SUBSCRIPTION AND SHAREHOLDER AGREEMENT FOR NEW CO (A CAYMAN ISLANDS LIMITED LIABILITY COMPANY TO BE FORMED, ACTUAL NAME TO BE AGREED) BETWEEN SHENZHEN VN TECHNOLOGIES CO., LTD. AND CHINA TEL GROUP, INC.

Exhibit 10.1

 

 

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(A CAYMAN ISLANDS LIMITED LIABILITY COMPANY

TO BE FORMED, ACTUAL NAME TO BE AGREED)

BETWEEN

AND

 

 

 

 

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This Subscription and Shareholder Agreement (“Agreement”), dated for reference purposes as of April 1, 2010 is entered into between Shenzhen VN Technologies Co., Ltd. (“VN Tech”), and China Tel Group, Inc. (“ChinaTel”).  In this Agreement, VN Tech and ChinaTel are each referred to as a “Party” and together as the “Parties.”  “WFOE” (as such term is defined herein), shall become a Party to this Agreement (and be deemed as one of the Parties for all purposes hereunder) by executing and delivering a counterpart signature page hereto.  This Agreement shall be effective as to all Parties except for WFOE as of the date hereof, and effective as to WFOE as of the date of its respective execution and delivery of its signature page.

 

 

 

 

 

 

 

 

 

 

 

Wherever used in this Agreement, the following terms shall have the following meanings, even if the same term appears in “bold” in other sections of this Agreement immediately following a reference to such term defined in this section.  Any term which appears in other sections of this Agreement in “bold,” but which is not otherwise defined in this section, shall have the meaning ascribed by the words or clause immediately preceding such reference to the term in “bold.” 

 

“Effective Date”	The date this Agreement has been signed by all Parties (other than WFOE), or if signatures of different Parties occur on different days, the date of the signature of the last such Party to sign.
“Entities”	Generic reference to New Co, HK Co or WFOE, collectively, or to one or more of them.
“Fuel Cell Systems”	Generic reference to products patented and/or manufactured by VN Tech, or to other stand-alone electrical power generation or storage media using hydrogen or fuel cells for hydrochemical energy conversion.
“HK Co”	A fictitious name for a limited liability company to be created, registered, and organized under the laws of Hong Kong and in accordance with the terms of this Agreement.  HK Co shall be a wholly owned subsidiary of New Co.  The actual name of HK Co shall be mutually agreed among the Parties based on marketing and legal considerations.
“New Co”	A fictitious name for a limited liability company to be created, registered, and organized under the laws of the Cayman Islands and in accordance with the terms of this Agreement.  VN Tech and ChinaTel shall subscribe to the stock of New Co as further descried in this Agreement.  The actual name of New Co shall be mutually agreed among the Parties based on marketing and legal considerations.
“VN Tech Resources	All of the rights, relationships and contacts VN Tech now has or in the future obtains as described in Recital A.
“WFOE”	A fictitious name for a limited liability company to be created, registered, and organized under the laws of the PRC and in accordance with the terms of this Agreement.  WFOE shall be a wholly owned subsidiary of HK Co, and shall be organized so as to qualify as a “wholly foreign owned enterprise” under PRC law.  The actual name of WFOE shall be mutually agreed among the Parties based on marketing and legal considerations.

 

 

1.1The main business model to be achieved under this Agreement is the integration, manufacture, sales, marketing and distribution of Fuel Cell Systems and the development of relevant technology. 

 

 

1.2In consideration for their respective interests in the business model, VN Tech shall contribute all of its interest in the VN Tech Resources.  ChinaTel shall contribute 5 million shares of CHTL Stock in exchange for an equity interest in the Entities which shall, upon their creation and organization, own, manage and control the VN Tech Resources.

 

1.3The Parties shall use their reasonable commercial efforts to create, organize, capitalize and register to do business with the Entities, which shall enter into contractual relationships with each other and/or with one or both Parties in a manner that equitably reflects the respective equity interests and other rights and obligations of the Parties in the business model, and which structure is designed to comply with the laws of the jurisdiction(s) to which each of the Parties is subject based on their respective nationalities and operations. 

 

1.4This Agreement becomes binding and fully enforceable on both Parties as of the Effective Date, notwithstanding that the Entities will not yet have been formed and other contractual arrangements between the Parties and/or between either Party and one or more of the Entities are expected to occur in the future in accordance with the terms hereof.

 

 

2.1The Parties shall use their reasonable commercial efforts to achieve their respective financial goals in executing the business model in three phases. 

 

2.1.1In Phase 1, the Entities will be created, organized, capitalized and registered to conduct business in accordance with the laws of the jurisdiction in which each is created.  The financial goals intended to be achieved during this Phase include: (i) permitting ChinaTel to fully report the financial results of all PRC-based operations of WFOE as part of ChinaTel’s consolidated financial statements, (ii) permitting New Co and/or HK Co to control, directly or indirectly, the PRC-based assets managed by WFOE, and the revenue to be generated from those assets. 

 

2.1.2In Phase 2, the Parties shall cooperate for (i) a PRC-based subsidiary of ChinaTel to qualify under PRC law to conduct equipment leasing activity and (ii) for local manufacture of Fuel Cell Systems.  The financial goals intended to be achieved during this Phase include (i) solidifying the goals described in Section 2.1.1 but not fully achieved during Phase 1, and (ii) facilitating the structure described in Section 2.1.3 in order to achieve the financial goals described in Section 2.1.3.

 

2.1.3In Phase 3, the Parties shall cooperate for the PRC-based operations reported by WFOE to be listed on an offshore (non-PRC) based stock exchange, such as HKSE, NYSE, NASDAQ or London AIM.  The financial goals intended to be achieved during this phase include: (i) expanding the base of equity capital available for expansion of the business, and (ii) permitting the Parties to recapture some or all of their respective investments. 

 

2.2Immediately following the Effective Date, the Parties shall proceed diligently and cooperatively with all steps necessary or desirable to create, organize, capitalize and register each of the Entities.

 

2.3As soon as practical after completion of the steps contemplated to occur during Phase 1, the Parties shall proceed diligently and cooperatively with all steps necessary or desirable to complete the steps contemplated to occur during Phase 2.

 

2.4After completion of the steps constituting Phase 2, the Parties shall discuss and use their reasonable commercial efforts to agree on the appropriate timing to proceed with the steps contemplated to occur during Phase 3. 

 

 

3.1Within ten days of the completion of registration of WFOE to do business, VN Tech shall assign and transfer to WFOE the VN Tech Resources.

 

3.2Within ten days after VN Tech transfers the VN Tech Resources to WFOE, ChinaTel shall issue to VN Tech, or as VN Tech directs, 5 million shares of CHTL Stock, valued for purposes of this Agreement at $1.50 per share.

 

 

 

4.1There shall be one class of shares of the stock of New Co.  In exchange for their respective capital contributions described in Section 1.2, ChinaTel shall subscribe to 51%, and VN Tech shall subscribe to 49% of the stock of New Co.  Either Shareholder shall have the right to hold its interest in the stock of New Co through one or more subsidiaries.  The capital each Shareholder provides in exchange for their respective equity interests in New Co shall not be attributed a specific monetary value vis-a-vis the other Shareholder. 

 

4.2The Board of Directors of New Co shall be comprised of five Directors.  ChinaTel shall have the right to appoint three Directors and VN Tech two Directors. Any Director may also serve as an Officer.  

 

4.3Each direct and indirect equity interest holder of the stock of New Co shall have complied with the registration requirements under applicable foreign exchange rule or regulation under PRC law, in relation to the transactions contemplated under this Agreement. 

 

 

5.1There shall be one class of stock of HK Co. New Co shall be the 100% shareholder of HK Co, such that the equity interests of VN Tech and ChinaTel respectively in HK Co shall be co-extensive with their respective equity interests in New Co.

 

5.2The Board of Directors of HK Co shall be comprised of five Directors, who shall be the same as or appointed in the same manner and subject to the same voting rights as the Directors of New Co.  

 

 

6.1There shall be one class of stock of WFOE.  HK Co shall be the 100% shareholder of WFOE, such that the equity interests of VN Tech and ChinaTel respectively in WFOE shall be co-extensive with their respective equity interests in New Co and HK Co.  

 

 

6.2The Board of Directors of WFOE shall be comprised of five Directors, who shall be the same as or appointed in the same manner and subject to the same voting rights as the Directors of HK Co.

 

 

7.	Revenue and Expense of WFOE

 

7.1All contracts, capital expenditures, operating expenses and revenue in connection with the business contemplated under this Agreement shall flow through WFOE.  .

 

7.2A management company controlled by ChinaTel shall be created in HK or other territory to be agreed by the Parties, and a management service agreement shall be signed between the management company and WFOE, according to which the management company will provide marketing, sales and other service to WFOE in exchange for compensation and upon other terms to be agreed by the Parties.

 

7.3ChinaTel shall be entitled to a 10% price discount on Fuel Cell Systems it purchases compared to the lowest price charged to any other telecommunications network carrier.  ChinaTel’s discount shall apply to usage by any telecommunications network carrier in which ChinaTel has at least a 25% direct or indirect ownership interest.

 

8.	Distribution of Profit

 

In the event the free cash flow and/or net operating income generated from WFOE’s operations exceeds the amount required for (i) working capital requirements, (ii) payment of tax or provision therefore, (iii) outstanding loan obligations, and (iv) reserves for contingent future liabilities, any surplus profits shall (to the extent allowed by applicable law) be distributed to the shareholders of New Co in full by way of dividends. 

 

 

 

9.1Each Party acknowledges that the other Party has been induced to enter into this Agreement on the basis of and in reliance upon the following representations, the accuracy of which each Party warrants to the other Party.  The rights and remedies of a Party for breach of any warranty by the other Party shall not be affected by any due diligence investigation made by or on behalf of the Party relying on a representation, except pursuant to written waiver or release.  Where any representation is qualified by the expression "so far as the Party making the representation is aware" or words having similar effect, such representation shall be deemed to include a statement that such awareness means both actual knowledge of the Party and also such knowledge which the Party would have had if it had made reasonable inquiry of all relevant persons. 

 

Each Party represents and warrants:

 

9.2Such Party is a corporation or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of the country and state described as applicable to such Party in the Recitals, and has all requisite power to own, lease and operate its properties and to carry on its business as currently conducted and as proposed to be conducted in this Agreement.  No order has been made or petition presented (or pending) or resolution passed for the winding up of Such Party.  Such Party is not insolvent or unable to pay its debts as they fall due.

 

9.3Such party has all requisite capacity, power and authority, and has taken all necessary corporate or other actions to enter into this Agreement.

 

9.4Such party has done or will promptly do all such further acts, including necessary filings with appropriate governmental authorizes, required in order to give full force and effect to this Agreement.

 

9.5The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in any violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either: (a) a default under any provision, instrument, judgment, order, writ, decree, contract or agreement or (b) an event which results in the creation of any lien, charge or encumbrance upon any assets of such Party (except as expressly stated in this Agreement) or the suspension, revocation, forfeiture, or non-renewal of any material permit or license applicable to such Party,. 

 

9.6No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of such Party. 

 

Each of VN Tech and the WFOE, on a joint and several basis, represents and warrants: 

 

9.7All information in Recital A is correct. 

 

9.8 All information in Schedule 1 attached to this Agreement is complete and correct.

 

ChinaTel represents and warrants:

 

9.9All information in Recital B is correct.

 

 

Each Party agrees to defend, indemnify and hold harmless the other Party and its successors, permitted assigns, employees, officers, agents, managers, shareholders and affiliates, from and against any and all losses, deficiencies, liabilities, damages, assessments, judgments, costs and expenses, including reasonable attorneys’ fees (both those incurred in connection with the defense or prosecution of an indemnity claim and those incurred in connection with the enforcement of this provision) resulting from or arising out of (i) any failure of the indemnifying Party to perform or fulfill any undertaking, covenant or agreement applicable to such Party in this Agreement, and (ii) any material breach of a representation and warranty contained in Section 9 and Schedule 1 of this Agreement and applicable to the indemnifying Party.

 

 

This Agreement shall be binding upon and inure to the benefit of and shall be enforceable by the Parties hereto and any of their respective successors, permitted assigns and affiliates who agree in writing to be bound by the terms of this Agreement.  Neither Party may assign its rights, in whole or in part, under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld, provided, no refusal of consent shall be considered unreasonable if the requested assignment would relieve the assigning Party of any of its duties under this Agreement.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the Parties to this Agreement, or their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

 

All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the Party to be notified; (ii) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt.  All communications shall be sent to the respective Parties at their address as set forth on the signature page, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Section.  If notice is given to ChinaTel, notice shall also be given to the counsel for ChinaTel to be delivered in the same manner as to ChinaTel at the address, facsimile number or e-mail address immediately below:

 

Kenneth L. Waggoner

Vice President and General Counsel

China Tel Group, Inc.

12526 High Bluff Drive, Suite 155

San Diego, California 92130

Facsimile:   ###-###-####

E-Mail:   ***@***

 

 

This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of Hong Kong, without regard to conflict of law principles that would result in the application of any law other than the laws of the Hong Kong, as the same apply to agreements executed solely by residents of Hong Kong and wholly to be performed within Hong Kong.

 

 

Either Party may, at any time, deliver to the other Party a dispute notice setting forth a brief description of the issues to be resolved through the dispute resolution mechanism set forth in this Section.  Such dispute notice shall specify the provision or provisions of this Agreement and the facts or circumstances that are the subject matter of dispute.  Immediately following the receipt of a dispute notice, the Parties shall cause representatives of their respective senior management to meet and seek to resolve the disputed cordially through informal negotiations.  If the Parties’ representatives are unable to resolve the dispute within 20 business days of the receipt of the dispute notice (or such extended time period as the Parties may agree), then the dispute shall be submitted to the Hong Kong International Arbitration Center (“HKIAC”) for binding arbitration conducted in English by a single arbitrator.  The dispute(s) shall be resolved pursuant to the United Nations Commission on International Trade Law Arbitration Rules.  The award of the arbitrator shall be final and binding on the Parties and may be enforced in any court of competent jurisdiction.

 

The Dispute resolution proceedings contemplated by this Section shall be confidential and private, as permitted by applicable law.  To that end, the Parties shall not disclose the existence, content or results of any proceedings conducted in accordance with this Section and materials prepared or submitted in connection with such proceedings shall not be admissible in any other legal proceeding; provided, however, that this confidentiality provision shall not prevent a petition to vacate or enforce an arbitration award and shall not bar disclosure required by applicable law.  The Parties agree that any decision or award resulting from proceedings in accordance with this Section shall have no preclusive effect in any other matter involving third parties. 

 

 

If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of this Agreement, the prevailing Party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such Party may be entitled. 

 

 

The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

 

The Parties agree that, absent prior written consent of the other Party, for a period of five years after the termination of this Agreement, neither Party, nor their respective officers or employees, shall carry on, or engage in, or hold interests in, or be employed by a business which is the same as, or substantially similar to, or in competition with, the business contemplated under this Agreement.

 

 

No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any other Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval of any kind or character on the part of either Party of any breach or default under this Agreement, or any waiver on the part of either Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies, either under this Agreement or by law or otherwise afforded to either Party, shall be cumulative and not alternative.

 

 

This Agreement constitutes the full and entire understanding and agreement between the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the Parties is expressly canceled.

 

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same Agreement. 

 

 

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 

 

 

 

SHENZHEN VN TECHNOLOGIES CO., LTD.		CHINA TEL GROUP, INC.
By    /s/ Luo Hongye      Luo Hongye, its Chairman		By    /s/ George Alvarez      George Alvarez, its Chief Executive Officer
Room 1310 Overseas Chinese Scholars Venture Building Ke Yuan Nan Lu High-Tech Industrial Park Shenzhen, China Facsimile: +(86) 755 ###-###-#### E- Mail: ***@***		12656 High Bluff Drive, Suite 155 San Diego, California 92130 USA Facsimile: + (760) 359-7043 E-Mail: ***@***
WFOE (this information will be inserted and a substitute signature page created after WFOE is formed)         By _________________________________     X, its Chief Executive Officer Address City, State, Country Facsimile: Email:		By    /s/ Colin Tay      Colin Tay, its President   3F-2, 102 Kuang Fu South Road Taipei 106, Taiwan Facsimile + (886) 2 2778-1534 E-Mail: ***@***

 

 

 

 

 

1.1The copies of the business licence and the articles of association of VN Tech provided to ChinaTel are true and complete and have embodied in them or annexed to them a copy of every such supplement agreement or document (if any) as is required by PRC laws and regulations.

 

2.	Financials

 

2.1The accounts of VN Tech for the years 2008-2009 provided to ChinaTel (“Accounts”) have been prepared in accordance with the requirements of all relevant PRC law and regulations and generally acceptable accounting practice and policies applied in the PRC and on a consistent basis and give a true and fair view of the state of affairs of VN Tech for the period ended December 31, 2009, and make proper provision for all actual liabilities, bad or doubtful debts, the Taxation in the PRC and proper provision for or contain full particulars in notes of (in accordance with good accounting practice) all contingent unqualified deferred or disputed liabilities and all capital commitments and all assets or stock which are wholly or in part lost, obsolete or depreciated in value and all contractual or statutory payment required to be made by VN Tech to any director, consultant or employee of VN Tech and have consistently applied the bases and policies of accounting in the audited balance sheet and profit and loss accounts for the two years ended December 31, 2009 and except where specified are not affected by any extraordinary exceptional or non-recurring item.

 

2.2The Accounts truly and fairly reflect the financial position of VN Tech as at December 31, 2009 and truly and fairly disclose all assets and liabilities of VN Tech as at December 31, 2009.

 

2.3The provision for Taxation in the Accounts is sufficient to cover all Taxation assessed or liable to be assessed on VN Tech or for which VN Tech is then or may then be or become accountable in respect of profits, income earnings, receipts, transfers, events and transactions up to December 31, 2000.

 

2.4VN Tech has duly complied and will continue to duly comply with its obligations to account to the relevant Taxing Authorities for all amounts for which it is or may become accountable in respect of Taxation.

 

2.5All returns, computation and payments in connection with Taxation that should have been made by VN Tech have been made in a timely manner and on a proper basis and will until Completion continue to be so made.

 

2.6VN Tech has exercised its reasonable endeavours to preserve and secure all tax benefits and refunds.

 

2.7All particulars furnished to PRC Taxation Authority and other Taxation Authorities, in connection with the application for any consent or clearance on behalf of VN Tech or affecting VN Tech fully and accurately disclosed all facts and circumstances material for the decision of those authorities, and consent or clearance is valid and effective; and any transaction, for which consent or clearance has previously been obtained, has been carried into effect (if at all) only in accordance with the terms of the relative application and consent or clearance.

 

2.8VN Tech has not taken or omitted to take any action which has had, or might have, the result of altering, prejudicing or in any way adversely affecting any arrangement or agreement which it has previously negotiated with any Taxation Authorities in the PRC or any other jurisdiction.

 

2.9VN Tech is not, nor expects to become, a passive foreign investment company as described in Section 1297 of the United States Internal Revenue Code of 1986, as amended.

 

2.10No shareholder VN Tech, solely by virtue of its status as shareholder of VN Tech, has personal liability under PRC law for the debts and claims of VN Tech.  There has been no communication from any tax authority relating to or affecting the tax classification of VN Tech.

 

2.11VN Tech has not entered into or been a party to any schemes or arrangements designed partly or wholly for the purpose of it or any other person avoiding Taxation.

 

2.12All assets of VN Tech of a wasting or depreciable nature are stated in the Accounts after deduction of depreciation, and such depreciation being in amounts sufficient to write down such assets over their respective expected useful economic lives, and unless stated to the contrary in the Accounts, depreciation is calculated on a straight line basis and a consistent depreciation policy has been adopted over all assets and there has been no change in the basis and policy of depreciation.

 

2.13A consistent accounting policy has been adopted by VN Tech for the two years ended December 31, 2009 and there has been no material change thereof.

 

2.14VN Tech does not hold any security (including any guarantee or indemnity) which is not valid or enforceable against the grantor thereof in accordance with its terms.

 

2.15In relation to all financing arrangements to which VN Tech is a party:

 

(a)there has been no contravention of or non-compliance with any provision of any such document;

 

(b)no steps for the enforcement of any Encumbrances have been taken or threatened;

 

(c)there has not been any alteration in the terms and conditions of any of the said arrangements or facilities all of which are in full force and effect and VN Tech is unaware of any circumstances whereby the terms and condition of any facilities might be prejudiced or which might give rise to any alteration in the terms or conditions of any of the facilities;

 

(d)nothing has been done or omitted to be done whereby the continuance of the said arrangements and facilities in full force and effect might be affected or prejudiced, in particular, as a result of other matters or transactions contemplated in this Agreement; and

 

(e)none of the arrangements is dependent on the guarantee of or on any security provided by a third party.

 

2.16The total amount borrowed by VN Tech:

 

(a)from its bankers does not exceed its overdraft facilities; and

 

(b)from whatsoever source does not exceed any limitation on borrowing contained in its articles of association or any other deed or document binding on it.

 

2.17All dividends or distributions declared, made or paid by VN Tech have been declared, made or paid in accordance with its articles of association and PRC law and regulations.

 

2.18No part of the amounts included in the Accounts, or subsequently recorded in the books of VN Tech, as owing by any debtors is overdue by more than two (2) months or the credit period as agreed by VN Tech, or has been released on terms that any debtor pays less than the full book value of his debt other than discount or allowance in accordance with normal trade practice or has been written off or has proved to any extent to be irrecoverable or is now regarded by VN Tech as irrecoverable in whole or in part.

 

2.19VN Tech does not have any outstanding commitment for capital expenditure or any agreement or arrangement which is either (i) not on an arm's length basis or (ii) exceeds US$ 50,000 in the aggregate.  There is no outstanding mortgage or charge on the whole or any part of the undertaking, property or assets of VN Tech.

 

2.20Since the date of the Accounts there has been (i) no material adverse change in VN Tech's financial position or prospects, (ii) the business has operated in the ordinary course and (iii) so far as VN Tech is aware, no material liabilities (actual, contingent or disputed) have arisen other than those disclosed in the Accounts and/or those arising in the ordinary course of business of VN Tech since the date of the Accounts up to the Effective Date.

 

 

3.1VN Tech is the legal owner of and has good and marketable title to all the assets used in its business, save for those subject to hire-purchase or leasing or rental agreements (if any) as disclosed in the Accounts. 

 

3.2VN Tech has not created, or granted, or agreed to create or grant, any security interest or other Encumbrance in respect of any of its fixed assets for the business of VN Tech otherwise than in the ordinary course of its business.

 

3.3Save as disclosed in the Accounts, the assets of VN Tech are solely the property of VN Tech and are not subject to any Encumbrance or any agreement to give or create any Encumbrance including any bill of sale, hire or hire purchase agreement, conditional sale, credit sale or similar agreement.

 

3.4Save for disposals in the ordinary course of its business, the assets of VN Tech have been in its possession or under its control.

 

4.

Business

 

4.1The business of VN Tech is in compliance with and is lawful under PRC law and regulations and all approvals, consents, permits, licences and/or any similar authority necessary for the operation of the business of VN Tech and for the business of VN Tech to comply with PRC law and regulations have been duly obtained and are in force and valid.

 

4.2VN Tech lawfully and validly holds valid approval, licences or consent issued by the PRC competent authority(ies) necessary to own, manage, operate, and assign and transfer the VN Tech Resources, and there has not arisen any circumstances that may result in the temporary or permanent cancellation or termination of such licences.

 

4.3VN Tech has carried on its business in the ordinary and usual course and without having entered into any material transaction, assumed any material liability or made any material payment not provided for in the Accounts which is not in the ordinary course of its business or suffered any material adverse interruption or alteration in the nature, scope or manner of its business.

 

4.4VN Tech has paid its creditors within the time agreed with such creditors and there are not debts outstanding by VN Tech which has been due for more than six months.

 

4.5VN Tech has not entered into, or agreed to enter into, any capital commitments.

 

4.6No unusual trade discounts or other special terms have been incorporated into any contract entered by VN Tech inconsistent with the previous practice of VN Tech.

 

4.7There has been no material deterioration in the financial position or prospects or turnover of VN Tech.

 

4.8VN Tech’s compliance with the terms of this Agreement will not:

 

(a)cause VN Tech to lose the benefit of any right or privilege it presently enjoys or cause any person who normally does business with VN Tech not to continue to do so on the same basis as previously does;

 

(b)relieve any person of any obligation to VN Tech (whether contractual or otherwise) or enable any person to determine any such obligation or any right or benefit enjoyed by VN Tech or to exercise any right whether under an agreement with or otherwise in respect of it;

 

(c)result in any present or future indebtedness of VN Tech becoming due or capable of being declared due and payable prior to its stated maturity;

 

(d)give rise to or cause to become exercisable any right of pre-emption;

 

(e)adversely affect VN Tech’s relationships with its clients, customers, suppliers or employees;

 

(f)result in any revocation or suspension of any licences permit or consent held by or granted to VN Tech; or

 

(g)result in the termination of any contract to which VN Tech is a party.

 

5.	Litigation

 

5.1Neither VN Tech nor any person for whose acts and/or defaults it may be vicariously liable, is at present engaged whether as claimant, defendant or otherwise in any legal action, proceeding or arbitration which is either in progress or is threatened or is pending or is being prosecuted for any criminal offence and no governmental or official investigation or inquiry concerning VN Tech is in progress or pending.

 

5.2There are no circumstances likely to lead to any such claim or legal action, proceeding or arbitration (other than as aforesaid) prosecution, investigation or enquiry.

 

5.3No claims, lawsuits, legal or other proceedings are pending or threatened against VN Tech or its business before any court, arbitration tribunal, administrative body.

 

6.	Statutory and legal requirements

 

6.1VN Tech has conducted its business in all respects in accordance with all applicable laws and regulations of the PRC and there is no order, decree or judgment of any court or any governmental agency of the PRC outstanding against VN Tech or which may have a material adverse effect upon the assets or business of VN Tech.

 

6.2All necessary licences, consents, registrations, permits and authorities (public and private) have been obtained by VN Tech to enable VN Tech to carry on its business effectively in the PRC and in the manner in which such business is now carried on and all such licences, consents, permits and authorities are valid and subsisting and VN Tech knows of no reason why any of them should be suspended, cancelled or revoked or should not be renewed or reissued upon or prior to their expiry.

 

6.3VN Tech has not committed and is not liable for any criminal, illegal, unlawful or unauthorised act or breach of covenant, contract or statutory duty.

 

6.4No key employee or senior management of VN Tech has:

 

(a)been convicted of a criminal offence; or

 

(b)been disqualified from being a company director.

 

6.5VN Tech is not or, to VN Tech’s knowledge, no key employee, senior management, administrators, members or employees of VN Tech is an OFAC Sanctioned Person (as defined below).  To VN Tech’s knowledge, their key employee, senior management, administrators, members or employees are in compliance with, and have not previously violated, the USA Patriot Act of 2001, and all other applicable United States and PRC anti-money laundering laws and regulations.  To the knowledge of VN Tech, none of (i) the execution, delivery and performance of this Agreement, or (ii) the consummation of any transaction contemplated hereby or thereby, or the fulfilment of the terms hereof or thereof, will result in a violation by the Shareholders or key employee, of any of the OFAC Sanctions or of any anti-money laundering laws of the United States, the PRC or any jurisdiction.  

 

For the purposes of this Section 6.5:

 

(a)“OFAC Sanctions” means any sanctions program administered by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) under authority delegated to the Secretary of the Treasury (the “Secretary”) by the President of the United States or provided to the Secretary by statute, and any order or license issued by, or under authority delegated by, the President or provided to the Secretary by statute in connection with a sanctions program thus administered by OFAC.  For ease of reference, and not by way of limitation, OFAC Sanctions programs are described on OFAC’s website at www.treas.gov/ofac. “

 

(b)“OFAC Sanctioned Person” means any government, country, corporation or other entity, group or individual with whom or which the OFAC Sanctions prohibit a United States Person from engaging in transactions, and includes without limitation any individual or corporation or other entity that appears on the current OFAC list of Specially Designated Nationals and Blocked Persons (the “SDN List”).  For ease of reference, and not by way of limitation, OFAC Sanctioned Persons other than government and countries can be found on the SDN List on OFAC’s website at www.treas.gov/offices/enforcement/ofac/sdn.

 

(c)“United States Person” means any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person (individual or entity) in the United States, and, with respect to the Cuban Assets Control Regulations, also includes any corporation or other entity that is owned or controlled by one of the foregoing, without regard to where it is organized or doing business.

 

6.6VN Tech has not or, to VN Tech’s knowledge, no key employee, senior management, administrators, members or employees of VN Tech has made, directly or indirectly, any payment or promise to pay, or gift or promise to give or authorized such a promise or gift, of any money or anything of value, directly or indirectly, to:

 

(a)any foreign official (as such term is defined in the FCPA) for the purpose of influencing any official act or decision of such official or inducing him or her to use his or her influence to affect any act or decision of a governmental authority, or

 

(b)any foreign political party or official thereof or candidate for foreign political office for the purpose of influencing any official act or decision of such party, official or candidate or inducing such party, official or candidate to use his, her or its influence to affect any act or decision of a foreign governmental authority.

 

In the case of both (a) and (b) above in order to assist VN Tech to obtain or retain business for, or direct business to VN Tech, as applicable, subject to applicable exceptions and affirmative defences.  VN Tech has not or none of VN Tech’s key employee, senior management, administrators, members or employees has made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any law, rule or regulation subject to applicable exceptions and affirmative defences.

 

6.7No person, not being a director of VN Tech, has any actual or ostensible authority, whether under a power of attorney, agency agreement or otherwise, to commit VN Tech to any obligation other than an obligation of a nature which it is usual for it to incur in the ordinary course of its business.

 

7.

Records

 

7.1All accounting records, vouchers, invoices, ledgers, contracts and memoranda and all other accounting documents of VN Tech and records of all transactions thereof are in the possession of VN Tech and have been accurately and properly written up, kept and maintained in accordance with generally accepted accounting practice in the PRC and together shows a true and fair view of the affairs and financial position of VN Tech.

 

7.2Without prejudice to the generality of Section 7.1, the minute book of directors’ meetings and the minute book of shareholders’ meetings respectively of VN Tech contain full and accurate records of all resolutions passed by the directors and the shareholders of VN Tech and no resolutions have been passed by either the directors or shareholders of VN Tech which are not recorded in the relevant minute books.

 

7.3All documents requiring to be filed with any relevant authorities in the PRC by VN Tech have been properly made up, presented, filed and approved.

 

8.	Intellectual Property

 

8.1VN Tech is the sole legal and beneficial owner of (or applicant for) the Intellectual Property Rights used or held for use in its business (“VN Tech’s Intellectual Property Rights”), free from all Encumbrances.

 

8.2The VN Tech’s Intellectual Property Rights are valid, subsisting and enforceable and nothing has been done or not been done as a result of which any of them has ceased or might cease to be valid, subsisting or enforceable. In particular:

 

(a)all application and renewal fees and other steps required for the maintenance or protection of such rights have been paid on time or taken;

 

(b)all know-how (including trade secrets and confidential information) owned or used by VN Tech has been kept confidential and has not been disclosed to third parties (other than parties who have signed written confidentiality undertakings in respect of such information;

 

(c)no mark, trade name or domain name identical or similar to any such rights has been registered or is being used by any person in the same or a similar business to that of VN Tech, in any country in which VN Tech has registered or is using that mark, trade name or domain name; and

 

(d)there are and have been no claims, challenges, disputes or proceedings, pending or threatened, in relation to the ownership, validity or use of such rights.

 

8.3There has been no infringement by any third party of any VN Tech’s Intellectual Property Rights and no such infringement is current or anticipated.

 

8.4A change of Control of VN Tech will not result in the termination of or have any material effect on any VN Tech’s Intellectual Property Rights.

 

8.5The activities of VN Tech (and of any licensee of VN Tech’s Intellectual Property Rights granted by VN Tech) have not infringed, do not infringe and are not likely to infringe the Intellectual Property Rights of any third party.

 

9.	VN Tech’s Contracts

 

9.1All documents to which VN Tech is a party and other documents owned by or which ought to be in the possession of VN Tech have been properly stamped (if required) and are in VN Tech's possession.

 

9.2Save as disclosed in the Accounts (where such items would be disclosed in the Accounts according to PRC law and regulations and the generally accepted accounting practices in the PRC), VN Tech is not a party to any agreement, transaction, obligation, commitment, understanding, arrangement or liability which:

 

(a)is known or is likely to result in a loss to VN Tech on completion of performance;

 

(b)cannot readily be fulfilled or performed by VN Tech on time without undue or unusual expenditure of money and effort;

 

(c)involves or is likely to involve obligations, restrictions, expenditure or receipts of an unusual, onerous or exceptional nature;

 

(d)is a lease or a contract for hire or rent, hire purchase or purchase by way of credit sale or periodical payment;

 

(e)is a contract with any trade union or body or organisation representing VN Tech's employees;

 

(f)requires an aggregate consideration payable by VN Tech in excess of $50,000;

 

(g)requires VN Tech to pay any commission, finders’ fee, royalty or the like;

 

(h)in any way restricts VN Tech’s freedom to carry on the whole or any part of its business in any part of the world in such manner as it thinks fit; or

 

(i)is in any way otherwise than in the ordinary and proper course of VN Tech’s business.

 

9.3VN Tech is not a party to any agreement under which VN Tech or any other party is in default, being a default which is material in relation to the financial or trading position of VN Tech nor (so far as VN Tech is aware) are there any circumstances likely to give rise to such a default.

 

10.

Insurance

 

10.1VN Tech has maintained insurance covers in respect of all risks and up to an extent that may reasonably be expected of a prudent businessman operating a business similar to that of VN Tech.

 

10.2All insurance policies taken out by VN Tech are valid, binding, in full force and effect and not voidable.  There are no circumstances which might lead to any liability under any such insurance policies being avoided by the insurers or the premiums being increased and there is no claim outstanding under any such policy nor are there any circumstances likely to give rise to a claim.

 

11.	Events since January 1, 2010

 

11.1Since January 1, 2010:

 

(a)there has been no material adverse change in the turnover, financial or trading position or prospects of VN Tech and VN Tech has entered into transactions and incurred liabilities only in the ordinary course of business;

 

(b)VN Tech has not declared, paid or made or is proposing to declare, pay or make any dividend or other distribution;

 

(c)no event has occurred which would entitle any third party (with or without the giving of notice) to call for the repayment of indebtedness prior to its normal maturity date;

 

(d)the business of VN Tech has been carried on in the ordinary and usual course and in the same manner (including nature and scope) as in the past, no fixed asset or stock has been written up nor any debt written off, no stock has notionally depreciated, become obsolete or lost value and no material change has occurred in the level of stock and no unusual or abnormal contract has been entered into by VN Tech;

 

(e)no asset of VN Tech has been acquired or disposed of, or has been agreed to be acquired or disposed of, otherwise than in the ordinary course of business and there has been no disposal or parting with possession of any of its property, assets (including know-how) or stock in trade or any payments by VN Tech, and no contract involving expenditure by it on capital account has been entered into by VN Tech, and no liability has been created or has otherwise arisen (other than in the ordinary course of business as previously carried on);

 

(f)there has been no disposal of any asset (including stock) or supply of any service or business facility of any kind (including a loan of money or the letting, hiring or licensing of any property whether tangible or intangible) in circumstances where the consideration actually received or receivable for such disposal or supply was less than the consideration which could be deemed to have been received for Taxation purposes;

 

(g)no event has occurred which gives rise to a Taxation liability to VN Tech or deemed (as opposed to actual) income, profits or gains or which results in VN Tech becoming liable to pay or bear a tax liability directly or primarily chargeable against or attributable to another person, firm or company;

 

(h)no remuneration (including bonuses) or benefit payable to any officer or employee of VN Tech has been increased nor has VN Tech undertaken any obligation to increase any such remuneration at any future date with or without retrospective effect; and

 

(i)such of the book debts shown in the Accounts and all other book debts arising since such time which have been realised since January 1, 2010 have been realised at amounts not less than those shown in the Accounts or, in the case of subsequently arising book debts, their face amount, and no indication has been received that any debt now owing to VN Tech is bad or doubtful.

 

12.	Employment

 

12.1No strikes, lock-outs or other forms of industrial action or trade disputes against or involving VN Tech are known to be ongoing, pending, threatened or contemplated.

 

12.2There is no past, existing, threatened or pending dispute involving VN Tech and any of its employees, and there is no arrangement between VN Tech and any trade union or organization representing any such employees.

 

12.3VN Tech's employment of its employees did not and does not infringe or conflict with or result in any breach of or constitute a default under any contract to which the relevant employee is a party (including without limitation any agreement between the relevant employee and any of his / her ex-employers).

 

12.4VN Tech has made up-to-date social insurance contributions in respect of all of its employees in accordance with PRC law and regulations.

 

12.5VN Tech has complied with all applicable PRC labour law and regulations in respect of each of its employees and none of them will have any claim against VN Tech in respect of his/her employment by VN Tech.

 

13.	Environmental

 

13.1VN Tech has at all times complied in all respects with all PRC environmental laws, regulations and official guidelines and VN Tech has not received any notice, warning or communication of any kind stating, alleging, suggesting or otherwise indicating that a breach of any PRC environmental laws, regulations or official guidelines has occurred or is threatened.

 

13.2VN Tech has applied for, obtained and complied fully with all permits, licences, authorisations, consents and approvals required by any PRC environmental laws, regulations or official guidelines ("Environmental Licences") in respect of its business or assets.  There are no circumstances which could lead to the withdrawal or modification of any Environmental Licence or to the shortening of the term of any of them.

 

13.3VN Tech has no grounds to believe or suspect and does not believe or suspect that there are any actions, claims, proceedings, losses, expenses or other liabilities (whether actual or potential) in respect of any PRC environmental laws, regulations or official guidelines or the terms of any Environmental Licence for which VN Tech or any of its directors, officers or employees is or may be held to be liable in relation to its assets or the conduct of its business.

 

13.4VN Tech has no grounds to believe or suspect and does not believe or suspect that expenditure (other than in respect of routine maintenance) will be required in relation to VN Tech’s assets or the conduct of VN Tech’s business in order to ensure future compliance with any PRC environmental laws, regulations or official guidelines and/or Environmental Licences including (but without limitation) any requirements expressed to come into effect at a future date.