Stock Purchase Agreement - Puccini International Ltd., Cranwood Co. Ltd., Bright Horizon Enterprises Ltd., Tom.com Ltd. and Tom Online Inc.
25 September 2003
CRANWOOD COMPANY LIMITED
as vendor
BRIGHT HORIZON ENTERPRISES LIMITED
as purchaser
TOM.COM LIMITED
as guarantor
TOM ONLINE INC.
as guarantor
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AGREEMENT
for the sale and purchase of
the entire issued share capital of
PUCCINI INTERNATIONAL LIMITED
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CONTENTS
Clause Page
1. INTERPRETATION............................................................2
2. CONDITIONS TO COMPLETION.................................................11
3. PRE-COMPLETION UNDERTAKINGS..............................................14
4. SALE AND PURCHASE OF THE SALE SHARE AND CONSIDERATION....................15
5. ECONOMIC BENEFITS OF LTWJI...............................................21
6. COMPLETION...............................................................22
7. THE 2004 AUDITED ACCOUNTS................................................24
8. EVENTS OF DEFAULT AND REVERSAL OF ACQUISITION............................25
9. PURCHASER'S UNDERTAKINGS.................................................27
10. RESTRICTIONS ON VENDOR...................................................28
11. WARRANTIES...............................................................29
12. LIMITATIONS ON WARRANTY CLAIMS...........................................30
13. GUARANTEES BY TOM AND HOLDCO.............................................32
14. PROPOSED LISTING OF HOLDCO...............................................32
15. WITHHOLDINGS AND DEDUCTIONS..............................................32
16. ENTIRE AGREEMENT.........................................................33
17. VARIATION................................................................33
18. ASSIGNMENT...............................................................33
19. ANNOUNCEMENTS............................................................33
20. CONFIDENTIALITY..........................................................34
21. COSTS....................................................................34
22. INVALIDITY...............................................................34
23. COUNTERPARTS.............................................................35
24. WAIVER...................................................................35
25. FURTHER ASSURANCE........................................................35
26. NOTICES..................................................................35
27. GOVERNING LAW AND JURISDICTION...........................................37
SCHEDULE 1 THE COMPANY, THE SUBSIDIARY AND LTWJI.............................38
Part A Details of the Company.............................................38
Part B Details of the Subsidiary..........................................39
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Part C Details of LTWJi...................................................40
SCHEDULE 2 THE WARRANTIES....................................................41
Part A: Part A Warranties..................................................41
Part B: Part B Warranties..................................................53
SCHEDULE 3 PRINCIPAL ACCOUNTING POLICIES.....................................61
SCHEDULE 4 LIST OF DISCLOSED DOCUMENTS.......................................67
SCHEDULE 5 LOAN TERM SHEET...................................................69
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THIS AGREEMENT is made on 25 September 2003
BETWEEN:
(1) CRANWOOD COMPANY LIMITED, a company incorporated under the laws of the
Republic of Liberia whose registered office is at 80 Broad Street, City of
Monrovia, the Republic of Liberia (the Vendor);
(2) BRIGHT HORIZON ENTERPRISES LIMITED, a company incorporated in the British
Virgin Islands with limited liability, whose registered office is at P.O.
Box 957, Offshore Incorporations Centre, Road Town, Tortola, the British
Virgin Islands (the Purchaser);
(3) TOM.COM LIMITED, an exempted company incorporated in the Cayman Islands
with limited liability, whose principal place of business is at 48/F, The
Center, 99 Queen's Road Central, Hong Kong (TOM); and
(4) TOM ONLINE INC. an exempted company incorporated in the Cayman Islands with
limited liability, whose registered office is at M&C Corporate Services
Limited, P.O. Box 309GT, Ugland House, South Church Street, George Town,
Grand Cayman, Cayman Islands, British West Indies (Holdco).
WHEREAS:
(A) Puccini International Limited (the Company) is a private company limited by
shares incorporated in the Cayman Islands. The Vendor is the sole legal and
beneficial owner of the entire issued share capital of the Company.
(B) The Company will also be the sole registered owner of Puccini Network
Technology (Beijing) Limited [Company Name in Chinese] a wholly-foreign owned
enterprise to be established under the laws of the PRC (the Subsidiary).
(C) Beijing Leitingwuji Network Technology Company Limited [Company Name in
Chinese] (LTWJi) is a limited liability company established in Beijing, the PRC
which is primarily engaged in IVR Services.
(D) Mr. Wang (as hereinafter defined) and Ms. Wang (as hereinafter defined) are
the registered owners of eighty per cent (80%) and twenty per cent (20%)
respectively of the registered capital of LTWJi (the Equity Interest). At the
time of Completion, the Company and the Subsidiary, through certain loan, option
and economic relationships and contractual arrangements with Mr. Wang and Ms.
Wang, will have rights over the Equity Interest, to include exclusive options
exercisable at any time by the Company or its designated parties to purchase
from each of Mr. Wang and Ms. Wang all of his and/or her Equity Interest.
(E) The Purchaser acknowledges that the Business (as hereinafter defined) has
significant potential in the PRC and that the Purchaser wishes to acquire the
Sale Share (as hereinafter defined) to enable it to gain immediate access to,
and to take a lead in, the IVR Services market in the PRC. TOM considers that
such acquisition will be in the best interests of its shareholders.
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(F) The Purchaser is a direct wholly-owned subsidiary of Holdco and an indirect
wholly-owned subsidiary of TOM as at the date of this Agreement. To the extent
it is reasonably practicable (and subject to, inter alia, the obtaining of
relevant regulatory and shareholder approvals, the availability of appropriate
underwriting and the then prevailing market conditions), TOM wishes to obtain
the listing of and permission to deal in Holdco Shares on GEM (as hereinafter
defined) and/or Nasdaq as soon as practicable.
(G) The Vendor is a substantial shareholder of TOM holding approximately 24.7%
of TOM's issued share capital as at the date of this Agreement.
(H) Following arm's length negotiations initiated by the Purchaser, the Vendor
has agreed to sell the Sale Share (as hereinafter defined) to the Purchaser for
the consideration and upon the terms set out in this Agreement.
(I) Holdco has agreed to guarantee the obligations of the Purchaser under this
agreement, on the terms and subject to the conditions set out herein. TOM has
agreed to guarantee the obligations of Holdco pending any listing of its
securities on GEM and/or Nasdaq or some other stock exchange, on the terms and
subject to the conditions set out herein.
IT IS AGREED as follows:
1. Interpretation
1.1 In this Agreement:
2003 Audited Accounts means the audited consolidated balance sheet of the
Company made up as at 31 December 2003 and the audited consolidated profit and
loss account of the Company for the year ending 31 December 2003 prepared in
accordance with US GAAP;
2003 Net Profit means the consolidated net profit after tax and before
extraordinary items of the Company as shown in the 2003 Audited Accounts (which
for the purpose of determining the Earn-Out Amount, shall exclude amortisation
of intangibles arising from the Acquisition, if any);
2004 Audited Accounts means the audited consolidated balance sheet of the
Company made up as at 31 December 2004 and the audited consolidated profit and
loss account of the Company for the year ending 31 December 2004 prepared in
accordance with US GAAP and in accordance with clause 7;
2004 Net Profit means the consolidated net profit after tax and before
extraordinary items of the Company as shown in the 2004 Audited Accounts (which
for the purpose of determining the Earn-Out Amount, shall exclude amortisation
of intangibles arising from the Acquisition, if any);
2004 Report Date means the later of the date of the auditors report on the 2004
Audited Accounts and the date on which the 2004 Audited Accounts are agreed or
determined in accordance with clause 7;
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Accounts means in relation to any financial year of a Group Company:
(a) the audited consolidated balance sheet of such Group Company as at the
Accounts Date in respect of that financial year; and
(b) the audited consolidated profit and loss account of such Group Company in
respect of that financial year,
together with any notes, reports or statements included in or annexed to them;
Accounts Date means, in relation to any financial year of any Group Company, the
last day of that financial year;
Acquisition means the sale and purchase of the Sale Share upon the terms and
subject to the conditions set out in this Agreement;
acting in concert shall have the meaning given in the Code;
Beijing Mobile means Beijing Mobile Communication Company Limited, a
wholly-owned subsidiary of China Mobile;
Beijing Mobile Wireless IVR Services Agreement means the wireless IVR services
agreement for the provision of information products between LTWJi and Beijing
Mobile dated 30 October 2002 and amended by the amendment agreement dated 3 June
2003;
Board means the board of directors of the Company;
Business means the IVR Business currently carried out by LTWJi in the PRC;
Business Agreements means:
(a) the Beijing Mobile Wireless IVR Services Agreement;
(b) the 12586 wireless IVR Services agreement for the provision of
community-oriented products between LTWJi and Beijing Mobile dated 3 July
2003; and
(c) the SMS services agreement between LTWJi and Beijing Mobile effective from
1 May 2003,
in each case as they may be supplemented, varied, amended, renewed or replaced
(including where a different subsidiary of China Mobile replaces Beijing Mobile
as the contracting party);
Business Day means a day (excluding Saturdays and days on which a tropical
cyclone warning No. 8 or above or a "black" rain warning signal is hoisted in
Hong Kong at any time between 9.00 am and 5.00 pm) on which banks generally are
open in Hong Kong for the transaction of normal banking business;
Business Operating Agreement means the business operating agreement in the
agreed form to be entered into prior to Completion amongst the Subsidiary,
LTWJi, Mr.
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Wang and Ms. Wang, under which, among other things: (1) without the prior
written consent of the Subsidiary, LTWJi will not engage in any activity that
could have a material adverse effect on its assets, liabilities, rights,
obligations, equity and/or operations; and (2) the Subsidiary agrees to be the
performance guarantor of LTWJi;
Cash Consideration shall have the meaning given in clause 4.5(c);
China Mobile means China Mobile (Hong Kong) Limited, a company incorporated in
Hong Kong with limited liability, whose shares are listed on the Hong Kong Stock
Exchange and the New York Stock Exchange;
Code means the Hong Kong Code on Takeovers and Mergers;
Companies Ordinance means the Companies Ordinance (Chapter 32 of the Laws of
Hong Kong);
Company shall have the meaning given in Recital (A) and its details are set out
in Part A of Schedule 1;
Completion means completion of the sale and purchase of the Sale Share in
accordance with clause 6 of this Agreement;
Completion Date means the fifth (5th) Business Day after the date of fulfilment
or waiver of the last of the Conditions in accordance with clause 2 (or such
other date and the Vendor and the Purchaser may agree in writing);
Conditions means the conditions to Completion specified in clause 2.1;
Consideration Shares shall have the meaning given in clause 4.5(b);
Contractual Arrangements and Contractual Arrangement shall have the meaning
given in clause 2.1(d);
Costs means liabilities, losses, damages, costs (including legal costs) and
expenses, in each case of any nature whatsoever other than stamp duty;
Devine Contractual Arrangements means each of:
(a) the pledge agreement in respect of the Equity Interest dated 25 July 2002
between Devine Gem and Mr. Wang and Ms. Wang;
(b) a trust investment agreement dated 25 July 2002 amongst Devine Gem, Mr.
Wang and Ms. Wang;
(c) an exclusive share option agreement dated 25 July 2002 amongst Devine Gem,
Mr. Wang and Ms. Wang;
(d) an irrevocable equity transfer power of attorney dated 25 July 2002 in
favour of Devine Gem from each of Mr. Wang and Ms. Wang; and
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(e) a trust deed dated 25 July 2002 in favour of Devine Gem from each of Mr.
Wang and Ms. Wang;
Devine Gem means Devine Gem Management Limited, a limited liability company
incorporated under the laws of the British Virgin Islands whose registered
office is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola,
British Virgin Islands;
Disclosure Letter means the letter in the agreed form from the Vendor to the
Purchaser executed and delivered immediately before the signing of this
Agreement together with any Disclosure Letter Supplement given by the Vendor and
accepted by the Purchaser in accordance with the terms of this Agreement;
Disclosure Letter Supplement means such letter from the Vendor to the Purchaser
headed "Disclosure Letter Supplement" in such form as shall be acceptable to the
Purchaser (in its absolute discretion), such acceptance being signified by its
written acknowledgement of acceptance of the matters set out therein (and mere
acknowledgement of receipt shall not be sufficient), to be executed and
delivered (if at all) within two weeks of signing of this Agreement;
Domain Name Licence Agreement means the domain name licence agreement in the
agreed form to be entered into prior to Completion between the Subsidiary and
LTWJi, under which the Subsidiary will grant a non-exclusive licence to LTWJi to
use the tomkid.com and ltwj.com domain names in return for a licence fee;
Domain Name Transfer Agreement means the domain name transfer agreement in the
agreed form to be entered into prior to Completion by LWTJi and the Subsidiary,
under which LTWJi will transfer the tomkid.com and ltwj.com domain names to the
Subsidiary;
Earn-Out Amount shall have the meaning given in clause 4.5;
Earn-Out Consideration shall have the meaning given in clause 4.5;
Equity Interest shall have the meaning given in Recital (D);
Equity Pledge Agreements mean the equity pledge agreements in the agreed form to
be entered into prior to Completion between the Subsidiary and each of Mr. Wang
and Ms. Wang, under which Mr. Wang and Ms. Wang will pledge their equity
interests in LTWJi to the Subsidiary to secure performance of LTWJi under the
Exclusive Technical and Consultancy Services Agreement;
Escrow Agent means an escrow agent to be jointly appointed by the Purchaser and
the Vendor (and who shall be a person acceptable to the Hong Kong Stock
Exchange);
Event of Default shall have the meaning given in clause 8.1;
Exclusive Technical and Consultancy Services Agreement means the exclusive
technical and consultancy services agreement in the agreed form to be entered
into prior to Completion between the Subsidiary and LTWJi, under which the
Subsidiary
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will provide technology-consulting services to LTWJi for a fee calculated
according to a formula set out therein;
Final Payment Date means the Holdco Allotment Date or the TOM Allotment Date (as
the case may be);
financial year shall be construed in accordance with section 2(1) of the
Companies Ordinance;
GEM means the Growth Enterprise Market of the Hong Kong Stock Exchange;
GEM Listing Rules mean the Rules governing the Listing of Securities on GEM;
GO Threshold means 30% or more of the voting share capital of a company from
time to time or such other threshold as may at the relevant time be specified in
the Code as being the level for triggering a mandatory general offer under Rule
26.1 of the Code;
Group means the Company, the Subsidiary and LTWJi (save where used in Schedule
2, where it means the Company and LTWJi);
Group Company means any member of the Group;
HK$ means Hong Kong dollars, the lawful currency of Hong Kong;
Holdco Allotment Date shall have the meaning given in clause 4.5(a);
Holdco Average Closing Price shall have the meaning given in clause 4.5(a);
Holdco Cash Consideration shall have the meaning given in clause 4.5(a)(ii);
Holdco Shares means ordinary shares in the capital of Holdco (which are proposed
to be listed on one or more recognised stock exchange);
Holdco Trading Day means any one day on which the Holdco Shares are traded on a
relevant stock exchange;
holding company shall be construed in accordance with section 2(7) of the
Companies Ordinance;
Hong Kong means the Hong Kong Special Administrative Region of the PRC;
Hong Kong Stock Exchange means The Stock Exchange of Hong Kong Limited;
Initial Consideration shall have the meaning given in clause 4.4;
Initial Cash Consideration shall have the meaning given in clause 4.4(a);
Intellectual Property Rights means patents, trade marks, service marks, trade
names, domain names, design rights, integrated circuit layout rights, copyright
(including rights in computer software and databases), rights in know-how and
other intellectual
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property rights, in each case whether registered or unregistered and including
applications for the grant of any such rights and all rights or forms of
protection having equivalent or similar effect anywhere in the world;
Internal IT Systems means the material information and communications
technologies used by each Group Company, including without limitation hardware,
proprietary and third party software, networks, peripherals and associated
documentation;
Intra-Group Indebtedness means all debts outstanding between members of the
Group and members of the Retained Group;
IPO Price means the offer price per Holdco Share under any initial public
offering of Holdco Shares and listing of Holdco Shares on GEM (excluding any
brokerage, Securities and Futures Commission transaction levy, investor
compensation levy and Hong Kong Stock Exchange trading fee) or, if not listed on
GEM, such other relevant recognised stock exchange;
IPO Shares shall have the meaning given in clause 4.4(b);
IVR Business means the business of provision of wireless IVR Services;
IVR Services means wireless interactive-voice recognition services provided
through mobile telephone networks in the PRC;
Last Accounts means, in relation to LTWJi, the Accounts of LTWJi in respect of
the six months ended on the Last Accounts Date;
Last Accounts Date means 30 June 2003 or, if later, the date of incorporation of
the relevant company;
LIBOR means:
(a) the display rate per annum of the offered quotation for deposits in US
dollars for a period of six months which appears on Telerate 3750 (or such
other page as the parties may agree) at or about 11.00a.m. London time on
the relevant date; or
(b) if the display rate cannot be determined under paragraph (a) above, the
rate determined as if the parties had specified that the rate for the Due
Date will be determined on the basis of the rates at which deposits in US
dollars are offered by HSBC Bank plc at or about 11.00a.m. London time on
the Due Date to prime banks in the London Interbank Market for a period of
six months commencing on the relevant date for amounts comparable to the
relevant sum,
and for the purposes of this definition, Telerate Page 3750 means the display
designated as Page 3750 on the Telerate Service (or such other pages as may
replace Page 3750 on that service) or such other service as may be nominated by
the British Bankers' Association (including the Reuters Screen) as the
information vendor for the
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purposes of displaying British Bankers' Association Interest Settlement Rates
for deposits in sterling;
Licence means any licence, permit, authorisation or consent required in the PRC
in connection with the operation by the Group of the Business;
Loan Agreements means each of the loan agreements dated 25 July 2002 between
Devine Gem and each of Mr. Wang and Ms. Wang, under which Devine Gem agreed to
advance the necessary funds to each of Mr. Wang and Ms. Wang solely for the
purpose of providing working capital for LTWJi (together with the related
receipts from each of Mr. Wang and Ms. Wang);
Loan Agreement Assignments means the assignments in the agreed form to be
entered into prior to Completion amongst Devine Gem, the Company, Mr. Wang and
Ms. Wang in respect of the assignment of all the rights and interests of Devine
Gem under each of the Loan Agreements to the Company;
Loan Covenants means each of the loan covenants in the agreed form to be entered
into prior to Completion between each of the Company and Mr. Wang and Ms. Wang
in respect of the assignment of the Loan Agreements pursuant to the Loan
Agreement Assignments;
LTWJi shall have the meaning given in Recital (B) and its details are set out in
Part C of Schedule 1;
Management Team means Mr. Ouyang Zhengyu [Name in Chinese], Ms. Miao Jing [Name
in Chinese] and Ms. Shi Yuqi [Name in Chinese] of LTWJi;
Mr. Wang means Mr. WANG Lei-lei ([Name in Chinese]);
Ms. Wang means Ms. WANG Xiu-ling, Anita ([Name in Chinese]);
Nasdaq means the Nasdaq National Market;
Option Agreements mean the exclusive share option agreements in the agreed form
to be entered into prior to Completion between the Company and each of Mr. Wang
and Ms. Wang, under which the Company has an exclusive option exercisable at any
time by the Company or its designated parties to purchase from each of Mr. Wang
and Ms. Wang all of his or her equity interest in LTWJi as and when permitted
under PRC law;
Part A Warranties means the representations and warranties set out in Part A of
Schedule 2 and Part A Warranty means any one of them;
Part A Warranty Claim means any claim for breach of a Part A Warranty;
Part B Warranties means the representations and warranties set out in Part B of
Schedule 2 and Part B Warranty means any one of them;
Part B Warranty Claim means any claim for breach of a Part B Warranty;
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Parties means the parties to this Agreement and Party means any of them;
Post-IPO Shares shall have the meaning given in clause 4.5(a);
Powers of Attorney means the powers of attorney in the agreed form to be
executed prior to Completion by Mr. Wang and Ms. Wang in favour of individuals
designated by the Subsidiary, under which Mr. Wang and Ms. Wang will give
irrevocable proxies to individuals designated by the Subsidiary to vote on all
corporate matters of LTWJi;
PRC means the People's Republic of China;
Properties means the properties of the Group, particulars of which are set out
in the Disclosure Letter;
Retained Group means the Vendor, any holding company from time to time of the
Vendor and any direct or indirect subsidiary from time to time of the Vendor or
any such holding company or any Company which is controlled by the Vendor or any
such holding company through any contractual arrangements (but excluding each
Group Company);
RMB or Renminbi means the lawful currency of the People's Republic of China;
Sale Share means one share of US$1.00 in the capital of the Company,
representing the entire issued share capital of the Company as at the date of
this Agreement and as at Completion;
Schedules means the Schedules to this Agreement and Schedule shall be construed
accordingly;
security interest means any security interest of any nature whatsoever
including, without limitation, any mortgage, charge, pledge, lien, assignment by
way of security or other encumbrance;
Subsidiary shall have the meaning given to it in Recital (C) and its details are
set out in Part B of Schedule 1;
subsidiary and subsidiaries shall be construed in accordance with sections 2(4)
to 2(6) of the Companies Ordinance;
Tax or Taxation means all forms of taxation and statutory, governmental,
supra-governmental, federal, provincial, state, local governmental or municipal
impositions, duties, contributions and levies by whatever name called whether in
Hong Kong or elsewhere (including, without limitation, profits tax, salaries
tax, interest tax, property tax, estate duty, customs and other import duties,
capital duty, stamp duty, fees payable on any increase in the authorised or
issued share capital of a company or on the allotment of any shares in a
company, and all taxes on gross or net income, profits or gains, receipts,
sales, use, occupation, franchise, personal property) and any interest on any
such amounts and any penalties, fines or charges imposed in relation to such
amounts;
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Tax Authority has the meaning given to it in the Tax Indemnity;
Tax Indemnity means the deed of indemnity in the agreed form to be executed by
the Vendor and Devine Gem in favour of the Company, LTWJi and the Purchaser at
Completion;
TOM Allotment Date shall have the meaning given in clause 4.5(b);
TOM Cash Consideration shall have the meaning given in clause 4.5(b);
TOM Consideration Shares shall have the meaning given to it in clause 4.5(b);
TOM Shares means shares of HK$0.10 each in the capital of TOM;
TOM Trading Day means any one day on which the TOM Shares are traded on GEM;
Transaction Documents means this Agreement, the Disclosure Letter, the Tax
Indemnity and each of the Contractual Arrangements;
US$ or US dollars means the lawful currency of the United States of America;
US GAAP means the accounting principles generally accepted in the United States
of America;
Warranties means the Part A Warranties and the Part B Warranties and Warranty
shall be construed accordingly; and
Warranty Claim means any Part A Warranty Claim or Part B Warranty Claim.
1.2 In this Agreement, unless the context otherwise requires:
(a) references to persons shall include individuals, bodies corporate (wherever
incorporated), unincorporated associations and partnerships;
(b) the headings are inserted for convenience only and shall not affect the
construction of this Agreement;
(c) any reference to an enactment is a reference to it as from time to time
amended, consolidated or re-enacted (with or without modification) and
includes all instruments or orders made under such enactment;
(d) any statement qualified by the expression to the best knowledge of the
Vendor or so far as the Vendor is aware or any similar expression shall be
deemed to include an additional statement that it has been made after due
and careful enquiry and shall be deemed also to include the knowledge of
each member of the Management Team;
(e) any reference to a document in the agreed form is to the form of the
relevant document agreed between the Parties and for the purpose of
identification initialled by each of them or on their behalf (in each case
with such
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amendments as may be agreed by or on behalf of the Vendor and the
Purchaser);
(f) references to any Hong Kong legal term for any action, remedy, method of
judicial proceeding, legal document, legal status, court, official or any
other legal concept shall, in respect of any jurisdiction other than Hong
Kong, be deemed to include the legal concept which most nearly approximates
in that jurisdiction to the Hong Kong legal term.
1.3 The Schedules and the recitals to this Agreement form part of this
Agreement.
1.4 For the purpose of this Agreement:
(a) the conversion rate between HK$ and RMB shall be HK$1 = RMB1.0638;
(b) the conversion rate between US$ and HK$ shall be US$1 = HK$7.8; and
(c) the conversion rate between US$ and RMB shall be US$1 = RMB8.29764.
2. Conditions to Completion
2.1 Completion shall be conditional upon the following conditions having been
fulfilled or waived in accordance with this Agreement:
(a) the passing by the board of directors of each of the Purchaser, Holdco and
TOM of resolutions approving this Agreement and the Tax Indemnity and the
transactions contemplated under this Agreement;
(b) to the extent required under the GEM Listing Rules, the approval by the
independent shareholders of TOM voting by way of poll at a general meeting
of this Agreement and the Tax Indemnity and the transactions contemplated
under this Agreement including, without limitation, the allotment and issue
by the Purchaser of the Consideration Shares and (if necessary) any
allotment and issue by TOM of the TOM Consideration Shares;
(c) the Beijing Mobile Wireless IVR Services Agreement being renewed or being
replaced by a new contract between LTWJi and Beijing Mobile (or another
subsidiary of China Mobile) which, in each case, is (in the Purchaser's
reasonable opinion) on substantially the same terms (including in respect
of duration) and in respect of substantially the same subject matter;
(d) each of the following documents having been duly executed by each of the
parties thereto (and certified copies thereof having been delivered to the
Purchaser):
(i) the Business Operating Agreement;
(ii) the Equity Pledge Agreements;
(iii) the Loan Agreement Assignments;
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(iv) the Loan Covenants;
(v) the Option Agreements;
(vi) the Domain Name Transfer Agreement;
(vii) the Domain Name Licence Agreement;
(viii) the Exclusive Technical and Consultancy Services Agreement; and
(ix) the Powers of Attorney,
together, the Contractual Arrangements and each a Contractual Arrangement;
(e) certified copies of each of the following documents having been delivered
by the Vendor to the Purchaser:
(i) the duly executed Loan Agreements; and
(ii) a duly executed deed of termination and release (in the agreed
form) in respect of each of the Devine Contractual
Arrangements;
(f) a deed of waiver and release from Devine Gem in favour of LTWJi, the
Subsidiary and the Company irrevocably waiving and releasing all claims
that it may have against any of LTWJi, the Subsidiary and the Company;
(g) a release from Devine Gem in favour of Ms. Wang and Mr. Wang irrevocably
waiving and releasing them from all claims that it may have against them
and all obligations that they may owe the Vendor (other than in respect of
the Loan Agreements, the benefit of which is to be assigned to the Company
prior to Completion);
(h) legal opinions being delivered to the Purchaser in the agreed form and in
terms satisfactory to the Purchaser by:
(i) the Vendor's Liberian counsel, Messrs. Liberia Law Services,
PLLC, (together with a certificate of good standing issued by
the Liberian Corporate Registry, LISCR) as to the due
incorporation of the Vendor and confirming that the terms of
this Agreement are legally valid and binding upon the Vendor
and enforceable by the Purchaser against the Vendor; and
(ii) the Company's PRC counsel, Commerce and Finance Law Offices,
confirming (inter alia) that the terms of each of the
Contractual Arrangements both taken individually and together
as a whole do not violate any applicable PRC law, rules,
regulations or public policy and are legally valid and binding
upon the parties thereto, do not violate any applicable PRC
laws or regulations and enforceable by the Company against the
relevant counterparties;
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(i) new contracts of employment for a term of not less than three (3) years
from the date of Completion being entered into on terms satisfactory to the
Purchaser between LTWJi and each of the Management Team (and certified
copies thereof being delivered to the Purchaser);
(j) the results of the legal and financial due diligence carried out by the
Purchaser on each Group Company being satisfactory to the Purchaser;
(k) any Disclosure Letter Supplement which may be delivered by the Vendor to
the Purchaser within the period of two weeks from the date of this
Agreement being in a form acceptable to the Purchaser (in its absolute
discretion), such acceptance of the Purchaser to be signified only by the
Purchaser's written acknowledgement of acceptance of the matters set out in
such letter (and mere acknowledgement of receipt shall not be sufficient);
(l) there not having occurred, and there being no fact, matter or circumstance
(that exists on or before the date of this Agreement or arises or occurs on
or before the Completion Date) which could, in the reasonable opinion of
the Purchaser, give rise to any material breach of clause 3;
(m) none of the representations and warranties of the Vendor contained herein
being untrue, inaccurate or misleading in any material respect and there
being no change of circumstances such that, if repeated at any time prior
to Completion (including, for the avoidance of doubt, on the date hereof,
and the Completion Date) by reference to the facts and circumstances then
existing, any such representations and warranties would be breached or
untrue or inaccurate or misleading in any material respect;
(n) none of the current Business Agreements having terminated or expired and
not having been immediately renewed or replaced by a further agreement
between LTWJi and Beijing Mobile (or another subsidiary of China Mobile)
which is/are (in the Purchaser's reasonable opinion) on substantially the
same terms (including in respect of duration) and in respect of
substantially the same subject matter; and
(o) there not having occurred any event or events beyond the Company's or the
Purchaser's control, after making all reasonable efforts to prevent its or
their occurrence, as a result of which LTWJi ceases to hold all necessary
Licences or it ceases to have the benefit of any Business Agreement that is
required for it to carry on the Business in the ordinary course.
2.2 Each of the Vendor and the Purchaser undertakes to use all reasonable
endeavours to ensure that the Conditions are fulfilled as soon as reasonably
practicable after the date of this Agreement and in any event by 28 October 2003
unless otherwise agreed in writing by the Vendor and the Purchaser.
2.3 The Purchaser shall notify the Vendor in writing as soon as all of the
Conditions have been fulfilled to the satisfaction of the Purchaser or waived.
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2.4 The Purchaser shall be entitled in its absolute discretion, by written
notice to the Vendor, to waive any or all of the Conditions (other than the
Conditions set out in clauses 2.1(b) or (k)) either in whole or in part.
2.5 If any of the Conditions has not been fulfilled (or waived in accordance
with clause 2.4) on or before the date specified in clause 2.2, this Agreement
(other than clauses 1, 16, to 23, 26 and 27) shall automatically terminate and
neither Party shall have any claim of any nature whatsoever against the other
Party under this Agreement (save in respect of its accrued rights arising from
any prior breach of this Agreement or in relation to clauses 1, 16, to 23, 26
and 27).
3. Pre-Completion undertakings
3.1 Pending Completion, the Vendor shall ensure that:
(a) each Group Company shall carry on its business in the ordinary and usual
course and shall not make (or agree to make) any payment other than routine
payments in the ordinary and usual course of business;
(b) each Group Company shall take all reasonable steps to preserve and protect
its assets and to preserve and retain the goodwill of each of their
businesses (including the existing relationships with customers and
suppliers and in particular under the Business Agreements);
(c) subject to clause 20, the Purchaser's representatives shall be allowed,
upon reasonable notice and during normal business hours, access to (i) the
books and records of each Group Company (including, without limitation, all
statutory books, minute books, leases, contracts, supplier lists and
customer lists) together with the right to take copies; and (ii) the
premises used by or under the management of, each Group Company on such
terms as are agreed between the Vendor and the Purchaser;
(d) no member of the Group or the Retained Group shall do, allow or procure any
act or omission which would constitute or give rise to a breach of any
Warranty if the Warranties were to be repeated on or at any time before
Completion by reference to the facts and circumstances then existing as if
references to the date of this Agreement were references to the relevant
date;
(e) prompt disclosure is made to the Purchaser of all relevant information
which comes to the notice of the Vendor in relation to any fact or matter
(whether existing on or before the date of this Agreement or arising
afterwards) which may constitute a breach of any Warranty if the Warranties
were to be repeated on or at any time before Completion by reference to the
facts and circumstances then existing;
(f) subject to clause 5.1, no dividend or other distribution of any Group
Company's assets to its members, whether in cash or otherwise, shall be
declared, paid or made;
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(g) no share or loan capital shall be created, allotted or issued or undertaken
or agreed to be created, allotted or issued by any Group Company and no
option over or other right to subscribe for any share or loan capital or
other security is granted by any Group Company;
(h) no new borrowings of any kind are created by any Group Company and no
existing borrowings of any kind of any Group Company are increased;
(i) all transactions between each Group Company and members of the Retained
Group shall be on arm's length terms;
(j) the amount of any Intra-Group Indebtedness owed by each Group Company as at
the date of this Agreement shall not be increased and no new Intra-Group
Indebtedness shall be created into by any Group Company; and
(k) no action is taken by any member of the Group or the Retained Group which
is inconsistent with the provisions of this Agreement or the consummation
of the transactions contemplated under this Agreement.
3.2 Pending Completion, the Vendor shall ensure that each Group Company
consults fully with the Purchaser in relation to any matters which may have a
material effect upon the Group.
4. Sale and purchase of the Sale Share and consideration
4.1 Subject to and in accordance with the terms of this Agreement, the Vendor
shall sell and transfer and the Purchaser shall purchase the Sale Share with
effect from Completion. The Sale Share shall be sold with all rights attaching
to it, including the rights to receive all distributions and dividends as
declared, made or paid in respect of the Sale Share on or after Completion.
4.2 The Vendor covenants and warrants that it has and will at Completion have
the right to sell and transfer full legal and beneficial ownership in the Sale
Share free from all security interests, options, equities, claims or other third
party rights (including rights of pre-emption) of any nature whatsoever.
4.3 The consideration for the Sale Share shall comprise the Initial
Consideration and the Earn-Out Consideration.
4.4 The Initial Consideration shall be:
(a) the sum of US$1 which shall be paid in cash at Completion to the Vendor (or
as it may direct in writing), whose receipt shall be absolute discharge
thereof (the Initial Cash Consideration); and
(b) if Holdco Shares are listed on GEM or any other recognised stock exchange
(Listed) at any time on or before 31 December 2004, the sum of
US$18,500,000 which shall be satisfied by the issue and allotment to the
Vendor at any time prior to, or on the date which is six months' after, the
commencement of trading of Holdco Shares on GEM or such other recognised
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stock exchange (provided that Completion has taken place) of such number of
Holdco Shares (credited as fully paid) as when multiplied by the IPO Price
is equal to US$18,500,000 (the IPO Shares), the certificates representing
such IPO Shares to be delivered by the Purchaser to the Escrow Agent to be
held by the Escrow Agent in accordance with clause 4.8, subject to
adjustment for claw-back pursuant to clause 4.6.
For the avoidance of doubt, if Holdco Shares are not Listed at any time on or
before 31 December 2004, the Initial Consideration shall comprise only the
Initial Cash Consideration.
4.5 The Earn-Out Consideration shall be the amount by which the Earn-Out Amount
exceeds the Initial Consideration, where the Earn-Out Amount is an amount equal
to:
(i) 7.7 times the 2004 Net Profit; or
(ii) in the event that the 2004 Net Profit is less than an amount equal to 1.2
times the 2003 Net Profit (for the purpose of this sub-paragraph, the
minimum amount of the 2003 Net Profit will be RMB40,000,000), an amount
equal to 6 times the 2004 Net Profit,
provided that the maximum amount of the Earn-Out Amount will not be more than
US$150,000,000. The Earn-Out Consideration will be satisfied in the following
manner:
(a) if Holdco Shares are Listed at any time on or before 31 December 2004, by
the issue and allotment to the Vendor within 30 days after the 2004 Report
Date (the Holdco Allotment Date) of such number of Holdco Shares (credited
as fully paid) as when multiplied by an issue price equal to the average
closing price per Holdco Share as quoted on GEM or, if Holdco Shares are
not so listed, any other recognised stock exchange for the thirty (30)
Holdco Trading Days immediately preceding the 2004 Report Date (the Holdco
Average Closing Price) is equal to the amount by which 50% of the Earn-Out
Amount exceeds US$18,500,001 (the Post-IPO Shares, and together with the
IPO Shares, the Consideration Shares), PROVIDED THAT if the aggregate
number of Post-IPO Shares to be so issued and allotted and the Holdco
Shares already owned by the Vendor (and parties acting in concert with it
(if any)) as at the Holdco Allotment Date would be equal to or more than
the GO Threshold:
(i) the number of the Post-IPO Shares shall be equal to the
difference between: ('a') such number of Holdco Shares
representing 1.0% less than the GO Threshold of the then issued
share capital of Holdco; and ('b') the number of Holdco
Shares already owned by the Vendor (and parties acting in
concert with it (if any)) as at the Holdco Allotment Date; and
(ii) the balance (if any) of such 50% of the Earn-Out Amount shall
be paid in cash to the Vendor (or as it may direct in writing),
whose receipt
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shall be absolute discharge thereof, (the Holdco Cash
Consideration); and
(b) if Holdco Shares are not Listed at any time on or before 31 December 2004,
by the issue and allotment to the Vendor (or its nominee(s)) within 30 days
after the 2004 Report Date (the TOM Allotment Date) of such number of TOM
Shares (credited as fully paid) as when multiplied by an issue price equal
to the average closing price per TOM Share as quoted on GEM for the thirty
(30) TOM Trading Days immediately preceding the 2004 Report Date is equal
to 50% of the Earn-Out Amount less US$1 (the TOM Consideration Shares),
PROVIDED THAT if the aggregate number of the TOM Consideration Shares to be
so issued and allotted and the TOM Shares already owned by the Vendor (and
parties acting in concert with it (if any)) as at the TOM Allotment Date
would be equal to or more than the GO Threshold then:
(i) the number of the TOM Consideration Shares to be issued and
allotted to the Vendor (or its nominee(s)) shall be equal to
the difference between: ('a') such number of TOM Shares
representing 1.0% less than the GO Threshold of the then issued
share capital of TOM; and ('b') the number of TOM Shares
already owned by the Vendor (and parties acting in concert with
it (if any)) as at the TOM Allotment Date; and
(ii) the balance of such 50% of the Earn-Out Amount less US$1 (the
TOM Cash Consideration) shall be paid in cash to the Vendor (or
as it may direct in writing), whose receipt shall be absolute
discharge thereof; and
(c) whether or not Holdco Shares are Listed at any time on or before 31
December 2004, by the payment of the remaining 50% of the Earn-Out
Consideration (the Cash Consideration) in cash to the Vendor (or as it may
direct in writing), whose receipt shall be absolute discharge thereof, on
the Holdco Allotment Date or the TOM Allotment Date (as the case may be).
4.6 If Holdco Shares are Listed at any time on or before 31 December 2004 and
50% of the Earn-Out Amount is less than the Initial Consideration (being
US$18,500,001), then:
(a) the Initial Consideration shall be reduced by the difference between 50% of
the Earn-Out Amount and the Initial Consideration (the Claw-Back); and
(b) the Purchaser and the Vendor shall give written instructions on or before
the 2004 Report Date to the Escrow Agent to hold such number of IPO Shares
as would be equal to the Claw-Back at the Holdco Average Closing Price to
the order of Holdco as from the 2004 Report Date and to sell all or any
such IPO Shares in accordance with applicable laws, rules and regulations
at any price agreed by the Purchaser or Holdco through any broker appointed
by the Purchaser or Holdco (in its absolute discretion) in the market or in
any other manner as the Purchaser or Holdco in its absolute discretion may
determine and the proceeds of any such sale(s) shall be paid (net of
expenses and
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commissions) to Holdco or the Purchaser (or as either may direct) (and the
Vendor shall not be concerned as to the application of such proceeds).
4.7 The Consideration Shares or, as the case may be, the TOM Consideration
Shares to be issued pursuant to clauses 4.4 and/or 4.5 (as the case may be)
shall rank pari passu and form a single class with the existing ordinary shares
in the capital of Holdco or, as the case may be, TOM and shall carry the right
to receive in full all dividends declared, made or paid by reference to a record
date after the date of allotment.
4.8 The IPO Shares (represented by their share certificates) shall immediately
upon issue be deposited by the Vendor in escrow with the Escrow Agent (on terms
acceptable to the Hong Kong Stock Exchange and the Purchaser) until the Business
Day immediately after Final Payment Date, subject to clause 4.6(b). The Vendor
shall deposit 10 instruments of transfer and contract notes in respect of the
IPO Shares duly executed by the Vendor in blank with the Escrow Agent at the
time of their issue. The Escrow Agent shall hold the certificates for the IPO
Shares (together with the executed blank instruments of transfer and contract
notes) in safe custody for the Vendor and the Purchaser in a designated escrow
account in accordance with the provisions of clause 4.9.
4.9 Subject always to clause 4.10, the IPO Shares shall be held by the Escrow
Agent on the basis that:
(a) the Vendor shall be entitled to exercise voting rights attaching to, and
receive any dividends or distributions in respect of, such IPO Shares
deposited with the Escrow Agent;
(b) subject to clause 4.6(b), the IPO Shares shall be held by the Escrow Agent
until the Business Day after the Final Payment Date (when the balance of
such IPO Shares, after any transfer to escrow in accordance with clause
4.9(c), shall be released to the Vendor) and any such IPO Shares shall only
be released prior to that date if the Escrow Agent is directed by the
Vendor and the Purchaser by joint written notice to do so;
(c) notwithstanding any other provision in this Agreement to the contrary, if
the Escrow Agent receives a written notice from the Purchaser that it has
claim(s) for breach of any Part B Warranties or any claim in respect of any
breach of clause 5.2 and that the deductions and deposits in escrow made by
the Purchaser in accordance with clauses 4.12 and 4.13 are insufficient to
meet such claims (assuming they become payable in full), the Vendor agrees
that the Escrow Agent shall cause certificates (together with the related
instruments of transfer) representing such number of IPO Shares as is equal
to the shortfall (on the basis of the average price per Holdco Share for
the previous 30 trading days) to be transferred into and held as Escrow
Shares on the basis of the escrow arrangements set out in clause 4.13 from
the Business Day after the Final Payment Date; and
(d) if an Event of Default occurs or is in existence and the Purchaser gives a
written notice to the Vendor under clause 8.3 electing for rescission of
this
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Agreement, the Purchaser and Holdco shall each have the right exercisable
at any time thereafter to instruct the Escrow Agent to sell all or any IPO
Shares at any price agreed by the Purchaser or Holdco through any broker
appointed by the Purchaser or Holdco (in their absolute discretion) in the
market or in any other manner as the Purchaser or Holdco in their absolute
discretion may determine and all proceeds of any such sale(s) shall be paid
(net of expenses and commissions) to Holdco (or as it may direct) (and the
Vendor shall neither be concerned as to the application of such sale
proceeds nor liable for any loss or damages incurred with respect to such
sale).
4.10 In the event that any Consideration Shares are issued pursuant to clause
4.4 or 5, such Consideration Shares shall be issued to the Vendor, and the
Vendor hereby agrees to take the Consideration Shares, subject to the following
restrictions:
(a) the Vendor will, at any time during the period of 12 months after the date
on which dealings in the Holdco Shares commence on GEM: (i) immediately
inform the Purchaser of any pledges or charges of any shares or other
securities of Holdco beneficially owned by it and the number of such shares
or other securities of Holdco so pledged or charged; and (ii) immediately
inform the Purchaser of any indication received by it, either verbal or
written, from the pledgee or chargee of any shares or other securities of
Holdco pledged or charged that such shares or other securities of Holdco
will be disposed of; and
(b) except with the prior consent of the Purchaser and other than in compliance
with the requirements of the Hong Kong Stock Exchange, the GEM Listing
Rules and the rules and regulations of any other relevant stock exchange:
(i) at any time on or before the date falling six months after the
Final Payment Date (the Lockup Date), the Vendor (or its
nominee(s)) shall not sell, dispose of, transfer or assign any
of its direct or indirect interest in (nor enter into any
agreement to sell, dispose of, transfer or assign its direct or
indirect interest in) (collectively, Sell) any of the
Consideration Shares; and
(ii) after the Lockup Date, the Vendor (or its nominee(s)) shall not
Sell more than 1% of the aggregate number of the Consideration
Shares on any one Holdco Trading Day (the Holdco Daily Limit).
For the avoidance of doubt, all or any part of any unused
Holdco Daily Limit in respect of any one Holdco Trading Day
shall not be carried forward to any other Holdco Trading Day
and/or accumulated with the Holdco Daily Limit in respect of
any other Holdco Trading Day.
4.11 In the event that the TOM Consideration Shares are issued pursuant to
clause 4.5(b), the TOM Consideration Shares shall be issued to the Vendor, and
the Vendor hereby agrees to take the TOM Consideration Shares, subject to the
restrictions set out in this clause 4.11. Except with the prior consent of the
Purchaser:
(a) at any time on or before the Lockup Date, the Vendor (or its nominee(s))
shall not Sell any of the TOM Consideration Shares; and
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(b) after the Lockup Date, the Vendor (or its nominee(s)) shall not Sell more
than 1% of the aggregate number of the TOM Consideration Shares on any one
TOM Trading Day (the TOM Daily Limit). For the avoidance of doubt, all or
any part of any unused TOM Daily Limit in respect of any one TOM Trading
Day shall not be carried forward to any other TOM Trading Day and/or
accumulated with the TOM Daily Limit in respect of any other TOM Trading
Day.
4.12 Subject to clause 12, if and to the extent the Purchaser makes any Part B
Warranty Claim or any claim in respect of any breach of clause 5.2 (a Claim)
which is either agreed between the Vendor and the Purchaser or determined by
binding arbitration or by a judgment of the court (Determined) prior to the
Final Payment Date, the Purchaser shall be entitled to deduct from and set off
against any payments which it would otherwise be required to make pursuant to
clause 4 (whether in the form of cash or TOM Shares or Holdco Shares) the
aggregate amount of such agreed or Determined Claim.
4.13 Subject to clause 12, if and to the extent the Purchaser makes any Claims
which are not agreed between the Purchaser and the Vendor or Determined prior to
the Final Payment Date, the Purchaser shall:
(a) on the Final Payment Date deduct from and set off against the payment which
it would otherwise be required to make pursuant to clause 4 (whether in the
form of cash or TOM Shares or Holdco Shares) the aggregate amount of such
Claims; and
(b) deposit:
(i) on the Final Payment Date such amount (not being more than the
aggregate amount of the Cash Consideration and any Holdco Cash
Consideration or TOM Cash Consideration (as such aggregate
amount may have been reduced pursuant to clause 4.12)) as
represents the aggregate amount of such Claims (the Cash Escrow
Amount) into a bank account to be opened in the joint names of
the Purchaser and the Vendor (the Cash Escrow Account); and
(ii) where the aggregate amount of such Claims exceeds the Cash
Escrow Amount, deposit in the case of Consideration Shares on
the second Business Day after the Final Payment Date and in the
case of TOM Consideration Shares, on the Final Payment Date
share certificates in respect of such number of Consideration
Shares or TOM Consideration Shares (as the case may be) in the
name of the Vendor as is equivalent to the amount by which the
aggregate amount of Claims exceeds the Cash Escrow Amount at
the same issue price per share as is used in clause 4.5(a)
(rounded down to the nearest board lot) (the Escrow Shares)
with the Escrow Agent on terms that such shares may only be
released from the custody of the Escrow Agent with the prior
written authorisation of both the Vendor and the Purchaser
pending such Claim(s) being agreed between the Purchaser and
the Vendor or Determined. The Vendor shall promptly deliver
such number of duly
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executed in blank instruments of transfer in respect of the
Escrow Shares to the Escrow Agent as it may reasonably request.
In the event of the amount of any such Claim being agreed between the Purchaser
and the Vendor or Determined, the Purchaser and the Vendor shall immediately
upon such agreement or determination issue joint written instructions to pay the
amount of such Claim from the Cash Escrow Account to the Purchaser. If and to
the extent that there are insufficient funds in the Cash Escrow Account to meet
any Claim which has been agreed or Determined, the Purchaser and the Vendor
shall give written instructions to the Escrow Agent to either sell in the market
(using such broker as the Purchaser and the Vendor shall agree, and failing
agreement, shall be Holdco's nominated broker) or in any other manner agreed
between the Vendor and the Purchaser (at a price per share which is no more than
a 5% discount from the average closing price of the shares as quoted on GEM or
such other relevant stock exchange for the previous 30 trading days) such number
of Escrow Shares as are required to satisfy the shortfall and the proceeds of
such sale (less any expenses and commissions) shall be paid by the Escrow Agent
to and for the benefit the Purchaser. To the extent that there is any balance of
cash remaining in the Cash Escrow Account or any Escrow Shares remaining in the
Shares Escrow Account after each and every Claim has been agreed between the
Purchaser and the Vendor or Determined and all relevant payments have been made
to the Purchaser, the Purchaser and the Vendor shall procure the release of such
cash balance and Escrow Shares to the Vendor. The Purchaser and the Vendor agree
to sign all such documents as may be reasonably necessary to effect the relevant
releases and disposals of Escrow Shares at the appropriate time under this
clause (including all such documents as the Escrow Agent may reasonably request
for the purpose of transferring any released Escrow Shares to any person).
4.14 Subject always to the connected transaction requirements of the GEM Listing
Rules (if applicable), the Vendor hereby agrees that, if following a written
request from either Holdco (if Holdco Shares are listed on GEM or any other
recognised stock exchange by 31 December 2004) or TOM (if Holdco Shares are not
so listed) (the Borrower), made at any time during the period of 10 Business
Days immediately following the Final Payment Date, the Vendor will advance to
the Borrower, by way of loan, a principal sum equal to 50% of the amount which
represents the Cash Consideration actually received by the Vendor at that time
less the aggregate amount of any Claims which have not been deducted by the
Purchaser in accordance with the provisions of either clauses 4.12 or 4.13, upon
the principal terms set out in the loan term sheet in Schedule 5. Holdco and the
Borrower agree to use their best endeavours to agree and sign definitive legal
documentation (incorporating normal commercial terms) to reflect the terms of
such term sheet as soon as possible after the giving by the Borrower of its
written request hereunder.
5. Economic benefits of LTWJi
5.1 The Vendor agrees and acknowledges that prior to Completion, the Purchaser
shall be entitled to enjoy all of the economic benefits of the Group under the
Devine Contractual Arrangements (prior to their termination as contemplated
herein), the Contractual Arrangements (when entered into) and the Loan
Agreements with effect from the date of this Agreement (Economic Benefits)
provided that, subject to
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clause 5.2, the Vendor shall be entitled to distribute the retained earning of
the Group accumulated prior to the date of this Agreement.
5.2 The Vendor hereby warrants and undertakes to the Purchaser that as at the
date of this Agreement, LTWJi has a minimum of RMB5,000,000 in cash (free of
encumbrances) to satisfy its working capital and capital expenditure
requirements.
6. Completion
6.1 Completion of the sale and purchase of the Sale Share shall take place at
the offices of the Purchaser's solicitors, Freshfields Bruckhaus Deringer, 11th
Floor, Two Exchange Square, Central, Hong Kong, on the Completion Date. All of
the events referred to in the clauses 6.2 to 6.5 shall take place at Completion.
6.2 The Vendor shall deliver (or cause to be delivered) to the Purchaser:
(a) a duly executed instrument of transfer in respect of the Sale Share in
favour of the Purchaser or such person as the Purchaser may nominate and
the share certificate for the Sale Share in the name of the relevant
transferor and any power of attorney under which any transfer is executed
on behalf of the Vendor;
(b) a counterpart of the original of the Tax Indemnity duly executed by the
Vendor and each Group Company which is a party to it;
(c) in Hong Kong, the Certificates of Incorporation, Common Seal, Share
Register and Share Certificate Book (with any unissued share certificates)
and all minute books and other statutory books (which shall be written-up
to but not including the date of Completion) of the Company;
(d) in the PRC, the statutory books of each of the Subsidiary and LTWJi (which
shall be written up to but not including the Completion Date), the approval
reply and the approval certificate issued by the relevant Foreign Economic
and Trade Commission (and any certificate relating to any change of name if
any), the current business licence (and any previous business licences),
each of their chops and any other documents issued by any relevant PRC
government authority relating to the Subsidiary and/or LTWJi;
(e) all such other documents (including any necessary waivers of pre-emption
rights or other consents) as may be required to enable the Purchaser and/or
its nominee to be registered as the holder of the Sale Share;
(f) letters of resignation under seal in the agreed form executed by each of
the directors of each Group Company who the Purchaser requests resign at
Completion;
(g) if requested by the Purchaser, a letter of resignation in the agreed form
by the secretary of the Company;
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(h) an extract of the minutes of the meeting of the directors of each Group
Company authorising the execution by each Group Company of the Tax
Indemnity (such extract being certified by a director of each respective
Group Company as being a true copy of the original); and
(i) a certified true copy of the resolutions of the board of directors of the
Vendor approving the execution by the Vendor of this Agreement and the
transactions contemplated under this Agreement.
6.3 The Vendor shall procure the passing of resolutions of the Board by which
the following business is transacted:
(a) the registration of the transfer of the Sale Share referred to in clause
6.2(a) is approved;
(b) the execution of the Tax Indemnity by the Company is approved;
(c) (if relevant) the resignations referred to in each of clauses 6.2(f) and
(g) are accepted; and
(d) such persons as are nominated by the Purchaser are appointed as directors
and/or secretary of each Group Company.
6.4 The Vendor shall procure a meeting of the board of directors of each of the
Group Companies at which it shall be resolved that:
(a) the execution of the Tax Indemnity by each of the Group Companies is
approved;
(b) (if relevant) the resignations referred to in each of clauses 6.2(f) and
(g) are accepted; and
(c) such persons as the Purchaser may nominate be appointed as directors in
accordance with relevant provision of the articles of association of each
of the Group Companies.
6.5 The Purchaser shall deliver (or cause to be delivered) to the Vendor:
(a) a counterpart of the original of the Tax Indemnity duly executed by the
Purchaser;
(b) a certified true extract of the resolutions of the board of directors of
the Purchaser approving the execution by the Purchaser of this Agreement
and the transactions contemplated under this Agreement; and
(c) a certified true extract of the resolutions of the shareholders of TOM
referred to in clause 2.1(b).
6.6 If the Vendor fails or is unable to perform any of its obligations required
to be performed by it on or before Completion, the Purchaser shall not be
obliged to
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complete the Acquisition and may, in its absolute discretion, by written notice
to the Vendor at the time Completion would otherwise be due to take place:
(a) terminate this Agreement (other than clauses 1, 16 to 23, 26 and 27), and
neither Party shall have any claim of any nature whatsoever against the
other Party under this Agreement (save in respect of any rights and
liabilities of the Parties which have accrued before termination or in
relation to any of clauses 1, 16 to 23, 26 and 27.); or
(b) elect to defer the Completion by not more than ten (10) Business Days to
such other date as it may specify in such notice, in which event the
provisions of this clause 6.6(b) shall apply, mutatis mutandis, if the
Vendor fails or is unable to perform any of its obligations on such other
date; or
(c) elect to complete the Acquisition on that date and specify a later date
(not being more than 28 days after the Completion Date) on which the Vendor
shall be obliged to complete its outstanding obligations.
7. The 2004 Audited Accounts
7.1 The Purchaser shall use all reasonable efforts to procure that audited
consolidated accounts of the Company for the year ending 31 December 2004 (the
Draft 2004 Audited Accounts) are prepared in accordance with the provisions of
this clause 7 as soon as reasonably practicable after that date. The Draft 2004
Audited Accounts shall be prepared in accordance with US GAAP and the Purchaser
shall procure that the Company adopts the principal accounting policies set out
in Schedule 3.
7.2 Following the preparation of the Draft 2004 Audited Accounts, the Purchaser
shall submit or shall procure that the Company submits them to the Vendor.
7.3 The Vendor shall notify the Purchaser within 30 days of receipt of the
Draft 2004 Audited Accounts whether or not it accepts them for the purposes of
this Agreement.
7.4 If the Vendor notifies the Purchaser that it does not accept the Draft 2004
Audited Accounts:
(a) it shall set out its reasons for such non-acceptance and specify the
adjustments which, in its opinion, should be made to the Draft 2004 Audited
Accounts in order to comply with the requirements of this Agreement; and
(b) the Parties shall use all reasonable endeavours (in conjunction with the
Company's auditors) to meet and discuss the objections of the Vendor and to
reach agreement upon the adjustments (if any) required to be made to the
Draft 2004 Audited Accounts.
7.5 If the Vendor is satisfied with the Draft 2004 Audited Accounts (either as
originally submitted or after adjustments agreed between the Vendor and the
Purchaser) or if the Vendor fails to notify the Purchaser within the 30 day
period
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referred to in clause 7.3, the Draft 2004 Audited Accounts (incorporating any
agreed amendments) shall constitute the 2004 Audited Accounts for the purposes
of this Agreement.
7.6 If the Vendor and the Purchaser do not reach agreement within 30 days of
the Vendor's notice of non-acceptance under clause 7.4, the matters in dispute
shall be referred, on the application of either the Vendor or the Purchaser, for
determination by one of the following internationally recognised firms of
accountants which is not already appointed by the Company as its auditors
selected by the Vendor: (i) PricewaterhouseCoopers; (ii) Deloitte Touche
Tohmatsu; (iii) Ernst & Young; and (iv) KPMG. The following terms of reference
shall apply:
(a) the Purchaser and the Vendor shall each promptly prepare a written
statement on the matters in dispute which (together with the relevant
documents) shall be submitted to such independent firm for determination;
(b) in giving such determination, the firm shall state what adjustments (if
any) are necessary to the Draft 2004 Audited Accounts in respect of the
matters in dispute in order to comply with the requirements of this
Agreement;
(c) any such firm shall act as an expert and not as an arbitrator in making any
determination which shall be final and binding on the Purchaser and the
Vendor; and
(d) the expenses of any such determination shall be borne between the Purchaser
and the Vendor in such proportions as the firm shall in its discretion
determine.
For the avoidance of doubt, the Company shall not be required to appoint the
internationally recognised firm of accountants appointed pursuant to this clause
7.6 as the Company's auditors.
7.7 If the Purchaser and the Vendor reach (or pursuant to clause 7.5 are deemed
to reach) agreement on the 2004 Audited Accounts or the 2004 Audited Accounts
are finally determined at any stage in the procedures set out in this clause
7.7, the 2004 Audited Accounts as so agreed or determined shall be final and
binding upon the Purchaser and the Vendor.
8. Events of Default and reversal of Acquisition
8.1 An Event of Default shall mean:
(a) the occurrence of any event or events beyond the Company's or the
Purchaser's control, after making all reasonable efforts to prevent its or
their occurrence, as a result of which LTWJi ceases to hold all necessary
Licence(s) or it ceases to have the benefit of any Business Agreements that
is required for it to carry on the Business in the ordinary course; and/or
(b) any breach or alleged breach of any of the Part A Warranties.
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8.2 The Vendor and the Purchaser undertake to each other that they will, on
becoming aware (whether before or after Completion) of the occurrence of any
Event of Default promptly inform the other of the same.
8.3 If, at any time during the period between the date of this Agreement and
the Final Payment Date (both dates inclusive) an Event of Default occurs or is
in existence, the Purchaser may, in its absolute discretion, give written notice
to the Vendor that this Agreement is rescinded (and such rescission shall take
place automatically upon the Purchaser giving such written notice, such date
being the date of rescission) and each of the Parties shall do and/or procure to
be done all such acts and things as are necessary to put each other Party back
into the position it would have been in if this Agreement had never been entered
into, including (without limitation) the following actions:
(a) subject to the obtaining of all necessary consents, waivers and approvals,
the Purchaser shall transfer the legal and beneficial ownership of the Sale
Share and any other issued capital in the Company (free from all security
interests, options, equities, claims or other third party rights (including
rights of pre-emption) back to the Vendor (or its nominee) at nominal
consideration;
(b) the Vendor shall refund to the Purchaser (or as it may direct in writing)
all of the Initial Cash Consideration;
(c) if any IPO Shares have been issued, the Vendor and the Purchaser and Holdco
shall be entitled to instruct the Escrow Agent to sell such IPO Shares in
accordance with clause 4.9(d) and, following such sale, pay the proceeds of
such sale (net of any expenses and commissions) to Holdco (or as it may
direct);
(d) the Purchaser shall:
(i) subject to the obtaining of all necessary consents, waivers and
approvals, procure the cancellation of all Contractual
Arrangements to which the Subsidiary is a party by the parties
thereto and procure the transfer of the Subsidiary from the
Company to the Purchaser or one of its subsidiaries; and
(ii) ensure that the Company and LTWJi are free of any external
indebtedness by the date on which the Sale Share is transferred
to the Vendor and, to the extent that there is any such
external indebtedness, it will be assumed by the Purchaser (or
its nominee) prior to the transfer of the Sale Share; and
(iii) repay to the Vendor such dividends declared and paid by the
Company, if any, to the Purchaser,
within 90 days after the Purchaser's written notice. Any repayments by the
Vendor or the Purchaser to the other shall include interest (calculated at LIBOR
plus 0.5%) from the date that the relevant amount to be repaid was first
received by the Vendor or the Purchaser (as the case may be) until the actual
date of repayment.
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8.4 Following the rescission of this Agreement, the Vendor shall indemnify and
hold harmless TOM and Holdco and each of their subsidiaries (the TOM Group)
against all third party claims, actions, demands, proceedings and judgments of
any nature whatsoever which may be brought or established against, or suffered
or incurred by any member of the TOM Group to the extent that they result from
or are attributable to the operations of the Business prior to the Completion
Date.
8.5 Following the rescission of this Agreement, the Purchaser shall indemnify
and hold harmless the Vendor against all third party claims, actions, demand,
proceedings and judgments of any nature whatsoever which may be brought or
established against, or suffered or incurred by the Vendor to the extent that
they result from or are attributable to the operations of the Business between
the Completion Date and the date of rescission.
8.6 In the event that the Purchaser rescinds this Agreement under clause 8.3,
each of the Parties agrees that it shall not have any claim against the other
Party arising from or in connection with this Agreement (save in relation to
this clause 8 and clause 9 and, for which purpose, clauses 1, 8, 9, 12.2, 16 to
23, 26 and 27 shall survive such rescission). In addition, in the event of
rescission, the provisions of such surviving clause 12.2 shall also apply
mutatis mutandis as if references to the Purchaser were to references to the
Vendor and vice versa.
9. Purchaser's undertakings
9.1 Subject to clause 9.2, the Purchaser undertakes with the Vendor that, for
the period from the Completion Date until the earlier of (i) 31 December 2004
and (ii) the date of rescission (if relevant):
(a) it shall procure that LTWJi carries on and develops its business in the
ordinary and usual course and shall use its reasonable endeavours (subject
always to external market conditions) to ensure that there is no diminution
in value of the current Business;
(b) it shall procure that, unless with the prior written consent of the Vendor
(which consent shall not be unreasonably withheld or delayed), LTWJi shall
not:
(i) transfer or dispose of any part of its Business or its assets
as at the Completion Date (including, without limitation,
contracts, facilities, fixed assets and intangible rights in
relation to or for the benefit of the Business) or current
revenues or any other act which is not in the ordinary course
of business of LTWJi and which would have a material adverse
effect on the Business; or
(ii) acquire any material asset or business except in the ordinary
course of business;
(c) it shall procure that, unless with the prior written consent of the Vendor
(which consent shall not be unreasonably withheld or delayed), no Group
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Company shall acquire any interest in any shares, debentures or other
securities issued by any undertaking (other than any other Group Company);
(d) subject to clause 20:
(i) it shall ensure that the Vendor is provided with a copy of
LTWJi's and the Subsidiary's monthly unaudited management
accounts as soon as reasonably practicable after they have been
prepared; and
(ii) that the Vendor shall be entitled to implement (at its own
cost) one full independent audit of the management accounts of
the Subsidiary and LTWJi, such audit to be carried out in an
expedient manner by an independent firm of accountants
reasonably acceptable to the Purchaser (such acceptance not to
be unreasonably withheld or delayed) who shall be allowed, upon
reasonable notice and during normal working hours and subject
always to their not causing any undue disruption to the
day-to-day operations of the business of the Group, access to
the books and records and premises and management of the
Subsidiary and LTWJi to the extent that it is reasonably
necessary to enable such firm of accountants to carry out such
audit),
and for the purposes of this sub-paragraph 9.1(d), the Vendor also
acknowledges and accepts that any information provided to it hereunder may
be price sensitive in respect of listed securities and may constitute
"relevant information" under Parts XIII and XIV of the Securities and
Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
9.2 The aggregate amount of liability of the Purchaser for any breach of clause
9.1 shall not in any circumstance exceed RMB100,000,000 provided that where the
Purchaser has elected for rescission under clause 8.3, this maximum aggregate
amount of liability shall be reduced by the amount of retained earnings in the
Group at the date of rescission).
10. Restrictions on Vendor
10.1 For a period of 24 months after the Completion Date, the Vendor shall not
and shall procure that each other member of the Retained Group shall not
(whether alone or jointly with another and whether directly or indirectly or on
behalf of or assist any other person) carry on or be interested in the IVR
Business, without the prior written consent of the Purchaser.
10.2 For a period of 24 months after the Completion Date, the Vendor shall not
and shall procure that each other member of the Retained Group shall not
(whether alone or jointly with another and whether directly or indirectly or on
behalf of or assist any other person):
(a) solicit or endeavour to entice away from LTWJi, offer employment to or
employ, or offer or conclude any contract for services with, any of its
officers, employees or consultants employed or engaged in connection with
the IVR Business prior to or as at Completion; or
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(b) solicit or endeavour to entice away from LTWJi, any of the customers or
clients of LTWJi whose custom is in connection with its IVR Business prior
to or as at Completion.
10.3 The Purchaser acknowledges that a company within the Retained Group
currently provides content to companies in the IVR Business in the PRC (the
Purchaser's IVR Company) and that, without this clause, this would constitute a
breach of clause 10.1. The Vendor hereby undertakes to the Purchaser that, with
effect from the Completion Date, the Purchaser's IVR Company shall not provide
such content to persons other than Holdco or any of Holdco's subsidiaries (and
the provision of any such content shall be agreed on an arm's length basis upon
normal commercial terms).
10.4 The Vendor acknowledges and agrees that each of clauses 10.1 and 10.2
constitutes an entirely separate and independent restriction and that the
duration, extent and application of each restriction are no greater than is
reasonable and necessary for the protection of the interests of the Purchaser
but that, if any such restriction shall be adjudged by any court or authority of
competent jurisdiction to be void or unenforceable but would be valid if part of
the wording thereof were to be deleted and/or the period thereof were to be
reduced and/or the area dealt with thereby were to be reduced, the said
restriction shall apply within the jurisdiction of that court or competent
authority with such modifications as are necessary to make it valid and
effective.
11. Warranties
11.1 The Vendor represents and warrants to the Purchaser as at the date of this
Agreement in the terms of the Warranties and acknowledges that the Purchaser has
entered into this Agreement in reliance upon the Warranties. The Warranties are
subject to the matters fairly and reasonably disclosed in the Disclosure Letter
and all information set out in the Disclosure Letter is true, accurate and not
misleading.
11.2 Subject to clause 12, the Vendor undertakes (without limiting any other
rights of the Purchaser in any way including its rights to damages in respect of
a Warranty Claim on any other basis) that, if there is a breach of any Part B
Warranty in respect of any Group Company, it shall pay in cash to the Purchaser
(or, if so directed by the Purchaser, to the Group Company in question) on
demand a sum equal to the aggregate of:
(a) the amount which, if received by the relevant Group Company, would be
necessary to put that Group Company into the financial position which would
have existed had there been no breach of the Warranty in question; and
(b) all Costs suffered or incurred by the Purchaser or such Group Company,
directly or indirectly, as a result of or in connection with such breach of
Warranty.
11.3 The Vendor agrees to waive the benefit of all rights (if any) which the
Vendor may have against any Group Company, or any present or former officer or
employee of any such company, on whom the Vendor may have relied in agreeing to
any term
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of this Agreement or any statement set out in the Disclosure Letter and the
Vendor undertakes not to make any Warranty Claim in respect of such reliance.
11.4 Each of the Warranties shall be construed as a separate Warranty and (save
as expressly provided to the contrary) shall not be limited or restricted by
reference to or inference from the terms of any other Warranty or any other term
of this Agreement.
11.5 The Warranties shall be deemed to be repeated immediately before
Completion with reference to the facts and circumstances then existing as if
references in the Warranties to the date of this Agreement were references to
the Completion Date.
11.6 The rights and remedies of the Purchaser in respect of the Warranties
shall not be affected by:
(a) Completion;
(b) any investigation made into the affairs of any Group Company or any
knowledge held or gained of any such affairs by or on behalf of the
Purchaser (except for matters fairly and reasonably disclosed in the
Disclosure Letter); or
(c) any event or matter whatsoever, other than a specific and duly authorised
written waiver or release by the Purchaser.
11.7 The Vendor undertakes to notify the Purchaser in writing promptly if it
becomes aware of any circumstance arising after the date of this Agreement which
would cause any Warranty (if the Warranties were repeated with reference to the
facts and circumstances then existing) to become untrue or inaccurate or
misleading in any respect which is material to the financial or trading position
of any Group Company or the Group as a whole.
12. Limitations on Warranty Claims
12.1 The Vendor shall not be liable for any Warranty Claim unless it receives
from the Purchaser written notice containing specific details of the Warranty
Claim including the Purchaser's estimate (on a without prejudice basis) of the
amount of such Warranty Claim on or before the Final Payment Date.
12.2 If the Purchaser becomes aware of any third party claim, potential claim,
matter or event (a third party claim) which is reasonably likely to lead to a
Part B Warranty Claim being made, (subject to being fully indemnified to its
reasonable satisfaction by the Vendor against all reasonable out-of-pocket costs
and expenses incurred by the Purchaser or each Group Company) the Purchaser:
(a) shall procure that notice of such third party claim is promptly given to
the Vendor;
(b) shall not make (or, as appropriate, shall co-operate to procure that each
Group Company shall not make) any admission of liability, agreement or
compromise with any person, body or authority in relation to any such third
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party claim without prior consultation and with the prior agreement of the
Vendor which shall not be unreasonably withheld or delayed;
(c) shall take (or, as appropriate, shall co-operate to procure that each Group
Company shall take) such action as the Vendor may reasonably request to
avoid, dispute, resist, appeal, compromise or defend such third party claim
or any adjudication in respect of that third party claim; and
(d) if so required by the Vendor in writing, shall ensure (or, as appropriate,
shall co-operate to procure that each Group Company shall ensure), at the
request in writing of the Vendor, that the Vendor is placed in a position
to take on or take over the conduct of all proceedings and/or negotiations
of whatsoever nature arising in connection with the third party claim in
question and provide (or, as appropriate, co-operate to procure that each
Group Company provides) such information and assistance as the Vendor may
reasonably require in connection with the preparation for and conduct of
such proceedings and/or negotiations.
12.3 The aggregate amount of the liability of the Vendor for all Part A Warranty
Claims shall not exceed the amount of the Initial Cash Consideration. The
Purchaser is entitled to treat any Part A Warranty Claim as an Event of Default
under clause 8.
12.4 The Vendor shall not be liable for any Part B Warranty Claim unless the
aggregate amount of the liability of the Vendor for all Part B Warranty Claims
exceeds US$100,000.
12.5 The aggregate amount of the liability of the Vendor for all Part B
Warranty Claims shall not exceed the lesser of US$150,000,000 and the actual
amount of the consideration payable to the Vendor pursuant to clause 4.3 (before
any deductions pursuant to clause 4.12.)
12.6 The Vendor shall not be liable for any Warranty Claim in respect of any
fact, matter, event or circumstance to the extent that:
(a) such fact, matter, event or circumstance has been fairly and reasonably
disclosed in this Agreement, the Disclosure Letter or in any document which
has been disclosed to the Purchaser and is listed in Schedule 4; or
(b) allowance, provision or reserve has been made for such fact, matter, event
or circumstance in the Last Accounts or to the extent that payment or
discharge of the relevant matter has been taken into account therein or to
the extent that such matter was specifically referred to in the notes to
such Last Accounts.
12.7 The Parties hereby agree and acknowledge that there shall only be fair and
reasonable disclosure of any matter in any Disclosure Letter Supplement which is
delivered to the Purchaser within the two week period after this Agreement to
the extent that the Purchaser expressly acknowledges acceptance of such matters
in writing (and mere acknowledgment of receipt shall not be sufficient). No
Disclosure Letter Supplement shall be capable of delivery after the expiry of
the two week period after the date of this Agreement.
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13. Guarantees by TOM and Holdco
13.1 In consideration of the Vendor entering into this Agreement (which Holdco
hereby acknowledges is good and sufficient consideration), Holdco as a
continuing obligation, hereby guarantees to the Vendor the proper and punctual
observance and performance by the Purchaser of all its obligations pursuant to
clause 4 of this Agreement.
13.2 Subject always to the provisions of clause 13.3, in consideration of the
Vendor entering into this Agreement (which TOM hereby acknowledges is good and
sufficient consideration), for so long as none of Holdco's securities are listed
on GEM or Nasdaq or any other stock exchange, TOM, as a continuing obligation,
hereby guarantees to the Vendor the proper and punctual observance and
performance by Holdco of all its obligations, pursuant to clause 4 of this
Agreement.
13.3 The obligations of TOM under this clause 13.2 shall automatically terminate
upon the commencement of trading of any of Holdco's securities on GEM or
Holdco's securities being included for quotation on Nasdaq or any other
recognised stock exchange and, upon such termination, the Vendor shall have no
claim whatsoever against TOM under this Agreement (including in respect of any
rights and liabilities which may have accrued prior to termination).
14. Proposed listing of Holdco
14.1 Holdco hereby confirms to the Purchaser that, subject (among other things)
to prevailing market conditions, and conditional upon the prior approval of the
GEM Listing Committee, the approval of the shareholders of TOM in general
meeting, a final decision of the board of directors of TOM and of the board of
directors of Holdco, the GEM Listing Committee granting approval for the listing
of, and permission to deal in, Holdco Shares on GEM and Nasdaq granting approval
for the inclusion of American depositary shares for quotation on Nasdaq, it will
use its reasonable endeavours to seek a listing of its securities on both GEM
and Nasdaq as soon as reasonably practicable.
15. Withholdings and deductions
15.1 All sums payable by either Party to the other Party under this Agreement
shall be paid free and clear of all deductions or withholdings, save only as may
be required by law. If any deductions or withholdings are required by law the
payer shall (except to the extent the same has been taken into account in
calculating the amount due under any other provision of this Agreement) be
obliged to pay to the payee such sum as will after such deduction or withholding
has been made leave the payee with the same amount as it would have been
entitled to receive in the absence of any such requirement to make a deduction
or withholding.
15.2 If the payee receives a credit for or refund of any Taxation payable by it
or similar benefit by reason of any deduction or withholding for or on account
of Taxation, it shall reimburse to the payer such part of such additional
amounts paid to it pursuant to clause 15.1 above as will leave it (after such
reimbursement) in no better and no worse position than it would have been if the
payer had not been required to
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make such deduction or withholding. The payee shall use all reasonable
endeavours to obtain any available credit, refund or similar benefit and shall
where possible claim credit or relief from or against its corporate profits or
similar tax liability in respect of the amount of such deduction or withholding
as aforesaid in priority to any other reliefs or credits available to it.
15.3 If any deduction or withholding is made from any payment as contemplated in
clause 15.1, the payer shall supply to the payee such official receipt, if any,
or other evidence of payment to the relevant authority of the amount deducted or
withheld and shall give all reasonable assistance to enable the payee to receive
a credit or refund or similar benefit by reason of the deduction or withholding
as promptly as possible.
16. Entire agreement
This Agreement, the Disclosure Letter and the Tax Indemnity together constitute
the entire agreement and understanding between the Parties in connection with
the sale and purchase of the Sale Share. This Agreement supersedes all
agreements, term sheets, memoranda of understanding (or any other arrangement,
whether in writing or not) which shall cease to have any further force or
effect.
17. Variation
17.1 No variation of this Agreement (or of any of the documents referred to
herein) shall be valid unless it is in writing and signed by or on behalf of
both Parties. The expression "variation" shall include any variation,
supplement, deletion or replacement however effected.
17.2 Unless expressly agreed, no variation shall constitute a general waiver of
any provisions of this Agreement, nor shall it affect any rights, obligations or
liabilities under or pursuant to this Agreement which have already accrued up to
the date of variation, and the rights and obligations of the Parties under or
pursuant to this Agreement shall remain in full force and effect, except and
only to the extent that they are so varied.
18. Assignment
Neither Party shall nor shall it purport to assign, transfer, charge or
otherwise deal with all or any of its rights under this Agreement nor grant,
declare, create or dispose of any right or interest in it without the prior
written consent of the other Party.
19. Announcements
No announcement or circular in connection with the existence or the subject
matter of this Agreement shall be made or issued by or on behalf of either Party
without the prior written approval of the other Party (such approval not to be
unreasonably withheld or delayed). This clause shall not affect any announcement
or circular required by law or the rules of any recognised stock exchange or
other regulatory authority.
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20. Confidentiality
20.1 Subject to clause 20.3, each of the Vendor and the Purchaser shall use all
reasonable endeavors to keep confidential (and to ensure that their officers,
employees, agents and professional and other advisers keep confidential) any
information which it may have or acquire before or after the date of this
Agreement in relation to each Group Company, in particular each Group Company's
customers, business, assets or affairs provided that all obligations under this
clause shall cease to apply to the Purchaser from the Completion Date.
20.2 The Vendor shall not use for its own business purposes or disclose to any
third party any such information without the prior consent of the Purchaser.
20.3 The provisions of this clause 20 shall continue to apply if this Agreement
is terminated for a period of eighteen months thereafter.
21. Costs
21.1 Each of the Parties shall pay its own costs incurred in connection with the
negotiation, preparation and implementation of this Agreement, save that the
costs incurred in respect of the incorporation of the Subsidiary, the reasonable
legal costs and expenses incurred in the replacement of the Devine Contractual
Arrangements with the Contractual Arrangements and the proposed transfer of part
of the registered capital of LWTJi and the cost of the provision of the legal
opinion from Commerce and Finance Law Offices shall be borne by the Purchaser.
21.2 The costs incurred in connection with effecting any rescission of this
Agreement pursuant to clause 8 shall be borne between the Purchaser and the
Vendor equally.
21.3 The costs of the Escrow Agent for the services contemplated under clause 4
shall be borne by the Purchaser.
21.4 Any stamp duty or other tax or duty payable in respect of the sale and
purchase of the Sale Share contemplated in this Agreement shall be borne by the
Vendor and the Purchaser in equal shares.
22. Invalidity
If any provision of this Agreement is held to be invalid or unenforceable, then
such provision shall (so far as it is invalid or unenforceable) be given no
effect and shall be deemed not to be included in this Agreement but without
invalidating any of the remaining provisions of this Agreement. The Parties
shall then use all reasonable endeavours to replace the invalid or unenforceable
provisions by a valid and enforceable substitute provision the effect of which
is as close as possible to the intended effect of the invalid or unenforceable
provision.
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23. Counterparts
This Agreement may be entered into in any number of counterparts and by the
Parties to it on separate counterparts, each of which, when executed and
delivered, shall be an original, but all the counterparts shall together
constitute one and the same instrument.
24. Waiver
24.1 Any delay by the Purchaser in exercising, or failure to exercise, any right
or remedy under this Agreement shall not constitute a waiver of the right or
remedy or a waiver of any other rights or remedies and no single or partial
exercise of any rights or remedy under this Agreement or otherwise shall prevent
any further exercise of the right or remedy or the exercise of any other right
or remedy.
24.2 The rights and remedies of the Purchaser under this Agreement are
cumulative and not exclusive of any rights or remedies provided by law.
25. Further assurance
25.1 The Vendor shall do or procure to be done all such further acts and things,
and execute or procure the execution of all such other documents, as the
Purchaser may from time to time reasonably require, whether on or after
Completion, for the purpose of giving to the Purchaser the full benefit of all
of the provisions of this Agreement.
25.2 The Vendor shall procure that there is made available to the Purchaser at
such times and places as the Purchaser may reasonably direct all information in
the possession or under the control of the Vendor which the Purchaser may from
time to time reasonably require, whether before or after Completion, in relation
to the business and affairs of any Group Company or the Group as a whole.
26. Notices
26.1 Any notice or other communication to be given under this Agreement shall be
in writing and signed by or on behalf of the Party giving it and may be served
by leaving it or sending it by fax, prepaid recorded delivery or registered post
to the address and for the attention of the relevant Party set out in clause
26.2 (or as otherwise notified from time to time hereunder). Any notice so
served by fax, hand, courier or post shall be deemed to have been received:
(a) in the case of fax, when despatched (subject to confirmation of
uninterrupted transmission by a transmission report provided that any
notice despatched by fax after 5:00 p.m. (at the place where such fax is to
be received) on any day shall be deemed to have been received at 9:00 a.m.
on the next Business Day);
(b) in the case of personal delivery, upon delivery at the relevant address;
(c) in the case of recorded delivery or registered post, forty eight (48) hours
from the date of posting.
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26.2 The addresses and fax numbers of the Parties for the purpose of clause 26.1
are as follows:
Vendor:
Address: 29th Floor, Harbour Centre
25 Harbour Road, Wanchai
Hong Kong
For the attention of: Ms. Debbie CHANG
Fax: (852) 2519 7538
Purchaser:
Address: 48th Floor, The Center
99 Queen's Road Central
Hong Kong
For the attention of: Company Secretary
Fax: (852) 2189 7446
TOM:
Address: 48th Floor, The Center
99 Queen's Road Central
Hong Kong
For the attention of: Company Secretary
Fax: (852) 2189 7446
Holdco:
Address: 48th Floor, The Center
99 Queen's Road Central
Hong Kong
For the attention of: Company Secretary
Fax: (852) 2189 7446
26.3 In proving such service it shall be sufficient to prove that the envelope
containing such notice was properly addressed and delivered either to the
address shown thereon or into the custody of the postal authorities as a
pre-paid recorded delivery or registered post letter, or that the facsimile
transmission was made after obtaining in person or by telephone appropriate
evidence of the capacity of the addressee to receive the same, as the case may
be.
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27. Governing law and jurisdiction
27.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws of Hong Kong.
27.2 Each of the Parties irrevocably agrees that the courts of Hong Kong shall
have exclusive jurisdiction to settle any disputes which may arise out of or in
connection with this Agreement.
27.3 The Vendor irrevocably waives any objections to the jurisdiction of any
court referred to in this clause.
27.4 The Vendor irrevocably agrees that a judgment or order of any court
referred to in this clause in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of any other
jurisdiction.
27.5 The Vendor irrevocably consents to service of process or any other
documents in connection with proceedings in any court by facsimile transmission,
personal service, delivery at any address specified in this Agreement or any
other usual address, mail or in any other manner permitted by the law of the
place of service or the law of the jurisdiction where proceedings are
instituted.
27.6 The Vendor shall at all times maintain an agent for service of process and
any other documents in proceedings in Hong Kong or any other proceedings in
connection with this Agreement. Such agent shall be Ms. Chang Pui Vee, Debbie
currently of 29/th/ Floor, Harbour Center, 25 Harbour Road, Wanchai, Hong Kong
and any claim form, judgment or other notice of legal process shall be
sufficiently served on the Vendor if delivered to such agent at its address for
the time being. If for any reason the agent named above (or its successor) no
longer serves as agent of the Vendor for this purpose, the Vendor shall promptly
appoint a successor agent and notify the Purchaser thereof.
27.7 The Purchaser shall at all times maintain an agent for service of process
and any other documents in proceedings in Hong Kong or any other proceedings in
connection with this Agreement. Such agent shall be TOM.COM International
Limited currently of 48th Floor, The Center, 99 Queen's Road Central, Hong Kong
and any claim form, judgment or other notice of legal process shall be
sufficiently served on the Purchaser if delivered to such agent at its address
for the time being. If for any reason the agent named above (or its successor)
no longer serves as agent of the Purchaser for this purpose, the Purchaser shall
promptly appoint a successor agent and notify the Vendor thereof.
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SCHEDULE 1
THE COMPANY, THE SUBSIDIARY AND LTWJI
Part A Details of the Company
1. Name: Puccini International Limited
2. Date of Incorporation: 13 March 2000
3. Place of Incorporation: Cayman Islands
4. Class of Company: Exempted company
5. Registered Number: CR-98023
6. Registered Office: Scotia Centre, 4/th/ Floor,
P.O. Box 2804, George Town,
Grand Cayman, Cayman Islands
7. Directors: Ms. Chang Pui Vee, Debbie
Ms. Chau Hoi Shuen
8. Secretary: Ms. Chang Pui Vee, Debbie
9. Authorised Capital: US$50,000 divided into 50,000 shares of
US$1.00 each
10. Issued Capital: 1 fully paid share of US$1.00
11. Registered Shareholders: Ms. Chau Hoi Shuen
12. Accounting Reference Date:
13. Auditors: PricewaterhouseCoopers
14. Tax Residence:
15. Subsidiaries: Subsidiary (100%), from the date of
incorporation of the Subsidiary
16. Mortgages and Charges: None
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Part B Details of the Subsidiary
1. Name: Puccini Network Technology (Beijing)
Limited
([Company Name in Chinese])
2. Date of Registration:
3. Place of Registration: Beijing, PRC
4. Class of Company: Wholly foreign-owned enterprise
5. Registered Number:
6. Registered Office: [Address in Chinese]
7. Directors: Mr. Wang Ting-ting ([Name in Chinese])
Ms. WANG Xiu-ling, Anita
([Name in Chinese])
Yeung Kwok Mung
8. Legal Representative: Mr. Wang Ting-ting ([Name in Chinese])
9. Total Investment: US$280,000
10. Registered Capital: US$200,000
11. Registered Shareholder: Puccini International Limited
12. Accounting Reference Date: 31 December
13. Auditors:
14. Tax Residence:
15. Subsidiaries: None
16. Mortgages and Charges: None
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Part C Details of LTWJi
1. Name: Beijing Leitingwuji Network Technology
Company Limited
([Company Name in Chinese])
2. Date of Registration: 31 July 2002
3. Place of Registration: Beijing, the PRC
4. Class of Company: Limited liability company
5. Registered Number: 1103022398949(2-2)
6. Registered Office: Room 422
No. 12 A Hongdabei Road
Beijing Economic and
Technology Development District
Beijing, the PRC
7. Directors: Mr. WANG Lei-lei ([Name in Chinese])
Ms. WANG Xiu-ling, Anita
([Name in Chinese])
8. Legal Representative: Mr. Wang Lei-lei ([Name in Chinese])
9. Total Investment:
10. Registered Capital: RMB1,000,000
11. Registered Shareholders: Mr. WANG Lei-lei ([Name in Chinese])
Ms. WANG Xiu-ling, Anita
([Name in Chinese])
12. Accounting Reference Date: 31 December
13. Auditors:
14. Tax Residence:
15. Subsidiaries: None
16. Mortgages and Charges: None
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SCHEDULE 2
THE WARRANTIES
For the purpose of this Schedule 2, the term Group means the Company and LTWJi;
and Group Company means either member of the Group.
Part A : Part A Warranties
1. The Vendor and the Group
1.1 Authorisations
(a) The Vendor has obtained:
(i) all corporate authorisations, and
(ii) those applicable governmental, statutory, regulatory or other
consents, licences, waivers or exemptions that the Purchaser
has, prior to the date hereof and in writing, specifically
requested the Vendor to obtain,
to empower it to enter into and to perform its obligations under this
Agreement, and all such authorisations, consents, licences, waivers or
exemptions are valid and have not been revoked.
(b) The Transaction Documents which are to be entered into by the Vendor will,
when executed, constitute valid and binding contractual obligations of the
Vendor and each Group Company
(c) Entry into and performance by each of the Vendor and each Group Company of
this Agreement and/or any Transaction Document to which it is a party will
not violate or conflict with the provisions of its memorandum and articles
of association, certificate of incorporation, bye-laws, or equivalent
constitutional documents in each relevant jurisdiction, where such breach
or conflict would materially adversely affect its ability to enter into or
perform its obligations under this Agreement and/or any Transaction
Document to which it is a party.
(d) No Group Company has received any notice from any governmental or
administrative authority to the effect that entry into this Agreement or
entry into, and implementation of, the transactions contemplated under this
Agreement will:
(i) result in violation or breach of any applicable laws or
regulations in any relevant jurisdiction; or
(ii) amount to a violation or default with respect to any statute,
regulation, order, decree or judgment of any court or any
governmental or regulatory authority in any jurisdiction,
by the Vendor or either Group Company.
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(e) Such of the consents, approvals, registrations, authorisations or permits
that the Purchaser has, prior to the date hereof and in writing,
specifically requested the Vendor to obtain for LTWJi and the Company in
connection with the execution and performance of this Agreement or any
Transaction Document are valid and have not been revoked.
2. Regulatory Matters
2.1 Licences
(a) Each Group Company has itself obtained all licences, permissions,
authorisations and consents required for carrying on its business
effectively in the places and in the manner in which such business is now
carried on.
(b) The licences, permissions, authorisations and consents referred to in
paragraph (a) are in full force and effect, are not limited in duration or
subject to any unusual or onerous conditions and have been complied with in
all material respects for the period from the commencement of their
respective current operative term and until Completion.
(c) To the best knowledge of the Vendor, no Group Company has received any
notice that any of the licences, permissions, authorisations or consents
referred to in paragraph (a) will or are likely to be revoked or not
renewed, in whole or in part, in the ordinary course of events.
2.2 Compliance with Laws
(a) Each Group Company has conducted its business and corporate affairs in
accordance with its Memorandum and Articles of Association and in all
material respects with all applicable laws and regulations (whether of Hong
Kong, the PRC or any other jurisdiction).
(b) No Group Company is in default of any order, decree or judgment of any
court or any governmental or regulatory authority (whether of Hong Kong,
the PRC or any other jurisdiction).
3. Intellectual Property Rights
3.1 Registered Rights
(a) The Disclosure Letter contains true, complete and accurate lists of all
Intellectual Property Rights registered or sought to be registered in any
jurisdiction which are held or beneficially owned by each Group Company.
The relevant Group Company is the sole legal owner of such Intellectual
Property Rights that are disclosed as registered in the Disclosure Letter.
(b) Insofar as the Vendor is aware, no act has been done or omitted to be done
and no event has occurred which may render any of such Intellectual
Property Rights subject to revocation, compulsory licence, cancellation or
amendment
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or may prevent the grant or registration of a valid Intellectual Property
Right pursuant to a pending application.
3.2 Adequacy of Intellectual Property Rights
(a) Each Group Company owns, or have licensed to each of them, all Intellectual
Property Rights that are used to carry on each Group Company's business as
it is presently carried on.
3.3 Brand Names and Logos
(a) The Disclosure Letter contains details of all corporate names and logos and
all material brand names owned or used by each Group Company. All such
corporate names, logos and brand names are owned by or used under valid
licence (details and copies of which licences are set out in the Disclosure
Letter) by the relevant Group Company.
(b) The Vendor is not aware of any use by any third party of any of such brand
names, logos and corporate names in relation to any business which is
competitive with any business of the Group or of any claim by any third
party which disputes the right of any Group Company to use without
restriction any such brand names or corporate names.
3.4 Charges
(a) The Intellectual Property Rights which are owned or otherwise used by a
Group Company are not subject to any security interest.
3.5 Infringement
(a) None of the operations of any Group Company infringe any rights held by any
third party or involve the unauthorised use of confidential information
disclosed to any Group Company (or any member of the Retained Group) in
circumstances which might entitle a third party to make a claim against a
Group Company.
(b) No claim has been made by any third party which alleges any infringing act
or process which would fall within paragraph (a) above or which otherwise
disputes the right of any Group Company to use any Intellectual Property
Rights relating to its business and the Vendor is not aware of any
circumstances (including any act or omission to act) likely to give rise to
such a claim.
(c) There exists no actual or threatened infringement by any third party of any
Intellectual Property Rights held or used by any Group Company (including
misuse of confidential information) nor has any Group Company (or any
member of the Retained Group) acquiesced in the unauthorised use by any
third party of any such Intellectual Property Rights.
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3.6 Employee claims
(a) No claims have been made or are likely to be made or threatened by
employees or ex-employees under any statutory inventor compensation
provisions, or similar employee compensation provisions, in any
jurisdiction.
3.7 Intellectual Property Licences
(a) No Group Company is in default under any licence, sub-licence or assignment
granted to it in respect of any Intellectual Property Rights used by any
Group Company.
3.8 Loss of Rights
(a) No Group Company has received any notice that any Intellectual Property
Rights owned or used by a Group Company and any licence of Intellectual
Property Rights of which a Group Company has the benefit will be lost,
cancelled or rendered liable to any right of termination or cessation by
any third party by virtue of the acquisition by the Purchaser of the Sale
Share.
3.9 Confidential Information
(a) Where information of a confidential nature has been developed or acquired
by any Group Company for the purposes of its business since the date of its
incorporation prior to the date of this Agreement, such information (except
insofar as it has fallen into the public domain through no fault of a Group
Company or any member of the Retained Group) has been kept strictly
confidential and, insofar as the Vendor is aware, has not been disclosed
otherwise than subject to an obligation of confidentiality being imposed on
the person to whom the information was disclosed. The Vendor is not aware
of any breach of such confidentiality obligations by any third party.
3.10 Records and Software
(a) All the accounting records and systems (including but not limited to
computerised accounting systems) and all data and information of the Group
are recorded, stored, maintained or operated or otherwise held by a Group
Company and are not wholly or partly dependent on any facilities or systems
which are not under the exclusive ownership or control of a Group Company.
(b) Each Group Company is licensed to use all software necessary to enable it
to continue to use its computerised records during the relevant licence
period in the same manner in which they have been used prior to the date of
this Agreement.
(c) All hardware and software used by each Group Company does not suffer from
any date-related processing defects.
(d) All reasonable efforts have been made to detect any corruption,
deterioration, alteration of or addition to any data, code, media,
firmware, software or other
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material or the generation of any errors, defects or malfunctions therein
caused by reason of or in connection with any virus as the same may be
generally understood as at the date hereof within the computer industry in
the systems owned or used by any Group Company.
(e) Each Group Company has prepared and regularly tests contingency and
continuity plans that can be used if the computer systems malfunction in
whole or in part, so that the business is not interrupted in any way.
(f) Each Group Company has taken all reasonable efforts to ensure that its
computer systems are secure.
(g) All moral rights attached to all Intellectual Property Rights have been
waived.
4. IT Systems and Data Protection
4.1 Information technology
(a) The Internal IT Systems are either owned by, or properly licensed or leased
to, a Group Company. The relevant Group Company has not received any notice
that it is not in default under the licences or leases and there are no
grounds on which they might be terminated.
(b) Each Group Company owns, or have licensed to each of them, all the Internal
IT Systems which are required to carry on each Group Company's business as
it is presently carried on.
(c) No Group Company has authorised a third party to modify, reverse engineer
or create derivative works of software or systems included in the Internal
IT Systems or licensed by any Group Company to third parties.
(d) No Group Company has received any notice that the ownership, benefit, or
right to use the Internal IT Systems by it may be lost by virtue of the
acquisition of the Sale Share or the performance of this Agreement.
(e) Each Group Company has binding maintenance and support contracts for the
Internal IT Systems. There is no reason to believe that the contracts will
not be renewed when they expire on the same or substantially similar terms.
(f) Insofar as the Vendor is aware, (i) the Internal IT Systems have not failed
to any material extent and the data which they process has not been
corrupted and (ii) the Internal IT Systems do not contain viruses, bugs or
things which distort their proper functioning, permit unauthorised access
or disable them without the consent of the user.
(g) Each Group Company has taken precautions to preserve the availability,
security and integrity of the Internal IT Systems and the data and
information stored on the Internal IT Systems.
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(h) The Internal IT Systems do not contain third party software or systems
which are not available from third party suppliers on arm's length
commercial terms.
4.2 Data Protection
(a) Each Group Company has complied with all applicable data protection laws,
guidelines and industry standards.
(b) No notice or allegation has been received by any Group Company from a
competent authority alleging that the Group Company has not complied with
the things listed in paragraph 4.2(a) of this Part A.
(c) No individual has claimed, and no grounds exist for an individual to claim,
compensation from a Group Company for breaches of applicable data
protection laws.
5. Contractual Matters
5.1 Material Contracts
There is not outstanding any agreement or arrangement to which any Group Company
is a party:
(a) and in respect of which it has received any notice that by virtue of the
acquisition of the Sale Share by the Purchaser or other performance of the
terms of this Agreement, will result in any Group Company being in default
under any such agreement or arrangement or losing any benefit, right or
licence which it currently enjoys or in a liability or obligation of any
Group Company being created or increased;
(b) and in respect of which it has received any notice that will result in any
Group Company becoming liable for any finder's fee, brokerage or other
commission in connection with the acquisition of the Sale Share by the
Purchaser;
(c) and to which any member of the Retained Group is a party or in which any
member of the Retained Group (or any director of any member of the Retained
Group or of any Group Company) is interested or from which any such person
takes benefit, whether directly or indirectly;
(d) entered into otherwise than by way of a bargain at arm's length;
(e) which establishes any guarantee, indemnity, suretyship, form of comfort or
support (whether or not legally binding) given by any Group Company in
respect of the obligations or solvency of any third party;
(f) pursuant to which any Group Company has sold or otherwise disposed of any
company or partnership or joint venture interests in circumstances such
that it remains subject to any liability (whether contingent or otherwise)
which is not fully provided for in its Last Accounts;
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(g) which establishes any joint venture, consortium, partnership or profit (or
loss) sharing agreement or arrangement to which any Group Company is a
party;
(h) which is a bid, tender, proposal or offer which, if accepted, would result
in any Group Company becoming a party to any agreement or arrangement of a
kind described in sub-paragraphs (a) to (g) above.
5.2 Defaults
(a) Insofar as the Vendor is aware, no Group Company is in default under any
agreement to which it is a party and there are no circumstances likely to
give rise to any such default.
(b) To the best knowledge of the Company, no party with whom any Group Company
has entered into any agreement or arrangement is in default under such
agreement or arrangement and there are no circumstances likely to give rise
to any such default.
5.3 Trading Relationships
(a) Since the Last Accounts Date no significant customer of LTWJi has ceased to
deal with LTWJi or has indicated an intention to cease to deal with LTWJi,
either in whole or in part.
(b) Devine Gem, the previous registered owners of the Company's entire issued
share capital has:
(i) save in respect of the Loan Agreements, cancelled all
agreements, deeds, trusts or any contractual arrangements
entered into with any Group Company; and
(ii) has no claim or any claims against any Group Company or the
Purchaser whatsoever and to the extent that such claims exists
or may exist, Devine Gem has irrevocably waived such claims and
has released the Purchaser or the relevant Group Company from
any liability whatsoever in respect thereof.
5.4 Grants
(a) No investment or other grants or allowances have ever been received and/or
applied for by any Group Company.
5.5 Declaration of Trusts
(a) Unless otherwise provided for in this Agreement,
(i) all declarations of trusts granted by Mr. Wang and/or Ms. Wang
to any Group Company or to any other persons, in respect of any
rights arising from any relationship between the Group, have
been cancelled; and
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(ii) no declarations of trusts have been or will be granted by Mr.
Wang and/or Ms. Wang to any Group Company or to any other
persons, in respect of any rights arising from any relationship
between the Group.
6. Relationship with China Mobile
The entry into and performance of this Agreement and/or any Transaction document
will not violate or conflict with the provisions or give rise to any right of
termination under any of the Business Agreements.
(a) No Group Company is, or is likely to become, in default under any Business
Agreement and there are no circumstances likely to give rise to any
default.
(b) The Vendor is not aware of and no Group Company is aware of:
(i) any breaches of any provisions under any Business Agreement; or
(ii) any events which may give rise to any rights to terminate any
Business Agreement or any existing IVR Services-related
relationships between China Mobile and LTWJi.
7. Directors and Employees
7.1 Compliance
(a) Each Group Company has in relation to each of its employees (and so far as
relevant to each of its former employees) complied in all material respects
with all statutes, regulations, codes of conduct, terms and conditions of
employment, orders and awards relevant to their conditions of service or to
the relations between it and its employees (or former employees, as the
case may be) or any trade union.
7.2 Disputes
(a) No dispute has arisen within the last two (2) years between any Group
Company and a material number or category of its employees (or any trade
union or other body representing all or any of such employees) and there
are no present circumstances which are likely to give rise to any such
dispute.
(b) To the best knowledge of the Vendor, there are no enquiries or
investigations affecting any Group Company (and none pending or threatened)
by the Equal Opportunities Commission or similar authority in any other
jurisdiction.
7.3 Payments on Termination
Except to the extent (if any) to which provision or allowance has been made in
the Last Accounts of each Group Company:
(a) no outstanding liability has been incurred by any Group Company for breach
of any contract of employment or for services or severance payments,
compensation for wrongful dismissal or for failure to comply with any order
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for the reinstatement or re-engagement of any employee or for any other
liability accruing from the termination of any contract of employment or
for services;
(b) no gratuitous payment has been made or benefit given (or promised to be
made or given) by any Group Company in connection with the actual or
proposed termination or suspension of employment, or variation of any
contract of employment, of any present or former director or employee of
any Group Company.
7.4 Redundancies
(a) No Group Company has, within the period of one (1) year preceding the date
of this Agreement, given notice of any redundancies or lay offs or started
consultations with any trade union or employees' representatives regarding
redundancies, lay offs or dismissals.
7.5 Effect of Sale
(a) To the best knowledge of the Vendor, no officer or senior employee of any
Group Company intends to resign as a result of the acquisition of the Sale
Share by the Purchaser or other performance of the terms of this Agreement.
8. The Group's Assets
8.1 Possession and Third Party Facilities
(a) All of the assets owned by each Group Company, or in respect of which any
Group Company has a right of use, are in the possession or under the
control of that Group Company.
(b) Where any assets are used but not owned by any Group Company or any
facilities or services are provided to any Group Company by any third
party, there has not occurred any event of default or any other event or
circumstance which may entitle any third party to terminate any agreement
or licence in respect of the provision of such facilities or services (or
any event or circumstance which with the giving of notice and/or the lapse
of time and/or a relevant determination would constitute such an event or
circumstance).
8.2 Adequacy of Assets
(a) The assets of each Group Company and the facilities and services to which
each Group Company has a contractual right include all rights, properties,
assets, facilities and services that its respective board of directors
considers desirable for the carrying on of the business of that Group
Company in the manner in which it is currently carried on.
(b) No Group Company depends in any material respect upon the use of assets
owned by, or facilities or services provided by, any member of the Retained
Group.
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8.3 Condition
(a) Subject to wear and tear, all the plant, machinery, equipment and vehicles
used by each Group Company:
(i) are in a good state of repair and have been regularly and
properly maintained in accordance with appropriate technical
specifications, safety regulations and the terms and conditions
of any applicable agreement;
(ii) are capable of being efficiently and properly used for the
purposes for which they were acquired or are retained;
(iii) are not dangerous, inefficient, obsolete or in need of renewal
or replacement.
8.4 Insurances
(a) Each Group Company (insofar as it has employed employees in the PRC) is in
full compliance with all regulations and laws in the PRC with respect to
mandatory social security coverage for its employees.
9. Properties
9.1 Owned Properties
(a) Each Group Company has a good and marketable title to each of the
Properties and is not aware of any circumstances which might lead to the
title being defective or not good and marketable or restricted in any way.
(b) All government leases affecting the Properties are good and valid and no
steps to re-enter have been taken or threatened by the Government in
respect of any Property and the government rent in respect of each Property
has been paid up to date.
(c) No notice affecting any of the Properties or its use has been given or
served by any government department or any other authority or any person or
body.
(d) Each Group Company has obtained all necessary statutory and other consents
(if any) for the use of each of the Properties and such use does not and/or
will not constitute a breach of any of the terms and conditions under which
the Property is held from the government.
(e) Save as otherwise disclosed herein, no Group Company has created and is
aware of any tenancies, charges, unwritten equities or any other
encumbrances affecting any of the Properties or any part thereof.
(f) The Properties comprise all of the land owned, occupied or used by each
Group Company or in which the relevant Group Company has any right or
interest.
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9.2 Rented Properties
(a) All leases are legally valid and binding and all necessary consents for the
granting of the leases in favour of each Group Company have been obtained
by the landlords.
(b) All leases in the PRC are duly registered with the competent government
authorities in the PRC where they are so required under applicable PRC
laws.
(c) All covenants, conditions and agreements contained in the leases (whether
on the part of the landlord or the tenant) have been substantially complied
with and there has been no complaint by either party against the other for
any breach of covenant under any leases.
(c) No rent is currently under review.
(d) There are no leases, underleases, tenancies or licences affecting the
leases nor is there any agreement to grant the same and no person other
than the Group Company is in occupation of or entitled to occupy the
Properties or any part thereof.
(e) All rent and other charges payable under the leases have been paid up to
the last payment date.
(f) No notice affecting the Properties or its use has been given or served by
any government authority or any other authority or person or body and there
are no circumstances which are likely to result in the forfeiture any of
the leases.
(g) Each lease sets out the full agreement between the landlord and the Group
Company in respect of each Property.
(h) The leases will not become subject to avoidance, revocation or be otherwise
affected solely upon or in consequence of the making or implementation of
this Agreement.
9.3 Environmental
(a) Each Group Company (and to the extent it may affect the Group, the Retained
Group) has complied with all national or local statutes, codes, or other
laws or legislation concerning health, safety or matters relating to
pollution or protection of the environment which are applicable to any
business or other activity of any Group Company or to the Properties and
all rules, regulations, ordinances, orders, notices and directives made
thereunder (Environmental Laws). There has been and is no breach of any of
the permits, consents, licences or other authorisations and approvals
required by such Environmental Laws (the Environmental Approvals). The
existence and use of the Properties, equipment and other property employed
in the conduct of any Group Company has been and is in accordance with the
Environmental Approvals and Environmental Laws.
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10. Insolvency etc.
(a) No order has been made, petition presented or meeting convened for the
purpose of considering a resolution for the winding up of any Group Company
or for the appointment of any provisional liquidator. No receiver
(including any administrative receiver) has been appointed in respect of
the whole or any part of any of the property, assets and/or undertaking of
any Group Company.
(b) No composition in satisfaction of the debts of any Group Company, or scheme
of arrangement of its affairs, or compromise or arrangement between it and
its creditors and/or members or any class of its creditors and/or members,
has been proposed, sanctioned or approved.
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Part B : Part B Warranties
1. The Vendor and The Group
1.1 Details of the Group and the Sale Share
(a) The Sale Share is fully paid or properly credited as fully-paid and the
Vendor is the legal and sole beneficial owner of the Sale Share free from
all security interests, options, equities, claims or other third party
rights (including rights of pre-emption) of any nature whatsoever.
(b) Each Group Company is validly incorporated, in existence and duly
registered under the laws of its jurisdiction of incorporation and the
information in respect of each Group Company set out in Schedule 1 is true,
accurate and not misleading.
(c) There is no outstanding liability to pay any additional contribution on the
Sale Share.
(d) Subject to the Devine Contractual Arrangements and the applicable
Contractual Arrangements (collectively, Encumbrance Agreements), no person
has the right (exercisable now or in the future and whether contingent or
not) to call for the issue of any share or loan capital in the Company and
LTWJi.
(e) The Vendor is entitled to transfer or procure the transfer of the full
ownership of the Sale Share to the Purchaser on the terms set out in this
Agreement.
(f) The Sale Share constitutes the whole of the issued and allotted share
capital of the Company.
1.2 The Subsidiary
(a) The Company is the sole legal and beneficial owner of the whole of the
issued share capital of the Subsidiary free from all security interests,
options, equities, claims or other third party rights (including, without
limitation, rights of pre-emption) of any nature whatsoever, and all such
shares are fully paid or properly credited as fully paid and there is no
outstanding liability to pay any additional contributions on such shares.
1.3 LTWJi
(a) Subject to the Encumbrance Agreements, the registered capital of LTWJi in
the names of Mr. Wang and Ms. Wang is free from all security interests,
options, equities, claims or other third party rights (including, without
limitation, rights of pre-emption) of any nature whatsoever.
(b) Mr. Wang and Ms. Wang are the registered owners of eighty per cent (80%)
and twenty per cent (20%) respectively of the registered capital of LTWJi
(the Equity Interest). The Company and the Subsidiary, through certain
loan,
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option and economic relationships and contractual arrangements with Mr.
Wang and Ms. Wang, will have rights prior to Completion over the Equity
Interest, including exclusive options exercisable at any time by the
Company or its designated parties to purchase from each of Mr. Wang and Ms.
Wang all of his and/or her Equity Interest.
2. Financial Matters
2.1 LTWJi Accounts
(a) The Last Accounts give a true and fair view of the state of affairs of
LTWJi as at the Last Accounts Date and of its results for the financial
period ended on the Last Accounts Date respectively, in each case in
accordance with US GAAP;
(b) Without limiting the generality of paragraph (a):
(i) the Last Accounts either make full provision for or disclose
all liabilities (whether actual, contingent or disputed and
including financial lease commitments and pension liabilities),
all outstanding capital commitments and all bad or doubtful
debts of LTWJi as at the Last Accounts Date;
(ii) the Last Accounts complied with the requirements of all
relevant laws then in force and with all statements of standard
accounting practice (or financial reporting standards) and US
GAAP then in force;
(iii) the rates of depreciation adopted by LTWJi in the Last Accounts
were sufficient for each of its fixed assets to be written down
to nil by the end of its useful life;
(iv) except as stated in the Last Accounts, no changes in the
accounting policies were made by LTWJi in the Last Accounts;
(v) the results shown by the Last Accounts of LTWJi were not
(except as therein disclosed) affected by any extraordinary or
exceptional item or by any other factor rendering such results
for all or any of such periods unusually high or low.
2.2 Accounts of the Company
(a) No Accounts have been prepared for the Company since its date of
incorporation.
(b) Since the date of incorporation of the Company, the Company had not engaged
in any trading, businesses or operations, save for entering into the
Contractual Arrangements.
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2.3 Accounts of the Subsidiary
(a) No Accounts have been prepared for the Subsidiary since its date of
incorporation.
(b) Since the date of incorporation of the Subsidiary, the Subsidiary had not
engaged in any trading, businesses or operations, save for entering into
the Contractual Arrangements.
2.4 Position since Last Accounts Date
(a) Since the Last Accounts Date there has been no material adverse change in
the financial or trading position or (save to the extent that the same
would be likely to affect to a similar extent generally all companies
carrying on similar businesses in Hong Kong or PRC) in the prospects of any
Group Company and no event, fact or matter has occurred which is likely to
give rise to any such change.
(b) Since the Last Accounts Date (in respect of LTWJi) or the date of
incorporation (in respect of the Company):
(i) the business of each Group Company has been carried on in the
ordinary and usual course and no Group Company has made or
agreed to make any payment other than routine payments in the
ordinary and usual course of trading;
(ii) no dividend or other distribution of any Group Company's assets
to its members, whether in cash or otherwise, has been
declared, paid or made (except for any dividends provided for
in the Last Accounts of that Group Company and (subject to
clause 5.2) any distribution of the retained earnings of LTWJi
accumulated prior to the date of this Agreement);
(iii) no share or loan capital has been allotted or issued or agreed
to be allotted or issued by any Group Company;
(iv) there has been no material change in the level of borrowing or
in the working capital requirements of any Group Company;
(v) all transactions between each Group Company and members of the
Retained Group have been on arm's length terms;
(vi) no contract, liability or commitment (whether in respect of
capital expenditure or otherwise) has been entered into by any
Group Company which is of a long term or unusual nature or
which involved or could involve an obligation of a material
nature or magnitude;
(vii) no Group Company has (whether in the ordinary and usual course
of business or otherwise) acquired or disposed of, or agreed to
acquire or dispose of, any business or any asset;
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(viii) no debtor has been released by any Group Company on terms that
it pays less than the book value of its debt and no debt owing
to any Group Company has been deferred, subordinated or written
off or has proved to any extent irrecoverable;
(ix) no change has been made in terms of employment, including
pension fund commitments, by any Group Company (other than
those required by law) which could increase the total staff
costs of the Group by more than US$25,000 per annum or the
remuneration of any one director or employee by more than
US$5,000 per annum;
(x) there has been no material increase or decrease in the levels
of debtors or creditors or in the average collection or payment
periods for the debtors and creditors respectively;
(xi) no Group Company has repaid any borrowing or indebtedness in
advance of its stated maturity;
(xii) no resolution of the members of any Group Company has been
passed whether in general meeting or otherwise (other than
resolutions relating to the routine business of annual general
meetings); and
(xiii) the business of each Group Company has not been affected by any
abnormal factor not affecting to a similar extent generally all
companies carrying on similar businesses.
2.5 Accounting and other Records
(a) The statutory books, books of account and other records of each Group
Company:
(i) are up-to-date and have been maintained in accordance with all
applicable laws and generally accepted accounting practices on
a proper and consistent basis;
(ii) comprise complete and accurate records of all information
required to be recorded therein;
(iii) are in its possession or under its control together with all
documents of title and executed copies of all existing
agreements to which the relevant Group Company is a party.
(b) All accounts, documents and returns required by law to be delivered or made
by any Group Company to the Registrar of Companies or any other authority
have been duly and correctly delivered or made.
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2.6 Accounting Reference Date
The accounting reference date of each Group Company is, and since the date of
its incorporation always has been, the date specified in Schedule 1 in respect
of that Group Company.
2.7 LTWJi management accounts
(a) The unaudited management accounts of LTWJi for all periods ended after the
Last Accounts Date were properly prepared in a manner consistent with that
adopted in the preparation of its management accounts for all periods ended
since 31 July 2002.
(b) Having regard to the purpose for which such unaudited management accounts
were prepared, they are not misleading in any material respect and neither
materially over-state the value of the assets nor materially under-state
the liabilities of any Group Company as at the dates to which they were
drawn up and do not materially over-state the profits of any Group Company
in respect of the periods to which they relate.
2.8 Working Capital
LTWJi has a minimum of RMB5,000,000 in cash as at the Reference Date to satisfy
its working capital and caption expenditures requirements.
3. Debt Position
3.1 Debts owed to the Group
(a) Save as disclosed in the Disclosure Letter, there is no outstanding debts
owing to any Group Company other than trade debts incurred in the ordinary
and usual course of business which do not exceed US$10,000 in aggregate for
the Group as a whole.
(b) Save as disclosed in the Disclosure Letter, the book debts shown in the
Last Accounts of LTWJi have realised their nominal amount less any specific
provision for bad or doubtful debts included in such accounts.
3.2 Debts owed by the Group
(a) Save as disclosed in the Disclosure Letter, no Group Company has
outstanding any borrowing or indebtedness in the nature of borrowing
(including, without limitation, any indebtedness for moneys borrowed or
raised under any acceptance credit, bond, note, bill of exchange or
commercial paper or finance lease.
(b) No Group Company has received any notice to repay under any agreement
relating to any borrowing or indebtedness in the nature of borrowing which
is repayable on demand.
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(c) There has not occurred any event of default or any other event or
circumstance which would entitle any person to call for early repayment
under any agreement relating to any borrowing or indebtedness of any Group
Company or to enforce any security given by any Group Company (or, in
either case, any event or circumstance which with the giving of notice
and/or the lapse of time and/or a relevant determination would constitute
such an event or circumstance).
(d) Trade debts incurred by members of the Group in the ordinary and usual
course of business since the Last Accounts Date do not exceed US$10,000 in
aggregate for the Group as a whole.
3.3 Indebtedness of LTWJi
(a) There are no outstanding indebtedness between the Company and LTWJi.
(b) Other than indebtedness incurred in the ordinary course of business since
the Last Accounts, there is no outstanding indebtedness of LTWJi which have
not already been reflected in the Last Accounts of LTWJi.
4. Litigation and Investigations
4.1 Litigation
(a) No Group Company is a defendant in any litigation, arbitration or
administrative proceedings which are in progress or threatened or pending
by or against or concerning any Group Company or any of its assets.
(b) No governmental or official investigation or inquiry concerning any Group
Company is in progress or pending.
(c) No Group Company has received any notice that any such proceeding,
investigation or inquiry as is referred to in paragraph (a) or paragraph
(b) will be issued or initiated.
5. The Group's Assets
5.1 Ownership
(a) For the purpose of this paragraph 5.1 of Part B of Schedule 2, assets shall
not include the Properties, to which the provisions of paragraph 9 of Part
A of Schedule 2 shall apply.
(b) Each of the assets included in the Last Accounts of each Group Company or
acquired by it since the Last Accounts Date (other than assets sold in the
ordinary course of business) is the absolute property of that Group
Company. Those assets are not the subject of any security interest or any
assignment, equity, option, right of pre-emption, royalty, factoring
arrangement, leasing or hiring agreement, hire purchase agreement,
conditional sale or credit sale
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agreement, agreement for payment on deferred terms or any similar agreement
or arrangement (or any agreement or obligation, including a conditional
obligation, to create or enter into any of the foregoing) except for:
(i) any hire or lease agreement in the ordinary course of business
involving where the aggregate expenditure of the Group under
all such agreements is less than US$50,000 per annum;
(ii) title retention provisions in respect of goods and materials
supplied to the Group in the ordinary course of business;
(iii) the security interests, if any, reflected in the Last Accounts
of any Group Company and liens arising in the ordinary course
of business by operation of law.
6. Taxation
6.1 Returns and Information
(a) All registrations, returns and computations which are or have been required
to be made or given on or before the date of this Agreement by any Group
Company for any Taxation purpose (i) have been made or given within the
requisite periods (ii) so far as the Vendor is aware, none of them is or is
likely to be the subject of any material dispute with any Tax Authority.
6.2 Company Residence
(a) Each Group Company has been resident for tax purposes in the country of its
incorporation (save where stated in the Disclosure Letter with express
reference to this warranty) and has not been resident anywhere else at any
time since its incorporation and will be so resident at Completion. For the
avoidance of doubt, references to residence in this Warranty shall be
construed as references to residence as determined by the local law of the
jurisdiction or jurisdictions concerned and not by reference to the
provisions of any relevant double taxation agreement or convention.
6.3 Deduction from Payments
(a) So far as the Vendor is aware, each Group Company has complied in all
material respects with all statutory provisions relating to Taxation which
require the deduction of Taxation from any payment made by it, and has
properly accounted for any such Taxation which ought to have been accounted
for.
6.4 Stamp, Transfer and Registration Duties
(a) All documents to which any Group Company is a party, or which form part of
the title to any asset owned or possessed by any Group Company, or which
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any Group Company or the Purchaser may need to enforce or produce in
evidence in any court of law have (where required) been duly stamped and
any stamp registration and transfer duties relating to the same have been
duly paid.
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SCHEDULE 3
PRINCIPAL ACCOUNTING POLICIES
(a) Basis of presentation
The financial statements have been prepared in accordance with accounting
principles generally accepted in the US GAAP.
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the balance sheet dates and the reported amounts of revenues
and expenses during the reporting periods. Actual results might differ from
those estimates.
(b) Revenue recognition
The Company has adopted the provisions of the Staff Accounting Bulletin 101
"Revenue Recognition", in its accounting policy on revenue recognition.
The Company recognizes revenue, which is net of business tax, local levies
and the portion attributable to China Mobile based on a predetermined
basis, from the provision of IVR and SMS services through the GSM network
of China Mobile to end customers when persuasive evidence of an arrangement
exists, the price is fixed or determinable, services have rendered, and
collectibility is reasonably assured.
(c) Cost of revenues
Costs of revenues consist primarily of staff costs of which are directly
involved in the provision of those services, depreciation of computer
equipment and software directly used in the provision of IVR and SMS
services, fees paid to third parties for provision of contents, and
technical service charges for the maintenance of the IVR platform system.
(d) Cash and cash equivalents
Cash and cash equivalents represents cash on hand and demand deposits with
interest bearing placed with a bank.
(e) Accounts receivable
Allowance for doubtful accounts is made against accounts receivable to the
extent they are considered to be doubtful. Accounts receivable in the
balance sheet are stated net of such provision.
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(f) Financial instruments
Financial instruments of the Company consist of cash and cash equivalents,
accounts receivable, prepaid expenses and other current assets, accrued
liabilities and other payables and due to related parties. As of the
balance sheet dates, their estimated fair value approximated their carrying
value due to the short-term nature of these instruments.
(g) Equipment and software
Equipment and software are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line basis over the following
estimated useful lives, taking into account any estimated residual value.
Computer equipment 36 months
Furniture and office equipment 80 months
Computer software 36 months
Costs of computer software obtained for internal use are accounted for in
accordance with AICPA SOP 98-1, under which direct costs incurred to obtain
computer software from third parties that can provide future benefits are
capitalized.
(h) Valuation of long-lived assets
The Company adopts Statements of Financial Accounting Standards (SFAS)
No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
for its long-lived asset valuation, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present. Reviews are performed to determine whether the
carrying value of asset group is impaired, based on comparison to
undiscounted expected future cash flows. If this comparison indicates that
there is an impairment, the impaired asset group is written down to fair
value, which is determined by either using quoted market prices in active
markets or other valuation techniques such as present value techniques.
Impairment loss, if any, is measured as the amount by which the carrying
amount of asset group exceeds the fair value of the asset group.
(i) Advertising expenses
Advertising expenses are expensed as incurred.
(j) Foreign currency translation
The functional currency of the Company is RMB. Transactions denominated in
currencies other than RMB are translated into RMB at the exchange rates
quoted by the People's Bank of China (the PBOC) prevailing at the dates of
the transactions. Monetary assets and liabilities denominated in foreign
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currencies are translated into RMB using the applicable exchange rates
quoted by the PBOC at the balance sheet dates. The resulting exchange
differences are included in the determination of income.
The financial statements are translated into US dollars using exchange
rates in effect at period end for assets and liabilities and average
exchange rates during each reporting period for statements of income.
Adjustments resulting from translation of these financial statements are
reflected as foreign currency translation adjustment of the stockholders'
equity in accumulated other comprehensive income. There has been no
comprehensive income recognized in the reporting period presented.
(k) Income taxes
The Company accounts for income tax using SFAS No. 109 "Accounting for
Income Taxes", which requires the asset and liability approach for
financial accounting and reporting for income taxes. Under this approach,
deferred income taxes are provided for the estimated future tax effects
attributable to temporary differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases, and for
the expected future tax benefits from items. Deferred tax assets and
liabilities are measured using the enacted tax rates expected in the years
of recovery or reversal and the effect from a change in tax rates is
recognized in income for the period of enactment. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered
more likely than not that some portion of, or all of, the deferred tax
assets will not be realized.
(l) Segment reporting
SFAS No. 131 establishes standards for reporting information about
operating segments on a basis consistent with the Company's internal
organization structure as well as information about geographical areas,
business segments and major customers in financial statements.
No separate segment information is presented as it is the management's view
that the services rendered by the Company are of one business segment and
the business is conducted in the PRC only.
(m) New accounting standards
In April 2003, FASB issued Statement of Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Company
does not expect adoption to have a material impact on its financial
position or results of operation.
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In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
(SFAS No. 150). SFAS No. 150 changes the accounting guidance of certain
financial instruments that, under previous guidance, could be classified as
equity or "mezzanine" equity by now requiring those instruments to be
classified as liabilities (or assets in some circumstances) on the balance
sheet. Further SFAS No. 150 requires disclosure regarding the terms of
those instruments and settlement alternatives. SFAS No. 150 is generally
effective for all financial instruments entered into or modified after 31
May 2003, and is otherwise effective at the beginning of the first interim
period beginning after 15 June 2003. The Company believes that the adoption
of SFAS No. 150 does not have material impact on its financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements of Guarantees, including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions under FIN 45 are
applicable prospectively to guarantees issued or modified after 31 December
2002. The disclosure requirements are effective for interim or annual
periods ending after 15 December 2002 and have been included in the
financial statements. The Company believes that the adoption of the related
accounting measurement and recognition provisions will not have a material
impact on its financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of APB No. 50", (FIN 46).
FIN 46 provides guidance on the identification of and financial reporting
for entities over which control is achieved through means other than voting
rights. This Interpretation requires existing unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
entities do not effectively disperse risks among parties involved. The
Interpretation applies immediately to variable interest entities created
after 31 January 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after 15 June 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before 1 February 2003. As of 31 December 2002 and 30 June 2003,
the Company had no investment in variable interest entities.
(n) Inventories
Inventories represent finished goods and work in progress. Finished goods
which are stated at cost are calculated on the weighted average basis and
are stated at the lower of cost and net realizable value. Net realizable
value is determined on the basis of anticipated sales proceeds less
estimated selling
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expenses. Work in progress comprises primarily of costs incurred on
commercial enterprise solution projects where revenues and costs have not
been recognized in the statement of income as customer acceptance has not
been obtained. Costs incurred include costs of hardware, software and labor
on such projects prior to customer acceptance.
(o) Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the identifiable assets and liabilities acquired as a result of the Group's
acquisitions of interests in its subsidiaries and variable interest
entities.
The Group adopted SFAS No. 142 "Goodwill and Intangible Assets" (SFAS 142)
on 1 January 2002. Under SFAS 142, goodwill is no longer amortized, but
tested for impairment upon first adoption and annually thereafter, or more
frequently if events or changes in circumstances indicate that it might be
impaired, using the prescribed two-step process. The first step screens for
potential impairment of goodwill if the fair value of the reporting unit is
less than its carrying value, while the second step measures the amount of
goodwill impairment, if any, by comparing the implied fair value of
goodwill to its carrying value.
(p) Intangibles
Intangible assets, which primarily include domain names, developed
technology, trademark, brand name, customer base, non-compete agreement and
operating licences arising either from the contribution of stockholders or
the acquisitions of subsidiaries, were initially recognized and measured at
fair value upon acquisition. Intangible assets are amortized over their
estimated useful lives of three to five years.
Intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. The Group evaluates recoverability of assets to be held and
used by comparing the carrying amount of an asset to future net
undiscounted cash flows to be generated by the asset. If such asset is
considered to be impaired, the impairment loss is measured as the carrying
amount of the asset exceeds the fair value of the asset calculated using a
discounted future cash flow analysis.
The amortization methods and estimated useful lives of intangible assets
are reviewed regularly.
(q) Stock-based compensation
In accordance with the provision of SFAS No.148, "Accounting for
Stock-Based Compensation-Transition and Disclosure", the Company has
selected the disclosure only provisions related to employee stock options
and share purchases and follows the provisions of Accounting Principles
Board Opinion No. 25 (APB 25) in accounting for stock options and shares
issued to
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employees. Under APB 25, compensation expense, if any, is recognized as the
difference between the exercise price and the estimated fair value of the
common stock on the measurement date, which is typically the date of grant,
and is expensed ratably over the service period, which is typically the
vesting period.
(r) Minority interests
Minority interests represent the proportionate equity interests of the
stockholders, other than the Company or its controlled entities, in the
Company's combined subsidiaries which are not wholly-owned.
(s) Comprehensive income
Comprehensive income is defined as the change in equity of the Group during
a period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to
owners. Accumulated other comprehensive income of the Group represents the
cumulative foreign currency translation adjustment.
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SCHEDULE 4
LIST OF DISCLOSED DOCUMENTS
--------------------------------------------------------------------------------
Index DD List Document Title
No. No.
--------------------------------------------------------------------------------
1. A1, A8, Corporate Business License (13 May 2003)
B1, B2, -------------------------------------------------------------
B5 Articles of Association (28 June 2002) and Register of
Members
-------------------------------------------------------------
The First Amendment Proposal to the Articles of Association
(24 April 2003)
-------------------------------------------------------------
The Registration Certificate of Company Statistics
-------------------------------------------------------------
The Tax Registration Certificate of State Tax Bureau and
Local Tax Bureau (31 July 2002 to 30 July 2032)
-------------------------------------------------------------
Value-added Telecommunication Business Operation Permit (27
March 2003 to 28 March 2008)
-------------------------------------------------------------
The PRC Telecommunication and Information Service Business
Operation Permit (9 September 2002)
-------------------------------------------------------------
Telecommunication and Information Service Business - The
Notice Regarding the Pass of Annual Review of the Operation
Permit (8 April 2003)
-------------------------------------------------------------
Beijing Telecommunication Administration (Telecommunication
Business Examination [2002] Zhi No. 344 Letter) - The Reply
Regarding Internet Information Service Business (4 September
2002)
-------------------------------------------------------------
Beijing High-New Technology Enterprise Approval Certificate
(10 June 2003)
-------------------------------------------------------------
The List of Executive Directors, Supervisors and Managers
-------------------------------------------------------------
Capital Verification Report upon Commencement of Operation
(25 July 2002)
-------------------------------------------------------------
Capital Verification Report upon Alteration (28 April 2003)
--------------------------------------------------------------------------------
2. A3, H1, Staff List
H3
--------------------------------------------------------------------------------
3. A4 Capital Contribution Deposit Report (the third batch): RMB
100,000, RMB 400,000 (28 April 2003), RMB 400,000 (25 July
2002)
Cash Deposit Report of Chinese Construction Bank: RMB
100,000, RMB 400,000 (28 April 2003 ) RMB 100,000 (25 July
2002)
--------------------------------------------------------------------------------
4. A5 Resolutions in General Meetings (24 April 2003)
--------------------------------------------------------------------------------
5. A11 12 Internal Agreements (25 July 2002)
--------------------------------------------------------------------------------
6. E1, E3, Monternet SMS Business Cooperation Agreement - Agreement No.
E5 WJ-024
-------------------------------------------------------------
Monternet SMS Business Cooperation Agreement - Agreement No.
WJ-012 (4 December 2002)
-------------------------------------------------------------
Interactive Voice Response Business Cooperation Agreement -
Agreement No. 001, WJ-005 (30 October 2002)
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
Index DD List Document Title
No. No.
--------------------------------------------------------------------------------
Amendments to the Interactive Voice Response Business
Cooperation Agreement - Agreement No. 004, WJ-027 (3 June
2003)
--------------------------------------------------------------------------------
12586 Online Media Business Cooperation Agreement - Agreement
No. 002, WJ-036 (3 July 2003)
-------------------------------------------------------------
Cooperation Agreement (with Beijing Mingxing Dongli Shuma
Science and Technology Ltd.) - Agreement No. WJ-004 (13
November 2002)
-------------------------------------------------------------
Supplementary Agreement (with Beijing Mingxing Dongli Shuma
Science and Technology Ltd.) - Agreement No. WJ-030 (10 June
2003)
--------------------------------------------------------------------------------
7. E7 Cooperation Agreement (Activity Site Operation) No.:
LTWJ-1452
--------------------------------------------------------------------------------
Cooperation Agreement (Press Conference) No.: LTWJ-1453
--------------------------------------------------------------------------------
Agreement for Change and Termination of Major Entity,
LTWJ-1764
--------------------------------------------------------------------------------
8. F1, F2 Real Estate Rental Agreement (16 June 2003)
--------------------------------------------------------------------------------
9. H2, H3 Labour Agreement (30 June 2003)
--------------------------------------------------------------------------------
10. I2 Domain Registration Certificate (30 August 2002)
--------------------------------------------------------------------------------
11. J1 to J6 State Tax Bureau Beijing Development Region Branch (Kai Guo
Shui Han [2003] No. 127): The Reply Regarding the Application
for Taxation Preferential Treatment of New Technology
Enterprise (18 August 2003)
--------------------------------------------------------------------------------
12. K1 Accounts Receivables (30 June 2003)
--------------------------------------------------------------------------------
13. L2 Competition - Competitors Analysis
--------------------------------------------------------------------------------
14. (a) Board resolution dated 20 August 2003 approving the
transfer of one issued share in Puccini International Limited
from Ms. Chau Hoi Shuen to Cranwood Company Limited;
(b) The instrument of transfer executed by Ms. Chau Hoi
Shuen transferring one issued share in Puccini International
Limited to Cranwood Company Limited; and
(c) The register of members registering the transfer of one
issued share in Puccini International Limited from Ms. Chau
Hoi Shuen to Cranwood Company Limited.
--------------------------------------------------------------------------------
15. Appraisal Report issued by American Appraisal International
Valuation Consultancy in relation to certain Computer
equipment.
--------------------------------------------------------------------------------
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SCHEDULE 5
LOAN TERM SHEET
Borrower: [TOM.COM LIMITED] [TOM ONLINE INC.]*
Lender: Cranwood Company Limited
Purpose: General working capital purposes
Loan Amount: 50% of the amount which represents the Cash
Consideration actually received by the Vendor at that
time less the aggregate amount of any Claims which have
not already been deducted by the Purchaser in
accordance with the provisions of either clauses 4.12
or 4.13
Currency: US dollars
Drawdown Request: Within 10 Business Days of Final Payment Date
Drawdown: The Loan will be available for drawdown within three
(3) Business Days of the Drawdown Request such date
being the "Drawdown Date". The Borrower shall draw down
the entire amount of this loan on the Drawdown Date
Collateral: None required
Interest Rate: LIBOR plus 50-basis points
Interest Payment Date: 3, 6, 9 and 12 months after the Drawdown Date
Interest Payment: Payable on each Interest Payment Date. Interest will be
computed on actual number of days elapsed and shall be
payable in arrears
Maturity Date: Twelve (12) months of the Drawdown Date. All
outstanding interest and principal of the Loan shall
become due and payable on the Maturity Date
Prepayment: All or any portion of the Loan may be prepaid at any
time without penalty
Governing Law: The loan documentation will be governed by the laws of
Hong Kong
--------------------------------------------------------------------------------
* As appropriate.
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<PAGE>
AS WITNESS this Agreement has been signed on behalf of the Parties the day and
year first before written.
SIGNED by )
for and on behalf of )
CRANWOOD COMPANY LIMITED )
in the presence of: )
SIGNED by )
for and on behalf of )
BRIGHT HORIZON ENTERPRISES )
LIMITED )
in the presence of: )
SIGNED by )
for and on behalf of )
TOM.COM LIMITED )
in the presence of: )
SIGNED by )
for and on behalf of )
TOM ONLINE INC. )
in the presence of: )
Page 70