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SHARE PURCHASE AGREEMENT
dated as of January 20, 2002
by and among
AsiaInfo Holdings, Inc.,
Bonson Information Technology Holdings Limited
and
the Sellers
(as defined herein)
with respect to all
outstanding shares of
Bonson Information Technology Holdings Limited
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it
is attached but is inserted for convenience only.
<TABLE>
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ARTICLE I SALE OF SHARES AND CLOSING.............................................................. 1
1.01. Sale and Purchase of Shares............................................................. 1
1.02. Purchase Price and Consideration........................................................ 1
1.03. Closing................................................................................. 4
1.04. Escrow.................................................................................. 4
1.05 Lock Up Agreements...................................................................... 5
1.06 Registration Rights Agreements.......................................................... 5
ARTICLE II REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND ITS SUBSIDIARIES............. 5
2.01. Authority............................................................................... 5
2.02. Organization of the Company............................................................. 5
2.03. Capital Stock........................................................................... 6
2.04. Subsidiaries............................................................................ 6
2.05. No Conflicts............................................................................ 6
2.06. Governmental Approvals and Filings...................................................... 7
2.07. Books and Records....................................................................... 7
2.08. Financial Statements.................................................................... 7
2.09. Absence of Changes...................................................................... 8
2.10. No Undisclosed Liabilities.............................................................. 9
2.11. Taxes................................................................................... 9
2.12. Legal Proceedings....................................................................... 10
2.13. Compliance With Laws and Orders......................................................... 11
2.14. Benefit Plans........................................................................... 11
2.15. Real Property........................................................................... 12
2.16. Tangible Personal Property.............................................................. 13
2.17. Intellectual Property Rights............................................................ 13
2.18. Contracts............................................................................... 14
2.19. Licenses................................................................................ 15
2.20. Insurance............................................................................... 15
2.21. Affiliate Transactions.................................................................. 16
2.22. Employees; Labor Relations.............................................................. 16
2.23. Environmental Matters................................................................... 16
2.24. Substantial Customers and Suppliers..................................................... 17
2.25. Bank and Brokerage Accounts; Investment Assets.......................................... 18
2.26. No Powers of Attorney................................................................... 18
2.27. Accounts Receivable..................................................................... 18
2.28. Inventory............................................................................... 18
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<S> <C>
2.29. Investment Company...................................................................... 18
2.31 Super Action Group Limited.............................................................. 18
2.32. Brokers................................................................................. 19
2.33. Disclosure.............................................................................. 19
ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS.................................. 19
3.01 Authorization........................................................................... 19
3.02 AsiaInfo Shares......................................................................... 20
3.03 Tax Matters............................................................................. 21
3.04 Shareholders Agreement and Other Rights................................................. 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER............................................. 21
4.01. Organization............................................................................ 21
4.02. Authority............................................................................... 21
4.03. No Conflicts............................................................................ 22
4.04. AsiaInfo Shares......................................................................... 22
4.05. Governmental Approvals and Filings...................................................... 22
4.06. Legal Proceedings....................................................................... 22
4.07. SEC Documents; Financial Statements..................................................... 22
4.08. Brokers................................................................................. 23
4.09 Investment Company...................................................................... 23
4.10 Shares.................................................................................. 23
ARTICLE V COVENANTS OF SELLERS.................................................................... 23
5.01. Regulatory and Other Approvals.......................................................... 24
5.02. Investigation by Purchaser.............................................................. 24
5.03. No Solicitations........................................................................ 24
5.04. Conduct of Business..................................................................... 25
5.05. Financial Statements and Reports........................................................ 26
5.06. Employee Matters........................................................................ 26
5.07. Certain Restrictions.................................................................... 27
5.08. Affiliate Transactions.................................................................. 28
5.09. Books and Records....................................................................... 28
5.10. Noncompetition.......................................................................... 28
5.11. Notice and Cure......................................................................... 29
5.12. Fulfillment of Conditions............................................................... 29
ARTICLE VI COVENANTS OF PURCHASER.................................................................. 29
6.01. Regulatory and Other Approvals.......................................................... 30
6.02. Notice and Cure......................................................................... 30
6.03. Fulfillment of Conditions............................................................... 30
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PURCHASER.................................................. 30
7.01. Representations and Warranties.......................................................... 30
7.02. Performance............................................................................. 31
</TABLE>
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7.03. Orders and Laws......................................................................... 31
7.04. Regulatory Consents and Approvals....................................................... 31
7.05. Third Party Consents.................................................................... 31
7.06. Opinions of Counsel..................................................................... 31
7.07. Good Standing Certificates.............................................................. 31
7.08. Resignations of Directors and Officers.................................................. 32
7.09. Escrow Agreement........................................................................ 32
7.10. Proceedings............................................................................. 32
7.11. Employment Agreements................................................................... 32
7.12. Lock-up Agreements...................................................................... 32
7.13. Employee Share Options.................................................................. 32
7.14 Management Accounts..................................................................... 32
7.15 Affiliate Transactions.................................................................. 33
7.16. No Material Adverse Change.............................................................. 33
7.17 Waivers................................................................................. 33
7.18 Liquidation of Bonson BVI............................................................... 33
7.19 PRC Matters............................................................................. 34
7.20 Inter-Connect Technology Limited........................................................ 34
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF SELLERS.................................................... 35
8.01. Representations and Warranties.......................................................... 35
8.02. Performance............................................................................. 35
8.03 Orders and Laws......................................................................... 35
8.04. Regulatory Consents and Approvals....................................................... 35
8.05. Third Party Consents.................................................................... 35
8.06. Proceedings............................................................................. 35
8.07. Registration Rights Agreement........................................................... 36
8.08 Opinion of Counsel...................................................................... 36
ARTICLE IX TAX MATTERS AND POST-CLOSING TAXES...................................................... 36
9.01 Termination of Prior Tax Settlement Agreements.......................................... 36
9.02 Certain Tax Matters..................................................................... 36
9.03 Contests................................................................................ 38
9.04 Miscellaneous........................................................................... 39
9.05 Potential Tax Election.................................................................. 39
ARTICLE X SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS....................... 39
10.01. Survival of Representations, Warranties, Covenants and Agreements....................... 39
ARTICLE XI INDEMNIFICATION......................................................................... 40
11.01. Indemnification......................................................................... 40
11.02. Method of Asserting Claims.............................................................. 41
ARTICLE XII TERMINATION............................................................................. 43
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<TABLE>
<S> <C>
12.01. Termination............................................................................. 43
12.02. Effect of Termination................................................................... 43
ARTICLE XIII DEFINITIONS............................................................................. 44
13.01. Definitions............................................................................. 44
ARTICLE XIV MISCELLANEOUS........................................................................... 52
14.01. Notices................................................................................. 52
14.02. Entire Agreement........................................................................ 53
14.03. Expenses................................................................................ 53
14.04. Public Announcements.................................................................... 53
14.05. Confidentiality......................................................................... 53
14.06. Further Assurances; Post-Closing Cooperation............................................ 54
14.07. Waiver.................................................................................. 54
14.08. Amendment............................................................................... 54
14.09. No Third Party Beneficiary.............................................................. 55
14.10. No Assignment; Binding Effect........................................................... 55
14.11. Headings................................................................................ 55
14.12. Arbitration............................................................................. 55
14.13. Waiver of Immunity...................................................................... 55
14.14. Invalid Provisions...................................................................... 56
14.15. Governing Law........................................................................... 56
14.16 Execution of Counterparts............................................................... 56
</TABLE>
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<PAGE>
SCHEDULES
SCHEDULE 1.01 Schedule of Sellers
SCHEDULE 7.05* Schedule of Third Party Consents
EXHIBITS*
EXHIBIT A Escrow Agreement
EXHIBIT B Lock-Up Agreement
EXHIBIT C1 Registration Rights Agreement for Founders and
Management Shareholders
EXHIBIT C2 Registration Rights Agreement for Remaining
Shareholders
EXHIBIT D Officer's Certificate of the Company
EXHIBIT E Sellers' U.S. Opinion to Purchaser
EXHIBIT F Sellers' PRC Opinion to Purchaser
EXHIBIT G Sellers' BVI Opinion to Purchaser
EXHIBIT H Sellers' Cayman Islands Opinion to Purchaser
EXHIBIT I Purchaser's U.S. Opinion to Sellers
EXHIBIT J Employment Agreements
* Certain Schedules and Exhibits are omitted from this filing. The Company
agrees to furnish supplementally a copy of any Schedule or Exhibit to the
Securities and Exchange Commission upon request.
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<PAGE>
This SHARE PURCHASE AGREEMENT (this "Agreement"), dated as of
---------
January 20, 2002, is made and entered into by and among AsiaInfo Holdings, Inc.
a Delaware corporation ("Purchaser"), Bonson Information Technology Holdings
---------
Limited, a Cayman Islands company (the "Company"), and the Persons set forth on
-------
Schedule 1.01 hereto (each a "Seller" and collectively, the "Sellers").
------------- ------ -------
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 13.01.
WHEREAS, each Seller, as indicated on Schedule 1.01, is either a
-------------
holder of record (a "Record Holder"), a beneficial owner (a "Beneficial Owner")
------------- ----------------
or both a Record Holder and a Beneficial Owner of the number of Ordinary Shares
or Preferred Shares of the Company set forth opposite such Seller's name on
Schedule 1.01, which together constitute all issued and outstanding capital
-------------
shares of the Company (such Ordinary Shares and Preferred Shares being referred
to herein, collectively, as the "Shares"); and
------
WHEREAS, the Sellers desire to sell, and Purchaser desires to
purchase, the Shares on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01. Sale and Purchase of Shares. At the Closing, subject to the
---------------------------
terms and conditions herein and in reliance on the representations and
warranties of Purchaser contained herein, and in the manner herein provided,
each Seller shall sell and deliver to the Purchaser all of the Shares of the
Company owned beneficially or of record by such Seller as set forth in Schedule
--------
1.01, and subject to the terms and conditions herein and in reliance on the
----
representations and warranties of the Sellers contained herein, Purchaser shall
purchase such Shares from each such Seller on the terms and conditions set forth
herein.
1.02. Purchase Price and Consideration. In consideration of the
--------------------------------
sale, conveyance, transfer and delivery of the Shares and all the right, title
and interest therein, Purchaser agrees to pay the Record Holders a per share
price for each Share equal to US$0.28481 (the "Purchase Price"), subject to the
--------------
following adjustments and other provisions:
(a) Exceptional Developments. On the Closing Date, Exceptional
------------------------
Developments shall sell to Purchaser a total of 36,375,000 Shares, as set forth
in Schedule 1.01. In consideration of the sale by Exceptional Developments of
-------------
its Shares, Purchaser shall pay Exceptional Developments the Purchase Price in
respect of all of such Shares, by wire transfer of immediately available funds
on the Closing Date, to such account as Exceptional Developments may reasonably
direct by written notice delivered to Purchaser at least two (2) Business Days
before the Closing Date.
(b) Founders and Management Shareholders.
------------------------------------
(i) On the Closing Date, the Record Holders that hold
Shares for the benefit of Founders or Management Shareholders
(including Maple Tree Group to the extent of the 77,482,038 Shares it
holds for the benefit of Founders and Management Shareholders) shall
sell to Purchaser a total of 94,533,146 Shares, in the respective
amounts set forth in Schedule 1.01. In consideration of the sale by
-------------
such Record Holders of their respective Shares, Purchaser shall,
within 30 days of the Company's delivery to Purchaser of the 2001
Audited Financial Statements,
<PAGE>
pay to each such Record Holder an amount of cash and AsiaInfo Shares
determined in accordance with paragraph (ii) below (the "Base
----
Performance Consideration") and adjusted in accordance with paragraph
-------------------------
(iii) below, (the "Adjusted Performance Consideration"), provided that
----------------------------------
10% of such cash and AsiaInfo Shares shall be delivered by Purchaser
(by wire transfer of immediately available funds in the case of cash,
and rounded up to the nearest whole number of AsiaInfo Shares in the
case of AsiaInfo Shares) to the Escrow Agent under the Escrow
Agreement to be entered into on the Closing Date in accordance with
Section 1.04.
(ii) The Base Performance Consideration shall consist of
(x) cash equal to 100% of the aggregate Purchase Price payable in
respect of two thirds of the Shares sold in accordance with paragraph
(i) above and (y) AsiaInfo Shares having an aggregate Market Value
equal to 125% of the aggregate Purchase Price payable in respect of
one third of such Shares.
(iii) The Adjusted Performance Consideration shall be
calculated in accordance with the following formula:
Adjusted Performance Consideration = Base Performance Consideration x
[(50% x Net Income Index) + (50% x Net Sales Backlog Index)] x
Multiplier
where:
. Net Income Index = 0, if Actual Net Income
is less than 50% of
Projected Net Income;
= Actual Net Income divided
by Projected Net Income,
if Actual Net Income is
equal to or greater than
50% but less than 150% of
Projected Net Income; or
= 1.5, if Actual Net Income
is equal to or greater
than 150% of Projected
Net Income.
. Projected Net Income = US$3,500,000.
. Net Sales Backlog Index = 0, if Actual Net Sales
Backlog is less than 50%
of Projected Net Sales
Backlog;
= Actual Net Sales Backlog
divided by Projected Net
Sales Backlog, if Actual
Net Sales Backlog is
equal to or greater than
50% but less than 150% of
Projected Net Sales
Backlog; or
= 1.5, if Actual Net Sales
Backlog is equal to or
greater than 150% of
Projected Net Sales
Backlog.
. Projected Net Sales Backlog = US$6,000,000.
. Multiplier = 108%, if 50% of Net
Income Index plus 50% of
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<PAGE>
Net Sales Backlog Index
is greater than one, or
= 100%, if 50% of Net
Income Index plus 50% of
Net Sales Backlog Index
is less than or equal to
one.
(iv) Subject to the delivery of cash and AsiaInfo Shares
to the Escrow Agent in accordance with paragraph (i) above, the cash
portion of the Adjusted Performance Consideration shall be payable by
wire transfer of immediately available funds to such account as
directed by written notice to Purchaser delivered by each Record
Holder that holds Shares for the benefit of respective Founders or
Management Shareholders. The portion of the Adjusted Performance
Consideration consisting of AsiaInfo Shares shall be delivered to such
Sellers (rounded up to the nearest whole number of AsiaInfo Shares).
(v) In addition to the other provisions of this Section
1.02, the payment of the Adjusted Performance Consideration in respect
of the 8,325,000 Shares held of record by Inter-Connect Tech. Limited,
shall be made in accordance with the following provisions: (A) the
cash and AsiaInfo Shares constituting the Adjusted Performance
Consideration in respect of the 4,406,434 Shares that have been
allocated to the individuals set forth in Section 2.14(i) of the
----------------------
Disclosure Schedule (the "Allocated Inter-Connect Shares") shall be
------------------- ------------------------------
paid and delivered to the trust established pursuant to Section 7.20;
(B) the AsiaInfo Shares constituting part of the Adjusted Performance
Consideration in respect of the 3,918,566 unallocated Shares set forth
in Section 2.14(i) of the Disclosure Schedule (the "Unallocated Inter-
------------------------------------------ ------------------
Connect Shares") shall be delivered to Persons to be determined by the
--------------
Founders and Management Shareholders and identified in written
instructions to be delivered by the Founders and Management
Shareholders to Purchaser as soon as reasonably practicable after the
date of this Agreement; (C) 50% of the cash constituting part of the
Adjusted Performance Consideration for the Unallocated Inter-Connect
Shares shall be paid to Persons to be determined by the Founders and
Management Shareholders and identified in written instructions to be
delivered by the Founders and Management Shareholders to Purchaser as
soon as reasonably practicable after the date of this Agreement; (D)
37.36% of the cash constituting part of the Adjusted Performance
Consideration for the Unallocated Inter-Connect Shares shall be paid
to the trust established pursuant to Section 7.20; and (E) 12.64% of
the cash constituting part of the Adjusted Performance Consideration
for the Unallocated Inter-Connect Shares shall be paid to Zhijie Lu.
(vi) In order to facilitate payment of the Adjusted
Performance Consideration pursuant to this Section 1.02(b), Purchaser,
the Company and Sellers shall cause the Auditor to calculate Actual
Net Income and Actual Net Sales Backlog and provide certificates to
Purchaser, the Company and Sellers regarding such calculations as
promptly as practicable and in no event later than fifteen (15) days
following the Company's delivery to Purchaser of the 2001 Audited
Financial Statements. Purchaser and Sellers shall cooperate with the
Auditor in providing any information reasonably required by the
Auditor for purposes of the foregoing, and the Founders, the
Management Shareholders and Remaining Shareholders shall pay all of
the fees and expenses of the Auditor in connection with such
calculations.
(vii) Purchaser's payment of the Adjusted Performance
Consideration will be subject to set-off for any obligations or
liabilities owed by Sellers to Purchaser arising out of or related to
this Agreement, including without limitation the indemnification
obligations set forth in Articles IX and XI.
(c) Remaining Shareholders. On the Closing Date, the Record
----------------------
Holders that hold Shares for the benefit of Remaining Shareholders (including
Maple Tree to the extent of the 10,912,962 Shares it
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<PAGE>
holds for the benefit of Remaining Shareholders) shall sell to Purchaser a total
of 24,293,218 Shares, in the respective amounts set forth in Schedule 1.01. In
-------------
consideration of the sale by such Record Holders of their respective Shares, the
Purchaser shall deliver to each such Record Holder, on the Closing Date or as
soon as reasonably practicable thereafter, that number of AsiaInfo Shares having
an aggregate Market Value equal to 100% of the aggregate Purchase Price payable
in respect of all of the Shares sold by such Record Holder, provided that 10% of
such AsiaInfo Shares (rounded up to the nearest whole number of AsiaInfo Shares)
shall be delivered by Purchaser to the Escrow Agent under the Escrow Agreement
to be entered into on the Closing Date in accordance with Section 1.04.
(d) AsiaInfo Share Cap. Notwithstanding the foregoing or
------------------
anything to the contrary herein, in the event that the aggregate number of
AsiaInfo Shares to be delivered to Record Holders in accordance with paragraphs
(b) and (c) above exceeds the Share Cap (as defined below), Purchaser shall have
the right, in its sole discretion, to deliver cash in lieu of AsiaInfo Shares,
to such Record Holders, on a pro rata basis, for part or all of such portion of
the aggregate Purchase Price that exceeds the Share Cap. For purposes of the
foregoing, "Share Cap" means the aggregate number of AsiaInfo Shares that would
---------
be deliverable pursuant paragraph (b) and (c) if the Market Value of such
AsiaInfo Shares equals US$8.00 per share.
(e) Delivery of AsiaInfo Shares. In the event that on the
---------------------------
Closing Date, Purchaser is unable to deliver AsiaInfo Shares to the Remaining
Shareholders as a result of time delays associated with instructing its transfer
agent and registrar to issue appropriate certificates representing such AsiaInfo
Shares, Purchaser shall deliver at the Closing a copy of an executed and
irrevocable instruction letter to its registrar and transfer agent regarding the
issuance of the AsiaInfo Shares, and an acknowledgement from such registrar and
transfer agent of its receipt thereof confirming that conditions and approvals
for registering and transferring such AsiaInfo Shares are complete and in order.
1.03. Closing. The Closing will take place at the offices of
-------
Clifford Chance, 29th Floor, Jardine House, One Connaught Place, Central, Hong
Kong, or at such other place as Purchaser and Sellers mutually agree, at 10:00
A.M. local time, on the Closing Date. At the Closing, the Sellers will assign
and transfer to Purchaser good and valid title in and to the Shares, free and
clear of all Liens, by delivering to Purchaser the certificates representing the
Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by
duly executed stock powers endorsed in blank, with requisite share transfer tax
stamps, if any, attached. At the Closing, Purchaser shall: (i) pay to
Exceptional Developments by wire transfer of immediately available funds the
aggregate Purchase Price payable in respect of the Shares sold by Exceptional
Developments; and (ii) subject to the Share Cap in Section 1.02(f) and the
delivery of AsiaInfo Shares to the Escrow Agent in accordance with Section
1.02(c), issue to the Record Holders who are, or hold Shares for the benefit of,
Remaining Shareholders a number of AsiaInfo Shares having an aggregate Market
Value equal to 100% of the Purchase Price payable in respect of the Shares sold
by the Remaining Shareholders. If Purchaser elects under Section 1.02(f) to
deliver cash in lieu of AsiaInfo Shares to the Record Holders who are, or hold
Shares for the benefit of, the Remaining Shareholders for part or all of such
portion of the aggregate Purchase Price that exceeds the Share Cap, Purchaser
shall pay to such Record Holder by certified check or by wire transfer of
immediately available funds such amount at Closing.
1.04. Escrow. On the Closing Date, Purchaser, the Founders, the
------
Management Shareholders, the Remaining Shareholders and the Escrow Agent shall
enter into an escrow agreement substantially in the form of Exhibit A (the
---------
"Escrow Agreement"). In connection with the Closing and the payment of the
----------------
Adjusted Performance Consideration, Purchaser shall deliver to the Escrow Agent
certain amounts of cash and AsiaInfo Shares described in Section 1.02
(collectively the "Escrow Amount"), as collateral for the indemnification
-------------
obligations of the Sellers hereunder. Release of the Escrow Amount will be
permitted only in accordance with the terms and conditions of the Escrow
Agreement. The Founders, the Management Shareholders, the Remaining Shareholders
and Purchaser shall issue joint written instructions to the Escrow Agent (i) to
distribute the Escrow Amount, upon final resolution of all
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<PAGE>
claims by Purchaser for indemnification hereunder, to the Purchaser or such
Sellers or both in accordance with such resolution or (ii) if no claims for
indemnification by the Purchaser shall be made on or before the first
anniversary of the Closing Date, to distribute the Escrow Amount to such Sellers
in accordance with their respective entitlements.
1.05. Lock-Up Agreements. On the Closing Date, the Founders and
------------------
Management Shareholders and the Remaining Shareholders shall enter into lock-up
agreements with Purchaser in respect of the AsiaInfo Shares, substantially in
the form of Exhibit B (the "Lock-up Agreements"). The term of the applicable
--------- ------------------
lock-up period shall be one year following the Closing Date for each of the
Founders and Management Shareholders and ninety (90) days following the Closing
Date for each of the Remaining Shareholders.
1.06. Registration Rights Agreements. On the Closing Date, the
------------------------------
Record Holders that are, or hold Shares for the benefit of, Founders or
Management Shareholders (including Maple Tree Group in respect of the Shares it
holds for the benefit of Founders or Management Shareholders), shall enter into
a Registration Rights Agreement in the Form of Exhibit C1, and the Record
----------
Holders that are, or hold Shares for the benefit of, Remaining Shareholders
(including Maple Tree Group in respect of the Shares it holds for the benefit of
Remaining Shareholders) shall enter into a Registration Rights Agreement in the
Form of Exhibit C2.
----------
ARTICLE II
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY AND ITS SUBSIDIARIES
The Company, each Founder, each Management Shareholder and each
Remaining Shareholder, jointly and severally, represents and warrants to
Purchaser as set forth below as of the date of this Agreement and as of the
Closing Date, subject to the exceptions set forth in the disclosure schedule
attached hereto (the "Disclosure Schedule"), the section numbers and letters of
-------------------
which correspond to the section numbers and letters of this Agreement.
2.01. Authority. The execution and delivery of this Agreement and
---------
the Operative Agreements to which the Company is a party, and the performance by
the Company of its obligations hereunder and thereunder, have been duly and
validly authorized by the Board of Directors and the shareholders of the
Company, no other corporate action on the part of the Company or its
shareholders being necessary. This Agreement has been duly and validly executed
and delivered by the Company and constitutes, and upon the execution and
delivery by the Company of the Operative Agreements to which it is a party, such
Operative Agreements will constitute, legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms.
2.02. Organization of the Company. The Company is a corporation
---------------------------
duly organized, validity existing and in good standing under the laws of the
Cayman Islands. The Company has full corporate power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
Assets and Properties. Section 2.02 of the Disclosure Schedule lists all lines
---------------------------------------
of business in which the Company is participating or engaged. The Company is
duly qualified, licensed or admitted to do business and is in good standing in
those jurisdictions specified in Section 2.02 of the Disclosure Schedule, which
---------------------------------------
are the only jurisdictions in which the ownership, use or leasing of its Assets
and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for those jurisdictions
in which the adverse effects of all such failures by the Company and the
Subsidiaries to be qualified, licensed or admitted and in good standing can in
the aggregate be eliminated without material cost or expense by the Company or a
Subsidiary, as the case may be, becoming qualified or admitted and in good
standing. The name of each director and officer of the
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<PAGE>
Company and its Subsidiaries on the date hereof, and the position held by each,
are listed in Section 2.02 of the Disclosure Schedule. The Company has, prior to
---------------------------------------
the execution of this Agreement, delivered to Purchaser true and complete copies
of the memorandum and articles of association of the Company as in effect on the
date hereof.
2.03. Share Capital. The authorized share capital of the Company
-------------
consists of 1,000,000,000 Ordinary Shares, of which 113,625,000 Ordinary Shares
are issued and outstanding, as of the date of this Agreement, and 36,375,000
Preferred Shares, all of which are issued and outstanding. The Company has
issued 8,000,000 Employee Share Options, none of which have been exercised as of
the date of this Agreement, but all of which shall be exercised in accordance
with their terms prior to the Closing and in accordance with the Cashless
Exercise procedures set forth in Section 7.13, increasing the total number of
Ordinary Shares issued and outstanding as of the Closing Date to 118,826,364.
The Shares outstanding as of the date of this Agreement are, and the Shares to
be issued upon exercise of the aforementioned 8,000,000 Employee Share Options
will be, duly authorized, validly issued, fully paid and nonassessable. Except
for this Agreement, the aforementioned 8,000,000 Employee Share Options, and as
disclosed in Section 2.03 of the Disclosure Schedule, there are no outstanding
---------------------------------------
Options with respect to the Company. The delivery of a certificate or
certificates at the Closing representing the Shares in the manner provided in
Section 1.03 will transfer to Purchaser good and valid title to the Shares, free
and clear of all Liens.
2.04. Subsidiaries. Section 2.04 of the Disclosure Schedule lists
------------ ---------------------------------------
the name of each Subsidiary and all lines of business in which each Subsidiary
is participating or engaged. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation identified in Section 2.04 of the Disclosure Schedule, and has
---------------------------------------
full corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its Assets and Properties. Each
Subsidiary is duly qualified, licensed or admitted to do business and is in good
standing in those jurisdictions specified in Section 2.04 of the Disclosure
------------------------------
Schedule, which are the only jurisdictions in which the ownership, use or
--------
leasing of such Subsidiary's Assets and Properties, or the conduct or nature of
its business, makes such qualification, licensing or admission necessary, except
for those jurisdictions in which the adverse effects of all such failures by the
Company and the Subsidiaries to be qualified, licensed or admitted and in good
standing can in the aggregate be eliminated without material cost or expense by
the Company or a Subsidiary, as the case may be, becoming qualified, licensed or
admitted and in good standing. Section 2.04 of the Disclosure Schedule lists for
---------------------------------------
each Subsidiary the amount of its authorized share capital, the amount of its
outstanding share capital and the record owners of such outstanding share
capital. Except as disclosed in Section 2.04 of the Disclosure Schedule, all of
---------------------------------------
the outstanding capital shares of each Subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable, and are owned, beneficially
and of record, by the Company or Subsidiaries wholly owned by the Company free
and clear of all Liens. Except as disclosed in Section 2.02 of the Disclosure
------------------------------
Schedule, there are no outstanding Options with respect to any Subsidiary. The
--------
name of each director and officer of each Subsidiary on the date hereof, and the
position with such Subsidiary held by each, are listed in Section 2.04 of the
-------------------
Disclosure Schedule. Sellers have, prior to the execution of this Agreement,
-------------------
delivered to Purchaser true and complete copies of the memorandum and articles
of association, by-laws, or other comparable corporate charter documents, of
each of the Subsidiaries as in effect on the date hereof.
2.05. No Conflicts. The execution and delivery by the Company of
------------
this Agreement do not, and the execution and delivery by the Company of the
Operative Agreements to which it is a party, the performance by the Company of
its obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the memorandum and articles of
association (or other comparable corporate charter documents) of the Company or
any Subsidiary;
-6-
<PAGE>
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Section 2.06 of the
-------------------
Disclosure Schedule, conflict with or result in a violation or breach of any
-------------------
term or provision of any Law or Order applicable to the Company or any
Subsidiary or any of their respective Assets and Properties; or
(c) except as disclosed in Section 2.05 of the Disclosure
------------------------------
Schedule, (i) conflict with or result in a violation or breach of, (ii)
--------
constitute (with or without notice or lapse of time or both) a default under,
(iii) require the Company or any Subsidiary to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result or
under the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect to,
(v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (vi) result
in the creation or imposition of any Lien upon the Company or any Subsidiary or
any of their respective Assets and Properties under, any Contract or License to
which the Company or any Subsidiary is a party or by which any of their
respective Assets and Properties is bound.
2.06. Governmental Approvals and Filings. Except as disclosed in
----------------------------------
Section 2.06 of the Disclosure Schedule, no consent, approval or action of,
---------------------------------------
filing with or notice to any Governmental or Regulatory Authority on the part of
the Company or any Subsidiary is required in connection with the execution,
delivery and performance of this Agreement or any of the Operative Agreements to
which it is a party or the consummation of the transactions contemplated hereby
or thereby.
2.07. Books and Records. The minute books and other similar
-----------------
records of the Company and the Subsidiaries as made available to Purchaser prior
to the execution of this Agreement contain a true and complete record, in all
material respects, of all action taken at all meetings and by all written
consents in lieu of meetings of the shareholders, the boards of directors and
committees of the boards of directors of the Company and the Subsidiaries. The
share transfer ledgers and other similar records of the Company and the
Subsidiaries as made available to Purchaser prior to the execution of this
Agreement accurately reflect all record transfers prior to the execution of this
Agreement in the share capital of the Company and the Subsidiaries. Except as
set forth in Section 2.07 of the Disclosure Schedule, neither the Company nor
---------------------------------------
any Subsidiary has any of its Books and Records recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company or a
Subsidiary.
2.08. Financial Statements. Prior to the execution of this
--------------------
Agreement, the Company has delivered to Purchaser true and complete copies of
the following financial statements:
(a) the audited balance sheets of the Company and its
consolidated subsidiaries as of December 31, 1998 and 1999 and the related
audited consolidated statements of operations, shareholders' equity and cash
flows for each of the fiscal years then ended, together with a true and correct
copy of the report on such audited information by the Auditor, and all letters
from such Auditor with respect to the results of such audits; and
(b) the unaudited balance sheets of the Company and its
consolidated subsidiaries as of December 31, 2000 and September 30, 2001, and
the related unaudited consolidated statements of operations, shareholders'
equity and cash flows for the periods then ended.
Except as set forth in the notes thereto, all such financial
statements were prepared in accordance with GAAP and fairly present the
consolidated financial condition and results of operations of the Company and
its consolidated subsidiaries as of the respective dates thereof and for the
respective periods covered thereby. Except for those Subsidiaries listed in
Section 2.08 of the Disclosure Schedule,
---------------------------------------
-7-
<PAGE>
the financial condition and results of operations of each Subsidiary are, and
for all periods referred to in this Section 2.08 have been, consolidated with
those of the Company.
2.09. Absence of Changes. Except for the execution and delivery
------------------
of this Agreement and the transactions to take place pursuant hereto on the
Closing Date, since the Audited Financial Statement Date there has not been any
material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change in the Business or Condition of the Company. Without
limiting the foregoing, except as disclosed in Section 2.09 of the Disclosure
------------------------------
Schedule, there has not occurred between the Audited Financial Statement Date
--------
and the date hereof:
(a) any declaration, setting aside or payment of any dividend or
other distribution in respect of any capital shares of the Company or any
Subsidiary not wholly owned by the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company or any Subsidiary of
any such capital shares of the Company or any Subsidiary not wholly owned by the
Company;
(b) any authorization, issuance, sale or other disposition by
the Company or any Subsidiary of any capital shares of the Company or any
Subsidiary, or any modification or amendment of any right of any holder of any
outstanding capital shares of the Company or any Subsidiary;
(c) (i) any increase in the salary, wages or other compensation
of any officer, employee or consultant of the Company or any Subsidiary; (ii)
any establishment or modification of (A) targets, goals, pools or similar
provisions in respect of any fiscal year under any Benefit Plan, employment
Contract or other employee compensation arrangement or (B) salary ranges,
increase guidelines or similar provisions in respect of any Benefit Plan,
employment Contract or other employee compensation arrangement; or (iii) any
adoption, entering into, amendment, modification or termination (partial or
complete) of any Benefit Plan except to the extent required by applicable Law
and, in the event compliance with legal requirements presented options, only to
the extent the option which the Company or Subsidiary reasonably believed to be
the least costly was chosen;
(d) (i) incurrences by the Company or any of the Subsidiaries of
any Indebtedness other than under the Bridge Loan, or (ii) any voluntary
purchase, cancellation, prepayment or complete or partial discharge in advance
of a scheduled payment date with respect to, or waiver of any right of the
Company or any Subsidiary under, any Indebtedness of or owing to the Company or
any Subsidiary (in either case other than any Indebtedness of the Company or a
Subsidiary owing to the Company or a wholly-owned Subsidiary);
(e) any physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the plant, real or
personal property or equipment of the Company or any Subsidiary;
(f) any material change in (i) any pricing, investment,
accounting, financial reporting, inventory, credit, allowance or Tax practice or
policy of the Company or any Subsidiary, (ii) any method of calculating any bad
debt, contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or Tax purposes or (iii) the fiscal year of the
Company or any Subsidiary;
(g) any write-off or write-down of or any determination to write
off or down any of the Assets and Properties of the Company or any Subsidiary;
(h) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of the Company or
any Subsidiary, other than in the ordinary course of business consistent with
past practice;
-8-
<PAGE>
(i) any (i) amendment of the memorandum and articles of
association (or other comparable corporate charter documents) of the Company or
any Subsidiary, (ii) reorganization, liquidation or dissolution of the Company
or any Subsidiary or (iii) Business Combination involving the Company or any
Subsidiary and any other Person;
(j) any entering into, amendment, modification, termination
(partial or complete) or granting of a waiver under or giving any consent with
respect to (i) any Contract which is required (or had it been in effect on the
date hereof would have been required) to be disclosed in the Disclosure Schedule
pursuant to Section 2.18(a) or (ii) any material License held by the Company or
any Subsidiary;
(k) capital expenditures or commitments for additions to
property, plant or equipment of the Company and the Subsidiaries constituting
capital assets in an aggregate amount exceeding US$100,000;
(l) any commencement or termination by the Company or any
Subsidiary of any line of business;
(m) any transaction by the Company or any Subsidiary with any
Seller, any officer, director, Affiliate or Associate of any Seller or any
Associate of any such officer, director or Affiliate (other than the Company or
any Subsidiary) (i) outside the ordinary course of business consistent with past
practice or (ii) other than on an arm's-length basis pursuant to a Contract in
effect on the Audited Financial Statement Date and disclosed to Purchaser
pursuant to Section 2.18(a)(vii);
(n) any entering into of an agreement to do or engage in any of
the foregoing after the date hereof; or
(o) any other transaction involving or development affecting the
Company or any Subsidiary outside the ordinary course of business consistent
with past practice.
2.10. No Undisclosed Liabilities. Except as reflected or reserved
--------------------------
against in the balance sheet included in the Audited Financial Statements or in
the notes thereto or as disclosed in Section 2.10 of the Disclosure Schedule,
---------------------------------------
there are no Liabilities against, relating to or affecting the Company or any
Subsidiary or any of their respective Assets and Properties, other than
Liabilities incurred in the ordinary course of business consistent with past
practice which in the aggregate are not material to the Business or Condition of
the Company.
2.11. Taxes.
-----
(a) Except as set forth in Section 2.11 of the Disclosure
------------------------------
Schedule, all Tax Returns, reports and other filings in respect of Taxes
--------
required to be filed in respect of the Company and each of its Subsidiaries on
or prior to the Closing Date have been duly and timely filed, have been prepared
in compliance with all applicable laws, rules and regulations, and are true,
correct and complete. All Taxes due and payable by the Company and each of its
Subsidiaries on or prior to the Closing Date, whether or not shown as due on
such Tax Returns, reports or other filings, have been fully paid when due. The
Company and each of its Subsidiaries has established adequate reserves on their
respective books of account for all Taxes and for the liability for deferred
income Taxes payable in respect of the Company or its relevant Subsidiary.
(b) Except as set forth in Section 2.11 of the Disclosure
------------------------------
Schedule, there are no agreements or applications by the Company for an
--------
extension of time for the assessment or payment of any Pre-Closing Taxes as
defined in Article 9.02(a) below and no waivers of the statute of limitations in
respect of such Taxes. There are no Tax liens on any of the assets of the
Company, except for liens for Taxes not yet due. The Company has not received
any claim from any taxing authority in a jurisdiction in
-9-
<PAGE>
which the Company is or may be subject to taxation and in which the Company has
failed to file Tax Returns required by that jurisdiction.
(c) Other than pursuant to this Agreement, neither the Company
nor any of its Subsidiaries has ever been a party to or bound by any Tax
indemnity, Tax sharing or similar agreement and neither the Company nor any of
its Subsidiaries has any material liability for any Taxes of any other person.
The Company and each of its Subsidiaries has withheld or deducted all Taxes or
other amounts from payments to employees or other persons required to be
deducted or withheld, and has timely paid over such Taxes or other amounts to
the appropriate governmental authorities to the extent due and payable.
(d) There is no material dispute or claim concerning any Tax
Liability of any of the Company and its Subsidiaries either (i) claimed or
raised by any authority in writing or (ii) as to which any of the Sellers and
the directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has any knowledge based upon personal contact with
any agent of such authority. Section 2.11 (d) of the Disclosure Schedule lists
-------------------------------------------
all jurisdictions in which Tax Returns are filed with respect to any of the
Company and its Subsidiaries and indicates those Tax Returns that have been
audited or that are currently the subject of audit. The Sellers have delivered
to the Purchaser correct and complete copies of all Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by any of
the Company and its Subsidiaries since December 31, 1995.
(e) None of the Company or any of its Subsidiaries (i) is
engaged in the conduct of a trade or business within the United States; (ii) is
a corporation or other entity organized or incorporated in the United States;
(iii) has a branch or other permanent establishment in any country outside its
country of incorporation or organization; (iv) has United States real property
interests described in Code Section 897; or (v) has a material item of income or
gain reported for financial accounting purposes in a pre-Closing period which is
required to be included in taxable income for a post-Closing period.
(f) The aggregate tax basis of the assets held in each of the
Company and its Subsidiaries does not exceed the fair market value of the share
capital of the Company or the relevant Subsidiary.
(g) None of the Company or any of its Subsidiaries is a (i)
passive foreign investment company as described in Code Section 1297; (ii)
foreign investment company described in Code Section 1246 (iii) controlled
foreign corporation described in Code Section 957 or (iv) foreign personal
holding company described in Code Section 552.
(h) None of the shareholders of the Company or any of its
Subsidiaries has personal liability under local law for the debts and claims of
the relevant entity. None of the Company or any of its Subsidiaries, or any
shareholder of the Company or any of its Subsidiaries has made an election under
US law to classify the Company or any of its Subsidiaries as something other
than an entity taxable as a corporation.
(i) Without limiting the generality of any of the foregoing, the
Company is a "production-oriented enterprise" within the meaning of Guo Shui Fa
(1994) No. 209, issued by the PRC State Administration of Taxation and, as such,
is entitled to a two-year income tax exemption in the PRC, followed by a three-
year 50% income tax reduction, beginning with the tax year ended December 31,
2000.
2.12. Legal Proceedings. Except as disclosed in Section 2.12 of
----------------- ---------------
the Disclosure Schedule (with paragraph references corresponding to those set
-----------------------
forth below):
(a) there are no Actions or Proceedings pending or, to the
knowledge of the Company and the Subsidiaries, threatened against, relating to
or affecting the Company or any Subsidiary or any of
-10-
<PAGE>
their respective Assets and Properties which (i) could reasonably be expected to
result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements or otherwise
result in a material diminution of the benefits contemplated by this Agreement
or any of the Operative Agreements to Purchaser, or (ii) if determined adversely
to the Company or a Subsidiary, could reasonably be expected to result in (A)
any injunction or other equitable relief against the Company or any Subsidiary
that would interfere in any material respect with its business or operations or
(B) Losses by the Company or any Subsidiary, individually or in the aggregate
with Losses in respect of other such Actions or Proceedings, exceeding
US$100,000;
(b) there are no facts or circumstances known to the Company or
any Subsidiary that could reasonably be expected to give rise to any Action or
Proceeding that would be required to be disclosed pursuant to clause (a) above;
and
(c) there are no Orders outstanding against the Company or any
Subsidiary.
Prior to the execution of this Agreement, the Company has
delivered to Purchaser all responses of counsel for the Company and the
Subsidiaries to auditors' requests for information delivered in connection with
the Audited Financial Statements (together with any updates provided by such
counsel) regarding Actions or Proceedings pending or threatened against,
relating to or affecting the Company or any Subsidiary.
2.13. Compliance With Laws and Orders. Except as disclosed in
-------------------------------
Section 2.13 of the Disclosure Schedule, neither the Company nor any Subsidiary
---------------------------------------
is or has at any time within the last five years been, or has received any
notice that it is or has at any time within the last five years been, in
violation of or in default under, in any material respect, any Law or Order
applicable to the Company or any Subsidiary or any of their respective Assets
and Properties.
2.14. Benefit Plans.
-------------
(a) Section 2.14(a) of the Disclosure Schedule contains a true
------------------------------------------
and complete list and description of each of the Benefit Plans. The Company has
delivered copies of all Benefit Plan documents maintained by the Company and its
Subsidiaries. Neither the Company nor any Subsidiary has scheduled or agreed
upon future increases of benefit levels (or creations of new benefits) with
respect to any Plan, and no such increases or creation of benefits have been
proposed, made the subject of representations to employees or requested or
demanded by employees under circumstances which make it reasonable to expect
that such increases will be granted. Except as disclosed in Section 2.14(a) of
------------------
the Disclosure Schedule, no loan is outstanding between the Company or any
-----------------------
Subsidiary and any employee.
(b) Each of the Benefit Plans is, and its administration
(including without limitation, with respect to reporting and disclosure) is and
has been, in compliance with, its terms and with applicable law (including,
without limitation, all tax rules compliance with which is required for any
intended favorable tax treatment).
(c) No benefit under any Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will be
established or become accelerated, vested or payable by reason of any
transaction contemplated under this Agreement.
(d) To the knowledge of the Company and the Subsidiaries, there
are no pending or threatened claims by or on behalf of any Benefit Plan, by any
person covered thereby, or otherwise, which allege violations of Law which could
reasonably be expected to result in liability on the part of Purchaser, the
Company, any Subsidiary or any fiduciary of any such Benefit Plan, nor is there
any basis for such a claim.
-11-
<PAGE>
(e) All contributions, premiums and other payments required by
law or any Benefit Plan or other agreement to have been made under any such Plan
have been made by the due date thereof, and any and all contributions, premiums
and other payments with respect to compensation or service before and through
the Closing, or otherwise with respect to periods before and through the
Closing, due from any of the Company or its Affiliates to, under or on account
of each Benefit Plan shall have been paid prior to Closing or shall have been
fully reserved and provided for in the Audited Financial Statements.
(f) None of the Company or any of its Subsidiaries is in default
in performing any of its contractual obligations under any of the Benefit Plans.
(g) Without limiting the generality of any other provision of
this Section 2.14, no event has occurred and no condition exists, with respect
to any Plan, that has subjected or could subject the Purchaser, the Company or
any Subsidiary, or any Benefit Plan or any successor thereto, to any tax, fine,
penalty or other liability (other than a liability arising in the normal course
to make contributions or payments, as applicable, when ordinarily due under the
Benefit Plans with respect to employees of the Company and its Subsidiaries).
(h) Neither the Company, any Subsidiary nor any Affiliate has
ever maintained, contributed or to had any liability with respect to any Plan
that is or was ever subject to any Federal, State or local law in the United
States.
(i) Inter-Connect Tech. Limited is a corporation duly organized,
validly existing and in good standing under the Laws of the British Virgin
Islands, and is the Record Holder of 8,325,000 Shares. The individuals set forth
in Section 2.14(i) of the Disclosure Schedule are the Beneficial Owners of the
------------------------------------------
Allocated Inter-Connect Shares in the respective amounts set forth opposite
their names, and the record holder of the issued and outstanding share capital
of Inter-Connect Tech. Limited holds such share capital for the benefit of such
individuals. The Unallocated Inter-Connect Shares are not beneficially owned by
any of the individuals set forth in Section 2.14(i) of the Disclosure Schedule
------------------------------------------
and such individuals have no claims or other rights in respect of the
Unallocated Inter-Connect Shares.
2.15. Real Property.
-------------
(a) Section 2.15(a) of the Disclosure Schedule contains a true
------------------------------------------
and correct list of (i) each parcel of real property owned by the Company or any
Subsidiary, (ii) each parcel of real property leased by the Company or any
Subsidiary (as lessor or lessee) and (iii) all Liens (other than Permitted
Liens) relating to or affecting any such parcel of real property referred to in
clause (i) of this paragraph (a).
(b) The Company or a Subsidiary has good and marketable fee
simple title to and, except for the real property leased to others referred to
in clause (ii) of paragraph (a) above, the Company or a Subsidiary is in
possession of each parcel of real property, together with all buildings,
structures, facilities, fixtures and other improvements thereon, listed in
Section 2.15(a) of the Disclosure Schedule, and in each case such parcel is,
------------------------------------------
except as listed in Section 2.15(a) of the Disclosure Schedule, free and clear
------------------------------------------
of all Liens other than Permitted Liens. The Company and the Subsidiaries have
adequate rights of ingress and egress with respect to such real property,
buildings, structures, facilities, fixtures and other improvements. None of such
real property, buildings, structures, facilities, fixtures or other
improvements, or the use thereof, contravenes or violates any building, zoning,
administrative, occupational safety and health or other applicable Law in any
material respect (whether or not permitted on the basis of prior nonconforming
use, waiver or variance).
(c) The Company or a Subsidiary has a valid and subsisting
leasehold estate in and the right to quiet enjoyment of the real properties
leased by it for the full term of the lease thereof. Each lease referred to in
clause (ii) of paragraph (a) above is a legal, valid and binding agreement,
enforceable in accordance with its terms, of the Company or a Subsidiary and of
each other Person that is a party thereto,
-12-
<PAGE>
and except as set forth in Section 2.15(c) of the Disclosure Schedule, there is
------------------------------------------
no, and neither the Company nor any Subsidiary has received notice of any,
default (or any condition or event which, after notice or lapse of time or both,
would constitute a default) thereunder. Neither the Company nor any Subsidiary
owes any brokerage commissions with respect to any such leased space.
(d) The Company has delivered to Purchaser prior to the
execution of this Agreement true and complete copies of (i) all deeds, leases,
mortgages, deeds of trust, certificates of occupancy, title insurance policies,
title reports, surveys and similar documents, and all amendments thereof, with
respect to the real property listed in Section 2.15(a) of the Disclosure
---------------------------------
Schedule pursuant to clause (i) of paragraph (a) above and (ii) all leases
--------
(including any amendments and renewal letters) and, to the extent reasonably
available, all other documents referred to in clause (i) of this paragraph (d)
with respect to the real property listed in Section 2.15(a) of the Disclosure
---------------------------------
Schedule pursuant to clause (ii) of paragraph (a) above.
--------
(e) Except as set forth in Section 2.15(e) of the Disclosure
---------------------------------
Schedule, no tenant or other party in possession of any of the real properties
--------
identified in Section 2.15(a) of the Disclosure Schedule has any right to
------------------------------------------
purchase, or holds any right of first refusal to purchase, such properties.
2.16. Tangible Personal Property. The Company or a Subsidiary is
--------------------------
in possession of and has good title to, or has valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in the
conduct of their business, including all tangible personal property reflected on
the balance sheet included in the Audited Financial Statements and tangible
personal property acquired since the Audited Financial Statement Date other than
property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free and
clear of all Liens, other than Permitted Liens and Liens disclosed in Section
-------
2.16 of the Disclosure Schedule, and is in good working order and condition,
-------------------------------
ordinary wear and tear excepted, and its use complies in all material respects
with all applicable Laws.
2.17. Intellectual Property Rights. The Company and the
----------------------------
Subsidiaries have interests in or use only the Intellectual Property disclosed
in Section 2.17 of the Disclosure Schedule, each of which the Company or a
---------------------------------------
Subsidiary either has all right, title and interest in or a valid and binding
license to use. No other Intellectual Property is used or necessary in the
conduct of the business of the Company or any Subsidiary. Except as disclosed in
Section 2.17 of the Disclosure Schedule, (i) the Company or a Subsidiary has the
---------------------------------------
exclusive right to use the Intellectual Property disclosed in Section 2.17 of
---------------
the Disclosure Schedule, (ii) all registrations with and applications to
-----------------------
Governmental or Regulatory Authorities in respect of such Intellectual Property
are valid and in full force and effect and are not subject to the payment of any
Taxes or maintenance fees or the taking of any other actions by the Company or a
Subsidiary to maintain their validity or effectiveness, (iii) there are no
restrictions on the direct or indirect transfer of any license, or any interest
therein, held by the Company or any Subsidiary in respect of such Intellectual
Property, (iv) the Company has delivered to Purchaser prior to the execution of
this Agreement documentation with respect to any invention, process, design,
computer program or other know-how or trade secret included in such Intellectual
Property, which documentation is accurate in all material respects and
reasonably sufficient in detail and content to identify and explain such
invention, process, design, computer program or other know-how or trade secret
and to facilitate its full and proper use without reliance on the special
knowledge or memory of any Person, (v) the Company and the Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their trade secrets, (vi) neither the Company nor any Subsidiary is, or
has received any notice that it is, in default (or with the giving of notice or
lapse of time or both, would be in default) under any license to use such
Intellectual Property and (vii) neither the Company nor any Subsidiary has any
knowledge that such Intellectual Property is being infringed by any other
Person. Neither the Company nor any Subsidiary has received notice that the
Company or any Subsidiary is infringing any Intellectual Property of any other
Person, no claim is pending or, to the knowledge of the Company and the
Subsidiaries, has been made to
-13-
<PAGE>
such effect that has not been resolved and, to the knowledge of the Company and
the Subsidiaries, neither the Company nor any Subsidiary is infringing any
Intellectual Property Rights of any other Person.
2.18. Contracts. (a) Section 2.18(a) of the Disclosure Schedule
--------- ------------------------------------------
(with paragraph references corresponding to those set forth below) contains a
true and complete list of each of the following Contracts or other arrangements
(true and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Purchaser prior to the
execution of this Agreement), to which the Company or any Subsidiary is a party
or by which any of their respective Assets and Properties is bound:
(i) (A) all Contracts (excluding Benefit Plans) providing
for a commitment of employment or consultation services for a
specified or unspecified term, the name, position and rate of
compensation of each Person party to such a Contract and the
expiration date of each such Contract; and (B) any written or
unwritten representations, commitments, promises, communications or
courses of conduct (excluding Benefit Plans and not embodied in a
Contract) involving an obligation of the Company or any Subsidiary to
make payments in any year, other than with respect to salary or
incentive compensation payments in the ordinary course of business;
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of the
Company or any Subsidiary to engage in any business activity or
compete with any Person or, except as provided in Section 5.10,
prohibiting or limiting the ability of any Person to compete with the
Company or any Subsidiary;
(iii) all partnership, joint venture, shareholders' or
other similar Contracts with any Person;
(iv) all Contracts relating to Indebtedness of the Company
or any Subsidiary or to Preferred Shares issued by the Company or any
Subsidiary (other than Indebtedness owing to or Preferred Shares owned
by the Company or any wholly-owned Subsidiary);
(v) all Contracts with distributors, dealers,
manufacturer's representatives, sales agencies or franchisees;
(vi) all Contracts relating to (A) the future disposition
or acquisition of any Assets and Properties, other than dispositions
or acquisitions in the ordinary course of business consistent with
past practice, and (B) any Business Combination;
(vii) all Contracts between or among the Company or any
Subsidiary, on the one hand, and any Seller, or officer, director,
Affiliate or Associate of such Seller or any Associate of any such
officer, director or Affiliate (other than the Company or any
Subsidiary), on the other hand;
(viii) all collective bargaining or similar labor Contracts;
(ix) all Contracts that (A) limit or contain restrictions
on the ability of the Company or any Subsidiary to declare or pay
dividends on, to make any other distribution in respect of or to issue
or purchase, redeem or otherwise acquire its capital shares, to incur
Indebtedness, to incur or suffer to exist any Lien, to purchase or
sell any Assets and Properties, to change the lines of business in
which it participates or engages or to engage in any Business
Combination or (B) require the Company or any Subsidiary to maintain
specified financial ratios or levels of net worth or other indicia of
financial condition; and
-14-
<PAGE>
(x) all other Contracts that involve the payment or
potential payment, pursuant to the terms of any such Contract, by or
to the Company or any Subsidiary of more than US$50,000.
(b) Each Contract required to be disclosed in Section 2.18(a) of
------------------
the Disclosure Schedule is in full force and effect and constitutes a legal,
-----------------------
valid and binding agreement, enforceable in accordance with its terms, of each
party thereto; and except as disclosed in Section 2.18(b) of the Disclosure
---------------------------------
Schedule neither the Company, any Subsidiary nor, to the knowledge of the
--------
Sellers, the Company and the Subsidiaries, any other party to such Contract is,
or has received notice that it is, in violation or breach of or default under
any such Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Contract).
(c) Except as disclosed in Section 2.18(c) of the Disclosure
---------------------------------
Schedule, neither the Company nor any Subsidiary is a party to or bound by any
--------
Contract that has been or could reasonably be expected to be, individually or in
the aggregate with any other such Contracts, materially adverse to the Business
or Condition of the Company or any of its Subsidiaries.
2.19. Licenses.
--------
(a) Section 2.19 of the Disclosure Schedule contains a true and
---------------------------------------
complete list of all Licenses used in and material to the business or operations
of the Company or any Subsidiary, setting forth the owner, the function and the
expiration and renewal date of each. Prior to the execution of this Agreement,
the Company has delivered to Purchaser true and complete copies of all such
Licenses. Except as disclosed in Section 2.19 of the Disclosure Schedule:
---------------------------------------
(i) The Company and each Subsidiary owns or validly
holds all Licenses that are material to its business or operations;
(ii) each License listed in Section 2.19 of the
-------------------
Disclosure Schedule is valid, binding and in full force and effect;
-------------------
and
(iii) neither the Company nor any Subsidiary is, or has
received any notice that it is, in default (or with the giving of
notice or lapse of time or both, would be in default) under any such
License.
(b) Without limiting the generality of paragraph (a) above, all
Licenses required under PRC law for the due and proper establishment and
operation of Bonson Guangzhou and for the conduct of the business of Bonson
Guangzhou have been duly obtained from the relevant PRC authorities and are in
full force and effect. All filings and registrations with the relevant PRC
authorities required in respect of Bonson Guangzhou and its operations,
including but not limited to registration with the Ministry of Foreign Trade and
Economic Cooperation, the State Administration of Industry and Commerce, the
State Administration of Foreign Exchange, and the relevant tax bureau, customs
authorities and product registration authorities, have been duly completed in
accordance with the relevant PRC rules and regulations.
2.20. Insurance. Section 2.20 of the Disclosure Schedule contains
--------- ---------------------------------------
a true and complete list (including the names and addresses of the insurers, the
expiration dates thereof, the annual premiums and payment terms thereof and a
brief description of the interests insured thereby) of all liability, property,
workers' compensation, directors' and officers' liability and other insurance
policies currently in effect that insure the business, operations or employees
of the Company or any Subsidiary or affect or relate to the ownership, use or
operation of any of the Assets and Properties of the Company or any Subsidiary
and that (i) have been issued to the Company or any Subsidiary or (ii) have been
issued to any Person (other than the Company or any Subsidiary) for the benefit
of the Company or any Subsidiary.
-15-
<PAGE>
The insurance coverage provided by the policies described in clause (i) above
will not terminate or lapse by reason of the transactions contemplated by this
Agreement. Each policy listed in Section 2.20 of the Disclosure Schedule is
---------------------------------------
valid and binding and in full force and effect, no premiums due thereunder have
not been paid and neither the Company, any Subsidiary nor the Person to whom
such policy has been issued has received any notice of cancellation or
termination in respect of any such policy or is in default thereunder. The
insurance policies listed in Section 2.20 of the Disclosure Schedule are placed
---------------------------------------
with financially sound and reputable insurers and, in light of the respective
business, operations and Assets and Properties of the Company and the
Subsidiaries, are in amounts and have coverages that are reasonable and
customary for Persons engaged in such businesses and operations and having such
Assets and Properties. Neither the Company nor any Subsidiary has received
notice that any insurer under any policy referred to in this Section is denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause.
2.21. Affiliate Transactions. Except as disclosed in Section
---------------------- -------
2.21(a) of the Disclosure Schedule, as of the date of this Agreement, (i) there
----------------------------------
are no intercompany Liabilities between the Company or any Subsidiary, on the
one hand, and any Seller, or officer, director, Affiliate or Associate of such
Seller or any Associate of any such officer, director or Affiliate (other than
the Company or any Subsidiary), on the other, (ii) neither any such Seller nor
any such officer, director, Affiliate or Associate provides or causes to be
provided any assets, services or facilities to the Company or any Subsidiary,
(iii) neither the Company nor any Subsidiary provides or causes to be provided
any assets, services or facilities to any Seller or any officer, director,
Affiliate or Associate of any Seller and (iv) neither the Company nor any
Subsidiary beneficially owns, directly or indirectly, any Investment Assets of
any Seller or any such officer, director, Affiliate or Associate of any Seller.
Except as disclosed in Section 2.21(b) of the Disclosure Schedule, each of the
------------------------------------------
Liabilities and transactions listed in Section 2.21(a) of the Disclosure
---------------------------------
Schedule was incurred or engaged in, as the case may be, on an arm's-length
--------
basis. Except as disclosed in Section 2.21(c) of the Disclosure Schedule, since
------------------------------------------
the Audited Financial Statement Date, all settlements of intercompany
Liabilities between the Company or any Subsidiary, on the one hand, and any
Seller or any officer, director, Affiliate or Associate of any Seller, on the
other, have been made, and all allocations of intercompany expenses have been
applied, in the ordinary course of business consistent with past practice.
2.22. Employees; Labor Relations. (a) Section 2.22 of the
-------------------------- -------------------
Disclosure Schedule contains a list of the name of each officer and full-time
-------------------
employee of the Company and the Subsidiaries at the date hereof, together with
each such person's position or function, annual base salary or wages and any
incentive or bonus arrangement with respect to such person in effect on such
date. The Company has not received any information that would lead it to believe
that a material number of such persons will or may cease to be employees, or
will refuse offers of employment from Purchaser, because of the consummation of
the transactions contemplated by this Agreement.
(b) Except as disclosed in Section 2.22 of the Disclosure
------------------------------
Schedule, (i) no employee of the Company or any Subsidiary is presently a member
--------
of a collective bargaining unit and, to the knowledge of Sellers, the Company
and the Subsidiaries, there are no threatened or contemplated attempts to
organize for collective bargaining purposes any of the employees of the Company
or any Subsidiary, and (ii) no unfair labor practice complaint or sex or age
discrimination claim has been brought during the last five years against the
Company or any of the Subsidiaries before any Governmental or Regulatory
Authority. During the past five years, there has been no work stoppage, strike
or other concerted action by employees of the Company or any Subsidiary. During
that period, the Company and the Subsidiaries have complied in all material
respects with all applicable Laws relating to the employment of labor, including
without limitation those relating to wages, hours and collective bargaining.
2.23. Environmental Matters. Each of the Company and the
---------------------
Subsidiaries has obtained all Licenses that are required in respect of its
business, operations or Assets and Properties under
-16-
<PAGE>
applicable Environmental Laws. Each of the Company and the Subsidiaries is in
compliance in all material respects with the terms and conditions of all such
Licenses and with any applicable Environmental Law. Except as set forth in
Section 2.23 of the Disclosure Schedule (with paragraph references corresponding
---------------------------------------
to those set forth below):
(a) No Order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
knowledge of the Company or the Subsidiaries, threatened by any Governmental or
Regulatory Authority with respect to any alleged failure by the Company or any
Subsidiary to have any License required in connection with the conduct of the
business or operations of the Company or any of the Subsidiaries or with respect
to any treatment, storage, recycling, transportation, disposal or release, of
any Hazardous Material, and neither the Company nor any Subsidiary is aware of
any facts or circumstances which could reasonably be expected to form the basis
for any such Order, complaint, penalty or investigation.
(b) Neither the Company, any Subsidiary nor, to the knowledge of
the Company or the Subsidiaries, any prior owner or lessee of any property now
or previously owned or leased by the Company or any Subsidiary, has handled any
Hazardous Material on any property now or previously owned or leased by the
Company or any Subsidiary; and, without limiting the foregoing, (i) no
polychlorinated biphenyl is or has been present, (ii) no asbestos is or has been
present, (iii) there are no underground storage tanks, active or abandoned, and
(iv) no Hazardous Material has been released in a quantity reportable under, or
in violation of, any Environmental Law, at, on or under any property now or
previously owned or leased by the Company or any Subsidiary, during any period
that the Company or a Subsidiary owned or leased such property or, to the
knowledge of the Company or the Subsidiaries, prior thereto.
(c) Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is the subject of any Action or Proceeding that could lead to claims against
Purchaser, the Company or any Subsidiary for clean-up costs, remedial work,
damages to natural resources or personal injury claims.
(d) There are no Liens (other than Permitted Liens) arising
under or pursuant to any Environmental Law or Order on any real property owned
or leased by the Company or any Subsidiary, and no action of any Governmental or
Regulatory Authority has been taken or, to the knowledge of the Company or the
Subsidiaries, is in process which could subject any of such properties to such
Liens, and neither the Company nor any Subsidiary would be required to place any
notice or restriction relating to the presence of Hazardous Material at any
property owned by it in any deed to such property.
(e) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, the Company or any Subsidiary in relation to any property or
facility now or previously owned or leased by the Company or any Subsidiary
which have not been delivered to Purchaser prior to the execution of this
Agreement.
2.24. Substantial Customers and Suppliers. Section 2.24(a) of the
----------------------------------- ----------------------
Disclosure Schedule lists, as of the date hereof, the customers of the Company
-------------------
and the Subsidiaries, on the basis of revenues for goods to be sold or services
to be provided under existing Contracts. Section 2.24(b) of the Disclosure
---------------------------------
Schedule lists the primary suppliers of the Company and the Subsidiaries, on the
--------
basis of cost of goods or services to be purchased under existing Contracts.
Except as disclosed in Section 2.24(c) of the Disclosure Schedule, no such
------------------------------------------
customer or supplier has ceased or materially reduced its purchases from or
sales or provision of services to the Company and the Subsidiaries since the
Audited Financial Statement Date, or to the knowledge of the Company or the
Subsidiaries, has threatened to cease or materially reduce such purchases or
sales or provision of services after the date hereof. Except as disclosed in
Section 2.24(d) of the Disclosure Schedule, to the knowledge of the Company and
------------------------------------------
the Subsidiaries, no such customer or supplier is threatened with bankruptcy or
insolvency.
-17-
<PAGE>
2.25. Bank and Brokerage Accounts; Investment Assets. Section
---------------------------------------------- -------
2.25 of the Disclosure Schedule sets forth (a) a true and complete list of the
-------------------------------
names and locations of all banks, trust companies, securities brokers and other
financial institutions at which the Company or any Subsidiary has an account or
safe deposit box or maintains a banking, custodial, trading or other similar
relationship; (b) a true and complete list and description of each such account,
box and relationship, indicating in each case the account number and the names
of the respective officers, employees, agents or other similar representatives
of the Company or any Subsidiary having signatory power with respect thereto;
and (c) a list of each Investment Asset held through or in each such account,
box and relationship, including the name of the record and beneficial owner
thereof, the location of the certificates, if any, therefor, the maturity date,
if any, and any stock or bond powers or other authority for transfer granted
with respect thereto.
2.26. No Powers of Attorney. Except as set forth in Section 2.26
--------------------- ------------
of the Disclosure Schedule, neither the Company nor any Subsidiary has any
--------------------------
powers of attorney or comparable delegations of authority outstanding.
2.27. Accounts Receivable. Except as set forth in Section 2.27 of
------------------- ---------------
the Disclosure Schedule, the accounts and notes receivable of the Company and
-----------------------
the Subsidiaries reflected on the balance sheet included in the Audited
Financial Statements, and all accounts and notes receivable arising subsequent
to the Audited Financial Statement Date, (i) arose from bona fide sales
---- ----
transactions in the ordinary course of business and are payable on ordinary
trade terms, (ii) are legal, valid and binding obligations of the respective
debtors enforceable in accordance with their terms, (iii) are not subject to any
valid set-off or counterclaim, (iv) do not represent obligations for goods sold
on consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement, (v) are collectible in the ordinary course of
business consistent with past practice in the aggregate recorded amounts
thereof, net of any applicable reserve reflected in the balance sheet included
in the Audited Financial Statements, and (vi) are not the subject of any Actions
or Proceedings brought by or on behalf of the Company or any Subsidiary. Section
-------
2.27 of the Disclosure Schedule sets forth a description of any security
-------------------------------
arrangements and collateral securing the repayment or other satisfaction of
receivables of the Company and the Subsidiaries. All steps necessary to render
all such security arrangements legal, valid, binding and enforceable, and to
give and maintain for the Company or a Subsidiary, as the case may be, a
perfected security interest in the related collateral, have been taken.
2.28. Inventory. All inventory of the Company and the
---------
Subsidiaries reflected on the balance sheet included in the Audited Financial
Statements consisted, and all such inventory acquired since the Audited
Financial Statement Date consists, of a quality and quantity usable and salable
in the ordinary course of business consistent with past practice, subject to
normal and customary allowances in the industry for spoilage, damage and
outdated items. Except as disclosed in the notes to the Audited Financial
Statements, all items included in the inventory of the Company and the
Subsidiaries are the property of the Company and the Subsidiaries, free and
clear of any Lien other than Permitted Liens, have not been pledged as
collateral, are not held by the Company or any Subsidiary on consignment from
others and conform in all material respects to all standards applicable to such
inventory or its use or sale imposed by Governmental or Regulatory Authorities.
2.29. Investment Company. The Company is not an "investment
------------------
company" within the meaning of the United States Investment Company Act of 1940,
as amended.
2.30. Super Action Group Limited. Super Action Group Limited is a
--------------------------
corporation duly organized, validly existing and in good standing under the Laws
of the British Virgin Islands, and is the Record Holder of 10,905,000 Shares.
Juntang Zou is the Beneficial Owner of such Shares, and the record holders of
the issued and outstanding share capital of Super Action Group Limited hold such
share capital for the benefit of Juntang Zou.
-18-
<PAGE>
2.31. Brokers. All negotiations relative to this Agreement and
-------
the transactions contemplated hereby have been carried out by Sellers directly
with Purchaser without the intervention of any Person on behalf of Sellers in
such manner as to give rise to any valid claim by any Person against Purchaser,
the Company or any Subsidiary for a finder's fee, brokerage commission or
similar payment.
2.32. Disclosure. All material facts relating to the Business or
----------
Condition of the Company have been disclosed to Purchaser in or in connection
with this Agreement. No representation or warranty contained in this Agreement,
and no statement contained in the Disclosure Schedule or in any certificate,
list or other writing furnished to Purchaser pursuant to any provision of this
Agreement (including without limitation the Financial Statements), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLERS
3.01. Authorization. Each of the Sellers severally and not
-------------
jointly, represents and warrants to Purchaser as set forth below, as of the date
of this Agreement and as of the Closing Date, subject to the exceptions set
forth in the Disclosure Schedule.
(a) Each Seller that is a Record Holder is the sole and
exclusive record owner, and each Seller that is a Beneficial Owner is the sole
and exclusive beneficial owner, of the Shares set forth opposite its name in
Schedule 1.01, free and clear of all Liens, and, except as set forth Section
------------- -------
3.01(a) of the Disclosure Schedule, there are no agreements, arrangements or
----------------------------------
understandings to which such Seller is a party (other than this Agreement)
involving the purchase, sale or other acquisition or disposition of the Shares
owned by such Seller or any interest therein.
(b) Such Seller shall deliver or cause to be delivered to
Purchaser certificates representing all Shares owned by such Seller in the
amounts contemplated by Section 1.02, each such certificate to be duly endorsed
for transfer and free and clear of all Liens. The delivery of such certificates
to Purchaser duly endorsed for transfer will transfer to Purchaser good and
valid title to such Shares, free and clear of all Liens.
(c) Each Corporate Seller is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate power and authority to carry on its business
as now being conducted and to own its properties. Each Corporate Seller has full
corporate power and authority to enter into this Agreement and the Operative
Agreements to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by each Corporate Seller of this
Agreement and the Operative Agreements to which it is a party have been duly
authorized by all requisite corporate action. This Agreement has been, and the
Operative Agreements to which it is a party will be as of the Closing Date, duly
executed and delivered by each Seller, and (assuming due execution and delivery
by Purchaser) this Agreement constitutes, and each of the Operative Agreements
to which it is a party when executed and delivered will constitute, a valid and
binding obligation of each Seller, enforceable in accordance with its terms.
(d) The execution and delivery of this Agreement and the
Operative Agreements by such Seller and the consummation of the transactions
contemplated hereby and thereby will not (i) except as disclosed Section 3.01(d)
---------------
of the Disclosure Schedule, breach, violate or constitute an event of default
--------------------------
(or an event which with the lapse of time or the giving of notice or both would
constitute an event of default) under, give rise to any right of termination,
cancellation, modification or acceleration under or require any
-19-
<PAGE>
consent or the giving of any notice under, any articles or certificate of
incorporation or other constituting document, by-laws, or other documents
providing for the governance of a Corporate Seller, note, bond, indenture,
mortgage, security agreement, lease, license, franchise, permit, agreement or
other instrument or obligation to which such Seller is a party, or by which such
Seller or the Shares held by such Seller may be bound, or result in the creation
of any Lien upon the properties or assets of such Seller pursuant to the terms
of any such instrument or obligation, or (ii) violate or conflict with any law,
statute, ordinance, code, rule, regulation, judgment, order, writ, injunction,
decree or other instrument of any court or governmental or regulatory body,
agency or authority applicable to such Seller or by which the Shares held by
such Seller may be bound.
3.02. AsiaInfo Shares. Each Seller receiving AsiaInfo Shares in
---------------
consideration of part or all of its Shares, severally and not jointly,
acknowledges, represents and warrants to Purchaser as set forth below, as of the
date of this Agreement and as of the Closing Date.
(a) Such Seller understands that the AsiaInfo Shares to be
issued to such Seller pursuant to this Agreement will not have been registered
under the United States Securities Act of 1933, as amended (the "Securities
----------
Act"), or any state securities law by reason of specific exemptions under the
---
provisions thereof which depend in part upon the other representations and
warranties made by the Seller in this Agreement. Such Seller understands that
Purchaser is relying, in part, upon the Seller's representations and warranties
contained in this Section 3.02(a) for the purpose of determining whether this
transaction meets the requirements for such exemptions.
(b) Either (i) such Seller is an "accredited investor" (as
defined in Rule 501(a) under the Securities Act) or (ii) such Seller is a Person
that, at the time the buy order (within the meaning of Regulation S promulgated
under the Securities Act) for the AsiaInfo Shares was originated, was outside
the United States and was not a U.S. person (and was not purchasing for the
account or benefit of a U.S. person) within the meaning of Regulation S and no
offer, within the meaning of Regulation S, was made to such Seller (or any other
person on its behalf) in the United States.
(c) Such Seller understands that the AsiaInfo Shares to be
received by such Seller in the transactions contemplated hereby will be
"restricted securities" under applicable federal securities laws and that the
Securities Act and the rules of the United States Securities and Exchange
Commission (the "SEC") promulgated thereunder provide in substance that such
---
Seller may dispose of such shares only pursuant to an effective registration
statement under the Securities Act or an exemption from registration if
available. Such Seller further understands that Purchaser has no obligation or
intention to register the sale of any of the AsiaInfo Shares to be received by
such Seller in the transactions contemplated hereby, or take any other action so
as to permit sales pursuant to, the Securities Act, except as specifically
provided in the Registration Rights Agreements. Such Seller further understands
that applicable state securities laws may impose additional constraints upon the
sale of securities. As a consequence, such Seller understands that such Seller
may have to bear the economic risk of an investment in AsiaInfo Shares to be
received by such Seller pursuant to the transactions contemplated hereby for an
indefinite period of time.
(d) Such Seller is acquiring AsiaInfo Shares pursuant to the
transactions contemplated hereby for investment only and not with a view to or
intention of or in connection with any resale or distribution of such shares or
any interest therein.
(e) Such Seller understands and acknowledges that the
certificate(s) evidencing the AsiaInfo Shares to be issued pursuant to the
transactions contemplated hereby shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
-20-
<PAGE>
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND OTHER DISPOSITION PURSUANT TO A LOCK-UP
AGREEMENT DATED AS OF [DATE]. A COPY OF SUCH LOCK-UP AGREEMENT IS
MAINTAINED AT THE OFFICES OF THE CORPORATION BY THE SECRETARY OF THE
CORPORATION."
3.03. Tax Matters. Each Seller, severally and not jointly, represents
-----------
and warrants that such Seller has had an opportunity to review with its own tax
advisors the tax consequences to such Seller of the sale of the Shares and the
other transactions contemplated by this Agreement. Such Seller understands that
it must rely solely on its advisors and not on any statements or representations
by Purchaser, the Company or any of their agents. Such Seller understands that
it (and not the Purchaser or the Company) shall be responsible for its own tax
liability that may arise from the sale of the Shares and the other transactions
contemplated by this Agreement.
3.04. Shareholders Agreement and Other Rights. Each Seller, severally
---------------------------------------
and not jointly, represents and warrants that the Shareholders Agreement dated
as of September 21, 2000, as amended from time to time, by and among the Company
and certain Sellers (the "Shareholders Agreement") shall terminate automatically
----------------------
as to all parties thereto in connection with the Closing. Other than pursuant to
the Shareholders Agreement, such Seller does not have any pre-emptive rights,
rights of first refusal, tag-along rights or similar rights in respect of the
Company or the Shares. In furtherance and not in limitation of the foregoing,
Sellers hereby waive any and all pre-emptive rights, rights of first refusal,
tag-along rights or similar rights, as well as any entitlements to liquidation
preferences or other preferences contemplated under the memorandum and articles
of association of the Company or otherwise, to the extent that any such rights
or preferences would be inconsistent with the transactions set forth in this
Agreement or the Operative Agreements
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
4.01. Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the Laws of the State of Delaware. Purchaser
has full corporate power and authority to execute and deliver this Agreement and
the Operative Agreements to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. Purchaser is duly qualified, licensed or admitted to do business
and is in good standing in all jurisdictions in which the ownership, use or
leasing of its Assets and Properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary and in which the
failure to be so qualified, licensed or admitted and in good standing could
reasonably be expected to have an adverse effect on the validity or
enforceability of this Agreement or any of the Operative Agreements to which it
is a party or on the ability of Purchaser to perform its obligations hereunder
or thereunder.
4.02. Authorization. The execution and delivery by Purchaser of this
-------------
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of its obligations hereunder and thereunder, have been
duly and validly authorized by the board of directors of Purchaser,
-21-
<PAGE>
no other corporate action on the part of Purchaser or its stockholders being
necessary. This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes, and upon the execution and delivery by Purchaser of
the Operative Agreements to which it is a party, such Operative Agreements will
constitute, legal, valid and binding obligations of Purchaser enforceable
against Purchaser in accordance with their terms.
4.03. No Conflicts. The execution and delivery by Purchaser of this
------------
Agreement do not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws of
Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Schedule 4.05, conflict with or
-------------
result in a violation or breach of any term or provision of any Law or Order
applicable to Purchaser or any of its Assets and Properties; or
(c) except as disclosed in Schedule 4.03, (i) conflict with or
-------------
result in a violation or breach of, (ii) constitute (with or without notice or
lapse of time or both) a default under, (iii) require Purchaser to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (iv) result in the creation or
imposition of any Lien upon Purchaser or any of its Assets or Properties under,
any Contract or License to which Purchaser is a party or by which any of its
Assets and Properties is bound.
4.04. AsiaInfo Shares. The AsiaInfo Shares to be issued and delivered
---------------
to the Founders, Management Shareholders and the Remaining Shareholders have
been duly authorized and, when issued pursuant to this Agreement, will be
validly issued, fully paid and nonassessable. The delivery of certificates at
the Closing representing the AsiaInfo Shares in the manner provided in Section
1.03 will transfer to the Founders, the Management Shareholders and the
Remaining Shareholders good and valid title to the AsiaInfo Shares, free and
clear of all Liens.
4.05. Governmental Approvals and Filings. Except as disclosed in
----------------------------------
Schedule 4.05, no consent, approval or action of, filing