STOCKPURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of August 11, 2010 (the “Execution Date”), is made and entered into by and between First Jet Investments Limited, a company organized under the laws of the British Virgin Islands (“Seller”), Seller’s wholly-owned subsidiary New Crown Technology Limited, a company organized under the laws of Hong Kong (“New Crown”), and Jun Tang, an individual who has been the principal of the Seller and New Crown (the “Principal”), and China Architectural Engineering, Inc., a Delaware corporation (“CAE”).

 

 

WHEREAS, Seller owns 100% of the equity interests of New Crown, and New Crown owns 100%, or RMB 10,000,000, of the equity interest in Shanghai ConnGame Network Ltd., a company organized under the laws of the People’s Republic of China with a registered capital of RMB 10,000,000 as of the date of this Agreement (“ConnGame”), as set forth in Section 3.01(b) of the disclosure schedule attached hereto as Exhibit A (“Disclosure Schedule”);

 

WHEREAS, New Crown is a holding company that holds 100% of the equity interests of ConnGame is engaged in the business of developing and operating Massively Multiplayer Online Role-Playing Games (MMORPGs) (the “Business”); and

 

WHEREAS, CAE desires to acquire from Seller and Seller desires to sell to CAE 60% of the equity interest of New Crown (the “Transferred Equity”) and thereby becoming a 60% indirect holder of the outstanding equity interest of ConnGame (the “Acquisition”).

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

1.01

Definitions.

 

In this Agreement, the following terms shall have the meanings set forth below unless the context provides or requires otherwise:

 

“1933 Act” means the Securities Act of 1933, as amended.

 

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person.  “Control” for this purpose means possession, directly or indirectly, of more than fifty percent (50%) of the voting power of a Person.

 

“Entity” means any sole proprietorship, corporation, partnership of any kind having a separate legal status, limited liability company, business trust, unincorporated organization or association, mutual company, joint stock company or joint venture.

 

“Environmental Law” means and includes all statutes, regulations, rules, policy, guidance, ordinances, codes, common law, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises and similar items, of all Governmental Authorities and all judicial and administrative and regulatory writs, injunctions, decrees, judgments and orders to which ConnGame or CAE is a party or is otherwise directly bound, now or which becomes effective on or before the Closing Date relating to land use (other than zoning/planning), air, soil, surface water, groundwater (including the protection, cleanup, removal, remediation or damage thereof), human health and safety or any other environmental matter, including the following laws and all corresponding regulations and their equivalent or similar laws and regulations in any other jurisdiction, in each case as the same may be amended from time to time: the PRC Environmental Protection Law, the PRC Law on the Prevention and Control of Water Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Air Pollution and its Implementation Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and the PRC Law on the Prevention and Control of Noise Pollution; Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601 et seq.; Federal Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; Clean Water Act, 33 U.S.C. §§ 1251 et seq.; Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq.; Refuse Act 33 U.S.C. § 407; Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq.; Clean Air Act, 42 U.S.C. §§ 7401 et seq.; Environmental Protection Act 1990 (UK); the Water Resources Act 1990 (UK); and the Health and Safety at Work etc. Act 1974 (UK) and any federal, state, and local counterparts and equivalents thereto.

 

“GAAP” means generally accepted accounting principles in the United States.

 

“Governmental Authority” means (i) any federal, state, county, municipal or other government, domestic or foreign, or any agency, board, bureau, commission, court, department or other instrumentality of any such government, or (ii) any Person having the authority under any applicable Governmental Requirement to administer, assess, collect or impose Taxes.

 

“Governmental Requirement” means at any time (i) any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict, award, authorization or other requirement of any Governmental Authority in effect at that time or (ii) any obligation included in any certificate, certification, franchise, permit or license issued by any Governmental Authority or resulting from binding arbitration, including any requirement under common law, at that time.

 

“Hazardous Substances” means and include any substance: (i) the presence of which requires reporting, investigation, removal or remediation under any Environmental Law; (ii) that is defined as a “hazardous waste,” “hazardous substance,” “toxic substance,” or “pollutant” or “contaminant” under any Environmental Law; (iii) the presence of which causes or threatens to cause a nuisance, trespass or other tortious condition or poses a hazard to the health or safety of persons; or (iv) that contains gasoline, diesel fuel or other petroleum hydrocarbons, PCBs, asbestos, silica or urea formaldehyde foam insulation.

 

“Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China.

 

 “Knowledge” means, as it relates to Seller, New Crown, ConnGame, the actual knowledge of Principal, plus such knowledge as Principal would have acquired after due investigation of the relevant fact or matter (including making all necessary enquiries with the respective officers, directors and employees of ConnGame), regardless of whether such investigation has actually occurred, and as to any other Person, the actual knowledge of a specified Person of any particular fact or other matter after due investigation, and the words “aware,” “known” or similar words, expressions or phrases shall be construed accordingly.

 

“Lease” means any lease, sub-lease, tenancy agreement, sub-tenancy agreement, licence or any other document (including any option for extension relating thereto) granted or agreed to be granted to ConnGame or pursuant to which it holds or occupies any Leased Property, details of which are set forth in Section 3.1(m) of the ConnGame Disclosure Schedule.

 

“Legal Requirement” means any law, regulation, rule, ordinance, decree, order or other standard imposed by a Governmental Authority applicable to a party or the conduct or operation of its business or the ownership or use of any of its assets, including, in the case of ConnGame, all those imposed under the any laws, rules, regulations or requirements of any other applicable jurisdiction.

 

“License” means any license, certification, permit or other authorization from any Governmental Authority necessary for ConnGame  to conduct the Business or any part thereof or own or operate any of its assets and properties.

 

“Material Adverse Effect” means (i) with respect to CAE, a material adverse effect on the business, operations, affairs, properties, assets or condition (financial or otherwise) of such party; and (ii) with respect to ConnGame, any event, circumstance, occurrence, fact, condition, change or effect which, individually or in the aggregate (a) has or would be reasonably expected to have a material adverse effect on the business, operations, affairs, properties, assets or condition (financial or otherwise) of ConnGame, or (b) will or would be reasonably expected to adversely affect the ability of ConnGame, New Crown, or Seller to consummate the transactions contemplated under this Agreement or any other Transaction Document to which it is a party.

 

“Permitted Liens” means, with respect to the property or other assets of ConnGame  (or any revenues, income or profits of ConnGame  therefrom):  (i) Liens for Taxes if the same are not at the time due and delinquent; (ii) Liens of carriers, warehousemen, mechanics, laborers and materialmen for sums not yet due; (iii) Liens incurred in the ordinary course of the Business in connection with workers’ compensation, unemployment insurance and other social security legislation; (iv) Liens incurred in the ordinary course of the Business in connection with deposit accounts or to secure the performance of bids, tenders, trade contracts, statutory obligations, surety and appeal bonds, performance and return of money bonds and other obligations of like nature; (v) easements, rights-of-way, reservations, restrictions and other similar encumbrances incurred in the ordinary course of the Business or existing on property and not interfering in any material respect with the ordinary conduct of the Business or the use of that property; and (vi) defects or irregularities in ConnGame’s interest in its real properties which do not materially (A) diminish the value of the surface estate or (B) interfere with the ordinary conduct of the Business or the use of any of such properties.

 

“Person” means any natural person, Entity, estate, trust, union or employee organization or Governmental Authority.  Person includes any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. “Control” for this purpose means possession, directly or indirectly, of more than fifty percent (50%) of the voting power of a Person.

 

“PRC” means the People’s Republic of China, excluding, for the purposes of this Agreement, the Macau Special Administrative Region, Hong Kong and Taiwan.

 

“Solvent” means, for any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe it will, incur debts and liabilities beyond such Person’s ability to pay as such debts and liabilities mature, (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts as they become due and payable.

 

“Statutory Plans” means statutory or other benefit plans which ConnGame or any ConnGame Subsidiary is required to participate in or comply with pursuant to any applicable statutes, laws, rules, regulations, codes, notices, circulars, orders, edicts, decrees, practices or promulgations of any Governmental Authority in any jurisdiction, including plans administered pursuant to applicable health tax, workplace safety insurance and employment insurance legislation and, without any limitation to the foregoing, including any statutorily required employee compensation insurance, and any social insurance, social security or welfare benefit contributions required under the laws of the PRC or any other applicable jurisdiction.

 

“Taxes” means and includes all forms of taxes, charges, fees, imposts, duties, levies, deductions, withholdings or other assessments of any nature imposed, levied, collected, withheld or assessed by any Governmental Authority or other taxing or similar authority in any part of the world, including income, gross receipts, excise, property, sales, use, transfer, payroll, licence, value added, social security, national insurance (or other similar contributions or payments), franchise, estimated, severance, customs and stamp taxes (including any interest, fines, penalties, charges or additions attributable to, claimed, payable or imposed on or with respect to, any such taxes, charges, fees, levies or other assessments).

 

“Tax Returns” means any return, statement, declaration, notice, certificate, report or other document that is or has been filed with or submitted to, or required to be filed with or submitted to, any Governmental Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement or Governmental Requirement related to any Tax.

 

“Transaction Documents” means this Agreement, and any other agreements, documents and instruments delivered under or pursuant to any of the foregoing.

 

 

2.01

Purchase and Sale of the Transferred Equity.

 

At the Closing, subject to the terms and conditions of this Agreement, Seller agrees to sell, transfer, assign, convey and deliver the Transferred Equity to CAE or its designee(s), free and clear of any liens, encumbrances, pledge, security interest, restrictive covenant, burden or charge of any kind or nature whatsoever, legal or equitable, or any item similar or related to the foregoing (“Liens”), together with all rights attaching thereto including the right to receive all dividends and distributions declared, made or paid on or after the date of Closing.

 

2.02

Delivery of Certificate of Capital and Proof of Transfer.

 

At the Closing, Seller shall deliver to CAE:

 

 (a) a certificate of capital verifying that CAE or its designee(s) has been registered as holding the Transferred Equity, including all original certificates representing such Transferred Equity, which certificates shall be accompanied by instruments of transfer of the Transferred Equity duly executed by the Seller in favor of CAE (or such other person(s) as CAE may direct);

 

(b) to the extent any of the same shall not have been provided prior to Closing, all documents required in Section 7.01 and such other documents as CAE may require evidencing the fulfilment of the conditions precedent thereunder; and

 

(c) any and all documents related to effecting the transfer of Transferred Equity to CAE, in addition to such documents, approvals, consents, proof of notices, and reports from the proper Governmental Authorities or other parties evidencing that such transfer has taken place.

 

2.03

Purchase Price.

 

 

2.04

Closing.

 

The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of K&L Gates LLP, 10100 Santa Monica Boulevard, 7th Floor, Los Angeles, California 90067 at 10:00 a.m., Pacific Standard time as soon as practical after the conditions precedent set forth herein are met or otherwise waived in accordance with the terms of this Agreement, or such other place and date as the parties may mutually agree upon (the “Closing Date”).

 

 

3.01

Representations and Warranties of Seller, New Crown and Principal relating to ConnGame and the Transferred Equity.

 

All references in this Section 3.01 to ConnGame, other than those in paragraphs (b), (c), (d) and (g), shall be read and construed as a reference to ConnGame.  Seller, New Crown and Principal, jointly and severally, hereby represent and warrant to CAE as follows:

 

 

 

 

    

(k)            Taxes.

 

    (i)           Each of New Crown and ConnGame has timely filed all Tax Returns required to be filed on or before the date hereof and will timely file all Tax Returns required to be filed on or before Closing under any applicable laws and regulations.  Such Tax Returns are true, correct and complete in all respects.  All Taxes due and owing by each of New Crown and ConnGame (whether or not showing on any Tax Return) have been paid.  Neither new Crown nor ConnGame is currently the beneficiary of any extension of time in which to file any Tax Return.  No written claim has ever been made by any authority in a jurisdiction where New Crown and/or ConnGame does not file Tax Returns that ConnGame New Crown and/or  is or may be subject to taxation by that jurisdiction.  There are no liens for Taxes (other than for Taxes not yet due and payable) upon any of the assets of New Crown or ConnGame.  New Crown and ConnGame has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

 

(iii)          Neither of ConnGame, New Crown nor any director or officer (or employee responsible for Tax matters) thereof expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed.  No foreign, federal, state, or local tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to each of ConnGame and New Crown.  Each of ConnGame and New Crown has not received from any Governmental Authority (including jurisdictions where each of ConnGame and New Crown does not file Tax Returns) any (1) written notice indicating an intent to open an audit or other review, (2) request for information related to Tax matters, or (3) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against ConnGame or New Crown.

 

(iv)          Neither New Crown nor ConnGame is a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in payment of (1) any “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) from this transaction (or any corresponding provision of state, local or foreign Tax law) or (2) any amount that will not be fully deductible as a result of Code Section 162(m) (or any corresponding provision of state, local or foreign Tax law).  

 

(v)           Neither New Crown nor ConnGame has been a member of an affiliated group filing a consolidated federal income Tax Return and ConnGame has never been a member of any group for Tax purposes (other than the group comprising solely each other).  Each of ConnGame and New Crown does not have any liability for the Taxes of any Person or Entity under any applicable Legal Requirement as a transferee or successor, by contract, or otherwise.  No act or transaction has been or will, either on or before the Closing, be affected by ConnGame, New Crown, Seller or any other Person in consequence of which ConnGame or New Crown is or may be held liable for Taxes primarily chargeable against some other Person.

 

(vi)          The unpaid Taxes of each of ConnGame and New Crown (1) did not, as of the date of the most recent balance sheet included in the ConnGame Financial Statements, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of such balance sheet (rather than in any notes thereto) and (2) do not and will not exceed such reserve as adjusted for the passage of time through the date of the Closing in accordance with the past custom and practice of each of ConnGame and New Crown in filing its Tax Returns.  Since the date of the most recent balance sheet included in the ConnGame Financial Statements, each of ConnGame and New Crown has not incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.

 

(vii)         No power of attorney has been granted by each of ConnGame and New Crown with respect to any matters relating to Taxes that is currently in effect.

 

(viii)        Each of ConnGame and New Crown has not filed any disclosures under Code Sections 6662 or 6011 or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return.

 

(ix)          Each of ConnGame and New Crown will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a taxable period ending on or prior to the Closing Date; (B) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (C) intercompany transactions or any excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding similar provision of state, local or foreign income Tax law); (D) installment sale or open transaction disposition made on or prior to the Closing Date; or (E) prepaid amount received on or prior to the Closing Date.

 

(x)           Each of ConnGame and New Crown does not own an interest in real property in any jurisdiction in which a Tax is imposed, or the value of the interest is reassessed, on the transfer of any interest in real property and which treats the transfer of an interest in an entity that owns an interest in real property as a transfer of the interest in real property.

 

(xii)         Each of ConnGame and New Crown has not, in the past ten (10) years, (i) acquired assets from another corporation in a transaction in which the Tax basis of the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (ii) acquired the stock of any corporation which is a qualified subchapter S subsidiary.

 

(xiii)           Each of ConnGame and New Crown has not entered into or been engaged in or been a party to any transaction which is artificial or fictitious or any transaction or series of transactions or scheme or arrangement of which the main or dominant purpose or one of the main or dominant purposes was the avoidance or deferral of or reduction in the liability to Tax of each of ConnGame and New Crown, to the extent that such arrangement is prohibited under any Legal Requirement or Governmental Requirement.  No Tax scheme in effect, as previously applied in the ConnGame Financial Statements, has been or will be illegal under any Legal Requirement or Governmental Requirement or adversely affect the financial condition of each of ConnGame and New Crown or the operation of the Business.  None of the assets and properties of ConnGame has been purchased at an under value or been given to ConnGame in circumstances where the gift or element of under value might be subject to or give rise to any form of Tax, estate duty chargeable or assessable against each of ConnGame and New Crown or on any of its assets.

 

(xiv)           Each of ConnGame and New Crown has sufficient records to permit accurate calculation of the Tax liability or relief which would arise upon a disposal or realisation on completion of each asset owned by each of ConnGame and New Crown at the ConnGame Balance Sheet Date or acquired by each of ConnGame and New Crown before Closing and has otherwise maintained accurate and complete books of account and records with respect to all transactions and other matters occurring on or before Closing to enable the due and proper preparation and filing of all Tax Returns required of each of ConnGame and New Crown whether before or after Closing.  Each of ConnGame and New Crown has duly submitted all claims and disclaimers the making of which has been assumed for the purposes of the ConnGame Financial Statements.

 

 

(m)

Real Property.

 

(i)         Section 3.01(m) of the ConnGame Disclosure Schedule lists and describes any interest in real property held by ConnGame, including all real properties and premises owned, leased, occupied or otherwise used by ConnGame or in connection with the Business (the “ConnGame Real Properties”).  The ConnGame Real Properties constitute all of the interests in real property used in the Business, including any land use rights granted with respect to any real property, and all deeds and documents necessary to prove the title of ConnGame to the ConnGame Real Properties are in the possession of ConnGame.  All of the buildings, structures and appurtenances situated on the ConnGame Real Properties are (i) in good operating condition and in a state of good maintenance and repair (ordinary wear and tear excepted) and (ii) adequate and suitable for the purposes for which they are presently being used.

 

(ii)         ConnGame is not the registered or beneficial owner of any ConnGame Real Properties.

 

(iii)        The ConnGame Real Properties in Section 3.01(m) of the ConnGame Disclosure Schedule (“Leased Properties”) are all occupied under Leases and the particulars of all Leases are fully and accurately set out in that Section 3.01(m).  The ConnGame Real Properties in Section 3.01(m) of the ConnGame Disclosure Schedule are all occupied pursuant to land use rights sold or granted to ConnGame.  ConnGame possesses good leasehold to its Leased Properties pursuant to valid and subsisting Leases held by it.  With respect to any land use rights sold or granted or purported to have been sold or granted to ConnGame, such land use rights have been validly sold or granted by competent Governmental Authorities duly authorised so to do and ConnGame has good and valid title thereto free from Liens (other than Permitted Liens) and enforceable against any other third Person under PRC laws or the laws of any other applicable jurisdiction.

 

(iv)        The Leases are head leases, are properly completed and (where required) stamped and are in the possession and under the control of ConnGame.  The land use rights to any ConnGame Real Property in the PRC are owned by ConnGame for a period of not less than fifty (50) years from the relevant date as shown in Section 3.01(m) of the ConnGame Disclosure Schedule.

 

(v)         All necessary consents, permits, licenses, certificates, authorisations and approvals for the grant of the Leases and land use rights pertaining to any ConnGame Real Property were obtained before such grant.  The landlords named in the Leases were the registered owners of the Leased Properties at the time of the grant of the relevant Lease and all Leases are duly registered with the appropriate Governmental Authorities in accordance with applicable Legal Requirement or Governmental Requirement of the PRC or of any other applicable jurisdiction.  With respect to the land use rights, ConnGame has obtained and is in possession of the relevant land use right registration and other certificates and all other documents of title and such certificates and documents of title are valid and subsisting and in full force and effect.

 

(vi)        Save for Permitted Liens, the ConnGame Real Properties and the title deeds and documentation relating thereto are not subject to any debenture (whether fixed or floating), option, agreement for sale, condition, covenant, agreement, claim, overriding interest or any other Liens, nor is there any Person in possession or occupation of or who has or claims any right or easement of any kind in respect of any such properties adversely to the estate, interest, right or title therein of ConnGame.

 

(vii)       There are no rights, interests, covenants, restrictions, reservations, licenses or easements, nor any disputes or outstanding notices (whether given by a lessor or any other person) nor in the case of a Leased Property, rights for the lessor to break the term nor (without prejudice to the generality of the foregoing) any other matters or things which adversely affect the value of the ConnGame Real Properties or the proper use and enjoyment thereof for the purpose of the business now being carried on at such properties.

 

(viii)      The Leases contain no right of termination by the landlord thereof except on grounds of non-payment of rent, breach of covenant or insolvency.  There are no circumstances which would entitle or require a lessor or any other Person to exercise any power of entry upon or of taking possession of any ConnGame Real Properties or which would otherwise restrict or terminate the continued possession or occupation thereof.

 

(ix)         The Leased Properties are not subject to any outgoings other than general and water rates, rent, management charges of a non-capital nature and utility charges.  All land premiums and other Taxes and all rents, service charges and other outgoings payable by ConnGame in respect of the Leased Properties or properties to ConnGame holds land use rights have been duly and timely paid and will be paid up to the date of Closing and no amount is or will be due or payable by ConnGame in respect thereof on or prior to Closing.

 

(x)          ConnGame has duly performed, observed and complied with all covenants, restrictions, reservations, conditions, agreements, statutory requirements, by-laws, orders, building regulations and other stipulations and regulations affecting the ConnGame Real Properties and their use, including the terms of all Leases, and the use of such properties does not contravene the same and no notice of any alleged breach of any of the terms of any such Lease has been served on ConnGame.  Without limiting the foregoing, the current use by ConnGame of the ConnGame Real Properties and all of the buildings, structures and appurtenances situated thereon is in compliance with all zoning or planning restrictions applicable thereto.  All necessary certificates of compliance and other certificates, consents, occupation and other permits, licenses, authorisations and approvals for the user of any ConnGame Real Properties and any and all buildings and structures thereon, as they are being used, have been duly obtained and are in full force, validity and effect and there are no circumstances known to Seller or New Crown which are likely to result in the forfeiture, avoidance, withdrawal or non-renewal of or restriction on or amendment to the same.  All such properties are used by ConnGame for legal purposes and ConnGame has not violated any Legal Requirement or any Governmental Requirement of the PRC or elsewhere relating to land or property.  Seller and New Crown is not aware of any facts, matters or any notice or order served by any Governmental Authority which may adversely affect the right of ConnGame to use such properties for the purpose for which they are presently being used or intended to be used.  None of such properties is subject to any actual or threatened condemnation or other proceedings, notice or order given by any PRC or other Governmental Authority which would adversely affect such properties or any part thereof or preclude or impair the use of any such property by ConnGame for the purposes for which it is currently used.  None of the ConnGame Real Properties is adversely affected or likely to be adversely affected by any planning, highways, transport, utility or other proposals.

 

(xi)          ConnGame is entitled to and has exclusive vacant possession of the ConnGame Real Properties and, other than the Leases, no part of the ConnGame Real Properties is subject to any lease, tenancy or licence or any agreement to grant such lease, tenancy or licence and no Person other than ConnGame has a right to occupy or enter upon any of the ConnGame Real Properties, other than the rights of landlords pursuant to the Leases.  The Leases are not subject to any options or rights of pre-emption or first refusal in favour of any third parties.

 

(xii)         There is no outstanding monetary claim or liability, contingent or otherwise, affecting the ConnGame Real Properties and in the case of a Leased Property there are no rent reviews in the course of being determined or exercisable by the lessor from a date prior to the date of Closing.

 

(xiii)        ConnGame has maintained adequate insurance with respect to the ConnGame Real Properties where the failure so to maintain would or could reasonably expected to have a Material Adverse Effect on ConnGame.  Where ConnGame is responsible for maintaining insurance of the Leased Properties, the policy conforms in all respects with the requirements of the relevant Lease.

 

(n)

Legal Proceedings and Insolvency.

 

(i)         Except as set forth in Section 3.01(n) of the ConnGame Disclosure Schedule, there are no actions, suits, proceedings, claims or investigations pending or, to the Knowledge of Seller or New Crown, threatened, in any court, before any governmental agency or instrumentality or other Governmental Authority or in any arbitration proceeding against or by each of ConnGame and New Crown or against any of its activities, assets and properties.

 

(ii)         As of the date hereof, immediately prior to and immediately following Closing, ConnGame, New Crown and Seller is and will be Solvent.  None of ConnGame, New Crown and Seller is contemplating the filing of any petition by it under any bankruptcy or insolvency laws or the liquidating of all or a substantial portion of its property, and each of Seller and New Crown does not have any knowledge of any third party contemplating the filing of any such petition against ConnGame, New Crown or Seller.  

 

 

 

 

(r)

Employee Benefit Plans

 

(i)           Section 3.01(r)(i) of the ConnGame Disclosure Schedule sets forth a list of all (a) stock option, stock purchase, restricted stock, equity compensation, deferred compensation, bonus, fringe benefit, sick leave, vacation, paid or unpaid leave, profit sharing, pension, retirement, deferred compensation, medical, life, disability, accident, salary continuation, supplemental retirement, severance, change-of-control and unemployment benefit plans, programs or agreements (whether or not insured), (b) employment agreement, and (c) Statutory Plans (collectively, the “Employee Benefit Plans”) that have been established, maintained, or sponsored by ConnGame, or to which ConnGame has contributed or into which ConnGame has entered (the “ConnGame Employee Benefit Plans”). “ConnGame Employee Benefit Plans” shall not include any Employee Benefit Plan that is maintained under applicable law by a governmental body.  ConnGame has not announced or otherwise made a commitment to implement any arrangement that, if implemented, would be a ConnGame Employee Benefit Plan or to improve or change the benefits provided under any ConnGame Employee Benefit Plans, unless to the extent required under any applicable Legal Requirement or Governmental Requirement.

 

(ii)           ConnGame has made available to CAE, to the extent applicable, true and complete copies of the following documents with respect to each ConnGame Employee Benefit Plan, (A) the plan document (or, in the case of any unwritten ConnGame Employee Benefit Plan, a written summary of the terms of such ConnGame Employee Benefit Plan), (B) the summary plan description, (C) the trust agreement, and (D) all related agreements, insurance contracts and other agreements by which such ConnGame Employee Benefit Plan is established, operated, administered or funded.

 

(iii)           Each ConnGame Employee Benefit Plan complies in form and has been maintained and operated in all respects in accordance with the requirements of all applicable laws, including all applicable laws, rules, regulations, codes and practices pertaining to any Statutory Plans, and each ConnGame Employee Benefit Plan has been maintained and operated in accordance with its terms.  

 

(iv)           Neither ConnGame nor any director, officer or employee of ConnGame, nor any other person who participates in the operation of any ConnGame Employee Benefit Plan has engaged in any transaction with respect to any ConnGame Employee Benefit Plan, or breached any applicable fiduciary responsibility or obligation under any applicable Legal Requirement or Governmental Requirement that would subject any of them to a tax, penalty or liability for prohibited transactions or breach of any obligations under any applicable Legal Requirement or Governmental Requirement or would result in any claim being made under, by or on behalf of any such ConnGame Employee Benefit Plan by any party with standing to make such a claim.

 

(v)             There are no actions, suits or claims pending or, to the Knowledge of Seller or New Crown, threatened verbally or in writing against or with respect to any ConnGame Employee Benefit Plan or the assets of any ConnGame Employee Benefit Plan (other than routine claims for benefits and appeals of denied claims), and no civil or criminal action brought pursuant to the provisions of any applicable Legal Requirements or Governmental Requirements of any jurisdiction applicable to ConnGame is pending or threatened verbally or in writing against ConnGame or any fiduciary of any ConnGame Employee Benefit Plan with respect to any ConnGame Employee Benefit Plan.  ConnGame has not received any written notice that any ConnGame Employee Benefit Plan or any fiduciary thereof is presently the subject of an audit, investigation or examination by any governmental or quasi-governmental agency, and, to Seller’s Knowledge and New Crown’s Knowledge, no such action has been threatened.

 

(xii)          Each of ConnGame and New Crown has in place and maintained all Statutory Plans in full compliance with the Legal Requirements and Governmental Requirements of any jurisdiction applicable to ConnGame and New Crown, its Business or its operations.  All employer and employee payments, contributions and premiums required to be remitted, paid to or in respect of each such Statutory Plan have been paid or remitted in a timely fashion in accordance with its terms and all such Legal Requirements and Governmental Requirements and no Taxes, penalties, fees, contributions or other payments are owing under or, in relation to, any such Statutory Plan.  Without limiting the foregoing, all benefits and contributions payable to any employee of each of ConnGame and New Crown under any Statutory Plan have been fully satisfied.

 

 

(i)             is in compliance, in all material respects, with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable to ConnGame, New Crown, the Business, operations and activities, or to the employees conducting such business;

 

(ii)           Each of ConnGame and New Crown has all business and other licenses, certificates, permits, licenses, authorizations, consents, qualifications, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities, and other authorizations required from any Governmental Authority under any applicable Legal Requirements and Governmental Requirements in the PRC, that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and no suspension or cancellation of any of them has been threatened in writing;

 

(iii)           has received no written notification or communication from any Governmental Authorities since January 1, 2001, (A) asserting that each of ConnGame and New Crown is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authorities enforce, or (B) threatening to revoke any license, franchise, permit or governmental authorization which has not been resolved to the satisfaction of the Governmental Authorities which sent such notification or communication.  There is no event which has occurred that, to the knowledge of each of ConnGame and New Crown, would reasonably be expected to result in the revocation of any such license, franchise, permit or governmental authorization.

 

(iv)          Each of ConnGame and New Crown has not received any letter or notice from any PRC Governmental Authority notifying revocation of any Permits or Licenses issued to it by any PRC Governmental Authority for non-compliance or the need for compliance or remedial actions in respect of the activities carried out by it.

 

(v)        Each of ConnGame and New Crown has been conducting and will conduct its business activities within the permitted scope of its business license or is otherwise operating its business in full compliance with all applicable Legal Requirements and Governmental Requirements and with all requisite Permits and Licenses granted by competent PRC Governmental Authorities, as applicable, or any other Person.

 

(vi)       All Licenses and Permits required for the conduct of any part of the Business which are subject to periodic renewal have been obtained and there are no grounds on which such renewals will not be granted by the relevant PRC Governmental Authorities or other Persons.

 

(vii)      All filings, declarations, exemptions and registrations from or with all applicable and competent PRC Governmental Authorities required in respect of ConnGame and its operations including, without limitation, registrations with Foreign Economic Relations and Trade Commission, State or the relevant local Administration of Industry and Commerce, State Administration for Foreign Exchange, tax bureau and customs authorities have been duly completed in accordance with all applicable Legal Requirements and Governmental Requirements in the PRC.

 

(t)

Environmental Matters.

 

(i)          Except as set forth in Section 3.01(t) of the ConnGame Disclosure Schedule, neither ConnGame, New Crown, Seller nor any Person acting at its direction has discharged, released or emitted, or has threatened to discharge, release or emit Hazardous Substances into the air, water, surface water, ground water, soil, land surface or subsurface strata or transported Hazardous Substances to or from property currently owned, leased or used by ConnGame except in compliance with Environmental Law and except for claims or releases which have been remediated and for which the appropriate Governmental Authority has delivered a “no further action” letter or similar written indications that no additional action is required.

 

(ii)          Except as set forth in Section 3.01(t) of the ConnGame Disclosure Schedule, neither ConnGame nor Seller has received any written or verbal notification from a Governmental Authority that there is any violation of any Environmental Law with respect to the business and properties of ConnGame and neither ConnGame, New Crown, nor Seller has received any written or verbal notification from a Governmental Authority pursuant to any Environmental Law, and with respect to any such matter notified, none of them remain open, active or require any further action on the part of ConnGame.

 

(iii)          ConnGame has all licenses, certificates, consents, approvals, qualifications, filings, declarations, registrations, exemptions, permits and other authorizations from federal, state, foreign or local Governmental Authorities that are necessary with respect to the conduct of the Business and the ownership, use or operation of ConnGame Real Properties and any other assets and properties of ConnGame (each a “Permit” and collectively, the “Permits”).  All such Permits and the continuing validity thereof will not be adversely affected by the consummation of the transactions contemplated hereby and, to the extent required for the conduct of the Business by ConnGame or the ownership or use of any of its assets and properties after Closing, all such Permits may otherwise be transferred or assigned to CAE in accordance with their terms and with applicable law.  To the extent so required, ConnGame, New Crown, Seller, and Principal shall use their best efforts to cooperate with and assist CAE so that the Permits can be conveyed, transferred and/or assigned to CAE.  The present conduct of the Business is not dependent upon any zoning variance or non-conforming use exception.  Section 3.01(t) of the ConnGame Disclosure Schedule contains a list of all Permits.  There is no basis for the revocation or withdrawal of any Permit or any non-renewal thereof upon its expiry.  Neither ConnGame, New Crown, nor Seller has received any written or verbal notification from the federal, state, foreign or local Governmental Authorities that there is a violation of any Permit with respect to the business and properties of ConnGame and neither ConnGame, New Crown nor Seller has received any written or verbal notification from the federal, state, foreign or local governments regarding any Permit, and with respect to any such matter notified, none of them remain open, active or require any further action on the part of ConnGame, New Crown or Seller.

 

(iv)          Except as set forth in Section 3.01(t) of the ConnGame Disclosure Schedule, there are no underground storage tank systems or facilities on any portion of the property currently owned, leased or used by ConnGame and any underground storage tank or facility previously located thereon has either been removed or closed in place, and ConnGame has completed all applicable investigations and procedures required to close such tanks or tank systems in compliance with all applicable Environmental Laws.  Section 3.01(t) of the ConnGame Disclosure Schedule identifies all storage tanks or facilities that have been closed in place.

 

(v)         ConnGame has never manufactured, processed, handled or sold asbestos or products containing asbestos.  ConnGame has never manufactured or sold sand blasting sand to third parties for use outside of ConnGame’s facilities.  Except as set forth Section 3.01(t) of the ConnGame Disclosure Schedule, neither ConnGame nor Seller has received notice of any claim or suit against ConnGame or Seller for asbestos- or silica-related exposure or injury, whether by current or former employees or third parties.

 

 

 

 

 

 

 

4.01

Representations and Warranties of Seller and Principal regarding Seller.

 

Seller and Principal, jointly and severally, hereby warrant and represent to CAE that:

 

 

 

 

(1)         Seller is not acquiring CAE Shares as a result of, and Seller covenants that it will not engage in any “directed selling efforts” (as defined in Regulation S under the 1933 Act) in the United States in respect of the CAE Shares which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the CAE Shares;

 

(2)         Seller is not acquiring the CAE Shares for the account or benefit of, directly or indirectly, any U.S. Person;

 

(3)         Seller is a resident of the jurisdiction in which Seller resides;

 

(4)         the offer and the sale of CAE Shares to Seller as contemplated in this Agreement complies with or is exempt from the applicable securities legislation of the jurisdiction in which the Seller resides;

 

(5)         Seller is outside the United States when receiving and executing this Agreement and that Seller will be outside the United States when acquiring CAE Shares,

 

(6)         and Seller covenants with CAE that:

 

(A)           offers and sales of any of the CAE Shares prior to the expiration of a period of six months after the date of original issuance of the CAE Shares (the six month period hereinafter referred to as the “Distribution Compliance Period”) shall only be made in compliance with the safe harbor provisions set forth in Regulation S, pursuant to the registration provisions of the 1933 Act or an exemption therefrom, and that all offers and sales after the Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom and in each case only in accordance with applicable state securities laws; and

 

(B)           Seller will not engage in hedging transactions with respect to Shares until after the expiration of the Distribution Compliance Period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All notices, requests, demands and other communications required or permitted to be given under this Agreement shall be given in writing and shall be deemed to have been duly given (a) on the date of delivery if delivered by hand or by telecopy, in the case of telecopy upon confirmation of receipt, (b) on the date of delivery, if delivered by electronic mail, upon confirmation of receipt, or (c) on the first business day following the date of dispatch if delivered by a recognized next-day courier service.  All notices thereunder shall be delivered to the following addresses:

 

If to Seller, Principal, or New Crown, to:

First Jet Investment Limited (“First Jet”)

65F, Shanghai World Financial Center, No.100 Century Avenue

PuDong, Shanghai

Attn:  Jun Tang

Tel:  0086-21-68776700

with a copy to:

If to CAE, to:

 

China Architectural Engineering, Inc.

China Architectural Engineering, Inc.

105 Baishi Road

Jiuzhou West Avenue

Zhuhai 519070

People’s Republic of China

0086 ###-###-####

Attn: Luo Ken Yi

Email: ***@***

 

with a copy to:

10100 Santa Monica Blvd., 7th Floor

Los Angeles, CA 90067

Attention:  Thomas J. Poletti, Esq.

Facsimile:   ###-###-####

Email: ***@***

 

Any party to this Agreement may, by notice given in accordance with this Section 10.01, designate a new address for notices, requests, demands and other communications to such party.

10.02     Counterparts.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which taken together shall be deemed to constitute a single instrument.

 

10.03     Entire Agreement; No Third-Party Rights.

 

This Agreement and the ConnGame Disclosure Schedule attached hereto constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement, including but not limited to that certain Letter of Intent dated December 11, 2009.  This Agreement is not intended to confer upon any person other than the parties hereto (and their respective successors and assigns) any rights or remedies.

 

10.04     Successors and Assigns.

 

This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns (including successive, as well as immediate, successors and assigns) of the parties hereto.  This Agreement may not be assigned by any party hereto without the prior written consent of the other parties.

 

10.05     Captions

 

The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as part of this Agreement.

 

 

10.06     Governing Law.

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without giving effect to principles of conflicts or choice of laws (except to the extent that mandatory provisions of Federal law are applicable).

 

10.07     Payment of Fees and Expenses.

 

Except as otherwise provided in Section 9.02 or otherwise agreed in writing, each party hereto shall pay its own costs and expenses, including legal and accounting fees, incurred in connection with the preparation, negotiation and execution of the Transaction Documents and the consummation of the transactions contemplated hereby and all expenses relating to its performance of, and compliance with, its undertakings herein.

 

10.08     Amendment.

 

From time to time and at any time prior to the Closing, this Agreement may be amended only by an agreement in writing executed by the parities.

 

10.09     WAIVER OF JURY TRIAL.

 

 

10.10       Waiver.

 

The rights and remedies of the parties to this Agreement are cumulative and not alternative.  Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege.

 

10.11       Severability.

 

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on behalf of CAE, Seller, New Crown, and Mr. Jun Tang as of the date set forth in the first paragraph above.

 

 

Shanghai ConnGame Network Ltd. is a company organized under the laws of the People’s Republic of China with a registered capital of RMB 10,000,000 and the registered shareholders of Shanghai ConnGame Network Ltd. is as follows:

New Crown Limited has issued 10,000 capital shares authorized with HKD1.00 par value and 10,000 shares issued and outstanding, 100% in the name of First Jet.

Not Used.

Not Used.

 

Not Used

 

Not Used.

 

Not Used.

Not Used.

Not Used.

Not Used

A list of all Contracts in existence of the date of this Agreement

1、花园坊租赁合同Garden Square Rental Agreement

2、空间188房屋租赁合同 Space 188 Rental  Agreement

3、上海《无忧工作网》服务合同 Shanghai "worry-free network " service contract

4、           项目外包制作合同 Project Outsourcing Production Contract

5、           智联招聘服务合同 Zhilian Recruitment Service Contract

6、           租用户物业管理合同 Rental property management contract

7、           技术支持服务合同 暨补充协议 Technical Support Services Contract Supplemental Agreement

8、计算机软件著作权代理委托合同书（涡轮）Computer software copyright agent commission contract (Turbo)

9、           计算机软件著作权代理委托合同书（天启）

Computer software copyright agent commission contract (Apocalypse)

 

A list of intellectual property right by ConnGame:

1.

" Apocalypse" game engine software Production right (Application submitted for approval), see Annex "Apocalypse engine _ computer software copyright registration application form"

2.

"Turbo-Turbo" game engine software copyright (Application submitted for approval), see Annex "Turbo engine _ computer software copyright registration application form"

None infringing nor bound by any license.

 

1.

On December 31, 2009, ConnGame had outstanding short term loan due to Mr. Tang Jun (唐骏) in the amount of $1,509,390 (RMB 10,320,000).  On January 12, 2010 Mr. Tang Jun increased his loan to ConnGame in the amount $877,642 (RMB 6,000,000) leading to an outstanding loan balance of $ 2,387,032 (RMB 16,320,000).  The additional loan did not bear any interest, covenants, or collateral requirements.  Subsequently, on January 13, 2010, ConnGame repaid Mr. Tang Jun $1,345,698 (RMB 9,200,000) leaving an outstanding a balance of $1,041,334 (RMB 7,120,000).  On January 19, 2010, Mr. Tang agreed to convert the remaining outstanding loan balance of $1,041,334 (RMB 7,120,000) to equity and will register this capital with the PRC.  ConnGame does not believe that it will be subject to any income tax consequences resulting from Mr. Tang converting debt outstanding to him, to registered equity capital.

The loan of $1,509,390 to ConnGame was extended by Mr. Tang Jun.  At December 31, 2009, the loan bore zero interest and was payable on demand. The loan did not securitize by any collateral.  Subsequent to December 31, 2009 the loan was increased, and was later partially repaid, and the outstanding balance was converted to an equity interest.   Refer to Note 8 “Subsequent Events” for further details.

2.	On January 8, 2010, Ms. Wang Su Ping transferred her entire interest in ConnGame to Mr. Tang Jun.  Her entire interest represented the registered capital amount of $48,627 (RMB 400,000) equaling 80% ownership interest in ConnGame.

3.

On January 13, 2010, ConnGame increased its registered capital from $60,334 (RMB 500,000) to $1,449,914 (RMB 10,000,000).  The increase of capital was a result of an investment made by Mr. Tang Jun and Ms. Zhu in the amounts of $1,111,664 (RMB 7,600,000) and $277,916 (RMB 1,900,000), respectively, totaling $1,389,580 (RMB 9,500,000).  As a result of the above capital transactions, Mr. Tang Jun and Ms. Zhu own 80% and 20% ownership interest in ConnGame, respectively.

4.

As of March 31, 2010 there was $1,404,084 (RMB 9,600,000) of capital under ConnGame’s name invested in Shanghai Boke Information Technology Co. Ltd. (“Boke”).  The investment was made in trust on behalf of Mr. Tang Jun. ConnGame has agreed to return the shares to Mr. Tang Jun on a future agreed upon date.  It is probable that Boke will become public listed corporation in the PRC.  Mr. Tang Jun is responsible for any fees or potential capital gains tax from the future transfer of the asset back to Mr. Tang Jun.  ConnGame has no direct benefit or risk for the shares registered in its name.  All risk and related reward of the investment are borne by Mr. Tang Jun.