of Parent Common Stock, of which 31,224,216 shares were
outstanding as of the close of business on September 13, 2000, and 1,000,000
shares of Preferred Stock par value $0.001 per share (the "Parent Preferred
----------------
Shares"), of which no shares were outstanding as of the close of business on
------
September 13, 2000. All of the outstanding Parent Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The Parent has
no Parent Common Stock reserved for issuance, except that, as of September 13,
2000, there were 2,340,000 shares of Parent Common Stock reserved for issuance
pursuant to the Parent's 2000 Stock Option Plan (the "Parent Stock Plan"),
-----------------
outstanding vested options to purchase 328,620 shares of Parent Common Stock,
outstanding unvested options to purchase 1,254,882 shares of Parent Common Stock
and outstanding warrants to purchase 257,772 shares of Parent Common Stock. Each
of the outstanding shares of capital stock of each of the Parent's Subsidiaries
is duly authorized, validly issued, fully paid and nonassessable and, except
-19-
for directors' qualifying shares, owned by the Parent, free and clear of any
lien, pledge, security interest, claim or other encumbrance. Except as set forth
above, there are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights, repurchase
rights, agreements, arrangements, calls, commitments or rights of any kind that
obligate the Parent or any of its Subsidiaries to issue or to sell any shares of
capital stock or other securities of the Parent or any of its Subsidiaries or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities of
the Parent or any of its Subsidiaries, and no securities or obligation
evidencing such rights are authorized, issued or outstanding. The Parent does
not have outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Parent on any
matter ("Parent Voting Debt").
------------------
(d) Corporate Authority.(i) No vote of holders of capital stock of the
-------------------
Parent is necessary to approve this Agreement and the Merger and the other
transactions contemplated hereby. Each of the Parent and the Merger Sub has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger. This Agreement is a valid and binding
agreement of the Parent and the Merger Sub, enforceable against each of the
Parent and the Merger Sub in accordance with its terms, subject to the
Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, the Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article IV. The Parent Common Stock, when
issued, will be validly issued, fully paid and nonassessable, and no stockholder
of the Parent will have any preemptive right of subscription or purchase in
respect thereof.
(e) Governmental Filings; No Violations. (i) Other than the filings
-----------------------------------
and/or notices (A) pursuant to Section 1.3, (B) under the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
--------------
1934, as amended (the "Exchange Act"), if any, (C) to comply with state
------------
securities or "blue sky" laws and (D) required to be made with the Nasdaq
National Market, to the knowledge of the Parent, no notices, reports or other
filings are required to be made by the Parent or the Merger Sub with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by the Parent or the Merger Sub from, any Governmental Entity, in
connection with the execution and delivery of this Agreement by the Parent and
the Merger Sub and the consummation by the Parent and the Merger Sub of the
Merger and the other transactions contemplated hereby, except those that the
failure to make or obtain are not, individually or in the aggregate, reasonably
likely to have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of the Parent or the Merger Sub to consummate the
transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by the
Parent and the Merger Sub do not, and the consummation by the Parent and the
Merger Sub of the Merger and the other transactions contemplated hereby will
not, constitute or
-20-
result in (A) a breach or violation of, or a default under, the certificate or
by-laws of the Parent and the Merger Sub or the comparable governing instruments
of any of its Subsidiaries, (B) a breach or violation of, or a default under,
the acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of the Parent or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to, any
Contracts binding upon the Parent or any of its Subsidiaries or any Law or
governmental or non-governmental permit or license to which the Parent or any of
its Subsidiaries is subject or (C) any change in the rights or obligations of
any party under any of the Contracts, except, in the case of clause (B) or (C)
above, for breach, violation, default, acceleration, creation or change that,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or prevent, materially delay or materially impair the
ability of the Parent or the Merger Sub to consummate the transactions
contemplated by this Agreement.
(iii) As of the date hereof, the Parent is not aware of any facts or
circumstances that would prevent the delivery of the opinion of TransAsia
Lawyers pursuant to Section 7.2(d) hereof.
(f) Parent Reports; Financial Statements. The Parent has delivered to the
------------------------------------
Company each registration statement, report, proxy statement or information
statement prepared by it since August 1, 2000, including the Parent's Quarterly
Report on Form 10-Q for the period ended June 30, 2000 in the form (including
exhibits, annexes and any amendments thereto) filed with the Securities and
Exchange Commission (the "SEC") (collectively, including any such reports filed
---
subsequent to the date hereof, the "Parent Reports"). As of their respective
--------------
dates, the Parent Reports did not, and any Parent Reports filed with the SEC
subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Parent Reports (including the
related notes and schedules) fairly presents, or will fairly present, the
consolidated financial position of the Parent and its Subsidiaries as of its
date and each of the consolidated statements of income and of changes in
financial position included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the results of operations, retained earnings and changes in
financial position, as the case may be, of the Parent and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in amount
or effect), in each case in accordance with generally accepted accounting
principles in the United States ("GAAP") consistently applied during the periods
----
involved, except as may be noted therein.
(g) Compliance with Laws; Permits. Except as set forth in the Parent
-----------------------------
Reports filed prior to the date hereof, the businesses of each of the Parent and
its Subsidiaries have not been, and are not being, conducted in violation of any
Laws, except for violations or possible violations that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Parent or
the Merger Sub to consummate
-21-
the transactions contemplated by this Agreement. Except as set forth in the
Parent Reports filed prior to the date hereof, no investigation or review by any
Governmental Entity with respect to the Parent or any of its Subsidiaries is
pending or, to the knowledge of the executive officers of the Parent,
threatened, nor has any Governmental Entity indicated an intention to conduct
the same, except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Parent or
the Merger Sub to consummate the transactions contemplated by this Agreement. To
the knowledge of the executive officers of the Parent, no material change is
required in the Parent's or any of its Subsidiaries' processes, properties or
procedures in connection with any such Laws, and the Parent has not received any
notice or communication of any material noncompliance with any such Laws that
has not been cured as of the date hereof.
(h) Takeover Statutes. No Takeover Statute or any anti-takeover provision
-----------------
in Parent's certificate of incorporation and by-laws is applicable to the
Parent, the Parent Common Stock, the Merger or the other transactions
contemplated by this Agreement.
(i) Tax Matters. As of the date hereof, neither the Parent nor any of its
-----------
Subsidiaries has taken or agreed to take any action, nor do the executive
officers of the Parent have any knowledge of any fact or circumstance, that
would prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code.
(j) Absence of Certain Changes. Except as disclosed in the Parent Reports
--------------------------
filed prior to the date hereof, since June 30, 2000, the Parent and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, prospects, business or results of operations of
the Parent and its Subsidiaries or any development or combination of
developments of which management of the Parent has knowledge that, individually
or in the aggregate, has had or is reasonably likely to have a Parent Material
Adverse Effect; (ii) any material damage, destruction or other casualty loss
with respect to any material asset or property owned, leased or otherwise used
by the Parent or any of its Subsidiaries, whether or not covered by insurance;
(iii) any declaration, setting aside or payment of any dividend or other
distribution in cash, stock or property in respect of the capital stock of the
Parent, except for dividends or other distributions on its capital stock
publicly announced prior to the date hereof; or (iv) any change by the Parent in
accounting principles, practices or methods. Since June 30, 2000, except as
provided for herein or as disclosed in the Parent Reports delivered to the
Company prior to the date hereof, there has not been any increase in the
compensation payable or that could become payable or that could become payable
by the Parent or any of its Subsidiaries to officers or key employees or any
amendment of any bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that
-22-
covers employees, directors, former employees or former directors of the
Parent and its Subsidiaries.
ARTICLE VI
Covenants
6.1. Interim Operations. The Company covenants and agrees as to itself and
------------------
its Subsidiaries that, after the date hereof and prior to the Effective Time,
the business of it and its Subsidiaries shall be conducted in the ordinary and
usual course and, to the extent consistent therewith, it and its Subsidiaries
shall use their respective best efforts to preserve its business organization
intact and maintain its existing relations and goodwill with customers,
suppliers, distributors, creditors, lessors, employees and business associates,
and neither the Company nor any of its Subsidiaries shall take any action or
omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect. By way of
amplification of the foregoing and not limitation, neither the company nor any
of its Subsidiaries shall, between the date of this Agreement and the Effective
Time, directly or indirectly, take any action, including but not limited to the
following, except with the prior consent of a Designated Officer (as defined
below):
(a) it shall not (i) amend its articles of incorporation or by-laws, except
as may be required to increase the number of shares of Common Stock in
connection with the conversion of the Convertible Loan, the Series A Preferred
or the Series B Preferred, in each case outstanding as of the date hereof; (ii)
split, combine or reclassify its outstanding shares of capital stock; (iii)
declare, set aside or pay any dividend payable in cash, stock or property in
respect of any capital stock; or (iv) repurchase, redeem or otherwise acquire,
or permit any of its Subsidiaries to purchase or otherwise acquire, any shares
of its capital stock or any securities convertible into or exchangeable or
exercisable for any shares of its capital stock;
(b) neither it nor any of its Subsidiaries shall (i) issue, sell, pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any Voting Debt or any other property or assets, except for (x) issuances of
Common Stock upon conversion of the Convertible Loan, the Series A Preferred or
the Series B Preferred, in each case outstanding on the date hereof, and (y)
issuances of Series B Preferred upon exercise of warrants outstanding on the
date hereof; (ii) transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of or encumber any other property or assets (including capital stock of
any of its Subsidiaries); or (iii) make or authorize or commit for any capital
expenditures or, by any means, make any acquisition of, or investment in, assets
or stock of or other interest in, any other Person or entity;
(c) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any
-23-
Company Compensation and Benefit Plans (including, without limitation, any grant
or issuance of new Options, any amendment or changes to the terms of any Options
or any repricing of Options), or increase the salary, wage, bonus or other
compensation of any employees;
(d) neither it nor any of its Subsidiaries shall settle or compromise any
material claims or litigation or modify, amend or terminate any of its material
Contracts or waive, release or assign any material rights or claims;
(e) neither it nor any of its Subsidiaries shall make any Tax election or
permit any insurance policy naming it as a beneficiary or loss-payable payee to
be cancelled or terminated except in the ordinary and usual course of business;
(f) make any change, other than required by GAAP, to its accounting
principles or procedures; and
(g) neither it nor any of its Subsidiaries will authorize or enter into an
agreement to do any of the foregoing.
For the purposes of this Section 6.1, "Designated Officer" shall mean
------------------
any of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, each of whom is an
officer of the Parent.
6.2. Acquisition Proposals. The Company shall not, and shall cause its
---------------------
affiliates, directors, officers, employees, representatives or agents not to,
discuss or negotiate with any other person any inquiries or proposals relating
to the sale of any of the Company's securities or material assets (each such
transaction, a "Third Party Acquisition"), enter into any Third Party
-----------------------
Acquisition or agreement or, pursuant to the terms of a confidentiality
agreement or otherwise, furnish to any person any non-public information for the
purpose or with the intent of permitting such person to evaluate a possible
Third Party Acquisition. If any person proposes to negotiate regarding, or enter
into, a Third Party Acquisition or requests non-public information from the
Company in order to permit such person to evaluate such a proposal, the Company
shall inform the Parent of such proposal or inquiry, including the material
terms of such proposal, as soon as practicable.
6.3. Shareholders Meeting. The Company will take, in accordance with
--------------------
applicable law and its certificate and by-laws, all action necessary to convene
a meeting of holders of Shares (the "Shareholders Meeting") as promptly as
--------------------
practicable after the date hereof to consider and vote upon the approval of this
Agreement and the Merger. The Company's board of directors shall recommend such
approval and shall take all lawful action to solicit such approval.
6.4. Other Actions; Notification.
---------------------------
(a) The Company and the Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
efforts to take or cause to be taken all actions, and do or cause to be done all
things,
-24-
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including preparing and
filing as promptly as practicable all documentation to effect all necessary
notices, reports and other filings and to obtain as promptly as practicable all
consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the Merger or any of the other transactions contemplated by
this Agreement. Subject to applicable laws relating to the exchange of
information, the Parent and the Company shall have the right to review in
advance, and to the extent practicable each will consult the other on, all the
information relating to the Parent or the Company, as the case may be, and any
of their respective Subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the Merger and the other transactions contemplated by this
Agreement. In exercising the foregoing right, each of the Company and the Parent
shall act reasonably and as promptly as practicable.
(b) The Company and the Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with any statement, filing, notice or
application made by or on behalf of the Parent, the Company or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger and the transactions contemplated by this Agreement.
(c) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by the Parent or the Company, as the case may be, or any
of its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this Agreement.
The Company and the Parent each shall give prompt notice to the other of any
change that is reasonably likely to result in a Company Material Adverse Effect
or Parent Material Adverse Effect, respectively.
6.5. Taxation. Neither Parent nor the Company shall take or cause to be
--------
taken any action, whether before or after the Effective Time, that would
disqualify, and the parties hereto shall file all Tax Returns in a manner
consistent with the treatment of, the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code. The parties hereto shall provide such
reasonable and customary representations as are necessary to enable the Parent's
independent auditors and the Company's U.S. counsel to render their respective
tax opinions under Section 7.2(c) and 7.3(d), respectively.
6.6. Access. Upon reasonable notice, and except as may otherwise be
------
required by applicable law, the Company and the Parent each shall (and shall
cause its Subsidiaries to) afford the other's officers, employees, counsel,
accountants and other authorized representatives ("Representatives") reasonable
---------------
access throughout the period prior to the Effective Time, to its properties,
books, contracts and records and, during such period, each shall (and shall
cause its Subsidiaries to) furnish promptly to the other
-25-
all information concerning its business, properties and personnel as may
reasonably be requested, provided that no investigation pursuant to this Section
shall affect or be deemed to modify any representation or warranty made by the
Company, the Parent or the Merger Sub, and provided, further, that the foregoing
shall not require the Company or the Parent to permit any inspection, or to
disclose any information, that in the reasonable judgment of the Company or the
Parent, as the case may be, would result in the disclosure of any trade secrets
of third parties or violate any of its obligations with respect to
confidentiality if the Company or the Parent, as the case may be, shall have
used best efforts to obtain the consent of such third party to such inspection
or disclosure. All requests for information made pursuant to this Section shall
be directed to an executive officer of the Company or the Parent, as the case
may be, or such Person as may be designated by either of its officers, as the
case may be. All such information shall be governed by the terms of a
confidentiality agreement.
6.7. Publicity. The initial press release shall be a joint press release
---------
and thereafter the Company and the Parent each shall consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to the Merger and the other transactions contemplated by this
Agreement and prior to making any filings with any third party and/or any
Governmental Entity (including any national securities interdealer quotation
service) with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of any national
securities interdealer quotation service.
6.8. Expenses. Except as otherwise provided in this Agreement, whether or
--------
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the Merger and the other transactions contemplated by
this Agreement shall be paid by the party incurring such expense.
6.9. Takeover Statute. If any Takeover Statute is or may become applicable
----------------
to the Merger or the other transactions contemplated by this Agreement, each of
the Parent and the Company and its board of directors shall grant such approvals
and take such actions as are necessary so that such transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement or by the Merger and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
6.10. Employment Agreements. Each of the Company, the Parent and the
---------------------
Founders shall use their respective best efforts to enter into an employment
agreement based on the terms set forth in Exhibit 6.10 attached hereto.
6.11. Escrow Arrangements. Each of the Company, the Parent and the Founders
-------------------
shall use their respective best efforts to enter into the Escrow Agreement and
to place the Escrow Stock in escrow with the Escrow Agent in accordance with the
provisions of Section 4.6 and Exhibit 4.6 attached hereto on or prior to the
Closing Date.
6.12. Shareholder Documents. Each of the Company and the Founders shall use
---------------------
their respective best efforts to arrange for each shareholder of the Company
that
-26-
will be receiving Parent Common Stock pursuant to Article IV to execute and
deliver to the Parent (i) no later than fourteen days prior to the Closing Date,
an executed questionnaire in the form set forth in Exhibit 6.12(a) attached
hereto (each a "Stockholder Questionnaire") and (ii) on or prior to the Closing
Date (A) an executed lock-up agreement substantially in the form set forth in
Exhibit 6.12(b) attached hereto (each a "Stockholder Lock-Up"); and (B) an
-------------------
executed investor representation letter substantially in the form set forth in
Exhibit 6.12(c) attached hereto (each an "Investor Representation Letter").
------------------------------
6.13. Option Holder Documents. Each of the Company and the Founders shall
-----------------------
use their respective best efforts to arrange for each holder of Options to
execute and deliver to the Parent (i) no later than fourteen days prior to the
Closing Date, an executed questionnaire in the form set forth in Exhibit 6.13(a)
attached hereto (each a "Option holder Questionnaire") and (ii) on or prior to
---------------------------
the Closing Date an executed lock-up agreement substantially in the form set
forth in Exhibit 6.13(b) attached hereto (each an "Option Holder Lock-Up").
---------------------
6.14. Registration of Option Shares. The Parent shall file and obtain, on a
-----------------------------
date not earlier than 40 days after the Effective Time, the effectiveness of a
registration statement on Form S-8 (or appropriate successor form) (the "Form
S-8") with respect to the shares of Parent Common Stock underlying assumed
options to purchase Parent Common Stock and maintain the current status of
shares of Parent Common Stock covered by such registration statement and the
related prospectus(es) for so long as such assumed options remain outstanding.
6.15. Option Information to Company Employees. As soon as practicable
---------------------------------------
following the Effective Time, the Parent shall provide to all employees of the
Company who hold options to purchase Parent Common Stock a notice informing such
employees of the terms of their options to purchase Parent Common Stock,
including, without limitation, the number of shares purchasable and the purchase
price per share.
6.16. Domain Names. Each of the Company and the Founders shall use
------------
their respective best efforts to arrange for the assignment of all rights to the
domain names "▇▇▇▇▇▇▇▇.▇▇▇" and "▇▇▇▇▇▇▇▇.▇▇▇.▇▇" to the Parent or to a party
designated in writing by the Parent.
6.17. Registration Rights. The Parent shall use its best efforts to amend
-------------------
prior to the Closing Date the Third Amended and Restated Investor Rights
Agreement, dated as of February 1, 2000, among the Parent and the parties
thereto (the "Existing Parties"), to include the persons and entities set forth
----------------
in Exhibit 6.17 attached hereto as parties to such agreement so that such
persons and entities shall have the same rights and privileges granted to the
existing Parties.
6.18. Lock-Up Waiver. The Parent shall use its best efforts to obtain from
--------------
Credit Suisse First Boston Corporation, the lead underwriter of the Parent's
initial public offering ("CSFB"): (i) its written consent to the issuance and
----
sale of Parent Common Stock by the Parent in connection with the Merger and (ii)
its written waiver of
-27-
compliance by the Company with Section 5(i) of the Underwriting Agreement, dated
as of July 12, 2000, among the Company and Credit Suisse First Boston
Corporation and Credit Suisse First Boston (Hong Kong) Limited (collectively,
the "Lock-Up Waiver").
--------------
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been duly approved by
--------------------
holders of Shares constituting the Company Requisite Vote in accordance with
applicable law and the certificate and by-laws of each such corporation.
(b) Regulatory Consents. Other than the filing provided for in Section
-------------------
1.3, all notices, reports and other filings required to be made prior to the
Effective Time by the Company or the Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or the Parent or any of their respective Subsidiaries from, any
Governmental Entity (collectively, "Governmental Consents") in connection with
---------------------
the execution and delivery of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby by the Company, the Parent and
the Merger Sub shall have been made or obtained (as the case may be). As of the
date of this Agreement, neither the Company nor the Parent is aware of any
required regulatory consents except as disclosed pursuant to Section 5.1 (d) of
the Company Disclosure Letter or Section 5.2(e) of the Parent Disclosure Letter.
(c) Litigation. No court or Governmental Entity of competent jurisdiction
----------
shall have enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the Merger or the other
transactions contemplated by this Agreement (collectively, an "Order"), and no
Governmental Entity or any other Person shall have instituted any proceeding or
threatened to institute any proceeding seeking any such Order.
7.2. Conditions to Obligations of Parent and the Merger Sub. The
------------------------------------------------------
obligations of the Parent and the Merger Sub to effect the Merger are also
subject to the satisfaction or waiver by the Parent at or prior to the Effective
Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Company set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
-28-
Closing Date (except to the extent any such representation or warranty expressly
speaks as of an earlier date), and the Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer of the Company to
such effect; provided, however, that notwithstanding anything herein to the
-------- -------
contrary, this Section 7.2(a) shall be deemed to have been satisfied even if
such representations or warranties are not so true and correct unless the
failure of such representations or warranties to be so true and correct,
individually or in the aggregate, has had, or is reasonably likely to have, a
Company Material Adverse Effect or is reasonably likely to prevent or to
materially burden or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the Parent shall
have received a certificate signed on behalf of the Company by the Chief
Executive Officer of the Company to such effect.
(c) Tax Opinion. Parent shall have received the opinion of
-----------
PricewaterhouseCoopers, the Parent's independent auditors, dated the Closing
Date, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that each of the Parent, the Merger Sub and the Company will be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
preparing such opinion, PricewaterhouseCoopers may rely on reasonable and
customary assumptions and representations given by the parties hereto. In the
event that PricewaterhouseCoopers is unwilling to deliver such opinion, this
condition shall nonetheless be deemed satisfied if U.S. counsel for the Parent
delivers such opinion in form reasonably satisfactory to the Parent.
(d) Legal Opinion. The Parent shall have received an opinion of TransAsia
-------------
Lawyers, special PRC counsel to the Parent, dated the Closing Date,
substantially in the form set forth in Exhibit 7.2(d) attached hereto.
(e) Conversion of Convertible Loans. Prior to the Closing Date, any loans
-------------------------------
outstanding that are convertible into Shares (including the Convertible Loan)
shall be converted into Shares, and each such loan shall cease to be
outstanding, shall be cancelled and retired without payment of any consideration
therefor and shall cease to exist.
(f) Assignment of Trade Marks and Domain Names. On or prior to the Closing
------------------------------------------
Date, the Founders or any third parties shall have assigned to the Company all
rights to the domain name "▇▇▇▇▇▇▇▇.▇▇▇".
(g) Employment Agreements. Prior to or at the Closing Date, each key
---------------------
employee of the Company set forth in Exhibit 7.2(g) attached hereto shall have
entered into with the Parent an employment agreement that is (i) based on the
terms set
-29-
forth in Exhibit 6.10 attached hereto and (ii) in a form reasonably
satisfactory to the parties thereto.
(h) Absence of Material Adverse Change. Since the date hereof, there shall
----------------------------------
not have been any Company Material Adverse Effect, except for any Company
Material Adverse Effect that is a direct result of actions taken by the Parent
pursuant to Section 6.1.
(i) Escrow Arrangements. Prior to the Closing Date, each of the Founders
-------------------
shall have entered into the Escrow Agreement, and the Parent shall have received
satisfactory evidence from the Escrow Agent to the effect that the Escrow Stock
has been placed in escrow with the Escrow Agent in accordance with the
provisions of Section 4.6.
(j) Shareholder Documents. (i) No later than fourteen days prior to the
---------------------
Closing Date, at least ninety-two percent of the shareholders of the Company
that will be receiving Parent Common Stock pursuant to Article IV shall have
executed and delivered to the Parent a Stockholder Questionnaire and (ii) on or
prior to the Closing Date, (A) at least ninety-two percent of the shareholders
of the Company who will be receiving Parent Common Stock pursuant to Article IV
shall have executed and delivered to the Parent an Investor Representation
Letter and (B) shareholders of the Company who will be receiving Parent Common
Stock pursuant to Article IV and who collectively own not less than ninety-nine
percent of the total outstanding Shares as of the Effective Time shall have
executed and deliver to the Parent the Stockholder Lock-Ups.
(k) Option Holder Documents. (i) No later than fourteen days prior to the
-----------------------
Closing Date, holders of Options who collectively hold not less than ninety
percent of the total outstanding Options as of the Closing Date, including at
least ninety-five percent of all holders of vested Options as of the Closing
Date, shall have executed and delivered to the Parent an Option Holder
Questionnaire, and (ii) on or prior to the Closing Date, holders of Options who
collectively hold not less than ninety percent of the total outstanding Options
as of the Closing Date, including at least ninety-five percent of all holders of
vested Options as of the Closing Date, shall have executed and delivered to the
Parent the Option Holder Lock-Ups.
(l) Lock-Up Waiver. The Parent shall have received from CSFB the Lock-Up
--------------
Waiver.
(m) No Exercise of Options. From the date hereof until the Closing Date,
----------------------
not more than three holders of Options shall have exercised their Options in
exchange for Shares or other securities of the Company.
(n) Dissenting Shares. The aggregate amount of Dissenting Shares shall be
-----------------
less than five percent of the total outstanding Shares at the Effective Time.
-30-
7.3. Conditions to Obligation of the Company. The obligation of the Company
---------------------------------------
to effect the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Parent and the Merger Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date, (except to the extent any such
representation and warranty expressly speaks as of an earlier date) and the
Company shall have received a certificate signed on behalf of the Parent by the
Chief Executive Officer of the Parent and the Chief Executive Officer of the
Merger Sub to such effect; provided, however, that notwithstanding anything
-------- -------
herein to the contrary, this Section 7.3(a) shall be deemed to have been
satisfied even if such representations or warranties are not so true and correct
unless the failure of such representations or warranties to be so true and
correct, individually or in the aggregate, has had, or is reasonably likely to
have, a Parent Material Adverse Effect or is reasonably likely to prevent or to
materially burden or materially impair the ability of the Parent to consummate
the transactions contemplated by this Agreement.
(b) Performance of Obligations of the Parent and the Merger Sub. Each of
-----------------------------------------------------------
the Parent and the Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of the Parent and the Merger Sub by the Chief Executive Officer of the
Parent to such effect.
(c) Consents Under Agreements. The Parent shall have obtained the consent
-------------------------
or approval of each Person set forth in Exhibit 7.3(c) attached hereto.
(d) Tax Opinion. The Company shall have received the opinion of Skadden,
-----------
Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, U.S. counsel to the Company, dated the Closing
Date, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
In preparing such opinion, such counsel may rely on reasonable and customary
assumptions and representations gained by the parties hereto.
(e) Conversion of Convertible Loans. Prior to the Closing Date, any loans
-------------------------------
that are convertible into Shares (including the Convertible Loan) shall have
been converted into Shares, and each such loan shall cease to be outstanding,
shall be cancelled and retired without payment of any consideration thereof and
shall cease to exist.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated and
-----------------------------
the Merger may be abandoned at any time prior to the Effective Time,
-31-
whether before or after the approval by shareholders of the Company referred to
in Section 7.1(a), by mutual written consent of the Company and the Parent by
action of their respective boards of directors.
8.2. Termination by Either the Parent or the Company. This Agreement may be
-----------------------------------------------
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either the Parent or the Company if
(i) the Merger shall not have been consummated by November 15, 2000, whether
such date is before or after the date of approval by the shareholders of the
Company (the "Termination Date") unless such Termination Date is extended by the
----------------
mutual agreement of the parties hereto, (ii) the approval of the Company's
shareholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof, or
(iii) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval by the shareholders of the Company); provided, that the
right to terminate this Agreement pursuant to clause (i) above shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure of the Merger to be consummated.
8.3. Termination by the Company. This Agreement may be terminated and
--------------------------
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company referred to in
Section 7.1(a), by action of the board of directors of the Company if there has
been a breach of any representation, warranty, covenant or agreement made by the
Parent or the Merger Sub in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that
Section 7.3(a) or 7.3(b) would not be satisfied and such breach or condition is
not curable or, if curable, is not cured within 30 days after written notice
thereof is given by the Company to the Parent.
8.4. Termination by the Parent. This Agreement may be terminated and the
-------------------------
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent if (i) the Board of Directors of the Company shall
have withdrawn or adversely modified its approval or recommendation of this
Agreement or failed to reconfirm its recommendation of this Agreement within
five business days after a written request by the Parent to do so, (ii) there
has been a breach of any representation, warranty, covenant or agreement made by
the Company in this Agreement, or any such representation and warranty shall
have become untrue after the date of this Agreement, such that Section 7.2(a) or
7.2(b) would not be satisfied and such breach or condition is not curable or, if
curable, is not cured within 30 days after written notice thereof is given by
the Parent to the Company or (iii) if the Company or any of its affiliates,
representatives or agents of the Company shall take any of the actions that
would be proscribed by Section 6.2.
8.5. Effect of Termination and Abandonment. In the event of termination of
-------------------------------------
this Agreement and the abandonment of the Merger pursuant to this Article VIII,
this Agreement (other than as set forth in Article IX and Section 10.1) shall
-32-
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal and financial
advisors or other representatives); provided, however, except as otherwise
-------- -------
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any willful or intentional breach of this
Agreement.
ARTICLE IX
Survival of Representations; Remedies
9.1. Survival of Representations. All representations, warranties,
---------------------------
covenants, indemnities and other agreements made by any party to this Agreement
herein, shall be deemed made on and as of the Effective Time as though such
representations, warranties, covenants, indemnities and other agreements were
made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall survive until one year after
the Effective Time; provided, however, that if the Parent shall have given any
-------- -------
of the founders notice of a claim on or prior to the expiration of such one-year
period, the representations, warranties, covenants, indemnities, and other
agreements applicable to such claim shall survive with respect to such claim
until such claim is finally resolved, and provided further that in the event of
-------- -------
fraud all such representations, warranties, covenants, indemnities and other
agreements shall survive indefinitely.
9.2. Indemnification by the Founders. (a) The Founders hereby agree to
-------------------------------
indemnify, defend and hold the Parent, the Surviving Corporation and their
respective officers and directors, and each person, if any, who controls or may
control the Parent or the Surviving Corporation within the meaning of the
Securities Act (all such persons hereinafter are referred to individually an
"Acquiror Indemnified Person" and collectively as "Acquiror Indemnified
---------------------------
Persons," but in no event shall any shareholder of the Company prior to the
Effective Time be such an Acquiror Indemnified Person) harmless (pro-rata in
accordance with their respective beneficial holdings of Escrow Stock) against
all losses resulting from, imposed upon or incurred by any Acquiror Indemnified
Person, directly or indirectly, as a result of any of the following, anything in
this Agreement to the contrary notwithstanding:
(i) any inaccuracy or breach of a representation or warranty of the Company
given or made by the Company in this Agreement, in the Agreement of Merger or in
the Company Disclosure Letter or in any certificate, document or agreement
delivered by or on behalf of the Company pursuant hereto; and
(ii) any failure by the Company to perform or comply with any covenant or
agreement contained in this Agreement, in the Agreement of Merger or in the
Company Disclosure Letter or in any certificate, document or agreement delivered
by or on behalf of the Company pursuant hereto.
-33-
(b) The indemnity obligations of the Founders under this Article IX
shall be satisfied through the delivery to the Acquiror Indemnified Persons of
such number of shares of Escrow Stock having a value equal to the amount of the
loss or losses for which indemnification or payment is being made.
(c) (i) Any liability for indemnification hereunder shall be determined
without duplication of recovery by reason of the state of facts giving rise to
such liability constituting a breach of more than one of the Company's
representations, warranties, covenants or agreements.
(ii) Except in the event of (A) actual fraud committed by a Founder or (B)
gross negligence or recklessness on the part of a Founder, the rights of the
Acquirer Indemnified Persons to indemnification as set forth in this Article IX
for any breach of the Company's representations, warranties, covenants or
agreements shall constitute such Acquirer Indemnified Persons' sole remedy for
such a breach against the Founders, and the Founders shall have no other
liability or damages to the Acquirer Indemnified Persons resulting from such
breach.
(d) Notwithstanding anything in this Agreement to the contrary, the
Founders shall not be responsible for any loss pursuant to this Section 9.2(d)
in excess of (i) the lower of (A) the fair market value of the Escrow Stock and
(B) US$3,000,000 and (ii) unless and until the aggregate amount of all of such
losses shall exceed US$150,000, in which case the Founders severally shall be
liable for the aggregate amount of all such losses in excess of US$150,000.
9.3. Third Party Claims. The obligations and liabilities of the Founders
------------------
with respect to their respective indemnities pursuant to this Article IX,
resulting from any third party claim shall be subject to the following terms and
conditions:
(a) The party seeking indemnification (the "Indemnified Party") must give
the party obligated to indemnify (the "Indemnifying Party"), notice of any third
party claim which is asserted against, resulting to, imposed upon or incurred by
the Indemnified Party and which may give rise to liability of the Indemnifying
Party pursuant to this Article IX, stating (to the extent known or reasonably
anticipated) the nature and basis of such third party claim and the amount
thereof; provided that the failure to give notice shall not affect the rights of
the Indemnified Party hereunder except to the extent (i) that the Indemnifying
Party shall have suffered actual damage by reason of such failure, or (ii) such
failure or delay materially adversely affects the ability of the Indemnifying
Party to defend, settle or compromise such third party claim.
(b) Subject to subsection (c) below, if the Indemnifying Party assumes
responsibility for losses arising out of such third party claim, then the
Indemnifying Party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense of such third party claim at
the Indemnifying Party's risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect not to
undertake such defense, (ii) within a reasonable time after notice from the
Indemnified
-34-
Party of any such third party claim, the Indemnifying Party shall fail to
undertake to defend such third party claim, or (iii) there is a reasonable
probability that such third party claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such third party claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a third
party claim under this Section 9.3, the Indemnifying Party shall pay to the
Indemnified Party, in addition to the other sums required to be paid hereunder,
the reasonable costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
(d) Anything in this Section 9.3 to the contrary notwithstanding, (i)
neither the Indemnified Party nor the Indemnifying Party shall, without the
other party's written consent (which consent shall not be unreasonably withheld
or delayed), settle or compromise such third party claim or consent to entry of
any judgment which does not include as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such third party claim in form and substance
satisfactory to the Indemnified Party; (ii) in the event that a party hereto
undertakes defense of such third party claim in accordance with this Section
9.3, the other parties, by counsel or other representative of their own choosing
and at their sole cost and expense, shall have the right to participate in the
defense, compromise or settlement thereof and each party and its counsel and
other representatives shall cooperate with the other party and its counsel and
representatives in connection therewith; and (iii) the party that undertakes the
defense of such third party claim in accordance with this Section 9.3 shall have
an obligation to keep the other parties informed of the status of the defense of
such third party claim and furnish the other parties with all documents,
instruments and information that the other parties shall reasonably request in
connection therewith.
9.4. No Recourse Against the Company. The Founders hereby irrevocably waive
-------------------------------
any and all right to recourse against the Company and the Surviving Corporation
with respect to any misrepresentation or breach of any representation, warranty
or indemnity, or noncompliance with any conditions or covenants, given or made
by the Company in this Agreement or any other agreements and documents executed
or to be executed by the parties hereto in order to consummate the transactions
contemplated by this Agreement. No Founder shall be entitled to contribution
from, subrogation to or recovery against the Company or the Surviving
Corporation with respect to any liability of any Founder that may arise under or
pursuant to this Agreement or any of the other agreements and documents executed
or to be executed by the parties hereto in order to consummate the transactions
contemplated by this Agreement or any other agreements and documents
contemplated hereby.
9.5. Specific Performance. In addition to any other remedies which the
--------------------
parties may have at law or in equity, the parties hereby acknowledge that the
transactions contemplated under this Agreement are unique, and that the harm to
the parties resulting
-35-
from breaches by the other party of its obligation cannot be adequately
compensated by damages. Accordingly, the parties agree that each party shall
have the right prior to the Effective Time to have all obligations,
undertakings, agreements, covenants and other provisions of this Agreement
specifically performed by the other parties and that the parties shall have the
right to obtain an order or decree of such specific performance in any of the
courts of the United States of America or any state or other political
subdivision thereof or any other court of competent jurisdiction.
9.6. Remedies Cumulative. Subject to the limitations and qualifications set
-------------------
forth in this Article IX, the remedies provided herein shall be cumulative and
shall not preclude the assertion by the parties hereto of any other rights or
the seeking of any other remedies against the other parties, or their respective
successors or assigns.
ARTICLE X
Miscellaneous and General
10.1. Survival. Article IX, this Article X and the agreements of the
--------
Company, the Parent and the Merger Sub contained in Sections 4.2, 4.4, 6.4, 6.5,
6.8, 6.14, 6.15, 6.16 and 6.17 shall survive the consummation of the Merger.
10.2. Modification or Amendment. Subject to the provisions of the
-------------------------
applicable law, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
10.3. Waiver of Conditions. The conditions to each of the parties'
--------------------
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
10.4. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
10.5. GOVERNING LAW AND ARBITRATION. THIS AGREEMENT SHALL BE DEEMED TO BE
-----------------------------
MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA.
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration administered by the International
Chamber of Commerce in accordance with its International Arbitration Rules. The
arbitration shall be the sole and exclusive forum for resolution of such
dispute, controversy or claim, and the award rendered shall be final and
binding. Judgment on the award rendered may be entered in any court having
jurisdiction thereof.
-36-
(b) The number of arbitrators shall be three, one of whom shall be
appointed by the party asserting a claim against the other party or parties, one
of whom shall be appointed by the party or parties (acting together), as the
case may be, against whom a claim has been asserted, and the third of whom shall
be selected by mutual agreement, if possible, within thirty days of the
selection of the second arbitrator and thereafter by the administering
authority.
(c) The language of the arbitration shall be conducted in the English
language and any foreign-language documents presented at such arbitration shall
be accompanied by an English translation thereof. The arbitration shall be held
in Hong Kong.
(d) Any award of the arbitrators (i) shall be in writing, (ii) shall state
the reasons upon which such award is based and (iii) may include an award of
costs, including reasonable attorneys' fees and disbursements.
(e) The arbitrators shall have no authority to award punitive damages or
any other damages not measured by the prevailing party's actual damages, and may
not, in any event, make any ruling, finding or award that does not conform to
the terms and conditions of this Agreement.
(f) Any party may make an application to the arbitrators seeking injunctive
relief to maintain the status quo until such time as the arbitration award is
rendered or the dispute, controversy or claim is otherwise resolved. Any party
may apply to any court having jurisdiction hereof and seek injunctive relief in
order to maintain the status quo until such time as the arbitration award is
rendered or the dispute, controversy or claim is otherwise resolved.
10.6. Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Parent or the Merger Sub
----------------------------------
▇▇▇▇.▇▇▇ Inc.
▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇'▇ ▇▇▇▇▇▇▇▇ of China
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Chairman and Chief Executive Officer
▇▇▇ ▇▇▇▇▇▇
Chief Financial Officer
fax: (8610) ▇▇▇▇-▇▇▇▇
-37-
with a copy to ▇▇▇▇ ▇▇▇, Esq.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇
fax: (▇▇▇) ▇▇▇▇-▇▇▇▇
if to the Company
-----------------
ChinaRen, Inc.
▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇ ▇▇ ▇▇▇ Road
Beijing 100045
People's Republic of China
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Chairman and Chief Executive Officer
fax: (8610) ▇▇▇▇-▇▇▇▇
with a copy to ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Esq.
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
East Wing Office, Level 4
China World Trade Center
▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇'▇ ▇▇▇▇▇▇▇▇ of China
fax: (8610) ▇▇▇▇-▇▇▇▇
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.7. Entire Agreement. This Agreement (including any exhibits attached
----------------
hereto), the Company Disclosure Letter, and the Parent Disclosure Letter
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof, including, without
limitation, the Letter of Intent, dated August 27, 2000, between the Parent and
the Company.
10.8. No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
10.9. Obligations of the Parent and of the Company. Whenever this Agreement
--------------------------------------------
requires a Subsidiary of the Parent to take any action, such requirement shall
-38-
be deemed to include an undertaking on the part of the Parent to cause such
Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
10.10. Transfer Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including penalties and interest)
incurred in connection with the Merger shall be paid by Parent and the Merger
Sub when due, and Parent and the Merger Sub will indemnify the Company against
liability for any such taxes.
10.11. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
10.12. Interpretation. The table of contents and headings herein are for
--------------
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
10.13. Assignment. This Agreement shall not be assignable by operation of
----------
law or otherwise; provided, however, that the Parent may designate, by written
-------- -------
notice to the Company, another wholly-owned direct or indirect subsidiary to be
a Constituent Corporation in lieu of the Merger Sub, in which event all
references herein to the Merger Sub shall be deemed references to such other
subsidiary, except that all representations and warranties made herein with
respect to the Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as of
the date of such designation.
-39-
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
▇▇▇▇.▇▇▇ INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Financial Officer
ALPHA SUB INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Financial Officer
CHINAREN, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: President
The undersigned, each a founding shareholder of ChinaRen, Inc., hereby
acknowledge their agreement, covenant and willingness to fulfill their
respective obligations as contemplated by this Agreement.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
By: /s/ ▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Exhibits and Schedules to Agreement and Plan of Merger among ▇▇▇▇.▇▇▇ Inc.,
Alpha Sub Inc. and ChinaRen, Inc. dated as of September 13, 2000 Omitted in
Accordance with Item 601(b)(2) of Regulation S-K
-------------------------------
Exhibit 4.6 Principal Terms of Escrow Agreement
Exhibit 5.1(v) Form of Voting, Consent and Waiver
Agreement
Exhibit 6.10 Principal Terms of Employment Agreements
Exhibit 6.12(a) Form of Shareholder Questionnaire
Exhibit 6.12(b) Form of Shareholder Lock-Up
Exhibit 6.12(c) Form of Investor Representation Letter
Exhibit 6.13(a) Form of Option Holder Questionnaire
Exhibit 6.13(b) Form of Option Holder Lock-Up
Exhibit 6.17 Schedule of Holders
Exhibit 7.2(d) Form of Opinion of PRC Counsel
Parent Disclosure Letter
Company Disclosure Letter
▇▇▇▇.▇▇▇ Inc. will furnish supplementally a copy of any omitted exhibit or
schedule to the Securities and Exchange Commission upon request; provided
however, that ▇▇▇▇.▇▇▇ Inc. may request confidential treatment pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or
exhibit so furnished.
7