STOCK PURCHASEAGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of January 19, 2010, is made and entered into by and between East Best Industrial Limited, a company organized under the laws of British Virgin Islands (the “Shareholder”), and NIVS Holding Company Limited, a company organized under the laws of the British Virgin Islands (“NIVS”), and Hui Xi Li, an individual that has been the principal of the Shareholder (the “Shareholder Principal”).

 

 

WHEREAS, the Shareholder owns one hundred percent (100%) of the issued and outstanding shares in the capital of Huizhou Dongri Digital Co., Ltd., a company organized under the laws of the People’s Republic of China (“HDDC”), as set forth in Section 3.01(b) of the disclosure schedule attached hereto as Exhibit A (“Disclosure Schedule”);

 

WHEREAS, HDDC engage in the business of research, development, manufacture and distribution mobile phones and related components (the “Business”); and

 

WHEREAS, NIVS desires to acquire from the Shareholder and the Shareholder desires to sell to NIVS all of the issued and outstanding shares in the capital of HDDC (the “HDDC Shares”) such that NIVS will hold 100% of the registered capital of HDDC (the “HDDC Acquisition”).

 

NOW, THEREFORE, in consideration of the promises and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, NIVS, Shareholder Principal, and Shareholder, intending to be legally bound hereby, 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 HDDC or NIVS 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 as it pertains to the financial statements or accounting of HDDC generally accepted accounting principles in the PRC.

 

“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.

 

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.

 

“Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

 

“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.

 “Knowledge” means, as it relates to the Shareholder Principal, Shareholder, or HDDC, the actual knowledge, plus such knowledge as the Shareholder Principal and Shareholder 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 HDDC), 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 HDDC or pursuant to which any of them holds or occupies any Leased Property, details of which are set forth in Section 3.1(m) of the 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 HDDC, or any equivalent or similar 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 HDDC 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 NIVS, a material adverse effect on the business, operations, affairs, properties, assets or condition (financial or otherwise) of such party; and (ii) with respect to HDDC, 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 HDDC, or (b) will or would be reasonably expected to adversely affect the ability of HDDC or the Shareholder 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 HDDC (or any revenues, income or profits of HDDC 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 HDDC’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.

 

“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 HDDC 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 HDDC Shares.

 

At the Closing, subject to the terms and conditions of this Agreement, the Shareholder shall sell, transfer, assign, convey and deliver to NIVS all of the HDDC Shares, 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 HDDC Certificates.

 

At the Closing, the Shareholder shall deliver to NIVS:

 

(a)           all original certificates representing all of the HDDC Shares, which certificates shall be accompanied by instruments of transfer of the HDDC Shares duly executed by the respective registered holders thereof in favor of NIVS (or such other person(s) as it 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 NIVS may require evidencing the fulfilment of the conditions precedent thereunder; and

 

(c)           any and all documents related to effecting the transfer of 100% of the registered capital of HDDC to NIVS, in addition to such documents and reports from the proper Governmental Authorities or other parties evidencing that such transfer has taken place.

 

2.03

Purchase Price; Payment.

 

(a)           Aggregate Purchase Price.  The aggregate purchase price to be paid by NIVS to the Shareholder for the HDDC Shares shall be up to Twenty Three Million U.S. Dollars (US$23,000,000) (the “Aggregate Purchase Price”), which shall be paid in two parts subject to and in such amounts as more specifically set forth in Sections 2.03(b), below.

 

(b)

Payment of the Aggregate Purchase Price.

 

(i)         The first part of the Aggregate Purchase Price is equal to Thirteen Million U.S. Dollars ($13,000,000), with Eight Million U.S. Dollars ($8,000,000) of this amount has been paid to the Shareholder prior to the execution of this Agreement, which is hereby acknowledged by the parties, and the remaining Five Million U.S. Dollars ($5,000,000) of this amount shall be paid to Shareholder within Thirty (30) days after the Closing; and

(ii)        The second part of the Aggregate Purchase Price, equal to Ten Million U.S. Dollars ($10,000,000), is conditional and shall be payable, if at all, subject to the following:

 

(A) for the period the from January 1, 2010 through June 30, 2010 (the “First Half Period 2010”),

 

(1) if HDDC’s after-tax income exceeds RMB 13,000,000 for the First Half Period 2010, as calculated in accordance with U.S. generally accepted accounting principles (“US GAAP”) as determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, then Three Million U.S. Dollars ($3,000,000) shall be payable to Shareholder;

 

(2) if HDDC’s after-tax income for the First Half Period 2010, as calculated in accordance with US GAAP as determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is between RMB 6,500,000 and RMB 13,000,000, then a pro rata amount of Three Million U.S. Dollars ($3,000,000) shall be payable Shareholder, where such pro rata amount shall be calculated based on the amount that the after-tax net income exceeds RMB 6,500,000, divided by RMB 6,500,000;

 

(3) if HDDC’s after-tax income for the First Half Period 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is less than RMB 6,500,000 then no amount shall be payable to Shareholder; and

 

(B) for the period from July 1, 2010 through September 30, 2010 (the “Third Quarter 2010”),

 

(1)  if HDDC’s after-tax income for the Third Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, exceeds RMB 7,000,000, then Three Million U.S. Dollars ($3,000,000) shall be payable to Shareholder,

 

(2) if HDDC’s after-tax income for the Third Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is between RMB 3,500,000 and RMB 7,000,000, then a pro rata amount of Three Million U.S. Dollars ($3,000,000) shall be payable to Shareholder, where such pro rata amount shall be calculated based on the amount that the after-tax income exceeds RMB 3,500,000, divided by RMB 3,500,000; and

 

(3) if HDDC’s after-tax income for the Third Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is less than RMB 3,500,000, then no amount shall be payable to Shareholder.

(C) for the period from October 1, 2010 through December 31, 2010 (the “Fourth Quarter 2010”),

 

(1)  if HDDC’s after-tax income for the Fourth Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, exceeds RMB 8,000,000, then Four Million U.S. Dollars ($4,000,000) shall be payable to Shareholder,

 

(2) if HDDC’s after-tax income for the Fourth Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is between RMB 4,000,000 and RMB 8,000,000, then a pro rata amount of Four Million U.S. Dollars ($4,000,000) shall be payable to Shareholder, where such pro rata amount shall be calculated based on the amount that the after-tax net income exceeds RMB 4,000,000, divided by RMB 4,000,000; and

 

(3) if HDDC’s after-tax income for the Fourth Quarter 2010, as calculated in accordance with US GAAP as shall be determined by the parent corporation of NIVS and approved by the such parent’s independent auditors, is less than RMB 4,000,000, then no amount shall be payable to Shareholder.

 

(iii)          Any amounts payable as required by Section 2.03(ii), above, shall be made, if any, no later than the thirtieth (30th) day following the completion of the parent’s preparation of its financial statements for First Half Period 2010,  Third Quarter 2010, and Fourth Quarter 2010, respectively, in accordance with US GAAP, approval of such financial statements by the such parent’s independent auditors, and the parent’s filing of the related Quarterly Report on Form 10-Q or Annual Report on Form 10-K, as applicable, with the US Securities and Exchange Commission.

 

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 on January 22, 2010, or such other place and date as the parties may mutually agree upon (the “Closing Date”).

 

 

3.01

Representations and Warranties of the Shareholder and Shareholder Principal relating to HDDC.

 

The Shareholder and Shareholder Principal, jointly and severally, hereby represent and warrant to NIVS as follows:

 

(a)          Corporate Status.  HDDC is a corporation duly incorporated, validly existing and in good standing under the laws of the place of its incorporation or establishment, with full corporate power and authority to own its property and to carry on its business as presently conducted.  HDDC is qualified to do business as a foreign corporation in any other jurisdiction where the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary.  HDDC has made available to NIVS true and complete copies of its Memorandum and Articles of Association or equivalent constitutional documents, including articles, other organizational documents and certificates of approval and any related joint venture contracts, including any amendments thereto. The articles, other constitutional documents and certificates of approval and any related joint venture contracts of HDDC are valid and have been duly approved and registered (as applicable) by competent PRC Governmental Authorities.  The minute books of HDDC, as heretofore made available to NIVS, are correct and complete in all material respects.

 

(b)          Capitalization of HDDC. The registered capital of HDDC is Four million U.S. Dollars ($4,000,000) and the total investment is Five Million Six Hundred Thousand U.S. Dollars ($5,600,000).  Set forth in Section 3.01(b) of the Disclosure Schedule is a complete and correct list of shareholders of capital of HDDC, showing that the Shareholder owns 100% of the registered capital of HDDC, with such name, address and beneficial ownership of the Shareholder in such registered capital.  The HDDC Shares represent all of the issued and outstanding share capital of HDDC and all of the HDDC Shares have been duly authorized and validly issued in compliance with applicable law (including federal, state, and local securities laws), are fully paid and nonassessable, and were not issued in violation of any statutory, contractual or other preemptive rights, rights of first refusal or similar rights.  There are no outstanding options, warrants, rights, puts, calls, commitments, conversion rights, plans or other agreements of any character to which HDDC or the Shareholder is a party or otherwise bound which provide for the acquisition, disposition or issuance of any issued but not outstanding, outstanding, or authorized and unissued shares, or any part of the share or equity capital of or any other securities exercisable or convertible into or exchangeable for any part of the capital of HDDC.  There is no personal liability, and there are no preemptive or similar rights, statutory or otherwise, attached to the HDDC Shares.  No Shareholder or any other holder of any of HDDC’s securities has any rights, “demand,” “piggy-back” or otherwise, to have such securities registered under the 1933 Act or similar foreign law.

 

(c)          Ownership of HDDC Shares.  The Shareholder is the record and beneficial owner of the number of HDDC Shares, as set forth in Section 3.01(b) of the Disclosure Schedule.  The Shareholder has good and marketable title to such HDDC Shares, free and clear of any Liens.  All such HDDC Shares are duly authorized, validly issued, fully paid and nonassessable and the Shareholder has complete and unrestricted power and the unqualified right to sell, assign, transfer and deliver its HDDC Shares to NIVS.

 

(d)          No Subsidiaries.  Section 3.01(d) of the Disclosure Schedule sets forth the name, jurisdiction of incorporation or establishment of each Entity in which HDDC owns of record or beneficially, directly or indirectly, any equity securities or similar interests of any person, or any interest in a partnership or joint venture of any kind (each a “HDDC Subsidiary” and collectively, the “HDDC Subsidiaries”).  Section 3.01(d) further identifies any HDDC Subsidiary that was merged, dissolved, liquidated (or terminated by similar means) at any time.  As indicated in Section 3.01(d) of the Disclosure Schedule, there are no HDDC Subsidiaries, and no such HDDC Subsidiary has existed to date.  

 

(e)          Corporate Authority; Authorized and Effective Agreement.  The Shareholder has full legal capacity and power to execute and deliver this Agreement and each of the Shareholder and HDDC has full legal capacity and power to execute and deliver the Transaction Documents to which HDDC or the Shareholder is a party, which Agreement and Transaction Documents have been or will, on or prior to Closing, be duly executed and delivered by such parties and constitute the valid and binding obligation of such parties except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(f)           No Conflict.  The execution, delivery, performance and the consummation of the transactions contemplated by this Agreement and the Transaction Documents by HDDC and the Shareholder will not, directly or indirectly, (i) violate any Legal Requirement or any Governmental Requirement; (ii) violate the Memorandum and Articles of Association or equivalent constitutional documents of HDDC; (iii) violate any judgment, award or decree to which HDDC or the Shareholder is a party or by which HDDC or the Shareholder is bound; (iv) violate any provision of any material indenture, agreement or other instrument to which HDDC or the Shareholder is a party, or by which HDDC, the Shareholder, or any of its respective properties or assets is bound or affected, or result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, except any indenture, agreement or other instrument that will be satisfied in full at or before Closing; (v) result in the creation or imposition of any Lien upon any of the properties or assets of HDDC; or (vi) result in any suspension, revocation, impairment, forfeiture or non-renewal of any License of HDDC.

 

(g)          Financial Statements of HDDC.  HDDC has furnished to NIVS financial statements of HDDC prepared consisting of balance sheets as of December 31 for the years 2008 and 2007, and the related statements of income, changes in shareholders’ equity and cash flows for the two (2) years ended December 31, 2008 (the “HDDC Balance Sheet Date”) and the interim balance sheet and income statement as of November 30, 2009 (collectively, all of such consolidated financial statements are referred to as “HDDC Financial Statements”).  The HDDC Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of HDDC as of the dates thereof and its consolidated results of operations and cash flows for the periods then ended.  The Financial Statements have been prepared based on the books, records, accounts and related records of HDDC maintained, which books, records, accounts and related records are complete and accurately and fairly present in detail all of the assets, liabilities, revenues, expenses, cash flows and transactions of HDDC and have been maintained in accordance with sound business practices, including the maintenance of adequate internal controls.  The Financial Statements fairly represent in all respects the financial position of HDDC as at each Balance Sheet Date, as applicable, and for the period then ended, all in accordance with GAAP.  HDDC has not engaged in any transaction or used any of the funds in the conduct of the Business except for transactions and funds which have been and are reflected in the normally maintained books and records of the Business.

 

(h)          Absence of Undisclosed Liabilities.  HDDC has no liabilities or obligations (whether accrued, absolute, contingent or otherwise) except: (i) as set forth in Section 3.01(h) of the Disclosure Schedule, (ii) as set forth on the HDDC Financial Statements or (iii) as incurred since the HDDC Balance Sheet Date in the ordinary course of business and usual and normal in amount both individually and in the aggregate.

 

(i)            Absence of Changes.  Except as set forth in Section 3.01(i) of the Disclosure Schedule, since the HDDC Balance Sheet Date, HDDC has operated its business in the ordinary course consistent with HDDC’s past practice, and there has not been any Material Adverse Effect with respect to HDDC.  

 

(j)            Reports and Records.  HDDC and its employees have filed all reports and maintained all records and licenses required to be filed or maintained by it.  All such documents and reports complied in all material respects with applicable requirements of law and rules and regulations in effect at the time such documents and reports were filed and contained in all material respects the information required to be stated therein.

 

(k)           Taxes.

 

(i)           HDDC 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 HDDC (whether or not showing on any Tax Return) have been paid.  HDDC is not 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 HDDC does not file Tax Returns that HDDC 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 HDDC.  HDDC 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.

(ii)          HDDC has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.  Proper records have been maintained in respect of all such deductions and payments and all applicable laws, rules and regulations have been complied with.

 

(iii)         Neither HDDC nor any director or officer (or employee responsible for Tax matters) of HDDC 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 HDDC.  HDDC has not received from any Governmental Authority (including jurisdictions where HDDC 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 HDDC.

 

(iv)         HDDC is not 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)          HDDC has not been a member of an affiliated group filing a consolidated federal income Tax Return and HDDC has never been a member of any group for Tax purposes.  HDDC 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 HDDC, the Shareholder or any other Person in consequence of which HDDC is or may be held liable for Taxes primarily chargeable against some other Person.

 

(vi)         The unpaid Taxes of HDDC (1) did not, as of the date of the most recent balance sheet included in the HDDC 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 HDDC in filing its Tax Returns.  Since the date of the most recent balance sheet included in the HDDC Financial Statements, HDDC 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 HDDC with respect to any matters relating to Taxes that is currently in effect.

(viii)       HDDC 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)          HDDC 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)           HDDC 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)         HDDC 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)       HDDC 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 HDDC, 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 HDDC Financial Statements, has been or will be illegal under any Legal Requirement or Governmental Requirement or adversely affect the financial condition of HDDC or the operation of the Business.  None of the assets and properties of HDDC has been purchased at an under value or been given to HDDC 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 HDDC or on any of its assets.

(xiv)       HDDC 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 HDDC at the HDDC Balance Sheet Date or acquired by HDDC 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 HDDC whether before or after Closing.  HDDC has duly submitted all claims and disclaimers the making of which has been assumed for the purposes of the HDDC Financial Statements.

 

(l)            Marketable Title; Condition of Assets.  HDDC owns, and is in rightful possession of, and has good and marketable title to, all of its assets and properties used (other than the HDDC Real Properties, which is addressed in Section 3.01(m)), free and clear of any Lien or other interest of any persons whatsoever, except for Liens constituting Permitted Liens.  The assets of HDDC are all the assets needed to continue to conduct the Business as it is presently being conducted.  Except for any incidental repairs required in the ordinary course of business, each item of tangible personal property owned or used by HDDC in conducting the Business is in good operating condition and in a state of good maintenance and repair (ordinary wear and tear excepted) and is adequate and suitable for the purposes for which they are presently being used.

 

(m)

Real Property.

 

(i)       Section 3.01(m) of the Disclosure Schedule lists and describes any interest in real property held by HDDC, including all real properties and premises owned, leased, occupied or otherwise used by HDDC or in connection with the Business (the “HDDC Real Properties”).  The HDDC 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 HDDC to the HDDC Real Properties are in the possession of HDDC.  All of the buildings, structures and appurtenances situated on the HDDC 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)      HDDC is not the registered or beneficial owner of any HDDC Real Properties.

 

(iii)     The HDDC Real Properties in Section 3.01(m) of the 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 HDDC Real Properties in Section 3.01(m) of the Disclosure Schedule are all occupied pursuant to land use rights sold or granted to HDDC.  HDDC 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 HDDC, such land use rights have been validly sold or granted by competent Governmental Authorities duly authorised so to do and HDDC 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 HDDC.  The land use rights to any HDDC Real Property in the PRC are owned by HDDC for a period of not less than fifty (50) years from the relevant date as shown in Section 3.01(m) of the 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 HDDC 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, HDDC 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 HDDC 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 HDDC.

 

(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 HDDC 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 HDDC 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 HDDC in respect of the Leased Properties or properties to HDDC 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 HDDC in respect thereof on or prior to Closing.

(x)       HDDC 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 HDDC 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 HDDC.  Without limiting the foregoing, the current use by HDDC of the HDDC 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 HDDC 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 the Shareholder and Shareholder Principal 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 HDDC for legal purposes and HDDC has not violated any Legal Requirement or any Governmental Requirement of the PRC or elsewhere relating to land or property.  The Shareholder and Shareholder Principal is not aware of any facts, matters or any notice or order served by any Governmental Authority which may adversely affect the right of HDDC 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 HDDC for the purposes for which it is currently used.  None of the HDDC Real Properties is adversely affected or likely to be adversely affected by any planning, highways, transport, utility or other proposals.

 

(xi)      HDDC is entitled to and has exclusive vacant possession of the HDDC Real Properties and, other than the Leases, no part of the HDDC 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 HDDC has a right to occupy or enter upon any of the HDDC 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 HDDC 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.

 

 

 

 

 

 

 

 

8.02

Shareholder’s Indemnification.

 

 

 

 

 

 

 

 

 

8.04

Procedures Relating to Third Party Claims.

 

 

 

 

 

9.01

Responsibility for Filing Tax Returns.

 

9.02

Certain Taxes and Fees.

 

 

 

10.01

Notices.

 

 

If to NIVS, to:

NIVS (Huizhou) Audio & Video Tech. Co., Ltd.

NIVS Industry Park

No. 29-31, Shuikou Road

Huizhou, Guangdong

People’s Republic of China

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

Attn: Tianfu Li

Email:  ***@***

Los Angeles, CA 90067

Attention:  Thomas J. Poletti, Esq.

Facsimile:   ###-###-####

Email: ***@***

10.02

Counterparts.

 

 

10.03

Entire Agreement; No Third-Party Rights.

 

 

10.04

Successors and Assigns.

 

 

10.05

Captions

 

 

10.06

Governing Law.

 

 

10.07

Payment of Fees and Expenses.

 

10.08

Amendment.

 

 

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.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on behalf of NIVS, Shareholder, and Shareholder Principal as of the date set forth in the first paragraph above.

 

East Best Industrial Limited, a company organized under the laws of British Virgin Islands is the 100% shareholder of Huizhou Dongri Digital Co., Ltd.

Not Used / Applicable.

Not Used / Applicable.

Not Used / Applicable.

LEASE AGREEMENT with the LESSOR, Huizhou Dongri Electron Co.,LTD., and the LESSEE, Huizhou Dongri Digital Co.,LTD. for the premises No.1 Building, 24 district, Zhongkai National Hi-tech Industrial Development Zone, Huizhou, Guangdong and living quarters at the same location for total area of the factory building is 6361 square meters and the total area of the living quarters is 2752 square meters with a term of Three (3) years, from November, 1, 2009 to December, 31, 2012.

Not Used / Applicable.

Employment Agreements with the following persons and information:

 

 

Not Used / Applicable.

Not Used / Applicable.

Not Used / Applicable.

Not Used / Applicable.

Not Used / Applicable.

Production Processing Agreement dated January 1, 2010 between Party A, East Best Industrial Ltd., and Party B, Huizhou Dongri Digital Co., Ltd. regarding processing mobile phones and PCBA products and related technical support.

Production Processing Agreement dated January 1, 2009 between Party A, East Best Industrial Ltd., and Party B, Huizhou Dongri Digital Co., Ltd. regarding processing mobile phones and PCBA products and related technical support.

Contract (No.:DK091201) dated December 1, 2009 by and between Party A, Shanghai Kuanyi Telecom Technology Co.,Ltd, and Party B, Huizhou Dongri Digital Co., Ltd. regarding for production and processing of mobile phones..

Sales Contract dated November 11, 2009 for automatic score-board machine by and between Buyer, Huizhou Dongri Digital Co., Ltd., and Seller, Hua Xin Mao Electronic Operating Department

Not Used / Applicable.

LEASE AGREEMENT with the LESSOR, Huizhou Dongri Electron Co.,LTD., and the LESSEE, Huizhou Dongri Digital Co.,LTD. for the premises No.1 Building, 24 district, Zhongkai National Hi-tech Industrial Development Zone, Huizhou, Guangdong and living quarters at the same location for total area of the factory building is 6361 square meters and the total area of the living quarters is 2752 square meters with a term of Three (3) years, from November, 1, 2009 to December, 31, 2012.

Production Processing Agreement dated January 1, 2010 between Party A, East Best Industrial Ltd., and Party B, Huizhou Dongri Digital Co., Ltd. regarding processing mobile phones and PCBA products and related technical support.

Production Processing Agreement dated January 1, 2009 between Party A, East Best Industrial Ltd., and Party B, Huizhou Dongri Digital Co., Ltd. regarding processing mobile phones and PCBA products and related technical support.

Not Used / Applicable.