EXHIBIT 10.1
AGREEMENT OF
UNITED INFORMATION TECHNOLOGY CO. LTD.
TABLE OF CONTENTS
CONTENTS PAGE
1 Agreement..........................................................4
2 Loan Advance.......................................................5
3 Restrictions on transfer...........................................5
4 Pre-emptive rights.................................................7
5 Use of the loan proceeds...........................................8
6 Business of the Company............................................8
7 Board of Directors.................................................9
8 Reserved matters..................................................10
9 Continuing obligations............................................10
10 Confidentiality...................................................11
11 Financial Projections.............................................11
12 Intellectual Property.............................................13
13 Disclosure........................................................14
14 Obligations of Management & Key Employees.........................15
15 Announcements.....................................................16
16 Notices...........................................................16
17 Severability......................................................16
18 General...........................................................16
19 Whole Agreement...................................................18
20 Governing Law.....................................................18
Schedule 1 (A) The Others Shareholders.......................................19
Schedule 1 (B) The Management Shareholders...................................20
Schedule 1 (C) List of officer, key employee and key engineer................21
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Schedule 2 (A) Particulars of the Company....................................22
Schedule 2 (B) Particulars of the Subsidiary.................................23
Schedule 3 Reserved Matters..................................................24
Schedule 4 Continuing Obligations............................................27
Schedule 5 Financial Projection..............................................29
Schedule 6(A) & 6(B) Milestone for Financial Projection......................31
Schedule 7 Intellectual Property List........................................33
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1. AGREEMENT
1.1 THIS AGREEMENT (this "AGREEMENT") is made on 12 May, 2005 by and among
Comtech Group ("COMTECH"), a company incorporated and existing under
the laws of the Cayman Islands, United Information Technology Co. Ltd.,
a company incorporated and registered in British Virgin Islands ( the
"COMPANY"), [CHINESE HERE] a wholly foreign owned enterprise
established in the People's Republic of China (the "SUBSIDIARY"),
certain individuals listed on Schedule 1(A) hereto (the "OTHER
SHAREHOLDERS") and the management team list on Schedule 1(B) (the
"MANAGEMENT SHAREHOLDERS").
NOTE: "GROUP" OR "GROUP COMPANIES" MEANS THE COMPANY AND ITS SUBSIDIARY FROM
TIME TO TIME AND "GROUP COMPANY" MEANS ANY OF THEM
1.2 WHEREAS:
(A) The Company is a company limited by shares which is currently wholly
owned by Comtech, particulars of which are set out in Schedule 2(A). The
Subsidiary is a wholly foreign owned enterprise legally and beneficially
owned by the Company, particulars of which are set out in Schedule 2(B).
(B) Comtech intends to inject into the Company an aggregate sum of
USD4,000,000 loan advance to the Company.
(C) Comtech, the Company and the Other Shareholders have agreed to enter
into this Agreement for the purposes of (i) recording the terms and
conditions on which Comtech will extend the loan, and (ii) regulating
the relationship between the shareholders of the Company and certain
aspects of the affairs of the Group Company.
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2. LOAN ADVANCE
2.1 The loan advance by Comtech to the Group Company set out in the table
below:
ADVANCE BY AMOUNT DATE
USD
COMTECH 2,500,000 no later than 15 May 2005
COMTECH 1,500,000 1 August 2005
---------
4,000,000 (Note)
NOTE: (1) COMTECH CAN PAY OTHER CURRENCIES EQUIVALENT TO USD4M AS LOAN ADVANCE
TO THE GROUP COMPANY.
(2) IF MILESTONE A HAS FAILED TO ACHIEVE, THE SHORTFALL CAN BE
COMPENSATED IN NEXT INTERVAL. COMTECH HAS ABSOLUTE DISCRETIONARY
AUTHORITY TO DETERMINE TO FURTHER ADVANCE THE LOAN OF USD1.5M TO THE
COMPANY OR NOT UNTIL THE MILESTONE A HAS ACHIEVED.
3. RESTRICTIONS ON TRANSFER: RIGHT OF FIRST REFUSAL & PRIORITY CO-SALE
RIGHT
3.1 Other Shareholders hereby severally, irrevocably and unconditionally
undertakes with Comtech that he shall not sell, transfer or otherwise
dispose of or create any mortgage, charge, pledge, lien or other
encumbrance, third party rights or security interest whatsoever on or
over or in respect of all or any of the shares in the Company (or any
interest therein) without the prior written approval of Comtech.
3.2 (a) Subject to Clause 3.1, if any Other Shareholder (the "TRANSFERRING
SHAREHOLDER") proposes to sell, pledge, or otherwise transfer any Shares
(the "STOCK") or any interest therein to any person or entity then the
other holders of any Stock at the time (the "NON-TRANSFERRING
SHAREHOLDERS") shall have a right of first refusal (the "RIGHT OF FIRST
REFUSAL") to purchase some or all of the Stock proposed to be sold. The
Transferring Shareholder shall give a written notice (the "TRANSFER
NOTICE") to the Non-transferring Shareholders describing fully the
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proposed transfer, including the number of Stock proposed to be
transferred, the proposed transfer price, the name and address of the
proposed transferee, and whether the Company has exercised its right of
first refusal, if any, with respect to that Stock. The Transfer Notice
shall be signed both by the Transferring Shareholder and by the proposed
transferee, and shall constitute a binding commitment of both parties
for the transfer of that Stock. Each Non-transferring Shareholder shall
then have the right to purchase the ratio of (a) the total number of
Shares or Shares Equivalents of a Non-transferring Shareholder to (b)
the total number of Shares and Share Equivalents held by all
Non-transferring Shareholders (its "PRO RATA SHARE") of the Stock
subject to the Transfer Notice at a price per share equal to the
proposed per share transfer price, and on the same terms and conditions
applicable to the proposed transfer, by delivery of a notice of exercise
of its Right of First Refusal within 20 days after the date the Transfer
Notice is delivered to the Non-transferring Shareholder. To the extent
the Non-transferring Shareholders exercise their Right of First Refusal
in accordance with the terms and conditions set forth in this Clause 3,
the number of Shares that the Transferring Shareholder may sell to the
proposed transferee in the transaction shall be correspondingly reduced.
3.3 If the Transferring Shareholder proposes to sell, pledge, or otherwise
transfer any Stock or any interest therein to any person or entity,
including another Shareholder, and not all Non-transferring Shareholders
have elected to exercise their Right of First Refusal under Clause 3.2,
then each Non-transferring Shareholder shall have the right, exercisable
upon written notice to the Transferring Shareholder within 20 days after
the date the Transfer Notice is delivered to the Non-transferring
Shareholders, to participate in the sale of Stock on the same terms and
conditions as the Transferring Shareholder to the extent of that
Non-transferring Shareholder's Pro-rata Share (the "CO-SALE RIGHT").
Notice of exercise of a Co-Sale Right shall indicate the number of
Shares the Non-transferring Shareholder wishes to sell under its Co-Sale
Right. Any Non-transferring Shareholder may elect to sell all or some of
the shares of Stock then held by that Non-transferring Shareholder (or
issuable upon conversion or exercise of any convertible debt, warrants,
or similar securities then held by the Non-transferring Shareholders).
To the extent the Non-transferring Shareholders exercise their Co-Sale
Right in accordance with the terms and conditions set forth in this
Clause 3.3, the number of Shares that the Transferring Shareholder may
sell in the transaction shall be correspondingly reduced.
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3.4 If the Non-transferring Shareholders do not exercise their Right of
First Refusal or their Co-Sale Right with respect to the sale of the
Stock subject to the Transfer Notice, the Transferring Shareholder may,
not later than 60 days following delivery to the Company and the
Non-transferring Shareholders of the Transfer Notice, conclude a
transfer of all of the Stock covered by the Transfer Notice on terms and
conditions not more favourable to the transferor than those described in
the Transfer Notice. Any proposed transfer on terms and conditions more
favourable than those described in the Transfer Notice, as well as any
subsequent proposed transfer of any Stock by the Transferring
Shareholder, shall again be subject to the Right of First Refusal and
Co-Sale Right of the Non-transferring Shareholders and shall require
compliance by the Transferring Shareholder with the procedures described
in this Clause 3.
3.5 Notwithstanding the above, Comtech may transfer all or any of their
Shares to their Affiliates provided always that the transferee shall
agree in writing with the Company (for itself and as trustee for all the
Shareholders), as a condition to such transfer, to be bound by all of
the provisions of any agreement relating to the Company then subsisting
to the same extent as if such transferee were the transferor
Shareholder.
3.6 Any sale, assignment, transfer or disposal of Shares or Shares
Equivalents not permitted by or in accordance with this Agreement or the
Articles shall be null and void.
4. PRE-EMPTIVE RIGHTS
4.1 If the Company desires to issue Shares and/or Shares Equivalents in a
transaction or series of transactions intended to raise capital ("FUND
RAISING ISSUANCE") for the Company or any of its Subsidiaries, then the
Shareholders shall procure that the Company shall first notify Comtech
of the terms and conditions of such proposed issue and shall permit
Comtech (without obligation) to subscribe (on such terms and subject to
such conditions) up to the fraction of such securities being offered
equal to (a) the number of Shares owned by Comtech plus the aggregate
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number of Shares then issuable converted into and/or exchanged for
Shares, divided by (b) the aggregate number of Shares then outstanding
plus the aggregate number of Shares then issuable were all of the
Company's outstanding Shares Equivalents converted into and/or exchanged
for Shares.
4.2 For the avoidance of doubt, "Fund Raising Issuance" for the purpose of
Sub-clause 4.1 excludes any issuance of Shares and/or Shares
Equivalents:
(a) to employees of Group Companies pursuant to purchase or share
option plans approved by the Board, which shall not exceed 20
per cent of all shares of the Company on a fully diluted basis
immediately subsequent to the completion of the financing
contemplated hereby; or
(b) in a Qualifying IPO.
4.3 Comtech shall have fifteen (15) Business Days after receipt of such
notice referred to in Clause 4.1 (or such longer period as the Company
may specify) to irrevocably elect by notice to the Company in writing
whether to subscribe for such securities on such terms. After this
period has expired, the Company shall have up to ninety (90) days to
complete the issuance of any securities not subscribed by Comtech;
provided however, that if during such 90 day period, the Company desires
to offer such securities on terms or conditions that are more favourable
to the Stock hold by Comtech thereof in any material respect, it shall
first re-offer such securities to Comtech pursuant to the procedures set
forth in this Clause 4.
5. USE OF THE LOAN PROCEEDS
The Company undertakes to Comtech to apply the loan proceeds for the
working capital to finance the expansion of the Business and solely
for the purposes set forth in the business plan and budget and in
accordance with control procedures including the payment authorisation
procedures approved by Comtech. The Company shall not, and shall
procure that no Group Company shall, use any proceeds for repayment of
any debt.
6. BUSINESS OF THE COMPANY
The business of the Company shall be the provision of data storage
technology.
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7. BOARD OF THE COMPANY
7.1 The Board of Directors shall be the highest authority of the Company.
The date of completion of this agreement shall be deemed to be the date
of establishment of the Board of Directors.
7.2 The Board of Directors shall be composed of three (3) Directors of whom
two (2) shall be nominated and appointed by Comtech. The remaining one
will be nominated and appointed by Other Shareholders.
7.3 POWERS OF THE BOARD
The Board of Directors shall have the power to make all major decisions of the
Company. All major decisions shall require the approval of a simple majority of
Directors present in person or by proxy at a duly convened meeting of the Board
of Directors.
1) The following matters shall require the approval of simple majority of
the Directors present in person or by proxy at a duly convened meeting
of the Board of Directors;
a) any increase or adjustment of the Company's total investment
and/or registered capital;
b) any amendment to the Articles of Association;
c) strategic management decision of the Company;
d) the dissolution or termination of the Company; and
e) all such other matters which the Board of Directors may
decide from time to time
f) any appointment or change of the Public Accounting Firm of
the Company for the purpose of auditing matters;
g) any material change in the business scope of the Company;
h) the Company's annual financial budget and the formulating of
business plan;
i) the creation of any Encumbrance over any of the property,
business or assets of the Company;
j) the establishment of any Board or other committee and any
terms on which it is to operate;
k) any merger or consolidation of the Company with another
economic organization or entity;
l) the approval of any settlement plan submitted to it in
relation to the termination of consultancy services provided
by the Company to other parties;
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m) any application for the listing of any shares or other
securities of the Company on any stock exchange or for
permission for dealings in any shares or other securities of
the Company in any securities market;
n) any change in the basis of accounting or accounting
principles or policies adopted by the Company other than as
required by law or generally accepted accounting policies
from time to time;
o) any change in the accounting period of the Company;
p) the raising of any indebtedness other than by way of trade
credit on normal commercial terms and in the ordinary course
of business, or the variation or termination of any agreement
for the raising of any such indebtedness (including but not
limit to early repayment);
q) the entering into, variation or termination of any
transaction by the Company with (i) a Party or (ii) any
Affiliate of a Party or (iii) any Director or officer of any
such Party or any Affiliate thereof ;
r) the grant of any form of options and/or convertible bonds to
purchase equity interest in the Company to any of its
Management Team and Key Employees;
s) any investment by the Company in any other company or
enterprise;
t) the opening of any bank accounts and designation of signing
authorities;
u) the appointment of key employee including CEO, CFO and CTO.
8. RESERVED MATTERS
The Company undertakes to Comtech that, it shall not, and shall procure that
none of its subsidiaries shall, do any of the things listed in Schedule 3 unless
the same have been approved by board of directors.
9. CONTINUING OBLIGATIONS
The Company undertakes to Comtech and that it shall comply with all the
obligations set out in Schedule 4.
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10. CONFIDENTIALITY
10.1 Each party hereto undertakes with the others that it shall use all
reasonable endeavours to ensure that any information of a secret or
confidential nature (including, but not limit to, any of the Group
Companies' business plan, dealings, transactions, affairs, proposals,
inventions, business, etc.) received by it relating to the others or any
of the others' Affiliates shall be treated as confidential and shall not
be disclosed to any third party or utilised for personal gain or
interest or for the benefit or interest of third parties except as
required by law or any competent regulatory body or to the extent that
such information is in the public domain other than through breach of
this Sub-clause 10.1 or except in the ordinary and proper course of the
business and operation of the Group Companies or, except, in the case of
Comtech, the disclosure of information relating to the Company and its
business to persons concerned in the management of Comtech, its own
investors and any advisers acting on their behalf.
10.2 Shareholder shall not be in breach of Sub-clause 10.1 by virtue of any
Director passing to the Shareholder who appointed him any information he
receives as a director of the Company, or of any subsidiary of the
Company, but nothing contained in this Agreement shall require such
disclosure where the Director's fiduciary duty to the Company, or of any
such subsidiary, would be breached as a result.
11 FINANCIAL PROJECTIONS
11.1 The Other Shareholders and the Company acknowledge that they have
collectively delivered to Comtech financial projections, dated 29 April,
2005, regarding the Group and its business (the "FINANCIAL
PROJECTIONS"), as specifically set forth on the Financial Projection
attached hereto as Schedule 5;
11.2 The Other Shareholders and the Company represent and warrant to Comtech
jointly and severally that:-
(a) All FINANCIAL PROJECTIONS have been prepared in good faith, on a
professional workmanlike manner, and on a realistic and reasonable basis
after careful examination and due consideration of all relevant factors;
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(b) The FINANCIAL PROJECTIONS are not untrue or misleading in any way or
omit to state any material fact.
11.3 SHARES OF TECHNOLOGY KNOW HOW
(a) On the condition that the Company can generate REVENUE, NET INCOME and
CASH INFLOW FROM OPERATION equivalent to or higher than the Financial
Projections stated in Schedule 5, Other shareholders may transfer their
"Technology Know How" in return for Company Shares in accordance to
Schedule 6 (A) and 6 (B) on the condition that:-
(i) The un- audited management account at each period ended will be reviewed
by Comtech to ascertain the milestone is achieved or not. The year ended
financial information will be audited by a Public Accountants Firm
nominated by Comtech.
(b) The Company has listed the milestone for financial projections as
criteria for Other shareholders to transfer their "Technology Know How"
in return for Company Shares at the end of each period/year ended as
specifically set forth on the Milestone for Financial Projection
attached hereto as Schedule 6 (A) and 6 (B);
(c) At the discretionary of Comtech, who can offer to purchase the Company
shares from Other shareholders in accordance to the timetable and terms
as specifically set forth on the Milestone of Financial Projections
attached hereto as Schedule 6 (A) and 6 (B).
11.4 If the audited accounts of year ended 2005 (audited by a Public
Accountants Firm nominated by Comtech) show that Net Earnings of the
Company is more than USD2M as specifically set forth on the Financial
Projections attached hereto as Schedule 5, the Company may, distribute
special bonus to Other Shareholders, management team and key employees.
11.5 If the audited accounts of year ended 2005 (audited by a Public
Accountants Firm nominated by Comtech) show that Net Earnings of the
Company is more than USD3M, the Company can raise fund from third
parties, including but not limit to Venture Capital. In the transaction
of fund raising, Comtech shall have entitled to first priority right in
the selling of company shares to the third parties.
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11.6 As alternative to clause 11.5, the Other shareholders can purchase the
entire shares hold by Comtech and pay back the amount due to Comtech
plus a premium of USD2M. In no case, the proposal to crystallize this
Sub Clause 11.6 can be later than 21 January 2006 and the agree amount
should be paid to Comtech no later than 31 March 2006.
12 INTELLECTUAL PROPERTY
12.1 The Other Shareholders represent and warrant, jointly and severally,
that:
(a) The Other Shareholders independently developed and owned free and clear
of all claims, security interests, liens and other encumbrances all
products, tools, computer programs, specifications, source code, object
code, graphics, devices, techniques, algorithms, processes, producers,
packaging, drawings, designs, improvements, discoveries, concepts, user
interfaces, software, "look and feel", development, know how, mask
works, Internet domain names, databases, data collections, technical
data, enterprise or business names, logos, formulae, confidential
information, franchises, inventions, instructions, marketing materials,
trade dress, product configurations, brands and designs and all
documentation and media constituting, describing or relating to the
foregoing, including manuals, memoranda and records (collectively, the
"TECHNOLOGY").
(b) The Other Shareholders have all right, title and interest that each of
them may have in or to all Technology.
(c) The possession, development, production, manufacturing, use, offering,
marketing, licensing, distribution, sale and other exploitation by any
Group Company of any and all Technology as now conducted or as proposed
to be conducted does not and will not infringe, violate, misappropriate
or otherwise interfere or conflict with any right, title or interest of
any third party.
(d) The Other Shareholders have not received any notice or claim (whether
written, oral or otherwise) that:-
(i) contests or challenges in any manner whatsoever the Other Shareholders
ownership or rights in the Technology, or
(ii) contests or challenges in any manner whatsoever the validity or
enforceability of any of the Proprietary Rights of the Other
Shareholders in the Technology, or
(e) Each of the Other Shareholders has not assigned, transferred, licensed,
pledged or otherwise encumbered any Technology or agreed to do so.
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(f) No royalties, honoraria, fees or other payments are payable by a Other
Shareholders or any of them to any third party by reason of the
ownership, possession, sale, marketing, use or other exploitation of any
Technology to the extent necessary for the conduct of a Group Company's
business as now conducted or as proposed to be conducted and none (or no
additional amounts) will be payable as a result of the consummation of
the transactions contemplated by this Agreement.
(g) Other Shareholders have at all times maintained and diligently enforced
commercially reasonable procedures to protect all confidential
information relating to the Technology. Each of them has not deposited
any source code or other Technology in any escrow account or otherwise
delivered such source code or other Technology to any escrow agent.
(h) Other Shareholders allow the Group Companies to use the Technology on
"no fee" basis up to the 31 December 2005. If the Company fail to
achieve the milestone C and milestone D as set forth on Schedule 6(A),
Other Shareholders allow the Group Companies to use the Technology on
"no fee" basis up to the 31 December 2006.
(i) All forms of Technology Know How developed after the completion date of
this agreement belong to the Company.
(i) The details of Technology are listed as specifically set forth on
Schedule 7.
13 DISCLOSURE
13.1 The Other Shareholders and the Company acknowledge that all facts
relating to the Group and any Group Company and their businesses that
could reasonably be expected to or would have any Material Adverse
Effect on such Group Company have been fully disclosed to Comtech or to
their legal counsel. All information which was given in writing or
verbally to Comtech or its representatives and professional advisers by
the Other Shareholders and the Company in the course of the negotiations
leading to this Agreement was when given and is now complete, true and
accurate, taken as a whole, in all material respects and not misleading
in any material respect. In the case of the Forecast Materials,
including but not limit to Financial Projections, such information
contained therein is fair and honest and made on reasonable grounds.
There is no fact or matter which has not been disclosed which, if
disclosed, would render any such information untrue, inaccurate or
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misleading. The representations and warranties contained in this
Agreement and the Documents, certificates and other documents made or
delivered in connection herewith do not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements contained therein or herein, in view of the circumstances
under which they were made, not misleading.
14 OBLIGATIONS OF MANAGEMENT AND KEY EMPLOYEES
14.1 The Management Shareholders and Other Shareholders, and each officer,
key employee and key engineer are currently devoting all of his or her
business time to the conduct of the business of [CHINESE HERE]. To the
best information, knowledge and belief of the Management Shareholders
and Other Shareholders, there is no fact or circumstance that may
conflict with the ability of any Other Shareholders or any officer, key
employee or key engineer to devote all of his or her business time to
the conduct of the business of the Group Company. To the best
information, knowledge and belief of the Management Shareholders and
Other Shareholders, no Management Shareholders and Other Shareholders or
any officer, key employee or key engineer is planning to work less than
full time at the Group Company in the future. That means the Management
Shareholders and Other Shareholders, and each officer, key employee and
key engineer will terminate all their relationship with [CHINESE HERE]
except with activities which are related to facilitate the business of
Group Company and with the written approval of board of directors of the
Group Company in advance.
14.2 No Management Shareholders and Other Shareholders, officer, key employee
or key engineer is currently working or, to the best information,
knowledge and belief of the Management Shareholders and Other
Shareholders, plans to work for a competitive enterprise, whether or not
such Management Shareholders and Other Shareholders, officer, key
employee or key engineer is or will be compensated by such enterprise.
Each Management Shareholders and Other Shareholders or officer, key
employee or key engineer of a Group Company is bound by customary
non-competition and non-solicitation covenants or similar restrictive
covenants, in favour of such Group Company and such covenants constitute
legal, valid and enforceable obligations on the part of such
individuals.
14.3 The list of Management Shareholder, officer, key employee and key
engineer are set forth attached hereto as Schedule 1 (B) and Schedule 1
(C) respectively.
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15 ANNOUNCEMENTS
No party shall make or permit any person connected with it to make any
announcement concerning this Agreement or any ancillary matter before, on or
after completion except as required by law or any competent regulatory body or
with the prior written approval of the other parties, such approval not to be
unreasonably withheld or delayed.
16 NOTICES
In the case of any notice required, desired or permitted to be given hereunder
to any of the parties, such notice shall be either delivered personally, sent by
courier, sent by registered post or transmitted by facsimile to the address of
that party (or other address as the respective parties may specify in a notice
given herein) and shall be deemed to have been received, in the case of personal
delivery or courier service, on the date on which it was left at such address,
or in the case of registered post, Five Business Days after being deposited in
the post, or in the case of transmission by facsimile, when a successful
transmission report is generated by sender's machine.
17 SEVERABILITY
The provisions contained in each clause and sub-clause of this Agreement shall
be enforceable independently of each of the others and its validity shall not be
affected if any of the others is invalid. If any of those provisions is void but
would be valid if some parts of the provision were deleted, the provision in
question shall apply with such modification as may be necessary to make it
valid.
18 GENERAL
18.1 Any liability of any party hereunder may in whole or in part be
released, compounded or compromised, or time or indulgence given by a
party to another party, in its absolute discretion without in any way
prejudicing or affecting any other or further rights of the party
against the other party.
18.2 Save as provided otherwise in this Agreement, none of the rights or
obligations under this Agreement may be assigned or transferred without
the prior written consent of all the parties.
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18.3 Nothing in this Agreement shall be deemed to constitute a partnership
between any of the parties nor constitute any party the agent of any
other party for any purpose.
18.4 This Agreement may be executed in any number of counterparts, all of
which together shall constitute one and the same agreement, and any
party may enter into this Agreement by executing a counterpart.
18.5 The Shareholders and Comtech agree, as between themselves, that they
shall procure the convening of all meetings and the giving of all
waivers and consents and the passing of all resolutions and shall
otherwise exercise all powers and rights available to them in order to
give effect to the provisions of this Agreement.
18.6 The Shareholders and Comtech agree, as between themselves, that if any
provisions of the memorandum and/or articles of association or
incorporation or by-laws of any Group Company at any time conflict with
any provisions of this Agreement, the provisions of this Agreement shall
prevail and the shareholders shall exercise all powers and rights
available to them to procure the amendment of such memorandum and/or
articles of association or by-laws to the extent necessary to permit
such Group Company and its affairs to be regulated as provided in this
Agreement.
18.7 Each of the obligations, representations, warranties and undertakings
set out in this Agreement which is not fully performed at Completion
will continue in force after Completion.
18.8 If any shareholder sells or transfers its Shares at any time in
accordance with this Agreement and the Articles, the benefit of each of
the obligations, representations, warranties and/or undertakings
undertaken or given by the Company and the Other Shareholders may be
assigned to the purchaser or transferee of such Shares who may enforce
them as if he had been named in this Agreement as the transferor
shareholder and the purchaser or transferee shall, as a condition of the
sale or transfer, undertake to each of the parties to this Agreement in
a form satisfactory to them to be bound by all the obligations of the
seller or transferor under this Agreement.
18.9 Save as provided otherwise, where any obligation, representation,
warranty or undertaking in this Agreement is expressed to be made,
undertaken or given by two or more persons, such person shall be jointly
and severally responsible in respect of it.
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18.10 Time is of the essence in relation to this Agreement, both as regards
the dates and periods mentioned in this Agreement and as regards any
dates and periods which may be substituted for them in accordance with
this Agreement or by agreement in writing between the parties.
18.11 Each of the parties hereto agrees to use all best efforts to ensure that
the rights granted hereunder are effective and that the respective
parties hereto enjoy the benefits thereof. Such actions include, without
limitation, the use of best efforts to cause the nomination and election
of the directors as provided in Clause 7. Each of the parties hereto
will not avoid or seek to avoid the observance or performance of any of
the terms to be performed hereunder by the Company or Subsidiary, as the
case may be, but will at all times in good faith assist in the carrying
out of all of the provisions of this Agreement and in the taking of all
such actions as may be necessary, appropriate or reasonably requested by
the other party(ies) in order to protect the rights of such requesting
party(ies) against impairment.
19 WHOLE AGREEMENT
19.1 This Agreement constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and
thereof. Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), by the
agreement of all parties, provided, however, that any party may waive
any of such party's respective rights hereunder without obtaining the
consent of any other party. Any amendment or waiver effected by written
consent in accordance with this Sub-clause 19.1 shall be binding upon
each holder of Shares and each future holder of all such Shares, and the
Company.
19.2 Each of the parties acknowledges that, in agreeing to enter into this
Agreement, it has not relied on any representation, warranty, collateral
contract or other assurance (except those set out in this Agreement and
the documents referred to in it) made by or on behalf of any other party
before the signature of this Agreement. Each of the parties waives all
rights and remedies which, but for this Sub-clause 19.2, might otherwise
be available to it in respect of any such representation, warranty,
collateral contract or other assurance, provided that nothing in this
Sub-clause 19.2 shall limit or exclude any liability for fraud.
20 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the Hong
Kong Special Administrative Region of the People's Republic of China ("HONG
KONG").
18
SCHEDULE 1 (A)
THE OTHER SHAREHOLDERS
NAME NUMBER OF SHARES OWNERSHIP (%)
XXXX Xxx [CHINESE HERE] 2,776 27.76
XXX Xxxx Li [CHINESE HERE] 2,086 20.86
Pioneer System Investment Limited 2,780 27.80
XXX Xxx Ming [CHINESE HERE] 1,179 11.79
XXXX, Xxxxxxx [CHINESE HERE] 1,179 11.79
------------------------- ----------------
Total 10,000 100.0
========================= ================
19
SCHEDULE 1 (B)
THE MANAGEMENT SHAREHOLDERS
NAME NUMBER OF COMMON SHARES OWNED AND OWNERSHIP
HELD AS AT THE DATE OF THIS AGREEMENT (%)
XXXX Xxx [CHINESE HERE] 2,776 27.76
XXX Xxx Ming [CHINESE HERE] 1,179 11.79
20
SCHEDULE 1 (C)
LIST OF OFFICER, KEY EMPLOYEE AND KEY ENGINEER
[CHINESE HERE]
21
SCHEDULE 2(A)
PARTICULARS OF THE COMPANY
NAME: United Information Technology Co. Ltd.
REGISTERED XXXXXX Xxxx Xxxx Xxxxxxxx, X.X. Xxx 000, Xxxx Xxxx, Xxxxxxx
British Virgin Islands
PLACE OF INCORPORATION: British Virgin Islands
DIRECTORS Xxxxxxx Xxxx, Hope Ni, Xxxx Xxx
AUTHORISED SHARE CAPITAL The authorised capital of the Company is USD50,000.
The authorised capital is made up of one class and
one series of shares divided into 50,000 shares of
USD1.00 par value.
22
SCHEDULE 2(B)
PARTICULARS OF THE SUBSIDIARY
NAME: [CHINESE HERE]
REGISTERED OFFICE [CHINESE HERE] 1501(518057)
Xxxxx 0000, 00/X, Xxxxxx Xxxxxxxx, Xxxx South 12th
Road High-tech Industrial Park, Nanshan District,
Shenzhen, China(518057)
PLACE OF INCORPORATION: [CHINESE HERE]
DIRECTORS [CHINESE HERE]
AUTHORISED SHARE CAPITAL RMB30,000,000
SHAREHOLDERS NAME United Information Technology Co., Ltd.
SHAREHOLDING % 100
23
SCHEDULE 3
RESERVED MATTERS
1. Cease to conduct or carry on the business of the Company and/or a
subsidiary (including but not limit to the Subsidiary) substantially as
now conducted or, in the case of a subsidiary, as conducted at the time
it became a subsidiary of the Company or change any part of its business
activities.
2. Appoint, or settle or terminate the terms of appointment of, any
managing director, chief executive officer, chief technical officer,
chief operating officer, general manager, chairman, financial controller
or other key manager(s).
3. Approve, settle or alter the terms of any bonus or profit sharing plan
or scheme or any employee share option or share participation plans or
schemes.
4. Sell, transfer, license, charge, encumber or otherwise dispose of any
intellectual property or proprietary right owned by the Company and
subsidiary.
5. Make any alteration or amendment to the Articles of the Company or the
charter documents of any Group Company (including but not limit to the
articles of association and/or business license of the Subsidiary).
6. Approve any transfer of shares in the Company, registered capital in the
Subsidiary, or equity interests in any other Group Company.
7. Approve or make adjustments or modifications to terms of transactions
involving the interest of any director or shareholder of any Group
Company, including but not limited to the making of any loans or
advances, whether directly or indirectly, or the provision of any
guarantee, indemnity or security for or in connection with any
indebtedness of liabilities of any director or shareholder of any Group
Company.
8. Enter into any abnormal or unusual contract or contract outside the
ordinary course of business of such Group Company.
24
9. Consolidation or merger with or into any other business entity (other
than a wholly owned subsidiary) or the sale of all or substantially all
the Company's assets or disposal of more than fifty per cent (50%) of
the voting power of the Company by means of any transaction or series of
related transactions.
10. The liquidation or dissolution of the Company.
11. The declaration or payment of a dividend on the Common Shares.
12. Incurrence of indebtedness in excess of US$5,000.
13. Any loans by the Company to any director, officer or employee.
14. The purchase or lease by the Company of any asset valued in excess of
US$5,000.
15. The purchase by the Company of any securities of any other company in
excess of US$5,000 in a twelve (12) month period.
16. The increase in compensation of any of the two (2) most highly
compensated employees of the Company and/or any of the Company's
subsidiaries by more than 10% in a twelve (12) month period.
The name, position and remuneration of the two (2) most highly
compensated employees of the Company and/or any of the Company's
subsidiaries are listed as follows:-
NAME Position Remuneration
---- -------- ------------
(1) [CHINESE HERE] Chairman/CEO RMB300,000 (per annum)
(2) [CHINESE HERE] Vice Chairman RMB300,000 (per annum)
17. Any transaction or series of transactions between the Company and any
holder of Common Shares, director, office or employee of the Company and
any director, officer or employee of the Company's subsidiaries that is
not in the ordinary course of business or for which the aggregate value
exceeds US$5,000.
18. Other than in the ordinary course of business, any transaction that
result in a pledge of any assets of the security interest, lien or other
encumbrances or any assets of, or the Company.
19. Any material change in the Company's business plan.
20. The appointment by the Company of any directors of any of its
subsidiaries.
25
21. The hiring of any management member or consultants with annual
remuneration over US$5,000.
22. Directly or indirectly transfer or pledge any economic interest in any
of its Subsidiaries or their respective businesses.
23. Cause or permit any of its Subsidiaries to take any of the following
actions:
24. Any amendment to such Subsidiary's Articles of Association or other
constitutional document;
24.1 any liquidation, termination or dissolution of such Subsidiary;
24.2 any change in the capital structure of such Subsidiary, either by
increase or decrease of its registered capital or issuance of stock or
otherwise;
24.3 any sale of substantially all the assets of such Subsidiary or
reorganization, merger or consolidation of such Subsidiary with any
other economic organization; or
24.4 any change in the business scope or plan of such Subsidiary.
26
SCHEDULE 4
CONTINUING OBLIGATIONS
1 BUSINESS PLAN
The Company shall provide Comtech and the Shareholders with a business
plan including marketing, development, management and financial
programs and an annual budget for the next financial year of the
Company which it shall submit to the Shareholder not less than 30 days
before the commencement of each such subsequent year.
2 INFORMATION
The Company shall provide Comtech and the Shareholder with:
(b) monthly accounts and progress reports within 30 days after
the end of each month which shall include a profits and loss
account, a balance sheet, a cashflow statement and a summary
of the business and developments of the Group;
(c) quarterly accounts of the Company and each of its
subsidiaries within 45 days after the end of each fiscal
quarter;
(d) consolidated audited annual accounts of the Company and each
of its subsidiaries within 90 days after the end of each
fiscal year, which shall have been audited by a top five
international accountant firm of the Company's choice;
(e) an annual budget and a revision within 30 days prior to the
end of each half fiscal year;
(f) such further information as Comtech may from time to time
reasonably require as to all matters relating to the
businesses or affairs or the financial position of the Group
Companies;
3 INSPECTION RIGHTS
3.1 Comtech and the Shareholder shall have standard inspection rights of the
facilities of the Company and any of its subsidiaries, including,
without limitation, discussing the business, operations and conditions
of the Company and any subsidiaries with its directors, officers,
employees, accountants, legal counsel and investment bankers.
27
4 BOARD MEETINGS
The Company shall procure that meetings of the directors of Group
Companies are held at least every three (3) months and that a notice of
each such meeting, an agenda of the business to be transacted at the
meeting and all papers to be circulated at or presented to the meeting
are sent to all directors entitled to receive notice of the meeting and
to each Shareholder at least seven days before the meeting and a copy of
the minutes of the meeting are sent to such persons within seven days
after the meeting.
5 ACCOUNTING RECORDS
Each Group Company shall maintain accurate and complete accounting and
other financial records and shall procure that such accounting records
are, during normal business hours, available for inspection by each
Shareholder or its authorised representatives.
6 CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
6.1 The Company and Management Shareholders shall ensure that each key
officer and employee of the Company and its subsidiaries shall enter
into a Confidentiality and Non-Competition agreement. The form of such
an agreement shall be subject to the approval of Comtech.
6.2 The Company and Management Shareholders shall use its best efforts to
procure that the remainder of its and its subsidiaries' employees and
officers enter into such an agreement.
6.3 The Company will use its best efforts to prevent any violation by the
employees of the CONFIDENTIALITY AND NON-COMPETITION AGREEMENT with the
Company.
7. MISCELLANEOUS
Each Group Company shall at all times cause to be done all things
reasonably necessary to maintain, preserve and renew its corporate
existence, patent, trademark or technology transfer applications or
registrations, rights, franchises, lease agreements, authorizations
and permits necessary to the conduct of its businesses, except where a
failure to do so would not have a material adverse effect on the
business, financial condition, results of operations or prospects of
such Group Company.
28
SCHEDULE 5
FINANCIAL PROJECTION
--------------------------------------------------------------------------------
Projected Cash Inflow
Projected Net from
Year Month Revenue Earnings Operation
---- ----- ------- -------- ---------
USD'M USD'M
--------------------------------------------------------------------------------
2005 April-July 3.5 0.8 Note A
Aug - Dec 6.5 1.2 Note A
----------------------------
10.0 2.0
============================
--------------------------------------------------------------------------------
2006 Jan - Jun 10.0 1.5 Note A
Jul - Dec 10.0 1.5 Note A
----------------------------
20.0 3.0
============================
--------------------------------------------------------------------------------
2007 Jan - Jun 10.0 1.5 Note A
Jul- Dec 15.0 2.0 Note A
----------------------------
25.0 3.5
============================
--------------------------------------------------------------------------------
2008 33.0 4.7
============================
--------------------------------------------------------------------------------
2009 43.0 6.2
============================
--------------------------------------------------------------------------------
NOTE A: 65% REVENUE FOR THE PERIOD, IT WILL BE ADJUSTED TO 55% IF REVENUE
EXCEED TARGET BY 10%
NOTE B: IF THE PROJECTED REVENUE AND PROJECTED NET EARNINGS CANNOT BE ACHIEVED,
THE SHORTFALL CAN BE COMPENSATED IN NEXT INTERVAL. IN NO CASE, THE
ACCUMULATED PROJECTED REVENUE AND PROJECTED NET EARNINGS WILL BE LESS
THAN USD30M AND USD5M RESPECTIVELY FOR THE PERIOD FROM APRIL 2005 TO
DECEMBER 2006. OTHERWISE, IT IS SUBJECT TO THE DISCRETIONARY AUTHORITY
OF COMTECH TO DISSOLVE THE GROUP COMPANIES.
29
SCHEDULE 6 (A)
MILESTONE FOR FINANCIAL PROJECTION
------------------------------------------------------------------------------------
Projected Cash Inflow Proposed Shareholding
Projected Net from Ref Other
Milestone Year Month Revenue Earnings Operation --- Shareholder COGO
--------- ---- ----- ------- -------- --------- Sch. ----------- ----
USD'M USD'M 6B
------------------------------------------------------------------------------------
A 2005 April-July 3.5 0.8 Refer to Sch.5 Note A 0% 100%
B Aug - Dec 6.5 1.2 Refer to Sch.5 Note A 1 40% 60%
-------- --------
10.0 2.0
======== ========
------------------------------------------------------------------------------------
C 2006 Jan - Jun 10.0 1.5 Refer to Sch.5 Note A 2 25% 75%
3 45% 55%
D Jul - Dec 10.0 1.5 Refer to Sch.5 Note A 4 35% 65%
-------- --------
20.0 3.0
======== ========
------------------------------------------------------------------------------------
E 2007 Jan - Jun 10.0 1.5 Refer to Sch.5 Note A 5 25% 75%
F Jul- Dec 15.0 2.0 Refer to Sch.5 Note A 6 15% 85%
-------- --------
25.0 3.5
======== ========
------------------------------------------------------------------------------------
30
SCHEDULE 6 (B)
MILESTONE FOR FINANCIAL PROJECTION
1. If at 1 January 2006, the Group Companies can achieve milestone A & B,
Other Shareholders can transfer their "Technology Know How" and
concurrently Comtech will accept the transfer of their "Technology Know
How" in return for 40% of Company Shares.
2. If at 30 June 2006, the Group Companies can achieve milestone C, Comtech
or other investor may buy 15% of Company shares from other shareholders,
subject to the offer by other shareholders, at the price of Actual Net
Earnings (for the period from 1 January 2006 to 30 June 2006) *5*15%.
3. If at 30 June 2006, the Group Companies can achieve milestone C, Other
Shareholders can transfer their "Technology Know How" and concurrently
Comtech will accept the transfer of their "Technology Know How" in
return for 20% of Company Shares.
4. If at 31 Dec 2006, the Group Companies can achieve milestone D, Comtech
or other investor may buy 10% of Company shares from other shareholders,
subject to the offer by other shareholders, at the price of Actual Net
Earnings (for the period from 1 July 2006 to 31 December 2006) *5*10%.
5. If at 30 June 2007, the Group Companies can achieve milestone E, Comtech
or other investor may buy 10% of shares from other shareholders, subject
to the offer by other shareholders, at the price of Actual Net Earnings
(for the period from 1 January 2007 to 30 June 2007)*5*10%.
6. If at 31 Dec 2007, the Group Companies can achieve milestone F, Comtech
or other investor may buy 10% of shares from other shareholders, subject
to the offer by other shareholders, at the price of Actual Net Earnings
(for the period from 1 July 2007 to 31 December 2007) *5*10%.
7. If the Company fail to achieve the milestone as set forth in Schedule 6
(A), the proposed shareholding as set forth in Schedule 6 (A) will be
adjusted based on the actual operating results subject to Clause 11.
That is, for example, net earnings for the period from April 2005 to
December 2006 amounted to USD2.5M only, Comtech or other investor may
buy Company shares from other shareholders with less than as set forth
in Schedule 6(B) with a smaller price earnings ratio.
31
SCHEDULE 7
INTELLECTUAL PROPERTY LIST
(1) UIT BM3800 [CHINESE HERE]
UIT BM3800 [CHINESE HERE]
(2) UIT BM1800 [CHINESE HERE]
UIT BM1800 [CHINESE HERE]
32
(3) UITBM581 [CHINESE HERE]
UIT BM581 [CHINESE HERE]
(4) UIT BM582 [CHINESE HERE]
UIT BM582 [CHINESE HERE]
33
(5) UIT BM681 [CHINESE HERE]
UIT BM681 [CHINESE HERE]
(6)UIT BM682 [CHINESE HERE]
UIT BM682 [CHINESE HERE]
34
(7) UIT SYNCCONTROL [CHINESE HERE]
[CHINESE HERE] SyncControl [CHINESE HERE]
(8) UIT SNAPCONTROL [CHINESE HERE]
UIT SnapControl [CHINESE HERE]
UIT SnapControl [CHINESE HERE]
(9) UIT [CHINESE HERE]
[CHINESE HERE]
35
(10) UIT NETDISK [CHINESE HERE]
UIT [CHINESE HERE]
Brand Name:
UIT
[CHINESE HERE]
Logo:
[LOGO HERE]
36
This Agreement was signed by the parties on the date first written above.
SIGNED by )
for and on behalf of )
Comtech Group )
in the presence of:
SIGNED by )
for and on behalf of )
United Information Technology Co. Ltd )
in the presence of:
SIGNED by )
for and on behalf of )
[CHINESE HERE] )
in the presence of:
SIGNED by )
XXXX Xxx [CHINESE HERE] )
in the presence of: )
37
SIGNED by )
XXX Xxxx Li [CHINESE HERE] )
in the presence of: )
SIGNED by )
for and on behalf of )
Pioneer System Investment Limited )
in the presence of:
SIGNED by )
XXX Xxx Ming [CHINESE HERE] )
in the presence of: )
SIGNED by )
XXXX, Xxxxxxx [CHINESE HERE] )
in the presence of: )
38