48
THIS AGREEMENT is made on 22nd June, 1999 and is made
BETWEEN:-
(1) KARTEK INTERNATIONAL HOLDINGS LIMITED, a corporation incorporated in
the British Virgin Islands and having its registered office at Akara
Building, Suite # 8, Wickhams Cay I, Road Town, Tortola, the British
Virgin Islands ("Kartek");
(2) ZHANJIANG POST BUREAU) of 55? ("ZPB") ;
(3) ZHANJIANG TELECOMMUNICATIONS BUREAU of ("ZTB"); and
(4) XXXXXXXX HOLDINGS INC., a company incorporated in the Bahamas with
limited liability with its registered office at Xxxxxxxxxx Xxxxx, Xxxxxxxx
Xxxxxx, X.X. Xxx X-0000 Nassau, the Bahamas (the "Purchaser").
WHEREAS:-
(A) Information concerning (Zhanjiang Kingtone Cable Enterprises
Limited) (the "Company") is set out in Part A of Schedule 1.
(B) The Vendors are the registered and beneficial owners of registered
capital of the Company in such percentage as set opposite their respective
names in column (2) of Part B of Schedule 1. Part C of Schedule 1,
contains background information concerning the ownership of the Company.
(C) Subject to the terms of this Agreement, each of the Vendors has
agreed to sell and the Purchaser has agreed to purchase the respective
portions of the registered capital of the Company owned by the Vendors as
set opposite the name of the Vendors in Column (3) of Part B of Schedule
1, which collectively amount to an aggregate of 60% of the registered
capital of the Company.
IT IS HEREBY AGREED:-
1. INTERPRETATION
(A) In this Agreement, the Schedules and the Recitals hereto, unless the
context requires otherwise, the following expressions shall have the
following meanings:-
" Accounts" the audited balance sheet of the Company as at the Accounts
Date and the audited profit and loss account of the Company for the
financial year ended on the Accounts Date, in each case including the
notes thereto and together with the reports and other documents required
by law or relevant accounting standards or practices to be annexed or
attached to them, true and complete copies of which are annexed hereto
marked "A";
"Accounts Date" - 31st December, 1998
"Adjusted Retained Consideration" the amount payable by the Purchaser to
the Vendors in accordance with Clause 4(C) and Clause 10 and calculated in
accordance with Clause 10;
"Articles of Association" - the articles of association of the Company for
the time being;
"Business" - the business of the Company as carried on by the Company as
at the date hereof;
a day (other than a Saturday) on which banks in Hong Kong are generally
open for business;
"Claim" - any claim for breach of a Warranty;
"Completion" - the performance by each of the Vendors and the Purchaser of
their respective obligations in accordance with the provisions of Clause
9(A);
"Completion Date" - subject to Clause 2(D), the tenth Business Day
following the date of notification, as stated in Clauses 2A(x), by the
Purchaser to the Vendors;
"Conditions" - the conditions set out in Clause 2(A);
49
"Consent" - includes, inter alia, any licence, approval, authorisation,
permission, waiver, order or exemption;
"Corporate Documents" - in relation to the Company, its current business
licence, approval letters and certificates issued by the relevant PRC
authorities; records and minute books written up to date as at the
Completion Date; common seal, chops and all rubber stamps; cheque books,
cheque stubs and bank statements; receipt books; all other accounting
records; contractual documents, leases and title documents in respect of
the Property, copies of all tax returns and assessment, if any, (receipted
where the due dates for payment fell on or before the Completion Date);
all correspondence, if any, with its lawyers, accountants or the PRC Tax
Bureau; all other documents and correspondence, if any, relating to the
affairs of the Company; and all copies of the memorandum, articles of
association and joint venture agreements including the Joint Venture
Contract, the Articles of Association;
"Deed of Indemnity" - the deed in the form set out in Schedule 4;
"Doubtful Debts" such amount of indebtedness owing by the Company's
debtors to the Company which has been overdue for more than 12 months and
has been classified as doubtful debts as shown in the Final Accounts;
"Encumbrance" - any mortgage, pledge, charge, ledge, lien, assignment by
way of security, hypothecation, equities, adverse claims, third party
rights or interest, or other encumbrance, priority or security interest,
other security agreement arrangement or other rights or interest of
whatsoever nature or other security agreement arrangement whether relating
to existing or future assets, security or any obligation of any relevant
person and "Encumber" shall be construed accordingly;
"Final Accounts" - the audited balance sheet of the Company as at the
Management Accounts Date and the audited profit and loss account of the
Company for the 16 month period ended on the Management Accounts Date
prepared in accordance with Clause 10;
"Hong Kong" - the Hong Kong Special Administrative Region of the PRC;
"Initial Consideration" - the respective amounts (or its US dollar
equivalent) as set opposite the names of the Vendors in column (5) of Part
B of Schedule 1 payable by the Purchaser to the Vendors in accordance with
Clause 4(B);
"Intellectual Property Rights" - all industrial and intellectual property,
including without limitation, patents, trade marks, service marks, trade
names, designs, copyrights and the copyright in all drawings, plans,
specifications, designs and computer software (including in each
application therefor) in any part of the world and whether or not
registered or registrable and all know-how, inventions, formulae, trade
secrets, confidential or secret processes and information, business names
and domain names and any similar rights situated in any country; and the
benefit (subject to the burden) of any and all licences in connection with
any of the foregoing (including all documents relating thereto);
"Joint Venture Contract" - the joint venture contract dated 12th January,
1993 entered into between Far East Kartek Enterprises Limited and
Zhanjiang Post and Telecommunications Bureau as supplemented by various
agreements dated 8th October, 1995, 13th August, 1998, and 4th June, 1999
respectively, true and complete copies of which are annexed hereto marked
"B";
"Management Accounts" - the unaudited balance sheet of the Company as at
the Management Accounts Date and the unaudited profit and loss account of
the Company for the 4 months ended on the Management Accounts Date, true
and complete copies of which are annexed hereto marked "C";
"Management Accounts Date" - 30th April, 1999;
"Material Adverse Change - any change (or effect), the consequence of
which(or Effect)" - is to materially and adversely affect the financial
position, the Business or Property, results of operations, business
prospects or assets of the Company;
"PRC" - the People's Republic of China;
"Property" - the property interests of the Company which are set out in
Schedule 2;
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"Purchase Price" - subject to adjustments provided in Clause 10, the
respective aggregate consideration payable by the Purchaser for the
purchase of the relevant portions of Sale Capital as set opposite each
Vendor's name in column (4) in Part B of Schedule 1 and provided in Clause
4;
"Purchaser's Accountants" - Xxxxxx Xxxxxxx of 7th Floor, Allied Kajima
Building, 000 Xxxxxxxxxx Xxxx, Xxxx Xxxx;
"Purchaser's Solicitors" - Xxxxxxxx Xxxxxx of 20th Floor, Xxxxxxxxx Xxxxx,
00-00 Xxxxxx Xxxx, Xxxxxxx, Xxxx Xxxx;
"Retained Consideration" - in respect of the relevant portion of the Sale
Capital, the aggregate sum (or its US dollars equivalent) set opposite
each Vendor's name in column (7) of Part B of Schedule 1;
"Sale Capital" - collectively the 28 per cent. of the registered capital
of the Company to be sold by Kartek, the 13.68 per cent. of the registered
capital of the Company to be sold by ZPB and 18.32 per cent. of the
registered capital of the Company to be sold by ZTB to the Purchaser (as
set out in Column (3) of Part B of Schedule 1) pursuant to the terms and
conditions or this Agreement;
"Subsidiary" - in relation to a company or entity, a company in respect of
which such company or entity:-
(i) holds more than half of the issued share capital (excluding any part
of it which carries no right to participate beyond a specified amount in a
distribution of either profits of capital); or
(ii) controls the composition of the board of directors; or
(iii) controls more than half of the voting power,
and shall include any company which is a subsidiary (on the basis set out
above) of another company which is itself a subsidiary of such company or
entity;
"Supplemental Contract" - the supplemental contract in the form set out in
Schedule 5;
"Taxation" - has the meaning given thereto in the Deed of Indemnity;
"Vendors" - collectively, Kartek, ZPB and ZTB and "Vendor" shall mean any
one of them;
"Warranties" - the warranties, representations and undertakings given by
the Vendors referred to in Clause 8 and Schedule 3;
"RMB" - Renminbi, the lawful currency of the PRC; and
"US$" or "US dollars" - United States dollars, the lawful currency of the
United States of America.
(B) References herein to statutory provisions shall be construed as
references to those provisions as amended or re-enacted or as their
applications are modified by other provisions (whether before or after the
date hereof) from time to time and shall include any provisions of which
they are re-enactments (whether with or without modification).
(C) References herein to "Clauses" and "Schedules" are to clauses of and
schedules to this Agreement unless the context requires otherwise and the
Schedules to this Agreement form an integral part of this Agreement.
(D) The expressions "the Vendors" and "the Purchaser" in this Agreement
shall, where the context permits, include their respective successors,
personal representatives and permitted assigns.
(E) The table of contents and Clause headings are inserted for
convenience only and shall not affect the construction or interpretation
of this Agreement.
(F) Unless the context requires otherwise, in this Agreement words
importing the singular include the plural and vice versa and words
importing gender or the neuter include both genders and the neuter.
(G) For the purposes of this Agreement, amounts quoted in RMB and which
require to be converted into US dollars (for the purpose of payment or
otherwise) shall be converted at the rate of US$1 to RMB 8.20.
51
2. CONDITIONS
(A) Completion of this Agreement is conditional upon the following
conditions being fulfilled and remaining fulfilled as at Completion:-
(i) where required pursuant to the terms of any contracts, agreements or
any loan or finance documentation, the counter parties thereto having
confirmed that they will not seek to terminate or vary any term therein or
make a claim thereunder as a result of, or treat as a breach of any terms
thereof, any change in the boards of directors, the management or
shareholding of the Company any other changes or transactions contemplated
under or arising out of or in connection with this Agreement and all other
necessary Consents and authorisations which may be required to implement
and complete this Agreement having been obtained;
(ii) all Consents which are required for the entering into or the
implementation or completion of this Agreement by the relevant Vendors,
and/or the Company having been obtained, including, without limitation,
the Consents (if appropriate or required) of the respective shareholders
and the respective boards of directors of the relevant Vendors and the
Company and other relevant third parties in the PRC which are required for
the entering into and the implementation of this Agreement having been
made; all applicable statutory or other legal obligations having been
complied with;
(iii) all government or regulatory approvals required in the PRC by
the Vendors and the Company in respect of the sale and purchase of the
Sale Capital on the terms set out in this Agreement having been obtained;
(iv) the term of the Joint Venture Contract having been legally and
validly extended from 20 years to 31 years;
(v) the Supplemental Contract having been entered into by the
relevant parties;
(vi) the Articles of Association having been revised to reflect the
corporate changes caused by the Supplemental Contract;
(vii) resolutions having been passed by all the directors of the
Company approving:
(a) the execution of the Supplemental Contract;
(b) the revision of the Articles of Association of the Company
referred to in Sub-clause 2(vi) above;
(c) the transfer of an aggregate 60% of the registered capital of the
Company from the Vendors to the Purchaser;
(d) the appointment of a new Chairman and legal representative
nominated by the Purchaser, and the appointment of new directors in
accordance with Clause 9(A)(ii)(a);
(e) such change of the authorised users of the Company's bank
accounts and chops (with effect from Completion) as the Purchaser may
request;
(viii) Execution of necessary documents by the original approval
authority in the PRC approving:-
(a) the Supplemental Agreement;
(b) the revision of the Articles of Association of the Company in
accordance with Sub-clause 2(vi) above;
(c) the transfer of an aggregate of 60% of the registered capital of the
Company from the Vendors to the Purchaser;
(d) the extension of the term of the Joint Venture Contract referred
to in Clause 2(A)(iv) above;
(ix) the issuance by the State Administration of Industry and
Commerce of the PRC of an amended business licence of the Company; and
(x) the Purchaser in its absolute discretion notifying the Vendors in
writing of its readiness to complete.
(B) Each of the Vendors and the Purchaser (in so far as it is within
their respective powers and capacities so to do) shall provide all
assistance, where relevant, as may be reasonably required by the other
parties hereto to procure the fulfillment of the Conditions set out in
Clause 2(A).
52
(C) The Purchaser may waive all or any of such Conditions at any time by
notice in writing to the Vendors.
(D) In the event that the Conditions shall not have been fulfilled, or
waived on or before 15th September, 1999, or Completion shall not have
taken place on or before that date (or such later date as the Vendors and
the Purchaser may determine), this Agreement and all documents executed
ancillary thereto shall lapse and be of no further effect, and no party to
this Agreement shall have any claim against or liability to the other
party but without prejudice to the rights and obligations of the parties
under Clause 5(C).
3. SALE AND PURCHASE
(A) Subject to the terms and conditions of this Agreement, each of
the Vendors as legal and beneficial owner shall sell the percentage of
the Sale Capital set opposite its name in Column (3) of Part B of
Schedule 1 and the Purchaser shall purchase such percentage of the Sale
Capital from each of the Vendors, free from all liens, claims,
equities, charges, Encumbrances or third party rights of whatsoever
nature and with all rights now or hereafter becoming attached thereto
(including the right to receive all dividends and distributions
declared, made or paid on or after the date hereof).
(B) The Purchaser shall not be obliged to complete the purchase of
any of the Sale Capital unless the sale and purchase of the Sale
Capital is completed simultaneously.
4. PURCHASE PRICE
(A) The total consideration for the relevant portion of the Sale Capital
shall be up to the respective amounts set opposite each Vendor's name in
column 4 of Part B of Schedule 1 subject to adjustment in accordance with
Clause 10 so that the Purchase Price equals the sum of the Initial
Consideration and the Adjusted Retained Consideration.
(B) The Initial Consideration shall be payable to each of the Vendors in
the amounts set opposite their respective names in column (5) of Part B of
Schedule 1 on Completion in accordance with the provisions in Clause 9.
(C) The Adjusted Retained Consideration payable to ZPB and ZTB shall be
payable and calculated in accordance with the provisions in Clause 10 and
the Retained Consideration payable to Kartek shall be payable as agreed
between the relevant parties.
5. TERMINATION
(A) If at any time prior to Completion:-
(i) the Purchaser shall be aware of any matter or event showing that
any of the Warranties was or may have been, when given, untrue or
inaccurate in any respects or would or may be untrue or inaccurate in any
respects if repeated as at the date on which the Purchaser becomes so
aware; or
(ii) any of the Vendors commits any material breach of or omits to
observe any of the other obligations or undertakings expressed to be
assumed by it under this Agreement; or
(iii) any creditor makes a valid demand for repayment or payment of
any indebtedness of the Company prior to its stated maturity which
constitutes a Material Adverse Change (or Effect); or
(iv) without prejudice to any other provisions of this Clause,
between the date hereof and Completion any of the provisions of Clause 9
is not satisfied or has not been duly and promptly fulfilled, observed or
performed in any material respect due to a deliberate default of the
Vendors; or
(v) the Company shall sustain any loss or damage which, in the
reasonable opinion of the Purchaser, constitutes a Material Adverse Change
(or Effect); or
(vi) a petition is presented for the winding up or liquidation of the
Company, or the Company makes any composition or arrangement with its
creditors or enters into a scheme of arrangement or any resolution is
passed for the winding up of the Company or a provisional liquidator,
receiver or manager is appointed over all or part of the assets or
undertaking of the Company or, anything analogous thereto occurs in
respect of the Company,
53
then the Purchaser may in its absolute discretion without any liability on
its part, by notice in writing to the Vendors, terminate this Agreement.
The right to terminate this Agreement under each of sub-Clauses (i) to
(vi) above is a separate and independent right to any other right to
terminate this Agreement.
(B) Upon the giving of notice pursuant to Clause 5(A) by the Purchaser,
all obligations of the Purchaser hereunder shall cease and determine and
no party shall have any claim against the other parties in respect of any
matter or thing arising out of or in connection with this Agreement save
and except the parties' obligations under Clause 5(C).
(C) If this Agreement is terminated for any reason or Completion does
not take place on 15th September, 1999 or such other date as provided
in Clause 2(D), each party hereto shall forthwith upon such termination
or 15th September, 1999 (whichever is earlier), provide all assistance
and sign and do all necessary documents and things as such other party
may reasonably require for the cancellation and removal (as the case
may be) of all documentation (including without limitation the
Supplemental Contract) that may have been entered into between the
relevant Vendors or the Company and the Purchaser, all Consents or
other approvals that may have been obtained pursuant to the terms of
this Agreement and all appointments of any nominees of the Purchaser as
officers of or other positions in the Company that may have been made
in connection with or pursuant to the terms or arrangements under this
Agreement.
6. DUE DILIGENCE REVIEW PRIOR TO COMPLETION
(A) The Purchaser and its appointed representatives and professional
advisers shall have the right to visit all facilities and office premises
of the Company and check the existence and condition of assets thereat and
to carry out a review and investigation of, including but not limited to,
the assets, liabilities, financial condition, contracts, commitments,
business and prospects of the Company for the sole purpose of enabling the
Purchaser satisfying itself on all matters relating to the Company and
completing the purchase of the Sale Capital herein and on a strictly
confidential basis. In order to facilitate such review, as from the date
of this Agreement and prior to Completion, each of the Vendors shall (in
so far as it is within their respective powers and capacities so to do)
procure that the Purchaser and/or its appointed representatives and/or
professional advisers will be given all such information relating to the
Company and such access to the facilities and office premises and
Corporate Documents of the Company as the Purchaser or its appointed
representatives or professional advisers may reasonably request for the
above purpose and on the above basis and that the directors and employees
of the Company shall be instructed to give promptly all information and
explanations to the Purchaser or any such person as it may reasonably
request.
(B) Where the consent of any party would be required as a consequence
of Completion pursuant to any contract or agreement to which the Company
is a party, the Vendors shall procure (in so far as it is within their
respective powers and capacities so to do) that such consent be obtained
so that no Material Adverse Change (or Effect) on the Company's continued
operations will be caused by Completion.
7. CONDUCT OF BUSINESS PRIOR TO COMPLETION
(A) Each of the Vendors, hereby undertakes to procure (in so far as it
is within their respective powers and capacities so to do) that the
Business will continue to be operated in a normal and prudent basis and in
the ordinary course of day-to-day operations having regard to the working
capital available to the Company and they will not do or omit to do (or
allow to be done) or to be omitted to be done any act or thing (in either
case whether or not in the ordinary course of day-to-day operations) which
is material in the context of the Company and/or the Business taken as a
whole and in particular (but without limiting the generality of the
foregoing) will procure that the Company shall not prior to Completion,
without having first obtained from the Purchaser its prior written
consent:-
(i) increase or reduce the registered capital or total amount of
investment the Company;
(ii) issue any debentures or other securities convertible into
debentures;
(iii) borrow or raise money other than on normal commercial terms in
the ordinary course of its business;
(iv) make any advances or other credits to any person or give any
guarantee or indemnity or act as surety for or otherwise secure or accept
any direct or indirect liability for the liabilities or obligations of any
person;
54
(v) factor or assign any of its book debts;
(vi) alter the terms of any financing/lending documents or security
arrangements;
(vii) create or permit to arise any mortgage, charge (fixed or
floating), lien, pledge, other form of security or Encumbrance or equity
of whatsoever nature, whether similar to the foregoing or not, on or in
respect of any part of its undertaking, property or assets other than
liens arising by operation of law in amounts which are not material in its
ordinary course of business;
(viii) declare, pay or make any dividends or other distributions;
(ix) make any capital expenditure in excess of RMB50,000;
(x) sell, transfer, lease, assign or otherwise dispose of or agree to
sell, transfer, lease, assign or otherwise dispose of any asset or of any
part of its undertaking, property or assets (or any interest therein),
otherwise than in the ordinary course of business;
(xi) let or agree to let or otherwise part with possession or
ownership of the whole or any part of the Property nor purchase, take on
lease or assume possession of any real property;
(xii) acquire any material assets on hire purchase or deferred terms;
(xiii) enter into or amend any contract or other transaction or
capital commitment or undertake any contingent liability which exceeds a
monetary value of RMB50,000;
(xiv) terminate any agreement or waive any right thereunder;
(xv) enter into or amend any service agreements with directors or
officers or increase the remuneration payable thereto;
(xvi) other than as envisaged herein, appoint any new directors;
(xvii) hire any new employee or consultant or terminate any
employee's contract of employment or appoint or terminate the services of
any consultant or vary the terms of employment of any employee or of
service of or consultant, in each case where the monthly salary (including
benefits) of that employee is or would be in excess of RMB2,000 per month;
(xviii) establish any pension, retirement scheme, share option
scheme, profit sharing or bonus scheme or any other benefit scheme
operated by the Company;
(xix) grant any power of attorney or in any way delegate any of the
directors' powers;
(xx) undertake anything which would have the consequence of requiring
treatment in the accounts of the Company by way of an extraordinary item;
(xxi) commence, compromise, settle, release, discharge or compound any
civil, criminal, arbitration or other proceedings or any liability, claim,
action, demand or dispute or waive any right in relation to any of the
foregoing, which in each case is or can be expected to be material in the
context of the Business;
(xxii) release, compromise or write off any material amount
recorded in the books of account of the Company as owing by any debtors of
the Company;
(xxiii) terminate or allow to lapse any insurance policy now in
effect;
(xxiv) carry on any business other than the Business;
(xxv) enter into any partnership or joint venture arrangement;
(xxvi) establish or open or close any branch or office;
(xxvii) dispose of the ownership, possession, custody or control
of any corporate or other books or records;
(xxviii)save for the passing of any resolutions contemplated in this
Agreement propose or pass any shareholders' resolution other than a
resolution at any annual general meeting which is not special business;
(xxix) enter into any transaction or arrangement, which is not
for full consideration and on arm's length terms;
55
(xxx) change its auditors;
(xxxi) alter its financial year end;
(xxxii) to the extent it has the power to prevent it, allow or
permit the occurrence of any Material Adverse Change (or Effect); or
(xxxiii) do, allow or procure any act or permit any omission which
would or might constitute a breach of any of the Warranties or any of
the undertakings set out in this Agreement.
8. REPRESENTATIONS, WARRANTIES, UNDERTAKINGS AND INDEMNITIES
(A) Subject to the terms and conditions herein contained, each of the
Vendors hereby represents, warrants and undertakes to the Purchaser (to
the intent that the provisions of this Clause shall continue to have full
force and effect notwithstanding Completion) in the terms set out in
Schedule 3 and acknowledges that the Purchaser in entering into this
Agreement is relying on such representations, warranties and undertakings
and the Purchaser shall be entitled to treat the same as conditions of
this Agreement.
(B) Each of the Warranties shall be separate and independent to the
intent that the Purchaser shall have a separate claim and right of action
in respect of any breach thereof and save as expressly provided herein
shall not be limited by reference to anything else in this Agreement.
(C) The Vendors shall not do, allow or procure any act or permit any
omission by the Company before the Completion Date which would constitute
a breach of any of the Warranties if they were given at the time of such
act or omission on or at the Completion Date or which would make any of
the Warranties inaccurate or misleading if they were so given. Each of
the Vendors undertakes to disclose to the Purchaser in writing any matter
occurring prior to the Completion Date which constitutes or may lead to a
breach of or is inconsistent with any of the Warranties or which may
render any of the Warranties inaccurate or misleading (or which would
constitute a breach of or be inconsistent with any of the Warranties, or
renders any of them inaccurate or misleading in any respect, if the
Warranties were given at the time of such occurrence) immediately upon
becoming aware of the same.
(D) In addition to the Purchaser's rights at common law in respect of
any breach of any of the Warranties and notwithstanding whether all or any
of the transactions contemplated by this Agreement shall have been
completed, each of the Vendors covenants with the Purchaser to hold the
Purchaser fully indemnified on demand against any loss or liability
suffered by the Purchaser as a result of or in connection with any breach
of such Warranties and in respect of any depletion in the assets, loss or
allowance, set off or deduction of the Company occasioned or suffered in
connection with or in the rectifying of any breach of the Warranties
together with all costs, charges, interest, penalties and expenses
incidental or relating thereto.
(E) Where a Warranty is made or given "so far as the Vendors are aware",
such Warranty shall be deemed to be given to the best of the knowledge,
information and belief of the Vendors after making due and careful
enquiries before giving such Warranty of the appropriate directors,
employees and professional advisers best placed to confirm the accuracy of
such Warranty so given and having used their best endeavours to ensure
that the matters so warranted by them are true and accurate in all
respects.
(F) The Purchaser has entered into this Agreement upon the basis of the
Warranties and the same together with any provision of this Agreement
which shall not have been fully performed at Completion shall remain in
full force notwithstanding that Completion shall have taken place.
(G) The Warranties are given only subject to matters which have been
disclosed to the Purchaser and none of the Warranties shall be deemed in
any way modified or discharged by reason of any investigation or inquiry
made or to be made by or on behalf of the Purchaser at any time prior to
Completion, and no information relating to the Company of which the
Purchaser has knowledge (whether actual, constructive or otherwise) shall
prejudice any claim which the Purchaser shall be entitled to bring or
shall operate to reduce any amount recoverable by the Purchaser hereunder,
and it shall not be a defence to any claim against the Vendors that the
Purchaser had knowledge (whether actual, constructive or otherwise) of any
information relating to the circumstances giving rise to such claim.
56
(H) If it is found on or prior to Completion that any of the Warranties
is in any respect untrue, incorrect or unfulfilled or if the Purchaser
becomes aware of the occurrence of a Material Adverse Change (or Effect),
the Purchaser shall be entitled by notice in writing to the Vendors to
rescind this Agreement but shall not be entitled to any damages in respect
thereof.
(I) The obligations of the Vendors under this Clause 8 and the
Warranties are several.
(J) The liability for each of the Vendors under this Agreement shall
be limited as follows:-
(i) None of the Vendors shall be liable for a Claim for beach of any
of the Warranties to the extent that the subject matter of the Claim
which the Purchaser has actual knowledge or the subject matter of the
Claim arises or occurs pursuant to any request of the Purchaser.
(ii) No individual Claim shall be made against any of the Vendors
unless the Vendors' liability under that Claim exceeds RMB 10,000.00.
However, the Vendors shall be liable in respect of any Claims if the
aggregate liability of the Vendors for all such Claims exceed RMB
30,000.
(iii) The aggregate maximum liabilities of the respective Vendors in
respect of all claims made against the Vendor concerned in connection
with this Clause 8, this Agreement, the Deed of Indemnity or any
documents entered into or obligations incurred pursuant to this
Agreement shall not exceed the amount equivalent to the respective
amounts of Retained Consideration set out opposite each of the Vendors'
name in Column (7) of Part B of Schedule 1.
(iv) No claim in relation to this Clause 8, this Agreement or any
documents entered into or obligations incurred pursuant to this
Agreement shall be made by the Purchaser against any of the Vendors
later than 18 months after the Completion Date except for any claim in
relation to Taxation under the Deed of Indemnity for which the
Purchaser shall not make any claim against any of the Vendors later
than 3 years after the Completion Date.
9. COMPLETION
(A) Subject to satisfaction of all the Conditions in full (save for any
Condition the full compliance or satisfaction of which has been waived by
the Purchaser) and the provisions under Clauses 2 and 5, Completion shall
take place on the Completion Date at the offices of the Company at 3.00
p.m. or at such other place and time as shall be mutually agreed by the
parties hereto (time in either case being of the essence) when all (but
not part only) of the following business shall be transacted:-
(i) the Vendors shall (so far as it is within their respective powers
and capacities so to do) deliver or cause to be delivered to the
Purchaser:-
(a) certified true copies of the documents referred to in Clauses 2(A)
(vi) to (ix);
(b) the Deed of Indemnity duly executed by each of the Vendors;
(c) evidence to the satisfaction of the Purchaser that the term of the
Joint Venture Contract has been validly extended from 20 years to 31
years;
(d) certified true copies of such legal opinions to the satisfaction of
the Purchaser (in form and substance) as the Purchaser may request;
(ii) the Vendors (so far as it is within their respective powers and
capacities so to do) shall procure that with effect from Completion:
(a) 5 persons nominated by the Purchaser be appointed as new directors
of the Company;
(b) the General Manager, Chief Accountant, and such other managerial
personnel as nominated by the Purchaser be appointed by the board of
directors of the Company in accordance with the meeting rules of the
Company;
(c) the resignation of such number of directors of the Company so that
the number of directors in the new board of the Company after the
appointments referred to in Clause 9(A)(ii)(a) above shall be 8; and
(d) the resignation of such managerial personnel as the Purchaser may
request;
57
(iii) the Vendors shall (so far as it is within their respective
powers and capacities so to do) produce evidence to the satisfaction of
the Purchaser that save for those related party transactions which have
been disclosed in writing by the Vendors, any arrangements and agreements
between the Vendors and the Company shall be terminated with effect from
the Completion Date by mutual agreement between the respective parties
thereto without liability on the part of the Company ;
(iv) the Vendors shall (so far as it is within their respective powers
and capacities so to do) return or deliver and cause to be returned or
delivered to the Company or the Purchaser all Corporate Documents of the
Company;
(v) the Vendors shall (so far as it is within their respective powers
and capacities so to do) deliver and cause to be delivered to the
Purchaser written confirmation that the Vendors are not aware of any
matter or thing which is in breach of any of the Warranties when they take
effect on Completion;
(vi) the Vendors shall deliver such other documents to the Purchaser
as may be required to give the Purchaser good title to the Sale Capital
and to enable the Purchaser or its nominees to become the owner thereof;
and
(vii) the Purchaser shall procure that the Purchaser's Solicitors shall
pay to each of the Vendors the Initial Consideration in cash or in the
manner as the Vendors and the Purchaser shall have agreed and as the
Purchaser shall have been notified in writing at least two Business Days
prior to the Completion Date, such notification shall in any event be
binding on each of the Vendors.
(B) The Purchaser shall not be obliged to complete this Agreement or
perform any obligations hereunder unless the Vendors comply fully with the
requirements of Clause 9(A). Without prejudice to any other remedies
which may be available to the Purchaser hereunder, if any provision of
this Clause 9 is not complied with by the Vendors on the Completion Date,
the Purchaser may:-
(i) defer Completion to a date falling not more than 28 days after
the original Completion Date (so that the provisions of this Clause 9
shall apply to the deferred Completion) provided that, time shall be of
the essence as regards the deferred Completion and if Completion is not
effected on such deferred date, the Purchaser may rescind this Agreement;
or
(ii) proceed to Completion so far as practicable (but without
prejudice to the Purchaser's rights hereunder) insofar as the Vendors
shall not have complied with their obligations hereunder; or
(iv) treat this Agreement as terminated for breach by the Vendors of
any of the Conditions of this Agreement.
10. FINAL ACCOUNTS & PURCHASE PRICE ADJUSTMENT
(A) For the Purchaser's own purpose and on its own account, the
Purchaser shall forthwith upon the signing of this Agreement instruct the
Purchaser's Accountants to prepare the Final Accounts in accordance with
this Clause as soon as practicable.
(B) The Final Accounts shall be prepared by the Purchaser's Accountants
in accordance with the following provisions:
(i) preparation by the Purchaser's Accountants of the Final Accounts
shall be completed within 60 days of the Completion Date unless the
Purchaser's Accountants shall request a longer period for such preparation
whereupon the parties hereto shall agree to such extension;
(ii) the Vendors shall procure to be supplied to the Purchaser's
Accountants such information and records and accord the Purchaser's
Accountants such access to their properties and facilities of the Company
as the Purchaser's Accountants may reasonably require for their
preparation of the Final Accounts; and
(iii) the Purchaser's Accountants shall, in their audit of the Final
Accounts, apply such accounting practice, standards and principles as are
generally accepted in the United States of America.
(C) The Vendors agree to reimburse to the Purchaser the costs and
expenses of the Purchaser's Accountants in preparation of the Final
Accounts such amounts to be borne solely by the Company in accordance with
Clause 13(A).
58
(D) Within seven (7) Business Days from the completion of the
preparation of the Final Accounts by the Purchaser's Accountants, the
Purchaser shall procure the delivery to the Vendors of the Final
Accounts. The Final Accounts shall contain details of the Doubtful
Debts including the corresponding dates on which such Doubtful Debts
should have been payable.
(E) As from Completion, the Vendors shall use (in so far as it is
within their respective powers and capacities so to do) their best
endeavours to arrange for the collection of or procure the collection
of the Doubtful Debts.
(F) For every six month's interval commencing from the date of
delivery of the Final Accounts until the expiry of a 18-month period
from the date of delivery of the Final Accounts:
(i) the parties shall endeavor to prepare an account of the Doubtful
Debts recovered during each such 6-month period ("Recovered Debts")
identifying each amount of Recovered Debts; and
(ii) subject to any other arrangements agreed between any of the
Vendors and the Purchaser and to Clause 10(G), the Purchaser shall pay
to ZPB and ZTB as Adjusted Retained Consideration, in respect of any
amount of Recovered Debts, a total of 28% of the aggregate amount of
such Recovered Debts provided that the aggregate amount of Adjusted
Retained Consideration payable to each of ZPB and ZTB under this
Clause 10(F)(ii) shall not in any event exceed the Retained
Consideration as set out opposite their respective names in Column (7)
of Part B of Schedule 1. Other than the payment of Adjusted Retained
Consideration, the Purchaser shall not be liable to pay to any of the
Vendors any further sum/amount pursuant to this Agreement.
(G) Notwithstanding anything in this Clause 10, no adjustment shall
be made to the Retained Consideration payable to Kartek which shall be
payable in a manner other than in cash. The manner of payment shall be
agreed in writing between the Purchaser and Kartek.
11. POST COMPLETION UNDERTAKINGS
(A) To the extent permitted by the relevant laws and regulations, each
of ZPB and ZTB undertakes to the Purchaser that within 10 years from the
Completion Date it shall, and it shall procure that all of its affiliated
enterprises and organisations shall, purchase products of the Company on
an exclusive basis at the then prevailing market price.
(B) Subject to the relevant laws and regulations, ZPB and ZTB undertake
to the Purchaser that for 12 months from the Completion Date, ZPB and ZTB
(on one part) and the Company (on the other part) shall not cancel any
financial and other guarantees in respect of the other party's
obligations.
(C) ZPB and ZTB shall continue to support the Business and shall second
relevant employees to the Company in accordance with its needs.
(D) The Vendors acknowledge and confirm that this Agreement is entered
into between them in a spirit of mutual co-operation, trust and confidence
and that it is the intention that the business, profitability and
reputation of the Company, shall be extended and maximised by all
reasonable and proper means and each party undertakes to the other parties
to use all reasonable commercial efforts to continue to promote the
Company's business in the PRC and elsewhere. In particular, ZPB and ZTB
shall ensure that the Company's relationship with the relevant authorities
governing the post, telecommunications and other related industries in the
PRC shall not be tarnished or affected in any way by reason of this
Agreement or the changes made therein.
(E) The parties shall procure that the board of the Company shall meet
at least four times annually and that:-
(i) the quorum for each such board meeting shall comprise of at least 6
directors present throughout the meeting;
(ii) not less than 14 days' notice shall be given to all directors of
the Company of the convening of any such board meeting;
(iii) all business discussed at any such board meeting shall be subject
to the provisions of confidentiality contained in Clause 12 below.
(F) It is hereby agreed by the parties that for so long as the Joint
Venture Contract remains in effect;
(i) the Purchaser shall be entitled to appoint 5 directors to the board
of directors of the Company; and
59
(ii) the General Manager, Chief Accountant, and such other managerial
personnel of the Company as nominated by the Purchaser shall be appointed
by the board of directors of the Company in accordance with the meeting
rules of the Company.
(G) It is hereby agreed by the parties that they will procure that the
Joint Venture Contract and the Articles of Association of the Company
shall be amended to give effect to this Agreement (and in particular to
incorporate the provisions in Clauses 11 (E) and 11(F)).
12. CONFIDENTIALITY
The terms contained in this Agreement shall be and remain confidential
save for disclosure to professional advisers and (if required) regulatory
authorities and where required by law. Where any press or other
announcement is required by law, the party proposing to make the
announcement shall so far as practicable obtain the consent from the other
parties hereto regarding the terms of such announcement prior to its
release.
13. COSTS AND EXPENSES
(A) The parties agree that the fees and expenses incurred by the
Purchaser on its financial and legal due diligence exercise on the
Company shall be payable and borne by the Company provided that the
maximum amount payable to the Purchaser shall not exceed US$200,000.
(B) If Completion fails to take place, Clause 13(A) shall not apply or
have any effect and each party shall bear its own cost incurred in
relation to the negotiation and the preparation of this Agreement.
14. MISCELLANEOUS
(A) Subject to any express provision of this Agreement to the contrary,
each party to this Agreement shall pay its own costs and disbursements of
and incidental to the preparation, negotiation and completion of this
Agreement and the sale and purchase hereby agreed to be made.
(B) Each notice, demand or other communication given or made under this
Agreement shall be in writing and delivered or sent to the relevant party
at its address or fax number set out below (or such other address or fax
number as the addressee has by two (2) Business Days' prior written notice
specified to the other parties):-
To Kartek:-
Xxxxxxx Xxxxx X, 00/X, Xxxxxxxxxxxxx Xxxxxxxxxx Xxxxxx
0-0 Xxxx Xxx Xxxxxx, Xx Xxx
Xxx Xxxxxxxxxxx, Xxxx Xxxx
Fax Number (000) 0000-0000
Attention: Xx. Xxxxxxx Xxx
To ZPB:-
Address 24022
Fax Number: 000-00-000-0000000
Attention
To ZTB:-
Address: 24022
Fax Number: 000-00-000-0000000
Attention:
To the Purchaser:-
Address:
20th Floor, Xxxxxxxxx Xxxxx
00-00 Xxxxxx Xxxx
Xxxxxxx, Xxxx Xxxx
Fax Number: (000) 0000-0000
Attention: Xx. Xxxxxxx Xx (Ref: CJW/FFYC/WWLK/B277-002)
Any such notice or other document shall be deemed to have been duly given
upon receipt if delivered by hand or if sent by facsimile transmission
upon the receipt of machine printed confirmation and in the case of a
notice sent by post it shall be deemed to have been given on the fifth
Business Day after posting if
60
the address is in the PRC and on the tenth Business Day after posting if
the address is outside the PRC. In proving the giving of a notice it
shall be
sufficient to prove that the notice was left or that the envelope
containing such notice was properly addressed and posted or that the
applicable means of telecommunication was properly received (as the case
may be).
(C) This Agreement constitutes the whole agreement between the parties
hereto and shall supersede the terms of any agreement, whether oral or
otherwise, made prior to the entering into of this Agreement. It is
expressly declared that no purported variations hereof shall be effective
unless made in writing and signed by all the parties affected by such
variations.
(D) The provisions of this Agreement, insofar as the same shall not have
been fully performed at Completion, shall remain in full force and effect
notwithstanding Completion.
(E) The Vendors shall at the reasonable request of the Purchaser do and
execute or procure to be done and executed all such further acts, deeds,
things and documents as may be necessary to give effect to the provisions
of this Agreement.
(F) No waiver by any party to this Agreement of any breach by any other
party of any provision hereof shall be deemed to be a waiver of any
subsequent breach of that or any other provision hereof and any
forbearance or delay by the relevant party in exercising any of its rights
hereunder shall not be constituted as a waiver thereof.
(G) Time shall be of the essence as regards any time, date or period
mentioned in this Agreement and any time, date or period substituted for
the same by agreement of the parties hereto or otherwise.
(H) The illegality, invalidity or unenforceability of any part of this
Agreement shall not affect the legality, validity or enforceability of any
other part of this Agreement.
(I) The provisions of this Agreement shall be binding on and shall enure
for the benefit of the successors and assigns and personal
representatives (as the case may be) of each party provided that the
Vendors may not assign or transfer their respective rights or obligations
hereunder without the prior written consent of the Purchaser.
(J) The parties have signed both the English and Chinese versions of
this Agreement and it is agreed that both language versions shall be of
the same force and effect.
15. SETTLEMENT OF DISPUTES
(A) In the event a dispute arises in connection with the interpretation,
implementation or performance of this Agreement, the parties hereto shall
attempt in the first instance to resolve such dispute through friendly
consultations. If such dispute is not resolved in this manner within 21
days after the commencement of discussions, then any party hereto may
submit the dispute for arbitration in Singapore for final decision
pursuant to the provisions of UNCITRAL with instructions that the
arbitration be conducted in the manner set forth in Clause 15(B) hereof.
(B) Arbitration shall be conducted as follows:-
(i) the arbitrators may refer to both the English and Chinese texts
of this Agreement;
(ii) all proceedings in any such arbitration shall be conducted in
English and translated into Chinese; and
(iii) there shall be three (3) arbitrators all of whom shall be
fluent in English. The Purchaser and the Vendors (collectively) shall
each select one (1) arbitrator. The third arbitrator shall be chosen as
provided in the UNCITRAL Arbitration Rules and shall serve as chairman of
the panel.
(C) The arbitration awards shall be final and binding on the parties,
and the hereto agree to be bound thereby and to act accordingly.
(D) The costs of arbitration shall be borne by the losing party, unless
otherwise determined by the arbitration award.
61
(E) Whenever any dispute occurs or is under arbitration, the parties
hereto shall continue to exercise their remaining respective rights, and
fulfil their remaining respective obligations, in such manner in
accordance with the provisions of this Agreement.
16. GOVERNING LAW AND JURISDICTION
This Agreement is governed by and shall be construed in accordance with
the laws of the PRC.
IN WITNESS WHEREOF this Agreement has been executed on 22nd June, 1999 at
Zhanjiang City, Guangdong Province, the PRC.
62
SCHEDULE 1
PART A
THE COMPANY
Name: Zhanjiang Kingtone Cable Enterprises Limited
Date of establishment: 28th February, 1993
Class of company: Sino-foreign joint venture
Legal address: Xx. 00 Xxxxxx Xxxxxx,
Xxxxxx Xxxxxxxxx ETDZ,
Zhanjiang 524022
Guangdong, PRC
Total investment: US$27,253,859
Registered capital: US$13,080,000
Shareholder(s): Kartek
ZPB
ZTB
Other securities/
debentures in issue: NIL
Directors:
Legal representative:
Financial year : 31st December
Auditors: Zhanjiang Economic & Technological Development Zone Auditor's
Office
Outstanding mortgage(s) or
encumbrance(s): NIL
Business: manufacture of telecommunications related cables
(Copper Coax/Fibre Optics etc.)
Place of business: PRC
Subsidiaries: NIL
PART C
OWNERSHIP BACKGROUND
(a) Far East Kartek Enterprises Limited ("Far East Kartek") and
Zhanjiang Post and Telecommunications Bureau ("ZPTB") entered into the
Joint Venture Contract and the Articles of Association on 12th January,
1993 for the purpose of establishing the Company.
(b) On 29th January, 1993 Zhanjiang Administration Commission of
Economic and Technology Development Zone approved the JV Contract and
the Articles of Association. On 28th February, 1993, the Guangdong
people's Government issued the Approval Certificate to Kingtone and the
State Administrative for Industry and Commerce issued the Business
Licence. Kingtone also made tax registration and foreign registration
with the relevant authorities.
(c) On 31st March, 1997 an investment verification report was issued
to Kingtone confirming all the registered capital had been injected
into Kingtone by the parties.
(d) On 8th October, 1995, Far East Kartek transferred equity
interest in the Company to Kartek.
(e) On 13th August, 1998 a supplemental joint venture contract
("Supplemental Contract") was entered into to change the percentage of
equity held by Kartek and ZPTB from 48:52 to 38:62.
(h) On 26th August, 1998 Zhanjiang Administration Commission of
Development of Economic and Technology Zone approved the Supplemental
Contract.
62
63
(i) Pursuant to the reorganisation of ZPTB in 1998, ZPTB was
separated into ZPB and ZTB and the ZPTB's equity interest in the
Company was taken over by ZPB and ZTB in the proportion of 26.5% and
35.5% respectively.
SCHEDULE 2
PROPERTY
SCHEDULE 3
THE WARRANTIES
Subject to the matters referred to herein or within the actual knowledge
of the Purchaser, each of the Vendors hereby represents and warrants and
undertakes to the Purchaser that all representations and statements of
fact set out in this Schedule 3 or otherwise contained in this Agreement
are and will be true and accurate in all respects as at the date hereof
and as at Completion.
1. General information and powers of the Vendors
(A) Each of the Vendors has full power to enter into this Agreement and
to exercise its rights and perform its obligations hereunder and (where
relevant) all corporate and other actions required to authorise its
execution of this Agreement and this Agreement will, when executed by it,
be a legal, valid and binding agreement on it and enforceable in
accordance with the terms thereof.
(B) So far as the Vendors are aware, the execution, delivery and
performance of this Agreement by the Vendors does not and will not violate
in any respect any provision of (i) any law or regulation or any order or
decree of any governmental authority, agency or court applicable to the
Vendors or the Company or any part thereof prevailing as at the date of
this Agreement and as at Completion; (ii) the laws and documents
incorporating and constituting the Vendors prevailing as at the date of
this Agreement and as at Completion; or (iii) any mortgage, contract or
other undertaking or instrument to which any of the Vendors is a party or
which is binding upon it or any of its assets, and does not and will not
result in the creation or imposition of any Encumbrance on any of its
assets pursuant to the provisions of any such mortgage, contract or other
undertaking or instrument.
(C) So far as the Vendors are aware, no Consent of or filing or
registration with or other requirement of any governmental department
authority or agency in Hong Kong, the PRC or any jurisdiction in which
any of the Vendors is incorporated or resides or any part thereof is
required by the Vendors in relation to the valid execution, delivery or
performance of this Agreement (or to ensure the validity or enforceability
thereof) and the sale of the Sale Capital.
(D) Neither the execution of this Agreement nor the performance by the
Vendors of their respective obligations hereunder will violate (i) the
Joint Venture Contract (ii) any provision of the business licence of the
Company or Articles of Association or other constitutional documents
(including directors' resolutions passed or purported to be passed) of the
Company.
(E) As at the date of this Agreement and immediately prior to
Completion, the information set out in Schedules 1 and 2 is true, accurate
and complete.
(F) The information set out in the Recitals to this Agreement is true,
complete and accurate in all respects and not misleading.
2. Sale Capital
(A) Each of the Vendors is the registered and beneficial owner of its
relevant Sale Capital free from any Encumbrances and together with all
rights and entitlements attaching thereto.
(B) Each of the Vendors are entitled to transfer the full legal and
beneficial ownership of the relevant Sale Capital to the Purchaser and
once the Conditions are satisfied and Completion takes place, the
Purchaser will legally and validly become the owner of 60 per cent. of
the registered capital of the Company.
(C) The Sale Capital represents 60 per cent. of the registered capital
of the Company.
(D) There is no option, right to acquire, mortgage, charge, pledge, lien
or other form of security, Encumbrance or third party rights on, over or
affecting any part of the Sale Capital or any part of the registered
capital of the Company and there is no agreement or commitment to give or
create any of the
64
foregoing and no claim has been made by any person to be entitled to any
of the foregoing which has not been waived by such person in its entirety
or satisfied in full.
(E) There is no agreement or commitment outstanding which calls for the
issue of or accords to any person the right to call for the issue of any
registered capital in the Company.
3. Corporate Matters
(A) Compliance has been made with all legal and procedural requirements
and other formalities in connection with the Company concerning (i) its
business licence and the Articles of Association and other constitutional
documents (including directors' resolutions passed or purported to be
passed); (ii) the filing of all documents by the Company as required by
the laws of the PRC to be filed with relevant governmental authorities in
the PRC; (iii) the increase of its registered capital and total
investment; (iv) payments of interest and dividends and making of other
distributions, and (v) directors and other officers.
(B) None of the provisions of the Joint Venture Contract have been
breached by the Vendors, each party has performed on time its obligations
thereunder and no event has occurred which may lead to the invocation of
any of the termination provisions thereunder. So far as the Vendors are
aware, none of the parties to the Joint Venture Contract have infringed
any laws or regulations of the PRC with respect to their dealings with the
Company or with each other or their investment in the Company.
(C) The minute books of directors' meetings and of shareholders'
meetings respectively contain full and accurate records of all resolutions
passed by the directors and the shareholders respectively of the Company
and no resolutions have been passed by either the directors or the
shareholders of the Company which are not recorded in the relevant minute
books.
(D) All charges in favour of the Company have (if appropriate) been
registered in accordance with the provisions of the applicable legislation
and regulations and at the relevant registries or authorities.
(E) All accounts, books, ledgers, and other financial records of the
Company:-
(i) have been properly maintained, are in the possession of the Company
and contain due and accurate records of all matters required by law to be
entered therein;
(ii) do not contain or reflect any material inaccuracies or
discrepancies; and
(iii) give and reflect a true and fair view of the matters which ought
to appear therein and no notice or allegation that any of the same is
incorrect has been received, or if the Company has received such notice or
allegation, the incorrectness or errors have been rectified.
(F) So far as the Vendors are aware, all documents requiring to be filed
with the Registrar of Companies in Hong Kong or the equivalent body in the
British Virgin Islands, the Bahamas, the United States of America and the
PRC or any other relevant authority by the Company have been properly made
up and filed.
(G) So far as the Vendors are aware, each of the Company and its
directors (in their capacity as such) has complied with all relevant
legislation and obtained and complied with all necessary Consents to carry
on business whether in the country, territory or state in which it is
incorporated or elsewhere, including (but without limitation) legislation
relating to companies and securities, real property and Taxation and have
complied with all legal requirements in relation to any transactions to
which it is or has been a party prior to Completion.
4. The Company
(A) The information in respect of the Company set out in Part A of
Schedule 1 is true and accurate and not misleading.
(B) The Company is a Sino-foreign equity joint venture validly
constituted and established and has the requisite power to carry on and is
carrying on its business in the manner and in the places within the scope
of its business licence and approval certificate and there are no
circumstances which lead to the suspension or cancellation of any such
permits, authorities, licences or Consents. So far as the Vendors are
aware, the Company has complied with all necessary registration and filing
requirements under the laws and regulations of the PRC to any of its
assets and to carry on its business as presently conducted.
65
(C) The business licence and approval certificate issued by the State
Administration of Industry and Commerce Bureau and the Ministry of Foreign
Trade and Economic Co-operation in Zhanjiang to the Company and all other
approvals, licences, permits and Consents in connection with its
establishment and the conduct of its business are valid and subsisting.
(D) As at the date of this Agreement, the Company's registered capital
is 38% per cent. owned by Kartek and 26.5% per cent. owned by ZPB and
35.5% owned by ZTB.
(E) There has not been any reduction of or increase in the registered
capital or total investment amount of the Company nor has any application
been made to the approval authority of the Company or other PRC
governmental authorities for such reduction or increase.
(F) As of the date of this Agreement, the registered capital of the
Company has been fully paid up and there is no outstanding liability to
contribute to the registered capital of the Company nor any pending
application to increase the registered capital and/or the total investment
amount of the Company beyond the amounts set out in Part B of Schedule 1.
There has not been granted to the Company and there is no agreement to
grant any shareholder loans or to provide on behalf of the Company any
guarantees or similar forms of security.
(G) The Company does not have any subsidiaries and associated companies
(in incorporation form or otherwise) or any investment of any nature.
5. Accounts
(A) The Accounts:-
(i) were prepared in accordance with applicable laws and with
generally accepted accounting principles, standards and practices in the
PRC (including all applicable Statements of Standard Accounting Practice)
at the time they were prepared and on a consistent basis with the audited
financial statements of the Company for each of the three financial years
ended on 31st December, 1998 (the "Previous Accounts");
(ii) are true and accurate, correctly make or include full provision
for any bad and doubtful debts and all established liabilities, make
proper and adequate provision for (or contain a note in accordance with
good accounting practice respecting) all deferred, disputed or contingent
liabilities (whether liquidated or unliquidated) and all capital
commitments of the Company as at the Accounts Date and the reserves and
provisions (if any) made therein for all Taxation relating to any period
on or before the Accounts Date are proper and adequate;
(iii) give a true and fair view of the state of affairs and financial
and trading positions of the Company at the Accounts Date and of the
Company's results for the financial period ended on that date;
(iv) correctly include all the assets of the Company as at the Accounts
Date and the rate of depreciation adopted therein is sufficient for each
of the fixed assets of the Company to be written down to 1-3% by the end
of their estimated lives in accordance with PRC law or generally accepted
accounting principles, standards and practices in the PRC;
(v) are not adversely affected by any unusual, exceptional,
extraordinary or non-recurring items which are not disclosed in the
Accounts; and
(vi) contain full provision for the diminution in value of the
Company's properties.
(B) The Management Accounts:-
(i) (a) were prepared in accordance with applicable law, accounting
principles, standards and practices generally accepted in the PRC at the
time they were prepared and commonly adopted by companies carrying on
businesses similar in all material respects to that carried on by the
Company in preparing management accounts and the notes, if any, set out
therein, and (b) in respect of which the accounting policies adopted by
the Company in preparing the Accounts have been consistently applied; and
(ii) fairly reflect the state of affairs and financial and trading
positions of the Company and of its fixed and current assets, contingent
liabilities and debtors and creditors, in each case as at the Management
Accounts Date and the Company's results for the financial period ended on
that date;
(C) The accounting and other books and records of the Company are in
its possession, have been properly written up and accurately present and
reflect in accordance with generally accepted accounting principles and
standards in the PRC all the transactions entered into by the Company or
to which the Company has been a party and there are at the date hereof no
material inaccuracies or discrepancies of any kind contained or reflected
in any of the said books and records, and that at the date hereof they
give and reflect a true and fair view of the financial, trading and
contractual position of the Company and of its fixed and current and
contingent assets and liabilities and debtors and creditors.
66
(D) Since the Accounts Date and save as disclosed or reflected in the
Accounts:-
(i) the Company has not entered into any material contracts or
commitments binding on it (other than contracts entered into in the
ordinary course of its business) and there has not been any acquisition or
disposal by the Company of material fixed or capital assets or any
agreement to effect the same;
(ii) there has not been any creation of liabilities by the Company
(other than on normal commercial terms in the ordinary course of its
business);
(iii) no event has occurred as regards the Company which would
entitle any third party to terminate any material contract or any material
benefit enjoyed by the Company or call in any material amount of money
before the normal due date therefor or indebtedness;
(iv) the Company has not created any mortgage or charge on the whole
or any part of its assets;
(v) the Company has not borrowed except from bankers in the ordinary
course of its day to day trading operation or increased any secured
liability;
(vi) the Business has been carried on in the ordinary and usual
course and in the same manner (including nature and scope) as in the past;
no fixed asset or stock has been written up nor any debt written off, and
no unusual or abnormal contract has been entered into by the Company; and
(vii) the loss of the Company has not been substantially higher than
that of the previous year and subject to such losses and further write-off
of assets by the auditors there has been no material adverse change in the
financial or trading position of the Company.
(E) So far as the Vendors are aware, no part of the amounts included in
the Management Accounts and/or the Accounts or subsequently recorded in
the books of the Company, as owing by any debtors, has been released on
terms that any debtor pays less than the full book value of its debt, or
has been written off, or has been proven to any extent to be
irrecoverable, or is now regarded by the Company (as the case may be) as
irrevocable in whole or in part.
(F) So far as the Vendors are aware, all debts due to the Company
included in the Management Accounts and/or the Accounts (being debts in
excess of bad or doubtful debts for which provision has been made in the
Management Accounts and/or the Accounts) have either prior to the date
hereof been realised or will within twelve months realise their full
amount in cash.
(G) No transaction of any material importance to which the Company is a
party has taken place which if it had taken place would have to be
reflected in the Management Accounts and/or the Accounts.
(H) Adequate provisions have been made in the Management Accounts and/or
the Accounts for all dividends (if any) or other distributions (if any) to
shareholders declared and remaining unpaid as at the date hereof.
(I) Since 30th April, 1999, no dividend has been declared or paid or
other distributions of capital made in respect of any share capital of the
Company, and no loans or loan capital have been repaid by the Company in
whole or in part.
(J) There has been no Material Adverse Change (or Effect) of the Company
as a whole since the Accounts Date.
(K) The Company has no present intention to discontinue or write down
investments in any other businesses other than those disclosed in the
Management Accounts and/or the Accounts.
(L) The Company has not and will not distribute any dividends payable
(whether declared or not) after 30th April, 1999.
6. Business
(A) The Business of the Company is the manufacture of
telecommunications related cables for Chinese markets and
as described in its business licence.
(B) The company has obtained for the purpose of its business all
necessary consent of any governmental or other authority and any other
person and of any owner of the Intellectual Property Rights
67
(C) Each of the Consents referred to in paragraph (B) is valid and in
force, the Company is not in breach of the terms of any such Consent
(including breach of any requirement relating to such Consent to make
returns or reports or supply information) and there are no
circumstances (including the sale of the Sale Capital) which are known,
or which the Vendors ought to have known and which might invalidate any
such Consent or render it liable to forfeiture or modification or (in
the case of a renewable Consent) affect its renewal.
(D) After Completion there will be no restriction on the right of the
Company to carry on its business which does not now apply to the
Company.
(E) The Company has not manufactured, sold or supplied any product or
service in the course of its business which does not in all respects
comply with all applicable laws, regulations and standards, or which is
defective or dangerous or not in accordance with any representation,
warranty or other term (whether express or implied) given in respect of
it; and it has no outstanding liability (including a contingent
liability by virtue of the terms on which the product or service was
sold) in respect of any such product or service or its repair,
maintenance or replacement.
(F) The Company has not (except for the purpose of carrying on its
business in the ordinary course and subject to an obligation of
confidentiality and legal requirements) disclosed, or agreed to
disclose, or authorised the disclosure of, any of its lists of
suppliers or customers, trade secrets or technological or confidential
information concerning its Business, all of which are fully and
properly recorded in writing or other appropriate form and are not
incorrect or incomplete in any way.
(G) The Business is managed exclusively by its officers and
employees, and no person has authority to bind the Company other than
its officers and employees acting in the ordinary and ostensible course
of their duties.
(H) The Company is not, or has not agreed to become, a member of any
partnership, joint venture, consortium, trade association or any other
association of persons (whether incorporated or not incorporated).
(I) The Company does not carry on business through any branch, agency
or permanent establishment outside the PRC.
(J) The Company does not carry on any business other than that stated
in its business licence.
(K) So far as the Vendors are aware, the acquisition of the Sale
Capital by the Purchaser and compliance with the terms of this
Agreement will not:-
(i) cause the Company to lose the benefit of any right or privilege
it presently enjoys or cause any person who normally does business with
the Company not to continue to do so on the same basis as previously;
(ii) relieve any person of any obligation to the Company (whether
contractual or otherwise) or enable any person to determine any such
obligation or any right or benefit enjoyed by the Company or to
exercise any right whether under an agreement with or otherwise in
respect of any of them;
(iii) result in any present or future indebtedness of the Company
becoming due or capable or being declared due and payable prior to its
stated maturity;
(iv) give rise to or cause to become exercisable any right of pre-
emption (except pursuant to the terms of the Joint Venture Contract and
applicable laws and regulations); or
(v) adversely affect the Company's relationships with its clients,
customers, suppliers or employees.
7. Financial Matters
(A) The aggregate amount of the borrowings of the Company as at the date
hereof is RMB132,663,355.
(B) The aggregate amount of guarantees provided by the Company in favour
of other entities as at the date hereof is RMB23,000,000.
68
(C) Since the Accounts Date, there has not been:-
(i) any damage, destruction, or loss materially adversely affecting
the Properties or the Business;
(ii) any sale or transfer by the Company of any material tangible or
intangible asset other than in the ordinary course of business, any
mortgage or pledge or the creation of any security interest, lien, or
encumbrance on any such asset, or any lease of property, including
equipment, other than tax liens with respect to taxes not yet due and
statutory rights of customers in inventory and other assets;
(iii) any material transaction not in the ordinary course of business
of the Company;
(iv) the lapse of any patent, utility models, design, trademark,
trade name, service xxxx, copyright, or licence or any application with
respect to the foregoing by the Company which is material in the context
of the Business as a whole;
(v) the making of any material loan, advance, indemnity or guarantee
by the Company to or for the benefit of any person except the creation of
accounts receivable in the ordinary course of business; or
(vi) an agreement to do any of the foregoing.
(D) The Company has no material capital commitment nor is it engaged in
any scheme or project requiring the expenditure of capital of a
significant amount.
(E) All dividends or distributions declared, made or paid by the Company
have been declared, made or paid in accordance with its articles of
association (or equivalent documents) and the applicable statutory
provisions.
(F) The Company has not as at the date hereof and will not, as at
Completion, have outstanding:-
(i) any borrowing or indebtedness in the nature of borrowing or other
credit facility save and except for the borrowing or indebtedness
disclosed to the Purchaser;
(ii) any mortgage, charge or debenture or any obligation (including a
conditional obligation) to create a mortgage, charge or debenture save and
except for the mortgages disclosed to the Purchaser in writing (if any);
(iii) any liabilities outstanding under any guarantee or other
material contingent obligation.
8. Plant, Equipment and Assets
(A) So far as the Vendors are aware, all plant, machinery, equipment,
vehicles, material assets owned or used by the Company are in good and
safe condition and in working order (fair wear and tear excepted) in all
material respects and have been regularly and properly maintained, would
not be expected to require replacement within 12 months after
Completion.
(B) The assets included in the Management Accounts and/or the Accounts
or acquired since the Accounts Date and all assets used or owned by or in
the possession of the Company:-
(i) are legally and beneficially owned by the Company free from any
mortgage, charge, lien or similar encumbrance any hire-purchase agreement
or agreement for payment on deferred terms or bills of sale or lien,
charge or other encumbrance;
(ii) are in the possession or under the control of the Company;
(iii) where purchased on terms that title to property does not pass
until full payment has been made, have been paid for in full by the
Company;
(iv) are not subject to any hire purchase, leasing arrangements or
other arrangements of a similar nature; and
(v) comprise all the material assets, property and rights which the
Company owns or which it uses or requires for the purpose of carrying
on its Business.
69
(C) The amount of all debts owing to the Company (less the amount of
any provision or reserve for bad and Doubtful Debts included in the
Accounts) will be fully recoverable in the ordinary course; and no debt
is owing to the Company by the Vendors.
(D) The Company is not a party to any agreement for the hire, rent,
hire purchase or purchase on deferred terms of any asset.
(E) The Company does not own nor has it agreed to acquire, any shares
or debentures in any other undertaking or any other securities.
(F) The Company has done everything (whether by way of giving notice,
registration, filing or otherwise), required or permitted to be done by
it by applicable laws and regulations for the protection of its title
to, or for the enforcement or the preservation of any order of priority
of its title to, any property or rights (including the benefit of any
debt, mortgage or charge) owned by it.
(G) All records or other documents recording or evidencing any
contract, licence, consent or other right of the Company or required
for the exercise of any such right are in the possession or under the
exclusive control of the Company.
9. Insurance
The Company has effected all insurances required by law to be effected by
it for its employees and over its Business and all such insurances are
valid and in force at the date of this Agreement.
10. Taxation
(A) The Company has complied with all relevant legal requirements
relating to registration, filing or notification for Taxation purposes.
(B) So far as the Vendors are aware, the Company has:-
(i) paid all Taxation (if any) due to be paid and is under no
liability to pay any penalty or interest in connection with any claim for
Taxation; and
(ii) taken all necessary steps to obtain any repayment of or relief
from Taxation available to it.
(C) The Company is not in dispute with any Taxation or revenue authority
and, so far as the Vendors are aware, no such dispute is pending or
threatened.
(D) The Company has submitted all claims and disclaimers which have been
assumed to have been made for the purposes of the Accounts and the
Management Accounts.
11. Contracts, Commitments and Material Transactions
(A) Since the Accounts Date, the Company has carried on its business in
the ordinary course and, save as mentioned in or as contemplated by this
Agreement, the Company has not entered into any transaction or incurred
any material liabilities except in the ordinary course of its day-to-day
business and on an arm's length basis for full value.
(B) There is not now outstanding nor, save and except for such contracts
or agreements which may be entered into by the Company pursuant to this
Agreement, will there be outstanding at Completion with respect to the
Company:
(i) any agreement (whether by way of guarantee, indemnity, warranty,
representation or otherwise) under which the Company is under any actual
or contingent liability in respect of the obligations of any person other
than the Company;
(ii) any contract to which the Company is a party which is of a
long-term (i.e. more than one year) and non-trading nature or contains any
unusual or unduly onerous provision disclosure of which could reasonably
be expected to influence the decision of the Purchaser in purchasing any
or all of the Sale Capital;
(iii) any sale or purchase option or similar agreement affecting any
assets owned or used by the Company (with a value in the books of account
of the Company in excess of RMB200,000) except those entered into the
ordinary course of day to day trading;
(iv) any material agreement in excess of RMB200,000 entered into by
the Company otherwise than by way of bargain at arm's length; and
70
(v) any management agreements, joint venture agreements, agency
agreements or any form of agreement whatsoever which entitles any person
to bind the Company contractually, to settle, negotiate or compromise any
accounts or claims or to collect, receive or share in any balances or sums
payable to the Company save in the ordinary course of business.
(vi) any contract to which the Company is a party and which cannot be
terminated by it without payment of compensation by less than 90 days'
notice, or imposes on the Company any obligation to be performed by it
more than 180 days from the date of the contract;
(vii) any contract to which the Company is a party (except contracts
with employees) and which:-
(a) requires the Company to pay a commission, finder's fee, royalty
or similar amount;
(b) is dependent on the guarantee, covenant of or security provided
by any other person; or
(c) is a contract for the sale of shares or assets which contains
warranties or indemnities under which the Company still has a remaining
liability or obligation;
(viii) any contract to which the Company is a party and which is or
may be unenforceable by it by reason of the contract being voidable at
the instance of any other party or void;
(ix) any offer, tender or quotation made or given by the Company
capable by the unilateral act of any other person of giving rise to any
contract otherwise than in the ordinary course of trading;
(x) any contract or arrangement under which any person has the
exclusive right to supply any description of goods or services to or
for the Company or, as its agent or distributor, to supply any
description of goods or services within any geographical area;
(xi) any contract or arrangement to which any of the Vendors is a
party or has the benefit which requires to be assigned to or vested in
the Company to enable the Company to carry on its business or enjoy the
rights to the same extent as carried on or enjoyed prior to the date of
this Agreement;
(xii) any contract to which the Company is a party and which may
restrict its activities or the use or disclosure by it of any
information; or
(xiii) any breach by any party of the terms of any contract to which
the Company is a party.
(C) The Company has not received any formal or informal notice to repay
under any agreement relating to any borrowing (or indebtedness in the
nature of borrowing) which is repayable on demand and which exceeds an
aggregate amount of RMB1,000,000.
(D) The Company is not under any obligation, or party to any contract,
which cannot readily be fulfilled or performed by it on time and without
undue or unusual expenditure of money or effort and which is material in
the context of the Business as a whole.
(E) There are no outstanding contracts, engagements or liabilities,
whether quantified or disputed, save for (i) as shown in the Management
Accounts and/or the Accounts or (ii) entered into in the ordinary course
of the Company's day to day business operations.
(F) With respect to the Company, there are no:-
(i) contractual arrangements between the Company and any party which
will or may be legally terminated as a result of the execution or
completion of this Agreement; or
(ii) liabilities for any statutory or governmental levy or charge
(levy or charge below RMB100,000 excepted) other than for Taxation
provision for which has been made in the Management Accounts and/or the
Accounts; or
(iii) powers of attorney or other authorities (express or implied)
which are still outstanding or effective to or in favour of any person to
enter into any contract or commitment or to do anything on its behalf; or
(iv) agreements or arrangements entered into by it otherwise than by
way of bargain at arm's length; or
(v) contracts which are unusual or of a long-term nature or involving
or which may involve obligations on it of a nature or magnitude calling
for special mention or which cannot be fulfilled or performed on time or
without undue or unusual expenditure of money or effort.
(G) No alteration has been made to the memorandum of association or
articles of association of the Company since establishment other than
those requested by the Purchaser or contemplated by this Agreement.
71
(H) No agreement or arrangement to which the Company is a party, is
required or, following the execution and completion of this Agreement,
will be required to be registered with any authority or governmental
agency.
(I) Since the Accounts Date, the Company has not:-
(i) issued or repaid or agreed to issue or repay any share or loan
capital;
(ii) declared, made or paid any dividends or made any other
distribution out of profits, reserves or capital and no loans or loan
capital has been repaid in whole or in part other than the $1,000,000
dividend declared and paid in February, 1999.
12. Employment Arrangements
(A) All contracts of service to which the Company is a party can be
terminated by it without payment of compensation by not more than three
months' notice or less without compensation (save and except otherwise
required by applicable laws and regulations).
(B) The Company is not a party to any provident fund save as required by
any applicable laws and regulations.
(C) The Company has not since the Accounts Date:-
(i) changed, or agreed to change, the terms of its employment
(including terms relating to pension benefits) of any person who was on
the Accounts Date entitled to remuneration at a rate in excess of
RMB15,000 per annum;
(ii) paid or given, or agreed to pay or give, to any of its officers
or employees any remuneration or benefit, except the salary or wage to
which he is contractually entitled under the terms of his employment;
or
(iii) been notified of any wage claim or agreed any general
increase in wages or wage rates.
(D) Except otherwise required by any applicable laws and regulations,
the Company is not under any legal liability or obligation or a party to
any agreement, arrangement, scheme, fund, or promise to pay pensions,
gratuities, retirement annuities, in connection with retirement, to or for
any of its past or present officers or employees or their relatives or
dependants; and there are no retirement benefit, or pension binding on the
Company.
(E) Particulars of all loans, if any, to director of the Company have
been disclosed to the Purchaser.
(F) Except otherwise required by any applicable laws and regulations,
the Company is not under any obligation (whether actual or contingent and
whether or not disputed by the Company) to any former employee whether for
breach of any contract of service, for compensation for wrongful dismissal
or for unfair dismissal or for payment of any salaries, wages, pensions,
gratuities, severance pay, long service payment, bonuses or otherwise
howsoever or whatsoever and no tax, levy, contribution or payment in
respect of any former employee whether to any governmental authority,
pension fund, scheme or trust or otherwise howsoever or whatsoever is
outstanding or disputed.
(G ) All schemes or plans for the provision of benefits to employees
of the Company comply in all respects with all applicable legislation
and all necessary Consents in relation to such schemes and plans have
been obtained and remain in full force and effect.
(H) The Company has not given any guarantee or assumed any obligations
in relation to the employees of any other person.
(I) Complete and accurate particulars have been given in writing to
the Purchaser of the details (name, age, length of service,
remuneration) and terms of employment by the Company of its employees
(including terms implied by custom or usage of the Company or of the
trade) and the terms of engagement under which the services of any
other individual are provided for the Company.
(J ) All salaries and wages due to the officers and employees of the
Company for any period before the date of this Agreement have been paid
in full.
(K) Save as contemplated by this Agreement, no present employee of
the Company or other individual whose services are provided for the
Company has given or received notice of termination of his employment
or engagement.
13. Property
(A) The Property represents all the real property owned, used or
occupied by the Company or in respect of which the Company has any
estate, interest, right or liability, and, except as disclosed in the
valuation report of the Property prepared by X.X. Xxxxx & Co. ("the
Valuation Report"):-
72
(i) the Company is the sole owner of and has the land use rights and
building ownership of the Property and is entitled to transfer, dispose
of, sell, mortgage or otherwise deal with the Property and is entitled to
develop the Property in the manner and in accordance with the relevant
requirements of the relevant government authority subject to applicable
laws and regulations;
(ii) the Property and the land use rights and building ownership
associated therewith held by the Company are free from mortgage,
debenture, charge, lien, lease, encumbrances or any third party rights and
the Company has not entered into any agreement to do any of the foregoing;
(iii) all land premium, purchase price, land grant fees or other fees
payable in respect of the Property and the land use rights and building
ownership associated therewith (and the fees and charges for demolition
and re-settlement in connection with the acquisition of the land use
rights of the land of the Property (if any)) have been paid in full and
will be duly paid up to the date of completion of this Agreement and no
further such premiums, price or fees are payable under the laws of the
PRC;
(iv) so far as the Vendors are aware, and save as disclosed to the
Purchaser in writing none of the terms and conditions contained in the
relevant transfer contracts, real estate title certificate, land use
rights certificate, building ownership certificates (if any) and/or
certificate of ownership and the applicable laws, rules and regulations in
the PRC have been breached in respect of the Property;
(v) the Company has duly performed and observed all the terms and
conditions contained in the sale and purchase contracts, land use right
certificate and building ownership certificates (if any) for the Property
to be performed and observed on the part of the Company as purchaser
thereof;
(vi) so far as the Vendors are aware, all relevant legal
requirements or conventions for notarization and registration of the sale
and purchase contracts for the Property have been complied with;
(vii) the land use rights and building ownership pertaining to the
Property and all permits and approvals in respect of the town planning,
construction and/or development of the Property are valid and subsisting
and have not been amended, modified or supplemented in any manner
whatsoever;
(viii) except as disclosed to the Purchaser in writing no contracts
have been entered into by the Company to sell, assign, subdivide, let or
lease, licence, charge, mortgage, partition, share, grant any option over
or otherwise dispose of an interest in or part with the possession or
occupation of the Property or any part thereof or otherwise encumber the
Property nor is there any agreement by the Company to do any of the
aforesaid;
(ix) the Company is in physical possession and actual occupation of
the Property on an exclusive basis and no right of occupation or enjoyment
has been acquired or is in the course of being acquired by any third party
or has been granted or agreed to be granted to any third party;
(x) the Company does not have any outstanding material liabilities
under the terms and conditions upon which the land use rights and building
ownership pertaining to the Property are granted and there is no
obligation or liability on the part of the Company to transfer any part of
the Property or any interests in the Property to any person or authority
whatsoever or to undertake any urban or public facilities in connection
with the Property;
(xi) the Property is not subject to any restrictive covenants,
stipulations, easements, licences, restrictions or other like rights
vested in third parties other than those stipulated in the terms and
conditions upon which the land use rights and building ownership
pertaining to the Property are granted which terms and conditions are of a
usual nature with reference to such terms and conditions in the PRC;
(xii) to the best of the Vendors' knowledge having made all
reasonable enquiries, there are no circumstances which would entitle or
require any person to exercise any powers of entry or taking possession of
the Property;
(xiii) so far as the Vendors are aware, compliance has been made with
all applicable statutory and bye-law requirements with respect to the
Property;
(xiv) so far as the Vendors are aware, all requisite licences,
certificates and authorities necessary for the existing use of the
property by the Company have been duly obtained and are in full force,
validity and effect; and
(xv) so far as the Vendors are aware, all requisite planning and
building approvals required for any government, local or public authority
with respect to the Property have been obtained and are in full force and
effect.
73
14. Loans
(A) There are no loans made to the Company which are outstanding except
as shown in the Accounts or the Management Accounts.
(B) The Company has not factored any of its debts or engaged in any
financing of a type which would not require to be shown or reflected in
its accounts.
(C) Save as shown in the Accounts or the Management Accounts and save as
disclosed herein, the Company does not have outstanding any mortgages,
charges, debentures or other loan capital or bank overdrafts, loans or
other similar indebtedness, financial facilities, finance leases or hire
purchase commitments or any guarantees or other material contingent
liabilities.
(D) No material outstanding indebtedness of the Company has become
payable by reason of default by the Company and no event of default has
occurred.
15. Litigation
The Company is not a party to any litigation, arbitration or prosecutions
or to any other legal or contractual proceedings or hearings before any
statutory, regulatory or governmental body, department, board or agency or
to any material disputes or to the subject of any investigation by any
authority in the place where the Business is conducted and no litigation,
arbitration, prosecution or other legal or contractual proceedings or
investigations are threatened or pending either by or against the Company
and there are no facts or circumstances, subsisting which might give rise
to any such proceeding, investigation, hearing or to any dispute or to any
payment and there are no unfulfilled or unsatisfied judgment or court
orders against the Company.
16. Intellectual Property
(A) The Intellectual Property Rights comprise all the intellectual
property rights used or required for the purposes of the Business which
are material in the context of the Business and all of the same are valid,
in full force and effect, registered (where applicable) in the name of the
Company or the relevant licensor, and in the sole legal and beneficial
ownership or the subject of valid licences held by the Company.
(B) The Company has not granted and is not obliged to grant any licences
or assignments under or in respect of any Intellectual Property Rights or
to disclose or provide know-how, trade secrets, technical assistance,
confidential information or lists of customers or suppliers to any person;
and no such disclosure has been made.
(C) All fees for the grant or renewal of the Intellectual Property
Rights of or used in the Business and which rights are material to the
Company have been paid on demand or will be paid in due course and no
circumstances exist which might lead to the cancellation, forfeiture or
modification of any such Intellectual Property Rights or to the
termination of or any claim for damages under any licence of Intellectual
Property Rights to the Company.
17. Insolvency
(A) No order has been made or resolution passed for the winding up of
the Company and there is not outstanding:-
(i) any petition or order for the winding up of the Company;
(ii) any receivership of the whole or any part of the undertaking or
assets of the Company;
(iii) any petition or order for the administration of the Company; or
(iv) any voluntary arrangement between the Company and any of its
creditors.
(B) There are no circumstances which are known, or would on
reasonable enquiry be known, to the Vendors and which would entitle any
person to present a petition for the winding up or administration of
the Company or to appoint a receiver of the whole or any part of its
undertaking or assets.
(C) No distress, execution or other process has been levied against the
Company or action taken to repossess goods in the possession of the
Company.
(D) No floating charge created by the Company has crystallised and there
are no circumstances likely to cause such a floating charge to
crystallise.
74
(E) The Company is not and has not been a party to any transaction which
may be avoided in a winding up.
18. Trading
(A) So far as the Vendors are aware, the Company has and at all times
maintained valid and current foreign exchange control and is in compliance
with and is not in breach of any PRC laws or regulations relating to
foreign exchange control. The Vendors are not aware of any prohibition or
restriction (other than those imposed by law) on the Subsidiary in
relation to its handling of foreign exchange in the PRC (including
remittance of profit or dividend and opening of bank accounts.
19. Delinquent Acts
The Company has not committed nor is liable for any criminal, illegal,
unlawful or unauthorised act or breach of any obligation whether imposed
by or pursuant to statute, contract or otherwise.
20. Miscellaneous
(A) All representations warranties and undertakings contained in the
foregoing provisions of this Schedule shall be deemed to be repeated
immediately before Completion and to relate to the facts then existing.
(B) So far as the Vendors are aware, the Company has neither itself nor
vicariously:
(i) committed any breach of any statutory provision, order, bye-law
or regulation binding upon it or of any provision of its memorandum of
association or articles of association or bye-laws as of any trust deed,
agreement or licence to which it is a party or of any covenant, mortgage,
charge or debenture given by it;
(ii) entered into any transaction which is still executory and which
is or may be unenforceable by reason of the transaction being voidable at
the instance of any other party or ultra xxxxx, void or illegal; or
(iii) omitted to do anything required or permitted to be done by it
by the applicable laws and regulations necessary for the protection of its
respective title to or for the enforcement or the preservation of any
order or priority of any properties or rights owned by it.
(C) All information disclosed on the Purchaser for the purpose of its
due diligence exercise or otherwise prior to the signing of this Agreement
is true and correct in all material aspects and is not misleading.
(D) All information contained in this Agreement was when given true and
accurate in all respects and there is no fact or matter which has not been
disclosed to the Purchaser, which may render any such information or
documents untrue, inaccurate or misleading at the date of this Agreement
or which if disclosed to the Purchaser might reasonably be expected to
influence adversely the Purchaser's decision to purchase the Sale Capital
on the terms of this Agreement.
75
SCHEDULE 4
FORM OF TAX DEED OF INDEMNITY
Date , 1999
KARTEK INTERNATIONAL HOLDINGS LIMITED
and
ZHANJIANG POST BUREAU
and
ZHANJIANG TELECOMMUNICATIONS BUREAU
and
XXXXXXXX HOLDINGS INC.
DEED OF INDEMNITY
76
THIS DEED OF INDEMNITY is dated , 1999
BETWEEN:-
(1) KARTEK INTERNATIONAL HOLDINGS LIMITED, a company incorporated in the
British Virgin Islands with its registered office at Akara Building, Suite
# 8, Wickhams Cay I, Road Town, Tortola, the British Virgin Islands
("Kartek");
(2) ZHANJIANG POST BUREAU ("ZPB");
(3) ZHANJIANG TELECOMMUNICATIONS BUREAU of
55 ("ZTB"); and
(4) XXXXXXXX HOLDINGS INC., a company incorporated in the Bahamas with
limited liability, whose principal place of business is at Xxxxxxxxxx
Xxxxx, Xxxxxxxx Xxxxxx, X.X. Xxx X-0000 Nassau, the Bahamas (the
"Purchaser").
WHEREAS:-
(A) Zhanjiang Kingtone Cable Enterprises Limited is an equity joint
venture company established in the PRC (the "Company").
(B) By an agreement (the "Principal Agreement") dated 22nd June, 1999
made between, inter alia, the Vendors and the Purchaser, the Purchaser
agreed to purchase from the Vendors an aggregate of 60 per cent. of the
registered capital of the Company.
(C) It is a condition of the Principal Agreement that the Vendors shall
enter into this Deed to provide the Purchaser, for itself and as trustee
for the Company, with an indemnity concerning certain taxation
liabilities.
NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
(A) In this Deed, including the Recitals, the following expressions
shall have the following meanings except where the context otherwise
requires:-
"PRC" the People's Republic of China;
"Principal Agreement" the agreement referred to in Recital (B) above;
"Reference Accounts Date" 30th April, 1999;
"Relief" includes any relief, allowance, concession, set off or
deduction in computing profits, income or expenditure against which a
Taxation is assessed, and any credit granted by or pursuant to any
legislation or otherwise relating to all forms of Taxation;
"Taxation" means:-
(i) any liability to any form of taxation whenever created or imposed
and whether of the PRC or of any other part of the world and without
prejudice to the generality of the foregoing includes profits tax,
provisional profits tax, business tax on gross income, income tax,
value added tax, interest tax, salaries tax, property tax, estate duty,
resource duty, death duty, capital duty, stamp duty, payroll tax,
withholding tax, rates, import customs and exercise duties and
generally any tax duty, impost, levy or rate or any amount payable to
the revenue, customs or fiscal authorities of local municipal,
governmental, state, provincial, federal level whether of the PRC or of
any other part of the world;
(ii) such amount or amounts as is or are referred to in Clause 1(B);
and
(iii) all costs, interest, penalties, charges and expenses incidental
or relating to the liability to Taxation or the deprivation of Relief
or of a right to repayment of Taxation which is the subject of the
indemnity contained in Clause 2 to the extent that the same is/are
payable or suffered by the Company;
"Taxation Claim" includes any assessment, notice, demand or other
documents issued or action taken by or on behalf of the Tax Bureau of
the PRC or any other statutory or governmental authority whatsoever in
Hong Kong, in PRC or any other part of the world (if relevant) from
which it appears that the Purchaser and the Company or any of them are
liable or are sought to be made liable for any payment of any form of
Taxation or to be deprived of any
77
Relief or right to repayment of any form of Taxation which Relief or
right to repayment would but for the Taxation Claim have been available
to the Company; and
"Vendors" means collectively Kartek, ZPB and ZTB.
(B) In the event of any deprivation of any Relief or of a right to
repayment of any form of Taxation there shall be treated as an amount
of Taxation for which a liability has arisen the amount of such Relief
or repayment or (if smaller) the amount by which the liability to any
such Taxation of the Company would have been reduced by such Relief if
there had been no such deprivation as aforesaid, applying the relevant
rates of Taxation in force in the period or periods in respect of which
such Relief would have applied or (where the rate has at the relevant
time not been fixed) the last known rate and assuming that the Company
had sufficient profits, turnover or other assessable income or
expenditure against which such Relief might be set off or given.
(C) In this Deed:-
(i) Save for the words and expressions defined in Clause 1(A),
words and expressions and other rules of interpretation defined, used
or set out in the Principal Agreement have the same meanings and
application in this Deed;
(ii) unless the context otherwise requires, words denoting the
singular number include the plural thereof, words importing one gender
include both genders and the neuter and references to persons include
firms, companies, and corporations, in each case vice versa;
(iii) references to Clauses are to the clauses of this Deed; and
(iv) headings are for ease of reference only and do not form part
of this Deed.
2. TAXATION INDEMNITY
(A) Without prejudice to any of the foregoing provisions of this Deed
and subject as hereinafter provided, the Vendors hereby agree with the
Purchaser, for themselves and as trustee for the Company, that they
will indemnify and at all times keep the Purchaser fully and
effectively indemnified on demand against Taxation falling on the
Company resulting from or by reference to any income, profits or gains
earned, accrued or received or any event or transaction on or before
the Reference Accounts Date whether alone or in conjunction with any
circumstances whenever occurring and whether or not such Taxation is
chargeable against or attributable to any other person, firm or
company.
(B) The indemnity given by Clause 2 does not cover any Taxation
Claim:-
(i) which would not have arisen but for any act or omission by the
Purchaser or the Company voluntarily effected after the Reference
Accounts Date; or
(ii) to the extent that provision will be made for such Taxation
in the Audited Final Accounts; or
(iii) to the extent that any Taxation Claim arises or is incurred
as a result of or owing to any matter specifically disclosed to the
Purchaser prior to Completion of the Principal Agreement.
3. NO DOUBLE CLAIMS
No claim under this Deed shall be made:-
(i) by the Purchaser and the Company in respect of the same
Taxation; or
(ii) if a claim in respect thereof has been made under the
Principal Agreement.
4. TAXATION CLAIM
In the event of any Taxation Claim arising, the Purchaser shall give
or procure that notice thereof is as soon as reasonably practicable
given to the Vendors in the manner provided in Clause 9, provided that
such notice shall not be a condition precedent to the liability of the
Vendors hereunder; and, as regards any such Taxation Claim, the
Purchaser shall procure that the Company shall at the request of the
Vendors take such action, or procure that such action be taken, as the
Vendors reasonably request to cause the Taxation Claim to be withdrawn,
or to dispute, resist appeal against, compromise or defend the Taxation
Claim and any determination in respect thereof but subject
78
to the Company being indemnified and secured to its or their reasonable
satisfaction by the Vendors against all losses (including additional
Taxation), costs, damages and expenses which may be thereby incurred.
5. PAYMENTS
(A) If after the Vendors have made any payment pursuant to Clause 2
hereof, the Company shall receive a refund of all or part of the
relevant Taxation the Purchaser shall, so far as it lies within its
power, procure the Company (if it shall receive such refund) to repay
to the Vendors a sum corresponding to the amount of such refund less:-
(i) any expenses, costs and charges properly incurred by the
Company in recovering such refund; and
(ii) the amount of any additional Taxation which shall not have
been taken into account in calculating any other payment made or to be
made pursuant to this Clause but which is suffered by the Company in
consequence of such refund.
(B) Any payments due by the Vendors pursuant to the provisions of
this Deed shall be increased to include such interest on unpaid tax as
the Company shall be or shall have been required to pay.
6. LIMITATION OR TIME FOR INDEMNITY CLAIMS
The Vendors shall not be liable in respect of any claim under this Deed
unless a written notice of such claim shall have been given to the
Vendors or either of them on or prior to the expiry of six years from
the date of this Deed.
7. BINDING EFFECT
The indemnities, agreements and undertakings herein contained shall
bind the personal representatives and successors of the Purchaser and
each of the Vendors and shall ensure for the benefit of each party's
successors and assigns.
8. SEVERABILITY
Any provision of this Deed prohibited by or which is unlawful or
unenforceable under any applicable law actually applied by any court of
competent jurisdiction shall, to the extent required by such law, be
severed from this Deed and rendered ineffective so far as is possible
without modifying the remaining provisions of this Deed. Where,
however, the provisions of any such applicable law may be waived, they
are hereby waived by the parties hereto to the full extent permitted by
such law to the extent that this Deed shall be valid, binding and
enforceable in accordance with its terms.
9. NOTICES
Each notice, demand or other communication given or made hereunder
shall be in writing and delivered or sent to the relevant party in
accordance with the provision of Clause 14(B) of the Principal
Agreement.
10. GOVERNING LAW AND JURISDICTION
This Deed is governed by and shall be construed in accordance with the
laws of the PRC.
IN WITNESS whereof this Deed of Indemnity has been duly executed on the
day and year first above written.
79
THE COMMON SEAL OF)
KARTEK INTERNATIONAL HOLDINGS )
LIMITED)
was hereunto affixed)
in the presence of:-)
THE COMMON SEAL OF)
ZHANJIANG POST BUREAU)
was hereunto affixed)
in the presence of:-)
THE COMMON SEAL OF)
ZHANJIANG TELECOMMUNICATIONS)
BUREAU)
was hereunto affixed)
in the presence of:-)
THE COMMON SEAL OF)
XXXXXXXX HOLDINGS INC.)
was hereunto affixed)
in the presence of:-)
80
SCHEDULE 5
THIS SUPPLEMENTAL CONTRACT is made on , 1999
BETWEEN:
(1) Kartek International Holdings Limited ("Party A")
(2) Zhanjiang Post Bureau ("Party B")
(3) Zhanjiang Telecommunications Bureau ("Party C")
(4) Xxxxxxxx Holdings Inc. ("Party D")
In this Supplemental Contract, Party A, Party B, Party C and Party D
are collectively referred to as "Parties" and "Party" means each or any
one of them, as the context may require.
WHEREAS:
(A) Parties A, B and C are parties to a joint venture contract dated
12th January, 1993 (as supplemented) ("Joint Venture Contract") in
respect of their rights and obligations as investors in Zhanjiang
Kingtone Cable Enterprises Limited (the "Company").
(B) Pursuant to the Joint Venture Contract, Party A, Party B and
Party C are holders of the entire registered capital of the Company
which has been fully paid up in accordance with the Joint Venture
Contract.
(C) Party A, Party B and Party C wish to transfer their respective
holding of 28%, 13.68% and 18.32% of the registered capital of the
Company to Party D, and Party D wishes to accept such transfer; and
Party A, Party B and Party C consent to such transfer.
(D) Party D also wishes to amend some provisions of the Joint Venture
Contract and the Articles of Association of the Company; and Party A,
Party B and Party C consent to such amendments.
NOW, IT IS THEREFORE AGREED as follows:
1. Definitions and Interpretation
Words and expressions which have defined meaning in the Joint Venture
Contract and the Articles of Association of the Company shall have the
same meaning, as given to them in the Joint Venture Contract and
Articles of Association, when used in this Supplemental Contract.
2. Party D as party
(A) When this Supplemental Contract becomes effective, and subject
to the provisions of this Supplemental Agreement, Party D shall become
the foreign party to the Company, shall be vested with the 60% holding
in the registered capital of the Company originally owned by Party A,
Party B and Party C respectively, and shall be entitled to all the
rights and be liable to all the obligations stated in the Schedule
hereto.
(B) With regard to the present transfer of the holding of 60% of the
Company's registered capital from Party A, Party B and Party C to Party
D, Party A, Party B and Party C have waived and hereby confirm their
irrevocable waiver of the irrespective preferential pre-emptive right
to acquire such holding whether such right arises under the Law on
Chinese-Foreign Equity Joint Ventures, the Joint Venture Contract, or
the Articles of Association or otherwise howsoever.
3. Fee and expenses
Each Party shall bear the fees of its professional advisors, including
accountants, auditors and lawyers, and any other expenses incurred in
relation to or for the performance of its obligations under this
Supplemental Contract.
4. Extension of Term
The term of the joint venture shall be extended to 31 years.
81
Management
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:
(i) the board of directors shall comprise of 8 directors and Party
A, Party B and Party C shall each be entitled to appoint 1 director and
Party D shall be entitled to appoint 5 directors;
(ii) Party D shall be entitled to nominate the General Manager, Chief
Accountant and other senior management to be appointed by the board of
directors of the Company in accordance with its meeting rules.
6. Board Meetings
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:
(i) the board of the Company shall meet at least four times annually;
(ii) the quorum for each such board meeting shall comprise of at least 6
directors present throughout the meeting;
(iii) not less than 14 days' notice shall be given to all directors of
the Company for convening any such board meeting;
(iv) all business discussed at any such board meeting shall be remain
confidential save for disclosure to professional advisers and (if
required) regulatory authorities and where required by law.
7. Settlement of Disputes
The Amended Joint Venture Contract and the Amended Articles of
Association shall contain the following provisions:-
In the event a dispute arises in connection with the interpretation,
implementation or performance of this Joint Venture Agreement, the parties
hereto shall attempt in the first instance to resolve such dispute through
friendly consultations. If such dispute is not resolved in this manner
within 21 days after the commencement of discussions, then any party
hereto may submit the dispute for arbitration in Singapore for final
decision pursuant to the provisions of UNCITRAL with instructions that the
arbitration be conducted in the manner set forth below.
Arbitration shall be conducted as follows:-
(i) the arbitrators may refer to both the English and Chinese texts of
this Agreement;
(ii) all proceedings in any such arbitration shall be conducted in
English and translated into Chinese; and
(iii) there shall be three (3) arbitrators all of whom shall be fluent
in English. Party D and Parties A, B and C (collectively) shall each
select one (1) arbitrator. The third arbitrator shall be chosen as
provided in the UNCITRAL Arbitration Rules and shall serve as chairman of
the panel.
The arbitration awards shall be final and binding on the parties, and the
hereto agree to be bound thereby and to act accordingly.
The costs of arbitration shall be borne by the losing party, unless
otherwise determined by the arbitration award.
Whenever any dispute occurs or is under arbitration, the parties hereto
shall continue to exercise their remaining respective rights, and fulfil
their remaining respective obligations, in such manner in accordance with
the provisions of this Joint Venture Agreement.
8. Commencing of Effect
This Supplemental Agreement shall become effective when this
Supplemental Agreement together with the Amended Joint Venture Contract
(and documents annexed thereto) and Amended Articles of Association are
approved by the original examination and approval authority of the
Joint Venture Contract.
82
9. Miscellaneous
(A) The conclusion, validity, interpretation and execution of the
Equity Transfer Agreement and the settlement of disputes arising
therefrom shall be governed by the laws of the PRC.
(B) This Supplemental Agreement is written in both English and
Chinese in 10 original copies, 5 in English and 5 in Chinese. Both
versions are equally authentic and shall have the same force.
Executed in Zhanjiang City, Guangdong Province, the PRC by the legal or
duly authorised representatives of each of Party A, Party B, Party C
and Party D on 22nd June, 1999.
SIGNED by )
)
for and on behalf of )
KARTEK INTERNATIONAL HOLDINGS)
LIMITED in the presence of: -)
SIGNED by )
)
for and on behalf of )
ZHANJIANG POST BUREAU )
in the presence of:- )
SIGNED by )
)
for and on behalf of )
ZHANJIANG TELECOMMUNICATIONS)
BUREAU in the presence of:- )
SIGNED by )
)
for and on behalf of )
XXXXXXXX HOLDINGS INC. )
in the presence of:- )
Dated 22nd June, 1999
KARTEK INTERNATIONAL HOLDINGS LIMITED
and
ZHANJIANG POST BUREAU
and
ZHANJIANG TELECOMMUNICATIONS BUREAU
and
XXXXXXXX HOLDINGS INC.
AGREEMENT
relating to the sale and purchase
of 60 per cent. of the registered capital of
Zhanjiang Kingtone Cable Enterprises Limited
XXXXXXXX XXXXXX
20th Floor
Xxxxxxxxx Xxxxx
00-00 Xxxxxx Xxxx
Xxxx Xxxx
