Transfer/Assignment and Agreement to Operate
Hangzhou American Flavors Dairy Products Joint Venture Project
1. Introduction. This Agreement is made this 3rd day of September,
1997, by and between American Flavors China (AFC), a Delaware corporation
having a principal place of business at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and China Peregrine Food Corporation (CPFC), a Delaware
corporation having a principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ Point, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
2. Considerations. The following facts and events have been duly
considered by the parties in entering into this Agreement:
2.1 American Flavors China (AFC) presently holds and enjoys 52% of
the joint venture rights in and to a certain joint venture contract entered
into with Hangzhou Dairy Complex, dated July 25, 1993 (the Joint Venture
Contract), with respect to a joint venture business known as Hangzhou
Meilijian Dairy Products Co., Ltd. (Hangzhou Meilijian) in the People's
Republic of China (the Joint Venture Project).
2.2. CPFC presently operates its own joint venture business in the
People's Republic of China (PRC) under the auspices of certain agreements
with China Peregrine Enterprises, Limited.
2.3. CPFC presently has 6,780,000 shares of its capital stock (common
and preferred) issued and outstanding and has granted warrants to certain
investors and stock options to certain key personnel for an additional
3,980,553 shares of its capital stock.
2.4. AFC desires to assign and transfer of all of its right title and
interest in the Joint Venture Contract to CPFC in exchange for an equity
position in CPFC.
2.5. The provisions of this Agreement which provide for the transfer
and assignment of the rights of AFC to CPFC are subject to approval by the
Hangzhou Meilijian Board of Directors, in accordance with Article 13 of the
Joint Venture Contract, and the Hangzhou Foreign Economic and Trade
Commission and any other appropriate governmental agency of the People's
Republic of China.
2.6. While the parties to this Agreement anticipate approval of the
transfer and assignment provided herein by the parties to the Joint Venture
Contract, and while the parties to this Agreement are awaiting approval of
the transfer and assignment by the appropriate governmental agency of the
People's Republic of China, said parties are unsure of the time frame within
which such approval may be effected.
2.7. Notwithstanding the foregoing, the participants to the Joint
Venture Project desire to continue to move the project forward in accordance
with the Joint Venture Contract during the interim period subsequent to the
execution of this Agreement and prior to the approval of the transfer and
assignment herein by the parties to the Joint Venture Contract and prior to
the final governmental approval of the transfer and assignment of AFC's
rights in said Joint Venture Contract to CPFC.
2.8. The parties acknowledge and agree that, in order to achieve the
goals set forth herein, an interim restructure of the operational aspects of
the rights to the Joint Venture Contract is necessary and, accordingly,
agree as follows.
3. Basic Agreement. In consideration of the mutual promises
contained in this Agreement, the parties agree to the following:
3.1. Transfer and Assignment. CPFC hereby purchases the entire
interests of AFC in and to the Joint Venture Contract and AFC hereby
transfers and assigns such interests to CPFC; in full consideration for the
aforesaid transfer and assignment, CPFC forthwith shall direct its Stock
Transfer Agent to issue 870,279 shares of the common stock of CPFC to AFC
and CPFC hereby grants options for 235,406 shares of the common stock of
CPFC to AFC at the option price of $1.00 per share, said options to expire
five (5) years subsequent to the commencement of the public trading of the
common stock of CPFC, all as provided in a certain Option Agreement by and
between the parties hereto executed contemporaneously herewith, attached as
Schedule A;
a. Assignee Assumes Duties and Obligations. By the acceptance of
this assignment, CPFC assumes the performance of all of AFC's duties and
obligations under the Joint Venture Contract and will hold AFC harmless from
any liability or loss resulting from the performance or nonperformance of
such duties and obligations as are set forth and defined in the Joint
Venture Contract.
b. Assumption of Contracts by CPFC. Upon the execution of this
Agreement, CPFC will assume all contracts, if any, entered into by AFC in
the course of the business of the Joint Venture project that remain
executory and that are described in Schedule B attached to this Agreement
and made part of it. Except with respect to a certain contract entered into
by and between AFC and Evergreen, Inc. (Evergreen), AFC will indemnify CPFC
against any loss incurred by CPFC by reason of AFC's breach of any such
contract. CPFC will indemnify AFC against any loss incurred by AFC by
reason of CPFC's breach of any such contract following the execution of this
Agreement.
c. Title Passing/Closing. Upon the execution of this Agreement by
all parties and payment of the purchase price by CPFC to AFC in accordance
with Paragraph 3.1 herein, this transaction shall be deemed closed and
CPFC shall have title to and possession of AFC's right, title and interest
in and to the Joint Venture Contract.
d. Management. Upon the execution of this Agreement, CPFC shall have
the right to appoint three (3) directors to the Board of Directors of
Hangzhou Meilijian Dairy Products Co., Ltd., and to name one of said
directors Chairman; in addition, CPFC shall have the right to appoint, as
its representative, a Deputy General Manager of the Joint Venture Project,
subject to the terms and conditions of any contract existing between such
present Deputy General Manager and Hangzhou Meilijian.
e. Upon the closing of the transaction contemplated herein, and
provided that CPFC shall have obtained directors' and officers' insurance,
▇▇▇▇▇▇▇▇ Sender shall be elected to the Board of Directors of CPFC to serve
at least one term as a director.
3.2 Agency Agreement. AFC, as Principal, hereby appoints CPFC
Principal's exclusive Agent for the performance of all acts required of
Principal, and in the name of Principal, under the Joint Venture Contract.
Agent accepts the appointment.
a. The agency shall begin on the date of this agreement and continue
until terminated in accordance with the provisions of this Agreement.
b. In furtherance of the agency, Agent undertakes performance of all
duties and obligations of Principal under and pursuant to the Joint Venture
Contract, for the purpose of developing manufacturing and distribution of
food products in the People's Republic of China.
c. As full remuneration for Agent's services, Agent shall be
entitled to any and all profit or other remuneration to which Principal is
entitled under the Joint Venture Contract.
d. Unless earlier terminated by the mutual agreement of the parties
to this Agreement, the term of this Agreement shall be until the transfer
and assignment of AFC's rights to the Joint Venture Contract to CPFC is
approved by the Hangzhou Foreign Economic and Trade Commission and any other
appropriate governmental agency of the People's Republic of China, at which
time the provisions of this Paragraph shall 3.2 terminate and be of no
further force or effect. In the event that such approval is not obtained,
the parties hereto agree that the agency created hereby shall continue to
exist coterminous with the Joint Venture Contract.
e. This Agreement does not constitute an agreement for a partnership
or joint venture between Principal and Agent. All expenses and costs
incurred by Agent in meeting Agent's obligations under this Agreement shall
be solely those of Agent, and Principal shall not be liable for their
payment. Agent can make no commitments with third parties that are binding
upon Principal without Principal's written consent, and Agent in no way
shall hold Agent out as having that power.
f. This Agreement is personal to both Principal and Agent, and
neither party can assign or delegate any rights or duties arising hereunder
to a third party, whether by contract, will, or operation of law, without
the prior written consent of the other party to this agreement; any attempt
to do so shall be void.
3.3. Assumption of Obligations.
a. As a covenant separate from the aforesaid Agency Agreement, CPFC
hereby assumes all of the duties and obligations, financial and otherwise,
of AFC under, pursuant to and resulting from the Joint Venture Contract; in
consideration of the covenant contained in this Paragraph 3.3 a., CPFC shall
be entitled to any and all profit or other remuneration to which AFC is
entitled under the Joint Venture Contract.
b. In addition, CPFC shall pay to AFC the amount of $240,000 (US),
which shall be payable by CPFC to AFC four (4) months subsequent to the
approval of the transfer and assignment provided for herein by the Hangzhou
Meilijian Board of Directors, provided, however:
(i) that should the Board of Directors of CPFC determine that such
payment would impair the ability of CPFC to meet its operational
obligations, then such payment, at the option of CPFC, may be deferred for
an additional twelve (12) months, during which time the aforesaid obligation
shall accrue interest at the rate of eight percent (8%) per annum; and
(ii) that CPFC, at its option and in its sole discretion, in lieu of
making payments directly to AFC as set forth above, shall have the right to
issue a joint check or draft in payment of this obligation to AFC and
Evergreen in satisfaction of a certain debt owed by AFC to Evergreen in
connection with a certain packing machine delivered by Evergreen to Hangzhou
Meilijian Dairy Products Co., Ltd.; should the amount of said joint check or
draft amount to less than $240,000, CPFC shall remain indebted to AFC for
the balance of such $240,000.00, pursuant to this paragraph, but in an
amount less the amount of such joint check or draft; and
(iii) that, in consideration of such payment by CPFC, AFC hereby
assigns and transfers to CPFC all of its rights and interest to receive and
collect from Hangzhou Meilijian Dairy Products Co., Ltd. the aforesaid
obligation owing to AFC in the amount of $240,000 (US); and
further provided:
(iv) that, CPFC agrees to pay AFC all or part of the obligation set
forth in paragraph 3.3.b. herein, as appropriate, promptly upon its receipt
of monies from Hangzhou Meilijian,
to the extent of the amount of such monies received.
4. Ratification of Terms of Agreement/Option To Void Agreement.
4.1. This Agreement, and each and every part hereof, is subject to
and conditioned upon the written approval, adoption and ratification of the
terms and conditions of this Agreement by the Board of Directors of AFC and
the Board of Directors and Shareholders of AFC's corporate parent, America
China Enterprises, Inc. (ACE).
4.2. This Agreement shall terminate and be null and void, in the
event:
a. that the written approval, adoption and ratification of the terms
and conditions of this Agreement by the Board of Directors of AFC and the
Board of Directors and Shareholders of AFC's parent ACE, not be obtained
after the duly authorized solicitation of respective shareholders and
directors has been made; or
b. that the assignment and transfer of the interests to the Joint
Venture Contract as provided herein not be approved by the Board of
Directors of Hangzhou Meilijian in accordance with Article 13 of the Joint
Venture Contract by October 15, 1997, or such extended date as may be
mutually agreed upon, in writing, by the parties hereto.
Upon such termination, all common stock received by AFC and stock
options granted to AFC pursuant to this Agreement shall be retired and
canceled by CPFC and any certificates for such stock issued by CPFC to AFC
shall returned by AFC to CPFC within three (3) business days of such
termination. Except as provided in this subparagraph, upon such
termination, neither party to this Agreement shall have any further rights
or obligations under or pursuant to this Agreement nor shall AFC have any
claim or right to any equity or other interest to or in CPFC. Upon such
termination, CPFC agrees to execute all documents appropriate and necessary
to retransfer the Joint Venture Contract interests described herein to AFC.
5. Representations and Warranties of AFC.
The parties hereto understand and agree that representations and
warranties made by the parties herein with respect to the conditions and
activities of the respective Chinese companies in which each is involved
pursuant to a joint venture contract are made by the parties in the context
of the Chinese business environment extant in the People's Republic of
China. As such, there can be no assurance that the sources from which
information is provided concerning such joint ventures are wholly reliable.
Official statistics also may be produced on a basis different to that used
in Western countries. Any of the representations and warranties contained
herein therefore must be subject to some degree of inherent uncertainty due
to doubts about the reliability of available information from and with
regard to the respective joint ventures. Subject to the foregoing, to
induce CPFC to enter into this Agreement, AFC represents and warrants the
following:
5.1. General Representations.
a. AFC has in all material respects complied with and is now in all
material respects in compliance with, all laws and regulations applicable to
AFC or the assets subject of this Agreement or the operation of the Joint
Venture business, and no material capital expenditures will be required in
order to ensure continued compliance therewith. Except for permits or other
licenses already held by AFC or Hangzhou Meilijian Dairy Products Co., Ltd.,
and the approval of the transfer and assignment provided for herein, to the
best of AFC's knowledge, no other permit, license, order or approval of any
authority is material to or necessary for the conduct of the Joint Venture
business or AFC's participation therein.
b. To the best of AFC's knowledge, there are no pending or threatened
or anticipated proceedings by or before any authority which involve new
special assessments, special assessment districts, bonds, taxes,
condemnation action, eminent domain actions, laws or regulations or similar
matters which, if instituted, could reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise), assets,
liabilities, business or other prospects of the Joint Venture, the value or
utility of the assets transferred and assigned hereby, or AFC's ability to
consummate the transactions contemplated herein.
c. To the best of AFC's knowledge, there is no fact which AFC has not
disclosed to CPFC which reasonably could be expected to have a material
adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations, properties or prospects of AFC or the
Joint Venture, the value or utility of the assets transferred and assigned
hereby, or the ability of AFC to consummate the transactions contemplated
herein.
5.2. Representations and Warranties of AFC With Respect to the Joint
Venture.
a. Joint Venture Duly Organized. Hangzhou Meilijian Dairy Products
Co., Ltd. is a limited liability company organized in accordance with the
laws of the People's Republic of China and, in accordance with its Business
License issued October 25, 1993, is authorized to engage in the business of
the manufacture and sale of milk products, fruit juice and ice cream.
b. Joint Venture Interest Properly Issued. AFC's interest in the
Joint Venture Project has been properly issued and approved by the
appropriate authorities in the People's Republic of China.
c. Joint Venture Interest Free of Liens or Encumbrances. AFC has
full, complete, and absolute title to 52% of the issued and outstanding
Joint Venture interests, free of any liens, encumbrances, or agreements of
any kind, except the Joint Venture Contract and the Articles of Association
for Hangzhou Meilijian Dairy Products Co., Ltd.
d. Hangzhou's Financial Condition. There is attached to this
Agreement as Schedule C and made a part of it the most recent financial
statements of Hangzhou Meilijian Dairy Products Co., Ltd. consisting of a
balance sheet as of July 31, 1997 and an income statement for the period
ended July 31,1997. There have been no changes in Hangzhou Meilijian's
financial condition as set out in the balance sheet between the date of the
balance sheet and the date of this Agreement except for those changes that
will normally occur in the regular course of Hangzhou's business. No
dividends, distributions, changes in salaries, payments of profit sharing or
deferred compensation have been made since the date of the financial
statement fully described above.
e. No Suits Pending or Imminent. With the exception of the
anticipated litigation discussed in the Coopers & ▇▇▇▇▇▇▇ "Financial Due
Diligence Review Report - July 1997" with respect to Hangzhou Meilijian, to
the best of AFC's knowledge, there are no actions at law or equity or
administrative proceedings pending against Hangzhou or in which Hangzhou is
a plaintiff, defendant, petitioner, or respondent. Hangzhou does not
propose to commence an action at law or equity or an administrative
proceeding in which it will be a plaintiff or petitioner. There are no
actions at law or equity or administrative proceedings pending in which it
is anticipated that Hangzhou will join or be joined as a party.
f. No Dividends. The Board of Directors of Hangzhou have not
declared any dividends since the date of the financial statements attached
to this Agreement.
g. No Salary Increases; No New Employees. From the date of this
Agreement to the approval of this Agreement by the Board of Directors of
Hangzhou Meilijian, AFC will not consent to any increase in any employee's
salary or the hire of any new management or executive level employee.
h. Officers and Directors. From the date of this Agreement to the
approval of this Agreement by the Board of Directors of Hangzhou Meilijian,
AFC will not elect any other directors or appoint any other officers, except
as CPFC may direct in writing.
i. Joint Venture Obligations. Except as set forth on Schedule D,
attached hereto, to the best of AFC's knowledge, all obligations and
requirements of the participants in the Joint Venture Contract have been
satisfied by the appropriate respective parties; no party to the Joint
Venture Contract is in default or breach of any of the provisions of said
Contract.
j. Execution of Consents. AFC agrees to obtain and deliver to CPFC
any and all appropriate shareholder and director consents in connection with
this transaction upon request of CPFC.
5.3. Representations and Warranties of AFC With Respect to Its
Condition.
a. Company Duly Organized. AFC is a corporation organized in
accordance with the laws of the State of Delaware and, in accordance with
its Articles of Incorporation, is authorized to engage in the business of
holding an interest in the Joint Venture project.
b. Company in Good Standing. AFC is in good standing. All taxes
currently due, including but not limited to income, trust, franchise, sales
and excise taxes, have been paid. There are no pending actions or
proceedings to limit or impair AFC's power to engage in business or to
dissolve AFC.
c. No Suits Pending or Imminent. There are no actions at law or
equity or administrative proceedings pending against AFC or in which AFC is
a plaintiff, defendant, petitioner, or respondent, which could have a
material adverse impact upon the asset being transferred hereunder.
d. Tax Matters. Within the times and in the manner prescribed by
law, AFC has filed all tax returns which AFC is required to file, has paid
or provided for all taxes shown thereon to be due an owing by it, and has
paid or provided for all deficiencies or other assessments of taxes,
interest, or penalties owed by it; no taxing authority has asserted, or
will successfully asserted, any claim for the assessment of any additional
taxes of any nature with respect to any periods covered by any such tax
returns. All taxes which are required to be withheld or collected by AFC
have been duly withheld or collected and, to the extent required, have been
paid to the proper taxing authority or properly segregated or deposited as
required by law. Each tax return filed by AFC fully and accurately reflects
its liability for taxes for such year or period and accurately sets forth
all items (to the extent required to be included or reflected in such
returns) relevant to it future liability for taxes, including the tax bases
of its properties and assets. The provisions for taxes payable reflected in
the financial statements are fully adequate and correct.
In addition, with respect to tax matters of AFC:
(i) No audit of any tax return of AFC is in progress, or to the
knowledge of the Seller or AFC, threatened or anticipated;
(ii) No issues have been raised with AFC by any taxing authority
which are currently pending in connection with any tax returns.
No material issues have been raised in any examination by any
taxing authority with respect to AFC which, by application or
similar principals, reasonably could be expected to result in a
proposed deficiency for any other period not so examined.
There are no unresolved issues or unpaid deficiencies relating
to any such examination;
(iii) AFC is not subject to any partnership, joint venture or other
arrangement which is treated as a partnership for federal or
state income tax purposes;
6. Indemnification.
6.1. Subject to the limitations set forth in paragraph 6.6 herein,
AFC agrees to indemnify and hold CPFC harmless from and against all
liability, loss, damage and other claims arising directly or indirectly from
AFC's breach of its representations of ownership set forth in paragraph
5.2.c herein.
6.2. Subject to the limitations set forth in paragraph 6.6 herein,
each party to this Agreement will indemnify and hold harmless the other
party by reason of any loss, including attorneys fees, suffered as a result
of the failure of such party to satisfy and perform the terms and conditions
and obligations of this Agreement or the material breach by such party of
any of its representations and warranties contained herein. This paragraph
does not apply to the actions of others that are not within the control of a
party to which this indemnification provision applies, insofar as the
ability of such party to satisfy the terms and conditions and obligations of
this Agreement are dependent upon such actions of others.
6.3. Subject to the limitations set forth in paragraph 6.6 herein,
AFC will indemnify and hold harmless CPFC with respect to any claim asserted
against CPFC involving a debt or obligation of AFC not specifically assumed
by CPFC hereunder, excluding the obligation of AFC to Evergreen referenced
in paragraph 3.3.b.(ii) herein.
6.4. Satisfaction of indemnification Obligations. If a party hereto
receives notice of any claim or other commencement of any action or
proceeding with respect to it as to which the other party to this Agreement
is obligated to provide indemnification pursuant to paragraphs 6.1, 6.2 or
6.3 herein , the party receiving such notice promptly shall give the other
party written notice thereof, which notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
6.5. In connection with any claim giving rise to indemnity hereunder
resulting from or arising out of any claim or legal proceeding by a person
who is not a party to this Agreement, the Indemnitor at its sole cost and
expense may, upon written notice to the Indemnitee, assume the defense of
any such claim or legal proceeding using counsel of its choice (subject to
the approval of the Indemnitee) if it acknowledges to the Indemnitee in
writing its obligations to indemnify Indemnitee with respect to all elements
of such claim. Indemnitee shall be entitled to participate in the defense
of any such action, with its counsel and at its own expense; provided,
however, that if Indemnitee, in its sole discretion, determines that there
exists a conflict of interest between it and the Indemnitor, Indemnitee
shall have the right to engage separate counsel, the reasonable costs and
expenses of which shall be paid by the Indemnitor, but in no event shall the
Indemnitor be liable to pay for the costs and expenses of more than one such
separate counsel. If the Indemnitor does not assume the defense of any such
action or litigation resulting therefrom, the Indemnitee may defend against
such claim or litigation, after giving notice of same to Indemnitor, on such
terms as Indemnitee may deem appropriate, and Indemnitor shall be entitled
to participate in (but not control) the defense of such action with his
counsel and at his own expense. If Indemnitor thereafter seeks to question
the manner in which Indemnitee defended such third party claim or the amount
or nature of any such settlement, Indemnitor shall have the burden to prove
by a preponderance of the evidence that Indemnitee did not defend or settle
such third party claim in a reasonably prudent manner. Notwithstanding the
foregoing, however, Indemnitee shall in all cases be entitled to control the
defense of any action if it:
a. may result in injunctions or other equitable remedies in respect
of Indemnitee or the business of Hangzhou Meilijian;
b. may result in liabilities which, taken with other than existing
claims by Indemnitee under Indemnitor's indemnification
obligations, would not be fully indemnified hereunder;
c. may have an adverse impact on the business of the Indemnitee or
Hangzhou Meilijian or the financial condition of same (including
an effect on the tax liabilities, earnings, or ongoing business
relationships) even if Indemnitor pays all indemnification amounts
in full.
6.6. Limitation of Indemnification. The provisions of this
indemnification agreement shall be subject to and limited by the following:
a. The maximum amount which any party, as indemnitor, shall be
required to pay to the other party, as Indemnitee, shall be
limited to $1,800,000.00, inclusive of all costs and expenses,
including attorneys fees; and
b. The obligation to indemnify created herein shall be applicable and
limited to an indemnifiable loss, damage or claim, as described in
paragraphs 6.1, 6.2 and 6.3 herein:
a. for which a notice of claim is made by an Indemnitee against
an indemnitor hereunder within the two (2) year period
commencing with the approval of the assignment and transfer of
the interests to the Joint Venture Contract as provided herein
by the Board of Directors of Hangzhou Meilijian in accordance
with Article 13 of the Joint Venture Contract. Such a notice
of claim shall be deemed made on the date of the delivery or
the mailing of same by the Indemnitee to the indemnitor at its
last known address; and
b. which indemnifiable loss, damage or claim exceeds $5,000.00.
6.7. Right to Offset. The provisions of Paragraph 3.3.b. herein
shall be subject to the CPFC's right to offset credits to CPFC by reason of
AFC's indemnification obligations under the preceding indemnification
paragraph. The right of offset provided herein is subject to the condition
that:
a. CPFC gives written notice to the AFC of the occurrence or
existence of an indemnifiable event;
b. AFC fails to remedy, resolve or remove the charge/loss or
anticipated charge/loss against CPFC resulting from such event
within ninety (90) days of AFC's receipt of such notice.
7. Representations and Warranties of CPFC. The parties hereto
understand and agree that representations and warranties made by the parties
herein with respect to the conditions and activities of the respective
Chinese companies in which each is involved pursuant to a joint venture
contract are made by the parties in the context of the Chinese business
environment extant in the People's Republic of China. As such, there can be
no assurance that the sources from which information is provided concerning
such joint ventures are wholly reliable. Official statistics also may be
produced on a basis different to that used in Western countries. Any of the
representations and warranties contained herein therefore must be subject to
some degree of inherent uncertainty due to doubts about the reliability of
available information from and with regard to the respective joint ventures.
Subject to the foregoing, to induce AFC to enter into this Agreement, CPFC
represents and warrants the following:
7.1. General Representations.
a. CPFC presently operates a Chinese joint venture business known as
Green Food Peregrine Children's Food Company, Ltd. (Green Food), pursuant to
a certain Interim Agreement by and between CPFC and China Peregrine
Enterprises, Limited, a Texas Limited Partnership holding 68.5% of the joint
venture interests in Green Food. To the best of CPFC's knowledge, CPEL has
in all material respects complied with and is now in all material respects
in compliance with, all laws and regulations applicable to CPEL or the
operation of Green Food. Except for permits or other licenses already held
by Green Food and the approval by the appropriate governmental authorities
of the transfer and assignment of CPEL's Green Food joint venture interests
to CPFC, to the best of CPFC's knowledge, no other permit, license, order or
approval of any authority is material to or necessary for the conduct of
Green Food or CPFC's participation therein.
b. To the best of CPFC's knowledge, there is no fact which CPFC has
not disclosed to AFC which reasonably could be expected to have a material
adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations, properties or prospects of CPFC or Green
Food, or the ability of CPFC to consummate the transactions contemplated
herein.
7.2 Representations and Warranties of CPFC With Respect to Green
Food.
a. Joint Venture Duly Organized. Green Food is a limited liability
company organized on April 13, 1993, in accordance with the laws of the
People's Republic of China and, pursuant to its Business License, is
authorized to engage in the business of the manufacture and sale of milk and
food products.
b. No Suits Pending or Imminent. To the best of CPFC's knowledge,
there are no actions at law or equity or administrative proceedings pending
against Green Food or in which Green Food is a plaintiff, defendant,
petitioner, or respondent. Green Food does not propose to commence an
action at law or equity or an administrative proceeding in which it will be
a plaintiff or petitioner. There are no actions at law or equity or
administrative proceedings pending in which it is anticipated that Green
Food will join or be joined as a party.
c. Joint Venture Interests. CPFC presently holds the rights to 68.5%
of the joint venture interests in Green Food; upon the approval by the
appropriate governmental authorities of CPEL's transfer and assignment of
such Green Food joint venture interests to CPFC, CPFC will have full,
complete, and absolute title to 68.5% of the issued and outstanding Joint
Venture interests, free of any liens, encumbrances, or agreements of any
kind, except the Green Food joint venture contract and the Articles of
Association for Green Food.
7.3 Representations and Warranties of CPFC With Respect its
Condition.
a. Company Duly Organized. CPFC is a corporation organized in
accordance with the laws of the State of Delaware and, in accordance with
its Articles of Incorporation, is authorized to engage in the business of
holding an interest in the Joint Venture Project. The copies of the Articles
of Incorporation and By-Laws of CPFC, as amended to date, which have been
furnished to AFC by CPFC, are correct and complete.
b. Company in Good Standing. CPFC is a corporation in good
standing. All taxes currently due, including but not limited to income,
trust, franchise, sales and excise taxes, have been paid. There are no
pending actions or proceedings to limit or impair CPFC's power to engage in
business or to dissolve CPFC.
c. Continuity of Operations. CPFC shall use its best efforts in
connection with future fund raising to provide for and maintain the
operation of its various business ventures including the Joint Venture
Project which is the subject of the transaction contemplated herein.
d. Financial Condition. As of the date hereof, CPFC has cash on
hand in excess of $200,000.00 and no current or long term liabilities; CPFC
presently operates a joint venture business known as Green Food Peregrine
Children's Food Company, Ltd. in the People's Republic of China and has
rights to 68.5% of Green Food. The financial statements of Green Food as of
December 31, 1996, and an unaudited June 30, 1997 balance sheet of Green
Food, are annexed hereto as Schedule E and there is attached to this
Agreement as Schedule F the most recent financial statements of CPFC
consisting of a balance sheet as of June 30, 1997. The December 31, 1996
Green Food statement and the June 30, 1997 CPFC balance sheet are complete
and correct and fairly represent the financial position of Green Food and
CPFC, respectively, on the dates of such statements and the results of
operations for the periods covered thereby. Except insofar as the aforesaid
unaudited June 30, 1997 pro forma balance sheet of Green Food, prepared by
CPFC from Green Food management reports for internal information purposes
only, may reflect material changes to the financial condition of Green Food
since December 31, 1996, to the best of CPFC's knowledge, there have been no
changes in Green Food's financial condition as set out in its December 31,
1996 financial statement between the date thereof and June 30, 1997, except
for those changes that have normally occurred in the regular course of Green
Food's business.
e. No Suits Pending or Imminent. There are no actions at law or
equity or administrative proceedings pending against CPFC or in which CPFC
is a plaintiff, defendant, petitioner, or respondent. CPFC does not propose
to commence an action at law or equity or an administrative proceeding in
which it will be a plaintiff or petitioner. There are no actions at law or
equity or administrative proceedings pending in which it is anticipated that
CPFC will join or be joined as a party.
f. Compliance. CPFC has complied with all applicable securities
laws, rules and regulations with respect to the fund raising activities
engaged in by CPFC.
g. Insurance. CPFC shall use its best efforts to obtain directors'
and officers' insurance on a priority basis.
h. Capitalization. The authorized capital stock of CPFC consists of
20,000,000 shares of Common Stock, $.001 par value, of which 5,020,000
shares are validly issued and outstanding, fully paid and nonassessable and
3,980,553 shares are reserved for issuance pursuant to outstanding warrants
and options as identified on a schedule hereto and 5,000,000 shares of
Preferred Stock, $.001 par value, of which 1,760,000 shares are validly
issued and outstanding, fully paid and nonassessable. Except as set forth
on a schedule hereto, there are no (i) outstanding warrants, options or
other rights to purchase or acquire, or preemptive rights with respect to
the issuance or sale of, the capital stock of CPFC or an subsidiary of CPFC;
(ii) other securities of CPFC directly or indirectly convertible into or
exchangeable for shares of capital stock of CPFC; or (iii) other than
Securities Laws restrictions on the transfer of CPFC's capital stock.
i. Stockholder List. Attached as Schedule G is a true and complete
list of the stockholders of CPFC, showing the number of shares of capital
stock or other securities of CPFC held by each major stockholder as of the
date of this Agreement.
j. Authorization of Transaction; Issuance of Shares. The execution,
delivery and performance of this Agreement and the Option Agreement referred
to in Section 3.1 hereof have been duly authorized by all necessary
corporate or other action of CPFC and each such agreement is the valid and
binding obligation of CPFC, enforceable in accordance with its terms, except
to the extent limited by bankruptcy, insolvency, moratorium, reorganization
or other similar laws affecting creditor's rights generally and to general
principles of equity. The issuance of CPFC's common stock and options to
AFC pursuant to the terms of this Agreement shall be duly and validly
authorized, and no further approval or authority of the stockholders or the
directors of CPFC will be required for the issuance of the common stock and
options as contemplated by this Agreement. When issued to AFC, the common
stock of CPFC will be validly issued, fully paid and non-assessable, free
and clear of all liens and encumbrances.
k. Approvals; Compliance With Laws. CPFC is not in violation of its
Charter or by-laws as of the date hereof. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby (i)
do not require any approval or consent of, or filing with, and governmental
agency or authority in the United States of America or otherwise which has
not been obtained and which is not in full force and effect as of the date
hereof, (ii) will not conflict with or constitute a breach or violation of
the Charter or by-laws of CPFC or of any material agreement to which CPFC or
its assets is subject, and (iii) will not result in a violation of any law
or regulation to which it or its assets is subject.
l. Offering Memorandum. The Offering Memorandum of CPFC, dated March
12, 1997, attached hereto as Schedule H describes all material aspects of
the business of Green Food and CPFC. The factual information contained
therein is correct in all material respects, the assumptions are reasonable,
and the projections are, to the best knowledge of CPFC, reasonably
attainable within the periods indicated as of March 12, 1997.
8. Securities Issued As Consideration.
8.1. Unregistered Stock. A registration statement for the securities
issued as consideration for the transaction herein is not in effect. To
avoid violation of the Securities Act of 1933, as amended, CPFC may require
a written commitment from AFC before delivery of the certificate or
certificates for the securities issued pursuant to Paragraph 3.1 herein.
The commitment shall be in a form prescribed by CPFC and will state that it
is the intent of AFC to acquire the securities for investment only and not
with the intent of transferring or reselling same; that AFC has been
informed that the securities may be "restricted" pursuant to Rule 144 of the
Securities and Exchange Commission and that any resale, transfer, or other
distribution of the securities may only be made in conformity with Rule 144,
the Securities Act of 1933, as amended, or other federal statute, rule, or
regulation. CPFC may place a legend on the face of the certificate or
certificates in accordance with this commitment and may refuse to permit
transfer of the securities unless it receives satisfactory evidence that the
transfer will not violate Rule 144, the Securities Act of 1933, as amended,
or any other federal statute, rule, or regulation.
8.2. Non Tradable Stock. The parties acknowledge and agree that no
representations or assurances have been made or given concerning whether
such securities referenced herein are tradable or, if tradable, the price at
which such may be traded; notwithstanding the foregoing, CPFC shall use its
best efforts, within the bounds of applicable securities laws, to promote
the creation of a trade market for such shares through the registration of
the securities referred to herein.
8.3. Registration Covenant. With respect to the securities
referenced in this Agreement, CPFC agrees to provide for the participation
of AFC in any future registration statement that CPFC may file with respect
to its common stock. CPFC shall use its best efforts, within the bounds of
applicable securities laws, to register its securities to facilitate the
creation of a public trading market for such securities as soon as
practicable. All expenses associated with such registration statement shall
be the responsibility of CPFC, including those expenses attributable to the
participation of AFC in such registration statement. AFC shall not have the
right to cause CPFC to initiate and prosecute such registration statement
upon the specific demand of AFC, nor should anything contained herein be
deemed to provide or create such right. The Registration Rights granted
hereby are subject to and governed by the following:
a. If at any time or times CPFC shall determine to register any of
its securities under the Act and in connection therewith CPFC may lawfully
register any of the Registrable Securities, CPFC will promptly give written
notice thereof to the Holders. Upon the written request of the Holder
within thirty days after receipt of any such notice from CPFC, CPFC will,
except as herein provided, cause all Registrable Securities which the
Holders have requested to be registered to be included in such Registration
Statement, all to the extent requisite to permit the sale or other
disposition of the Registrable Securities. However nothing herein shall
prevent CPFC from at any time abandoning or delaying any registration.
b. If any registration pursuant to this Article shall be underwritten
in whole or in part, CPFC may require that the Registrable Securities
requested for inclusion pursuant to this Article be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith judgment of the
managing underwriter of such public offering the inclusion of all the
securities that all selling stockholders with a contractual right to
participate in such offering request to be included in such offering would
materially reduce the number of shares to be offered by CPFC or materially
interfere with the successful marketing of the shares of stock offered by
CPFC, then CPFC shall only be required to include in the offering so many of
the Registrable Securities as the underwriters believe will not jeopardize
the success of the offering (the securities so included to be apportioned
pro rata among all such selling stockholders according to the total amount
of securities owned by them).
c. With respect to any registration pursuant hereto, all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering (as specified below) in connection therewith shall be borne by
CPFC, provided, however, that any security holders participating in such
registration shall bear their pro rata share of the underwriting discount
and commissions and transfer taxes. The fees, costs and expenses of
registration to be borne by CPFC as provided herein shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for CPFC, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if CPFC and/or selling security holders are required to bear
such fees and disbursements), all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdiction in which the securities to be offered are to be registered or
qualified, and the premiums and other costs of policies of insurance against
liability arising out of such public offering; fees and disbursements of
counsel and accountants for the selling security holders and any other
expenses incurred by the selling security holders not expressly included
above shall be borne by the selling security holders.
d. Each Holder holding Registrable Securities included in any
Registration Statement pursuant to this Article shall furnish to CPFC such
information regarding such holder and the distribution proposed by such
holder as CPFC may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance process.
e. For purposes of this Agreement the following terms shall have the
indicated respective meanings:
"Act" means the Securities Act of 1993, as amended, or any similar
Federal statute, and the rules and regulations of the Commission
issued under the Act, as they each may, from time to time, be in
effect.
"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the United States
securities laws.
"Common Stock" shall mean the $.001 par value voting common stock
of CPFC.
"Holders" shall mean AFC and any recipients of the shares of CPFC
to be issued to AFC pursuant to this Agreement, including, but not
limited to, the shareholders of American China Enterprises, Inc.,
who may receive such shares by way of a dividend or distribution.
"Registrable Securities" means (i) the shares issued to AFC
pursuant to this Agreement and (ii) any other shares of Common
Stock of CPFC issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalization
mergers, consolidations, or similar events); provided, however,
that any shares previously sold by a Purchaser to the public
pursuant to a registered public offering or pursuant to Rule 144
under the Act shall cease to be Registrable Securities.
"Registration Statement" means a registration statement (other
than a registration statement Form S-8 solely with respect to
employee benefits plan, or on Form S-4 solely with respect to Rule
145 transactions, or any successor form or forms used for the
purpose specified by such forms) filed by CPFC with the Commission
under the Act for a public offering and sale of securities of
CPFC.
8.4 Right of Participation in Stockholder Sales ("Co-sale"). If (i)
any individual stockholder of CPFC ("the Corporation") in a management
position with the Corporation who holds more than one percent (1%) of the
issued and outstanding capital stock of the Corporation proposes to sell his
or her stock, which stock represents in excess of fifty percent (50%) of the
aggregate shares held by such Selling Stockholder, or (ii) any corporate
stockholder listed in Schedule G herein, which corporate stockholder holds
more than one percent (1%) of the issued and outstanding presently
restricted capital stock of the Corporation proposes to sell its stock,
which stock represents in excess of fifty percent (50%) of the aggregate
shares held by such Selling Stockholder, or (iii) a group of such
management and/or such corporate stockholders acting together or pursuant to
a common plan proposes to sell stock, which stock represents in excess of
fifty percent (50%) of the aggregate shares held by such Selling
Stockholders, AFC and any recipients of the shares of CPFC to be issued to
AFC pursuant to this Agreement, including, but not limited to, the
Shareholders of American China Enterprises, Inc. who may receive such shares
by way of a dividend or distribution (each an "Offeree Stockholder") shall
have the right to participate in such sale to the extent provided in this
Article.
a. Notice and Election. Not less than thirty (30) days prior to any
such proposed sale of Stock, the Selling Stockholder(s) shall give each of
the Offeree Stockholders written notice of the Selling Stockholder(s)
desire to proceeds with the proposed sale, which notice shall include the
name of the proposed transferee, the number and class of shares of Stock
which the Selling Stockholder(s) desire to sell (the "Tag Along Amount") and
the terms and conditions of the proposed transfer (the "Tag Along Notice").
Any Offeree Stockholder who wishes to participate in a sale pursuant to a
valid Tag Along Notice (a "Participating Stockholder") shall give the
Selling Stockholder(s) written notice of the Participating Stockholder's
election to participate not later than fifteen (15) days prior to the
proposed sale, specifying the number of shares of Stock which such
Participating Stockholder desires to sell.
b. Number of Offeree Shareholder Shares to be Sold. If any
Stockholder elects to participate in the sale, the Selling Stockholder(s)
shall not sell any Stock in such transaction unless the purchaser thereof at
the same time, purchases from each Participating Stockholder (on terms and
conditions no less favorable to the Offeree Stockholders than as set forth
in the Tag Along Notice and on the same terms and conditions as purchased
from the Selling Stockholder(s)), that number of shares of Stock at least
equal to the lesser of:
(i) the total number of shares of Stock which the Participating
Stockholder specified that the Participating Stockholder
desires to sell (the "Desired Amount"); or
(ii) a percentage of the Tag Along Amount equal to a fraction of
which (x) the numerator is the Desired Amount and (y) the
denominator is the sum of (A) the Tag Along Amount plus (B)
the Desired Amounts of all Participating Stockholders.
9. Agreement Not Assignable. This Agreement may not be assigned by
any party without the written consent of the other parties.
10. Counterparts. This Agreement may be executed in several and
separate counterparts which, collectively, shall constitute the operative
Agreement among the parties.
11. Law Governing. This Agreement shall be governed by the laws of
the State of Delaware, without consideration of choice of law principles.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a written amendment executed by both
parties. The waiver by any party of a breach of any provision of this
Agreement shall not be a waiver of any subsequent breach.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
CHINA PEREGRINE FOOD CORPORATION
By /s/ ▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇, Chairman
AMERICAN FLAVORS CHINA, INC.
By /s/ ▇▇▇▇▇▇▇▇ Sender
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▇▇▇▇▇▇▇▇ Sender
Chairman and Chief Executive Officer