BEIJING FEIJIE INVESTMENT CO., LTD. AND ZHUQUN PENG OPERATION AND MANAGEMENT AGREEMENT MAY 5, 2008 SUZHOU
Exhibit
10.37
English Translation of
Chinese Language Agreement
BEIJING
FEIJIE INVESTMENT CO., LTD.
AND
ZHUQUN
PENG
_____________________________________
_____________________________________
MAY
5, 2008
SUZHOU
TABLE
OF CONTENTS
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CHAPTER
I DEFINITIONS
|
1 | |||
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CHAPTER
II BUSINESS OBJECTIVES
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4 | |||
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CHAPTER
III PERFORMANCE INCENTIVES
|
7 | |||
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CHAPTER
IV RESTRICTIONS ON EQUITY
|
8 | |||
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CHAPTER
V ORGANIZATIONAL STRUCTURE, GOVERNANCE AND OPERATION OF THE COMPANY WITHIN THE OPERATING
PROFIT INDEX LOCKUP PERIOD
|
11 | |||
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CHAPTER VI
ORGANIZATIONAL STRUCTURE, GOVERNANCE AND OPERATION OF THE COMPANY
AFTER EXPIRATION OF THE OPERATING PROFIT INDEX LOCKUP
PERIOD
|
15 | |||
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CHAPTER
VII FINANCIAL MANAGEMENT
|
16 | |||
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CHAPTER
VIII REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
|
17 | |||
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CHAPTER
IX TAXES
|
19 | |||
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CHAPTER
X BREACH OF CONTRACT
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19 | |||
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CHAPTER
XI CONFIDENTIALITY
|
19 | |||
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CHAPTER
XII GOVERNING LAW AND SETTLEMENT OF DISPUTES
|
19 | |||
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CHAPTER
XIII EFFECTIVENESS AND AMENDMENT
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20 | |||
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CHAPTER
XIV MISCELLANEOUS
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20 |
THIS OPERATION AND MANAGEMENT
AGREEMENT (this “Agreement”) is entered into by
and between the following parties in Suzhou, Jiangsu Province, the People’s
Republic of China (the “PRC”) on May 5,
2008:
PARTIES:
Beijing
Feijie Investment Co., Ltd. (the “Acquirer”)
Legal
Representative: ▇▇▇▇▇▇ ▇▇▇▇▇ Title: Executive
Director
Zhuqun
Peng (the “Controlling Party”)
Identity
Card No.: 320626197005208816
Each of
the Acquirer and the Controlling Party constitutes a “Party” and they are
collectively referred to as the “Parties.”
RECITALS:
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1.
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WHEREAS,
on the date hereof, the Acquirer, the Controlling Party and the other
parties thereto have entered into the Acquisition Framework Agreement (as
defined in Article 1.3 below) whereby the Acquirer will receive 51% of the
equity interests in the Company (as defined in Article 1.9 below),
together with all of the ownership interests, profit distribution rights,
asset distribution rights and other rights granted to the shareholders of
the Company pursuant to the articles of association of the Company and
applicable laws of the PRC; and
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|
2.
|
WHEREAS,
it is the intent of the Parties, by forming the Company, to jointly
operate and manage the mobile phone retail service, after-sale service and
mobile communication agency service, and to build the Company into one of
the leading mobile phone retailers in the PRC;
and
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3.
|
WHEREAS,
the Controlling Party has experience and expertise in the business of
retail sales for mobile phones, and it is the belief of the Parties that
the Company’s future growth and profitability will depend in large part in
the foreseeable future on the experience and expertise of the Controlling
Party and on the Controlling Party’s continuous and diligent performance
of its duties with respect to the
Company.
|
NOW,
THEREFORE, in order to govern the operation and management of the Company and to
encourage and induce the Controlling Party to continue to provide services to
the Company, the Parties hereby agree to the following:
CHAPTER
I DEFINITIONS
ARTICLE
1 Unless it is otherwise specified
herein, the following terms shall have the following meanings:
1.1
“Acquirer’s Equity”
means the 51% of the equity interests in the Company held by the
Acquirer.
1.2
“Acquisition
Consideration” means the aggregate consideration that the Acquirer shall
pay to the Controlling Party and/or the Affiliates of the Controlling Party for
51% of the equity interests in the Company, as set forth in Chapter 3 of the
Acquisition Framework Agreement.
1
1.3
“Acquisition Framework
Agreement” means the Acquisition Framework Agreement dated May 5, 2008,
by and among the Acquirer, the Controlling Party and the Transferors (as defined
therein), entered into in Suzhou, Jiangsu Province, the PRC, together with any annexes or schedules
and any supplemental agreements, annexes or schedules with respect to any issues
absent thereof, as well as any agreements and/or memoranda entered into from
time to time that amend or modify the terms of such documents, and/or any form
of amendments, modifications and/or supplements of such documents entered into
from time to time.
1.4
“Affiliate” refers,
with respect to any person or
entity, to: (a) an entity that owns or controls the equity interests, assets or
rights of such person or entity; (b) an entity of which the equity interests,
assets or rights are owned or controlled by such person or entity; (c) an entity
under common ownership or control with such person or entity; (d) the directors,
supervisors, senior officers or owners of such person or entity, and any of such
person’s immediate family members; and (e) any other entity owned
or controlled by any of the persons referred to in (d)
above. As used in the preceding sentence, the term “immediate family
members” includes spouses and the lineal relatives by blood of such person and
spouses.
1.5
“Agreement” means this
Operation and Management Agreement dated May 5, 2008 by and between the Acquirer
and the Controlling Party, together with any annexes or schedules and any
supplemental agreements, annexes or schedules with respect to issues absent
thereof, as well as any agreements and/or memoranda entered into from time to
time that amend or modify the terms of such documents and/or any form of
amendments, modifications and/or supplements of such documents entered into from
time to time.
1.6
“Annualized Net Profits”
means the annual Net Profits of the Company (which shall be calculated on a
12-month basis over the 14-month period following the Closing
Date). The Annualized Net Profits shall be calculated by (x) dividing
the Net Profits of the Company for the preceding 14-month period by the number
14 and (y) multiplying the number derived from the equation in (x) above by the
number 12. If the Closing Date occurs on or before the 15th day of a
calendar month, then such month shall be counted in the 14-month
term. If the Closing Date is after the 15th day of a calendar month,
then the 14-month term shall commence the following month.
1.7 “Audited Year ” initially means
the 14-month period following the Closing Date (the “First Audited Year”) and
subsequently means the 12-month period beginning on the 15th month after the
Closing Date and ending on the 26th month after the Closing Date (the “Second Audited
Year”).
1.8
“Closing Date” means the
date on which the Acquirer acquires 51% of the equity interests in the Company,
i.e., the date the Company adopts new articles of association (which shall, at
the request of the Acquirer, expressly state that the Acquirer holds 51% of the
equity interests in the Company and shall specify, among other things, the new
structure of the board of directors and the rules and procedures for the
governance and operation of the Company), completes the relevant registration
with the applicable administration for industry and commerce and obtains written
confirmation of registration from the applicable administration for industry and
commerce, or the date that the Acquirer and the Controlling Party (and/or other
relevant parties) execute the closing confirmation
letter.
2
1.9
“Company” means a
company (and its subsidiary or subsidiaries) formed by the Controlling Party
and/or its Affiliates in Jiangsu Province, the PRC, with RMB 100,000,000 of
registered capital, for the purpose of engaging in the business of mobile phone
retail sales, after-sale services and mobile telecommunication agency
services. On the Closing Date, the Acquirer will hold 51% of the
equity interests in the Company and the Controlling Party will hold 49% of the
equity interests in the Company.
1.10
“Company’s Business”
means the businesses entered into by the Company within a reasonable period of
time after the Company’s formation, including but not limited to mobile phone
retail sales, after-sale services and mobile telecommunication agency
services.
1.11
“Control” means the
right to manage, receive proceeds from or make decisions on behalf of an entity,
asset or business, whether through shareholding, trust, proxy holding or voting
powers.
1.12
“Controlling Party’s
Equity” means the 49% of the equity interests in the Company held by the
Controlling Party.
1.13
“Financial Report” means
the balance sheet, the income statement and any other report the Acquirer
specifically requires to provide an update on the status of the Company’s
financial situation.
1.14
“Mobile Phone Distribution
Business” means the wholesale mobile phone business, excluding the
consumer mobile phone retail business.
1.15 “Net Profits” means the
after-tax net profits, which: (i) shall be accounted for according to Chinese
accounting standards; (ii) exclude non-operating income, any other non-recurring
operating income (for the avoidance of doubt, Sales Support Income shall not be
deemed non-operating income and shall be listed and accounted for as income) and
income from the sale of more than 50 mobile phones to the same purchaser within
such Audited Year (which shall be regarded as income from the Mobile Phone
Distribution Business, which shall not be included in the business of the
Company unless the Controlling Party provides reasonable evidence to the
contrary); and (iii) shall be audited by an auditor that is mutually agreed upon
by the Parties. If such parties fail to agree upon an auditor within
five (5) days after the expiration of the most recent audit period (December 31
or March 31) of the Audited Year, the Controlling Party shall select, in its
sole discretion, one auditor from the “Big Four” accounting firms (KPMG,
PricewaterhouseCoopers, Ernst & Young and Deloitte Touche
Tohmatsu).
1.16
“Operating Profit Index”
means the Net Profits that the Controlling Party guarantees the Company will
achieve during the Operating Profit Index Lockup Period. The
Annualized Net Profits for the 14-month period following the Closing Date (i.e.,
the First Audited Year) shall be RMB 62,000,000. The Net Profits for
the subsequent 12-month period (i.e., the Second Audited Year) shall be RMB
74,400,000.
1.17
“Operating Profit Index Lockup
Period” means the period during which the Controlling Party guarantees
the Company will achieve the Operating Profit Index, or the 26-month period
following the Closing Date.
1.18 “Sales Support Income” means
fees charged by the Company to suppliers and/or manufacturers in exchange for
providing sales support to such suppliers and/or manufacturers, including fees
for product promotions, store promotions, rental for light boxes, signage, and
concession counters, sales staff administration, and store anniversary and
holiday promotions, and other similar fees.
1.19
“Undisclosed
Liabilities” means any existing or contingent liabilities of the Company
not specifically disclosed to the Acquirer in writing as of the Closing Date,
including, but not limited to, any actual, contingent, mature, immature,
contractual or tort-based liabilities, liabilities arising out of prior civil
litigation or arbitration decisions, and any administrative penalties,
recoveries, forfeitures or criminal penalties and liabilities.
3
1.20 For
the purpose of this Agreement, the terms “above,” “more than,” “up to,” and “reach,” mean greater than or
equal to the applicable threshold number.
1.21
Unless specifically noted or otherwise stated, words or terms used in this
Agreement but not defined herein shall have the meanings specified in the
Acquisition Framework Agreement.
ARTICLE
2 All references to
provisions, annexes and schedules are references to the provisions, annexes and
schedules of this Agreement.
ARTICLE
3 The titles in this
Agreement are provided for the purpose of facilitating the understanding of this
Agreement only and do not affect the content or interpretation of any provisions
hereof.
CHAPTER
II BUSINESS OBJECTIVES
ARTICLE
4 The Controlling Party
hereby guarantees that the Company will achieve the following Operating Profit
Index during the Operating Profit Index Lockup Period:
4.1 The Annualized Net Profits
shall be RMB 62,000,000 (the calculation formula is set forth in Article 1.6);
and
4.2 The Net Profits of the
Company for the Second Audited Year shall be RMB 74,400,000.
ARTICLE
5 The Acquirer shall conduct
internal audits of the Company before June 30, 2009 upon the request of the
Controlling Party. The internal audits shall be completed within 30
days after the Controlling Party submits such request. If the audit
shows that the Annualized Net Profits are reasonably expected to be higher than
RMB 62,000,000, the Controlling Party may request, and the Acquirer shall agree,
to increase the Annualized Net Profit index for the relevant year (i.e., the
First Audited Year). No later than three (3) business days after the
Parties agree in writing to increase the Annualized Net Profit index, the
Acquirer shall pay the following increased amount of the Acquisition
Consideration in a lump sum:
Increased
amount = A × 10×51%
× C – B, where:
A =
Annualized Net Profits index for the year after such increase;
B =
Acquisition Consideration paid by the Acquirer as of such date; and
C=
Percentage of total payment as calculated on the basis of the first, second and
third installments specified in Article 8 and Article 11 of the Acquisition
Framework Agreement.
The
remaining proportion of the increased amount of Acquisition Consideration shall
be paid in full according to the applicable provisions of this Agreement and the
Acquisition Framework Agreement after the issuance of each audit
report.
If the
Operating Profit Index for the First Audited Year is increased according to this
Article 5, the Operating Profit Index of the Company for the Second Audited Year
shall also be increased by 20%
accordingly, as set forth in the following calculation:
4
Operating
Profit Index for the Second Audited Year = Annualized Net Profits index for the
First Audited Year after such increase × 120%.
Any
reduction in the amount of the Acquisition Consideration to be paid, any
increased percentage of equity transferred by the Controlling Party, or the
Performance Payment to be paid to the Controlling Party, each as specified in
this Agreement and the Acquisition Framework Agreement, shall be calculated
based on the increased Operating Profit Index.
ARTICLE
6 If the Company fails to
achieve the Operating Profit Index for any Audited Year, the Acquirer may reduce
the amount of the Acquisition Consideration to be paid or increase the
percentage of equity to be transferred by the Controlling Party to
the Acquirer pursuant to the following provisions:
(1)
Reduced Acquisition Consideration: the Acquirer shall have the right to reduce
the total Acquisition Consideration to be paid pursuant to this Article 6 and
Article 15 of the Acquisition Framework Agreement. The formula for reducing the
Acquisition Consideration is as follows:
Reduced
Acquisition Consideration = MAX (A1, A2) × 10
× 51%, where:
A =
Difference between actual Net Profits and Operating Profit Index for the
applicable Audited Year = B-C; A1 = First Audited Year; A2 = Second Audited
Year;
B =
Operating Profit Index of the Company for the applicable Audited Year within the
Operating Profit Index Lockup Period; and
C =
Actual Net Profits of the Company for the applicable Audited Year within the
Operating Profit Index Lockup Period.
(2)
Increased Transferred Equity: the Controlling Party agrees, based on the amount
by which the Acquisition Consideration is reduced, to transfer part or all of
the Controlling Party’s Equity, in addition to the Acquirer’s Equity, to the
Acquirer. The formula for increasing the percentage of equity to be transferred
by the Controlling Party to the Acquirer is as follows:
Additional
Equity to Be Transferred (%) = MAX (A1, A2) × 51% / C, where:
A =
Difference between the actual Net Profits and Operating Profit Index for the
applicable Audited Year = B-C; A1 = First Audited Year; A2 = Second Audited
Year;
B =
Operating Profit Index of the Company for the applicable Audited Year within the
Operating Profit Index Lockup Period; and
C =
Actual Net Profits of the Company for the applicable Audited Year within the
Operating Profit Index Lockup Period.
5
Such
adjustments shall be calculated once a year. If the amount by which
the Company fails to achieve the Operating Profit Index for the First Audited
Year is higher than the amount by which the Company fails to achieve it for the
Second Audited Year, the Acquisition Consideration will not be reduced for the
Second Audited Year. If the amount by which the Company fails to
achieve the Operating Profit Index for the First Audited Year is lower than the
amount by which the Company fails to achieve it in the Second Audited Year, the
higher amount will be used to calculate the adjustment for the Second Audited
Year and the difference will be included in the reduced Acquisition
Consideration or the increased equity to be transferred.
The
Acquirer agrees that the Controlling Party may, in its sole discretion, choose
either to reduce the amount of the Acquisition Consideration or to increase the
percentage of equity interests transferred.
If the
Net Profits of the Company for any Audited Year within the Operating
Profit Index Lockup Period fail to reach the Operating Profit Index as
guaranteed by the Controlling Party, the Acquisition Consideration payable by
the Acquirer shall be adjusted accordingly and the Controlling Party shall not
be subjected to any liability.
ARTICLE
7 In order to determine
the actual Net Profits of the Company for the applicable Audited Year, the
auditor shall deliver the audit report no later than 75 days after the
expiration of the most recent audit period (December 31 to March
31). No later than five (5) days after the audit report is delivered,
the Parties shall agree in writing to a reduction in the amount of the
Acquisition Consideration or an increase in the percentage of equity to be
transferred.
ARTICLE
8 No later than five (5)
days after the audit report is delivered, the Controlling Party shall notify the
Acquirer in writing whether the Controlling Party chooses to reduce the amount
of the Acquisition Consideration or to increase the percentage of equity
interests transferred. If the Controlling Party fails to provide such
notice, the Controlling Party shall be deemed to have chosen to reduce the
amount of the Acquisition Consideration payable. No later than 10
days after the audit report is delivered, the Controlling Party agrees to
unconditionally and irrevocably refund to the Acquirer any amount of Acquisition
Consideration the Parties determine the Acquirer has overpaid as a result of the
Company failing to achieve the Operating Profit Index for the applicable Audited
Year.
ARTICLE
9 If, by written notice to
the Acquirer, the Controlling Party chooses to increase the percentage of equity
interests to be transferred, the Controlling Party shall perform all necessary
actions and execute all necessary documents to transfer such additional equity
interests no later than five (5) days after delivery of such notice, and shall
cooperate with the Acquirer to complete the amended registration for such equity
transfer with the applicable administration for industry and
commerce.
6
ARTICLE
10 At any time or after the date an audit
report is delivered (but no later than April 30, 2011), if the Company is found
to be subject to any Undisclosed Liabilities; any forms of infringement,
illegality or other unauthorized actions; or any unpaid taxes, social insurance
premiums, social benefit funds, social welfare fees or fines required by any
judicial or administrative orders, judgments or awards, the costs of any such
obligations and/or liabilities (supported by reasonable evidence) shall be the
sole responsibility of the Controlling Party. If the
Controlling Party fails to pay such amounts in full within 10 days after such
amounts are confirmed, any amounts that remain unpaid shall be deducted from the
Net Profits of the Company for the applicable Audited Year according to
applicable accounting standards. After such unpaid amounts are
deducted, if the actual Net Profits of the Company for any Audited Year within
the Operating Profit Index Lockup Period fail to reach the applicable Operating
Profit Index, the Acquirer, in accordance with the provisions of Article 6 of
this Agreement, shall have the right to choose, in its sole discretion, to
either reduce the amount of the Acquisition Consideration payable or increase
the percentage of equity interests to be transferred by the Controlling
Party. If the Acquirer chooses to reduce the Acquisition
Consideration payable, the Controlling Party shall, within 10 days after receipt
of written notice from the Acquirer of such election, unconditionally and
irrevocably return to the Acquirer any excess amounts of Acquisition
Consideration already received by the Controlling Party.
ARTICLE
11 The Company shall strictly comply with
all applicable tax laws and regulations; pay taxes; and utilize any applicable
tax reductions, exemptions or benefits according to applicable laws and
regulations. The Company shall not engage in any actions or omissions
that may violate any applicable tax laws and regulations or that would affect
the lawful operation of the Company. The calculation and confirmation
of the Net Profits of the Company and the Operating Profit Index shall comply
with all applicable tax laws and regulations, all applicable financial and
accounting laws and regulations, and all applicable accounting
standards.
CHAPTER
III PERFORMANCE INCENTIVES
ARTICLE
12 If the aggregate Net Profits of the
Company are more than the Operating Profit Index during the Operating Profit
Index Lockup Period, the Acquirer agrees to pay the following Performance Reward
to the Controlling Party with its own capital:
Performance
Reward = [(B1 + B2) - (A1 + A2) ] / 2 × 10
× 51%, where:
A= Operating
Profit Index of the Company for the applicable Audited Year within the Operating
Profit Index Lockup Period; A1 = First Audited Year; A2 = Second Audited Year;
and
B= Actual
Net Profits of the Company for the applicable Audited Year within the
Operating Profit Index Lockup Period; B1 = First Audited Year; B2 = Second
Audited Year.
As long
as [(B1 + B2) - (A1 + A2)] is a positive number,
the Parties agree (i) that the Acquirer will pay the Performance Reward to
the Controlling Party pursuant to the provisions of this Article 12 and will not
reduce the amount of the Acquisition Consideration payable or increase the
percentage of equity to be transferred by the Controlling Party in accordance
with the provisions of Article 6 of this Agreement, and (ii) that, if
applicable, the Acquirer shall refund any reduced amount of the Acquisition
Consideration or return any increased percentage of equity already
transferred.
ARTICLE
13 Within the Operating Profit Index Lockup
Period, the Acquirer shall pay the Performance Reward to the Controlling Party
in a lump sum no later than 10 days after delivery of the audit report for the
Second Audited Year. The Performance Reward shall be paid in cash or any other
form agreed to by the Parties.
ARTICLE
14 The Net Profits of any new retail store
established or acquired by the Company, by using the Company’s own capital or
money borrowed by the Company, for business development purposes and with board
approval during the Operating Profit Index Lockup Period shall be consolidated
with the operating results of the Company to calculate the Net Profits of the
Company for purposes of determining the Performance Reward to be paid to the
Controlling Party. If a loan from, or security guarantee by, the
Acquirer is required to fund a new retail store, the Parties mutually agree to
separately negotiate any such agreement to secure a satisfactory benefit for the
Acquirer.
7
If the
Company acquires a retail store to develop its business, the Controlling Party,
and not the Company, shall bear any Acquisition Premium Amount (as defined
below), even if such acquisition is approved by a resolution of the board of
directors.
“Acquisition
Premium Amount” means (i) the amount of the acquisition consideration paid for
the retail store, minus the sum of (ii) all inventory, fixed assets and cash,
all prepaid rent and security deposits for business operation and any other
reasonable expenses and/or amounts incurred by the acquired retails
store.
ARTICLE
15 At any time or after the date an audit
report is delivered (but no later than April 30, 2011), if the Company is found
to be subject to any Undisclosed Liabilities; any forms of infringement,
illegality or other unauthorized actions; or any unpaid taxes, social insurance
premiums, social benefit funds, social welfare fees or fines required by any
judicial or administrative orders, judgments or awards, the costs of any such
obligations and/or liabilities (supported by reasonable evidence) shall be the
sole responsibility of the Controlling Party. If the
Controlling Party fails to pay such amounts in full within 10 days after such
amounts are confirmed, any amounts that remain unpaid shall be deducted from the
Net Profits of the Company for the applicable Audited Year according to
applicable accounting standards. After such unpaid amounts are
deducted, if the total amount of the actual Net Profits of the Company for the
two Audited Years within the Operating Profit Index Lockup Period fail to reach
the applicable total Operating Profit Index and if the Controlling Party has
already received the Performance Reward from the Acquirer, the Controlling Party
shall, no later than 10 days after the Acquirer delivers written notice
requesting the return of the Performance Reward, return such Performance Reward
to the Acquirer.
The
Parties agree that the “performance incentives” and/or “Performance Reward”
referred to in this Chapter III are to be used to facilitate this Agreement, but
that the nature of such “performance incentives” and “Performance Reward” shall
be as a supplemental amount of the Acquisition Consideration for the 51% equity
interests in the Company.
CHAPTER
IV RESTRICTIONS ON EQUITY
ARTICLE
16 Assignment, Pledge and Other
Transfers of the Equity Interests of the Company:
16.1
During the Operating Profit Index Lockup Period, the Controlling Party shall not
dispose of or in any way encumber its equity interests in the Company, including
by, but not limited to, subjecting its equity interests to any assignment (other
than to the Acquirer) or pledge (other than to the Acquirer or a third party
agreed to by the Acquirer), mortgage, option right, acquisition right,
preemptive right, custody, trust, lien or any other encumbrance in any other
form;
8
16.2 The
Controlling Party agrees that the Acquirer may transfer all or any portion of
the Acquirer’s Equity to any entity or person (including any of its Affiliates)
at a price determined by the Acquirer. If the Acquirer exercises such
right, the Controlling Party agrees to unconditionally waive any right of first
refusal it may have as a shareholder of the Company. The Acquirer
covenants that, if it transfers any portion of the Acquirer’s Equity, the
Acquirer shall disclose such transfer(s) to the Controlling Party and shall
fully disclose this Agreement and the Acquisition Framework Agreement to the
transferee(s) and induce such transferee(s) to: (1) agree to and confirm the
obligations of the Acquirer under this Agreement and the Acquisition Framework
Agreement and (2) agree to, after becoming a shareholder of the Company, comply
with all provisions of this Agreement and the Acquisition Framework Agreement
relating to the structure of the Company and the authority of the board of
directors and the general manager of the Company. If the
transferee(s) does not agree to comply with such provisions, the Acquirer shall
not enter into such transfer(s) and the Controlling Party shall retain its right
of first refusal with respect to such equity interests. The Acquirer
further covenants that even after the occurrence of a transfer referred to
above, the Acquirer shall not attempt to recover any amount of the Acquisition
Consideration previously paid by it to the Controlling Party and shall pay the
outstanding Acquisition Consideration to the Controller in accordance with the
provisions of the Acquisition Framework Agreement.
16.3 If
there is any change in the percentage of equity interests in the Company held by
the Parties, the Parties shall, as soon as possible upon the request of the
Acquirer, negotiate in good faith to adjust and amend the applicable provisions
of this Agreement regarding the appointment of the directors and the chairman
and the nomination of senior officers.
ARTICLE
17 Additional Provisions Regarding the
Controlling Party’s Equity:
17.1
During the Operating Profit Index Lockup Period, the Controlling Party shall
pledge the Controlling Party’s Equity to the Acquirer as security for the
Controlling Party’s guarantee to achieve the Operating Profit Index and perform
its obligations under this Agreement and the Acquisition Framework
Agreement;
17.2 The
Controlling Party agrees that it shall cause the pledge of the Controlling
Party’s Equity to be documented on the Company’s shareholder register within
three (3) business days after the Closing Date, and shall cause such pledge to
be registered with the applicable administration for industry and commerce
within 10 business days after the application for registration is accepted by
such authority;
17.3 If
(1) the Company fails to achieve the Operating Profit Index for any Audited Year
and the Controlling Party refuses to reduce the Acquisition Consideration or
increase the percentage of equity to be transferred by the Controlling Party or
(2) the Controlling Party violates any provisions of this Agreement or the
Acquisition Framework Agreement, the Acquirer may enforce the pledge of the
Controlling Party’s Equity at any time by providing written notice to the
Controlling Party.
ARTICLE
18 Increase or Decrease in the
Registered Capital: any increase or decrease in the Registered Capital shall be
subject to the unanimous consent of the shareholders of the
Company. Any such change in the Registered Capital shall be
registered with the applicable governmental authority. The Parties
agree that, when the Registered Capital increases, the Acquirer shall have the
right, but not the obligation, to contribute to the increased Registered Capital
under the same terms and in proportion to the percentage of equity the Acquirer
owns in the Company. At the request of the Acquirer, the Controlling
Party shall contribute to the increased Registered Capital in proportion to the
percentage of equity the Controlling Party owns in the Company.
ARTICLE
19 If the Company, the Acquirer or an
Affiliate, the financial statements of which are consolidated with those of the
Company, is successfully publicly listed on any stock exchange in the PRC or
abroad (“Publicly
Listed”), the Controlling Party may exercise a put right to require the
Acquirer to purchase at least 29% of the equity interests in the Company from
the total of 49% equity interests in the Company held by the Controlling
Party. The Acquirer shall be obligated to purchase the equity
interests if the Controlling Party invokes its put right and shall pay the
Controlling Party an amount of consideration for such equity interests
calculated according to the following formula:
9
Consideration
for the equity transfer = A × MIN (10,
B) × percentage (%) of the equity interests that the Controlling Party plans to
transfer, where:
A =
Actual Net Profits of the Company for the one year prior to the equity
transfer;
B = The
fair multiple value unanimously agreed to by the Acquirer and the Controlling
Party; and
B ≥ 10;
MIN (10,
B) means no less than 10
times.
If the
Company, the Acquirer or an Affiliate, the financial statements of which are
consolidated with those of the Company, is successfully Publicly Listed, the
Acquirer may exercise a call right to require the Controlling Party to sell at
least 29% of the equity interests in the Company from the total of 49% equity
interests in the Company held by the Controlling Party. The
Controlling Party shall be obligated to sell the equity interests if the
Acquirer invokes its call right, and the Acquirer shall pay the Controlling
Party an amount of consideration for such equity interests calculated according
to the following formula:
Consideration
for the equity transfer = A × MIN (15, B) ×
percentage (%) of the equity interests that the Acquirer plans to acquire,
where:
A =
Actual Net Profits of the Company for the one year prior to the equity
transfer;
B = The
fair multiple value unanimously agreed to by the Acquirer and the Controlling
Party; and
B ≥ 15; MIN (15,
B) means no less than 15
times.
Upon the
exercise of either the put or call rights as set forth in the preceding
paragraphs, the Controlling Party shall have the right to request that the
Acquirer pay the consideration for an equity transfer either in cash in RMB or
in shares of the Publicly Listed company.
When the
Net Profits of the Company for an Audited Year within the Operating Profit Index
Lockup Period reach the corresponding Operating Profit Index, the Acquirer shall
acquire the equity interests in accordance with the provisions of this Article
19. If the Company, the Acquirer or an Affiliate, the financial
statements of which are consolidated with those of the Company, is Publicly
Listed by December 31, 2009, the Acquirer shall acquire an increased percentage
of equity interests in the Company after and in accordance with an audit report
showing that the Annualized Net Profits of the Company have reached the
Operating Profit Index. The equity acquisition under this Article 19 does not
relieve the Controlling Party of its obligation to achieve the Operating Profit
Index for the remaining years within the Operating Profit Index Lockup
Period.
ARTICLE
20 After the Operating Profit Index Lockup
Period, if the Parties materially disagree upon the operation and/or management
of the Company or if the failure of either Party to cooperate results in any
deadlock, thus materially and adversely affecting the ordinary operation and
management of the Company, the Acquirer shall be required to purchase all of the
Controlling Party’s Equity. The amount of consideration for such
equity interests shall be calculated according to the following
formula:
10
Consideration
for the equity transfer = A × B × percentage (%) of the Controlling
Party’s Equity, where:
A =
Actual Net Profits of the Company for the one year prior to the equity
transfer;
B = The
fair multiple value unanimously agreed to by the Acquirer and the Controlling
Party; and
10 ≤
B ≤ 15.
Within
180 days after the execution of an agreement providing for the transfer of the
Controlling Party’s Equity as described in this Article 20, if the Company, the
Acquirer or an Affiliate, the financial statements of which are consolidated
with those of the Company, is successfully Publicly Listed, the Acquirer shall
pay the following additional consideration in a lump sum to the Controlling
Party within 30 days of such public listing:
Additional
consideration for equity transfer = A × 15
– consideration for the equity transfer that has already been paid,
where:
A =
Actual Net Profits of the Company for the one year prior to the equity
transfer.
The
additional consideration shall be paid in cash or in another form agreed to by
the Parties.
ARTICLE
21 If the Net Profits of the Company for any
Audited Year within the Operating Profit Index Lockup Period are less than RMB
15,000,000,
the Acquirer shall have the right to make changes to the governance and
organizational structure of the Company including, but not limited to, amending
the power of the Parties to nominate and appoint directors, the chairman, the
general manager and/or other senior officers. Unless consented to in
writing by the Acquirer, such changes would not relieve the Controlling Party of
its obligation to achieve the Operating Profit Index for the remaining years
within the Operating Profit Index Lockup
Period.
CHAPTER
V ORGANIZATIONAL STRUCTURE, GOVERNANCE AND OPERATION OF THE
COMPANY
WITHIN THE OPERATING
PROFIT INDEX LOCKUP PERIOD
ARTICLE
22 The following actions shall require the
unanimous consent of all of the shareholders of the Company:
22.1
Material changes to the business scope or business type of the
Company;
22.2
Deciding the Company’s operating policies or investment plan;
22.3
Amending the Company’s articles of association;
22.4
Changing the Company’s capital structure including, but not limited to, by way
of merger, split, reorganization or a change in the Registered
Capital;
22.5
Determining the Company's annual budget and the final accounts;
22.6
Deciding the distribution plan for the Company’s profits and
losses;
22.7
Deciding any actions relating to the termination, liquidation, dissolution,
winding-up or changes in the corporate form of the Company; and
11
22.8
Deciding any action that (1) will have a material effect on the rights,
obligations or liabilities of the shareholders, (2) will dilute the ownership
interests of the shareholders or (3) reduce the value of the Company’s
equity.
ARTICLE
23 The Company shall establish a board of
directors. The number of directors of the Company initially shall be
seven (7); the Acquirer shall be entitled to designate four (4) directors and
the Controlling Party shall be entitled to designate three (3)
directors.
ARTICLE
24 The board of directors shall have one
chairman who shall serve as the legal representative of the
Company. During the Operating Profit Index Lockup Period, the
chairman of the Company shall be the Controlling Party.
ARTICLE
25 The following actions shall require
the consent of at least two-thirds (2/3) of the directors of the
Company:
25.1
Entering into any acquisitions or mergers with an aggregate consideration over a
consecutive 12-month period of more than RMB 500,000;
25.2
Making employment decisions for any employee or consultant whose annual
compensation is more than RMB 500,000 and whose employment would terminate after
March 31, 2011;
25.3
Applying for loans from banks or in any other form for more than RMB
20,000,000;
25.4
Loaning or advancing more than RMB 5,000,000 to any third party, other than
loans or advances made in the ordinary course of business;
25.5
Providing a guarantee, agreeing to a settlement, performing obligations for the
benefit of any third party or exempting any payment obligation of any third
party for an aggregate amount of more than RMB 500,000 over a consecutive
12-month period;
25.6
Filing an action or agreeing to a settlement for amounts of more than RMB
1,000,000; and
25.7
Approving the sale, license or lease of assets not previously approved in the
Company’s business plan with an aggregate amount of more than RMB 500,000 over a
consecutive 12-month period.
All other
actions shall require the consent of a majority of the directors. The
shareholders and the board of directors shall authorize the chairman to exercise
certain powers necessary for the management of the business and operations of
the Company.
ARTICLE
26 Regular meetings of the board of
directors shall be held at least once every year. A special meeting
of the board may be called by either the chairman or by two (2) or more
directors appointed by either of the Parties. The board of directors
shall hold meetings, both regular and special, at a place determined by the
board of directors. At all meetings of the board of directors, a
majority of the directors (or their proxies appointed by written proxy letter)
shall constitute a quorum for the meeting.
ARTICLE
27 Written notice shall be sent to all
directors at least five (5) days before any meeting of the board of
directors. The notice shall state the agenda, time and place of the
meeting. This notice period may be waived with the unanimous consent
of all directors.
ARTICLE
28 All meetings of the board of directors
shall be convened and presided over by the chairman. If the chairman
cannot convene and preside over the meeting, the chairman shall appoint another
director to convene and preside over the meeting. If the chairman
fails to appoint another director, a director shall be appointed by the
affirmative vote of a majority of the directors.
12
ARTICLE
29 Provided that the rights of directors to
voice their opinions are fully protected, special meetings of the board of
directors may be held and any action required or permitted to be taken at any
meeting of the board of directors may be taken by conference call, video
conference, facsimile, or similar communications equipment by which all persons
participating can communicate with each other. Any action taken shall
be consented to in writing by all directors attending the meeting.
ARTICLE
30 The Parties shall encourage their
appointed directors to attend all meetings of the board of directors of the
Company. If, for any reason, a director is unable to attend a
meeting, such director may, by written proxy letter, appoint a proxy to attend
the meeting in their place and to vote at such meeting. Such proxy
letter must be submitted to the director convening the meeting before the date
of such meeting.
ARTICLE
31 Resolutions of the board of directors
shall be recorded in writing and shall be signed by all directors in attendance
or by their appointed proxies. All resolutions shall be kept by a
person appointed for such purpose by the chairman. For as long as the
Company is in existence, the record of the proceedings of the board of directors
shall not be altered or destroyed.
ARTICLE
32 Only directors who also hold
management positions with the Company shall be entitled to receive compensation
from the Company.
ARTICLE
33 All costs and expenses incurred in
connection with the meetings of the board of directors shall be paid by the
Company.
ARTICLE
34 The Company shall have one general
manager. The general manager will be nominated by the Controlling Party and
appointed by the board of directors within the Operating Profit Index Lockup
Period. The general manager shall be responsible for the Company’s
routine governance and operation, and shall perform such duties and have such
authority as may be specified by the board of directors. The general
manager is responsible for ensuring that all resolutions of the board of
directors are carried into effect and performing such other duties, if any, as
may be specified by the board of directors from time to time.
The
general manager shall have overall responsibility for:
(1)
The management of the business and operations of the Company, the implementation
of all resolutions of the board of directors, and providing reports to
the board of directors;
(2)
The organization and implementation of the business plan and investment programs
of the Company;
(3)
The preparation of plans establishing the Company’s internal management
procedures;
(4)
The preparation of the Company’s management systems;
(5)
The formulation of the Company’s rules of operation; and
(6)
The performance of other management and operations of the Company in the
ordinary course of business.
ARTICLE
35 The Parties agree that, within 10 days
after the Acquirer legally holds the Acquirer’s Equity, the shareholders and the
board of directors of the Company shall pass a resolution authorizing the
following:
13
Within
the Operating Profit Index Lockup Period, provided that the Company is in good
standing and the shareholders and the board of directors of the Company have so
authorized, the general manager shall have overall responsibility for the
routine management of the business and operations of the Company including, but
not limited to:
(1)
entering into, and signing on behalf of the Company, purchases and sales
contracts, agreements and other documents in the ordinary course of
business;
(2)
arranging for purchases, sales, after-sale services, advertisements, promotions
and publicity and marketing campaigns;
(3)
arranging for and allocating funds in the ordinary course of
business;
(4)
allocating and disposing of assets in the ordinary course of
business;
(5)
making appropriate employment decisions in the ordinary course of
business;
(6)
deciding compensation packages for employees of the Company;
(7)
formulating and implementing bonus and incentive plans;
(8)
disposing of damaged assets and/or bad and doubtful accounts in the ordinary
course of business; and
(9)
performing other routine operational and management
responsibilities.
ARTICLE
36 The department head or other management
of the Company shall be elected or removed by the general
manager. The board of directors shall be informed of all such
officers’ elections within three (3) days.
ARTICLE
37 The Acquirer will appoint one financial
officer for the Company who shall be responsible for preparing the Company’s
consolidated financial statements in accordance with the Acquirer’s
requirements.
ARTICLE
38 The articles of association of the
Company shall reflect the relevant provisions of this Chapter V regarding the
Company’s organizational structure, management and operation.
ARTICLE
39 During the Operating Profit Index Lockup
Period, the Acquirer may request that the Parties amend the organizational
structure and the power of the board of directors, chairman and general manager
as stipulated by this Agreement. Upon such a request for amendment,
the Operating Profit Index Lockup Period shall automatically terminate and the
Controlling Party shall no longer be required to achieve the Operating Profit
Indexes for the remaining years of the Operating Profit Index Lockup Period;
provided, however, that
an amendment made to the organizational structure of the Company pursuant to
Article 21 shall not exempt the Controlling Party from its obligation to achieve
the Operating Profit Indexes for the remaining years of the Operating Profit
Index Lockup Period. Notwithstanding the termination of the Operating Profit
Index Lockup Period pursuant to this Article 39, the Acquirer will not be
relieved of its obligation to pay the Acquisition Consideration to the
Controlling Party;.
ARTICLE
40 The Parties agree that if the
implementation of any provision of this Chapter V results in an adverse effect
on (1) the Company, (2) the Acquirer or (3) an Affiliate, the financial
statements of which are consolidated with those of the Company, in an effort to
become Publicly Listed on any stock exchange in the PRC or abroad (such adverse
effect shall include, but not be limited to, the situation where the entity
planning to be Publicly Listed fails to consolidate its financial statements
with the financial statements of the Company), then the Parties shall cause the
Company to reasonably amend the applicable provisions of this Chapter V in order
to avoid any such adverse effect; provided that such amendments
do not materially adversely affect the interests of the other
party.
14
CHAPTER VI
ORGANIZATIONAL STRUCTURE, GOVERNANCE AND OPERATION OF THE
COMPANY
AFTER EXPIRATION OF THE OPERATING PROFIT INDEX LOCKUP PERIOD
ARTICLE
41 Any actions taken to amend the
Company’s articles of
association, increase or reduce the Registered Capital, merge, split or dissolve
the Company or change the Company’s legal form shall require the consent of at
least two thirds (2/3) of the shareholders of the Company.
All other
actions that shall require the consent of a majority of the shareholders of the
Company in accordance with applicable laws include, but are not limited
to:
(1)
deciding the Company’s operating policies and investment plan;
(2)
deciding director and supervisor compensation packages;
(3)
approving reports submitted by the board of directors;
(4)
approving reports submitted by the board of supervisors or the
supervisor;
(5)
approving the Company’s annual financial budget and final accounts;
(6)
approving the Company’s profit and loss distribution plan; and
(7)
approving the issuance of Company debt.
ARTICLE
42 The Company shall establish a board of
directors. The number of directors of the Company initially shall be
seven (7). Each shareholder representing at least 14.3% of the equity
interests of the Company eligible to vote may appoint one director for every
block of 14.3% of the eligible equity owned by such shareholder.
ARTICLE
43 The actions listed in Article 25
and the following actions shall require the consent of at least two thirds (2/3)
of the board of directors:
(1)
deciding the Company’s operating policies and investment plan;
(2)
preparing the Company’s annual financial budget and final accounts;
(3)
preparing the Company’s profit and loss distribution plan;
(4)
preparing plans for the Company regarding increasing or reducing the Registered
Capital or issuing corporate bonds;
15
(5)
preparing plans regarding any merger, split or dissolution of the Company, or
changing the Company’s legal form;
(6)
approving the establishment of the Company’s internal management organization;
and
(7)
formulating the Company’s governance and management system.
All other
actions shall require the consent of a majority of the board of directors of the
Company.
ARTICLE
44 The Company shall have one (1) general
manager who shall be nominated by the Acquirer and elected by the board of
directors with the consent of at least two thirds (2/3) of the
directors. If, after two consecutive votes, such candidate fails to
receive the consent of two thirds of the board of directors, the Acquirer may
nominate a separate candidate who shall be elected with the consent of a
majority of the board of directors. The general manager is responsible for the
governance and operation of the Company and exercises all power and authority
granted to the general manager pursuant to Articles 34 and 35.
ARTICLE
45 The Chief Financial Officer of the
Company shall be nominated by the general manager and elected by the board of
directors with the consent of a majority of the directors.
ARTICLE
46 After the expiration of the Operating
Profit Index Lockup Period, the Parties agree to amend the applicable provisions
of the Company’s articles of association to reflect the intent of the Parties
pursuant to the provisions contained in this Chapter VI and all applicable laws
and regulations.
CHAPTER
VII FINANCIAL MANAGEMENT
ARTICLE
47 The Company will furnish to the
board of directors the Financial Report including the balance sheet and
statement of profit and loss pursuant to the following
requirements:
47.1 The
Financial Report for each calendar month shall be submitted to the board of
directors on or before the 15th day of
the following month;
47.2 The
Financial Report for each calendar year shall be submitted to the board of
directors on or before March 31 of the following year; and
47.3 The
audit report for each fiscal year (April 1 through and including March 31),
prepared by an auditor agreed to by the Parties, shall be furnished to the board
of directors on or before June 30 of the following year.
ARTICLE
48 The Company shall develop and implement
an internal auditing system and the Acquirer may appoint its own employee or
third party supervisors to conduct internal audits on the Company’s financial
statements and business operations.
ARTICLE
49 The Parties agree that the Company
will pay annual dividends in an amount equal to 80% of the Company’s after-tax
Net Profits to shareholders, pro rata in proportion to the equity interests they
hold in the Company; provided,
however, that, should the operation of the Company so require, the
Parties may reduce or terminate any dividend distribution.
The
Parties agree that if any change is made to the Company’s equity structure in
accordance with this Agreement and the Acquisition Framework Agreement, either
Party shall have the right to request, and the non-requesting Party shall agree,
that the Company distribute all of the Company’s undistributed after-tax Net
Profits to the shareholders of the Company.
16
This Article 49 shall be applicable
both during and after the Operating Profit Index Lockup Period.
CHAPTER
VIII REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
ARTICLE
50 The Parties represent and warrant
that:
50.1
Before entering into this Agreement, both Parties have had the opportunity to
review this Agreement. Both Parties fully and clearly understand all
of the terms and conditions of this Agreement, the legal effect such terms and
conditions will have on their rights and interests, agree to and accept the
binding force of such terms and conditions and guarantee that all of their
successors and assignees will be unconditionally bound by such terms and
conditions;
50.2 Both
Parties are entities and/or persons with full capacity of civil action under the
General Rules of the Civil Law of the PRC, are duly authorized to enter into
this Agreement in their own names, have the power and authority to perform this
Agreement and accept all of the rights and interests and bear the obligations
and liabilities provided for in this Agreement. Upon the execution of
this Agreement, all terms and conditions hereof shall constitute legal, valid
and binding obligations of the Parties, as applicable;
50.3 Each
of the Parties is entering into this Agreement under its volition and after
careful consideration and independent review. There is no
misunderstanding or misinterpretation concerning the terms and conditions
contained herein, neither Party has taken advantage of or mislead the other
Party, and there has been no fraud, duress or violation of the principles of
fairness and honesty;
50.4 The
execution of and the performance of the obligations under this Agreement and the
other documents relating hereto will not:
50.4.1
Violate any agreement, license or other instrument, grant any third party the
right to terminate or amend any agreement, license or other instrument, or
violate any judgment orders issued by any court or government
agency;
50.4.2
Violate any law, regulation or rule of the PRC or violate any contractual
obligation between the Parties or between each of the Parties and any third
party; or
50.4.3
Require the consent of any third party that has not already been
obtained;
The
Controlling Party further represents and warrants that:
50.5
Unless otherwise specified herein or in the Acquisition Framework Agreement, the
Controlling Party does not have or control, and on the Closing Date will not
have or control, any right or interest in any company, partnership, trust, firm,
organization or other entity (whether domestic or foreign) that is in direct
competition with the Company. Further, unless otherwise
specified herein or in the Acquisition Framework Agreement, the Controlling
Party is not involved in the ownership, management or operation of any such
entity, or serve as a director, senior officer, partner, lender, investor or
other representative of such entity.
17
50.6 All
information relating to the Controlling Party contained in this Agreement and
all information provided by the Controlling Party to the Acquirer or its
representative or consultant in the course of any due diligence investigation or
any other investigation by the Acquirer or its representative or consultant in
the course of, and before, the negotiation and execution of this Agreement are
true, complete and accurate in all respects, and contain no misleading
information.
ARTICLE
51 The Controlling Party covenants that,
during the Operating Profit Index Lockup Period, the Controlling Party will
continue to provide the following services and assume the following
obligations:
51.1 To
continue to provide the same or similar services to the Company, and not to be
employed on a part-time or full-time basis by any company or entity competing
with the Company, unless otherwise agreed to in this Agreement or in the
Acquisition Framework Agreement;
51.2 To
perform its duties in good faith. The Controlling Party will perform
its duties in the best interests of the Company, will not breach the agreements
among relevant parties, engage in any activities that constitute or may
constitute competition against the Company or deprive, impair or infringe upon
the rights of the Company and will not provide any convenience, fund or
assistance of any kind to any third party for any such
activities. The Controlling Party will not engage in any business
that has not previously been disclosed to the Company. If the
Company’s business objectives conflict with the objectives of the Controlling
Party, the Controlling Party shall give priority to the Company’s objectives.
The Controlling Party will not violate any mandatory, prohibitive or restrictive
provisions set forth in the Company Law of the PRC or the Company’s articles of
association in connection with the duties, ethics and code of conduct of
directors and senior officers;
51.3 Due
diligence. The Controlling Party will, proactively, prudently and diligently,
take such action from time to time as shall be required by its duty, and will
make best efforts to maintain the Company’s profitability and growth during the
Operating Profit Index Lockup Period;
51.4
Confidentiality. The Controlling Party shall strictly adhere to the
terms of this Agreement, the Company’s management policies and all other
obligations regarding the confidential treatment of trade secrets as provided by
applicable law;
512.5
Ethics. The Controlling Party shall not accept any bribe or kick-back, pursue
any illegal or improper action or in any way take advantage of its position in
relation to the Company for its own gain. The Controlling Party shall
abide by all employment decisions made by the Company’s shareholders or the
board of directors pursuant to the terms of this Agreement;
51.6 To
ensure the lawful existence of the Company’s business. During the
Operating Profit Index Lockup Period, the Controlling Party will cause the
Company to: (1) comply with all applicable laws and regulations,
including, but not limited to, applicable tax laws and regulations; (2) pay
taxes; (3) obtain any applicable tax reductions or exemptions; (4)
take advantage of any preferential tax treatment accorded to the Company by law;
and (5) not engage in any actions or omissions that will violate any applicable
tax laws or regulations or adversely affect the Company’s lawful
existence;
51.7
Non-competition. The Controlling Party and its Affiliates will not, directly or
indirectly, engage in any activities that constitute or may constitute
competition against the Company or deprive, impair or infringe or may deprive,
impair or infringe upon any of the Company’s business interests or business
opportunities, or obtain or gain interests from such activities. The
Controlling Party shall indemnify the Company and the Acquirer against all
losses and damages sustained as a result of the Controlling Party’s breach of
any such non-competition obligations. The Controlling Party also
covenants that if, without the prior written consent of the Acquirer, the
Controlling Party or its Affiliates engage in any of the Company’s businesses in
any form in any city where the Company has already established retail stores,
including, but not limited to, the mobile phone retail business, the Controlling
Party will pay liquidated damages in the amount of RMB 500,000 for each
store. Any form of competition engaged in by the Controlling Party’s
Affiliates will be deemed to be actions of the Controlling Party in breach of
the non-competition obligations specified herein, and the Controlling Party
shall be liable for any such breach. The Parties agree that the
non-competition regions for the Controlling Party are Jiangsu Province, Shandong
Province and Shanxi Province.
18
CHAPTER
IX TAXES
ARTICLE
52 Unless otherwise required by law, all tax
liabilities resulting from the performance of the transactions contemplated by
this Agreement shall be born by the applicable Party according to applicable
laws and regulations.
CHAPTER
X BREACH OF CONTRACT
ARTICLE
53 If either Party (i) fails to perform this
Agreement in whole or in part or (ii) breaches any covenants, representations or
warranties made hereunder, or if any covenants, representations or warranties
made hereunder by either Party prove to be invalid, untrue, inaccurate or
incomplete, such Party shall be deemed to be in breach of this
Agreement. Unless otherwise specified in this Agreement, the
breaching Party shall be liable to the non-breaching Party for all actual losses
and damages caused by such breach and shall compensate in full the Party to
which such covenants, representations or warranties are
made. Compensation for losses caused by such breach shall include,
but not be limited to, all actual losses and any litigation, arbitration,
assessment and notarization fees incurred by the non-breaching
Party. If both Parties breach this Agreement, each Party shall be
liable for the losses and damages caused by its own breach. This
provision shall not prevent either Party from exercising any other legal rights
or remedies, including the right to request specific performance pursuant to the
Contract Law of the PRC.
CHAPTER
XI CONFIDENTIALITY
ARTICLE
54 The Parties agree that each Party shall
keep confidential all trade secrets it obtains from the other Party during the
performance of this Agreement. The terms of this confidentiality
obligation shall remain effective until such trade secret is publicly disclosed
by its owner. Unless (i) required by any applicable laws, regulatory
rules or exchange listing requirements of the New York Stock Exchange, NASDAQ
National Market, Hong Kong Exchanges and Clearing Limited, London Stock
Exchange, Singapore Stock Exchange or any other stock exchange, or (ii)
disclosed by the Acquirer to its shareholders, controllers, investment
consultants, financial consultants, auditors or legal service institutions,
while using its best efforts to protect and to encourage such other persons to
protect the confidentiality of such information, without the prior written
consent of the other Party, neither Party may publish any media reports,
announcements, notices, circulars or other documents regarding the negotiation,
execution or terms and conditions of this Agreement or regarding any
transactions or arrangements hereunder or any issues relating
hereto.
CHAPTER
XII GOVERNING LAW AND SETTLEMENT OF DISPUTES
ARTICLE
55 This Agreement is governed, limited and
protected by the laws of the PRC. All interpretation, performance,
modification, termination, validity or dispute settlement of or relating to this
Agreement shall be subject to the laws of the PRC.
19
ARTICLE
56 Any disputes arising from the
consummation, interpretation, performance or validity of or relating
to this Agreement shall be settled through negotiation. If no
settlement can be reached through negotiation, either Party shall have the right
to submit such dispute to the China International Economic and Trade Arbitration
Commission (CIETAC) Shanghai Sub-Commission according to such commission’s then
applicable arbitration rules. The commission’s decision shall be
final and binding on both Parties.
CHAPTER
XIII EFFECTIVENESS AND AMENDMENT
ARTICLE
57 This Agreement shall become effective and
legally binding on both Parties upon its execution by the Parties or their
authorized representatives. Upon such execution, both Parties shall
strictly perform their obligations under this Agreement.
ARTICLE
58 If any provisions of this Agreement are
subsequently held to be invalid, illegal or unenforceable under applicable
Chinese law, the other provisions of this Agreement shall remain valid and
enforceable and shall be binding upon both Parties, provided that such invalid,
illegal or unenforceable provisions do not affect the overall performance and
material terms of this Agreement.
ARTICLE
59 Any amendments or supplements to
this Agreement shall become effective when executed by both Parties in written
form.
ARTICLE
60 Before the Closing Date, the Controlling
Party covenants to take all actions required for the closing to cause the
Company’s shareholders and board of directors to adopt new articles of
association of the Company or an amendment thereto, pursuant to the terms of
this Agreement. If the Acquirer proposes to amend any provisions of
this Agreement or the articles of association of the Company, the Controlling
Party shall use its best and reasonable efforts to enter into a new operation
and management agreement or a supplement agreement to this Agreement and to
cause the Company’s shareholders and board of directors to adopt new articles of
association or an amendment thereto.
Before
the Closing Date, the terms of this Agreement shall not be in effect and the
governance and organizational structure (including the composition of the
shareholders, board of directors and the general manager) of the Company will be
the sole responsibility of the Controlling Party.
CHAPTER
XIV MISCELLANEOUS
ARTICLE
61 This Agreement constitutes the entire
agreement of the Parties on all issues covered hereby and replaces all prior
intentions, understandings, agreements and other written records or oral
agreements between the Parties.
ARTICLE
62 To the extent permitted by Chinese law,
no failure or delay to exercise any rights, powers or privileges under this
Agreement by either Party shall be regarded as a waiver of such rights, powers
or privileges. Any and all rights, powers or privileges specified
herein are cumulative and do not prevent the exercise of any other rights,
powers or privileges, regardless of whether they are specified by applicable
laws. The partial or individual exercise of any such rights, powers
or privileges shall not bar the further exercise of any other such rights,
powers or privileges.
ARTICLE
63 This Agreement shall be binding on and
inure to the benefit of both Parties and their respective successors and
assigns. Without the prior written consent of the Acquirer, the
Controlling Party shall not assign all or part of its rights and obligations
hereunder to any third party. Unless otherwise stated herein or
in the Acquisition Framework Agreement, the Acquirer may assign all or part of
its rights and obligations hereunder to its Affiliates without the prior consent
of the Controlling Party by sending written notice to the Controlling
Party.
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ARTICLE
64 This Agreement shall be made and
executed in duplicate, one for each party hereto and all counterparts have the
same legal effect.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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Signature
page to Operation and Management Agreement.
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The
Acquirer: Beijing Feijie Investment Co., Ltd.
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Signature:
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/s/ Dongping Fei
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Authorized
Representative: Dongping Fei
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The
Controlling Party: Zhuqun Peng
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Signature:
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/s/ Zhuqun
Peng
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Identity
Card No.: 320626197005208816
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