Dated the 28th day of December 2006 Dong Shunsheng Zhang Xiaoxiao Xia Weilan Cai Daqin Xia Fengling Zeng Yunwo WENZHOU LIREN EDUCATION GROUP CO., LTD. and AI-ASIA INFORMATION TECHNOLOGY (SHANGHAI) CO., LTD.
EXHIBIT 10.1
Dated
the 28th
day of December 2006
Dong
Shunsheng
Zhang
Xiaoxiao
Xia
Xxxxxx
Xxx
Daqin
Xia
Xxxxxxxx
Xxxx
Yunwo
WENZHOU
LIREN EDUCATION GROUP CO., LTD.
and
AI-ASIA
INFORMATION TECHNOLOGY (SHANGHAI) CO., LTD.
ON
TAISHUN YUCAI SENIOR SCHOOL
Table
of Contents
|
1
|
Definitions
|
4
|
|
2
|
Preconditions
|
8
|
|
3
|
Assets
and Operation of Yucai
|
9
|
|
4
|
Sale
and Purchase of the Sale Interests
|
9
|
|
5
|
Management
Contract A and Management Contract B
|
10
|
|
6
|
Representations
and Warranties
|
11
|
|
7
|
Fees
and Taxes
|
13
|
|
8
|
Registration
of the New Company
|
13
|
|
9
|
Profit
Allocation of the New Joint Venture Company
|
13
|
|
10
|
Management
of the New Joint Venture Company
|
14
|
|
11
|
Business
Term of the New Joint Venture Company
|
14
|
|
12
|
Confidentiality
|
14
|
|
13
|
Breach
of the Agreement
|
00
|
|
00
|
Xxxxxxx
Xxxxxxxxxx
|
00
|
|
00
|
Governing
Law and Jurisdiction
|
15
|
|
16
|
Effectiveness
|
15
|
|
17
|
Miscellaneous
|
15
|
|
Schedule
1:
|
Amendments
of the Article of Association of Yucai
|
17
|
|
Schedule
2:
|
Primary
Terms and Conditions of Letter of Warranty
|
18
|
|
Schedule
3:
|
Acknowledged
Due Diligence Results & Financial Projections
|
19
|
|
Schedule
4:
|
Primary
Terms and Conditions of Management Contract A
|
20
|
|
Schedule
5:
|
Primary
Terms and Conditions of Management Contract B
|
21
|
|
Schedule
6:
|
Assets
List and Property Right Certificate of Yucai
|
22
|
|
Schedule
7:
|
Employee
Payroll and Students Roster of Yucai
|
23
|
|
Schedule
8:
|
All
Licenses & Permits for Running Yucai
|
24
|
|
Schedule
9:
|
Primary
Terms and Conditions of the Sale and Purchase Agreement
|
25
|
|
Schedule
10:
|
Primary
Terms and Conditions of the Share Consideration
|
27
|
2
THIS
AGREEMENT
is
entered into on the 28th
day of
December 2006 in Wenzhou.
BETWEEN:
| (1) |
Dong
Shunsheng, Zhang Xiaoxiao, Xia Weilan, Cai Daqin, Xia Fengling
and Zeng
Yunwo (described
as following and collectively referred to “Dong
Shunsheng and His Fellows”;
|
Dong
Shunsheng,
(Holder
of PRC ID Number 330329621102001) of Xx. 000, Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx,
Zhejiang, People’s Republic of China;
Zhang
Xiaoxiao,
(Holder
of PRC ID Number 000000000000000000) of Xx. 000, Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx,
Zhejiang, People’s Republic of China;
Xia
Weilan,
(Holder
of PRC ID Number 330329630427002) of Xx. 000, Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx,
Zhejiang, People’s Republic of China;
Cai
Daqin,
(Holder
of PRC ID Number 330329296307181145) of Xx. 000, Xxxxxxx xxxx, Xxxxxxx, Xxxxxxx,
Xxxxxxxx, People’s Republic of China;
Xia
Fengling,
(Holder
of PRC ID Number 330329700116002) of Xx. 000, Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx,
Zhejiang, People’s Republic of China;
Zeng
Yunwo,
(Holder
of PRC ID Number 330105671103001) of Xx. 000, Xxxxxxx Xxxx, Xxxxxxx, Xxxxxxx,
Zhejiang, People’s Republic of China;
| (2) |
Wenzhou
Liren Education Group Co., Ltd., a
limited liability company incorporated in Wenzhou with its registered
office at Xx. 000, Xxxxxxx Xxxx, Xxxx Xxxx, Xxxxxxx, Wenzhou, Zhejiangl
People’s Republic of China and legal representative of Dong
Shunsheng
(hereinafter “Liren”);
and
|
| (3) |
Ai-Asia
Information Technology (Shanghai) Co., Ltd.,
a wholly-owned foreign company with limited liability and registered
office at Room 628-14, Building 2, Guo Shou Jing Road, Zhangjiang
Hi-Tech
Park, Shanghai, People’s Republic of China and legal representative of
Zhou Bizheng. Currently it is in the process of changing its name
to
Hartcourt
Education Investment Management & Consulting (Shanghai) Co.,
Ltd.
(hereinafter “Hartcourt
Education”).
|
WHEREAS:
|
1.
|
Taishun
Yucai Senior School (“Yucai”)
is a private school duly incorporated and validly existing and
has legally
obtained the “License for Sponsoring and Running Private School” (License
No. Private Education 3303293200603) and “Registration Certificate of
Private Non-Enterprise Unit” (Certificate TAI XXX XXXXX ZI No.
2000ó004)
in China;
|
|
2.
|
Dong
Shunsheng and His Fellows,
all
of whom are Chinese natural persons, co-founded Yucai as investors,
while
Liren acts as the sponsor of Yucai;
|
|
3.
|
Hartcourt
Education is a wholly-owned foreign company duly incorporated and
validly
existing with limited liability in
China;
|
3
|
4.
|
Liren
hereby agrees to sell its 51% sponsorship rights and interests
in Yucai
indirectly to Hartcourt Education, and Hartcourt Education agrees
to
purchase it;
|
|
5.
|
Dong
Shunsheng and His Fellows have agreed that Hartcourt Education
is the sole
and exclusive provider of education & consulting management services
to Yucai except themselves.
|
|
6.
|
Yucai
signed the Memorandum of Understanding with Hartcourt Companies,
Inc, the
parent company of Hartcourt Education, on the restructuring and
co-sponsoring of Yucai on September 28,
2006.
|
THEREFORE,
IT IS HEREBY AGREED BY DONG SHENSHENG AND HIS XXXXXXX, XXXXX AND HARTCOURT
EDUCATION AS FOLLOWS:
|
1.
|
DEFINITIONS
|
In
this
Agreement (including the Schedules), unless the context otherwise defines,
the
following words and expressions in capital letters shall have the following
meanings:
|
“Dong
Shunsheng and His Fellows”
|
The
six Chinese natural persons of Dong Shensheng, Zhang Xiaoxiao,
Xia Weilan,
Cai Daqin, Xia Fengling and Zeng Yunwo. Dong Shunsheng and His
Fellows
were the investors of Yucai prior to the execution of the Agreement.
|
|
“Liren”
|
Wenzhou
Liren Education Group Co., Ltd. Liren was the sponsor of Yucai
prior to
the execution of the Agreement.
|
|
“Hartcourt
Education”
|
Ai-Asia
Information Technology (Shanghai) Co., Ltd. It is now in the process
of
changing its name to Hartcourt Education Investment Management
and
Consulting (Shanghai) Co., Ltd. Hartcourt Education is the wholly
owned
subsidiary of Hartcourt.
|
|
“Hartcourt”
|
The
Hartcourt Companies, Inc. is incorporated in State of Utah, United
States,
the shares of which are currently listed on the Over-the-Counter
Bulletin
Board (“OTCBB”)
of the United States. Hartcourt conducts and focuses its business
on the
education investment and management.
|
|
“Yucai”
|
Taishun
Yucai Senior School. Prior to the execution of the Agreement, Dong
Shunsheng and His Fellows are the investors of Yucai, while Liren
is the
sponsor of Yucai.
|
4
|
“Investors
and Sponsors”
|
The
entity or individual which invested and/or sponsored Yucai pursuant
the
regulations of PRC law.
|
|
“New
Company”
|
A
limited liability company that Liren will newly establish. Dong
Shunsheng
and His Fellows will make the New Company become the sponsor of
Yucai.
|
|
“Board”
|
The
board of directors of Taishun Yucai School.
|
|
“Related
natural persons”
|
Natural
persons that signed “Letter of Funding” and “Investment Agreement” with
the Board of Yucai. The following are generally agreed in such
documents:
Related Natural Persons would invest in Taishun Yucai Schools (Taishun
Yucai Senior School, Taishun Yucai Junior High School, Taishun
Yucai
Primary School, Taishun Yucai Kindergarten), and become the “Investors” of
the schools in respect hereof. Such Related Natural Persons can
draw down
at not less than 15% dividend at the end of each anniversary year
for the
three years following the investing date.
|
|
“Teaching
Facility and Assets of Yucai”
|
Buildings,
equipments and lands, etc. that Yucai applies for its teaching
activities.
|
|
“Financial
Due Diligence”
|
The
Financial Due Diligence conducted by KRC Business & Financial Advisors
as entrusted by Hartcourt Education prior to December 20, 2006
on Yucai’s
financial standing as of October 22, 2006, and the results of which
were
taken as the financial document for Yucai to change its existing
sponsor
to the New Company. Detailed Financial Due Diligence results are
set out
in the Schedule 3.
|
|
“Financial
Projections”
|
In
relation to the year ending on December 31, 2007, 2008 and 2009,
the
Financial Projection on Yucai conducted by KRC Business & Financial
Advisors as entrusted by Hartcourt Education prior to December
20, 2006.
Detailed Financial Projections is set out in the Schedule 3.
|
5
|
“Letter
of Warranty”
|
The
Letter of Warranty made by Dong Shunsheng and His fellows to Hartcourt
Education and the New Company, to covenant the commitment to Hartcourt
Education and the New Company in respect of the Teaching Facility
and
Assets of Yucai. The primary terms and conditions of the Letter
of
Warranty are set out in Schedule 2.
|
|
“Management
Contract A”
|
The
management contract executed by Hartcourt Education, Dong Shunsheng
and
His Fellows and Yucai to agree that Hartcourt Education’s responsibility
on education management of Yucai and providing consulting service
as such.
In exchange for that, Yucai shall pay management fee to Hartcourt
Education, with Dong Shunsheng and His Fellows assuming the guarantee
liability.
|
|
“Management
Fee A”
|
The
management fee defined in aforesaid Management Contract A includes
the
base management fee and performance management fee, the amount
and
calculation of which as set out in Clause 5.2.
|
|
“Management
Contract B”
|
The
management contract executed by Dong Shunsheng and His Fellows
and Yucai
to agree on the offering of education management and consulting
service by
Dong Shunsheng and His Fellows to Yucai. In exchange of that, Yucai
shall
pay management fee to Dong Shunsheng and His Fellows.
|
|
“Management
Fee B”
|
The
management fee defined in aforesaid Management Contract B, the
amount and
calculation of which as set out in Clause 5.5.
|
|
“Original
Contracts”
|
Any
contract entered into by Dong Shunsheng and His Fellows and Yucai
before
the execution of this Agreement.
|
|
“Sale
Interests”
|
51%
of the entire interest in the registered capital of the New Company
to be
sold by Liren to Hartcourt Education.
|
6
|
“Agreement
for Sale and Purchase of
Certain
Interest in the Registered
Capital
of the New Company”
|
The
agreement executed by Liren and Hartcourt Education on the sale
and
purchase of 51% of the entire interest in the registered capital
of the
New Company.
|
|
“Consideration”
|
The
total consideration payable by Hartcourt Education of which includes
US$2,000,000 cash and 5,500,000 new Hartcourt Restricted Shares
of Common
Stock.
|
|
“Restricted
Shares of Hartcourt Common Stock”
|
The
ordinary restricted shares of common stock with par value of US$0.001
each
in the capital of Hartcourt to be allotted and issued in the name
of
Liren’s nominees. Trading symbol: X.X. XXXX.XX, Xxxxxxxxx
000000.
|
|
“Delivery
Date of the Sale Interests in the
New
Company”
|
The
delivery date of the 51% sale interests in the New Company, on
which,
pursuant to the PRC law, 51% control of the New Company has changed
from
Liren to Hartcourt Education. Delivery Date of Sale Interests in
the New
Company shall be within 30 business days upon obtaining all necessary
consents permits and approval from relevant Governmental Agency
on Foreign
Investment.
|
|
“Consideration
Shares Trading Date”
|
The
date on which the restricted shares of Hartcourt common stock as
share
consideration are permitted to be freely traded at the stock exchange.
The
date shall be the first trading date after one anniversary of the
date
when Hartcourt issues the consideration shares to the nominees
of Liren.
|
|
“Governmental
Education Approval Authority”
|
The
original education approval authority of Yucai.
|
|
“Governmental
Agency on Foreign Investment”
|
Relevant
PRC Administrative authority on Foreign Economic &
Trade.
|
|
“Consideration
Payment Dates”
|
The
dates on which Hartcourt Education pays cash consideration and
issues
Restricted Shares of Hartcourt Common Stock to Liren.
|
|
“Net
Profit”
|
Net
Profit = total audited revenue - total audited expenses (all based on U.S.
GAAP and audited by independent auditor)
|
7
|
2.
|
PRECONDITIONS
|
|
2.1
|
Liren
shall establish the New Company before January 31, 2007 and change
the
sponsor of Yucai to the New Company through amending the Article
of
Association of Yucai etc, pursuant to the regulations of PRC law.
The
amendment of the Article of Association of Yucai is set out in
Schedule 1.
|
|
2.2
|
Dong
Shunsheng and His Fellows shall present a Letter of Warranty to
Hartcourt
Education and the New Company, agrees that within twenty years
upon which,
provided that the Teaching Facility and Assets that are currently
being
used by Yucai ceases to be so, including but not limit to the changes
of
the purpose of land usage and obligee of the land and real properties,
and
which causes that Yucai cannot pay the Management Fee A to Hartcourt
Education pursuant to Management Contract A, in this regards, Dong
Shunsheng and His Fellows shall indemnify Hartcourt Education against
all
the losses incurred, including but not limit to the Management
Fee A.
Moreover, Dong Shunsheng and His Fellows shall provide Teaching
Facility
and Assets comparable to current property area in use to Yucai
free of any
charges and obligations. In the event of any loss to the New Company
or
Yucai, caused by the Letter of Funding and Investment Agreement
duly
signed by the Board of Yucai and Related Natural Persons, Dong
Shunsheng
and His Fellows shall fully indemnify against all the losses and
liabilities; Whenever Dong Shunsheng and His Fellows obtain reasonable
profit/returns from Yucai, they shall assign the profit/returns
to the New
Company in full amount; Dong Shunsheng and His Fellows agree that
Hartcourt Education and the New Company will audit the accounts
of Yucai
periodically, including without limitation, account vouchers, account
books and audit report, etc. The aforesaid warranties made by Dong
Shunsheng and His Fellows shall be secured by all their equity
interests
in Liren in pledge. The primary terms and conditions of the Letter
of
Commitment are set out in Schedule 2.
|
|
2.3
|
Hartcourt
Education has entrusted independent professionals to perform financial
due
diligence and financial projection on Yucai. Hartcourt Education,
Liren as
well as Dong Shunsheng and His Fellows hereby acknowledge the results
of
the due diligence in writing. Acknowledged results of financial
due
diligence and financial projection are set out in Schedule 3.
|
|
2.4
|
Yucai,
Dong Shunsheng and His Fellows and Hartcourt Education shall duly
execute
the Management Contract A, covenanting that Hartcourt Education
shall
provide education management and consulting services to Yucai,
while Yucai
shall pay Management Fee A to Hartcourt Education each year. In
this
regards, Dong Shunsheng shall assume the liability of guarantee.
The
primary terms and conditions of Management Contract A are set out
in
Schedule 4.
|
|
2.5
|
As
at the date of this Agreement, Dong Shunsheng and His Fellows have
presented all the Original Contracts duly signed with Yucai to
Hartcourt
Education, and a Termination Contract has been entered into between
Dong
Shunsheng and His Fellows and Yucai to terminate all previously
executed
Original Contracts by all parties.
|
|
2.6
|
Yucai
and Dong Shunsheng and His Fellows shall enter into Management
Contract B
in respect thereof to covenant education management and consulting
services that Dong Shunsheng and His Fellows shall provide to Yucai
and
Yucai shall pay Management Fee B to Dong Shunsheng and His Fellows
each
year for the services rendered. The primary terms and conditions
of
Management Contract B are set out in Schedule 5.
|
8
|
3.
|
ASSETS
AND OPERATIONS OF YUCAI
|
|
3.1
|
Prior
to the Sale and Purchase of the Sale Interests, total amount of
operating
assets of Yucai, including but not limit to land use right, real
property,
automobiles, computers, teaching appliances, desks and chairs,
lab
equipment and facilities and property lease agreements, shall be
not less
than RMB40,000,000, and net assets of not less than RMB20,000,000.
Assets
list and Property Right Certificate of Yucai are set out in Schedule
6.
|
| 3.2 |
Prior
to the Sale and Purchase of the Sale Interests, total number of
faculty of
Yucai shall be not less than 150 persons, among which full-time
teachers
of not less than 90 persons, and teachers with senior high school
qualifications of not less than 90 persons; and total number of
students
on campus of not less than 1,700 persons. Employee Payroll and
Students
Roster of Yucai are set out in Schedule 7.
|
|
3.2
|
All
licenses and permits for running Yucai are set out in Schedule
8.
|
|
4
|
SALE
AND PURCHASE OF THE SALE
INTERESTS
|
|
4.1
|
Within
30 business days upon the Preconditions are satisfied and the
prerequisites are met in respect of the Assets and Operations of
Yucai
referred to in Clause 3, Liren and Hartcourt Education shall sign
and
execute an Agreement for Sale and Purchase of Certain Interest
in the
Registered Capital of the New Company. Subject to the terms and
conditions
of the agreement, Liren shall sell its 51% equity interest in the
New
Company to Hartcourt Education. The primary terms and conditions
of the
Agreement for Sale and Purchase of Certain Interest in the Registered
Capital of the New Company are set out in Schedule 9.
|
|
4.2
|
The
Consideration for the sale and purchase of the Sale Interests shall
be an
aggregate of US$2,000,000 cash and 5,500,000 Restricted Shares
of
Hartcourt Common Stock, based on the assets of Yucai, the capital
injected
to the New Company from Liren and the financial projections each
year in
the future years.
|
|
4.3
|
Hartcourt
Education shall credit the Consideration to the accounts designated
by
Liren.
|
|
4.4.
|
Since
the Delivery Date of the Sale Interests in the New Company, Hartcourt
Education shall take over the 51% control of the New Company from
Liren as
shareholder pursuant to the
Agreement.
|
|
4.5.
|
Hartcourt
Education shall credit the Consideration to the nominees designated
by
Liren, satisfied as details
hereunder:-
|
| (1) |
Within
30 business days upon the Delivery Date of the Sale Interest in
the New
Company, Hartcourt Education shall issue and allot the Consideration
of
total 5,500,000 Restricted Shares of Hartcourt Common Stock to
the
nominees designated by Liren. Hartcourt and Hartcourt Education
shall
jointly guarantee the average closing price of the 3 days immediately
prior to the Consideration Shares Trading Date at not less than
US$0.50
per share, otherwise, Hartcourt shall, within 10 business days
from the
Consideration Shares Trading Date, credit additional cash or issue
and
allot to the nominees additional new Restricted Shares of Hartcourt
Common
Stock to make it up. The primary terms and conditions of issuance
of
Restricted Shares of Hartcourt Common Stock and Consideration Shares
Trading Date are set out in Schedule 10.
|
9
| (2) |
Within
30 business days upon the Delivery Date of the Sale Interests in
the New
Company, Hartcourt Education shall credit US$1,000,000 cash Consideration
to the accounts designated by
Liren;
|
| (3) |
Before
July 31, 2007, Hartcourt Education shall credit US$500,000 cash
Consideration to the accounts designated by
Liren;
|
| (4) |
Before
January 31, 2008, Hartcourt Education shall credit US$500,000 cash
Consideration to the accounts designated by Liren.
|
|
5.
|
MANAGEMENT
CONTRACT A AND B
|
|
5.1
|
Hartcourt
Education shall provide education management and consulting services
to
Yucai, detailed as follows:-
|
|
(1)
|
Assisting
to prepare and amend the corporate governance system, financial
management
policy of Yucai, etc.;
|
|
(2)
|
Assisting
to introduce the overseas advanced teaching model and
methodology;
|
|
(3)
|
Assisting
Yucai to upgrade its financial management, and assign financial
expert to
instruct and manage the financial department of
Yucai;
|
|
(4)
|
Assist
to set up the employment guide and coordination committee for graduates,
and assign experts to instruct and coordinate the graduates employment;
|
|
(5)
|
To
offer the overseas exchange opportunity for students of Yucai as
it may
practically need;
|
|
(6)
|
To
offer the overseas training opportunity for faculty of Yucai as
it may
practically need;
|
|
(7)
|
Assisting Yucai
to make material strategic decisions and the implementation procedures
in
detail;
|
|
(8)
|
Assisting
to manage Yucai and the New Company in fully compliance with the
regulations and rules of the United States Securities Exchange
Commission,
and offer the consulting service in the aspect of corporate governance,
legal, financial management, audit,
etc.;
|
|
(9)
|
To
provide other related consulting services as it may be required
by Yucai.
|
|
5.2
|
Yucai
will pay the Management Fee A to Hartcourt Education, detailed
as
follows:-
|
|
(1)
|
Yucai
shall pay the annual Base Management Fee of RMB500,000 cash to
Hartcourt
Education prior to February 1 of that year;
|
|
(2)
|
Yucai
shall pay the annual Performance Management Fee of RMB3,825,000
cash to
Hartcourt Education prior to December 31 of that year, depending
on its
operating results;
|
10
| (3) |
Dong
Shunsheng and His Fellows shall jointly guarantee that the Net
Profit of
Yucai can meet at least the payment of the Management Fee A specified
in
Clause 5.2.(1) and 5.2.(2) in the year of 2007, 2008 and 2009,
and in the
event of the Net Profit less than the Management Fee A, Dong Shunsheng
and
His Fellows shall make up the discrepancy to Hartcourt Education
before
December 31 of each year in respect thereof. The Management Fee
A shall be
paid fully depending on Yucai’s actual performance afterwards.
|
|
5.3
|
The
Management Contract A shall have 20 years term, and effective from
the
date when Hartcourt Education legally obtains the 51% equity interest
in
the New Company. Yucai and Hartcourt Education may otherwise discuss
the
renewal as such term expires.
|
|
5.4
|
Dong
Shunsheng shall provide the education management and consulting
services
to Yucai, detailed as follows:-
|
|
(1)
|
In
charge of making and implementing the general management and financial
management policy, etc. of Yucai and providing consulting services
in
practice;
|
|
(2)
|
In
charge of making and implementing the routine teaching management
of
Yucai, and assigning expert (the Principal) to instruct and lead
the
management work of Yucai;
|
|
(3)
|
In
charge of making and implementing teaching model and methodology
of Yucai
and providing consulting services in
practice;
|
|
(4)
|
To
provide consulting services in respect of the financial
management;
|
|
(5)
|
Assisting
Hartcourt Education to make material strategic decision of Yucai
and the
implementation procedure, as well as the consulting services as
it may
require.
|
|
5.5
|
Yucai
shall pay Management Fee B to Dong Shunsheng and His Fellows, detailed
as
follows:-
|
|
(1)
|
Yucai
shall pay the Management Fee B to Dong Shunsheng and His Fellows
each year
of (i) RMB3,675,000 cash, or (ii) Net Profit minus Management Fee
A,
whichever is lower, before December 31 of that year for 2007, 2008
and
2009; The Management Fee B shall be paid fully depending on Yucai’s actual
performance afterwards.
|
|
5.6
|
The
Management Contract B shall have 20 years term, effective from
the date
when Hartcourt Education legally obtains the 51% equity interest
in the
New Company. Yucai and Dong Shunsheng and His Fellows may otherwise
discuss the renewal as such term expires.
|
|
6
|
REPRESENTATIONS
AND WARRANTS
|
|
6.1
|
Dong
Shunsheng and His Xxxxxxx xxxxx jointly represents and warrants
as
follows:-
|
|
(1)
|
Liren
shall be the actual beneficial owner of the 51% Sale Interests
in the
registered capital of the New Company and have full rights, interests,
and
control in this 51% interest.
|
11
|
(2)
|
Dong
Shunsheng and His Fellows jointly assure that no third-party interest
has
been put against the Sale Interests such as pledge, lien, etc.
from the
incorporation of the New Company till the Delivery Date of the
Sale
Interests in the New Company, and no conflicts or disputes in respect
of
any interest stand thereon.
|
|
(3)
|
Dong
Shunsheng and His Fellows jointly assure that under no circumstances,
without the written consent from Hartcourt Education, they shall
not sign
and execute any documents on behalf of the New Company from its
incorporation date till Delivery Date of the Sale Interests in
the New
Company.
|
|
(4)
|
Dong
Shunsheng and His Fellows guarantee that Yucai shall pay the Management
Fee A referred to in Clause 5 of this Agreement to Hartcourt Education
in
full amount with priority. Should Yucai fail to pay the aforesaid
management fee in full amount, Dong Shunsheng and His Fellows shall
make
up the discrepancy to Hartcourt Education before December 31 of
that year
in respect thereof.
|
|
(5)
|
No
false investment or capital withdrawal happens to Yucai, otherwise,
Dong
Shunsheng and His Fellows shall take full responsibility and liabilities
and indemnify Yucai and Hartcourt Education for all the loss incurred;
all
the risks and losses before Hartcourt Education obtaining the 51%
equity
interests in the New Company, except otherwise expressly acceptable
by
Hartcourt Education, shall be borne by Dong Shunsheng and His Fellows,
and
provided any losses caused herewith to Yucai or Hartcourt Education,
Dong
Shunsheng and His Fellows shall assume the liabilities to indemnify.
|
|
(6)
|
Dong
Shunsheng and His Fellows guarantee that the “Letter of Funding” and
“Investment Agreement” duly signed by the Board and Related Natural
Persons and presented to Hartcourt Education are all complete and
no
omittance or alike, provided any losses caused due to the abovementioned
documents or similar herewith to Yucai, Dong Shunsheng and His
Fellows
shall assume all the liabilities and indemnify Yucai and Hartcourt
Education for all the losses incurred.
|
|
(7)
|
As
of the date of the Agreement, Dong Shunsheng and His Fellows shall
not,
directly or indirectly, sponsor or participate in sponsoring any
education
institutions that might potentially be competitive to Yucai in
Zhejiang
province.
|
| 6.2 |
Liren
hereby represents and warrants as
follows:-
|
|
(1)
|
Liren
shall be the actual beneficial owner of the 51% Sale Interests
in the
registered capital of the New Company and have full rights, interests,
and
control in this 51% interest.
|
|
(2)
|
Liren
assure that no third-party interest has been put against the Sale
Interests such as pledge, lien, etc. from the incorporation of
the New
Company till the Delivery Date of the Sale Interests in the New
Company,
and no conflict and dispute in respect of any interest stands
thereon.
|
|
(3)
|
Liren
assure that under no circumstances, without the written consent
from
Hartcourt Education, it shall not sign and execute any documents
on behalf
of the New Company from its incorporation date till Delivery Date
of the
Sale Interests in the New Company.
|
|
(4)
|
As
of the date of the Agreement, Liren shall not, directly or indirectly,
sponsor or participate in sponsoring any education institution
that might
potentially be competitive to Yucai in Zhejiang province.
|
12
| 6.3 |
Hartcourt
Education hereby represents and warrants as
follows:-
|
|
(1)
|
Hartcourt
Education is a duly incorporated and validly existing
company.
|
|
(2)
|
Hartcourt
Education has the corporate powers and authority to sign and execute
this
Agreement.
|
|
(3)
|
Hartcourt
Education agrees to completely fulfill the obligations as specified
in
Management Contract A, and any losses resulted from the non-fulfillment
of
such obligations by Hartcourt Education shall be borne by itself,
and it
shall indemnify Yucai and Dong Shunsheng and His Fellows for all
the
losses incurred hereof.
|
|
(4)
|
Hartcourt
Education guarantees to pay the Consideration of the Sale Interests
in
full when due.
|
|
(5)
|
Hartcourt
Education guarantees that all the documents presented to Dong Shunsheng
and His Fellows are true, and in the event of any losses caused
by the
untrue documents, Hartcourt Education shall assume the liabilities
and
indemnify Yucai and Dong Shunsheng and His Fellows for the losses
incurred
hereof.
|
|
7
|
FEES
AND TAXES
|
|
(1)
|
Liren
shall bear all the expenses or fees involved in the incorporation
of the
New Company and undertake all the possible taxes.
|
|
(2)
|
Liren
and Yucai shall assume the respective share of the expenses incurred
for
the Sale Interests in the New Company and be obliged to pay taxes
due and
payable.
|
|
8
|
THE
REGISTRATION OF THE OWNERSHIP CHANGE OF THE NEW
COMPANAY
|
|
(1)
|
Liren
shall complete all the formalities and procedures with Commercial
&
Industrial Bureau on the incorporation of the New Company within
15
business days of the date of the
Agreement;
|
|
(2)
|
Dong
Shunsheng and His Xxxxxxx, Xxxxx are liable for changing the sponsor
of
Yucai to the New Company before the Delivery Date of the Sale Interests
in
the New Company, including but not limit to, obtain the permits
from the
Governmental Education Approval
Authority;
|
|
(3)
|
In
respect of registration of the ownership change with Commercial
&
Industrial Bureau related to the Sale Interests, Dong Shunsheng
and His
Fellows and Liren shall cooperate with the New Company to complete
it
before the Delivery Date of the Sale Interests in the New Company,
Hartcourt Education shall provide necessary assistance
thereto.
|
| 9 |
PROFIT
ALLOCATION OF THE NEW JOINT VENTURE
COMPANY
|
|
9.1
|
After
Hartcourt Education controls the 51% equity interests in the New
Company,
the net profit, after deducting all the expenses as per the accounting
standards, shall be allocated to Liren and Hartcourt Education
based on
their respective equity percentage in the New Company.
|
13
|
10
|
MANAGEMENT
OF THE NEW JOINT VENTURE
COMPANY
|
|
10.1
|
After
Hartcourt Education controls the 51% equity interest in the New
Company,
the New Company will become a sino-foreign joint venture; the Chairman
of
the Board and finance controller of the New Company will be appointed
by
Hartcourt Education, while the general manager of which will be
appointed
by Liren. The Board of the New Joint Venture Company shall comprise
of 5
directors, among which Hartcourt Education is entitled to nominate
and
appoint 3 directors, and Liren is entitled to nominate and appoint
2
directors.
|
|
10.2
|
After
Hartcourt Education controls the 51% equity interest in the New
Company,
the Chairman of the Board and the Principal of Yucai will still
be
appointed by Liren, while the finance controller of which will
be
appointed by Hartcourt Education. The Board of Yucai shall comprise
of 5
directors, among which Hartcourt Education is entitled to nominate
and
appoint 3 directors, and Liren is entitled to nominate and appoint
2
directors.
|
| 11 |
BUSINESS
TERM OF THE NEW JOINT VENTURE COMPANY
|
|
11.1
|
After
Hartcourt Education controls the 51% equity interest in the New
Company,
the business term of the new joint venture company shall be 50
years.
|
|
12
|
CONFIDENTIALITY
|
|
12.1
|
Dong
Shunsheng and His Xxxxxxx, Xxxxx and Hartcourt Education undertakes
the
responsibilities to keep all the known information and documents
in
connection with this Agreement strictly
confidential;
|
|
12.2
|
Except
legally required by relevant governmental authority or securities
supervisory administration in respect hereof, without the consent
of all
its counterparties, no party shall divulge anything to any third
party
other than the parties in this Agreement.
|
|
13
|
BREACH
OF THE AGREEMENT
|
|
13.1
|
Any
party of Dong Shunsheng and His Xxxxxxx, Xxxxx and Hartcourt Education,
when fails to fulfill its obligations specified in this Agreement
without
legal reasons, shall assume the liabilities of breach to non-breaching
party.
|
|
14
|
DISPUTE
SETTLEMENT
|
| 14.1 |
Any
dispute, controversy or claim arising out of or relating to this
Agreement, shall be settled by negotiation and discussion between
Dong
Shunsheng and His Xxxxxxx, Xxxxx and Hartcourt Education in good
faith.
This negotiation and discussion shall start immediately after one
party
sending out the written notice to the other parties in this
regards.
|
| 14.2 |
In
the event that the dispute, controversy or claim cannot be solved
within
90 days of the aforesaid written notice, this dispute, controversy
or
claim, as any parties requires, and after informing the other parties,
shall be submitted and settled by China International Economic
and Trade
Arbitration Commission, Shanghai Branch. Arbitration Rules will
be final,
and will be binding on Dong Shunsheng, Liren and Hartcourt Education.
|
14
| 15 |
GOVERNING
LAW AND JURISDICATION
|
|
15.1
|
This
Agreement shall be governed, construed and interpreted in accordance
with
the laws of the People’s Republic of
China.
|
| 16 |
EFFECTIVENESS
|
|
16.1
|
This
Agreement will be effective immediately upon duly signed by Dong
Shunsheng
and His Xxxxxxx, Xxxxx and Hartcourt Education or their authorized
representative.
|
|
17
|
MICELLANEOUS
|
|
17.1
|
The
headings of the Clause in this Agreement are for reference only
and shall
not be construed as the interpretation of this Agreement.
|
|
17.2
|
This
Agreement will be in eight original copies, one copy with each
party, and
each copy shall be deemed as equally authentic.
|
|
17.3
|
This
Agreement will supersede all previous agreements, arrangements,
memorandum
of understandings between the parties hereto upon signed and executed
by
all parties.
|
15
IN
WITNESS
whereof
this Agreement has been duly executed by all parties hereto the day and
year
first above written.
SIGNED
by
/S/
DONG
SHUNSHENG
DONG
SHUNSHENG
SIGNED
by
/S/
ZHANG
XXXXXXXX
XXXXX
XIAOXIAO
SIGNED
by
/S/
XIA
WEILAN
XIA
WEILAN
SIGNED
by
/S/
CAI
DAQIN
CAI
DAQIN
SIGNED
by
/S/
XIA
XXXXXXXX
XXX
FENGLING
SIGNED
by
/S/
ZENG
YUNWO
ZENG
YUNWO
SIGNED
by
for
and
on behalf of
/S/
WENZHOU
LIREN EDUCATION GROUP CO., LTD
WENZHOU
LIREN EDUCATION GROUP CO., LTD
SIGNED
by
for
and
on behalf of
/S/
AI-ASIA
INFORMATION TECHNOLGOY (SHANGHAI) CO., LTD
AI-ASIA
INFORMATION TECHNOLGOY (SHANGHAI) CO., LTD
16
Schedule
1: Amendments
of the Article of Associations of Yucai
17
Schedule
2: Primary
Terms and Conditions of Letter of Warranty
| 1 |
Within
twenty years upon the Letter of Warranty, provided that the Teaching
Facility and Assets that are currently being used by Yucai ceases
to be
so, including but not limit to the changes of the purpose of land
usage
and obligee of the land and real properties, and which causes that
Yucai
cannot pay the Management Fee A to Hartcourt Education pursuant
to
Management Contract A, in this regards, Dong Shunsheng and His
Fellows
shall indemnify Hartcourt Education against all the losses incurred,
including but not limit to the Management Fee A. Moreover, Dong
Shunsheng
and His Fellows shall provide Teaching Facility and Assets comparable
to
current property area in use to Yucai free of any charges and
obligations;
|
|
2
|
In
the event of any loss to the New Company or Yucai, caused by the
Letter of
Funding and Investment Agreement duly signed by the Board of Yucai
and
Related Natural Persons, Dong Shunsheng and His Fellows shall fully
indemnify against all the losses and
liabilities;
|
|
3
|
Whenever
Dong Shunsheng and His Fellows obtain reasonable profit/returns
from
Yucai, they shall assign the profit/returns to the New Company
in full
amount;
|
|
4
|
Dong
Shunsheng and His Fellows agree that Hartcourt Education and the
New
Company will audit the accounts of Yucai periodically, including
without
limitation, account vouchers, account books and audit report, etc.
|
|
5
|
The
aforesaid warranties made by Dong Shunsheng and His Fellows shall
be
secured by all their equity interests in Liren in pledge.
|
18
Schedule
3: Acknowledged
Due Diligence Results & Financial Projections
19
Schedule
4:Primary
Terms and Conditions of Management Contract A
| 1 |
Hartcourt
Education shall provide education management and consulting service
to
Yucai, detailed as follows:-
|
|
(1)
|
Assisting
to prepare and amend the corporate governance system, financial
management
policy of Yucai, etc.;
|
|
(2)
|
Assisting
to introduce the overseas advanced teaching model and
methodology;
|
|
(3)
|
Assisting
Yucai to upgrade its financial management, and assign financial
expert to
instruct and manage the financial department of
Yucai;
|
|
(4)
|
Assist
to set up the employment guide and coordination committee for graduates,
and assign the expert to instruct and coordinate the graduates
employment;
|
|
(5)
|
To
offer the overseas exchange opportunity for students of Yucai as
it may
practically need;
|
|
(6)
|
To
offer the overseas training opportunity for faculty of Yucai as
it may
practically need;
|
|
(7)
|
Assisting Yucai
to make material strategic decisions and the implementation procedures
in
detail;
|
|
(8)
|
Assisting
to manage Yucai and the New Company in fully compliance with the
regulations and rules of the United States Securities Exchange
Commission,
and offer the consulting service in the aspect of corporate governance,
legal, financial management, audit,
etc.;
|
|
(9)
|
Providing
other related consulting service as it may be required by Yucai.
|
| 2 |
Yucai
will pay the Management Fee A to Hartcourt Education, detailed
as
follows:-
|
(1)
Yucai
shall pay the annual Base Management Fee of RMB500,000 cash to Hartcourt
Education prior to February 1 of that year;
(2)
Yucai
shall pay the annual Performance Management Fee of RMB3,825,000 cash to
Hartcourt Education prior to December 31 of that year, depending on its
operating results;
(3)
Dong
Shunsheng and His Fellows shall jointly guarantee that the Net Profit of
Yucai
can meet at least the payment of the Management Fee A specified in Clause
5.2.(1) and 5.2.(2) in the year of 2007, 2008 and 2009, and in the event
of the
Net Profit less than the Management Fee A, Dong Shunsheng and His Fellows
shall
make up the discrepancy to Hartcourt Education before December 31 of each
year
in respect thereof. The Management Fee A shall be paid fully depending on
Yucai’s actual performance afterwards.
| 3 |
Other
expenses that Yucai shall bear, detailed as
follows:-
|
All
Expenses for Overseas student exchange of Yucai and overseas training for
Yucai’s faculty shall be borne by Yucai;
The
actual management expenses for Yucai incurred by Hartcourt Education, shall
also
be borne by Yucai.
| 4 |
The
Management Contract A shall have 20 years term, and effective from
the
date when Hartcourt Education legally obtains the 51% equity interest
in
the New Company. Yucai and Hartcourt Education may otherwise discuss
the
renewal as such term expires.
|
20
Schedule
5: Primary
Terms and Conditions of Management Contract B
|
1
|
Dong
Shunsheng shall provide the education management and consulting
service to
Yucai, detailed as follows:-
|
|
(1)
|
In
charge of making and implementing the general management and financial
management policy, etc. of Yucai and providing consulting service
in
practice;
|
|
(2)
|
In
charge of making and implementing the routine teaching management
of
Yucai, and assigning expert (the Principal) to instruct and lead
the
management work of Yucai;
|
|
(3)
|
In
charge of making and implementing teaching model and methodology
of Yucai
and providing consulting service in
practice;
|
|
(4)
|
To
provide consulting service in respect of the financial
management;
|
|
(5)
|
Assist
Hartcourt Education to make material strategic decision of Yucai
and the
implementation procedure, as well as the consulting service as
it may
require.
|
|
2
|
Yucai
shall pay Management Fee B to Dong Shunsheng and His Fellows, detailed
as
follows:-
|
Yucai
shall pay the Management Fee B to Dong Shunsheng and His Fellows each year
of
(i) RMB3,675,000 cash, or (ii) Net Profit - Management Fee A, whichever is
lower, before December 31 of that year for 2007, 2008 and 2009; The Management
Fee B shall be paid fully depending on Yucai’s actual performance
afterwards.
|
3
|
The
Management Contract B shall have 20 years term, effective from
the date
when Hartcourt Education legally obtains the 51% equity interest
in the
New Company. Yucai and Dong Shunsheng and His Fellows may otherwise
discuss the renewal as such term expires.
|
21
Schedule
6:
Assets
List and Property Right Certificates of Yucai
22
Schedule
7:
Employee
Payroll and Students Roster of Yucai
23
Schedule
8:
All
Licenses & Permits for Sponsoring and Running Yucai
24
Schedule
9:
Primary Terms and Conditions of the Sale and Purchase
Agreement
|
1
|
Liren
will sell its 51% equity interest in the New Company to Hartcourt
Education.
|
|
2
|
The
Consideration for the sale and purchase of the Sale Interests
Shall be an
aggregate of US$2,000,000 cash and 5,500,000 Restricted Shares
of
Hartcourt Common Stock, based on the assets of Yucai, the capital
injected
to the New Company from Liren and the financial projections each
year in
the future.
|
|
3
|
Hartcourt
Education shall credit the Consideration to the accounts designated
by
Liren.
|
|
4
|
The
Delivery Date of the Sale Interests in the New Company shall
be within 30
business days upon obtaining the offcial approval from Governmental
Agency
on Foreign Investment; and Since the Delivery Date of the Sale
Interests
in the New Company, Hartcourt Education shalll take over the
51% control
of the New Company from Liren as shareholder pursuant to the
Agreement.
|
|
5
|
Hartcourt
Education shall credit the Consideration to the nominees designated
by
Liren in four installments, satisfied as details
hereunder:-
|
|
(1)
|
Within
30 business days upon the Delivery Date of the Sale Interest in
the New
Company, Hartcourt Education shall issue and allot the Consideration
of
total 5,500,000 Restricted Shares of Hartcourt Common Stock to
the
nominees designated by Liren. Hartcourt and Hartcourt Education
shall
jointly guarantee the average closing price of the 3 days immediately
prior to the Consideration Shares Trading Date at not less than
US$0.50
per share, otherwise, Hartcourt shall, within 10 business days
from the
Consideration shares Trading Date, credit additional cash or issue
and
allot to the nominees additional new Restricted Shares of Hartcourt
Common
Stock to make it up.
|
|
(2)
|
Within
30 business days upon the Delivery Date of the Sale Interests in
the New
Company, Hartcourt Education shall credit US$1,000,000 cash Consideration
to the accounts designated by
Liren;
|
|
(3)
|
Before
July 31, 2007, Hartcourt Education shall credit US$500,000 cash
Consideration to the accounts designated by
Liren;
|
|
(4)
|
Before
January 31, 2008, Hartcourt Education shall credit US$500,000 cash
Consideration to the accounts designated by Liren.
|
| 6 |
After
Hartcourt Education controls the 51% equity interest in the New
Company,
the New Company will become a sino-foreign joint venture; the Chairman
of
the Board and finance controller of the New Company will be appointed
by
Hartcourt Education; The Board of the New Joint Venture Company
shall
comprise of 5 directors, among which Hartcourt Education is entitled
to
nominate and appoint 3 directors, and Liren is entitled to nominate
and
appoint 2 directors.
|
25
| 7 |
After
Hartcourt Education controls the 51% equity interest in the New
Company,
the Chairman of the Board and the Principal of Yucai will still
be
appointed by Liren, while the finance controller of which will
be
appointed by Hartcourt Education. The board of Yucai shall comprise
of 5
directors, among which Hartcourt Education is entitled to nominate
and
appoint 3 directors, and Liren is entitled to nominate and appoint
2
directors.
|
| 8 |
After
Hartcourt Edcuation controls the 51% equity interest in the New
Company,
the Net Profit shall be allocated to Liren and Hartcourt Education
based
on their respective equity percentage in the New Company.
|
| 9 |
The
business term of the New Joint Venture Company shall be 50
years.
|
26
Schedule
10: Primary
Terms and Conditions of the Share Consideration
27
