SHARE EXCHANGE AGREEMENT AMONG CHINA 3C GROUP CAPITAL FUTURES DEVELOPMENTS, LTD. SHANGHAI JOY & HARMONY ELECTRONICS COMPANY LIMITED AND THE SHAREHOLDERS OF CAPITAL FUTURES DEVELOPMENTS, LIMITED, LISTED ON SCHEDULE 1 DATED AS OF NOVEMBER 28, 2006
EXHIBIT
10.1
AMONG
CAPITAL
FUTURES DEVELOPMENTS, LTD.
SHANGHAI
JOY & HARMONY ELECTRONICS COMPANY LIMITED
AND
THE
SHAREHOLDERS
OF
CAPITAL
FUTURES DEVELOPMENTS, LIMITED,
LISTED
ON SCHEDULE 1
DATED
AS OF
NOVEMBER
28, 2006
INDEX
OF SCHEDULES AND EXHIBITS
Exhibits:
A.
Certain Definitions
B.
Form
of Promissory Note
Schedules:
1.
Shareholders
of Capital Futures Development Limited and Shanghai Joy & Harmony
Electronics Company Limited
2.
CFDL
and
Shanghai Joy & Harmony Electronics Company Limited Disclosure Schedule
SHARE
EXCHAGE AGREEMENT
This
Share Exchange Agreement (the “Agreement”)
dated
as of November 28, 2006, is entered into by and among China 3C Group, a Nevada
corporation (“CHCG”),
Capital Future Developments Limited a BVI corporation (“CFDL”),
Shanghai Joy & Harmony Electronics Company Limited, a Shanghai corporation
in China (“Shanghai”), and the shareholders of Shanghai listed on Schedule 1 to
this Agreement (each, a “Shareholder”
and,
collectively, the “Shareholders”).
RECITALS
A.
The
Shareholders own the number of shares of capital stock in Shanghai (the
“Shares”)
set
forth opposite each Shareholder’s name on Schedule 1, which Shares collectively
constitute all of the issued and outstanding shares of capital stock in CFDL.
B.
CHCG
desires to purchase from the Shareholders, and the Shareholders desire to sell
to CHCG, the Shares in exchange for shares of CHCG Common Stock, all on the
terms and subject to the conditions set forth in this Agreement (the
“Exchange”).
C.
As a
result of the Exchange, Shanghai will merge with and into CFDL with Shanghai
being the surviving entity.
D.
Certain capitalized terms used in this Agreement are defined on Exhibit A.
AGREEMENT
In
consideration of the agreements, provisions and covenants set forth below,
CHCG,
CFDL, the Shareholders and Shanghai, hereby agree as follows:
ARTICLE
I.
EXCHANGE
OF SHARES
1.1
AGREEMENT.
Upon
the
terms and subject to all of the conditions contained herein, each of the
Shareholders hereby agrees to exchange the Shares as set forth herein, and
as a
result of such transactions for Shanghai to merge with and into CFDL, with
Shanghai surviving such merger and thus becoming a wholly owned subsidiary
of
CHCG.
1.2
PURCHASE
PRICE.
As
full
consideration for the sale, assignment, transfer and delivery of the Shares
by
the Shareholders to CFDL, and upon the terms and subject to all of the
conditions contained herein, CHCG shall issue to the Shareholders an aggregate
of 2,723,110 shares of Restricted CHCG Common Stock (the “Acquisition
Shares”)
at
$4.0395 per share and pay
cash
(the “Cash
Component”)
of
$7,500,000 to the Shareholders. The Cash Component is payable by CHCG as
follows: $3,000,000 within 10 business days after the Closing and $4,500,000
payable six months after the Closing as evidenced by the promissory note annexed
hereto as Exhibit B. The parties understand and acknowledge that such exchange
is based upon an approximate valuation of Shanghai at US
$18,500,000.
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1.3
MECHANICS
OF EXCHANGE.
(a)
At
the Closing, each Shareholder shall be entitled to surrender the certificate
or
certificates representing the Shares to the exchange agent designated by CHCG
in
exchange for the Acquisition Shares and the Cash Component.
(b)
Promptly after the Closing, CHCG or its designated exchange agent shall make
available to each Shareholder a letter of transmittal and instructions for
use
in effecting the surrender of Certificates in exchange for the Acquisition
Shares. Upon surrender of a Certificate to such exchange agent together with
the
letter of transmittal, duly executed, the Shareholder shall be entitled to
receive in exchange therefore such number of Acquisition Shares as such
Shareholder has the right to receive in respect of the Certificate so
surrendered pursuant to the provisions of this Article I.
1.4
NO
FRACTIONAL SHARES.
No
fraction of a share of CHCG Common Stock shall be issued in the Exchange. In
lieu of fractional shares, the Shareholders upon surrender of their Certificates
as set forth in Section 1.3 shall be paid an amount in cash, without interest,
rounded to the nearest cent, determined by multiplying the fractional interest
to which such Shareholder would otherwise be entitled by the Average CHCG Stock
Price as of $4.0395 per share agreed by all parties.
1.5
CLOSING.
The
closing of the transactions contemplated by this Agreement (the “Closing”)
shall
take place in Zhejiang at 9:00 a.m., local time, on November 28, 2006 (the
“Closing
Date”);
provided, however, that if all of the other conditions set forth in Articles
VI
and VII hereof are not satisfied or waived, unless this agreement has been
terminated under Section 9 hereof, or at such date, the Closing Date shall
be
the business day following the day on which all such conditions have been
satisfied or waived, or at such other date, time and place as CHCG and CFDL,
Shanghai and the Shareholders shall agree.
1.6 EFFECTS
OF THE TRANSACTION.
By
virtue
of the transactions contemplated hereby and without the necessity of any action
by or on behalf of any party:
(a) at
the
Closing, (i) the separate existence of CFDL will cease, and CFDL will be merged
with and into Shanghai, and (ii) the certificate of incorporation and bylaws
of
Shanghai as in effect immediately prior to the Closing will be the certificate
of incorporation and bylaws of the surviving corporation until/unless thereafter
amended; and
(b) at
and
after the closing, the surviving corporation will possess all the rights,
privileges, powers and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities and duties, of each of
the
constituent corporations; and all property, real, personal and mixed, and all
debts due to either of the constituent corporations on whatever account, as
well
for stock subscriptions as all other things in action or belonging to each
of
the constituent corporations will be vested in the surviving corporation; and
all property, rights, privileges, powers and franchises, and all and every
other
interest will be thereafter as effectually be the property of the surviving
corporation as they were of the respective constituent corporations, and the
title to any real estate vested by deed or otherwise, in either of the
constituent corporations, will not
2
revert
or
be in any way impaired; but all rights of creditors and all liens upon any
property of either of the constituent corporations will be preserved unimpaired,
and all debts, liabilities and duties of the respective constituent corporations
will thereafter attach to the surviving corporation, and may be enforced against
it to the same extent as if such debts and liabilities had been incurred or
contracted by it.
(c) Effect
on
Capital Stock.
As
of the
closing, by virtue of the merger and without any action on the part of any
holder of shares of Shanghai Common Stock or of shares of the capital stock
of
HDFL:
(i) Capital
Stock of CDFL. Each
issued and outstanding share of the capital stock of CFDL will be converted
into
the right to receive one fully paid and non-assessable share of the capital
stock of the Surviving Corporation.
(ii) Cancellation
of Treasury Stock. Shares
of
Shanghai Common Stock, if any, that are held by Shanghai as treasury stock
will
be cancelled and retired and will cease to exist, and no Merger Consideration
will be delivered in exchange therefor.
(d) Exchanged
Shares; Merger
Consideration.
“Exchanged
Shares”
means
all shares of Shanghai Common Stock issued and outstanding immediately prior
to
the Closing other than shares of Shanghai Common Stock, if any, held by Shanghai
as treasury stock.
The
consideration payable in the Merger will consist of an aggregate of the
Acquisition Shares and the cash component discussed in Section 1.2 above, which
shall be distributed among the Shanghai Shareholders in accordance with
Schedule
A
hereto
(the “Merger
Consideration”).
(e) Exchange
of Exchanged Shares for Merger Consideration.
As of
the Closing, by virtue of the Merger, each issued and outstanding Exchanged
Share will be converted into the right to receive the Merger Consideration,
payable, to the Shareholders. As of the Closing, all
shares of Shanghai Common Stock will no longer be outstanding and will
automatically be cancelled and retired and will cease to exist, and each holder
of a certificate representing any such shares will cease to have any rights
with
respect thereto, except the right to receive the Merger Consideration therefor,
without interest, upon the surrender of such certificate in accordance with
Section 3.2.
(f) Exchange
of Merger Consideration for Exchanged Shares.
(i) Exchange.
On the
Closing Date, the holders of all of the Shanghai Common Stock shall deliver
to
CHCG certificates or other documents evidencing all of the issued and
outstanding Shanghai Common Stock, duly endorsed in blank or with executed
power
attached thereto in transferable form. In exchange for all of the Shanghai
Common Stock tendered pursuant hereto, CHCG shall issue to the Shareholders
the
Merger Consideration.
No
Further Ownership Rights in Shanghai Common Stock.
All
shares of CHCG Common Stock issued upon the surrender for exchange of shares
of
Shanghai Common Stock in accordance with the terms hereof will be deemed to
have
been issued in full satisfaction of all rights pertaining to such shares of
Shanghai Common Stock, and there will be no further registration of transfers
of
the shares of Shanghai Common Stock after the closing. If, after the closing,
Certificates are presented to the surviving corporation or its transfer agent
for any reason, such Certificates will be cancelled and exchanged as provided
by
this Article.
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ARTICLE
II.
REPRESENTATIONS
AND WARRANTIES OF SHANGHAI
Except
as
set forth in the Disclosure Schedule attached hereto provided by CFDL and
Shanghai (the “CFDL
and Shanghai Disclosure Schedule”),
the
parts of which are numbered to correspond to the section numbers of this
Agreement, each of CFDL, Shanghai and the Shareholders represents and warrants
jointly and severally to CHCG as follows:
2.1
ORGANIZATION
AND QUALIFICATION.
Each
of
CFDL and Shanghai is duly incorporated, validly and in good standing existing
under the laws of BVI and China, has all requisite authority and power
(corporate and other), governmental licenses, authorizations, consents and
approvals to carry on its business as presently conducted and as contemplated
to
be conducted, to own, hold and operate its properties and assets as now owned,
held and operated by it, to enter into this Agreement, to carry out the
provisions hereof except where the failure to be in good standing or to have
such governmental licenses, authorizations, consents and approvals will not,
in
the aggregate, either (i) have a Material Adverse Effect on the business, assets
or financial condition of CFDL or Shanghai, or (ii) impair the ability of CFDL
or Shanghai to perform its material obligations under this Agreement. Each
of
CFDL and Shanghai is duly qualified, licensed or domesticated as a foreign
corporation in good standing in each jurisdiction wherein the nature of its
activities or its properties owned or leased requires such qualification,
licensing or domestication, except where the failure to be so qualified,
licensed or domesticated will not have a Material Adverse Effect. Set forth
on
Part 2.1 of the CFDL and Shanghai Disclosure Schedule is a list of those
jurisdictions in which each of CFDL and Shanghai presently conducts its
business, owns, holds and operates its properties and assets.
2.2
SUBSIDIARIES.
CFDL
and
Shanghai do not own directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise. CFDL and Shanghai do not have any direct or indirect interests
of
stock ownership or otherwise in any corporation, partnership, joint venture,
firm, association or business enterprise, and is not party to any agreement
to
acquire such an interest.
2.3
ARTICLES
OF INCORPORATION AND BYLAWS.
The
copies of the Articles of Incorporation and bylaws of each of CFDL or Shanghai
(collectively, the “Organizational
Documents”)
that
have been delivered to CHCG prior to the execution of this Agreement are true
and complete and have not been amended or repealed. CFDL and Shanghai are not
in
violation or breach of any of the provisions of the Organizational Documents,
except for such violations or breaches which, in the aggregate, will not have
a
Material Adverse Effect on CFDL or Shanghai.
2.4
AUTHORIZATION
AND VALIDITY OF THIS AGREEMENT.
This
Agreement and each of the Transaction Agreements constitute the legal, valid
and
binding obligation of each person or entity who is a party thereto (other than
CHCG), enforceable against each such person or entity in accordance with its
terms, except as such enforcement is limited by general equitable principles,
or
by bankruptcy, insolvency and other similar laws affecting the enforcement
of
creditors rights generally. Each of CFDL, the Shareholders and Shanghai has
all
requisite legal capacity to execute and deliver this Agreement and the
Transaction Agreements to which he or she is a party, and to perform its, his
or
her obligations hereunder and thereunder. The execution and delivery by each
of
CFDL, Shanghai and each Shareholders of this Agreement and the Transaction
Agreements (to the extent either is a party thereto), and the
4
consummation
of the transactions contemplated herein and therein (the “Transactions”)
have
been authorized by all necessary corporate or other action on the part of CFDL,
Shanghai and each of the Shareholders. This Agreement and the Transaction
Agreements have been duly executed and delivered by the parties thereto (other
than CHCG).
2.5
NO
VIOLATION.
Neither
the execution nor delivery of this Agreement or the Transaction Agreements,
nor
the consummation or performance of any of the Transactions by CFDL, Shanghai
or
the Shareholders will directly or indirectly:
(i)
violate or conflict with any provision of the Organizational Documents of
Shanghai or CFDL; (B) result in (with or without notice or lapse of time) a
violation or breach of, or conflict with or constitute a default or result
in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or require notice under, any agreement, promissory
note, lease, instrument or arrangement to which CFDL or Shanghai or any of
its
assets are bound or result in the creation of any Liens upon CFDL or Shanghai
or
any of its assets; (C) violate any order, writ, judgment, injunction, ruling,
award or decree of any Governmental Body; (“Governmental
Body”);
(D)
violate any statute, law or regulation of any jurisdiction as such statute,
law
or regulation that relates to the Shareholders, CFDL or Shanghai or any of
the
assets of CFDL or Shanghai; or (E) result in cancellation, modification,
revocation or suspension of any permits, licenses, registrations, consents,
approvals, authorizations or certificates issued or granted by any Governmental
Body which are held by or granted to the Shareholders, CFDL or Shanghai or
which
are necessary for the conduct of CFDL’s or Shanghai’s business; or
(ii)
to
the knowledge of CFDL, Shanghai or any of the Shareholders, cause CFDL or
Shanghai to become subject to, or to become liable for the payment of, any
Tax
(as hereinafter defined) or cause any of the assets owned by CFDL or Shanghai
to
be reassessed or revalued by any taxing authority or other Governmental Body.
None
of
CFDL, Shanghai or the Shareholders is or will be required to give any notice
to
or obtain any approval, consent, ratification, waiver or other authorization
(a
“Consent”)
from
any person or entity (including, without limitation, any Governmental Body)
in
connection with (i) the execution and delivery of this Agreement or any of
the
Transaction Agreements, or (ii) the consummation or performance of any of the
Transactions.
2.6
CAPITALIZATION
AND RELATED MATTERS.
(a)
Capitalization.
The
registered capital stock of CFDL consists of $18,500,000 and Shanghai consists
of RMB 145,225,000 in fully-paid shares. Except as set forth in the preceding
sentence, no other class of capital stock or other security of CFDL or Shanghai
is authorized, issued, reserved for issuance or outstanding. The Shareholders,
as of the Closing Date, are the lawful, record and beneficial owners of the
number of CFDL Common Stock set forth opposite each Seller’s name on Schedule 1
attached hereto. CFDL, as of the Closing Date, is the lawful, record and
beneficial owner of all of the issued and outstanding shares of Shanghai Common
Stock. The Shareholders have, as of the date hereof and as of the Closing Date,
valid and marketable title to their respective Shares, free and clear of all
Liens (including, without limitation, any claims of spouses under applicable
community property laws) and are the lawful, record and beneficial owners of
all
of the Shares. Except as is issued to and held by the Shareholders or CFDL,
no
other class of capital stock or other
5
security
of CFDL or Shanghai, as applicable, is authorized, issued, reserved for issuance
or outstanding. At the Closing, CHCG will be vested with good and marketable
title to the Shares, free and clear of all Liens (including, without limitation,
any claims of spouses under applicable community property laws). No legend
or
other reference to any purported Lien appears upon any certificate representing
the Shares. Each of the Shares has been duly authorized and validly issued
and
is fully paid and nonassessable. None of the outstanding capital or other
securities of CFDL or Shanghai was issued, redeemed or repurchased in violation
of the Securities Act of 1933, as amended (the “Securities
Act”),
or
any other securities or “blue sky” laws.
(b)
No
Redemption Requirements.
There
are no authorized or outstanding options, warrants, equity securities, calls,
rights, commitments or agreements of any character by which CFDL, Shanghai
or
any of the Shareholders is obligated to issue, deliver or sell, or cause to
be
issued, delivered or sold, any shares of capital stock or other securities
of
CFDL or Shanghai. There are no outstanding contractual obligations (contingent
or otherwise) of CFDL or Shanghai to retire, repurchase, redeem or otherwise
acquire any outstanding shares of capital stock of, or other ownership interests
in, CFDL or Shanghai or to provide funds to or make any investment (in the
form
of a loan, capital contribution or otherwise) in any other entity.
2.7
COMPLIANCE
WITH LAWS AND OTHER INSTRUMENTS.
Except
as
would not have a Material Adverse Effect, the business and operations of CFDL
and Shanghai have been and are being conducted in accordance with all applicable
foreign, federal, provincial and local laws, rules and regulations and all
applicable orders, injunctions, decrees, writs, judgments, determinations and
awards of all courts and governmental agencies and instrumentalities. There
are
no permits, bonuses, registrations, consents, approvals, authorizations,
certificates, or any waiver of the foregoing, which are required to be issued
or
granted by a Governmental Body for the conduct of the Business as presently
conducted or the ownership of the assets of CFDL and Shanghai. Except as would
not have a Material Adverse Effect, each of CFDL or Shanghai is not, and has
not
received notice alleging that it is, in violation of, or (with or without notice
or lapse of time or both) in default under, or in breach of, any term or
provision of the Organizational Documents or of any indenture, loan or credit
agreement, note, deed of trust, mortgage, security agreement or other material
agreement, lease, license or other instrument, commitment, obligation or
arrangement to which CFDL or Shanghai is a party or by which any of CFDL’s or
Shanghai’s properties, assets or rights are bound or affected. To the knowledge
of CFDL and Shanghai, no other party to any material contract, agreement, lease,
license, commitment, instrument or other obligation to which CFDL or Shanghai
is
a party is (with or without notice or lapse of time or both) in default
thereunder or in breach of any term thereof. Each of CFDL and Shanghai is not
subject to any obligation or restriction of any kind or character, nor is there,
to the knowledge of CFDL or Shanghai, any event or circumstance relating to
CFDL
or Shanghai that materially and adversely affects in any way its business,
properties, assets or prospects or that prohibits CFDL or Shanghai from entering
into this Agreement and the Transaction Agreements or would prevent or make
burdensome its performance of or compliance with all or any part of this
Agreement, the Transaction Agreements or the consummation of the Transactions
contemplated hereby or thereby.
2.8
CERTAIN
PROCEEDINGS.
There
are
no outstanding or pending Proceeding that has been commenced against or
involving CFDL or Shanghai or any of its assets and, to the knowledge of CFDL
or
Shanghai and the Shareholders, no matters of the foregoing nature are
contemplated or threatened. None of CFDL, Shanghai or the Shareholders have
been
charged with, and is not threatened with, or under any investigation with
respect to, any allegation concerning any violation of any provision of any
federal, provincial, local or foreign law, regulation, ordinance, order or
administrative ruling, and is not in default with respect to any order, writ,
injunction or decree of any Governmental Body.
6
2.9
NO
BROKERS OR FINDERS.
None
of
CFDL, Shanghai, the Shareholders, or any officer, director, independent
contractor, consultant, agent or employee of CFDL or Shanghai has agreed to
pay,
or has taken any action that will result in any person or entity becoming
obligated to pay or entitled to receive, any investment banking, brokerage,
finder’s or similar fee or commission in connection with this Agreement or the
Transactions. CFDL, Shanghai and the Shareholders shall jointly and severally
indemnify and hold CHCG harmless against any liability or expense arising out
of, or in connection with, any such claim.
2.10
TITLE
TO AND CONDITION OF PROPERTIES.
Each
of
CFDL and Shanghai has good, valid and marketable title to all of its properties
and assets (whether real, personal or mixed, and whether tangible or intangible)
reflected as owned in its books and records, free and clear of all Liens. Each
of CFDL and Shanghai owns or holds under valid leases or other rights to use
all
real property, plants, machinery, equipment and all assets necessary for the
conduct of its business as presently conducted, except where the failure to
own
or hold such property, plants, machinery, equipment and assets would not have
a
Material Adverse Effect on CFDL or Shanghai. No Person other than CFDL or
Shanghai owns or has any right to the use or possession of the assets used
in
CFDL’s or Shanghai’s business. The material buildings, plants, machinery and
equipment necessary for the conduct of the business of CFDL or Shanghai as
presently conducted are structurally sound, are in good operating condition
and
repair and are adequate for the uses to which they are being put or would be
put
in the Ordinary Course of Business, in each case, taken as a whole, and none
of
such buildings, plants, machinery or equipment is in need of maintenance or
repairs, except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
2.11
ABSENCE
OF UNDISCLOSED LIABILITIES.
CFDL
and
Shanghai have no debt, obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether asserted or unasserted, whether
due
or to become due, whether or not known to CFDL or Shanghai ) arising out of
any
transaction entered into prior to the Closing Date or any act or omission prior
to the Closing Date which individually or taken together would constitute a
Material Adverse Effect on CFDL or Shanghai and have no debt, obligation or
liability to each other or any of the Shareholders or their affiliates, except
to the extent specifically set forth on or reserved against on the Balance
Sheet
of CFDL or Shanghai .
The
financial statements are consistent with the books and records of Shanghai
and
CFDL and fairly present in all material respects the financial condition, assets
and liabilities of CFDL and Shanghai, as applicable, taken as a whole, as of
the
dates and periods indicated, and were prepared in accordance with GAAP (except
as otherwise indicated therein or in the notes thereto).
2.12
CHANGES.
Neither
CFDL nor Shanghai has, since October 31, 2006:
(a)
Ordinary
Course of Business.
Conducted its business or entered into any transaction other than in the
Ordinary Course of Business, except for this Agreement.
(b)
Adverse
Changes.
Suffered or experienced any change in, or affecting, its condition (financial
or
otherwise), properties, assets, liabilities, business, operations, results
of
operations or prospects which would have a Material Adverse Effect;
7
(c)
Loans.
Made
any loans or advances to any Person other than travel advances and reimbursement
of expenses made to employees, officers and directors in the Ordinary Course
of
Business;
(d)
Compensation
and Bonuses.
Made
any payments of any bonuses or compensation other than regular salary payments,
or increase in the salaries, or payment on any of its debts in the Ordinary
Course of Business, to any of its shareholders, directors, officers, employees,
independent contractors or consultants or entry into by it of any employment,
severance, or similar contract with any director, officer, or employee,
independent contractor or consultant; Adopted, or increased in the payments
to
or benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any
of its employees;
(e)
Liens. Created or permitted to exist any Lien on any of its properties or assets
other than Permitted Liens;
(f)
Capital
Stock.
Issued,
sold, disposed of or encumbered, or authorized the issuance, sale, disposition
or encumbrance of, or granted or issued any option to acquire any shares of
its
capital stock or any other of its securities or any Equity Security, or altered
the term of any of its outstanding securities or made any change in its
outstanding shares of capital stock or its capitalization, whether by reason
of
reclassification, recapitalization, stock split, combination, exchange or
readjustment of shares, stock dividend or otherwise; changed its authorized
or
issued capital stock; granted any stock option or right to purchase shares
of
its capital stock; issued any security convertible into any of its capital
stock; granted any registration rights with respect to shares of its capital
stock; purchased, redeemed, retired, or otherwise acquired any shares of its
capital stock; declared or paid any dividend or other distribution or payment
in
respect of shares of capital stock of any other entity;
(g)
Dividends.
Declared, set aside, made or paid any dividend or other distribution to any
of
its shareholders;
(h)
Material
Contracts.
Terminated or modified any of its Material Contract except for termination
upon
expiration in accordance with the terms of such agreements, a description of
which is included in the CFDL and Shanghai’s Disclosure Schedule;
(i)
Claims.
Released, waived or cancelled any claims or rights relating to or affecting
CFDL
or Shanghai in excess of $10,000 in the aggregate or instituted or settled
any
Proceeding involving in excess of $10,000 in the aggregate;
(j)
Discharged
Liabilities.
Paid,
discharged, cancelled, waived or satisfied any claim, obligation or liability
in
excess of $10,000 in the aggregate, except for liabilities incurred prior to
the
date of this Agreement in the Ordinary Course of Business;
(k)
Indebtedness.
Created, incurred, assumed or otherwise become liable for any Indebtedness
or
commit to any endeavor involving a commitment in excess of $10,000 in the
aggregate, other than contractual obligations incurred in the Ordinary Course
of
Business;
(l)
Guarantees.
Guaranteed or endorsed in a material amount any obligation or net worth of
any
Person;
(m)
Acquisitions.
Acquired the capital stock or other securities or any ownership interest in,
or
substantially all of the assets of, any other Person;
8
(n)
Accounting.
Changed
its method of accounting or the accounting principles or practices utilized
in
the preparation of its financial statements, other than as required by GAAP;
(o)
Agreements.
Entered
into any agreement, or otherwise obligated itself, to do any of the foregoing.
2.13
MATERIAL
CONTRACTS.
Each
of
CFDL and Shanghai has delivered to CHCG, prior to the date of this Agreement,
true, correct and complete copies of each of its Material Contracts.
(a)
No
Defaults. The Material Contracts of each of CFDL and Shanghai are valid and
binding agreements of Shanghai and CFDL, as applicable, and are in full force
and effect and are enforceable in accordance with their terms. Except as would
not have a Material Adverse Effect, CFDL and Shanghai are not in breach or
default of any of its Material Contracts to which it is a party and, to the
knowledge of CFDL and Shanghai, no other party to any of its Material Contracts
is in breach or default thereof. Except as would not have a Material Adverse
Effect, no event has occurred or circumstance has existed that (with or without
notice or lapse of time) would (a) contravene, conflict with or result in a
violation or breach of, or become a default or event of default under, any
provision of any of its Material Contracts or (b) permit CFDL, Shanghai or
any
other Person the right to declare a default or exercise any remedy under, or
to
accelerate the maturity or performance of, or to cancel, terminate or modify
any
of its Material Contracts. CFDL and Shanghai have not received any notice and
have no knowledge of any pending or threatened cancellation, revocation or
termination of any of its Material Contracts to which it is a party, and there
are no renegotiations of, or attempts to renegotiate.
2.14
TAX
RETURNS AND AUDITS.
(a)
Tax
Returns. (a) All material Tax Returns required to be filed by or on behalf
of
CFDL or Shanghai have been timely filed and all such Tax Returns were (at the
time they were filed) and are true, correct and complete in all material
respects; (b) all Taxes of CFDL and Shanghai required to have been paid (whether
or not reflected on any Tax Return) have been fully and timely paid, except
those Taxes which are presently being contested in good faith or for which
an
adequate reserve for the payment of such Taxes has been established on Shanghai
Balance Sheet or CFDL’s balance sheet; (c) no waivers of statutes of limitation
have been given or requested with respect to CFDL or Shanghai in connection
with
any Tax Returns covering CFDL or Shanghai or with respect to any Taxes payable
by it; (d) no Governmental Body in a jurisdiction where CFDL or Shanghai does
not file Tax Returns has made a claim, assertion or threat to CFDL or Shanghai
that CFDL or Shanghai is or may be subject to taxation by such jurisdiction;
(e)
each of CFDL and Shanghai has duly and timely collected or withheld, paid over
and reported to the appropriate Governmental Body all amounts required to be
so
collected or withheld for all periods under all applicable laws; (f) there
are
no Liens with respect to Taxes on the property or assets of CFDL and Shanghai
other than Permitted Liens; (g) there are no Tax rulings, requests for rulings,
or closing agreements relating to CFDL or Shanghai for any period (or portion
of
a period) that would affect any period after the date hereof; and (h) any
adjustment of Taxes of CFDL or Shanghai made by a Governmental Body in any
examination that CFDL or Shanghai is required to report to the appropriate
provincial, local or foreign taxing authorities has been reported, and any
additional Taxes due with respect thereto have been paid. No state of fact
exists or has existed which would constitute ground for the assessment of any
tax liability by any Governmental Body. All Tax Returns filed by CFDL and
Shanghai are true, correct and complete.
9
(b)
No
Adjustments, Changes. Neither CFDL, Shanghai nor any other Person on behalf
of
CFDL or Shanghai (a) has executed or entered into a closing agreement pursuant
to Section 7121 of the Code or any predecessor provision thereof or any similar
provision of provincial, local or foreign law; or (b) has agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code or
any
similar provision of provincial, local or foreign law.
(c)
No
Disputes. There is no pending audit, examination, investigation, dispute,
proceeding or claim with respect to any Taxes of or Tax Return filed or required
to be filed by CFDL or Shanghai, nor is any such claim or dispute pending or
contemplated. Each of CFDL and Shanghai has made available to CHCG true, correct
and complete copies of all Tax Returns, examination reports and statements
of
deficiencies assessed or asserted against or agreed to by CFDL or Shanghai
since
January 1, 2003, and any and all correspondence with respect to the foregoing.
CFDL and Shanghai do not have any outstanding closing agreement, ruling request,
request for consent to change a method of accounting, subpoena or request for
information to or from a Governmental Body in connection with any Tax matter.
(d)
No
Tax Allocation, Sharing. CFDL and Shanghai are not a party to any Tax allocation
or sharing agreement. Other than with respect to the Tax Group of which CFDL
or
Shanghai is the common parent, CFDL and Shanghai (a) have not been a member
of a
Tax Group filing a consolidated income Tax Return under Section 1501 of the
Code
(or any similar provision of provincial, local or foreign law), and (b) do
not
have any liability for Taxes for any Person under Treasury Regulations Section
1.1502-6 (or any similar provision of provincial, local or foreign law) as
a
transferee or successor, by contract or otherwise.
2.15
MATERIAL
ASSETS.
The
financial statements of CFDL and Shanghai reflect the material properties and
assets (real and personal) owned or leased by them.
2.16
INSURANCE
COVERAGE.
Each
of
CFDL and Shanghai has made available to CHCG, prior to the date of this
Agreement, true, correct and complete copies of all insurance and general
liability policies maintained by CFDL and Shanghai on their properties and
assets all claims made under any such current or prior insurance policies.
All
of such policies (a) taken together, provide adequate insurance coverage for
the
properties, assets and operations of CFDL and Shanghai for all risks normally
insured against by a Person carrying on the same business as CFDL or Shanghai
,
and (b) are sufficient for compliance with all applicable Laws and Material
Contracts of CFDL and Shanghai . All of such policies are valid, outstanding
and
in full force and effect and, by their express terms, will continue in full
force and effect following the consummation of the transactions contemplated
by
this Agreement. Except as set forth on Schedule 3.19, CFDL and Shanghai have
not
received and has no knowledge of (a) any refusal of coverage or any written
notice that a defense will be afforded with reservation of rights, or (b) any
notice of cancellation or any other indication in writing or otherwise that
any
insurance policy is no longer in full force or effect or will not be renewed
or
that the issuer of any policy is not willing or able to perform its obligations
thereunder. All premiums due on such insurance policies on or prior to the
date
hereof have been paid. There are no, and CFDL, Shanghai and the Shareholders
have no knowledge of any circumstances or facts which, with or without notice
of
lapse of time or both would lead to any: (i) pending or threatened claims with
respect to CFDL or Shanghai or their properties or assets under any such
insurance policies; (ii) claims as to which the insurers have notified CFDL
or
Shanghai that they intend to deny liability; and (iii) existing defaults on
the
part of CFDL or Shanghai under any such insurance policies.
10
2.17
LITIGATION;
ORDERS.
There
is
no Proceeding (whether federal, provincial, local or foreign) pending or, to
the
knowledge of CFDL or Shanghai, threatened or appealable against or affecting
CFDL or Shanghai or any of its properties, assets, business or employees. To
the
knowledge of CFDL or Shanghai, there is no fact that might result in or form
the
basis for any such Proceeding. CFDL and Shanghai are not subject to any Orders
and have not received any written opinion or memorandum or legal advice from
their legal counsel to the effect that CFDL or Shanghai is exposed, from a
legal
standpoint, to any liability which would be material to its business. CFDL
and
Shanghai are not engaged in any legal action to recover monies due it or for
damages sustained by any of them.
2.18
LICENSES.
Except
as
would not have a Material Adverse Effect, each of CFDL and Shanghai possesses
from the appropriate Governmental Body all licenses, permits, authorizations,
approvals, franchises and rights that are necessary for it to engage in its
business as currently conducted and to permit it to own and use its properties
and assets in the manner in which it currently owns and uses such properties
and
assets (collectively, “Permits”).
Except as would not have a Material Adverse Effect, CFDL and Shanghai have
not
received any written notice from any Governmental Body or other Person that
there is lacking any license, permit, authorization, approval, franchise or
right necessary for CFDL or Shanghai to engage in its business as currently
conducted and to permit CFDL or Shanghai to own and use its properties and
assets in the manner in which it currently owns and uses such properties and
assets. Except as would not have a Material Adverse Effect, the Permits are
valid and in full force and effect. Except as would not have a Material Adverse
Effect, no event has occurred or circumstance exists that may (with or without
notice or lapse of time): (a) constitute or result, directly or indirectly,
in a
violation of or a failure to comply with any Permit; or (b) result, directly
or
indirectly, in the revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any Permit. Neither CFDL, nor Shanghai
has received any written notice from any Governmental Body or any other Person
regarding: (a) any actual, alleged, possible or potential contravention of
any
Permit; or (b) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to, any
Permit. All applications required to have been filed for the renewal of such
Permits have been duly filed on a timely basis with the appropriate Persons,
and
all other filings required to have been made with respect to such Permits have
been duly made on a timely basis with the appropriate Persons. All Permits
are
renewable by their terms or in the Ordinary Course of Business without the
need
to comply with any special qualification procedures or to pay any amounts other
than routine fees or similar charges, all of which have, to the extent due,
been
duly paid.
2.19
INTERESTED
PARTY TRANSACTIONS.
No
officer, director or shareholder of CFDL, Shanghai or any Affiliate, Related
Person or “associate” (as such term is defined in Rule 405 of the Commission
under the Securities Act) of any such Person, either directly or indirectly,
(1)
has an interest in any Person which (a) furnishes or sells services or products
which are furnished or sold or are proposed to be furnished or sold by CFDL
or
Shanghai , or (b) purchases from or sells or furnishes to, or proposes to
purchase from, sell to or furnish CFDL or Shanghai any goods or services; (2)
has a beneficial interest in any contract or agreement to which CFDL or Shanghai
is a party or by which it may be bound or affected; or (3) is a party to any
material agreements, contracts or commitments in effect as of the date hereof
with CFDL or Shanghai . “Related
Person”
means:
(i) with respect to a particular individual, the individual’s immediate family
which shall include the individual’s spouse, parents, children, siblings,
mothers and fathers-in-law, sons and daughters-in-law, and brothers and
sisters-in-law; and (ii) with respect to a specified individual or entity,
any
entity or individual that, directly or indirectly, controls, is controlled
by,
or is under common control with such specified entity or
individual.
11
2.20
GOVERNMENTAL
INQUIRIES.
Each
of
CFDL and Shanghai has made available to CHCG a copy of each material written
inspection report, questionnaire, inquiry, demand or request for information
received by CFDL or Shanghai from (and the response of CFDL or Shanghai
thereto), and each material written statement, report or other document filed
by
CFDL or Shanghai with, any Governmental Body since January 1, 2003.
2.21
BANK
ACCOUNTS AND SAFE DEPOSIT BOXES.
Part
2.22
of the CFDL and Shanghai Disclosure Schedule discloses the title and number
of
each bank or other deposit or financial account, and each lock box and safety
deposit box used by CFDL or Shanghai, the financial institution at which that
account or box is maintained and the names of the persons authorized to draw
against the account or otherwise have access to the account or box, as the
case
may be.
2.22
INTELLECTUAL
PROPERTY.
Any
Intellectual Property CFDL or Shanghai uses in its business as presently
conducted is owned by CFDL or Shanghai or properly licensed.
2.23
STOCK
OPTION PLANS; EMPLOYEE BENEFITS.
(a)
Set
forth on Part 2.23 of the CFDL and Shanghai Disclosure Schedule is a complete
list of all stock option plans providing for the grant by CFDL or Shanghai
of
stock options to directors, officers or employees. All such stock option plans
are Approved Plans.
(b)
Except as set forth on Part 2.23 of the CFDL and Shanghai Disclosure Schedule,
CFDL and Shanghai do not have any employee benefit plans or arrangements
covering their present and former employees or providing benefits to such
persons in respect of services provided to CFDL or Shanghai . CFDL and Shanghai
have no commitment, whether formal or informal and whether legally binding
or
not, to create any additional plan, arrangement or practice similar to the
Approved Plans.
(c)
The
consummation of the transactions contemplated hereby will not result in (i)
any
payment (including, without limitation, severance, unemployment compensation
or
bonus payments) becoming due from CFDL or Shanghai or due to any Person, (ii)
any increase in the amount of compensation or benefits payable to any Person
or
(iii) any acceleration of the vesting or timing of payment of any compensation,
award or determination of options, warrants, rights, severance payments or
other
contingent obligations of any nature whatsoever of CFDL or Shanghai in favor
of
any Person. No agreement, arrangement or other contract of CFDL or Shanghai
provides benefits or payments contingent upon, triggered by, or increased as
a
result of a change in the ownership or effective control of CFDL or Shanghai.
(d)
None
of CFDL or Shanghai is a party to or bound by any written or oral agreement
or
understanding to employ, subsequent to the Closing, any of its respective
present or former directors, officers, independent contractors, consultants,
agents or employees.
12
2.24
EMPLOYEE
MATTERS.
(a)
No
former or current employee of CFDL or Shanghai is a party to, or is otherwise
bound by, any agreement or arrangement (including, without limitation, any
confidentiality, non-competition or proprietary rights agreement) that in any
way adversely affected, affects, or will affect (i) the performance of his,
her
or its duties to CFDL or Shanghai, or (ii) the ability of CFDL or Shanghai
to
conduct its business.
(b)
None
of CFDL or Shanghai has employees, directors, officers, consultants, independent
contractors, representatives or agents whose contract of employment or
engagement cannot be terminated by three months’ notice. (c) CFDL and Shanghai
are not required or obligated to pay, and since January 1, 2003, have not paid
any moneys other than in respect of remuneration, pension or other benefits
pursuant to plans described in Part 2.23 of the CFDL and Shanghai Disclosure
Schedule, to or for the benefit of, any director, officer, employee, consultant,
independent contractor, representative or agent of CFDL or Shanghai. (d) CFDL
and Shanghai are in compliance with all applicable laws respecting employment
and employment practices, terms and conditions or employment and wages and
hours, and are not engaged in any unfair labor practice. There is no labor
strike, dispute, shutdown or stoppage actually pending or, to the knowledge
of
CFDL, Shanghai or the Shareholders, threatened against or affecting CFDL or
Shanghai.
2.25
ENVIRONMENTAL
AND SAFETY MATTERS.
Except
as
would not have a Material Adverse Effect:
(a)
Each
of CFDL and Shanghai has at all time been and is in compliance with all
Environmental Laws and Orders applicable to CFDL or Shanghai, as applicable.
(b)
There
are no Proceedings pending or, to the knowledge of CFDL or Shanghai, threatened
against CFDL or Shanghai alleging the violation of any Environmental Law or
Environmental Permit applicable to CFDL or Shanghai or alleging that CFDL or
Shanghai is a potentially responsible party for any environmental site
contamination. None of CFDL, Shanghai or the Shareholders are aware of, or
has
ever received notice of, any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste.
(c)
Neither this Agreement nor the consummation of the transactions contemplated
by
this Agreement shall impose any obligations to notify or obtain the consent
of
any Governmental Body or third Persons under any Environmental Laws applicable
to CFDL or Shanghai.
2.26
MATERIAL
CUSTOMERS.
Since
January 1, 2003, none of the Material Customers (as hereinafter defined) of
CFDL
or Shanghai has notified any of CFDL, Shanghai or the Shareholders of their
intent to terminate their business with CFDL or Shanghai business because of
any
dissatisfaction on the part of any such person or entity. The Transactions
have
not caused any of the Material Customers of CFDL or Shanghai to terminate or
provide notice of their intent or threaten to terminate their business with
CFDL
or Shanghai or to notify CFDL, Shanghai or the Shareholders of their intent
not
to continue to do such business with CFDL or Shanghai after the Closing. As
used
herein, “Material Customers” means those customers from whom CFDL or Shanghai
derives annual revenues in excess of RMB 100,000.
13
2.27
INVENTORIES.
All
inventories of CFDL and Shanghai are of good, usable and merchantable quality
in
all material respects, and, except as set forth in the CFDL and Shanghai
Disclosure Schedule, do not include a material amount of obsolete or
discontinued items. Except as set forth in the CFDL and Shanghai Disclosure
Schedule, (a) all such inventories are of such quality as to meet in all
material respects the quality control standards of CFDL and Shanghai, (b) all
such inventories are recorded on the books at the lower of cost or market value
determined in accordance with GAAP, and (c) no write-down in inventory has
been
made or should have been made pursuant to GAAP during the past two years.
2.28
MONEY
LAUNDERING LAWS.
The
operations of CFDL and Shanghai are and have been conducted at all times in
compliance with applicable financial record-keeping and reporting requirements
of the money laundering statutes of all U.S. and non-U.S. jurisdictions, the
rules and regulations thereunder and any related or similar rules, regulations
or guidelines, issued, administered or enforced by any Governmental Body
(collectively, the “Money
Laundering Laws”)
and no
Proceeding involving CFDL or Shanghai with respect to the Money Laundering
Laws
is pending or, to the knowledge of CFDL or Shanghai , threatened.
2.29
DISCLOSURE.
(a)
Any
information set forth in this Agreement, the CFDL and Shanghai Disclosure
Schedule, or the Transaction Agreements shall be true, correct and complete
in
all material respects.
(b)
No
statement, representation or warranty of CFDL, Shanghai or the Shareholders
in
this Agreement (taken with the Schedules) or the Transaction Agreements or
any
exhibits or schedules thereto contain any untrue statement of a material fact
or
omits to state a material fact necessary to make the statements herein or
therein, taken as a whole, in light of the circumstances in which they were
made, not misleading.
(c)
Except as set forth in the CFDL and Shanghai Disclosure Schedule, the
Shareholders, CFDL and Shanghai have no knowledge of any fact that has specific
application to CFDL or Shanghai (other than general economic or industry
conditions) and that adversely affects the assets or the business, prospects,
financial condition, or results of operations of CFDL or Shanghai.
(d)
In
the event of any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules with respect to a specifically identified
representation or warranty), the statements in the Schedules shall control.
(e)
The
books of account, minute books and stock record books of CFDL and Shanghai,
all
of which have been made available to CHCG, are complete and accurate and have
been maintained in accordance with sound business practices. Without limiting
the generality of the foregoing, the minute books of CFDL and Shanghai contain
complete and accurate records of all meetings held, and corporate action taken,
by the shareholders, the boards of directors, and committees of the boards
of
directors of CFDL or Shanghai, as applicable, and no meeting of any such
shareholders, board of directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books.
14
2.30
FINDERS
AND BROKERS.
(a)
None
of CFDL, Shanghai, the Shareholders or any Person acting on behalf of CFDL,
Shanghai or the Shareholders has engaged any finder, broker, intermediary or
any
similar Person in connection with the Exchange.
(b)
None
of CFDL, Shanghai, the Shareholders nor any Person acting on behalf of CFDL,
Shanghai or the Shareholders has entered into a contract or other agreement
that
provides that a fee shall be paid to any Person or Entity if the Exchange is
consummated.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES OF CHCG
CHCG
hereby represents and warrants to the Shareholders as of the date hereof:
3.1
ORGANIZATION;
GOOD STANDING.
CHCG
is
duly incorporated, validly and in good standing existing under the laws of
Nevada, has all requisite authority and power (corporate and other),
governmental licenses, authorizations, consents and approvals to carry on its
business as presently conducted and as contemplated to be conducted, to own,
hold and operate its properties and assets as now owned, held and operated
by
it, to enter into this Agreement, to carry out the provisions hereof except
where the failure to be in good standing or to have such governmental licenses,
authorizations, consents and approvals will not, in the aggregate, either (i)
have a Material Adverse Effect on the business, assets or financial condition
of
CHCG, or (ii) impair the ability of CHCG to perform its material obligations
under this Agreement. CHCG is duly qualified, licensed or domesticated as a
foreign corporation in good standing in each jurisdiction wherein the nature
of
its activities or its properties owned or leased requires such qualification,
licensing or domestication, except where the failure to be so qualified,
licensed or domesticated will not have a Material Adverse Effect.
3.2
CHCG
COMMON STOCK.
As
of
November 28, 2006, there were 49,765,945 shares of CHCG’s common stock issued
and outstanding. The Acquisition Shares, when issued in connection with this
Agreement and the other Transactional Agreements, will be duly authorized,
validly issued, fully paid and nonassessable.
3.3
AUTHORITY;
BINDING NATURE OF AGREEMENTS.
(a)
The
execution, delivery and performance of this Agreement, the Transactional
Agreements, and all other agreements and instruments contemplated to be executed
and delivered by CHCG in connection herewith have been duly authorized by all
necessary corporate action on the part of CHCG and its board of directors.
(b)
This
Agreement, the Transactional Agreements, and all other agreements and
instruments contemplated to be executed and delivered by CHCG constitute the
legal, valid and binding obligation of CHCG, enforceable against CHCG in
accordance with their terms, except to the extent that enforceability may be
limited by applicable bankruptcy, Exchange, insolvency, moratorium or other
laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity regardless of whether such enforceability is considered
in
a proceeding in law or equity.
15
(c)
There
is no pending Proceeding, and, to CHCG’s knowledge, no Person has threatened to
commence any Proceeding that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Exchange
or CHCG’s ability to comply with or perform its obligations and covenants under
the Transactional Agreements, and, to the knowledge of CHCG, no event has
occurred, and no claim, dispute or other condition or circumstance exists,
that
might directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding.
3.4
NON-CONTRAVENTION;
CONSENTS.
The
execution and delivery of this Agreement and the other Transactional Agreements,
and the consummation of the Exchange, by CHCG will not, directly or indirectly
(with or without notice or lapse of time):
(a)
contravene, conflict with or result in a material violation of (i) CHCG’s
Certificate of Incorporation or Bylaws, or (ii) any resolution adopted by CHCG
Board or any committee thereof or the stockholders of CHCG;
(b)
to
the knowledge of CHCG, contravene, conflict with or result in a material
violation of, or give any Governmental Body the right to challenge the Exchange
or to exercise any remedy or obtain any relief under, any legal requirement
or
any Order to which CHCG or any material assets owned or used by it are subject;
(c)
to
the knowledge of CHCG, cause any material assets owned or used by CHCG to be
reassessed or revalued by any taxing authority or other Governmental Body;
(d)
to
the knowledge of CHCG, contravene, conflict with or result in a material
violation of any of the terms or requirements of, or give any Governmental
Body
the right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by CHCG or that otherwise relates to
CHCG’s business or to any of the material assets owned or used by CHCG, where
such contraventions, conflict, violation, revocation, withdrawal, suspension,
cancellation, termination or modification would have a Material Adverse Effect
on CHCG;
(e)
contravene, conflict with or result in a material violation or material breach
of, or material default under, any Contract to which CHCG is a party;
(f)
give
any Person the right to any payment by CHCG or give rise to any acceleration
or
change in the award, grant, vesting or determination of options, warrants,
rights, severance payments or other contingent obligations of any nature
whatsoever of CHCG in favor of any Person, in any such case as a result of
the
Exchange; or
(g)
result in the imposition or creation of any material Lien upon or with respect
to any material asset owned or used by CHCG.
Except
for Consents, filings or notices required under the state and federal securities
laws or any other laws or regulations or as otherwise contemplated in this
Agreement and the other Transactional Agreements, CHCG will not be required
to
make any filing with or give any notice to, or obtain any Consent from, any
Person in connection with the execution and delivery of this Agreement and
the
other Transactional Agreements or the consummation or performance of the
Exchange.
16
3.5
FINDERS
AND BROKERS.
(a)
Neither CHCG nor any Person acting on behalf of CHCG has engaged any finder,
broker, intermediary or any similar Person in connection with the Exchange.
(b)
CHCG
has not entered into a contract or other agreement that provides that a fee
shall be paid to any Person or Entity if the Exchange is consummated.
3.6
REPORTS
AND FINANCIAL STATEMENTS; ABSENCE OF CERTAIN CHANGES.
(a)
CHCG
has filed all reports required to be filed with the SEC pursuant to the Exchange
Act since December 31, 2004 (all such reports, including those to be filed
prior
to the Closing Date and all registration statements and prospectuses filed
by
CHCG with the SEC, are collectively referred to as the “CHCG
SEC Reports”).
All of
the CHCG SEC Reports, as of their respective dates of filing (or if amended
or
superseded by a filing prior to the date of this Agreement, then on the date
of
such filing): (i) complied in all material respects as to form with the
applicable requirements of the Securities Act or Exchange Act and the rules
and
regulations thereunder, as the case may be, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. The audited
financial statements of CHCG included in the CHCG SEC Reports comply in all
material respects with the published rules and regulations of the SEC with
respect thereto, and such audited financial statements (i) were prepared from
the books and records of CHCG, (ii) were prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto) and (iii) present fairly the financial position
of
CHCG as of the dates thereof and the results of operations and cash flows for
the periods then ended. The unaudited financial statements included in the
CHCG
SEC Reports comply in all material respects with the published rules and
regulations of the SEC with respect thereto; and such unaudited financial
statements (i) were prepared from the books and records of CHCG, (ii) were
prepared in accordance with GAAP, except as otherwise permitted under the
Exchange Act and the rules and regulations thereunder, on a consistent basis
(except as may be indicated therein or in the notes or schedules thereto) and
(iii) present fairly the financial position of CHCG as of the dates thereof
and
the results of operations and cash flows (or changes in financial condition)
for
the periods then ended, subject to normal year-end adjustments and any other
adjustments described therein or in the notes or schedules thereto.
(b)
Except as specifically contemplated by this Agreement or reflected in the CHCG
SEC Reports, since March 31, 2006, there has not been (i) any material adverse
change in CHCG’s business, assets, liabilities, operations, and, to the
knowledge of CHCG, no event has occurred that is likely to have a material
adverse effect on CHCG’s business, assets, liabilities or operations, (ii) any
declarations setting aside or payment of any dividend or distribution with
respect to the CHCG Common Stock other than consistent with past practices,
(iii) any material change in CHCG’s accounting principles, procedures or
methods, (iv) cancellation in writing of any material customer contract or
(v)
the loss of any customer relationship which would have a material adverse effect
on CHCG’s business, assets, liabilities or operations.
3.7
COMPLIANCE
WITH APPLICABLE LAW.
Except
as
disclosed in the CHCG SEC Reports filed prior to the date of this Agreement
and
except to the extent that the failure or violation would not in the aggregate
have a Material Adverse Effect on the business, results of operations or
financial condition of CHCG, to CHCG’s knowledge CHCG holds all Governmental
Authorizations necessary for the lawful conduct of its business under and
pursuant to, and the business of CHCG is not being conducted in violation of,
any Governmental Authorization applicable to CHCG.
17
3.8
COMPLETE
COPIES OF REQUESTED REPORTS.
CHCG
has
delivered or made available true and complete copies of each document that
has
been reasonably requested by CFDL, Shanghai or the Shareholders.
3.9
FULL
DISCLOSURE.
(a)
Neither this Agreement (including all Schedules and Exhibits hereto) nor any
of
the Transactional Agreements contemplated to be executed and delivered by CHCG
in connection with this Agreement contains any untrue statement of material
fact; and none of such documents omits to state any material fact necessary
to
make any of the representations, warranties or other statements or information
contained therein not misleading.
(b)
All
of the information set forth in the prospectus and all other information
regarding CHCG and the business, condition, assets, liabilities, operations,
financial performance, net income and prospects of either that has been
furnished to CFDL, Shanghai or the Shareholders by or on behalf of CHCG or
any
of the CHCG’s Representatives, is accurate and complete in all material
respects.
ARTICLE
IV.
COVENANTS
OF CFDL AND SHANGHAI
4.1
ACCESS
AND INVESTIGATION.
Each
of
CFDL and Shanghai shall ensure that, at all times during the Pre-Closing Period:
(a)
CFDL,
Shanghai and their Representatives provide CHCG and its Representatives access,
at reasonable times and with twenty-four (24) hours notice from CHCG to CFDL
or
Shanghai , to all of the premises and assets of CFDL and Shanghai , to all
existing books, records, Tax Returns, work papers and other documents and
information relating to CFDL or Shanghai , and to responsible officers and
employees of CFDL or Shanghai , and CFDL, Shanghai and its Representatives
provide CHCG and its Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to CFDL or Shanghai as CHCG may request in good faith;
(b)
Each
of CFDL and Shanghai and their Representatives confer regularly with CHCG upon
its request, concerning operational matters and otherwise report regularly
(not
less than semi-monthly and as CHCG may otherwise request) to CHCG and discuss
with CHCG and its Representatives concerning the status of the business,
condition, assets, liabilities, operations, and financial performance of CFDL
or
Shanghai , and promptly notify CHCG of any material change in the business,
condition, assets, liabilities, operations, and financial performance of CFDL
or
Shanghai , or any event reasonably likely to lead to any such change.
4.2
OPERATION
OF BUSINESS.
Each
of
CFDL and Shanghai shall ensure that, during the Pre-Closing Period:
(a)
It
conducts its operations in the Ordinary Course of Business and in the same
manner as such operations have been conducted prior to the date of this
Agreement;
18
(b)
It
uses its commercially reasonable efforts to preserve intact its current business
organization, keep available and not terminate the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees
and
other Persons having business relationships with CFDL or Shanghai;
(c)
It
does not declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of its capital stock, and does not
repurchase, redeem or otherwise reacquire any shares of its capital stock or
other securities, except with respect to the repurchase of shares of CFDL or
Shanghai Common Stock upon termination of employees at the original purchase
price pursuant to agreements existing at the date hereof;
(d)
It
does not sell or otherwise issue (or grant any warrants, options or other rights
to purchase) any shares of capital stock or any other securities, except the
issuance of shares of CFDL or Shanghai Common Stock pursuant to option grants
to
employees made under the Option Plan in the Ordinary Course of Business;
(e)
It
does not amend its Articles of Incorporation, Bylaws or other Organizational
Documents, and does not effect or become a party to any recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(f)
It
does not form any subsidiary or acquire any equity interest or other interest
in
any other Entity;
(g)
It
does not establish or adopt any Employee Benefit Plan, and does not pay any
bonus or make any profit sharing or similar payment to, or increase the amount
of the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(h)
It
does not change any of its methods of accounting or accounting practices in
any
respect;
(i)
It
does not make any Tax election;
(j)
It
does not commence or take any action or fail to take any action which would
result in the commencement of any Proceeding;
(k)
It
does not (i) acquire, dispose of, transfer, lease, license, mortgage, pledge
or
encumber any fixed or other assets, other than in the Ordinary Course of
Business; (ii) incur, assume or prepay any indebtedness, Indebtedness or
obligation or any other liabilities or issue any debt securities, other than
in
the Ordinary Course of Business; (iii) assume, guarantee, endorse for the
obligations of any other person, other than in the Ordinary Course of Business;
(iv) make any loans, advances or capital contributions to, or investments in,
any other Person, other than in the Ordinary Course of Business; or (v) fail
to
maintain insurance consistent with past practices for its business and property;
(l)
It
pays all debts and Taxes, files all of its Tax Returns (as provided herein)
and
pays or performs all other obligations, when due;
(m)
It
does not enter into or amend any agreements pursuant to which any other Person
is granted distribution, marketing or other rights of any type or scope with
respect to any of its services, products or technology;
(n)
It
does not hire any new officer-level employee;
19
(o)
It
does not revalue any of its assets, including, without limitation, writing
down
the value of inventory or writing off notes or accounts receivable, except
as
required under GAAP and in the Ordinary Course of Business;
(p)
Except as otherwise contemplated hereunder, it does not enter into any
transaction or take any other action outside the Ordinary Course of Business;
and
(q)
It
does not enter into any transaction or take any other action that likely would
cause or constitute a Breach of any representation or warranty made by it in
this Agreement.
4.3
FILINGS
AND CONSENTS; COOPERATION.
Each
of
CFDL and Shanghai shall ensure that:
(a)
Each
filing or notice required to be made or given (pursuant to any applicable Law,
Order or contract, or otherwise) by CFDL, Shanghai or the Shareholders in
connection with the execution and delivery of any of the Transactional
Agreements, or in connection with the consummation or performance of the
Exchange, is made or given as soon as possible after the date of this Agreement;
(b)
Each
Consent required to be obtained (pursuant to any applicable Law, Order or
contract, or otherwise) by CFDL, Shanghai or the Shareholders in connection
with
the execution and delivery of any of the Transactional Agreements, or in
connection with the consummation or performance of the Exchange, is obtained
as
soon as possible after the date of this Agreement and remains in full force
and
effect through the Closing Date;
(c)
It
promptly delivers to CHCG a copy of each filing made, each notice given and
each
Consent obtained by CFDL or Shanghai during the Pre-Closing Period; and
(d)
During the Pre-Closing Period, it and its Representatives cooperate with CHCG
and CHCG’s Representatives, and prepare and make available such documents and
take such other actions as CHCG may request in good faith, in connection with
any filing, notice or Consent that CHCG is required or elects to make, give
or
obtain.
4.4
NOTIFICATION;
UPDATES TO DISCLOSURE SCHEDULES.
(a)
During the Pre-Closing Period, each of CFDL and Shanghai shall promptly notify
CHCG in writing of:
(i)
the
discovery by it of any event, condition, fact or circumstance that occurred
or
existed on or prior to the date of this Agreement which is contrary to any
representation or warranty made by it in this Agreement or in any of the other
Transactional Agreements, or that would upon the giving of notice or lapse
of
time, result in any of its representations and warranties set forth in this
agreement to become untrue or otherwise cause any of the conditions of Closing
set forth in Article VI or Article VII not to be satisfied;
20
(ii)
any
event, condition, fact or circumstance that occurs, arises or exists after
the
date of this Agreement (except as a result of actions taken pursuant to the
express written consent of CHCG) and that is contrary to any representation
or
warranty made by it in this Agreement, or that would upon the giving of notice
or lapse of time, result in any of its representations and warranties set forth
in this agreement to become untrue or otherwise cause any of the conditions
of
Closing set forth in Article VI or Article VII not to be satisfied;
(b)
If
any event, condition, fact or circumstances that is required to be disclosed
pursuant to Section 4.4(a) requires any material change in the CFDL and Shanghai
Disclosure Schedule, or if any such event, condition, fact or circumstance
would
require such a change assuming the CFDL and Shanghai Disclosure Schedule were
dated as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstances, then CFDL or Shanghai, as applicable, shall
promptly deliver to CHCG an update to the CFDL and Shanghai Disclosure Schedule
specifying such change (a “Disclosure
Schedule Update”).
(c)
It
will promptly update any relevant and material information provided to CHCG
after the date hereof pursuant to the terms of this Agreement.
4.5
Commercially
Reasonable Efforts.
During
the Pre-Closing Period, each of CFDL and Shanghai shall use its commercially
reasonable efforts to cause the conditions set forth in Article VI and Article
VII to be satisfied on a timely basis and so that the Closing can take place
on
or before December 15, 2006, in accordance with Section 1.5, and shall not
take
any action or omit to take any action, the taking or omission of which would
or
could reasonably be expected to result in any of the representations and
warranties of CFDL and Shanghai set forth in this Agreement becoming untrue,
or
in any of the conditions of Closing set forth in Article VI or Article VII
not
being satisfied.
4.6
CONFIDENTIALITY;
PUBLICITY.
Each
of
CFDL and Shanghai shall ensure that:
(a)
It
and its Representatives keep strictly confidential the existence and terms
of
this Agreement prior to the issuance or dissemination of any mutually agreed
upon press release or other disclosure of the Exchange; and
(b)
neither it nor any of its Representatives issues or disseminates any press
release or other publicity or otherwise makes any disclosure of any nature
(to
any of its suppliers, customers, landlords, creditors or employees or to any
other Person) regarding any of the Exchange; except in each case to the extent
that it is required by law to make any such disclosure regarding such
transactions or as separately agreed by the parties; provided, however, that
if
it is required by law to make any such disclosure, CFDL or Shanghai advises
CHCG, at least five business days before making such disclosure, of the nature
and content of the intended disclosure.
21
ARTICLE
V.
COVENANTS
OF CHCG
5.1
NOTIFICATION.
During
the Pre-Closing Period, CHCG shall promptly notify CFDL or Shanghai in writing
of:
(a)
the
discovery by CHCG of any event, condition, fact or circumstance that occurred
or
existed on or prior to the date of this Agreement which is contrary to any
representation or warranty made by CHCG in this Agreement; and,
(b)
any
event, condition, fact or circumstance that occurs, arises or exists after
the
date of this Agreement (except as a result of actions taken pursuant to the
written consent of Shanghai ) and that is contrary to any representation or
warranty made by CHCG in this Agreement;
5.2
FILINGS
AND CONSENTS; COOPERATION.
CHCG
shall ensure that:
(a)
Each
filing or notice required to be made or given (pursuant to any applicable Law,
Order or contract, or otherwise) by CHCG in connection with the execution and
delivery of any of the Transactional Agreements, or in connection with the
consummation or performance of the Exchange, is made or given as soon as
possible after the date of this Agreement;
(b)
Each
Consent required to be obtained (pursuant to any applicable Law, Order or
contract, or otherwise) by CHCG in connection with the execution and delivery
of
any of the Transactional Agreements, or in connection with the consummation
or
performance of the Exchange, is obtained as soon as possible after the date
of
this Agreement and remains in full force and effect through the Closing Date;
(c)
CHCG
promptly delivers to CFDL and Shanghai a copy of each filing made, each notice
given and each Consent obtained by CHCG during the Pre-Closing Period; and
(d)
During the Pre-Closing Period, CHCG and its Representatives cooperate with
CFDL,
Shanghai and their Representatives, and prepare and make available such
documents and take such other actions as CFDL or Shanghai may request in good
faith, in connection with any filing, notice or Consent that CFDL or Shanghai
is
required or elects to make, give or obtain.
5.3
COMMERCIALLY
REASONABLE EFFORTS.
During
the Pre-Closing Period, CHCG shall use its commercially reasonable efforts
to
cause the conditions set forth in Article VI and Article VII to be satisfied
on
a timely basis and so that the Closing can take place on or before December
15,
2006 or as soon thereafter as is reasonably practical, in accordance with
Section 1.5, and shall not take any action or omit to take any action, the
taking or omission of which would or could reasonably be expected to result
in
any of the representations and warranties or CHCG set forth in this Agreement
becoming untrue or in any of the conditions of closing set forth in Article
VI
or Article VII not being satisfied.
22
5.4 DISCLOSURE
OF CONFIDENTIAL INFORMATION.
(a)
Each
of CHCG, Shanghai and the Shareholders acknowledges and agrees that it may
receive Confidential Information in connection with this Transaction including
without limitation, the CFDL and Shanghai Disclosure Schedule and any
information disclosed during the due diligence process, the public disclosure
of
which will harm the disclosing party’s business. The Receiving Party may use
Confidential Information only in connection with the Transaction. The results
of
the due diligence review may not be used for any other purpose other than in
connection with the Transaction. Except as expressly provided in this Agreement,
the Receiving Party shall not disclose Confidential Information to anyone
without the Disclosing Party’s prior written consent. The Receiving Party shall
take all reasonable measures to avoid disclosure, dissemination or unauthorized
use of Confidential Information, including, at a minimum, those measures it
takes to protect its own confidential information of a similar nature. The
Receiving Party shall not export any Confidential Information in any manner
contrary to the export regulations of the governmental jurisdiction to which
it
is subject.
(b)
The
Receiving Party may disclose Confidential Information as required to comply
with
binding orders of governmental entities that have jurisdiction over it, provided
that the Receiving Party (i) gives the Disclosing Party reasonable notice (to
the extent permitted by law) to allow the Disclosing Party to seek a protective
order or other appropriate remedy, (ii) discloses only such information as
is
required by the governmental entity, and (iii) uses commercially reasonable
efforts to obtain confidential treatment for any Confidential Information so
disclosed.
(c)
All
Confidential Information shall remain the exclusive property of the Disclosing
Party. The Disclosing Party’s disclosure of Confidential Information shall not
constitute an express or implied grant to the Receiving Party of any rights
to
or under the Disclosing Party’s patents, copyrights, trade secrets, trademarks
or other intellectual property rights.
(d)
The
Receiving Party shall notify the Disclosing Party immediately upon discovery
of
any unauthorized use or disclosure of Confidential Information or any other
breach of this Agreement by the Receiving Party. The Receiving Party shall
cooperate with the Disclosing Party in every reasonable way to help the
Disclosing Party regain possession of such Confidential Information and prevent
its further unauthorized use.
(e)
The
Receiving Party shall return or destroy all tangible materials embodying
Confidential Information (in any form and including, without limitation, all
summaries, copies and excerpts of Confidential Information) promptly following
the Disclosing Party’s written request; provided, however, that, subject to the
provisions of this Agreement, the Receiving Party may retain one copy of such
materials in the confidential, restricted access files of its legal department
for use only in the event a dispute arises between the parties related to the
Transaction and only in connection with that dispute. At the Disclosing Party’s
option, the Receiving Party shall provide written certification of its
compliance with this Section.
23
5.5
INDEMNIFICATION.
(a)
Each
of CFDL, Shanghai and the Shareholders, jointly and severally, each shall
defend, indemnify and hold harmless CHCG, and its respective employees,
officers, directors, stockholders, controlling persons, affiliates, agents,
successors and assigns (collectively, the “CHCG
Indemnified Persons”),
and
shall reimburse the CHCG Indemnified Person, for, from and against any loss,
liability, claim, damage, expense (including costs of investigation and defense
and reasonable attorneys’ fees) or diminution of value, whether or not involving
a third-party claim (collectively, “Damages”),
directly or indirectly, relating to, resulting from or arising out of:
(i)
any
untrue representations, misrepresentations or breach of warranty by or of CFDL,
Shanghai or the Shareholders contained in or pursuant to this Agreement, and
the
CFDL and Shanghai Disclosure Schedule;
(ii)
any
breach or nonfulfillment of any covenant, agreement or other obligation by
or of
CFDL, Shanghai or the Shareholders (only to the extent made or occurring prior
to or at the Closing) contained in or pursuant to this Agreement, the
Transaction Agreements executed by CFDL, Shanghai or any of the Shareholders
in
their individual capacity, the CFDL and Shanghai Disclosure Schedule, or any
of
the other agreements, documents, schedules or exhibits to be entered into by
CFDL or Shanghai or any of the Shareholders in their individual capacity
pursuant to or in connection with this Agreement;
(iii)
all
of Pre-Closing liabilities of CFDL, Shanghai or the Shareholders; and
(iv)
any
liability, claim, action or proceeding of any kind whatsoever, whether
instituted or commenced prior to or after the Closing Date, which directly
or
indirectly relates to, arises or results from, or occurs in connection with
facts or circumstances relating to the conduct of business of CFDL or Shanghai
,
or the assets of CFDL or Shanghai , or events or circumstances existing on
or
prior to the Closing Date.
(b)
CHCG
shall defend, indemnify and hold harmless CFDL, Shanghai and its respective
affiliates, agents, successors and assigns (collectively, the “Shanghai
Indemnified Persons”),
and
shall reimburse the Shanghai Indemnified Persons, for, from and against any
Damages, directly or indirectly, relating to, resulting from or arising out
of:
(i)
any
untrue representation, misrepresentation or breach of warranty by or of CHCG
contained in or pursuant to this Agreement;
(ii)
any
breach or nonfulfillment of any covenant, agreement or other obligations by
or
of CHCG contained in or pursuant to this Agreement, the Transaction Agreements
or any other agreements, documents, schedules or exhibits to be entered into
or
delivered to pursuant to or in connection with this Agreement.
(c)
Promptly after receipt by an indemnified Party under Section 5.5 of this
Agreement of notice of a claim against it (“Claim”),
such
indemnified Party shall, if a claim is to be made against an indemnifying Party
under such Section, give notice to the indemnifying Party of such Claim, but
the
failure to so notify the indemnifying Party will not relieve the indemnifying
Party of any liability that it may have to any indemnified Party, except to
the
extent that the indemnifying Party demonstrates that the defense of such action
is prejudiced by the indemnified Party’s failure to give such notice.
(d)
A
claim for indemnification for any matter not involving a third-party claim
may
be asserted by notice to the Party from whom indemnification is sought.
24
ARTICLE
VI.
CLOSING
CONDITIONS OF CHCG
CHCG’s
obligations to effect the Closing and consummate the Exchange are subject to
the
satisfaction of each of the following conditions:
6.1
ACCURACY
OF REPRESENTATIONS AND WARRANTIES.
The
representations and warranties of CFDL, Shanghai and the Shareholders in this
Agreement shall have been true and correct as of the date of this Agreement
and
shall be true and correct on and as of the Closing. CFDL, Shanghai and the
Shareholders shall have performed all obligations in this Agreement required
to
be performed or observed by them on or prior to the Closing.
6.2
ADDITIONAL
CONDITIONS TO CLOSING.
(a)
All
necessary approvals under federal and state securities laws and other
authorizations relating to the issuance of the Acquisition Shares and the
transfer of the Shares shall have been received.
(b)
CHCG
shall have obtained an opinion stating that the terms of the Exchange are fair,
just and equitable to CHCG and its shareholders.
(c)
No
preliminary or permanent injunction or other order by any federal, state or
foreign court of competent jurisdiction which prohibits the consummation of
the
Exchange shall have been issued and remain in effect. No statute, rule,
regulation, executive order, stay, decree, or judgment shall have been enacted,
entered, issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the Exchange. All
authorizations, consents, orders or approvals of, or declarations or filings
with, and all expirations of waiting periods imposed by, any Governmental Body
which are necessary for the consummation of the Exchange, other than those
the
failure to obtain which would not materially adversely affect the consummation
of the Exchange or in the aggregate have a material adverse effect on CHCG
and
its subsidiaries, taken as a whole, shall have been filed, occurred or been
obtained (all such permits, approvals, filings and consents and the lapse of
all
such waiting periods being referred to as the “Requisite
Regulatory Approvals”)
and
all such Requisite Regulatory Approvals shall be in full force and effect.
(d)
There
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Exchange, by any
Governmental Body which, in connection with the grant of a Requisite Regulatory
Approval, imposes any material condition or material restriction upon CHCG
or
its subsidiaries or CFDL or Shanghai, including, without limitation,
requirements relating to the disposition of assets, which in any such case
would
so materially adversely impact the economic or business benefits of the Exchange
as to render inadvisable the consummation of the Exchange.
6.3
PERFORMANCE
OF AGREEMENTS.
CFDL,
Shanghai or the Shareholders, as the case may be, shall have executed and
delivered each of the agreements, instruments and documents required to be
executed and delivered, and performed all actions required to be performed
by
CFDL or Shanghai or any of the Shareholders, as the case may be, pursuant to
this Agreement, except as CHCG has otherwise consented in writing.
25
6.4
CONSENTS.
Each
of
the Consents identified or required to have been identified in the CFDL and
Shanghai Disclosure Schedule shall have been obtained and shall be in full
force
and effect, other than those Consents, which have been expressly waived by
CHCG.
6.5
NO
MATERIAL ADVERSE CHANGE AND SATISFACTORY DUE DILIGENCE.
There
shall not have been any material adverse change in the business, condition,
assets, liabilities, operations or financial performance of CFDL or Shanghai
since the date of this Agreement as determined by CHCG in its discretion. CHCG
shall be satisfied in all respects with the results of its due diligence review
of CFDL and Shanghai.
6.6
CFDL/SHANGHAI
CLOSING CERTIFICATES.
In
addition to the documents required to be received under this Agreement, CHCG
shall also have received the following documents:
(a)
copies of resolutions of CFDL and Shanghai , certified by a Secretary, Assistant
Secretary or other appropriate officer of CFDL or Shanghai, authorizing the
execution, delivery and performance of this Agreement and other Transactional
Agreements;
(b)
good
standing certificate from China of CFDL and Shanghai; and
(c)
such
other documents as CHCG may request in good faith for the purpose of (i)
evidencing the accuracy of any representation or warranty made by CFDL and
Shanghai, (ii) evidencing the compliance by CFDL and Shanghai, or the
performance by CFDL and Shanghai of, any covenant or obligation set forth in
this Agreement or any of the other Transactional Agreements, (iii) evidencing
the satisfaction of any condition set forth in Article VII or this Article
VI,
or (iv) otherwise facilitating the consummation or performance of the Exchange.
6.7
TRANSACTIONAL
AGREEMENTS.
Each
Person (other than CHCG) shall have executed and delivered prior to or on the
Closing Date all Transactional Agreements to which it is to be a party.
6.8
RESIGNATION
OF DIRECTORS AND OFFICERS.
CHCG
shall have received a written resignation from each of the directors and
officers of CFDL and Shanghai effective as of the Closing.
6.9
DELIVERY
OF STOCK CERTIFICATES, MINUTE BOOK AND CORPORATE SEAL.
The
Shareholders shall have delivered to CHCG the stock books, stock ledgers, minute
books and corporate seals of CFDL and Shanghai.
26
ARTICLE
VII.
CLOSING
CONDITIONS OF THE SHAREHOLDERS
The
Shareholders’ obligations to effect the Closing and consummate the Exchange are
subject to the satisfaction of each of the following conditions:
7.1
ACCURACY
OF REPRESENTATIONS AND WARRANTIES.
The
representations and warranties of CHCG in this Agreement shall have been true
and correct as of the date of this Agreement and shall be true and correct
on
and as of the Closing and CHCG shall have performed all obligations in this
Agreement required to be performed or observed by them on or prior to the
Closing.
7.2
ADDITIONAL
CONDITIONS TO CLOSING.
(a)
All
necessary approvals under federal and state securities laws and other
authorizations relating to the issuance and transfer of the Acquisition Shares
by CHCG and the transfer of the Shares by CFDL and Shanghai shall have been
received.
(b)
No
preliminary or permanent injunction or other order by any federal, state or
foreign court of competent jurisdiction which prohibits the consummation of
the
Exchange shall have been issued and remain in effect. No statute, rule,
regulation, executive order, stay, decree, or judgment shall have been enacted,
entered, issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the Exchange. All Requisite
Regulatory Approvals shall have been filed, occurred or been obtained and all
such Requisite Regulatory Approvals shall be in full force and effect.
(c)
There
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Exchange, by any federal
or state Governmental Body which, in connection with the grant of a Requisite
Regulatory Approval, imposes any condition or restriction upon the Surviving
Corporation or its subsidiaries (or, in the case of any disposition of assets
required in connection with such Requisite Regulatory Approval, upon CHCG,
its
subsidiaries or Shanghai, CFDL or any of their subsidiaries), including, without
limitation, requirements relating to the disposition of assets, which in any
such case would so materially adversely impact the economic or business benefits
of the Exchange as to render inadvisable the consummation of the Exchange.
7.3 CHCG
CLOSING CERTIFICATES.
The
Shareholders shall have received the following documents:
(a)
copies of resolutions of CHCG, certified by a Secretary, Assistant Secretary
or
other appropriate officer of CHCG, authorizing the execution, delivery and
performance of the Transactional Agreements and the Exchange;
(b)
good
standing certificates for the State of Nevada; and
27
(c)
such
other documents as CFDL or Shanghai may request in good faith for the purpose
of
(i) evidencing the accuracy of any representation or warranty made by CHCG,
(ii)
evidencing the compliance by CHCG with, or the performance by CHCG of, any
covenant or obligation set forth in this Agreement or any of the other
Transactional Agreements, (iii) evidencing the satisfaction of any condition
set
forth in Article VI or this Article VII, or (iv) otherwise facilitating the
consummation or performance of the Exchange.
7.4
NO
MATERIAL ADVERSE CHANGE.
There
shall not have been any material adverse change in CHCG’s business, condition,
assets, liabilities, operations or financial performance since the date of
this
Agreement.
7.5
PERFORMANCE
OF AGREEMENTS.
CHCG
shall have executed and delivered each of the agreements, instruments and
documents required to be executed and delivered, and performed all actions
required by CHCG pursuant to this Agreement, except as CFDL, Shanghai and the
Shareholders have otherwise consented in writing.
7.6
CONSENTS.
Each
of
the Consents identified or required to have been identified in Section 3.4
shall
have been obtained and shall be in full force and effect, other than those
Consents the absence of which shall not have a material adverse effect on CHCG.
7.7
CHCG
STOCK.
On
the
Closing Date, shares of CHCG Common Stock shall be eligible for quotation on
the
OTC Bulletin Board.
ARTICLE
VIII.
FURTHER
ASSURANCES
Each
of
the parties hereto agrees that it will, from time to time after the date of
the
Agreement, execute and deliver such other certificates, documents and
instruments and take such other action as may be reasonably requested by the
other party to carry out the actions and transactions contemplated by this
Agreement, including the closing conditions described in Articles VI and VII.
CFDL , Shanghai and the Shareholders shall reasonably cooperate with CHCG in
its
of the books and records of CFDL and Shanghai, or in preparing any solicitation
materials to be sent to the shareholders of CHCG in connection with the approval
of the Exchange and the transactions contemplated by the Transactional
Agreements.
ARTICLE
IX.
TERMINATION
9.1
TERMINATION.
This
Agreement may be terminated and the Exchange abandoned at any time prior to
the
Closing Date:
(a)
by
mutual written consent of CHCG, CFDL, Shanghai and the Shareholders;
28
(b)
by
CHCG
if the Financial Statements of CFDL and Shanghai for the 2005 fiscal year do
not
disclose minimum net income of 1.25 million USD or if it is not satisfied with
the results of its due diligence of Shanghai for any reason;
(c)
by
CHCG if (i) there is a material Breach of any covenant or obligation of CFDL,
Shanghai or the Shareholders; provided however, that if such Breach or Breaches
are capable of being cured prior to the Closing Date, such Breach or Breaches
shall not have been cured within 10 days of delivery of the written notice
of
such Breach, or (ii) CHCG reasonably determines that the timely satisfaction
of
any condition set forth in Article VI has become impossible or impractical
(other than as a result of any failure on the part of CHCG to comply with or
perform its covenants and obligations under this Agreement or any of the other
Transactional Agreements);
(d)
by
CFDL or Shanghai if (i) there is a material Breach of any covenant or obligation
of CHCG; provided however, that if such Breach or Breaches are capable of being
cured prior to the Closing Date, such Breach or Breaches shall not have been
cured within 10 days of delivery of the written notice of such Breach, or (ii)
CFDL or Shanghai reasonably determines that the timely satisfaction of any
condition set forth in Article VII has become impossible or impractical (other
than as a result of any failure on the part of CFDL or Shanghai or any
Shareholder to comply with or perform any covenant or obligation set forth
in
this Agreement or any of the other Transactional Agreements);
(e)
by
CHCG if the Closing has not taken place on or before December 15, 2006 (except
if as a result of any failure on the part of CHCG to comply with or perform
its
covenants and obligations under this Agreement or in any other Transactional
Agreement);
(f)
by
CFDL or Shanghai if the Closing has not taken place on or before December 15,
2006 (except if as a result of the failure on the part of CFDL, Shanghai or
the
Shareholders to comply with or perform any covenant or obligation set forth
in
this Agreement or in any other Transactional Agreement);
(g)
by
any of CHCG, on the one hand or CFDL or Shanghai, on the other hand, if any
court of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Exchange and
such order, decree, ruling or any other action shall have become final and
non-appealable; provided, however, that the party seeking to terminate this
Agreement pursuant to this clause (g) shall have used all commercially
reasonable efforts to remove such order, decree or ruling; or
(h)
The
parties hereby agree and acknowledge that a breach of the provisions of Sections
4.1, 4.2, 4.3, 4.4 and 4.6 are, without limitation, material Breaches of this
Agreement.
9.2
TERMINATION
PROCEDURES.
If
CHCG
wishes to terminate this Agreement pursuant to Section 9.1, CHCG shall deliver
to the Shareholders, CFDL and Shanghai a written notice stating that CHCG is
terminating this Agreement and setting forth a brief description of the basis
on
which CHCG is terminating this Agreement. If CFDL or Shanghai wishes to
terminate this Agreement pursuant to Section 9.1, CFDL or Shanghai, as
applicable, shall deliver to CHCG a written notice stating that CFDL or Shanghai
is terminating this Agreement and setting forth a brief description of the
basis
on which CFDL or Shanghai is terminating this Agreement.
29
9.3
EFFECT
OF TERMINATION.
In
the
event of termination of this Agreement as provided above, this Agreement shall
forthwith have no further effect. Except for a termination resulting from a
Breach by a party to this Agreement, there shall be no liability or obligation
on the part of any party hereto. In the event of a breach, the remedies of
the
non-breaching party shall be to seek damages from the breaching party or to
obtain an order for specific performance, in addition to or in lieu of other
remedies provided herein. Upon request after termination, each party will
redeliver or, at the option of the party receiving such request, destroy all
reports, work papers and other material of any other party relating to the
Exchange, whether obtained before or after the execution hereof, to the party
furnishing same; provided, however, that CFDL, Shanghai and the Shareholders
shall, in all events, remain bound by and continue to be subject to Section
4.6
and all parties shall in all events remain bound by and continue to be subject
to Section 5.4 and 5.5.
Notwithstanding
the above, both CHCG, on the one hand, and CFDL, Shanghai and the Shareholders,
on the other hand, shall be entitled to announce the termination of this
Agreement by means of a mutually acceptable press release.
ARTICLE
X.
MISCELLANEOUS
10.1
SURVIVAL
OF REPRESENTATIONS AND WARRANTIES.
All
representations and warranties of CFDL, Shanghai and the Shareholders in this
Agreement and the CFDL and Shanghai Disclosure Schedule shall survive shall
survive indefinitely. The right to indemnification, reimbursement or other
remedy based on such representations and warranties will not be affected by
any
investigation conducted by the parties.
10.2
EXPENSES.
Except
as
otherwise set forth herein, each of the parties to the Exchange shall bear
its
own expenses incurred in connection with the negotiation and consummation of
the
transactions contemplated by this Agreement.
10.3
ENTIRE
AGREEMENT.
This
Agreement and the other Transactional Agreements contain the entire agreement
of
the parties hereto, and supersede any prior written or oral agreements between
them concerning the subject matter contained herein, or therein. There are
no
representations, agreements, arrangements or understandings, oral or written,
between the parties to this Agreement, relating to the subject matter contained
in this Agreement and the other Transaction Agreements, which are not fully
expressed herein or therein. The schedules and each exhibit attached to this
Agreement or delivered pursuant to this Agreement are incorporated herein by
this reference and constitute a part of this Agreement.
10.4
COUNTERPARTS
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original but all of which shall constitute one and the same
instrument.
30
10.5
DESCRIPTIVE
HEADINGS.
The
Article and Section headings in this Agreement are for convenience only and
shall not affect the meanings or construction of any provision of this
Agreement.
10.6
NOTICES.
Any
notices required or permitted to be given under this Agreement shall be in
writing and shall be deemed sufficiently given on the earlier to occur of the
date of personal delivery, the date of receipt or three (3) days after posting
by overnight courier or registered or certified mail, postage prepaid,
addressed
as
follows:
| If to CHCG: |
▇▇▇▇▇
▇▇ Group
|
| ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ |
| ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ |
| If to Shanghai: | Shanghai Joy & Harmony Electronics Company Limited |
| If to the Shareholders: | To such address or addresses as a party shall have previously designated by notice to the sender given in accordance with this section. |
10.7
CHOICE
OF LAW.
This
Agreement shall be construed in accordance with and governed by the laws of
the
State of New York without regard to choice of law principles. The parties hereto
each consent to the jurisdiction of the courts of the state of New York, county
of New York and to the federal courts located in the county of New York, State
of New York.
10.8
BINDING
EFFECT; BENEFITS.
This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement,
express or implied, is intended to confer on any Person other than the parties
or their respective successors and permitted assigns, the Shareholders and
other
Persons expressly referred to herein, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.9
ASSIGNABILITY.
Neither
this Agreement nor any of the parties’ rights hereunder shall be assignable by
any party without the prior written consent of the other parties and any
attempted assignment without such consent shall be void.
10.10
WAIVER
AND AMENDMENT.
Any
term
or provision of this Agreement may be waived at any time by the party, which
is
entitled to the benefits thereof. The waiver by any party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any
subsequent breach. The parties may, by mutual agreement in writing, amend this
Agreement in any respect. CFDL, Shanghai and the Shareholders hereby acknowledge
their intent that this
31
Agreement
includes as a party any holder of capital stock in CFDL and Shanghai at the
time
of Closing. CHCG, CFDL, Shanghai and the Shareholders therefore agree that
this
Agreement may be amended, without the further consent of any party to this
Agreement, (i) to add as a new Shareholder any existing shareholder of CFDL
or
Shanghai and (ii) to modify Schedule 1 to reflect the addition of such
shareholder.
10.11
ATTORNEYS’
FEES.
In
the
event of any action or proceeding to enforce the terms and conditions of this
Agreement, the prevailing party shall be entitled to an award of reasonable
attorneys’ and experts’ fees and costs, in addition to such other relief as may
be granted.
10.12
SEVERABILITY.
If
any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain
in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to
the
extent not held invalid or unenforceable.
10.13
CONSTRUCTION.
In
executing this Agreement, the parties severally acknowledge and represent that
each: (a) has fully and carefully read and considered this Agreement; (b) has
or
has had the opportunity to consult independent legal counsel regarding the
legal
effect and meaning of this document and all terms and conditions hereof; (c)
has
been afforded the opportunity to negotiate as to any and all terms hereof;
and
(d) is executing this Agreement voluntarily, free from any influence, coercion
or duress of any kind. The language used in this Agreement will be deemed to
be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party.
IN
WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of
the day and year first above written.
▇▇▇▇▇
▇▇
Group
By:
________________________
Name:
______________________
Title:
_______________________
Shanghai
Joy & Harmony Electronics Company Limited
By:
________________________
Name:
______________________
Title:
_______________________
Shareholders:
See
attached Shareholder signature pages
32
EXHIBIT
A
CERTAIN
DEFINITIONS
For
purposes of the Agreement (including this Exhibit A):
“Agreement”
shall
mean the Share Exchange Agreement to which this Exhibit A is attached (including
all Disclosure Schedules and all Exhibits), as it may be amended from time
to
time.
“Approved
Plans”
shall
mean a stock option or similar plan for the benefit of employees or others,
which has been approved by the shareholders of Shanghai.
“Average
CHCG Stock Price”
shall
refer to the average of the closing price of the Common Stock of CHCG on the
OTC
Bulletin Board equaling to $4.0395 per share based upon the close price of
CHCG
Common Stock during the 10 consecutive trading days immediately preceding the
date of the Agreement.
“Breach”
There
shall be deemed to be a “Breach” of a representation, warranty, covenant,
obligation or other provision if there is or has been any inaccuracy in or
breach of, or any failure to comply with or perform, such representation,
warranty, covenant, obligation or other provision.
“Certificates”
shall
have the meaning specified in Section 1.3 of the Agreement.
“CFDL
Common Stock”
shall
mean the shares of common stock of CFDL.
“CFDL
and Shanghai Disclosure Schedule” shall
have the meaning specified in introduction to Article II of the Agreement.
“CHCG”
shall
have the meaning specified in the first paragraph of the Agreement.
“CHCG
Common Stock”
shall
mean the shares of common stock of CHCG.
“CHCG
SEC Reports”
shall
have the meaning specified in Section 4.6 of the Agreement.
“Closing”
shall
have the meaning specified in Section 1.5 of the Agreement.
“Closing
Date”
shall
have the meaning specified in Section 1.5 of the Agreement.
“Code”
shall
have the meaning specified in the Recitals of this Agreement.
“Confidential
Information”
shall
mean all nonpublic information disclosed by one party or its agents (the
“Disclosing
Party”)
to the
other party or its agents (the “Receiving
Party”)
that
is designated as confidential or that, given the nature of the information
or
the circumstances surrounding its disclosure, reasonably should be considered
as
confidential. Confidential Information includes, without limitation (i)
nonpublic information relating to the Disclosing Party’s technology, customers,
vendors, suppliers, business plans, intellectual property, promotional and
marketing activities, finances, agreements, transactions, financial information
and other business affairs, and (ii) third-party information that the Disclosing
Party is obligated to keep confidential. Confidential Information does not
include any information that (i) is or becomes publicly available without breach
of this Agreement, (ii) can be shown by documentation to have been known to
the
Receiving Party at the time of its receipt from the Disclosing Party, (iii)
is
received from a third party who, to the knowledge of the Receiving Party, did
not acquire or disclose such information by a wrongful or tortious act, or
(iv)
can be shown by documentation to have been independently developed by the
Receiving Party without reference to any Confidential Information.
A-1
“Consent”
shall
mean any approval, consent, ratification, permission, waiver or authorization
(including any Governmental Authorization).
“Disclosure
Schedule Update”
shall
have the meaning specified in Section 4.4 of the Agreement.
“Entity”
shall
mean any corporation (including any non profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, cooperative, foundation, society, political party, union, company
(including any limited liability company or joint stock company), firm or other
enterprise, association, organization or entity.
“Environmental
Laws”
shall
mean any Law or other requirement relating to the protection of the environment,
health, or safety from the release or disposal of hazardous
materials.
“Environmental
Permit”
means
all licenses, permits, authorizations, approvals, franchises and rights required
under any applicable Environmental Law or Order.
“Equity
Security”
shall
mean any stock or similar security, including, without limitation, securities
containing equity features and securities containing profit participation
features, or any security convertible into or exchangeable for, with or without
consideration, any stock or similar security, or any security carrying any
warrant, right or option to subscribe to or purchase any shares of capital
stock, or any such warrant or right.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“GAAP”
shall
mean Generally Accepted Accounting Principles, applied on a consistent
basis.
“Governmental
Authorization”
shall
mean any:
(a)
permit, license, certificate, franchise, concession, approval, consent,
ratification, permission,
clearance, confirmation, endorsement, waiver, certification, designation,
rating, registration,
qualification or authorization that is issued, granted, given or otherwise
made
available
by or under the authority of any Governmental Body or pursuant to any Law;
or
(b)
right
under any contract with any Governmental Body.
“Governmental
Body”
shall
mean any:
(a)
nation, principality, state, commonwealth, province, territory, county,
municipality, district
or other jurisdiction of any nature;
(b)
federal, state, local, municipal, foreign or other government;
(c)
governmental or quasi-governmental authority of any nature (including any
governmental
division, subdivision, department, agency, bureau, branch, office, commission,
council,
board, instrumentality, officer, official, representative, organization, unit,
body or Entity and
any
court or other tribunal); or
(d)
individual, Entity or body exercising, or entitled to exercise, any executive,
legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of
any
nature, including
any court, arbitrator, administrative agency or commissioner, or other
governmental authority
or instrumentality.
“Shanghai”
shall
have the meaning specified in the first paragraph of the Agreement
A-2
“Shanghai
Balance Sheet”
shall
mean Shanghai’s audited balance sheet at December 31, 2005.
“Shanghai
Common Stock”
shall
mean the shares of common stock of Shanghai.
“Shanghai
Disclosure Schedule”
shall
have the meaning specified in introduction to Article II of the
Agreement.
“Indebtedness”
shall
mean any obligation, contingent or otherwise. Any obligation secured by a Lien
on, or payable out of the proceeds of, or production from, property of the
relevant party will be deemed to be Indebtedness.
“Intellectual
Property”
means
all industrial and intellectual property, including, without limitation, all
U.S. and non-U.S. patents, patent applications, patent rights, trademarks,
trademark applications, common law trademarks, Internet domain names, trade
names, service marks, service ▇▇▇▇ applications, common law service marks,
and
the goodwill associated therewith, copyrights, in both published and unpublished
works, whether registered or unregistered, copyright applications, franchises,
licenses, know-how, trade secrets, technical data, designs, customer lists,
confidential and proprietary information, processes and formulae, all computer
software programs or applications, layouts, inventions, development tools and
all documentation and media constituting, describing or relating to the above,
including manuals, memoranda, and records, whether such intellectual property
has been created, applied for or obtained anywhere throughout the
world.
“Knowledge”
A
corporation shall be deemed to have “knowledge” of a particular fact or matter
only if a director or officer of such corporation has, had or should have had
knowledge of such fact or matter.
“Laws”
means,
with respect to any Person, any U.S. or non-U.S. federal, national, state,
provincial, local, municipal, international, multinational or other law
(including common law), constitution, statute, code, ordinance, rule, regulation
or treaty applicable to such Person.
“Lien”
shall
mean any mortgage, pledge, security interest, encumbrance, lien or charge,
right
of first refusal, encumbrance or other adverse claim or interest of any kind,
including, without limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction and including any lien or charge arising by Law.
“Material
Adverse Effect”
means
any change, effect or circumstance which, individually or in the aggregate,
would reasonably be expected to (a) have a material adverse effect on the
business, assets, financial condition or results of operations of the affected
party, in each case taken as a whole or (b) materially impair the ability of
the
affected party to perform its obligations under this Agreement and the
Transaction Agreements, excluding any change, effect or circumstance resulting
from (i) the announcement, pendency or consummation of the transactions
contemplated by this Agreement, (ii) changes in the United States securities
markets generally, or (iii) changes in general economic, currency exchange
rate,
political or regulatory conditions in industries in which the affected party
operates.
“Material
Contract”
means
any and all agreements, contracts, arrangements, understandings, leases,
commitments or otherwise, providing for potential payments by or to the company
in excess of $10,000, and the amendments, supplements and modifications
thereto.
“Order”
shall
mean any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any Governmental
Body.
A-3
“Ordinary
Course of Business”
shall
mean an action taken by CFDL or Shanghai if (i) such action is taken in normal
operation, consistent with past practices, (ii) such action is not required
to
be authorized by the Shareholders, Board of Directors or any committee of the
Board of the Directors or other governing body of CFDL or Shanghai and (iii)
does not require any separate or special authorization or consent of any nature
by any Governmental Body or third party.
“Permitted
Liens”
shall
mean (a) Liens for Taxes not yet payable or in respect of which the validity
thereof is being contested in good faith by appropriate proceedings and for
the
payment of which the relevant party has made adequate reserves; (b) Liens in
respect of pledges or deposits under workmen’s compensation laws or similar
legislation, carriers, warehousemen, mechanics, laborers and materialmen and
similar Liens, if the obligations secured by such Liens are not then delinquent
or are being contested in good faith by appropriate proceedings conducted and
for the payment of which the relevant party has made adequate reserves; and
(c)
statutory Liens incidental to the conduct of the business of the relevant party
which were not incurred in connection with the borrowing of money or the
obtaining of advances or credits and that do not in the aggregate materially
detract from the value of its property or materially impair the use thereof
in
the operation of its business.
“Person”
shall
mean any individual, Entity or Governmental Body.
“Pre-Closing
Period”
shall
mean the period commencing as of the date of the Agreement and ending on the
Closing Date.
“Proceeding”
shall
mean any action, suit, litigation, arbitration, proceeding (including any civil,
criminal, administrative, investigative or appellate proceeding and any informal
proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination
or investigation, commenced, brought, conducted or heard by or before, or
otherwise has involved, any Governmental Body or any arbitrator or arbitration
panel.
“Representatives”
of
a
specified party shall mean officers, directors, employees, attorneys,
accountants, advisors and representatives of such party, including, without
limitation, all subsidiaries of such specified party, and all such Persons
with
respect to such subsidiaries. The Related Persons of CFDL or Shanghai shall
be
deemed to be “Representatives” of CFDL or Shanghai, as applicable.
“SEC”
shall
mean the Securities and Exchange Commission.
“Securities
Act”
shall
mean the Securities Act of 1933, as amended.
“Taxes”
shall
mean all foreign, federal, state or local taxes, charges, fees, levies, imposts,
duties and other assessments, as applicable, including, but not limited to,
any
income, alternative minimum or add-on, estimated, gross income, gross receipts,
sales, use, transfer, transactions, intangibles, ad valorem, value-added,
franchise, registration, title, license, capital, paid-up capital, profits,
withholding, payroll, employment, unemployment, excise, severance, stamp,
occupation, premium, real property, recording, personal property, federal
highway use, commercial rent, environmental (including, but not limited to,
taxes under Section 59A of the Code) or windfall profit tax, custom, duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalties or additions to tax with
respect to any of the foregoing; and “Tax” means any of the foregoing
Taxes.
“Tax
Group”
shall
mean any federal, state, local or foreign consolidated, affiliated, combined,
unitary or other similar group of which CFDL or Shanghai is now or was formerly
a member.
A-4
“Tax
Return”
shall
mean any return, declaration, report, claim for refund or credit, information
return, statement or other similar document filed with any Governmental Body
with respect to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
“Transactional
Agreements”
shall
mean:
(a)
this
Agreement; and
(b)
the
Promissory Note.
A-5
EXHIBIT
B
FORM
OF PROMISSORY NOTE
PROMISSORY
NOTE
November
28, 2006
NO.
1005
$4,500,000
FOR
VALUE
RECEIVED, the undersigned, China 3C Group, a Nevada corporation (the “Maker”),
hereby promises to pay to the order of ______________________ (the “Payee”), the
principal amount of $4,500,000, all in accordance with the provisions of this
promissory note.
1.
Payment of Principal. The full amount of the principal of this promissory note
shall be due and payable on May 27, 2007 (the “Maturity Date”).
2.
No
Interest. Under no circumstances shall interest accrue or be charged on the
unpaid principal balance of this promissory note.
3.
Method
of Payment. Payments hereunder shall be in lawful money of the United States
and
shall be made to Payee at the following address or at such other place as Payee
may designate to Maker in writing: ▇/▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 310014.
4.
Prepayment. This promissory note may be prepaid in whole or in part at any
time
without penalty or premium by payment of all or any part of the outstanding
principal amount.
5.
Unconditional Payment Obligation. No provision of this promissory note shall
alter or impair the obligation of the Maker, which is absolute and
unconditional, to pay the principal of this promissory note at the time and
place and in the currency herein prescribed.
6.
Events
of Default. If any of the following events (“Events of Default”) shall occur,
Payee may, by notice to Maker, declare this promissory note and all amounts
payable hereunder to be due and payable, whereupon the same shall become
immediately due and payable:
(a)
Maker
shall become insolvent or admit in writing its inability to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors;
(b)
Any
proceedings shall be instituted by or against Maker seeking either (i) an order
for relief with respect to, or reorganization, arrangement, adjustment or
composition of, its debts under the United States Bankruptcy Code or under
any
other law relating to bankruptcy, insolvency, reorganization, or relief of
debtors, or (ii) appointment of a trustee, receiver or similar official for
Maker or for any substantial part of its property;
(c)
Maker's failure to conduct business in the ordinary course, dissolution or
termination of existence; or
(d)
Maker's failure after the Maturity Date to repay the amounts due hereunder
within ten (10) days of receiving written notice from Payee that such amounts
are due and payable.
7.
Waiver
of Notice. Maker hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this promissory note, and assents to extension
of
the time of payment or forbearance or other indulgence without
notice.
B-1
8.
Governing Law. This promissory note shall be construed in accordance with the
laws of the State of New York, without regard to its conflicts of laws
rules.
9.
Notices. All notices, requests, demands and other communications with respect
to
this promissory note shall be given in person or forwarded by first class United
States mail, postage prepaid, registered or certified mail, with return receipt
requested, addressed to the party's address. Any notice, request, demand or
communication shall be deemed validly given and received upon delivery if given
in person, and on the 5th business day after deposit in the United States mail
if given by mail as provided for in the preceding sentence.
IN
WITNESS WHEREOF, the Maker has executed and delivered this Note effective as
of
November 28, 2006.
▇▇▇▇▇
▇▇
GROUP
___________________________________
Chairman
of the Board and
Chief
Executive Officer
B-2
SCHEDULE
1
Shanghai
Shareholders
| Name |
Number
of Shares
|
Percentage
|
|||
|
▇▇▇▇▇▇▇▇
▇▇▇▇
|
83
|
%
|
|||
|
Hexin
▇▇▇▇▇
|
17
|
%
|
SCHEDULE
2
Shanghai
Disclosure Schedule
COUNTERPART
SIGNATURE PAGE
AMONG
Capital
Future Developments Limited
SHANGHAI
JOY & HARMONY ELECTRONICS COMPANY LIMITED
AND
THE SHAREHOLDERS NAMED THEREIN
A.
The
undersigned shareholder of Capital Future Developments Limited (“CFDL”)
desires to enter into the Share Exchange Agreement dated November 28, 2006
(the
“Agreement”),
among
China 3C Group, CFDL, SHANGHAI JOY & HARMONY ELECTRONICS COMPANY LIMITED
(“Shanghai”) and the Shareholders of CFDL named therein, a copy of which has
been delivered to the undersigned.
B.
The
undersigned hereby adopts, accepts and agrees to all of the terms and provisions
of the Agreement.
C.
This
Counterpart Signature Page has been executed by the undersigned Shareholder.
The
parties to the Agreement are hereby authorized to attach this Counterpart
Signature Page to a copy of the Agreement, together with executed Counterpart
Signature Pages of the other Shareholders. The undersigned agrees that when
this
Counterpart Signature Page has been appended to the Agreement, the Agreement
shall thereupon become a binding agreement between the undersigned, CHCG, CFDL,
Shanghai and other Shareholders who have executed similar Counterpart Signature
Pages, enforceable against the undersigned in accordance with its terms, without
further action by the undersigned.
IN
WITNESS WHEREOF, the undersigned has executed and delivered this Counterpart
Signature Page as of the November 28, 2006.
Shareholder:
By:
______________________
Name:
____________________