EXECUTION COPY

SHARE EXCHANGE AGREEMENT

dated as of

April 5, 2012

by and among

Wizzard Software Corp.

Universal Entertainment Group Limited

Digital Entertainment International Ltd.

Beijing Dingtai Guanqun Culture Co., Ltd.

Beijing FAB Culture Co., Ltd.

Beijing FAB Digital Entertainment Products Co., Ltd.

--------------------------------------------------------------------------------

SHARE EXCHANGE
AGREEMENT                                                                                              i

RECITALS:
                                                                                                                               
     ii

ARTICLE I

DEFINITIONS
                                                                                                 ii

ARTICLE II

ACQUISITION AND EXCHANGE OF SHARES                                         viii

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF  DIGITAL HKCO’S SHAREHOLDER REGARDING DIGITAL
HKCO AND ITS
SUBSIDIARIES                                                                                               x

ARTICLE IV

ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF DIGITAL HKCO’S SHAREHOLDER
                                                  xxii

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY         xxiv

ARTICLE VI

COVENANTS OF THE FAB
PARTIES                                                    xxxi

ARTICLE VII

COVENANTS OF THE COMPANY                                                      
xxxiv

ARTICLE VIII

COVENANTS OF ALL PARTIES HERETO                                           xxxvi

ARTICLE IX

CONDITIONS TO
CLOSING                                                                xxxviii

ARTICLE X

RELIANCE ON REPRESENTATIONS AND WARRANTIES                   xlii

ARTICLE XI

INDEMNIFICATION                                                                                  xlii

ARTICLE XII

TERMINATION AND LIQUIDATED DAMAGES                                     xlv

ARTICLE XIII

GOVERNING LAW AND DISPUTE RESOLUTION                                xlvi

ARTICLE XIV

MISCELLANEOUS                                                                                   xlviii

--------------------------------------------------------------------------------

SHARE EXCHANGE AGREEMENT

THIS SHARE EXCHANGE AGREEMENT, dated as of April 5, 2012 (this “Agreement”), is
hereby entered into by and among:

(1)

Wizzard Software Corp., a company incorporated under the law of the State of
Colorado with its registered office at 5001 Baum Blvd., Suite 770, Pittsburgh,
PA 15213, U. S. A. (the “COMPANY”);

(2)

Universal Entertainment Group Limited, a company incorporated under the law of
the British Virgin Islands with its registered office at P.O. Box 3321, Drake
Chambers, Road Town, Tortola, BVI (“UEG”); UEG owns a 100% equity interest in
Digital Entertainment International Ltd., and is sometimes referred to herein as
“Digital HKco’s Shareholder”;

(3)

Digital Entertainment International Ltd., a company 100 % owned by UEG and
incorporated under the law of Hong Kong Special Administrative Region with its
registered office at Flat 2,19/F, Henan Building,90-92 Jaffe Road,Wanchai,
HongKong (“DIGITAL HKco”);

(4)

Beijing Dingtai Guanqun Culture Co., Ltd., a company 100% owned by DIGITAL HKco
and incorporated under the law of the People’s Republic of China (the “PRC”)
with its registered office at Rm 6841, Building 3, No.3 Xijing Lu, Badachu
High-tech Garden, Shijingshan District, Beijing, China (the “WFOE”);

(5)

Beijing FAB Culture Co., Ltd., a company incorporated under the law of the PRC
with its registered office at Rm 5162, Building 3, No.3 Xijing Lu, Badachu
High-tech Garden, Shijingshan District, Beijing, China (“FAB Culture”); and

(6)

Beijing FAB Digital Entertainment Products Co., Ltd., a company incorporated
under the law of the PRC with its registered office at AA02 Oriental Plaza,
Oriental Square, No.1 Dong Chang’an Street, Dongcheng District, Beijing (“FAB
Digital”, and collectively with FAB Culture, the “VIE Entities”).

Under this Agreement, UEG, DIGITAL HKco, the WFOE and the VIE Entities shall be
referred to as the “FAB Parties”; DIGITAL HKco,  the WFOE and the VIE Entities
shall be referred to as the “FAB Companies”; the WFOE and the VIE Entities shall
be referred to as the “PRC Entities”; and the COMPANY and the FAB Parties shall
be referred to collectively as the “Parties” and each individually as a “Party”.
 The principal shareholder of UEG is Zhang Hongcheng, a PRC citizen (“Mr.
Zhang”).  

i

 

 

--------------------------------------------------------------------------------

RECITALS:

WHEREAS, Digital HKco’s Shareholder owns 100% of the issued and outstanding
shares of capital stock of DIGITAL HKco (the “DIGITAL HKco Shares”), free and
clear of any Liens;

WHEREAS, DIGITAL HKco directly holds 100% of the issued and outstanding shares
of capital stock of the WFOE;

WHEREAS, the WFOE is a party to VIE Contracts with respect to the management and
financials of the VIE Entities, FAB Culture and FAB Digital, and collectively,
the WFOE and the VIE Entities, sometimes referred to as the “Subsidiaries”,
conduct the operations of the wholesale, retail and mobile distribution and sale
of media products business (the “Business”) in the PRC;

WHEREAS, the COMPANY is a company with its shares listed on the NYSE Amex
trading under the ticker symbol of “WZE”;

WHEREAS, the COMPANY desires to acquire 100% of the DIGITAL HKco Shares in
accordance with and subject to the terms and conditions of this Agreement for
the consideration described herein (the “Transaction”);

WHEREAS, both the COMPANY and the FAB Parties believe it would be strategically
advantageous and wish to combine their respective businesses to create a global
digital media distribution conglomerate (the “Business Combination”);

NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1.

Definitions.  The following terms, as used herein, have the following meanings:

“Action” means any action, suit, investigation, hearing or proceeding, including
any audit for taxes or otherwise.

“Additional Agreements” means any other agreements, exhibits and/or instruments
that all Parties hereto agree to enter into to effect the Transaction
contemplated in this Agreement.

“Affiliate” means, with respect to any Person, any Person directly or indirectly
controlling, controlled by, or under common control with such other Person.
 With respect to any

ii

 

 

--------------------------------------------------------------------------------

natural person, the term Affiliate shall also include any member of said
person’s immediate family, any family limited partnership, limited liability
company or other entity in which said person owns any beneficial interest and
any trust, voting or otherwise, of which said person is a trustee or of which
said person or any of said person’s immediate family is a beneficiary.

“Agreement” means this Share Exchange Agreement.

“Authority” shall mean any governmental, regulatory or administrative body,
agency or authority, any stock exchange, any court or judicial authority, any
arbitrator, or any public, private or industry regulatory authority, whether
international, national, Federal, state, or local.

“Basket” has the meaning set forth in Section 11.5.

“Board of Directors” means the board of directors of the COMPANY, which after
the Closing shall be constituted in accordance with Section 8.3.

“Books and Records” of any Person means all books and records, ledgers, employee
records, customer lists, files, correspondence, and other records of every kind
(whether written, electronic, or otherwise embodied) owned or used by such
Person and its Subsidiaries or in which such Person’s or any Subsidiaries’
assets, business, or transactions are otherwise reflected.

“Business” has the meaning set forth in the Recitals.

“Business Day” means any day other than a Saturday, Sunday or legal holiday on
which commercial banking institutions in either Beijing or New York are not open
for business.

“Ceiling” has the meaning set forth in Section 11.5.

“Charter Documents” has the meaning set forth in Section 3.3.

“Closing” has the meaning set forth in Section 2.2.

“Closing Date” has the meaning set forth in Section 2.2.

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Commission” has the meaning set forth in Section 3.16(b)(viii).

“Company” has the meaning set forth in the Preamble.

“COMPANY Common Shares” means the common stock, US $0.001 par value per share,
of the COMPANY.

“Company Consent” has the meaning set forth in Section 5.7.

“Company Employment Agreements” has the meaning set forth in Section 5.13.

iii

 

 

--------------------------------------------------------------------------------

“Company Financial Statements” has the meaning set forth in Section 5.8.

“Company Leases” has the meaning set forth in Section 5.12.

“Company Owned Intellectual Property” has the meaning set forth in Section
5.10(a).

“Company Permits” has the meaning set forth in Section 5.12.

“Consideration” has the meaning set forth in Section 2.3(b).

“Convertible Preferred Shares” has the meaning set forth in Section 2.3(b).

“Core Employee” means any management employee with a position of department
manager or above.

“DIGITAL HKco” has the meaning set forth in the Preamble.

“DIGITAL HKco Shares” has the meaning set forth in Section 2.1.

“Digital HKco’s Shareholder” has the meaning set forth in the Preamble.

“Exchange Act” means the United States Securities Exchange Act of 1934, as
amended.

“Exchange Act Filings” means filings under the Exchange Act made by the COMPANY
 prior to the Closing Date.

“FAB Audited Financial Statements” has the meaning set forth in Section 3.9.

“FAB Companies” has the meaning set forth in the Preamble.

“FAB Consent” has the meaning set forth in Section 3.8.

“FAB Contracts” has the meaning set forth in Section 3.16(a).

“FAB Culture” has the meaning set forth in the Preamble.

“FAB Digital” has the meaning set forth in the Preamble.

“FAB Employment Agreements” has the meaning set forth in Section 3.18.

“FAB Financial Statements” has the meaning set forth in Section 3.9.

“FAB Interim Financial Statements” has the meaning set forth in Section 3.9.

“FAB Leases” has the meaning set forth in Section 3.12.

iv

 

 

--------------------------------------------------------------------------------

“FAB Owned Intellectual Property” has the meaning set forth in Section 3.14(a).

“FAB Parties” has the meaning set forth in the Preamble.

“FAB Permits” has the meaning set forth in Section 3.17.

“Financial Statement Date” has the meaning set forth in Section 3.9.

“Indebtedness” includes with respect to any Person, (a) all obligations of such
Person for borrowed money, or with respect to deposits or advances of any kind
(including amounts by reason of overdrafts and amounts owed by reason of letter
of credit reimbursement agreements) including, with respect thereto, all
interest, fees and costs, (b) all obligations of such Person evidenced by bonds,
debentures, notes, liens, mortgages or similar instruments, (c) all obligations
of such Person under conditional sale or other title retention agreements
relating to property purchased by such Person, (d) all obligations of such
Person issued or assumed as the deferred consideration of property or services
(other than accounts payable to creditors for goods and services incurred in the
ordinary course of business), (e) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien or security interest on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (f) all obligations of such Person under leases required to be
accounted for as capital leases under US GAAP, and (g) all guarantees by such
Person.

“Indemnitee” has the meaning set forth in Section 11.1.

“Indemnifiable Loss” has the meaning set forth in Section 11.1.

“Indemnifying Party” has the meaning set forth in Section 11.1.

“Initial COMPANY Shares” has the meaning set forth in Section 2.3 (a).

“Intellectual Property” of any Person means any and all of the following: (A)
patents, patent applications and statutory invention registrations; (B)
trademarks, licenses, inventions, service marks, trade names, trade dress,
slogans, logos and Internet domain names, including registrations and
applications for registration thereof; (C) copyrights, including registrations
and applications for registration thereof, software and copyrightable materials;
(D) trade secrets, know-how and similar confidential and proprietary
information; (E) u.r.l.s, Internet domain names and websites; and (F) any other
type of intellectual property right in each case which is owned or filed by such
Person (or in the case of DIGITAL HKco, by Digital HKco’s Shareholder with
respect to DIGITAL HKco) or any of such Person’s Subsidiaries whether registered
or unregistered or domestic or foreign.

“Knowledge” any Person means, with respect to any matter in question, the actual
knowledge of any executive officer of such Person after reasonable inquiry.

v

 

 

--------------------------------------------------------------------------------

“Law” means, with respect to any Person, any national, provincial or local law
(statutory, common or otherwise), constitution, treaty, convention, ordinance,
code, rule, regulation, order, injunction, judgment, decree, ruling or other
similar requirement enacted, adopted, promulgated or applied by a Authority that
is binding upon or applicable to such Person, as amended unless expressly
specified otherwise.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, including
any agreement to give any of the foregoing and any conditional sale agreement
and including any voting agreement or proxy with respect thereto.

“Lock-Up Agreements” means each of the Lock-Up Agreements between the COMPANY
and Digital HKco’s Shareholder or its relevant designees restricting the
transfer of certain of the COMPANY Common Shares received as Consideration in
the Transaction, in the form attached as Exhibit E to this Agreement.  

“Material Adverse Change” with respect to any Person means a material adverse
change in the business, assets, condition (financial or otherwise), liabilities
or results of operations of such Person and its Subsidiaries taken as a whole;
provided, however, without prejudicing whether any other matter qualifies as a
Material Adverse Change, any matter individually or in the aggregate with
directly related matters involving a loss or payment in excess of US $100,000
shall constitute a Material Adverse Change.

“Material Adverse Effect” with respect to any Person means a material adverse
effect on the business, assets, condition (financial or otherwise), liabilities,
or results of operations of such Person and its Subsidiaries taken as a whole;
provided, however, without prejudicing whether any other matter qualifies as a
Material Adverse Effect, any matter individually or in the aggregate with
directly related matters involving a loss or payment in excess of US $100,000
shall constitute a Material Adverse Effect.

“Mr. Zhang” has the meaning set forth in the Preamble.

“Offices” means offices, warehouses or business locations of DIGITAL HKco and
its Subsidiaries.

“NYSE Amex” means New York Stock Exchange – Amex.

“Order” means any decree, order, judgment, writ, award, injunction, rule or
consent of or by an Authority.

 “Outside Closing Date” has the meaning set forth in Section 12.1.

“Person” means an individual, a corporation, a partnership, a limited liability
company, an association, or a trust or other entity or organization, including a
government, domestic or foreign, or political subdivision thereof, or an agency
or instrumentality thereof.

vi

 

 

--------------------------------------------------------------------------------

“PRC” means the People’s Republic of China, but solely for the purposes of this
Agreement and the Additional Agreements, excluding Hong Kong, Macau and Taiwan.

“PRC Entities” has the meaning set forth in the Preamble.

“Proceeding” has the meaning set forth in Section 3.22(b).

“Real Property” means, collectively, all real properties and interests therein
(including the right to use), together with all buildings, fixtures, trade
fixtures, plant and other improvements located thereon or attached thereto; all
rights arising out of the use thereof (including air, water, oil and mineral
rights); and all subleases, franchises, licenses, permits, easements and
rights-of-way which are appurtenant thereto.

“Registration Rights” has the meaning set forth in Section 5.19.

“Reg. D” has the meaning set forth in Section 4.5(a).

“Reg. S” has the meaning set forth in Section 4.5 (a).

“Restructuring” means all of the transactions set forth in the Restructuring
Plan attached to this Agreement as Exhibit F.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“SAFE Circular 75” means the Notice on Issues Relating to the Administration of
Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic
Residents Conducted via Offshore Special Purpose Companies issued by SAFE on
October 21, 2005 and its implementing rules and guidelines, or any successor
rule or regulation made under PRC law.

“Schedule” means each schedule of the Disclosure Schedule to this Agreement.

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

“Subsidiary” means, with respect to any subject entity (the “subject entity”),
(i) any company, partnership or other entity (x) more than fifty percent (50%)
of whose shares or other interests entitled to vote in the election of directors
or (y) more than a fifty percent (50%) interest in the profits or capital of
such entity are owned or controlled directly or indirectly by the subject entity
or through one (1) or more Subsidiaries of the subject entity, (ii) any entity
whose assets, or portions thereof, are consolidated with the net earnings of the
subject entity and are recorded on the books of the subject entity for financial
reporting purposes in accordance with the US GAAP or other relevant generally
accepted accounting practices, or (iii) any entity with respect to which the
subject entity has the power to otherwise direct the business and policies of
that entity directly or indirectly through another Subsidiary.

vii

 

 

--------------------------------------------------------------------------------

“Tangible Assets” means all tangible personal property and interests therein,
including inventory, machinery, computers and accessories, furniture, office
equipment, communications equipment, and other tangible property.

“Tax” has the meaning set forth in Section 3.22(c).

“Tax Liability” has the meaning set forth in Section 3.22(b).

“Tax Return” has the meaning set forth in Section 3.22(c).

“Third Party Claim” has the meaning set forth in Section 11.1.

“Transaction” has the meaning set forth in the Recitals.

“Trading Day” means any day when the NYSE Amex is open for trading.

“US GAAP” means generally accepted accounting principles, consistently applied
and interpreted in the United States of America.

“VIE Contracts” means a series of VIE contracts, including the Exclusive Service
Contract, the Option Contracts, the Share Pledge Contracts, Shareholders’ Voting
Proxies or other applicable contracts as agreed from time to time, entered by
the WFOE, FAB Culture, FAB Digital, Mr. Zhang, Wang Gang and Ma Jiliang and/or
other shareholders of the VIE Entities.

“VIE Entities” has the meaning set forth in the Preamble.

“Voting Agreement” has the meaning set forth in Section 9.3(b)(v).

“WFOE” has the meaning set forth in the Preamble.

ARTICLE II

ACQUISITION AND EXCHANGE OF SHARES

2.1.

The Agreement.  Subject to the terms and conditions herein stated, the Parties
hereby agree that the COMPANY shall acquire all of the issued and outstanding
shares of DIGITAL HKco’s capital stock (the “Digital HKco Shares”) in exchange
for the Consideration set forth in Section 2.3 below.  Digital HKco’s
Shareholder agrees to sell, assign, transfer and deliver to the COMPANY on the
Closing Date, and the COMPANY agrees to purchase and acquire on the Closing
Date, free and clear of all Liens, the Digital HKco Shares.

2.2.

Closing.  The closing of the transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of Kramer Levin Naftalis & Frankel
LLP in New York, New York, at 10:00 AM, local time, on the second Business Day
after all conditions to the Closing set forth in ARTICLE IX hereof have been
satisfied or waived, or such other place, time or date as the

viii

 

 

--------------------------------------------------------------------------------

COMPANY and Digital HKco’s Shareholder agree in writing.  The date of the
Closing shall be referred to herein as the “Closing Date”.  In addition to those
obligations set forth in ARTICLE VIII, at the Closing:

(a)

the COMPANY shall deliver the CONSIDERATION (as set forth in Section 2.3 below)
to Digital HKco’s Shareholder to be held pursuant to the terms of the Lock-up
Agreement attached as Exhibit E hereto; and

(b)

Digital HKco’s Shareholder shall deliver (or to cause to be delivered) to the
COMPANY stock certificate(s) evidencing all the DIGITAL HKco Shares held by it,
together with stock powers, which shall be duly stamped and shall be duly
executed in favor of the COMPANY.

2.3.

The Consideration.  

(a)

As a portion of the Consideration for the Digital HKco Shares, at the Closing
the COMPANY shall issue and deliver such number of COMPANY Common Shares (the
“Initial COMPANY Shares’) to DIGITAL HKco’s Shareholder and/or its designees, as
will constitute forty-nine percent (49%) of the issued and outstanding Common
Shares of the COMPANY immediately following the Closing (after giving effect to
the issuance of such Initial COMPANY Shares) on a fully diluted basis.  The
Initial COMPANY Shares may resold in the future under Rules 144 or 144A under
the Securities Act, subject to compliance with the applicable provisions of such
Rules and the applicable conditions set forth in this Agreement and the
Additional Agreements.  DIGITAL HKco’s Shareholder shall execute a Voting
Agreement with the COMPANY to assign voting rights with respect to the Initial
Company Shares to the Board of Directors, effective as of the Closing, in the
form attached as Exhibit A to this Agreement.

(b)

As another portion of the Consideration for the DIGITAL HKco Shares, at the
Closing the COMPANY shall issue and deliver certain shares of the Company’s
convertible preferred stock (the “Convertible Preferred Shares”) to DIGITAL
HKco’s Shareholder and/or its designees, convertible into COMPANY Common Shares
in accordance with the schedule and conditions set forth in the Certificate of
Designations of Convertible Preferred Stock,  in the form attached as Exhibit B
to this Agreement, in such number that full conversion thereof in the next 18
months after the Closing in accordance with the Certificate of Designations of
Convertible Preferred Stock would bring the ownership position in the COMPANY of
DIGITAL HKco’s Shareholder and its designees to seventy-eight percent (78%) of
the issued and outstanding Common Shares immediately following the Closing
(after giving effect to the issuance of the Initial COMPANY Shares and the
issuance and conversion of the Convertible Preferred Shares) on a fully diluted
basis.  The Convertible Preferred Shares, together with the Initial COMPANY
Shares, shall be collectively referred to as the “CONSIDERATION”. Subject to the
conditions and terms in this Agreement and the Additional Agreements, all the
Initial COMPANY Shares and Convertible Preferred Shares (and any additional
COMPANY Common Shares issuable upon conversion of the Convertible Preferred
Shares, if, as and when so issued) will be duly authorized, validly issued,
fully paid and nonassessable.

ix

 

 

--------------------------------------------------------------------------------

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF
DIGITAL HKCO’S SHAREHOLDER REGARDING
DIGITAL HKCO AND ITS SUBSIDIARIES

DIGITAL HKco’s Shareholder hereby represents and warrants to the COMPANY as
follows, except as set forth in the Schedules to this Agreement:

3.1.

Corporate Existence and Power.  Each of DIGITAL HKco and each of its
Subsidiaries is duly formed, validly existing and in good standing under and by
virtue of the Laws of the jurisdiction of its organization, and has all power
and authority, corporate and otherwise, and all governmental licenses,
franchises, permits, authorizations, consents and approvals required to own and
operate its properties and assets and to carry on its business as now conducted,
except as explicitly set forth in this Agreement.  Neither DIGITAL HKco nor any
of its Subsidiaries has taken any action, adopted any plan, or made any
agreement in respect of any transaction, consolidation, sale of all or
substantially all of its respective assets, reorganization, recapitalization,
dissolution or liquidation.

3.2.

Corporate Authorization.  The execution, delivery and performance by each of the
FAB Parties of this Agreement and each of the Additional Agreements to which any
of the FAB Parties are named as a party and the consummation by the FAB Parties
of the transactions contemplated hereby and thereby are within the corporate or
other power (as the case may be) of the FAB Parties party thereto and have been
duly authorized by all necessary action on the part of the FAB Parties party
thereto.  This Agreement constitutes, and, upon their execution and delivery,
each of the Additional Agreements will constitute, a valid and legally binding
agreement of the FAB Parties party thereto, enforceable against such FAB Parties
in accordance with their respective terms, subject to (i) Laws of general
application relating to bankruptcy, insolvency and the relief of debtors, or
(ii) rules of Laws governing specific performance, injunctive relief or other
equitable remedies.

3.3.

Charter Documents; Legality.  The FAB Companies have heretofore made available
to the COMPANY true and complete copies of their respective certificates of
incorporation, articles of association, bylaws, operating agreements or other
comparable organizational documents, if applicable (“Charter Documents”), as in
effect or constituted on the date hereof.  The execution, delivery, and
performance by the FAB Parties of this Agreement and any Additional Agreement to
which they are parties has not violated and will not violate, and the
consummation of the transactions contemplated hereby or thereby will not
violate, any of such Charter Documents or any Law.  No FAB Company has taken any
action that is in material violation of its Charter Documents.

3.4.

Subsidiaries.  Neither DIGITAL HKco nor any of its Subsidiaries is a party to
any agreement relating to the formation of any joint venture, association or
other Person.  (i) Schedule 3.4 discloses all of the outstanding shares of such
Subsidiaries, which are validly issued, fully paid and non-assessable and are
held free and clear of any Liens, except as indicated in Schedule 3.4; (ii)
there are no consignments, contracts and/or equity transfer arrangements,

x

 

 

--------------------------------------------------------------------------------

options, warrants or other contractual rights or arrangements outstanding which
give any Person the right to acquire or Control any capital stock or any
substantial part of the assets of any such Subsidiary, whether or not such right
is presently exercisable; and (iii) there are no contracts and/or equity
transfer arrangements, options, warrants or other contractual rights (oral or
written), trusts or other arrangements of any nature which give any Person the
right to any stock rights or equity interests in or from any such Subsidiary.

3.5.

Capitalization and Ownership.  No Person other than Digital HKco’s Shareholder
owns any securities of DIGITAL HKco, and except as set forth on Schedule 3.5, no
Person other than Digital HKco’s Shareholder or direct or indirect Subsidiaries
thereof owns any securities of any other FAB Companies.  There is no contract
that requires or under any circumstance would require DIGITAL HKco or any of
 its Subsidiaries to issue, or grant any right to acquire, any securities of
DIGITAL HKco or any of its Subsidiaries, or any security or instrument
exercisable or exchangeable for or convertible into, the capital stock or
membership interest of DIGITAL HKco or any of its Subsidiaries or to merge,
consolidate, dissolve, liquidate, restructure, or recapitalize DIGITAL HKco or
any of  its Subsidiaries except as disclosed in Schedule 3.5.  DIGITAL HKco’s
Shares and the equity securities of each of its Subsidiaries (i) have been duly
authorized and validly issued and are fully paid and nonassessable, and (ii) in
the case of DIGITAL HKco’s Shares, were issued in compliance with all applicable
Laws, and in the case of each of its Subsidiaries, were issued in compliance
with all applicable Laws in all material respects.

3.6.

Affiliates.  With respect to related party transactions, Schedule 3.6 lists each
material contract, arrangement, or understanding between any of the FAB
Companies and any Affiliate of the FAB Companies.  Except as disclosed in
Schedule 3.6, none of the Affiliates of the FAB Parties (i) owns, directly or
indirectly, in whole or in part, any tangible or intangible property (including
Intellectual Property rights) that DIGITAL HKco or any of its Subsidiaries uses
or the use of which is necessary for the conduct of the Business, or (ii) has
engaged in any material transaction with DIGITAL HKco or any of its
Subsidiaries.

3.7.

Assumed Names.  Schedule 3.7 is a complete and correct list of all assumed or
“doing business as” names currently or formerly used by DIGITAL HKco or any of
its Subsidiaries.  Neither DIGITAL HKco nor any of its Subsidiaries has used any
name other than the names listed on Schedule 3.7 to conduct its business.
 DIGITAL HKco and each of its Subsidiaries have filed appropriate “doing
business as” certificates in all applicable jurisdictions where material.

3.8.

Consents.  The contracts listed on Schedule 3.8 are the only on-going material
agreements, commitments, arrangements, contracts or other instruments binding
upon DIGITAL HKco, any of its Subsidiaries or any of their respective properties
requiring a consent, approval, authorization, order or other action of or filing
with any Person as a result of the execution, delivery or performance of this
Agreement or any of the Additional Agreements or the consummation of the
transactions contemplated hereby or thereby (each of the foregoing, a “FAB
Consent”) except where the failure to obtain the same would not have a Material
Adverse Effect on DIGITAL HKco.

xi

 

 

--------------------------------------------------------------------------------

3.9.

Financial Statements.  DIGITAL HKco has delivered to the COMPANY its audited
consolidated financial statements as of September 30, 2011, and 2010,
respectively, and for the fiscal years ending September 30, 2011, 2010 and 2009,
respectively (the “FAB Audited Financial Statements”), and its unaudited
consolidated financial statements as of December 31, 2011 and for the quarter
ending December 31, 2011 (the “FAB Interim Financial Statements”, and together
with the FAB Audited Financial Statements, the “FAB Financial Statements’). The
FAB Financial Statements have been prepared in accordance with US GAAP applied
on a consistent basis throughout the periods indicated, except that the FAB
Interim Financial Statements may not contain all footnotes or year-end
adjustments required by US GAAP.  All appropriate audit adjustments  as of
September 30, 2011 and for the fiscal year ending September 30, 2011, and all
appropriate interim period adjustments as of March 31, 2012 and for the quarter
ending March 31, 2012, have been or are being recorded in the general ledgers(s)
of the FAB Companies so that such general ledger(s) will agree in all material
respects with the year-to-date unaudited financial statements of DIGITAL HKco
and its Subsidiaries prepared in accordance with GAAP as of the dates and for
the periods indicated.  The FAB Financial Statements fairly present in all
material respects the financial condition and operating results of DIGITAL HKco
and its Subsidiaries (including the WFOE and the VIE Entities) as of the dates,
and for the periods, indicated therein, including normal audit adjustments to
the Interim Financial Statements in accordance with US GAAP.  Except as set
forth in the FAB Financial Statements, DIGITAL HKco and its Subsidiaries have no
material liabilities, contingent or otherwise, other than (a) liabilities
incurred in the ordinary course of business subsequent to December 31, 2011 (the
“Financial Statement Date”) and (b) obligations under contracts and commitments
incurred in the ordinary course of business and not required under US GAAP to be
reflected in the FAB Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of DIGITAL HKco and the Subsidiaries taken as a whole.  Except as
disclosed in the FAB Financial Statements, neither DIGITAL HKco nor any of its
Subsidiaries is a guarantor or indemnitor of any material indebtedness of any
other person, firm or corporation.  DIGITAL HKco and its Subsidiaries maintain a
standard system of accounting established and administered in accordance with US
GAAP.

3.10.

Books and Records.

(a)

The Books and Records relating to DIGITAL HKco and its Subsidiaries accurately
and fairly in all material respects, in reasonable detail, reflect DIGITAL
HKco’s and any of its Subsidiaries’ transactions and dispositions of assets.
 DIGITAL HKco and each of its Subsidiaries maintain a system of internal
accounting controls to procure:

(i)

transactions are executed in accordance with management’s authorization;

(ii)

access to assets is permitted only in accordance with management’s
authorization; and

(iii)

recorded assets are compared with existing assets at reasonable intervals, and
appropriate action is taken with respect to any differences.

xii

 

 

--------------------------------------------------------------------------------

(b)

DIGITAL HKco and its Subsidiaries have heretofore made all of their material
Books and Records available to the COMPANY for its inspection and have
heretofore delivered to the COMPANY complete and accurate copies of documents
with respect to its DIGITAL HKco and its Subsidiaries referred to in the
Schedules or as the COMPANY otherwise has requested.  

3.11.

Absence of Certain Changes.

(a)

Except as set forth in Schedule 3.11(a), since September 30, 2011, each of
DIGITAL HKco and each of its Subsidiaries has conducted its respective business
in the ordinary course of business in all material respects, and with respect to
DIGITAL HKco and its Subsidiaries, other than in the ordinary course of
business, there has not been:

(i)

any material capital expenditure except in the ordinary course of business
consistent with past practice (including with respect to kind and amount);

(ii)

any sale, lease, license or other disposition of any of its material assets
except (i) pursuant to existing contracts or commitments disclosed in the
Schedules hereto and (ii) sales of products or inventory in the ordinary course
of business consistent with past practice;

(iii)

acceptance of any returns except in the ordinary course of business, consistent
with past practice (including with respect to kind and amount);

(iv)

the incurrence of material Liens on any of its assets;

(v)

any consolidation with or acquisition of any other Person;

(vi)

any change in its accounting principles or methods;

(vii)

any change in location where it conducts business;

(viii)

any extension of any loans, other than travel or other expense advances to
employees in the ordinary course of business consistent with past practice,
exceeding US $5,000 individually or US $25,000 in the aggregate;

(ix)

any dividend or distribution to the shareholders; or

(x)

any agreement to do any of the foregoing.

(b)

Except as set forth on Schedule 3.11(b), since September 30, 2011, through and
including the date of this Agreement, neither DIGITAL HKco nor any of its
Subsidiaries has taken any action that would have violated any covenants of the
FAB Parties set forth in ARTICLE VI hereof.

xiii

 

 

--------------------------------------------------------------------------------

3.12.

Real Property.

(a)

Each FAB Company has good title, free and clear of any Lien, to each parcel of
Real Property owned by it, including the Real Property reflected in the FAB
Financial Statements, except as would not be material in amount or effect.

(b)

Excepted as indicated in Schedule 3.12, the use and operation of any such Real
Property or real property lease (the “FAB Leases”) by DIGITAL HKco or its
Subsidiaries are in full compliance in all material respects with covenants,
conditions, restrictions, easements, disposition agreements and similar matters
affecting such Real Property and, effective as of the Closing, each of DIGITAL
HKco and its Subsidiaries shall have the right under all Laws to continue the
use and operation of such Real Property in the conduct of their businesses.
Neither DIGITAL HKco nor any of its Subsidiaries has breached or violated or is
in default under any of the FAB Leases, the breach or violation of which could
individually or in the aggregate have a Material Adverse Effect, and no notice
from any Person has been received by DIGITAL HKco or any of its Subsidiaries or
served upon DIGITAL HKco, any of its Subsidiaries or Digital HKco’s Shareholder
claiming any violation of any FAB Lease.  

3.13.

Tangible Property.

(a)

Each material piece of Tangible Assets owned by DIGITAL HKco or any of its
Subsidiaries, in all material respects, is in operating condition and repair and
functions in accordance with its intended use (ordinary wear and tear excepted),
has been properly maintained, and is suitable for its present uses.  

(b)

DIGITAL HKco or its Subsidiaries have, and upon consummation of the transactions
contemplated hereby and in the Additional Agreements will continue to have,
good, valid and marketable title in and to each material piece of such Tangible
Assets free and clear of all Liens, except as would not be material in amount or
effect.

(c)

DIGITAL HKco and each of its Subsidiaries has good title to, or valid leasehold
or license interest in, all its respective properties and assets (whether
tangible or intangible), free and clear of all Liens, except as would not be
material in amount or effect.  The personal and other properties and assets
owned by DIGITAL HKco or any of  its Subsidiaries or leased or licensed by
DIGITAL HKco or any of  its Subsidiaries from a third party constitute all such
material properties and assets used in and necessary to the Business as
presently conducted.

(d)

Other than those possessed by employees of DIGITAL HKco or its Subsidiaries as
disclosed in Schedule 3.13(d), all Tangible Assets with a purchase invoice
amount above US$5,000 are located at the Offices.

3.14.

Intellectual Property.

(a)

Schedule 3.14(a) sets forth a true and complete list of all Intellectual
Property rights owned by DIGITAL HKco or any of  its Subsidiaries (the “FAB
Owned Intellectual Property”).

xiv

 

 

--------------------------------------------------------------------------------

(b)

Except as indicated in Schedule 3.14(b), the FAB Owned Intellectual Property,
together with the licensed intellectual property rights which DIGITAL HKco and
its Subsidiaries can obtain from the public market without substantial
difficulties, constitute all the material Intellectual Property necessary to, or
used or held for use in, the conduct of the Business of DIGITAL HKco and its
Subsidiaries as currently conducted.  The consummation of the transactions
contemplated by this Agreement will not alter, encumber, impair or extinguish
any material FAB Owned Intellectual Property.  

(c)

To the Knowledge of Digital HKco’s Shareholder, neither DIGITAL HKco’s nor any
of its Subsidiaries’ ownership and use in the ordinary course of the FAB Owned
Intellectual Property infringes upon or misappropriates in any material respect
valid Intellectual Property rights, privacy rights or other right of any third
party.  There is no Proceeding (as defined below) pending against, or, to the
Knowledge of Digital HKco’s Shareholder, threatened against or affecting,
DIGITAL HKco, any of its Subsidiaries, or any present or former officer,
director or employee of DIGITAL HKco or any of its Subsidiaries in their
capacity as such (i) based upon, or challenging or seeking to deny or restrict,
the rights of DIGITAL HKco or any of  its Subsidiaries in any of the FAB Owned
Intellectual Property, (ii) alleging that the use of the FAB Owned Intellectual
Property or any services provided, processes used or products manufactured,
used, imported or sold by DIGITAL HKco or any of  its Subsidiaries do or may
conflict with, misappropriate, infringe or otherwise violate any Intellectual
Property of any third party or (iii) alleging that DIGITAL HKco or any of  its
Subsidiaries have infringed, misappropriated or otherwise violated any
Intellectual Property of any third party.  None of DIGITAL HKco and any of its
Subsidiaries have received from any third person an offer to license any
Intellectual Property rights of such third person.

(d)

Except as set forth in Schedule 3.14(d), DIGITAL HKco or any of its Subsidiaries
are entitled to use the material FAB Owned Intellectual Property in the ordinary
course. DIGITAL HKco and its Subsidiaries hold all right, title and interest in
and to all material FAB Owned Intellectual Property, free and clear of any Lien.
 In each case where a material patent or patent application, trademark
registration or trademark application, service mark registration or service mark
application, or copyright registration or copyright application included in the
FAB Owned Intellectual Property is held by assignment, the assignment has been
duly recorded with the Authority from which the patent or registration issued or
before which the application or application for registration is pending. To the
Knowledge of Digital HKco’s Shareholder, DIGITAL HKco and its Subsidiaries have
taken all actions necessary to maintain and protect in all material respects the
material FAB Owned Intellectual Property, including payment of applicable
maintenance fees and filing of applicable statements of use.  

(e)

To the Knowledge of Digital HKco’s Shareholder, no Person has infringed,
misappropriated or otherwise violated any FAB Owned Intellectual Property.
 DIGITAL HKco and its Subsidiaries have taken reasonable steps in accordance
with normal industry practice to maintain the confidentiality of all
confidential FAB Owned Intellectual Property.  To the Knowledge of Digital
HKco’s Shareholder, none of the Intellectual Property of DIGITAL HKco or any of
its Subsidiaries that is material to the business or operation of DIGITAL HKco
or any of  its Subsidiaries and the value of which to DIGITAL HKco or any of its
Subsidiaries is contingent upon maintaining the confidentiality 

xv

 

 

--------------------------------------------------------------------------------

thereof, has been disclosed other than to employees, representatives and agents
of DIGITAL HKco or any of its Subsidiaries, all of whom are bound by written
confidentiality agreements substantially in the form previously disclosed to the
COMPANY.

3.15.

Litigation.  Except as set forth in Schedule 3.15, there is no material Action
pending against, or to the Knowledge of DIGITAL HKco or any of its Subsidiaries,
threatened against or affecting, DIGITAL HKco or any of its Subsidiaries, any of
their respective officers or directors in their capacity as such, or the
business of DIGITAL HKco or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated hereby and in the Additional Agreements.  Except as set forth in
Schedule 3.15, there are no outstanding judgments against DIGITAL HKco or any of
its Subsidiaries, or any of their respective officers or directors in their
capacity as such.  Neither DIGITAL HKco nor any of its Subsidiaries is now, nor
has it been in the past five years, subject to any proceeding with the Federal
Trade Commission or the Equal Employment Opportunity Commission or any
comparable body of any state or political subdivision in China.

3.16.

Contracts.

(a)

Each material contract to which DIGITAL HKco or any of  its Subsidiaries is a
party (each, a “FAB Contract”) is a valid and binding agreement, and is in full
force and effect, and neither DIGITAL HKco nor any of its Subsidiaries, as
applicable, nor, to the Knowledge of Digital HKco’s Shareholder, or any of its
Subsidiaries, any other party thereto, is in material breach or default (whether
with or without the passage of time or the giving of notice or both) under the
terms of any such valid and binding material FAB Contract.  Neither DIGITAL HKco
nor any of its Subsidiaries has assigned, delegated, or otherwise transferred
any of its rights or obligations with respect to any FAB Contracts, or granted
any power of attorney with respect thereto.  DIGITAL HKco and its Subsidiaries
have given to COMPANY a list of each material valid and binding FAB Contract
with a contract value (over the course of a single year) higher than US$100,000.

(b)

Schedule 3.16(b) lists each material valid and binding FAB Contract (other than
the FAB Charter Documents) of DIGITAL HKco and each of its Subsidiaries,
including:

(i)

any material sales, distribution or other similar FAB Contract providing for the
sale by DIGITAL HKco or any of  its Subsidiaries of materials, supplies, goods,
services, equipment or other assets;

(ii)

any FAB Contract for the purchase of materials, supplies, goods, services,
equipment or other assets providing for either 1) annual payments by DIGITAL
HKco and its Subsidiaries of US $100,000 or more or 2) aggregate payments by
DIGITAL HKco and its Subsidiaries of US $100,000 or more;

(iii)

any lease of material Real Property;

(iv)

any material partnership, joint venture or other similar FAB Contract;

xvi

 

 

--------------------------------------------------------------------------------

(v)

any FAB Contract creating or granting a material Lien (including Liens upon
properties acquired under conditional sales, capital leases or other title
retention or security devices);

(vi)

any FAB Contract that 3) grants any material exclusive license, exclusive supply
or exclusive distribution rights or other exclusive rights, or 4) contains any
provision that requires the purchase of all or any material portion of DIGITAL
HKco’s or any of its Subsidiaries’ requirements from a given third party, or any
other similar provision;

(vii)

any FAB Contract entered into in the last three years in connection with the
settlement or other resolution of any Proceeding that 5) has any continuing
material obligations, liabilities or restrictions, 6) involves any material
Intellectual Property rights; or

(viii)

any other “material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the United States Securities and Exchange Commission (the
“Commission”), other than those agreements and arrangements described in Item
601(b)(10)(iii)) with respect to DIGITAL HKco and its Subsidiaries, taken as
whole

3.17.

Licenses and Permits.  Except as indicated in Schedule 3.17, each of DIGITAL
HKco and its Subsidiaries possess all material permits necessary for the
ownership and operation of their businesses (the “FAB Permits”).  True, complete
and correct copies of the FAB Permits issued to DIGITAL HKco and its
Subsidiaries have previously been delivered to the COMPANY.  Except as indicated
in Schedule 3.17, such FAB Permits are valid and in full force and effect and,
assuming the related FAB Consents, if any, have been obtained or waived prior to
the Closing Date, none of the FAB Permits will be terminated or impaired or
become terminable as a result of the transactions contemplated hereby, except as
would not be material in amount or effect.  Except as indicated in Schedule
3.17, DIGITAL HKco or any of its Subsidiaries has all FAB Permits necessary to
operate the Business other than those FAB Permits whose absence individually or
in the aggregate would not cause a Material Adverse Effect on DIGITAL HKco.

3.18.

Employment Contracts  The executive officers of DIGITAL HKco and its
Subsidiaries have entered into employment agreements, including customary
confidentiality clauses, non-competition clauses and Intellectual Property
assignment clauses, with DIGITAL HKco or any of its Subsidiaries (the “FAB
Employment Agreements”), the terms and conditions of which provide that such
executive officers shall keep confidential information of the PRC Entities
during the employment period and after the employment period, such executive
officers shall not directly or indirectly compete with the Business of the PRC
Entities during the employment period and within two (2) years after the
employment period, and all Intellectual Property developed by such executive
officers during the employment period shall be owned by the PRC Entities.

3.19.

Compliance with Labor Laws and Agreements.  DIGITAL HKco and each of its
Subsidiaries have complied with all applicable Laws and Orders relating to

xvii

 

 

--------------------------------------------------------------------------------

employment or labor other than those Laws and Orders with which it could fail to
comply, either individually or in the aggregate, without causing a Material
Adverse Effect.  Except as indicated in Schedule 3.19, no present or former
employee, officer or director of DIGITAL HKco or any of its Subsidiaries has
asserted against them any material claim for any matter including for wages,
salary, vacation, severance, or sick pay except for the same incurred in the
ordinary course of business for the last payroll period prior to the Closing
Date.  There is no:

(a)

unfair labor practice complaint against DIGITAL HKco or any of  its Subsidiaries
pending before the labor Authority;

(b)

pending labor strike or other material labor trouble affecting DIGITAL HKco or
any of its Subsidiaries;

(c)

material labor grievance pending against DIGITAL HKco or any of its
Subsidiaries;

(d)

pending representation question respecting the employees of DIGITAL HKco or any
of its Subsidiaries; or

(e)

pending arbitration proceeding arising out of or under any collective bargaining
agreement to which DIGITAL HKco or any of its Subsidiaries are a party.

In addition, to the Knowledge of Digital HKco’s Shareholder: (i) none of the
matters specified in Sections (a) through (e) above is threatened against
DIGITAL HKco or any of its Subsidiaries; (ii) no union organizing activities
have taken place with respect to DIGITAL HKco or any of its Subsidiaries; and
(iii) no reasonable basis exists for which a material claim may be made under
any collective bargaining agreement to which DIGITAL HKco or any of its
Subsidiaries are a party.

3.20.

Employment Matters.  

(a)

Schedule 3.20 contains a summary of the salaries, bonus and other compensation
of officers of DIGITAL HKco and its Subsidiaries for the fiscal years 2010 and
2011.  The FAB Financial Statements contain an accurate and complete list in all
material respects of each incentive, bonus, profit sharing, retirement, deferred
compensation, equity, phantom equity, option, equity purchase, equity
appreciation right or severance plan of DIGITAL HKco now in effect or under
which DIGITAL HKco has or might have any material obligation to any director or
officer, or any material understanding between DIGITAL HKco and any employee
concerning the terms of such employee’s employment that does not apply to its
employees generally.

(b)

Except as indicated in Schedule 3.20, the PRC Entities have paid the social
insurance and housing fund in full in accordance with applicable Laws in all
material respects.

xviii

 

 

--------------------------------------------------------------------------------

3.21.

VIE Contracts.

(a)

Each of the VIE Contracts has been duly authorized and approved by all necessary
corporate action of, and is in full force and effect and constitutes the valid
and binding legal obligation of, the parties thereto.

(b)

Each of the FAB Companies [and the other parties thereto], as the case may be,
have the legal right, power and authority (corporate and other) to enter into
and perform its or his or her obligations under each VIE Contract to which it or
he or she is a party and has taken all necessary action (corporate and other) to
authorize the execution, delivery and performance of, and has authorized,
executed and delivered, each VIE Contract to which it or he or she is a party.

(c)

Each VIE Contract constitutes a valid and legally binding obligation of [the
parties named therein] enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally, (ii) as limited by
Laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.

(d)

The execution and delivery by each party named in each VIE Contract, and the
performance by such party of its obligations thereunder and the consummation by
it of the transactions contemplated therein shall not (i) result in any
violation of, be in conflict with, or constitute a default under, with or
without the passage of time or the giving of notice, any provision of its
constitutional documents as in effect at the date hereof, any applicable Laws,
or any material contract to which any FAB Company is a party or by which any FAB
Company is bound, (b) accelerate, or constitute an event entitling any Person to
accelerate, the maturity of any indebtedness or other liability of any FAB
Company or to increase the rate of interest presently in effect with respect to
any Indebtedness of any FAB Company, or (c) result in the creation of any lien,
claim, charge or encumbrance upon any of the properties or assets of any FAB
Company except as would not cause a Material Adverse Effect on DIGITAL HKco.

(e)

All material FAB Consents (if any) required in connection with the VIE Contracts
have been waived or unconditionally obtained in writing, and no such consent has
been withdrawn or been subject to any condition precedent which has not been
fulfilled or performed.

(f)

Each VIE Contract is in full force and effect and no party to any VIE Contract
is in material breach or default in the performance or observance of any of the
terms or provisions of such VIE Contracts.

3.22.

Tax Matters.

(a)

Compliance Generally.  Where required by Laws, DIGITAL HKco and  its
Subsidiaries have (A) duly and timely filed all Tax Returns required to be filed
after December 31, 2008 and on or prior to the Closing Date, which Tax Returns
are true, correct and complete in all material

xix

 

 

--------------------------------------------------------------------------------

respects, and (B) duly and timely paid all Taxes due and payable in respect of
all periods after December 31, 2008 and up to and including the date which
includes the Closing Date or made adequate provision in its books and records
and Financial Statements in accordance with US GAAP for any such Tax which is
not due on or before such time.  Prior to the Closing Date, DIGITAL HKco and its
Subsidiaries shall provide the COMPANY with a schedule, which sets forth each
Taxing jurisdiction in which DIGITAL HKco or its Subsidiaries have filed or are
required to file Tax Returns and whether DIGITAL HKco or its Subsidiaries have
filed consolidated, combined, unitary or separate income or franchise Tax
Returns with respect to each such jurisdiction, and a copy of such Tax Returns
as shall have been requested by the COMPANY.  Any Tax Returns of DIGITAL HKco
and  its Subsidiaries filed subsequent hereto and on or prior to the Closing
Date were or will be consistent with the Tax Returns furnished to the COMPANY
and did not and will not make, amend or terminate any election with respect to
any Tax or change any accounting method, practice or procedure.  Since December
31, 2008, DIGITAL HKco and each of its Subsidiaries have complied in all
material respects with all applicable Law relating to the reporting, payment,
collection and withholding of Taxes and has duly and timely withheld or
collected, paid over and reported all Taxes required to be withheld or collected
on or before the date hereof.

(b)

No Audit.  (A) No taxing authority has asserted any adjustment that could result
in a material additional Tax for which DIGITAL HKco or any of its Subsidiaries
are or may be liable or that could result in a material Lien on any of its
assets which has not been fully paid or adequately provided for on the Interim
Financial Statements (collectively, “Tax Liability”), or which adjustment, if
asserted in another period, would result in any Tax Liability, (B) there is not
pending any audit, examination, investigation, dispute, proceeding or claim
(collectively, “Proceeding”) relating to any Tax Liability and, to the Knowledge
of Digital HKco’s Shareholder, no taxing authority is contemplating such a
Proceeding and there is no basis for any such Proceeding, (C) no statute of
limitations with respect to any Tax Liability has been waived or extended
(unless the period to which it has been waived or extended has expired), (D)
there is no outstanding power of attorney authorizing anyone to act on behalf of
DIGITAL HKco or any of  its Subsidiaries in connection with any Tax Liability,
Tax Return or Proceeding relating to any Tax, (E) there is not any outstanding
closing agreement, ruling request, request to consent to change a method of
accounting, subpoena or request for information with or by any taxing authority
with respect to DIGITAL HKco or any of its Subsidiaries, its income, assets or
business, or any Tax Liability, (F) DIGITAL HKco or any of its Subsidiaries are
not required to include any adjustment under Section 481 of the Code (or any
corresponding provision of applicable Law) in income for any period ending after
the Closing Date, (G) DIGITAL HKco and each of its Subsidiaries is not and has
never been a party to any Tax sharing or Tax allocation agreement, arrangement
or understanding, (H) DIGITAL HKco and each of its Subsidiaries is not and has
never been included in any consolidated, combined or unitary Tax Return, (I) all
taxable periods for the assessment or collection of any Tax Liability are closed
by agreement or by operation of the normal statute of limitations (without
extension) or will close by operation of the normal statute of limitations for
such Taxes (in each case determined without regard to any omission, fraud or
other special circumstance other than the timely filing of the Tax Return), and
(J) no taxing authority has ever asserted that DIGITAL HKco or any of  its
Subsidiaries should file a Tax Return in a jurisdiction where it does not file.

xx

 

 

--------------------------------------------------------------------------------

(c)

Taxes and Tax Return Defined.  For purposes of this Agreement, “Tax” shall mean
all federal, state, local and foreign tax, charge, fee, levy, deficiency or
other assessment of whatever kind or nature (including without limitation, any
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, unemployment,
excise, estimated, severance, stamp, occupation, real property, personal
property, intangible property, occupancy, recording, minimum, environmental and
windfall profits tax), including any liability therefor as a transferee, as a
result of any Tax sharing or similar agreement, together with any interest,
penalty, addition to tax or additional amount imposed by any federal, state,
local or foreign taxing authority.  For purposes of this Agreement, “Tax Return”
includes any return, declaration, report, claim for refund or credit,
information return or statement, and any amendment thereto, including without
limitation any consolidated, combined or unitary return or other document
(including any related or supporting information or schedule), filed or required
to be filed with any federal, state, local or foreign governmental entity or
agency in connection with the determination, assessment, collection or payment
of Taxes or the administration of any laws, regulations or administrative
requirements relating to Taxes.

3.23.

Business Operations.  DIGITAL HKco and its Subsidiaries own all of the material
facilities, services, assets or properties necessary to operate its Business as
conducted as of the date hereof and as such Business will be conducted as of the
Closing.

3.24.

Powers of Attorney and Suretyships.  Neither DIGITAL HKco nor any of its
Subsidiaries has any general or special powers of attorney outstanding (whether
as grantor or grantee thereof) or any obligation or liability (whether actual,
accrued, accruing, contingent, or otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the material
obligation of any Person other than DIGITAL HKco or its Subsidiaries.

3.25.

Money Laundering Laws.  The operations of DIGITAL HKco and each of its
Subsidiaries are and have been conducted at all times in compliance in all
material respects with money laundering statutes in all applicable
jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any
governmental authority (collectively, the “Money Laundering Laws”) and no Action
involving DIGITAL HKco or any of  its Subsidiaries with respect to the Money
Laundering Laws is pending or, to the Knowledge of Digital HKco’s Shareholder,
threatened.

3.26.

Foreign Corrupt Practices Act.  None of the FAB Companies, nor to the Knowledge
of DIGITAL HKco’s Shareholder, any officer, director, agent or employee
purporting to act on behalf of the FAB Companies has at any time, directly or
indirectly, (i) made, provided or paid any unlawful contributions, gifts,
entertainment or other unlawful expenses to any candidate for political office,
or failed to disclose fully any such contributions in violation of applicable
Laws, (ii) made any payment to any local, state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by Applicable Laws (including
the Foreign Corrupt Practices Act of 1977, as amended), (iii) made any payment
to any agent, employee, officer or director of any entity to which the FAB
Companies do business for the purpose of influencing such agent, employee,
officer or director to do business with the FAB Companies,

xxi

 

 

--------------------------------------------------------------------------------

(iv) engaged in any transactions, maintained any bank account or used any
corporate funds, except for transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of the FAB
Companies, (v) violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (vi) made any payment in the nature of criminal bribery or
any other unlawful payment.

3.27.

Insurance.  Schedule 3.27 provides a complete list, in all material respects, of
each FAB Company’s insurance policies currently in effect.  No FAB Company has
done or omitted to do or suffered anything to be done or not to be done other
than any acts in the ordinary course of business which has or would render any
material policies of insurance taken out by it or by any other person in
relation to any of such FAB Company’s assets void or voidable or which would
result in an increase in the rate of premiums on the said policies and there are
no material claims outstanding and, to the Knowledge of Digital HKco’s
Shareholder, no circumstances which would give rise to any claim under any of
such policies of insurance.

3.28.

Absence of Environmental Liabilities.  At all times prior to the Closing Date,
the FAB Companies have complied in all material respects with all applicable
environmental and hazardous waste Laws adopted, imposed or promulgated by any
governmental or regulatory entity having jurisdiction over the FAB Companies’
facilities.  All material environmental licenses, permits, clearances, covenants
and authorizations material to and required for the operation of the FAB
Companies’ business have been obtained and are in full force and effect.  To the
knowledge of Digital HKco’s Shareholder, there is no fact or circumstance that
could involve the FAB Companies in any material environmental litigation or
impose any material environmental liability upon the FAB Companies.

3.29.

Interested Party Transactions.  Except as set forth in the Schedule 3.29,
neither the FAB Companies, nor any shareholder, officer, director or founder of
any FAB Company, nor any immediate family member of any of the foregoing, nor
any Affiliate of any of the foregoing, has had, either directly or indirectly, a
material interest in:  (a) any Person which purchases from or sells, licenses or
furnishes to the FAB Companies any material cash, goods, property, technology,
intellectual or other property rights or services related to the Business; or
(b) any material contract or agreement with respect to the Business to which any
FAB Company is a party or by which it may be bound or affected.  All such
material contracts and agreements are in written form, copies have been made
available for the COMPANY's review, and were made on terms and conditions as
favorable to the FAB Companies in all material respects as would have been
obtainable by it at the time in a comparable arm's-length transaction with an
unrelated party.

xxii

 

 

--------------------------------------------------------------------------------

ARTICLE IV

ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF DIGITAL HKCO’S SHAREHOLDER

Digital HKco’s Shareholder further represents to the COMPANY as follows, except
as set forth in the Schedules to this Agreement:

4.1.

Ownership of Digital HKco Shares; Authority.  

(a)

Digital HKco’s Shareholder has good and marketable title to the Digital HKco
Shares, free and clear of any and all Liens.

(b)

Digital HKco’s Shareholder has full legal capacity, power and authority to
execute and deliver this Agreement and the Additional Agreements to which it is
named as a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.  This Agreement and
the Additional Agreements to which Digital HKco’s Shareholder is named as a
party have been, or at Closing will be, duly executed and delivered by Digital
HKco’s Shareholder and are, or upon their execution and delivery will be, valid
and legally binding obligations of Digital HKco’s Shareholder, enforceable
against Digital HKco’s Shareholder in accordance with their respective terms,
subject to (i) Laws of general application relating to bankruptcy, insolvency
and the relief of debtors, or (ii) rules of Law governing specific performance,
injunctive relief or other equitable remedies.

(c)

Neither the execution and delivery by Digital HKco’s Shareholder of any or all
of this Agreement and the Additional Agreements to which Digital HKco’s
Shareholder is a party, nor the consummation by Digital HKco’s Shareholder of
the transactions contemplated thereby, will (i) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, or require any notice, consent or waiver under, any material
instrument, contract, agreement or arrangement to which the Digital HKco’s
Shareholder is a party or by which Digital HKco’s Shareholder is bound, or (ii)
result in the imposition of any Lien upon the Digital HKco Shares.

4.2.

Approvals.  Except as contemplated by this Agreement, no material consent,
approval, waiver, authorization or novation is required to be obtained by
Digital HKco’s Shareholder from, and no notice or filing is required to be given
by Digital HKco’s Shareholders to or made by Digital HKco’s Shareholder with,
any Authority or other Person in connection with the execution, delivery and
performance by Digital HKco’s Shareholder of this Agreement and each of the
Additional Agreements, and the sale and transfer of the Digital HKco Shares.

4.3.

Non-Contravention.  The execution, delivery and performance by Digital HKco’s
Shareholders of this Agreement and each of the Additional Agreements, and the
consummation of the transactions contemplated thereby, do not and will not (a)
violate any provision of the organizational documents of Digital HKco’s
Shareholder, or (b) violate in any material respect or result in a material
breach of or constitute a material default under any

xxiii

 

 

--------------------------------------------------------------------------------

material Law, judgment, injunction, Order, decree or other restriction of any
Authority to which Digital HKco’s Shareholder, or the Digital HKco Shares, are
subject.

4.4.

Litigation and Claims.  There is no civil, criminal or administrative action,
suit, demand, claim, hearing, proceeding or disclosed investigation pending or,
to the knowledge of Digital HKco’s Shareholder, threatened, against Digital
HKco’s Shareholder and Digital HKco’s Shareholder is not subject to any Order,
writ, judgment, award, injunction or decree of any Authority of competent
jurisdiction or any arbitrator that, in any such case, would prevent
consummation of the transactions contemplated hereby or materially impair the
ability of Digital HKco’s Shareholder to perform its obligations hereunder.

4.5.

Investment Representations.  

Digital HKco’s Shareholder is an “accredited investor” as such term is defined
in Rule 501 of Regulation D promulgated under the Act (“Reg. D”), or is not a
U.S. person as defined in Regulation S promulgated under the Act (“Reg S”).
 Digital HKco’s Shareholder acknowledges that the COMPANY has the right to
require reasonable evidence of its status as an accredited investor, if
necessary. Digital HKco’s Shareholder has been given access to the COMPANY’s SEC
filings, which are available at www.sec.gov, and has been given the opportunity
to ask questions of and receive answers from the COMPANY’s duly authorized
officers or other representatives concerning the COMPANY.  Digital HKco’s
Shareholder further acknowledges that the Initial COMPANY Shares and the COMPANY
Common Shares issuable upon conversion of the Convertible Preferred Shares are
“restricted” securities within the meaning of Rule 144 of the SEC, and that such
securities are subject to resale limitations under applicable Law, including
Rule 144.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The COMPANY represents and warrants to the FAB Parties as follows, except as set
forth in the Schedules to this Agreement:

5.1.

Corporate Existence and Power.  The Company and each of its Subsidiaries is duly
formed, validly existing and in good standing under and by virtue of the Laws of
the jurisdiction of its organization, and has all power and authority, corporate
and otherwise, and all governmental licenses, franchises, permits,
authorizations, consents and approvals required to own and operate its
properties and assets and to carry on its business as now conducted, except as
explicitly set forth in this Agreement.  Neither the Company nor any of its
Subsidiaries has taken any action, adopted any plan, or made any agreement in
respect of any transaction, consolidation, sale of all or substantially all of
its respective assets, reorganization, recapitalization, dissolution or
liquidation.

5.2.

Corporate Authorization.  The execution, delivery and performance by the Company
of this Agreement and each of the Additional Agreements and the consummation by
the Company of the transactions contemplated hereby and thereby are within the
corporate

xxiv

 

 

--------------------------------------------------------------------------------

powers of the Company and have been duly authorized by all necessary action on
the part of the Company, with the exception of the approval of the Company’s
shareholders.  This Agreement constitutes, and, upon their execution and
delivery, each of the Additional Agreements will constitute, a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with their respective terms, subject to (i) Laws of general application relating
to bankruptcy, insolvency and the relief of debtors, or (ii) rules of Laws
governing specific performance, injunctive relief or other equitable remedies.

5.3.

Charter Documents; Legality.  The Company has heretofore made available to the
FAB Parties true and complete copies of its Charter Documents, as in effect or
constituted on the date hereof.  The execution, delivery, and performance by the
Company of this Agreement and all Additional Agreement has not violated and will
not violate, and the consummation of the transactions contemplated hereby or
thereby will not violate, any of such Charter Documents or any Law. The Company
has not taken any action that is in material violation of its Charter Documents.

5.4.

Subsidiaries.  Neither the Company nor any of its Subsidiaries is a party to any
agreement relating to the formation of any joint venture, association or other
Person.  Schedule 5.4 discloses all of the outstanding shares of such
Subsidiaries, which are validly issued, fully paid and non-assessable and are
held free and clear of any Liens, except as indicated in Schedule 5.4; (ii)
there are no consignments, contracts and/or equity transfer arrangements,
options, warrants or other contractual rights or arrangements outstanding which
give any Person the right to acquire or Control any capital stock or any
substantial part of assets of any such Subsidiaries whether or not such right is
presently exercisable; and (iii) there are no contracts and/or equity transfer
arrangements, options, warrants or other contractual rights (oral or written),
trusts or other arrangements of any nature which give any Person the right to
any stock rights or equity interests in or from any such Subsidiaries.

5.5.

Capitalization and Ownership.  No Person other than the shareholders set forth
in Schedule 5.5 owns 5% or more of any class of securities of the Company or any
of its Subsidiaries.  There is no contract that requires or under any
circumstance would require the Company or any of its Subsidiaries to issue, or
grant any right to acquire, any securities of the Company or any Subsidiaries,
or any security or instrument exercisable or exchangeable for or convertible
into, the capital stock or membership interest of the Company or any of its
Subsidiaries or to merge, consolidate, dissolve, liquidate, restructure, or
recapitalize the Company or any of  its Subsidiaries except as disclosed in
Schedule 5.5.  The Company Common Shares, any other securities issued by the
Company and the equity securities of each of the Company’s Subsidiaries (i) have
been duly authorized and validly issued and are fully paid and nonassessable,
and (ii) in the case of the Company, were issued in compliance with all
applicable Laws, and in the case of its Subsidiaries, were issued in compliance
with all applicable Laws in all material respects.

5.6.

Affiliates.  With respect to related party transactions, Schedule 5.6 lists each
material contract, arrangement, or understanding between the Company and any
Affiliate of the Company.  Except as disclosed in Schedule 5.6, none of the
Affiliates of the Company (i) owns, directly or indirectly, in whole or in part,
any tangible or intangible property (including

xxv

 

 

--------------------------------------------------------------------------------

Intellectual Property rights) that the Company or any of its Subsidiaries uses
or the use of which is necessary for the conduct of the Business, or (ii) has
engaged in any material transaction with the Company or any of its Subsidiaries.

5.7.

Consents.  The contracts listed on Schedule 5.7 are the only on-going material
agreements, commitments, arrangements, contracts or other instruments binding
upon the Company, any of its Subsidiaries or any of their respective properties
requiring a consent, approval, authorization, order or other action of or filing
with any Person as a result of the execution, delivery or performance of this
Agreement or any of the Additional Agreements or the consummation of the
transactions contemplated hereby or thereby (each of the foregoing, a “COMPANY
Consent”) except where the failure to obtain the same would not have a Material
Adverse Effect on the Company.

5.8.

Financial Statements.  The Company has delivered to the FAB Parties its audited
consolidated financial statements as of December 31, 2011 and 2010,
respectively, and for the fiscal years ending December 31, 2011, 2010 and 2009,
respectively (the “Company Financial Statements”).  The Company Financial
Statements have been prepared in accordance with US GAAP applied on a consistent
basis throughout the periods indicated above.  Additionally, all audit
adjustments have been recorded in the general ledger of the Company.  The
Company Financial Statements fairly present in all material respects the
financial condition and operating results of the Company and its Subsidiaries as
of the dates, and for the periods, indicated therein.  Except as set forth in
the Company Financial Statements, the Company and its Subsidiaries have no
material liabilities, contingent or otherwise, other than (a) liabilities
incurred in the ordinary course of business subsequent to the Financial
Statement Date and (b) obligations under contracts and commitments incurred in
the ordinary course of business and not required under US GAAP to be reflected
in the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company or its Subsidiaries taken as a whole.  Except as disclosed in the
Company Financial Statements, neither the Company nor any of its Subsidiaries is
a guarantor or indemnitor of any material indebtedness of any other person, firm
or corporation.  The Company and its Subsidiaries maintain a standard system of
accounting established and administered in accordance with US GAAP.

5.9.

Absence of Certain Changes.

(a)

Except as set forth in Schedule 5.9(a), or as specifically set forth in the
Company’s periodic reports on file with the Commission, since December 31, 2011,
each of the Company and its Subsidiaries has conducted its respective business
in the ordinary course of business in all material respects, and with respect to
the Company and its Subsidiaries, other than in the ordinary course of business,
there has not been:

(i)

any material capital expenditure except in the ordinary course of business
consistent with past practice (including with respect to kind and amount);

(ii)

any sale, lease, license or other disposition of any of its material assets
except (i) pursuant to existing contracts or commitments disclosed in the
Schedules hereto

xxvi

 

 

--------------------------------------------------------------------------------

and (ii) sales of products or inventory in the ordinary course of business
consistent with past practice;

(iii)

acceptance of any returns except in the ordinary course of business, consistent
with past practice (including with respect to kind and amount);

(iv)

the incurrence of material Liens on any of its assets;

(v)

any transaction or consolidation with or acquisition of any other Person;

(vi)

any change in its accounting principles or methods;

(vii)

any change in location where it conducts business;

(viii)

any extension of any loans, other than travel or other expense advances to
employees in the ordinary course of business consistent with past practice,
exceeding US $5,000 individually or US $25,000 in the aggregate;

(ix)

any dividend or distribution to the shareholders; or

(x)

any agreement to do any of the foregoing.

(b)

Except as set forth on Schedule 5.9(b), since December 31, 2011, through and
including the date of this Agreement, neither the Company nor any of its
Subsidiaries has taken any action nor have had any event occur that would have
violated any covenants of the Company set forth in ARTICLE VII hereof.

5.10.

Intellectual Property.

(a)

Schedule 5.10(a) sets forth a true and complete list of all Intellectual
Property rights owned by the Company or any of its Subsidiaries (the “Company
Owned Intellectual Property”).

(b)

Except as indicated in Schedule 5.10(b), the Company Owned Intellectual
Property, together with the licensed intellectual property rights which the
Company and its Subsidiaries can obtain from the public market without
substantial difficulties, constitute all the material Intellectual Property
necessary to, or used or held for use in, the conduct of the business of the
Company and its Subsidiaries as currently conducted.  The consummation of the
transactions contemplated by this Agreement will not alter, encumber, impair or
extinguish any material Company Owned Intellectual Property.  

(c)

To the Knowledge of the Company, neither the Company’s nor any of its
Subsidiaries’ ownership and use in the ordinary course of the Company Owned
Intellectual Property infringes upon or misappropriates in any material respect
valid Intellectual Property rights, privacy rights or other right of any third
party.  There is no Proceeding (as defined below) pending against, or, to the
Knowledge of the Company, threatened against or affecting, the

xxvii

 

 

--------------------------------------------------------------------------------

Company, any of its Subsidiaries, or any present or former officer, director or
employee of the Company or any of its Subsidiaries in their capacity as such (i)
based upon, or challenging or seeking to deny or restrict, the rights of the
Company or any of its Subsidiaries in any of the Company Owned Intellectual
Property, (ii) alleging that the use of the Company Owned Intellectual Property
or any services provided, processes used or products manufactured, used,
imported or sold by the Company or any of  its subsidiaries do or may conflict
with, misappropriate, infringe or otherwise violate any Intellectual Property of
any third party or (iii) alleging that the Company or any of its Subsidiaries
have infringed, misappropriated or otherwise violated any Intellectual Property
of any third party.  Neither the Company nor any of its Subsidiaries have
received from any third person an offer to license any Intellectual Property
rights of such third person.

(d)

Except as set forth in Schedule 5.10(d), the Company or any of its Subsidiaries
are entitled to use the material Company Owned Intellectual Property in the
ordinary course.  The Company and its Subsidiaries hold all right, title and
interest in and to all material Company Owned Intellectual Property, free and
clear of any Lien.  In each case where a material patent or patent application,
trademark registration or trademark application, service mark registration or
service mark application, or copyright registration or copyright application
included in the Company Owned Intellectual Property is held by assignment, the
assignment has been duly recorded with the Authority from which the patent or
registration issued or before which the application or application for
registration is pending.  To the Knowledge of the Company, the Company and its
Subsidiaries have taken all actions necessary to maintain and protect in all
material respects the Company Owned Intellectual Property, including payment of
applicable maintenance fees and filing of applicable statements of use.  

(e)

To the Knowledge of the Company, no Person has infringed, misappropriated or
otherwise violated any Company Owned Intellectual Property.  The Company and its
Subsidiaries have taken reasonable steps in accordance with normal industry
practice to maintain the confidentiality of all confidential Company Owned
Intellectual Property.  To the Knowledge of the Company, none of the
Intellectual Property of the Company or any of its Subsidiaries that are
material to the business or operation of the Company or any of its Subsidiaries
and the value of which the Company or any of its Subsidiaries are contingent
upon maintaining the confidentiality thereof, has been disclosed other than to
employees, representatives and agents of the Company or any of its Subsidiaries,
all of whom are bound by written confidentiality agreements substantially in the
form previously disclosed to the FAB Parties.

5.11.

Litigation.  Except as set forth in Schedule 5.11, there is no material Action
(or any basis therefor) pending against, or to the Knowledge of the Company or
any of its Subsidiaries, threatened against or affecting, the Company or any of
its Subsidiaries, any of their respective officers or directors in their
capacity as such, the Company’s shareholders in their capacity as such, or the
business of the Company or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated hereby and in the Additional Agreements. Except as set forth in
Schedule 5.11, there are no outstanding judgments against the Company or any of
its subsidiaries, any of their respective officers or directors in

xxviii

 

 

--------------------------------------------------------------------------------

their capacity as such.  Neither the Company nor any of its Subsidiaries are
now, nor have they been in the past five years, subject to any proceeding with
the Federal Trade Commission or the Equal Employment Opportunity Commission or
any comparable body of any state.

5.12.

Licenses and Permits.  Except as indicated in Schedule 5.12, each of the Company
and its Subsidiaries possess all material permits necessary for the ownership
and operation of their businesses (the “Company Permits”).  Except as indicated
in Schedule 5.12, such Company Permits are valid and in full force and effect
and, assuming the related Company Consents, if any, have been obtained or waived
prior to the Closing Date, none of the Company Permits will be terminated or
impaired or become terminable as a result of the transactions contemplated
hereby, except as would not be material in amount or effect.  Except as
indicated in Schedule 5.12, the Company or any of its Subsidiaries has all
Company Permits necessary to operate its business other than those Company
Permits whose absence individually or in the aggregate would not cause a
Material Adverse Effect on the Company.

5.13.

Employment Contracts.  The executive officers of the Company and its
Subsidiaries have entered into employment agreements including customary
confidentiality clauses, non-competition clauses, and Intellectual Property
assignment clauses, with the Company or any of its Subsidiaries (the “Company
Employment Agreements”), the terms and conditions of which provide that such
executive officers shall keep confidential of information of the Company and its
Subsidiaries during the employment period and after the employment period, such
executive officers shall not directly or indirectly conduct a competing business
with the Company or its Subsidiaries during the employment period and within two
(2) years after the employment period, all the Intellectual Property developed
by such executive officers during the employment period shall be owned by the
Company.

5.14.

Employment Matters.  Schedule 5.14 contains a summary of the salaries, bonus and
other compensations of the Company’s officers for the fiscal years 2010 and
2011.  The Company Financial Statements contain an accurate and complete list in
all material respect of each incentive, bonus, profit sharing, retirement,
deferred compensation, equity, phantom equity, option, equity purchase, equity
appreciation right or severance plan of the Company  now in effect or under
which the Company has or might have any material obligation, to any officer or
director or any material understanding between the Company and any employee
concerning the terms of such employee’s employment that does not apply to its
employees generally.

5.15.

Tax Matters.

(a)

Compliance Generally.  Where required by Laws, the Company and its Subsidiaries
have (A) duly and timely filed all Tax Returns required to be filed after
December 31, 2008 and on or prior to the Closing Date, which Tax Returns are
true, correct and complete in all material respects, and (B) duly and timely
paid all Taxes due and payable in respect of all periods after December 31, 2008
and up to and including the date which includes the Closing Date or has made
adequate provision in its books and records and Financial Statements in
accordance with US GAAP for any such Tax which is not due on or before such
time.  Prior to the Closing Date, the Company and its Subsidiaries shall provide
the FAB Parties with a

xxix

 

 

--------------------------------------------------------------------------------

schedule), which sets forth each Taxing jurisdiction in which the Company or its
Subsidiaries have filed or are required to file Tax Returns and whether the
Company or its Subsidiaries have filed consolidated, combined, unitary or
separate income or franchise Tax Returns with respect to each such jurisdiction,
and a copy of such Tax Returns as shall have been requested by the FAB Parties.
 Any Tax Returns of the Company and its Subsidiaries filed subsequent hereto and
on or prior to the Closing Date were or will be consistent with the Tax Returns
furnished to the FAB Parties and did not and will not make, amend or terminate
any election with respect to any Tax or change any accounting method, practice
or procedure.  Since December 31, 2008, the Company and each Subsidiaries have
complied in all material respects with all applicable Law relating to the
reporting, payment, collection and withholding of Taxes and has duly and timely
withheld or collected, paid over and reported all Taxes required to be withheld
or collected on or before the date hereof.

(b)

No Audit.  (A) No taxing authority has asserted any adjustment that could result
in a material Tax Liability, or which adjustment, if asserted in another period,
would result in any Tax Liability, (B) there is not pending any Proceeding
relating to any Tax Liability and, to the Knowledge of the Company, no taxing
authority is contemplating such a Proceeding and there is no basis for any such
Proceeding, (C) no statute of limitations with respect to any Tax Liability has
been waived or extended (unless the period to which it has been waived or
extended has expired), (D) there is no outstanding power of attorney authorizing
anyone to act on behalf of the Company or any of its subsidiaries in connection
with any Tax Liability, Tax Return or Proceeding relating to any Tax, (E) there
is not any outstanding closing agreement, ruling request, request to consent to
change a method of accounting, subpoena or request for information with or by
any taxing authority with respect to the Company or any Subsidiaries, its
income, assets or business, or any Tax Liability, (F) the Company or any of its
Subsidiaries not required to include any adjustment under Section 481 of the
Code (or any corresponding provision of applicable Law) in income for any period
ending after the Closing Date, (G) the Company or any of its Subsidiaries not
and has never been a party to any Tax sharing or Tax allocation agreement,
arrangement or understanding, (H) the Company or any of its Subsidiaries not and
has never been included in any consolidated, combined or unitary Tax Return, (I)
all taxable periods for the assessment or collection of any Tax Liability are
closed by agreement or by operation of the normal statute of limitations
(without extension) or will close by operation of the normal statute of
limitations for such Taxes (in each case determined without regard to any
omission, fraud or other special circumstance other than the timely filing of
the Tax Return), and (J) no taxing authority has ever asserted that the Company
or any of  its Subsidiaries should file a Tax Return in a jurisdiction where it
does not file.

5.16.

Business Operations.  The Company and its Subsidiaries own all of their material
facilities, services, assets or properties necessary to operate their business
as conducted as of the date hereof and as such business will be conducted as of
the Closing.

5.17.

Interested Party Transactions.  Except as set forth in the Schedule 5.17,
neither the Company or its Subsidiaries, nor any shareholder, officer, director
or founder of the Company or its Subsidiaries, nor any immediate family member
of any of the foregoing, nor any Affiliate of any of the foregoing, has had,
either directly or indirectly, a material interest in:  (a) any Person which
purchases from or sells, licenses or furnishes to the Company or its

xxx

 

 

--------------------------------------------------------------------------------

Subsidiaries any material cash, goods, property, technology, intellectual or
other property rights or services related to the Company’s business; or (b) any
contract or agreement with respect to the business of the Company and its
Subsidiaries to which the Company or any of its Subsidiaries is a party or by
which it may be bound or affected.  All such contracts and agreements are in
written form, copies have been made available for the FAB Parties’ review, and
were made on terms and conditions as favorable to the Company in all material
respects as would have been obtainable by it at the time in a comparable
arm's-length transaction with an unrelated party.

5.18.

Filings with the Commission.  Since December 31, 2009, the Company has timely
made all filings with the Commission required under the Securities Act, the
Exchange Act, or the rules and regulations thereunder.  All such filings comply
in all material respects as to form and substance with the Securities Act, the
Exchange Act, and the rules and regulations thereunder, and none of such filings
contains any untrue statement of a material fact or omits any material fact
necessary to make the statements contained therein, in light of the
circumstances under which such statements were made, not misleading.

5.19.

No Registration Rights.  No person has any rights to request or require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company, whether or not currently applicable
(“Registration Rights”).

ARTICLE VI

COVENANTS OF THE FAB PARTIES

The FAB Parties covenant and agree that:

6.1.

Conduct of the Business.  From the date hereof through the Closing Date, DIGITAL
HKco and each of its Subsidiaries shall conduct the Business only in the
ordinary course (including the payment of accounts payable and the collection of
accounts receivable), consistent with past practices, and shall not enter into
any material transactions without the prior written consent of the COMPANY, and
use their commercially reasonable efforts to preserve intact DIGITAL HKco’s
business relationships with employees, suppliers, customers and other third
parties.  Without limiting the generality of the foregoing, from the date hereof
until the Closing Date, without the COMPANY’s prior written consent, neither
DIGITAL HKco nor any of its Subsidiaries shall:

(a)

except in the ordinary course of business, amend, waive any provision of,
terminate prior to its scheduled expiration date, or otherwise compromise in any
material way, any material contract (including contracts described in Section
(b) below), or any other right or asset;

(b)

except as contemplated by this Agreement, enter into any contract, agreement,
lease, license or commitment, which (i) is with respect to Real Property, (ii)
except in the ordinary course of business, extends for a term of one year or
more or (iii) obligates the payment of more than US $ 50,000(individually or in
the aggregate);

xxxi

 

 

--------------------------------------------------------------------------------

(c)

make any capital expenditures in excess of US $50,000 (individually or in the
aggregate);

(d)

sell, lease, license or otherwise dispose of any material assets or assets
covered by any contract except (i) in the ordinary course of business or (ii)
pursuant to existing contracts or commitments disclosed in the Schedules hereto;

(e)

pay, declare or promise to pay any dividends or other distributions with respect
to its capital stock, or pay, declare or promise to pay any other payments to
the FAB Parties or any Affiliate of the FAB Parties;

(f)

authorize any salary increase of more than 3% for any employee or change the
bonus or profit sharing policies of DIGITAL HKco;

(g)

obtain or suffer to exist any Indebtedness in excess of US $10,000 in the
aggregate other than in the ordinary business consistent with past practice;

(h)

suffer or incur any Lien on any asset except for Liens existing as of the date
hereof as set forth on Schedule 3.14(b) or Liens securing Indebtedness permitted
by (g) above;

(i)

delay, accelerate or cancel any receivables or Indebtedness or write-off or make
further reserves against the same, except in the ordinary course of business;

(j)

merge or consolidate with or acquire any other Person or be acquired by any
other Person;

(k)

suffer any material insurance policy protecting assets to lapse;

(l)

make any change in its accounting principles or methods or write down the value
of any assets;

(m)

change the place of business of DIGITAL HKco or any of its Subsidiaries;

(n)

extend any loans to any Person, other than travel or other expense advances to
employees in the ordinary course of business;

(o)

issue, redeem or repurchase any shares of its capital stock;

(p)

effect or agree to any material change in any practices or terms, including
payment terms, with respect to customers or suppliers;

(q)

make or rescind any election related to Taxes, file any amended income Tax
Return or make any changes in its methods of Tax accounting; or

(r)

agree to do any of the foregoing.

xxxii

 

 

--------------------------------------------------------------------------------

None of the FAB Parties will (i) take or agree to take any action that might
make any representation or warranty of DIGITAL HKco, any Subsidiaries or Digital
HKco’s Shareholder hereunder inaccurate in any material respect at, or as of any
time prior to, the Closing Dates or (ii) omit to take, or agree to omit to take,
any action necessary to prevent any such representation or warranty from being
inaccurate in any material respect at any such time.

6.2.

Access to Information.  From the date hereof until and including the Closing
Date, DIGITAL HKco and its Subsidiaries shall (a) continue to give the COMPANY,
its counsel and other representatives full access to the Books and Records of
each of them on reasonable notice, (b) furnish to the COMPANY, its counsel and
other representatives such information relating to the Business as such Persons
may reasonably request and (c) cause the employees, counsel, accountants and
representatives of DIGITAL HKco and each of its Subsidiaries to cooperate in all
reasonable respects with the COMPANY in its investigation of the Business.

6.3.

Repayment of Loans.  Prior to the Closing, the FAB Parties shall cause all loans
of FAB Companies to officers, directors and/or shareholders to be repaid to the
FAB Companies, including, but not limited to the amounts recorded as receivable
from shareholders and the liability due to the dividend tax liability, if any.

6.4.

Notices of Certain Events.  From the date hereof through the Closing Date,
DIGITAL HKco and each of its Subsidiaries shall promptly notify the COMPANY of:

(a)

any notice or other communication from any Person alleging or raising the
possibility that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement or that the transactions
contemplated by this Agreement might give rise to any claims or causes of action
or other rights by or on behalf of such Person or result in the loss of any
rights or privileges of DIGITAL HKco or any of its Subsidiaries to any such
Person;

(b)

any notice or other communication from any Authority in connection with the
transactions contemplated by this Agreement;

(c)

any actions, suits, claims, investigations or proceedings commenced or
threatened against, relating to or involving or otherwise affecting DIGITAL
HKco, any of its Subsidiaries or the Business or that relate to the consummation
of the transactions contemplated by this Agreement; and

(d)

the occurrence of any fact or circumstance which would reasonably be expected to
make any representation made hereunder by DIGITAL HKco, any of its Subsidiaries,
and/or Digital HKco’s Shareholder false in any material respect or result in the
omission or the failure to state a material fact necessary to make the
statements made in such representation, in light of the circumstances under
which they were made, not misleading.

6.5.

Lock-Up.  Digital HKco’s Shareholder will enter into a Lock-Up Agreement
restricting the sale, hypothecation or other transfer of certain of the COMPANY
Common Shares issued to it pursuant to the terms of this Agreement in the form
attached as

xxxiii

 

 

--------------------------------------------------------------------------------

Exhibit E to this Agreement.  DIGITAL HKco’s Shareholder shall cause its
shareholding structure to remain materially unchanged for specified portions of
the term of such Lock-up Agreement as described therein.

6.6.

Post-Closing Matters.  The FAB Parties will use their best efforts to ensure
that the matters that are required under the Restructuring Plan, substantially
in the form attached as Exhibit F to this Agreement, as finalized by agreement
of the parties, to be completed within a certain period after the Closing shall
be completed in accordance with the applicable Laws and timelines set forth in
such Restructuring Plan to the reasonable satisfaction of the COMPANY.

6.7.

Employment Agreements.  Prior to the Closing, neither DIGITAL HKco nor any of
its Subsidiaries will change, renew or extend any existing employment severance
or employment-related agreement, or enter into any new such agreement, without
the written consent of the COMPANY.

6.8.

General Ledger Adjustments.  All appropriate interim period adjustments for the
period beginning October 1, 2011, and ending on the last day of the last full
quarter prior to the Closing Date, shall be recorded in the general ledger(s) of
the FAB Companies so that such general ledger(s) will agree in all material
respects with the financial statements of DIGITAL HKco and its Subsidiaries
prepared in accordance with GAAP as of the dates and for the periods indicated.

ARTICLE VII

COVENANTS OF THE COMPANY

7.1.

Conduct of Business.  The COMPANY covenants and agrees it shall not take or
agree to take any actions that would cause a breach in COMPANY’s representations
or warranties contained in this Agreement or prevent the COMPANY from performing
its obligations hereunder.

7.2.

Fulfillment of Conditions.  From the date hereof to the Closing Date, the
COMPANY shall use its commercially reasonable efforts to fulfill the conditions
specified in ARTICLE IX to the extent that the fulfillment of such conditions is
within its control.  The foregoing obligation includes (a) the execution and
delivery of documents necessary or desirable to consummate the transactions
contemplated hereby, and (b) taking or refraining from such actions as may be
necessary to fulfill such conditions (including conducting the business of the
COMPANY in such manner that on the Closing Date the representations and
warranties of the COMPANY contained herein shall be accurate as though then
made).  In particular, without limitation, the Company shall promptly take all
necessary or appropriate action to obtain the approval of the Company’s
stockholders contemplated by Section 9.1(c), including, among other things,
promptly scheduling a meeting of stockholders for such purpose, promptly
preparing and filing with the Commission an appropriate form of proxy statement,
using its best efforts to promptly finalize and mail such proxy statement, with
the recommendation of the Board of

xxxiv

 

 

--------------------------------------------------------------------------------

Directors that stockholders give such approval, and duly convening, and
presenting such matter for a vote of stockholders at, such meeting.

7.3.

Stock Option Plan.  At the time of seeking approval of the Transaction from the
Company’s shareholders, the COMPANY shall also seek approval of its shareholders
to establish an employee stock option plan covering at least 3,000,000 shares of
the COMPANY’s Common Shares.  Such stock option plan will be applied to the
management team and employees of the COMPANY and DIGITAL HKco and its
Subsidiaries in the next two years, subject to compliance with applicable Laws.
The award of the options will be determined by the majority of the Board of
Directors.

7.4.

Disclosure of Certain Matters.  The COMPANY shall give Digital HKco’s
Shareholder prompt written notice of any event or development that occurs that
had it existed or been known on the date hereof (a) would cause any of the
representations and warranties of the COMPANY contained herein to be materially
inaccurate or otherwise misleading, or (b) would require any amendment or
supplement to this Agreement.

7.5.

Rule 144; Piggyback Registration Rights.  

(a)

In order for Digital HKco’s Shareholder and/or its designees to be able to sell
the COMPANY Common Shares, without an effective registration statement, in
compliance with Rule 144, the COMPANY agrees to: (a) use reasonable, diligent
efforts to maintain compliance with the filing requirements of the Commission
and to keep adequate current information about the COMPANY which is the issuer
of the securities, within the time frame as defined by Rule 144; (b) and so long
as Digital HKco’s Shareholder or any of its designees or permitted transferees
owns any COMPANY Common Shares, to furnish to such Person upon request: (i) a
certificate by the COMPANY as to its compliance with the reporting requirements
of the Securities Act (including, without limitation, Rule 144 requirements) and
the Exchange Act, (ii) a copy of the most recent annual report of the COMPANY
and such other reports and documents as may be filed by the COMPANY with the
Commission, and (iii) such other reports, documents or information of the
COMPANY, that is not confidential or containing non-public inside information,
and (iv) legal opinion letter as such Person may reasonably request in availing
themselves or itself of any rule or regulation of the Commission that permits
the selling of any such securities without registration.  The legal expenses
associated with this obligation should be borne by the Company.

(b)

During the first 24 months after the Closing Digital HKco’s Shareholder and each
of its designees or permitted transferees shall have piggyback registration
rights with respect to all Initial COMPANY Shares that it then holds and that
are not then subject to the restrictions of the Lock-up Agreement or the Voting
Agreement, and all COMPANY Common Shares that it then holds and that have been
issued upon conversion of Convertible Preferred Shares to cause such shares to
be included in (i) any registration statement that the Company files with the
Commission to register under the Securities Act common shares held by any person
who was a stockholder of the Company at the time of Closing (or any transferee
thereof); or (ii) any other registration statement filed by the Company so long
as a majority of the Company’s Board of Directors has made a good faith
determination that such piggyback

xxxv

 

 

--------------------------------------------------------------------------------

registration will not significantly prejudice the Company’s ability to raise
capital.  The foregoing notwithstanding, Digital HKco’s Shareholder shall have
no piggyback registration rights with respect to any registration statements on
Form S-4 or Form S-8.  The registration of such shares shall be subject to
cut-back on a one-for-one basis (together with any other shares being registered
for sale by any person other than the Company itself) in the event that the
Commission requires the Company to reduce the number of shares included in such
a registration statement.  

7.6.

Issuance of New COMPANY Common Shares.  Except as contemplated in this Agreement
or the Additional Agreements, without the unanimous consent of the Board of
Directors, the COMPANY shall not issue new COMPANY Common Shares to any
individual in an amount more than 25,000, exclusive of shares issued pursuant to
the employee stock option plan contemplated by Paragraph 7.3 above.

7.7.

No Disposal of Business.  Without the unanimous consent of the Board of
Directors, the COMPANY will not dispose of its media business or its speech
business or their related assets within one year from the Closing Date.

7.8.

 Listing.  Subject to applicable Laws, the COMPANY covenants and agrees that it
shall use its best efforts to maintain its NYSE Amex listing status both before
and after the Closing.

7.9.

Employment Agreements.  Prior to the Closing, neither the COMPANY nor any of its
Subsidiaries, will change, renew or extend any existing employment, severance,
or employment-related agreement, or enter into any new such agreement, without
the written consent of Digital HKco’s Shareholder.

7.10.

No Registration Rights.  From the date hereof through the Closing Date, the
Company shall not grant any Registration Rights to any Person (other than the
rights granted pursuant to this Agreement).

ARTICLE VIII

COVENANTS OF ALL PARTIES HERETO

The Parties hereto, as applicable, covenant and agree that:

8.1.

Commercially Reasonable Efforts; Further Assurances.  Subject to the terms and
conditions of this Agreement, from the date hereof through the Closing Date,
each Party shall use its commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable Laws, to consummate and implement expeditiously the
transactions contemplated by this Agreement.  The Parties hereto shall execute
and deliver such other documents, certificates, agreements and other writings
and take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement, including but not limited to Digital HKco’s Shareholder’s obligation
to timely file such beneficial ownership

xxxvi

 

 

--------------------------------------------------------------------------------

reports if, as and when required under Section 16(a) of the Exchange Act and
such Schedules 13D and/or Schedules 13G as shall be required by the Commission.

8.2.

Change of Conglomerate’s Name.  Each Party agrees to change the business name of
COMPANY to a name determined by all the Parties prior to the Closing.  The Board
of Directors of the COMPANY will request a new ticker symbol from the NYSE Amex
at such time representative of the new name.

8.3.

Board of Directors.  The Board of Directors of COMPANY will consist of four
individuals who served as members of the Board of the COMPANY prior to execution
date of this Agreement and two new members appointed by the FAB Parties (in such
manner as they may determine) prior to or at the Closing.  The FAB Parties (in
such manner as they may determine) will have the right to designate one of the
two individuals as Chairman of the Board of Directors prior to or at the Closing
for a term of no less than two years.  At such time, the current Chairman of the
Board of Directors will resign as the Chairman, but remain as a voting member of
the Board of Directors.  The provisions of this Section 8.3 shall survive the
Closing for a period of two years, and the terms for the directors designated as
provided above shall be for no less than two years from the date of this
Agreement, subject to shareholders’ approval.  The structure of the board of
directors at each level of the FAB Companies, including the VIE Entities, shall
be the same as that of the COMPANY immediately after the Closing, except as
otherwise determined by the Board of Directors of the COMPANY, which shall have
the authority  to designate whom it chooses to serve in such capacities, which
designations shall be taken by unanimous vote or unanimous consent.

8.4.

Amendments to Articles of Association of FAB Companies.  As of the Closing Date
and for a period of at least two years thereafter, each of the FAB Companies
shall incorporate a clause in its articles of association or equivalent
documents that certain matters listed in the attached Exhibit J shall be
reserved to the sole discretion of its board of directors and can only be passed
with consent of a majority of such board of directors.

8.5.

Continuation of Executive Officers and Directors.  After the Closing, all
Parties shall ensure the executive officers and directors of the COMPANY prior
to the Closing shall remain in the posts of executive officers and directors of
the COMPANY, subject to change pursuant to the Laws, bylaws and agreements
governing the dismissal and hiring of officers and directors.

8.6.

Corporate Capital Raising.  All Parties agree that a public or private capital
raise may be in the best interest of the COMPANY in order to provide capital for
future expansion.  Such a capital raise can be proposed to the Board of
Directors at any time subject to consideration based upon several determining
factors including: market acceptance, market conditions, dilution, valuation and
use of proceeds.

8.7.

Confidentiality of Transaction.  Any information (except publicly available or
freely usable material obtained from another source) respecting any Party or its
Affiliates will be kept in strict confidence by all other Parties to this
Agreement and their agents.  Except as required by Laws or Authority, neither
the COMPANY nor the FAB Parties, nor any

xxxvii

 

 

--------------------------------------------------------------------------------

of their respective Affiliates, directors, officers, employees or agents will
disclose the terms of the transactions contemplated hereunder at any time,
currently, or on or after the Closing, regardless of whether the Closing takes
place, except as necessary to their attorneys, accountants and professional
advisors, in which instance such persons and any employees or agents of the
COMPANY or Digital HKco’s Shareholder, as the case may be, shall be advised of
the confidential nature of the terms of the transaction and shall themselves be
required by the COMPANY nor the FAB Parties, as the case may be, to keep such
information confidential. Except as required by Law or Authority, each Party
shall retain all information obtained from the other and their lawyers on a
confidential basis except such information may be discussed as necessary to
their attorneys, accountants and professional advisors, in which instance such
persons and any employees or agents of such Party shall be advised of the
confidential nature of the terms of the transaction and shall themselves be
required by such Party to keep such information confidential. In the event of
disclosure as required by Law or Authority, the Parties may have a friendly
consultation with each other regarding how to disclose information.

8.8.

Commercially Reasonable Efforts to Obtain Consents.  Each Party hereby agrees to
use its reasonable commercially reasonable efforts to obtain each respective
consent required to consummated the Transaction as promptly as practicable
hereafter.

8.9.

Compliance with Applicable Laws and Other Instruments.  From the date of this
Agreement through the Closing Date, each of the Parties shall comply with in all
material respects with (i) all applicable Laws, including but not limited to the
Foreign Corrupt Practices Act and the Sarbanes Oxley Act; (ii) any provisions of
its memorandum of association (if any), articles of association or any other
applicable constitutional document, (iii) any material instrument, judgment,
order, writ or decree, (iv) any material note, indenture or mortgage, or (v) any
material lease, agreement, contract or purchase order to which it is a party.

8.10.

Schedules.  Within 60 days after the date of this Agreement, Digital HKco’s
Shareholder shall deliver to the Company any Schedules qualifying or otherwise
with respect to the representations and warranties of Digital HKco’s Shareholder
set forth in Articles III and IV hereof, and the Company shall deliver to
Digital HKco’s Shareholder any Schedules qualifying or otherwise with respect to
the representations and warranties of the Company set forth in Article V hereof.
 Such Schedules shall be deemed to be final and effective, and the
representations and warranties set forth in this Agreement shall be deemed to be
qualified thereby as set forth therein, unless (i) the receiving party
determines in good faith that such Schedules disclose material matters that are
materially contrary to the representations and warranties set forth in this
Agreement to which such Schedules relate and materially inconsistent with the
information available to the receiving party, through diligence or otherwise,
prior to the date of this Agreement, and (ii) the receiving party gives the
delivering party notice of such determination within 10 days after the receiving
party receives such Schedules.  Thereafter, unless the delivering party has
cured such material matters within 20 days after it receives such notice, the
receiving party may terminate this Agreement by notice to the delivering party
(without liability on the part of any party to this Agreement), provided the
receiving party does so within 10 days after the expiration of such 20-day cure
period.

xxxviii

 

 

--------------------------------------------------------------------------------

ARTICLE IX

CONDITIONS TO CLOSING

9.1.

Condition to the Obligations of the COMPANY and the FAB Parties.  The
obligations of the COMPANY and the FAB Parties to consummate the Closing are
subject to the satisfaction of all the following conditions:

(a)

No provision of any applicable Law or Order shall prohibit or impose any
material condition on the consummation of the Closing or limit in any material
way COMPANY’s right to control or operate DIGITAL HKco, or any material portion
of the Business, thereafter.

(b)

There shall not be pending or threatened any proceeding by a third-party to
enjoin or otherwise materially restrict the consummation of the Closing.

(c)

The COMPANY’s stockholders shall approve the transactions contemplated by this
Agreement.

9.2.

Conditions to Obligations of the COMPANY.  In addition to the terms and
provisions of Section 2.2(b) and Section 2.3(a), the obligation of the COMPANY
to consummate the Closing is subject to the satisfaction, or the waiver at
COMPANY’s sole and absolute discretion, of all the following further conditions:

(a)

(i) Each of the FAB Parties shall have duly performed in all material respects
all of their respective obligations hereunder required to be performed by them
at or prior to the Closing Date, (ii) the representations and warranties of the
FAB Parties contained or referred to in this Agreement, the Additional
Agreements and in any certificate or other writing delivered by the FAB Parties
pursuant hereto, disregarding all qualifications and exceptions contained
therein relating to materiality or Material Adverse Effect, shall be true and
correct at and as of the Closing Date, as if made at and as of such dates with
only such exceptions as could not in the aggregate reasonably be expected to
have a Material Adverse Effect with respect to DIGITAL HKco, (iii) there shall
have been no event, change or occurrence which individually or together with any
other event, change or occurrence, could reasonably be expected to constitute a
Material Adverse Change or a Material Adverse Effect with respect to DIGITAL
HKco, regardless of whether it involved a known risk.

(b)

The COMPANY shall have received:

(i)

copies of resolutions duly adopted by (a) the board of director(s), members
(shareholders) of Digital HKco’s Shareholder, and  each of its Subsidiaries (if
required), authorizing this Agreement and the Additional Agreements (if
necessary) and the transactions contemplated hereby and thereby,

(ii)

the updated Register of Members and/or the Register of Directors of DIGITAL HKco
reflecting the change of members and directors for the purpose of this
Transaction, which shall be certified by their registered agents,

xxxix

 

 

--------------------------------------------------------------------------------

(iii)

a share certificate of DIGITAL HKco reflecting ownership of all DIGITAL HKco’s
Shares by Digital HKco’s Shareholder,

(iv)

from special counsel for the FAB Parties an opinion in the jurisdictions of the
British Virgin Islands, Hong Kong and the PRC, dated as of the Closing, in the
form to be agreed upon and finalized by agreement of the parties and, when so
finalized, attached as Exhibit G-1 to this Agreement,

(v)

a certificate of the chairman or person in the similar position of DIGITAL HKco
and each of its Subsidiaries certifying in such capacity each of the foregoing,
completion of covenants and correctness of representations and warranties and as
to signatures of the officer(s) authorized to execute this Agreement and any
certificate or document to be delivered pursuant hereto, and

(vi)

all Schedules qualifying or otherwise with respect to the representations and
warranties set forth in Articles III and IV, which shall have been delivered and
become final and effective pursuant to Section 8.10.

(c)

The COMPANY shall have received updated Disclosure Schedules to this Agreement
with respect to DIGITAL HKco and its Subsidiaries as of a date within three days
prior to the Closing Date.

(d)

The original stock ledgers and minute books of the FAB Companies shall be
delivered to the COMPANY.

(e)

The Additional Agreements shall be in full force and effect or become effective
on the Closing Date.

(f)

The Restructuring prior to the Closing as set forth in Section A  (Matters to be
Completed Prior to the Closing) of the Restructuring Plan attached as Exhibit F
to this Agreement, shall have been duly completed by each of the parties thereto
in accordance with the Restructuring Plan, all required Consents of Authorities
and other third parties (if applicable) in connection with the Restructuring as
set forth in Section A  (Matters to be Completed Prior to the Closing) thereof
shall have been obtained, and the COMPANY shall have received true copies of all
such Consents (if applicable).

(g)

The  officers of each of the PRC Entities shall have entered into the labor
contracts, non-compete, confidentiality and proprietary information agreements
with the WFOE substantially in the form to be agreed upon and finalized by
agreement of the parties and, when so finalized, attached as Exhibit I to this
Agreement, and the WFOE shall provide evidence of such agreements to counsel for
the COMPANY.

(h)

The COMPANY will complete the process of transacting a “spin-off” of its
healthcare operations through a special dividend to the current shareholders of
the COMPANY as a separate public corporation. For the avoidance of doubt,
Digital HKco’s Shareholder shall not participate in and shall not be considered
as a shareholder of the COMPANY for any purpose of such spin-off.

xl

 

 

--------------------------------------------------------------------------------

9.3.

Conditions to Obligations of the FAB Parties.  In addition to the terms and
provisions of Section 2.2(a) and Section 2.3, the obligation of the FAB Parties
to consummate the Closing is subject to the satisfaction, or the waiver at the
FAB Parties’ discretion, of all the following further conditions:

(a)

(i) The COMPANY shall have duly performed in all material respects its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of the COMPANY contained in this
Agreement, the Additional Agreements and in any certificate or other writing
delivered by the COMPANY pursuant hereto, disregarding all qualifications and
expectations contained therein relating to materiality or Material Adverse
Effect, shall be true and correct at and as of the Closing Date, as if made at
and as of such date with only such exceptions as could not in the aggregate
reasonably be expected to have a Material Adverse Effect with respect to the
COMPANY, provided, however, that the COMPANY and/or its Affiliates are permitted
to enter into such arrangements as would be necessary for the COMPANY to secure
the approval of its stockholders of the transactions contemplated by this
Agreement (including such arrangements as would require the combined company to
use monies available to satisfy its obligations due to the transactions
contemplated by this Agreement), if any (to the extent previously disclosed to
the FAB Parties), (iii) there shall have been no event, change or occurrence
which individually or together with any other event, change or occurrence, could
reasonably be expected to constitute a Material Adverse Change or a Material
Adverse Effect with respect to the Company, regardless of whether it involved a
known risk, and (iv) the COMPANY shall have delivered a certificate signed by an
authorized officer of COMPANY to the effect set forth in Sections (i), (ii) and
(iii) of this Section 9.3 (a).

(b)

Digital HKco’s Shareholder shall have received:

(i)

a copy of the organizational documents of the COMPANY,

(ii)

copies of resolutions duly adopted by the Board of Directors and the
Shareholders of the COMPANY authorizing this Agreement and the Additional
Agreements (if necessary) and the transactions contemplated hereby and thereby,

(iii)

a certificate of an authorized officer of the COMPANY certifying in such
capacity each of the foregoing, completion of covenants and correctness of
representations and warranties and as to signatures of the officer(s) authorized
to execute this Agreement and any certificate or document to be delivered
pursuant hereto, together with evidence of the incumbency of such Secretary,

(iv)

a recent good standing certificate regarding the COMPANY from the office of the
Secretary of State of its jurisdiction of organization and each other
jurisdiction in which each of COMPANY is qualified to do business,

(v)

share certificates of the COMPANY representing the Initial COMPANY Shares issued
pursuant to this Agreement to DIGITAL HKco’s Shareholder and/or its designees,
provided, however, that all such designees shall first have executed and
delivered

xli

 

 

--------------------------------------------------------------------------------

to the Company the Voting Agreement and the Lock-up Agreement in the forms
attached hereto as Exhibits A and E, respectively,

(vi)

a signed and effective Certificate of Designations of Convertible Preferred
Stock, as duly filed with the State of Colorado, with respect to the Convertible
Preferred Shares issued pursuant to this Agreement to DIGITAL HKco’s
Shareholder, and/or its designees, together with share certificates representing
such Convertible Preferred Shares,

(vii)

from special counsel for the COMPANY an opinion, dated as of the Closing, in the
form to be agreed upon and finalized by agreement of the parties and, when so
finalized, attached as Exhibit G-2 to this Agreement., and

(viii)

all Schedules qualifying or otherwise with respect to the representations and
warranties set forth in Article V, which shall have been delivered and become
final and effective pursuant to Section 8.10.

(c)

DIGITAL HKco’s Shareholder shall have received updated Disclosure Schedules to
this Agreement with respect to the COMPANY and its Subsidiaries as of a date
within three days prior to the Closing Date.

(d)

The Additional Agreements shall be in full force and effect or become effective
on the Closing Date.

(e)

The COMPANY Common shares shall be listed on NYSE Amex prior to, and at the time
of, Closing and the Company shall not have received any notification from NYSE
Amex indicating that the Company has failed to meet any requirement for
continued listing on NYSE Amex and, to its Knowledge, the Company is in
compliance with all NYSE Amex listing requirements.

(f)

No material Adverse Change shall have occurred with respect to the Company prior
to Closing.

ARTICLE X

RELIANCE ON REPRESENTATIONS AND WARRANTIES

10.1.

Reliance on Representations and Warranties of the FAB Parties.  Notwithstanding
any right of the COMPANY to fully investigate the affairs of the Company, and
each of Subsidiaries and notwithstanding any knowledge of facts determined or
determinable by the COMPANY pursuant to such investigation or right of
investigation, the COMPANY shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the FAB Parties
contained in this Agreement.

10.2.

Reliance on Representations and Warranties of the COMPANY.  Notwithstanding any
right of the FAB Parties to investigate the affairs of the COMPANY and
notwithstanding any knowledge of facts determined or determinable by the FAB
Parties pursuant to such investigation or right of investigation, the FAB
Parties shall have the right to rely fully

xlii

 

 

--------------------------------------------------------------------------------

upon the representations, warranties, covenants and agreements of COMPANY
contained in this Agreement.

ARTICLE XI

INDEMNIFICATION

11.1.

Each of the Company, on one hand, and Digital HKco’s Shareholder, on the other
hand (each, an “Indemnifying Party”), jointly and severally, hereby agrees to
indemnify and hold harmless the other Party, and such other Party’s directors,
officers, employees, Affiliates, agents and assigns (each, an “Indemnitee”),
against any and all Indemnifiable Losses suffered, incurred or sustained by such
Indemnitee, as a result of, or based upon or arising from (a) any breach or
nonperformance of any of the representations, warranties, covenants or
agreements made by the Indemnifying Party in or pursuant to this Agreement and
any Additional Agreement, (b) any adverse effect to the financial performance,
prospects or reputation of the Indemnifying Party due to a violation of
applicable Laws by the Indemnifying Party or its Affiliates, or (c) any breach
or violation of any applicable Law by the Indemnifying Party or its Affiliates.
 For purposes of this Section, “Indemnifiable Loss” means, with respect to any
Indemnitee, any action, cost, damage, disbursement, expense, liability, loss,
deficiency, diminution in value, obligation, penalty or settlement actually
suffered or incurred by the Indemnitee, including, but not limited to, interest
or other carrying costs, penalties, legal, accounting and other professional
fees and expenses reasonably incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by such Indemnitee, as incurred,
and (ii) any Taxes (other than income tax) that may be payable by such
Indemnitee as a result of the indemnification of any Indemnifiable Loss
hereunder, or (iii) any Claim (“Third Party Claim”) brought against the
Indemnitee by any third party as a result of the transactions contemplated by
this Agreement, other than Claims arising as a result of any act or omission by
the Indemnitee in breach of its obligations, whether under contract or
otherwise, to such third party. Each of the Indemnitees may elect to make a
Claim for indemnification under this Section 11.1 against any Indemnifying Party
in its sole discretion.  

11.2.

All Claims for indemnification by any Indemnitee under Section 11.1 will be
asserted and resolved as follows:

(a)

In the event any Claim, in respect of which the Indemnitee might seek indemnity
under Section 11.1, is a Third Party Claim, the Indemnitee shall deliver a
notice ( a “Claim Notice”) notifying the Indemnifying Parties of such Third
Party Claim.  The Indemnifying Party will notify the Indemnitee as soon as
practicable within the Dispute Period whether the Indemnifying Party disputes
its liability to the Indemnitee under Section 11.1 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the Indemnitee against
such Third Party Claim.

(b)

If the Indemnifying Party notifies the Indemnitee within the Dispute Period that
the Indemnifying Party desires to defend the Indemnitee with respect to the
Third Party Claim pursuant to this Section 11.2, then the Indemnifying Party
will have the right to

xliii

 

 

--------------------------------------------------------------------------------

defend, with counsel satisfactory to the Indemnitee, at no cost or expense from
the Indemnitee, such Third Party Claim by all appropriate proceedings, which
proceedings will be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled by the Indemnifying Party (but
only with the prior written consent of the Indemnitee).  The Indemnitee may, at
the sole cost and expense of the Indemnitee, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this Section 11.2 (a), file any motion, answer or other pleadings or take any
other action that the Indemnitee reasonably believes to be necessary or
appropriate to protect its interests.  The Indemnitee may participate in any
defense or settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 11.2 (a), and except as provided in the preceding
sentence, the Indemnitee will bear its own costs and expenses with respect to
such participation.  Notwithstanding the foregoing, the Indemnitee may take over
the control of the defense or settlement of a Third Party Claim at any time in
its discretion.

(c)

If the Indemnifying Party fails to notify the Indemnitee within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to Section 11.2 (a), or if the Indemnifying Party gives such notice but
fails to prosecute vigorously and diligently or settle the Third Party Claim, or
if the Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnitee will have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings will be prosecuted by the Indemnitee in a
reasonable manner and in good faith or will be settled at the discretion of the
Indemnitee.  The Indemnitee will have full control of such defense and
proceedings, including any compromise or settlement thereof; provided, however,
that if requested by the Indemnitee, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnitee and its counsel in contesting any Third Party Claim which the
Indemnitee is contesting.  The Indemnifying Party may participate in any defense
or settlement controlled by the Indemnitee pursuant to this Section 11.2, and
the Indemnifying Party will bear its own costs and expenses with respect to such
participation.

(d)

If the Indemnifying Party notifies the Indemnitee that it does not dispute its
liability to the Indemnitee with respect to the Third Party Claim under Section
11.1 or fails to notify the Indemnitee within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnitee with respect to such
Third Party Claim, the Indemnifiable Loss in the amount specified in the Claim
Notice will be conclusively deemed a liability of the Indemnifying Party under
Section 11.1 and the Indemnifying Party shall pay the amount of such
Indemnifiable Loss to the Indemnitee on demand.  If the Indemnifying Party has
timely disputed its liability with respect to such Claim, the Indemnifying Party
and the Indemnitee will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved in accordance with Section 11.2 hereof.

(e)

In the event the Indemnitee should have a Claim under Section 11.1 against any
Indemnifying Party that does not involve a Third Party Claim, the Indemnitee
shall deliver an Indemnity Notice with reasonable promptness to the Indemnifying
Party.  The failure by the Indemnitee to give the Indemnity Notice shall not
impair the Indemnitee's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been

xliv

 

 

--------------------------------------------------------------------------------

materially prejudiced thereby.  If the Indemnifying Party notifies the
Indemnitee that it does not dispute the Claim described in such Indemnity Notice
or fails to notify the Indemnitee within the Dispute Period whether the
Indemnifying Party disputes the Claim described in such Indemnity Notice, the
Indemnifiable Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 11.1 and
the Indemnifying Party shall pay the amount of such Indemnifiable Loss to the
Indemnitee on demand.  If the Indemnifying Party has timely disputed its
liability with respect to such Claim, the Indemnifying Party and the Indemnitee
will proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such dispute shall
be finally and conclusively in accordance with ARTICLE XI hereof.

11.3.

At the absolute discretion of the Indemnitee, all Indemnifiable Losses suffered
by the COMPANY may be settled by (a) payment of cash in an amount equal to the
Indemnifiable Losses by Digital HKco’s Shareholder, or (b) the transfer of such
number of COMPANY Common Shares held by Digital HKco’s Shareholder equal to (i)
the amount of Indemnifiable Losses suffered by the COMPANY divided by (ii) the
average closing prices of one (1) COMPANY Common Share over the thirty (30)
Trading Days prior to making such transfer, or a combination of the above.

11.4.

In the event that an Indemnitee suffers an Indemnifiable Loss as provided in
Section 11.1 or 11.2 and the Indemnifying Parties are either unwilling or unable
to fulfill their obligations under Section 11.1 or 11.2 to indemnify the
Indemnitees for the full amount of such Indemnifiable Loss within thirty (30)
days of receipt of written notice thereof from the Indemnitee, then if the
Indemnifying Party is Digital HKco’s Shareholder, any of the FAB Parties,
selected by the Indemnitees at their sole discretion, shall indemnify the
Indemnitees such that the Indemnitees shall receive the full amount of such
Indemnifiable Loss.

11.5.

(a)  No Indemnitee shall be entitled to make a claim for indemnification under
this Article XI unless and until the aggregate amount of Indemnifiable Losses
incurred by such Indemnitee (together with such Indemnitee’s directors,
officers, employees, agents and assigns who are also Indemnitees hereunder)
exceeds $100,000 (the “Basket”), and then such Indemnitees shall be entitled to
indemnification only for amounts in excess of such $100,000 Basket.

(b)  In no event shall the aggregate amount of all Indemnifiable Losses for
which either the Digital HKco Shareholder (and other FAB Parties), on one hand,
or the COMPANY, on the other hand, is obligated to provide indemnification under
this ARTICLE XI exceed $2,000,000 (the “Ceiling”).

11.6.

Indemnification for Indemnifiable Losses pursuant to this ARTICLE XI and subject
to the limitations set forth in Section 11.5 and otherwise herein, and
Liquidated Damages pursuant to Section 12.4, and specific performance to the
extent, if any, specifically provided herein and available under applicable Law,
shall constitute the sole remedies of any Person with respect to any breach or
nonperformance of any of the representations, warranties, covenants or
agreements in or pursuant to this Agreement.

xlv

 

 

--------------------------------------------------------------------------------

11.7.

This ARTICLE XI shall survive the termination of this Agreement for a period of
two years.

ARTICLE XII

TERMINATION AND LIQUIDATED DAMAGES

12.1.

Termination Without Default.  In the event that the Closing of the transactions
contemplated hereunder has not occurred within one hundred twenty (120) days
following the execution of this Agreement (the “Outside Closing Date”) and no
material breach of this Agreement by the Party seeking to terminate this
Agreement shall have occurred or have been made (as provided in Section 12.2
hereof), the COMPANY, on the one hand, and Digital HKco’s Shareholder, on the
other hand, shall have the right, at its or their sole option, to terminate this
Agreement without liability to the other side.  Such right may be exercised by
the COMPANY, on the one hand, and Digital HKco’s Shareholder, on the other hand,
as the case may be, giving written notice to the other at any time after the
Outside Closing Date.

12.2.

Termination Upon Default.

(a)

The COMPANY may terminate this Agreement by giving notice to Digital HKco’s
Shareholder on or prior to the Closing Date, without prejudice to any rights or
obligations the COMPANY may have, if the FAB Parties shall have materially
breached any representation or warranty or breached any agreement or covenant
contained herein or in any Additional Agreement to be performed prior to Closing
and such breach shall not be cured within the earlier of the Outside Closing
Date and twenty (20)  days following receipt by Digital HKco’s Shareholder of a
notice describing in reasonable detail the nature of such breach.

(b)

Digital HKco’s Shareholder may terminate this Agreement by giving prior written
notice to the COMPANY on or prior to the Closing, without prejudice to any
rights or obligations of Digital HKco’s Shareholder may have, if the COMPANY
shall have materially breached any of its covenants, agreements,
representations, and warranties contained herein to be performed prior to
Closing and such breach shall not be cured within the earlier of the Outside
Closing Date and twenty (20) days following receipt by the COMPANY of a notice
describing in reasonable detail the nature of such breach.

12.3.

Survival.  The provisions of ARTICLE XI, ARTICLE XIII, and Sections 8.7, 14.4
and 14.5 shall survive any termination hereof pursuant to this ARTICLE XII.

12.4.

Liquidated Damages.  In the event of a material breach of any provision of this
Agreement by either the COMPANY, on one hand, or the FAB Parties, on the other
hand (the “Breaching Party”) during the first twelve (12) months following the
Closing, the other Party (the “Notifying Party”) shall give written notice of
such breach in the manner specified in Section 14.1 hereof.  In the event that
the Breaching Party does not cure such breach in all material respects within
twenty (20) days of such notice, the Notifying Party shall be entitled to the
immediate and automatic dissolution of this Agreement and rescission of the
transactions contemplated hereby and  forfeiture and cancellation on the books
and records of the Notifying

xlvi

 

 

--------------------------------------------------------------------------------

Party of all consideration paid, or securities or assets delivered, in
connection with this Agreement, without the requirement of delivery of the
instruments representing such consideration or that the Notifying Party post any
bond, file any foreclosure action, or take any other action whatsoever, which
forfeiture shall constitute liquidated damages and not a penalty.  In this
regard, the parties agree that actual loss to the Notifying Party in the event
of such an uncured breach is incapable of estimation, for the following reasons,
among others:  (i) the negative effect that such a breach may have on such
Party’s ability to comply with its obligations under the Laws (including but not
limited to compliance with the certification requirements of the Sarbanes Oxley
Act); (ii) the negative effect that such a breach may have on such Party’s
ability to prepare and obtain audits and/or reviews of its consolidated
financial statements; (iii) questions of law and fact that may arise as a result
of the parties’ organization and residence in different jurisdictions with
differing laws and customs; (iv) the negative effect that such a breach may have
on the Company’s ability to comply with the listing standards of the NYSE Amex;
and (v) questions of enforcement of the Notifying Party’s legal rights as a
result of such differences.  In the event of any such dissolution and
rescission, all Parties shall use their best efforts in good faith to restore
the circumstances existing prior to the Closing (including among other things
the return and/or cancellation of the Initial COMPANY Shares and the Convertible
Preferred Shares, and the return and/or cancellation and reissuance to Digital
HKco’s Shareholder of the Digital HKco Shares).

ARTICLE XIII

GOVERNING LAW AND DISPUTE RESOLUTION

13.1.

Governing Law.  This Agreement shall be governed by and construed, and any
dispute hereunder shall be resolved in accordance with the laws of the PRC,
without regard to principles of conflicts of law thereunder.

13.2.

Arbitration.

(a)

In the event a dispute arises relating to this Agreement, the parties agree to
meet to resolve their disputes in good faith.  Any party may seek injunctive
relief, without the need to post a bond, pending the completion of arbitration
under this Agreement for any breach or threatened breach of any covenant
contained herein.

(b)

If after good faith negotiations the dispute is not resolved, the parties shall
promptly submit any dispute, claim, or controversy arising out of or relating to
this Agreement, or any Additional Agreement (including with respect to the
meaning, effect, validity, termination, interpretation, performance, or
enforcement of this Agreement or any Additional Agreement) or any alleged breach
thereof (including any action in tort, contract, equity, or otherwise), to
binding arbitration by an arbitration panel set up and administered by China
International Economic and Trade Arbitration Commission (“CIETAC”) in accordance
with the CIETAC rules in Beijing (the “Arbitrator”).  The parties agree that
binding arbitration shall be the sole means of resolving any dispute, claim, or
controversy arising out of or relating to this Agreement or any Additional
Agreement (including with respect to the meaning, effect, validity, termination,
interpretation, performance or enforcement of this Agreement or any Additional

xlvii

 

 

--------------------------------------------------------------------------------

Agreement) or any alleged breach thereof (including any claim in tort, contract,
equity, or otherwise).

(c)

The laws of the PRC shall apply to any arbitration hereunder.  In any
arbitration hereunder, this Agreement and any agreement contemplated hereby
shall be governed by the laws of the PRC applicable to a contract negotiated,
signed, and wholly to be performed in the PRC, which laws the Arbitrator shall
apply in rendering his decision.  The Arbitrator shall issue a written decision,
setting forth findings of fact and conclusions of law, within sixty (60) days
after he shall have been selected.  The Arbitrator shall have no authority to
award punitive or other exemplary damages.

(d)

The arbitration shall be held in Beijing in accordance with and under the
then-current provisions of the rules of the CIETAC, except as otherwise provided
herein.

(e)

The Arbitrator may, at his discretion and at the expense of the party who will
bear the cost of the arbitration, employ experts to assist him in his
determinations.

(f)

The costs of the arbitration proceeding and any proceeding in court to confirm
any arbitration award or to obtain relief as provided in Section 13.2, as
applicable (including actual attorneys’ fees and costs), shall be borne by the
unsuccessful party and shall be awarded as part of the Arbitrator’s decision,
unless the Arbitrator shall otherwise allocate such costs for the reasons set
forth in such decision.  The determination of the Arbitrator shall be final and
binding upon the parties and not subject to appeal.

(g)

Any judgment upon any award rendered by the Arbitrator may be entered in and
enforced by any court of competent jurisdiction.  The parties expressly consent
to the personal and subject matter jurisdiction of the Arbitrator to arbitrate
any and all matters to be submitted to arbitration hereunder.  None of the
parties hereto shall challenge any arbitration hereunder on the grounds that any
party necessary to such arbitration (including the parties hereto) shall have
been absent from such arbitration for any reason, including that such party
shall have been the subject of any bankruptcy, reorganization, or insolvency
proceeding.

(h)

The Parties shall indemnify the Arbitrator and any experts employed by the
Arbitrator and hold them harmless from and against any claim or demand arising
out of any arbitration under this Agreement or any agreement contemplated
hereby, unless resulting from the willful misconduct of the person indemnified.

(i)

This arbitration Section shall survive the termination of this Agreement and any
agreement contemplated hereby.

13.3.

Attorneys’ Fees.  The unsuccessful party to any court or other proceeding
arising out of this Agreement that is not resolved by arbitration under Section
13.2 shall pay to the prevailing party all reasonable attorneys’ fees and costs
reasonably incurred by the prevailing party, in addition to any other relief to
which it may be entitled.

xlviii

 

 

--------------------------------------------------------------------------------

ARTICLE XIV

MISCELLANEOUS

14.1.

Notices.  All notices, requests, demands and other communications to any Party
hereunder shall be in writing and shall be given to such Party at its address or
telecopier number set forth below, or such other address or telecopier number as
such Party may hereinafter specify by notice to each other Party hereto:

if to the COMPANY, to:

Wizzard Software Corp.

Address: 5001 Baum Blvd

Suite 770

Pittsburgh, PA 15213

Attn: John Busshaus

Telephone: (412) 621-0902

Fax: (412) 621-2625

if to any of the FAB Parties:

             Address: Beijing FAB Group.

                            21 Fl., Wan-Shang Building    

                            Shijingshan District, Beijing, China

             Attn:  Zhong Bin-Bing       

             Telephone:

             Fax::

 

Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answer back is received or, (ii) if given by
certified mail, 180 hours after such communication is deposited in the mails
with first class postage prepaid, properly addressed or, (iii) if given by any
other means, when delivered at the address specified herein.

xlix

 

 

--------------------------------------------------------------------------------

 

14.2.

Amendments; No Waivers.

(a)

Any provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
each Party hereto, or in the case of a waiver, by the Party against whom the
waiver is to be effective.

(b)

No failure or delay by any Party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

14.3.

Ambiguities.  The Parties acknowledge that each Party and its counsel has
materially participated in the drafting of this Agreement and consequently the
rule of contract interpretation that, and ambiguities if any in, the writing be
construed against the drafter, shall not apply.

14.4.

Publicity.  Except as required by Law or the rules and regulations of the
Commission and/or the NYSE Amex, the Parties agree that neither they nor their
agents shall issue any press release or make any other public disclosure
concerning the transactions contemplated hereunder without the prior approval of
the other Party hereto.

14.5.

Expenses.  Except as specifically provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such cost or expense.
 The FAB Parties agree all taxes, including stamp duty under the Laws of Hong
Kong incurred from the transactions contemplated in this Agreement and the
Ancillary Agreements, if any, shall be borne by the FAB Parties and the COMPANY
will not bear such cost in this regard.

14.6.

Successors and Assigns.  The provisions of this Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and assigns; provided, that (i) none of FAB Parties may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of the COMPANY (except, for the avoidance of doubt,
that some or all of the CONSIDERATION may be issued or transferred to any
designee of Digital HKco’s Shareholder provided that such transfer is not for
value and does not violate the Securities Act or applicable Chinese securities
laws, rules and regulations, and that such designee has first executed and
delivered to the Company both the Voting Agreement that is attached hereto as
Exhibit A and the Lock-up Agreement that is attached hereto as Exhibit F); and
(ii) except as specifically herein, the COMPANY may not assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of Digital HKco’s Shareholder, except to an Affiliate
of the Company, in which case the COMPANY shall continue to remain liable for
its obligations hereunder.  

14.7.

Counterparts; Effectiveness.  This Agreement may be signed by facsimile
signatures and in any number of counterparts, each of which shall be an original
and all

l

 

 

--------------------------------------------------------------------------------

of which shall be deemed to be one and the same instrument, with the same effect
as if the signatures thereto and hereto were upon the same instrument.

14.8.

Entire Agreement.  This Agreement and the Additional Agreements, when duly
executed and delivered, constitute the entire agreement among the Parties with
respect to the subject matter hereof and supersede all prior agreements,
understandings and negotiations, both written and oral, among the Parties with
respect to the subject matter of this Agreement.  No representation, inducement,
promise, understanding, condition or warranty not set forth herein has been made
or relied upon by any Party hereto.  Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the Parties hereto any
rights or remedies hereunder other than Indemnified Parties as set forth in
Section 11.1 and 11.2 hereof, which shall be third party beneficiaries hereof.

14.9.

Severability.  If any one or more provisions of this Agreement shall, for any
reasons, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

14.10.

Captions.  The captions herein are included for convenience of reference only
and shall be ignored in the construction or interpretation hereof.

 

                          [The balance of this page is intentionally left blank]

li

 

 

--------------------------------------------------------------------------------

                IN WITNESS WHEREOF, the COMPANY and the FAB Parties have caused
this Agreement to be duly executed by their respective authorized officers or by
himself have executed this Agreement as of the day and year first above written.

Wizzard Software Corp.

By:/s/Christopher Spencer

Name: Christopher Spencer

Title: President and CEO

Universal Entertainment Group Limited

By: /s/Zhang Hongcheng

Name: Zhang Hongcheng

Title: Chairman

Digital Entertainment International Ltd.

By: /s/Zhang Hongcheng

Name: Zhang Hongcheng

Title: Director & Chairman

Beijing Dingtai Guanqun Culture Co., Ltd.

By: /s/Zhang Hongcheng

Name: Zhang Hongcheng

Title: President

By: /s/Bin Wang

Name: Bin Wang

Title: Director

Beijing FAB Culture Co., Ltd.

By: /s/Zhang Hongcheng

Name: Zhang Hongcheng

Title: President

Beijing FAB Digital Entertainment Products Co., Ltd.

By: /s/Zhang Hongcheng

Name: Zhang Hongcheng

Title: President

lii

 

 

--------------------------------------------------------------------------------

Exhibit A  Voting Agreement

 

 

 

VOTING AGREEMENT

 

     This VOTING AGREEMENT (this “Agreement”) is dated as of   ______, 2012, by
and between Universal Entertainment Group Limited, a company incorporated under
the law of the British Virgin Islands, with its registered office at P.O. Box
3321, Drake Chambers, Road Town, Tortola, BVI (“Digital HKCo’s Shareholder”),
and Wizzard Software Corporation, a Colorado corporation (the “Company”).
 Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to them in the Share Exchange Agreement (as defined
below).

 

RECITALS

 

                 WHEREAS, the execution and delivery of this Agreement by
Digital HKCo’s Shareholder is a material inducement to the willingness of the
Company to enter into that certain Share Exchange Agreement dated as of April 5,
2012, by and between Digital HKCo’s Shareholder; the Company; Digital
Entertainment International Ltd.; Beijing Dingtai Guanqun Culture Co., Ltd.;
Beijing FAB Culture Co., Ltd.; and Beijing FAB Digital Entertainment Products
Co., Ltd. (the “Share Exchange Agreement”);

WHEREAS, in partial consideration for the purchase of the Digital HKco Shares
under the Share Exchange Agreement, the Company shall issue at Closing (as
defined in Section 2.2 of the Share Exchange Agreement) such number of shares of
the Company’s common stock, par value one mill ($0.001) per share, as
constitutes forty-nine percent (49%) of the Company’s issued and outstanding
common stock on a fully diluted basis immediately following the Closing after
issuance of such shares (the “Initial Company Shares,” as defined in Section
2.3(a) of the Share Exchange Agreement), and shall also be known as the
“Shares”;

WHEREAS, in partial consideration for the purchase of the Digital HKCo Shares
under the Share Exchange Agreement, the Company shall also issue to Digital
HKCo’s Shareholder shares of convertible preferred stock of the Company at the
Closing, which shall be convertible into up to an additional shares of the
Company’s common stock and bring Digital HKCo’s Shareholder’s equity position in
the Company to 78%  on a fully diluted basis as of the date of the Closing,
 upon the achievement of certain milestones in accordance with the Certificate
of Designation of such convertible preferred stock (the “Certificate of
Designation”) in the form attached as Exhibit B to the Share Exchange Agreement
(the “Convertible Preferred Shares”, as defined in Section 2.3(b) of the Share
Exchange Agreement) (for purposes of this Agreement, the shares of common stock
issuable upon conversion of the Convertible Preferred Shares  shall be defined
as the “Conversion Shares”) ;

NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth in the Share Exchange Agreement and in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

1. Restrictions on Shares.

(a) Except pursuant to the terms of this Agreement, until the Expiration Time as
defined in Section 1(b) below, that is applicable to its Shares, Digital HKCo’s
Shareholder shall

i

 

 

--------------------------------------------------------------------------------

not, directly or indirectly, grant any proxies or powers of attorney with
respect to any of the Shares, deposit any of the Shares into a voting trust, or
enter into a voting agreement or similar arrangement or commitment with respect
to any of the Shares.

(b) Digital HKCo’s Shareholder hereby grants to the Board of Directors of the
Company the right to vote its Shares in accordance with Section 2 hereof and the
Irrevocable Proxy that is attached as Exhibit A hereto.  Such provisions shall
govern the voting of the Shares for a period of eight (8) consecutive and
complete reporting quarters of the Company after the Closing of the Share
Exchange Agreement, provided, however, that:

(i)  If  Digital HKco and the VIE Companies successfully complete all of the
Corporate Governance Objectives for  two (2) consecutive and complete reporting
quarters after the Closing, the Board of Directors of the Company will release
 the voting rights of 50% of the Shares held by Digital HKCo’s Shareholder at
such time and re-assign such voting rights back to Digital HKCo’s Shareholder.

(ii)  Upon successful completion of all of the Corporate Governance Objectives
for six (6) consecutive and complete reporting quarters after the Closing of the
Share Exchange Agreement, the Board of Directors will release the voting rights
to another 25% of the Shares held by Digital HKCo’s Shareholder at such time and
re-assign such voting rights back to Digital HKCo’s Shareholder;.

(iii)  Upon the successful completion of all of the Corporate Governance
Objectives for eight (8) consecutive and complete reporting quarters after the
Closing of the Share Exchange Agreement, the Board of Directors will release the
voting rights to the remaining Shares held by Digital HKCo’s Shareholder at such
time and re-assign such voting rights back to Digital HKCo’s Shareholder.

With respect to any Share, the earliest applicable release date pursuant to this
Section 1(b) shall be referred to herein as the “Expiration Time.”  The
Expiration Time referred to in Section 1(b)(iii) hereof (or to the extent the
conditions described in Section 1(b)(i) through (iii) are not satisfied with
respect to any Shares, the end of eight (8) consecutive and complete reporting
quarters after the Closing of the Share Exchange Agreement) shall be referred to
herein as the “Final Expiration Time.” The release of Shares from the terms of
this Agreement shall not have any effect on their status as “Lock-up Shares”
within the meaning of the Lock-up Agreement (the “Lock-up Agreement”) executed
by the parties contemporaneously herewith.

(c)  Except as otherwise provided herein, Digital HKCo’s Shareholder shall not,
in its capacity as a stockholder of the Company, directly or indirectly, take
any action that would make any representation or warranty contained herein
untrue or incorrect in any material respect or be reasonably expected to have
the effect of impairing the ability of Digital HKCo’s Shareholder to perform its
obligations under this Agreement or preventing or delaying the consummation of
any of the transactions contemplated hereby.

(d) Any shares of the Company’s common or other securities of the Company with
respect to which Digital HKCo’s Shareholder acquires beneficial ownership (as
defined in

ii

 

 

--------------------------------------------------------------------------------

Rule 13d-3 under the Exchange Act) after the date of this Agreement and prior to
the Final Expiration Time, by reason of any stock split, stock dividend,
reclassification, recapitalization or other similar transaction (the “New
Shares”) shall be subject to the terms and conditions of this Agreement to the
same extent as if they constituted Initial Company Shares.

2. Irrevocable Proxy. Concurrently with the execution and delivery of this
Agreement, Digital HKCo’s Shareholder shall deliver to the Company a duly
executed proxy in the form attached hereto as Exhibit A (the “Proxy”), which
Proxy is coupled with an interest sufficient in law to support an irrevocable
proxy, and, until the Expiration Time applicable to any given Share, shall be
irrevocable to the fullest extent permitted by law, with respect to each and
every meeting of stockholders of the Company or action or approval by written
resolution or consent of stockholders of the Company covering the total number
of Shares in respect of which Digital HKCo’s Shareholder is entitled to vote at
any such meeting or in connection with any such written consent. Upon the
execution of this Agreement, (i) Digital HKCo’s Shareholder hereby revokes any
and all prior proxies (other than the Proxy) given by Digital HKCo’s Shareholder
with respect to the Shares, and (ii) Digital HKCo’s Shareholder shall not grant
any subsequent proxies with respect to such Shares, or enter into any agreement
or understanding with any Person to vote or give instructions with respect to
the Shares in any manner inconsistent with the terms of this Agreement, until
after the Expiration Time applicable to such Shares.   Until such applicable
Expiration Time, Digital HKCo’s Shareholder agrees that the subject Shares shall
be voted only in accordance with the Proxy.

 

3. Representations, Warranties and Covenants of Digital HKCo’s Shareholder.
Digital HKCo’s Shareholder hereby represents, warrants and covenants to the
Company as follows:

(a) With the exception of the lien created under the Lock-up Agreement, all
Shares are and will be at all times up until the applicable Expiration Time free
and clear of any security interests, liens, claims, pledges, options, rights of
first refusal, co-sale rights, agreements, limitations on Digital HKCo’s
Shareholder’s voting rights, charges and other encumbrances of any nature that
would adversely affect the exercise or fulfillment of the rights and obligations
of the parties to this Agreement.

(b) If Digital HKCo’s Shareholder is a corporation, limited partnership or
limited liability company, Digital HKCo’s Shareholder is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or constituted.

(c) Digital HKCo’s Shareholder has all requisite power, capacity and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Digital HKCo’s
Shareholder and the consummation by Digital HKCo’s Shareholder of the
transactions contemplated hereby have been duly authorized by all necessary
action, if any, on the part of Digital HKCo’s Shareholder (or its board of
directors or similar governing body, as applicable), and no other actions or
proceedings on the part of Digital HKCo’s Shareholder are necessary to authorize
the execution and delivery by Digital HKCo’s Shareholder of this Agreement and
the consummation by Digital HKCo’s Shareholder of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Digital HKCo’s
Shareholder and constitutes a valid and binding obligation of

iii

 

 

--------------------------------------------------------------------------------

Digital HKCo’s Shareholder, enforceable against Digital HKCo’s Shareholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and to general principles of equity.

(d) The execution and delivery of this Agreement does not, and the performance
by Digital HKCo’s Shareholder of its agreements and obligations hereunder will
not conflict with, result in a breach or violation of or default under (with or
without notice or lapse of time or both), or require notice to or the consent of
any person under, any provisions of the organizational documents of Digital
HKCo’s Shareholder (if applicable), or any agreement, commitment, law, rule,
regulation, judgment, order or decree to which Digital HKCo’s Shareholder is a
party or by which Digital HKCo’s Shareholder is, or any of its assets are,
bound, except for such conflicts, breaches, violations or defaults that would
not, individually or in the aggregate, prevent or delay consummation of the
Share Exchange Agreement and this Agreement or otherwise prevent or delay
Digital HKCo’s Shareholder from performing its obligations under this Agreement.

(e) Digital HKCo’s Shareholder agrees that it will not in its capacity as a
stockholder of the Company bring, commence, institute, maintain, prosecute or
voluntary aid any action, claim, suit or cause of action, in law or in equity,
in any court or before any governmental entity, which challenges the validity or
seeks to enjoin the operation of any provision of this Agreement (provided that
nothing herein shall limit Digital HKCo’s Shareholder’s rights to enforce the
terms of this Agreement).

4.  Miscellaneous.

(a) Notices. All notices, demands, consents, requests, instructions and other
communications to be given or delivered or permitted under or by reason of the
provisions of this Agreement or in connection with the transactions contemplated
hereby shall be in writing and shall be deemed to be delivered and received by
the intended recipient as follows: (i) if personally delivered, on the business
day of such delivery (as evidenced by the receipt of the personal delivery
service), (ii) if delivered by overnight courier (with all charges having been
prepaid), on the business day of such delivery (as evidenced by the receipt of
the overnight courier service of recognized standing), or (iii) if delivered by
facsimile transmission, on the business day of such delivery if sent by 6:00
p.m. in the time zone of the recipient, or if sent after that time, on the next
succeeding business day (as evidenced by the printed confirmation of delivery
generated by the sending party’s telecopier machine). If any notice, demand,
consent, request, instruction or other communication cannot be delivered because
of a changed address of which no notice was given (in accordance with this
Section 5), or the refusal to accept same, the notice, demand, consent, request,
instruction or other communication shall be deemed received on the second
business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.

 

If to the Company:

Wizzard Software Corporation

iv

 

 

--------------------------------------------------------------------------------

5001 Baum Blvd.

Suite 770

Pittsburgh, PA  15213

Attention: John Busshaus

Telephone No.: (412) 621-0902

Facsimile No.: (412) 621-2625

with copies (which copies shall not constitute notice to the Company) to:

Branden T. Burningham, Esq.

Burningham & Burningham

455 East 500 South

Suite 205

Salt Lake City, UT  84111

Tel. No.: (801) 363-7411

Fax No.: (801) 355-7126

If to the Digital HKCo’s Shareholder:

Address: 21 Fl., Wan-Shang Building    

Shijingshan District, Beijing, China

Attn:  Bob (Zhong Bing-Bin)       

Telephone: 100186-135-8190-0771

Fax: 01186-1066032873

or to such other address for either party as such party may specify by notice
given to the other party in accordance with this Section 5.

 (b) Interpretation. When a reference is made in this Agreement to paragraphs or
exhibits, such reference shall be to a paragraph of or an exhibit to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The words “include,” “includes” and
“including” when used herein shall be deemed in each case to be followed by the
words “without limitation.” The phrases “the date of this Agreement”, “the date
hereof”, and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to the date first above written. Unless the context of
this Agreement otherwise requires: (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; and (iii) the terms “hereof,” “herein,”
“hereunder” and derivative or similar words refer to this entire Agreement.

(c) Specific Performance; Injunctive Relief. The parties hereto acknowledge that
the Company will be irreparably harmed and that there will be no adequate remedy
at law for a violation of any of the covenants or agreements of Digital HKCo’s
Shareholder set forth herein or in the Proxy. Therefore, it is agreed that, in
addition to any other remedies that may be available to the Company upon any
such violation of this Agreement or the Proxy, the Company shall have the right
to enforce such covenants and agreements and the Proxy by specific

v

 

 

--------------------------------------------------------------------------------

performance, injunctive relief or by any other means available to the Company at
law or in equity and Digital HKCo’s Shareholder hereby waives any and all
equitable defenses that could exist in its favor in connection with such
enforcement and waives any requirement for the security or posting of any bond
in connection with such enforcement.

(d) Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties hereto; it being understood that all parties
need not sign the same counterpart. Delivery of an executed counterpart of a
signature page to this Agreement by telecopy or by electronic delivery in Adobe
Portable Document Format or other electronic format based on common standards
will be effective as delivery of a manually executed counterpart of this
Agreement.

(e) Entire Agreement; Nonassignability; Parties in Interest; Death or
Incapacity. This Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto
(including, without limitation, the Proxy) (i) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and (ii) are not intended to confer,
and shall not be construed as conferring, upon any person other than the parties
hereto any rights or remedies hereunder.  Neither this Agreement nor any of the
rights, interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by Digital
HKCo’s Shareholder without the prior written consent of the Company except in
connection with a transfer of Shares permitted by the Lock-up Agreement, and any
such assignment or delegation that is not consented to shall be null and void.
 Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the parties hereto and their
respective successors and assigns.

 

(f) Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement shall
continue in full force and effect and the application of such provision to other
persons or circumstances shall be interpreted so as reasonably to effect the
intent of the parties hereto. The parties hereto further agree to use their
commercially reasonable efforts to replace such void or unenforceable provision
of this Agreement with a valid and enforceable provision that shall achieve, to
the extent possible, the purposes of such void or unenforceable provision.

(g) Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy shall not preclude the
exercise of any other remedy.

(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.

vi

 

 

--------------------------------------------------------------------------------

(i) Termination. This Agreement shall terminate and shall have no further force
or effect from and after the Final Expiration Time, and thereafter there shall
be no liability or obligation on the part of Digital HKCo’s Shareholder,
provided, that no such termination shall relieve any party from liability for
any willful breach of this Agreement prior to such termination.

(j) Amendment. Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by each of the parties hereto, or in the case of a waiver, by the
party against which the waiver is to be effective. Notwithstanding the
foregoing, no failure or delay by any party hereto in exercising any right
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any right hereunder.

(k) Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document shall be construed against the party drafting such agreement or
document.

(l) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND
EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION
TO VENUE IN NEW YORK COUNTY OR SUCH DISTRICT, AND AGREES THAT SERVICE OF ANY
SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR
OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 5.

 

IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be
executed as of the date first above written.

 

 

 

 

WIZZARD SOFTWARE CORPORATION

 

 

By:

 

 

Name: Christopher Spencer

Title:   President and CEO

vii

 

 

--------------------------------------------------------------------------------

 

 

 

DIGITAL HKCO’S SHAREHOLDER:

Universal Entertainment Group Limited

 

 

By:

 

 

Name:

Title:   

viii

 

 

--------------------------------------------------------------------------------

EXHIBIT A

IRREVOCABLE PROXY

TO VOTE STOCK OF

WIZZARD SOFTWARE CORPORATION

The undersigned stockholder (“Digital HKCo’s Shareholder”) of Wizzard Software
Corporation, a Colorado corporation (the “Company”), hereby irrevocably (to the
fullest extent permitted by applicable law) appoints the Board of Directors of
the Company as the sole and exclusive attorney and proxy of Digital HKCo’s
Shareholder, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the fullest extent that Digital
HKCo’s Shareholder is entitled to do so) with respect to all of the Shares of
common stock of the Company as defined in the Voting Agreement dated
______________, 2012 (the “Voting Agreement”) to which this Irrevocable Proxy is
an exhibit in accordance with the terms of this Irrevocable Proxy. Upon Digital
HKCo’s Shareholder’s execution of this Irrevocable Proxy, any and all prior
proxies (other than this Irrevocable Proxy) given by Digital HKCo’s Shareholder
with respect to the subject matter contemplated by this Irrevocable Proxy are
hereby revoked and Digital HKCo’s Shareholder agrees not to grant any subsequent
proxies with respect to such Shares or enter into any agreement or understanding
with any Person (as defined in the Share Exchange Agreement (as defined below))
to vote or give instructions with respect to such Shares in any manner
inconsistent with the terms of this Irrevocable Proxy until after the Expiration
Time (as defined in Section 1(b) of the Voting Agreement) applicable to such
Shares.

Until the Expiration Time applicable to the Shares, this Irrevocable Proxy is
irrevocable (to the fullest extent permitted by applicable law), is coupled with
an interest sufficient in law to support an irrevocable proxy, is granted
pursuant to the terms of the Voting Agreement, and is granted in consideration
of the Company entering into that certain Share Exchange Agreement, dated as of
April 5, 2012, by and among Digital HKCo’s Shareholder; the Company; Digital
Entertainment International Ltd.; Beijing Dingtai Guanqun Culture Co., Ltd.;
Beijing FAB Culture Co., Ltd.; and Beijing FAB Digital Entertainment Products
Co., Ltd.

The proxies named above, and each of them, are hereby authorized and empowered
by Digital HKCo’s Shareholder, at any time prior to the Expiration Time
applicable to the Shares, to act as Digital HKCo’s Shareholder’s proxy to vote
the Shares, and to exercise all voting and other rights of Digital HKCo’s
Shareholder with respect to the Shares (including, without limitation, the power
to execute and deliver written consents pursuant to applicable provisions of the
Colorado Statutes), at every annual, special or adjourned meeting of the
stockholders of the Company and in every written consent in lieu of such
meeting.

All authority herein conferred shall survive the death or incapacity of Digital
HKCo’s Shareholder and any obligation of Digital HKCo’s Shareholder hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of Digital HKCo’s Shareholder.

[SIGNATURE PAGE FOLLOWS]

ix

 

 

--------------------------------------------------------------------------------

This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable. This Irrevocable Proxy may not be amended or otherwise modified
without the prior written consent of the Company. This Irrevocable Proxy shall
terminate in full, and be of no further force and effect, automatically at the
Final Expiration Time as defined in Section 1(b) of the Voting Agreement, and
may terminate in part with respect to certain Shares at the Expiration Time or
Expiration Times set forth in the Voting Agreement.

 

 

 

 

Dated:

 

 

 

 Universal Entertainment Group Limited

 

 

(Signature of Digital HKCo’s Shareholder)

x

 

 

--------------------------------------------------------------------------------

Exhibit B

Certificate of Designations of Convertible Preferred Stock

CERTIFICATE OF DESIGNATION OF PREFERENCES,

RIGHTS AND LIMITATIONS

OF

SERIES B CONVERTIBLE PREFERRED STOCK

PURSUANT TO SECTION 7-106-102 OF THE

COLORADO CORPORATIONS AND ASSOCIATIONS ACT

        The undersigned, Christopher J. Spencer, does hereby certify that:

                1. He is the President of Wizzard Software Corporation, a
Colorado corporation (the “Corporation” or the “Company”).

                2. The Corporation is authorized to issue ten million
(10,000,000) shares of preferred stock, of which 10,125 shares, designated as
Series A 7% Convertible Preferred Stock , have been authorized (the “Series A
Preferred Stock”), 7,500 shares of such Series A Preferred Stock have previously
been issued, and no shares of such Series A Preferred Stock are currently issued
and outstanding.

                3. The following resolutions were duly adopted by the board of
directors of the Corporation (the “Board of Directors”):

        All capitalized terms used herein but not defined herein shall have the
meaning ascribed to such terms in the Share Exchange Agreement (as hereinafter
defined).

WHEREAS, the certificate of incorporation of the Corporation provides for a
class of its authorized stock known as preferred stock, comprised of ten million
(10,000,000) shares, $0.001 par value per share, issuable from time to time in
one or more series;

        WHEREAS, the Board of Directors is authorized to fix the dividend
rights, dividend rate, voting rights, conversion rights, rights and terms of
redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the
designation thereof, of any of them;

WHEREAS, the terms of that certain Share Exchange Agreement, dated as of April
5, 2012, to which the Corporation is a party (the “Share Exchange Agreement”),
provide for the Corporation to issue shares of a series of convertible preferred
stock  to Digital HKco’s Shareholder at the Closing thereof, as defined in the
Share Exchange Agreement;

        WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to fix the rights, preferences, restrictions and other
matters relating to a series of the preferred stock, which shall consist of up
to 290 shares of the preferred stock which the Corporation has the authority to
issue, as follows:

xi

 

 

--------------------------------------------------------------------------------

        NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issuance of a series of preferred stock and does hereby fix and
determine the rights, preferences, restrictions and other matters relating to
such series of preferred stock as follows:

TERMS OF PREFERRED STOCK

Section 1

Designation, Amount and Par Value. The series of preferred stock shall be
designated as its Series B Convertible Preferred Stock (the “Preferred Stock”)
and the number of shares so designated shall be up to 290 shares. Each share of
Preferred Stock shall have a par value of $0.001 per share.

Section 2

Dividends.  The Preferred Stock shall not be entitled to receive any dividend of
any kind or nature.

Section 3

Voting Rights. The Preferred Stock shall have no voting rights.

 

Section 4

Liquidation. The Holder of any share of Preferred Stock (the “Holder”) shall not
be entitled to receive out of the assets, whether capital or surplus, of the
Corporation any amount whatsoever upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary.

Section 5

(a)

Conversion. Subject to achievement of the Corporate  Governance Objectives and
the Revenue Objectives as defined in Sections 5(b)(i) and 5(b)(ii),
respectively, at the option of the Holder thereof, the Preferred Stock will be
converted into the Company’s Common Stock in three (3) tranches according to the
schedule set forth in Section 5(b).   [Certain information regarding the
definitive number of shares of Common Stock issuable upon conversion to be
inserted at time of Closing of Share Exchange Agreement and filing of
Certificate of Designation.]

[When each tranche is converted into the Company’s Common Stock , it will bring
the overall equity position in the Company of the recipients of Common Stock and
Preferred Stock as Consideration pursuant to the Share Exchange Agreement, on a
fully diluted basis as of the date of the Closing, to 70%, 74% and 78% ,
respectively and immediately after each of the conversions.  For example: if the
fully diluted common stock of the Corporation at

xii

 

 

--------------------------------------------------------------------------------

the Closing of the Share Exchange Agreement were 9,000,000 shares, then:  (i)
the first tranche with two hundred and ten (210) shares of Preferred Stock
referred to in Section 5(b)(iii)(a) below would be convertible into 12,348,000
shares of Common Stock upon compliance with the applicable Objectives as defined
in Section 5(b) below; (ii) the second tranche with forty (40) shares of
Preferred Stock referred to in Section 5(b)(iii)(b) below would be convertible
into 4,628,000 shares of Common Stock upon compliance with the applicable
Objectives; and (iii) the third tranche with  forty (40) shares of Preferred
Stock referred to in Section 5(b)(iii)(c) below would be convertible into
6,280,000 shares of Common Stock upon compliance with the applicable Objectives.
Upon attainment of each and every Objective and conversion of all Preferred
Stock, the Holders would have a collective 78% ownership of the total number of
shares of the Corporation’s Common Stock issued and outstanding as of the date
of the Closing of the Share Exchange Agreement on a fully diluted basis, giving
effect to the conversion of all of the Preferred Stock. The accurate number of
shares of Common Stock issuable upon conversion of each tranche of Preferred
Stock will be determined at the Closing based on the total issued and
outstanding shares and fully dilution of presumed conversions in the future.]

Shares of Preferred Stock upon being converted into Common Stock in accordance
with the terms hereof shall be canceled and shall not be reissued.  

(b)

Preconditions to Conversion.  No share of Preferred Stock shall be convertible
into shares of Common Stock unless and until the Corporate Governance Objectives
and/or Revenue Objectives (collectively, the “Objectives”) applicable to such
share of Preferred Stock have been met.

(i)

Corporate Governance Objectives.  For purposes of this Certificate of
Designation, the Corporate Governance Objectives (the “Corporate Governance
Objectives”) shall be defined as follows:

1.

timely completion with respect to the conversion of all financial statements of
Digital Entertainment International Ltd., a company incorporated under the laws
of the Hong Kong Special Administrative Region; Beijing Dingtai Guanqun Culture
Co., Ltd., a company incorporated under the law of the People’s Republic of
China; Beijing FAB Culture Co., Ltd., a company incorporated under the law of
the People’s Republic of China; and Beijing FAB Digital Entertainment Products
Co., Ltd., a company organized under the law of the People’s Republic of China (
together, the “FAB Companies”) into English and denomination of all financial
statements of the FAB Companies in US Dollars by the 20th day of the month
following the end of each of the Company’s reporting quarters, which shall be
presented to the Board of Directors for review and approval ;

2.

the complete implementation of all applicable requirements of the Sarbanes Oxley
Act of 2002 (“Sarbanes Oxley”), by the FAB Companies within four quarters after
the initial issuance of the Preferred Stock ;

xiii

 

 

--------------------------------------------------------------------------------

3.

consistent, on-going maintenance, testing and documentation of controls and
procedures, completed quarterly, with a compliance notice provided to the Board
of Directors of the Company by the 30th day of the month following the close of
a reporting quarter of the Company;

  

4.

written agreement by the Chief Financial Officer of the FAB Companies of his
agreement to “sign-off” on Sarbanes Oxley Certifications filed with the SEC in
each quarterly report and annual report, which shall be provided to the Board of
Directors by the 30th of the month following the close of each reporting quarter
and fiscal year of the Company;

  

5.

written certification by the Chief Executive Officer and Chief Financial Officer
of the FAB Companies of compliance with Foreign Corruption Practices Act, which
shall be provided to the Board of Directors by the 30th day of the month
following the close of each reporting quarter and fiscal year of the Company;

6.

written certification by the Chief Financial Officer of the FAB Companies of
compliance with all laws, principles, codes and procedures along with complete
financial transparency and information disclosure in compliance with best
practices determined by the Board of Directors of the Company, which shall be
provided to the Board of Directors of the Company by the 30th day of the month
following the close of each reporting quarter and each fiscal year of the
Company; and

7.

ongoing compliance with all aspects of the Foreign Corrupt Practices Act
(“FCPA”), including but not limited to, hold and document monthly training
sessions by the management of the FAB Companies and sign-off by the Chief
Executive Officer and the Chief Financial Officer of the FAB Companies on
compliance with all aspects of FCPA.

(ii)

Revenue Objectives.    For purposes of this Certificate of Designations, the
Revenue Objectives (the “Revenue Objectives”) shall be defined as the
achievement by the FAB Companies of the following financial performance targets
for the periods indicated :

 

Fiscal Year

Sales Revenues

Net Income

Tranche 1

2011

US $60,000,000

US $12,000,000

Tranche 2

2012

US $70,000,000

US $14,000,000

The achievement of such Revenue Objectives for the periods indicated shall be
determined in good faith based upon the audited financial statements   audited
by a qualified independent public accountant engaged by the Board of Directors
in accordance with the standards of the PCAOB then in effect.

xiv

 

 

--------------------------------------------------------------------------------

(iii)

Conversion Events.

(a)

Upon the successful completion of all the Corporate Governance Objectives set
forth in Section 5(b)(i) above for the four (4) consecutive and complete
reporting quarters of the Corporation immediately after the Closing of the Share
Exchange Agreement, the Holder or Holders will have the right to convert the
first tranche of two hundred ten (210) shares of Preferred Stock into Common
Stock in the manner set forth in Section 5(c) of this Certificate of
Designation.  

(b)

Upon  the successful completion of (a) all the Corporate Governance Objectives
set forth in Section 5(b)(i) above for the four (4) consecutive and complete
reporting quarters immediately after the Closing of the Share Exchange
Agreement, and (b) the Revenue Objectives for the fiscal year of 2011, the
Holder or Holders will have the right to convert the second tranche of forty
(40) shares  of Preferred Stock into the Company’s common stock in the manner
set forth in Section 5(c) of this Certificate of Designations.  

(c)

Upon the successful completion of (a) all the Corporate Governance Objectives
set forth in 5(b)(i) above for the six (6) consecutive and complete reporting
quarters immediately after the Closing of the Share Exchange Agreement, and (b)
the Revenue Objectives for the fiscal year of 2012, the Holder or Holders will
have the right to convert the third tranche of forty (40) shares of Preferred
Stock  into the Company’s common stock in the manner set forth in Section 5(c)
of this Certificate of Designations.

(c)

Mechanics of Conversion.

(i)

Notice of Conversion.   From and after the occurrence of any Conversion Event
identified in Section 5(b)(iii) above, the Preferred Stock to which such
Conversion Event relates may be converted in full by the Holder by delivery to
the Corporation of an original or facsimile copy of the Notice of Conversion
attached as Annex A hereto, duly executed by such Holder (a “Notice of
Conversion”). Each Notice of Conversion shall specify the number of shares of
Preferred Stock to be converted, the number of shares of Preferred Stock owned
prior to the conversion at issue, the number of shares of Preferred Stock owned
subsequent to the conversion at issue and the date on which such conversion is
to be effected, which date may not be prior to the date the Holder delivers such
Notice of Conversion to the Corporation (such date, the “Conversion Date”). If
no Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion to the Corporation is deemed
delivered hereunder. To effect conversions of shares of Preferred Stock, the
Holder shall not be required to surrender the instrument representing such
shares of Preferred Stock to the Corporation unless all of the shares of
Preferred Stock represented thereby are so converted, in which case such Holder
shall deliver the instrument representing such shares of Preferred Stock
promptly following the Conversion Date at issue.   

(ii)

Delivery of Certificate Upon Conversion. Not later than five (5) business days
after each Conversion Date, the Corporation shall deliver, or cause to be
delivered, to the

xv

 

 

--------------------------------------------------------------------------------

converting Holder a certificate or certificates representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock.

(iii)

Reservation of Shares Issuable Upon Conversion. The Corporation covenants that
it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of the Preferred Stock, not less than such aggregate number of shares of the
Common Stock as shall (subject to the terms and conditions in the Share Exchange
Agreement) be issuable upon the conversion of all outstanding shares of
Preferred Stock hereunder. The Corporation covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable.  The number of shares of Common Stock
issuable upon conversion of the Preferred Stock shall be appropriately adjusted
in the event that the Corporation , at any time while this Preferred Stock is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
other Common Stock equivalents (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Corporation upon conversion of this
Preferred Stock); (B) subdivides outstanding shares of Common Stock into a
larger number of shares; or (C) combines (including by way of a reverse stock
split) outstanding shares of Common Stock into a smaller number of shares.

(iv)

Fractional Shares. No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of the Preferred Stock. As to any fraction
of a share which a Holder would otherwise be entitled to upon such conversion,
the Corporation shall round up to the next whole share.

(v)

Transfer Taxes.  The issuance of certificates for shares of the Common Stock on
conversion of the Preferred Stock shall be made without charge to the
Corporation for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates.

Section 6

Cancellation.

In the event that the Corporate Governance Objective and/or the Revenue
Objective applicable to a given share of Preferred Stock has not been met by the
deadline applicable to such Objective(s) as specified in Section 5(b)(iii)
above, such share of Preferred Stock in the corresponding tranche or tranches
shall immediately and automatically be cancelled on the books and records of the
Corporation, without the requirement of delivery of the instrument therefor, and
without the necessity for the Corporation to post any bond or take any other
action whatsoever with respect to such cancellation.

         

Section 7

(a)

Notices.  Any and all notices or other communications or deliveries to be
provided by a Holder hereunder including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, or sent
by a nationally recognized overnight

xvi

 

 

--------------------------------------------------------------------------------

courier service, addressed to the Corporation, at 5001 Baum Blvd., Suite 770,
Pittsburgh, PA  15213, facsimile number 412-621-2625, Attention: Christopher J.
Spencer, or such other facsimile number or address as the Corporation may
specify for such purposes by notice to Holders delivered in accordance with this
Section 7.  Any and all notices or other communications or deliveries to be
provided by the Corporation hereunder shall be in writing and delivered
personally, by facsimile, or sent by an internationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
such Holder appearing on the books of the Corporation, or if no such facsimile
number or address appears on the books of the Corporation, at the principal
place of business of such Holder.  Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section 7 prior to 5:30 p.m.
(New York City time) on any date, (ii) the date immediately following the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section 7 between 5:30 p.m. and 11:59
p.m. (New York City time) on any date, (iii) the second business day following
the date of mailing, if sent by internationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

(b)

Governing Law.  All questions concerning the construction, validity, enforcement
and interpretation of this Certificate of Designation shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof.  Both the
Corporation and , by its acceptance of Preferred Stock, any Holder agree that
all legal proceedings concerning the interpretation and enforcement of the terms
of this Certificate of Designation of shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).  The Corporation and , by its acceptance of Preferred Stock, any
Holder irrevocably submit to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith, and
hereby irrevocably waive, and agree not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such New York Courts, or such New York Courts are improper or inconvenient venue
for such proceeding.  The Corporation and , by its acceptance of Preferred
Stock, any Holder irrevocably waive personal service of process and consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Certificate of Designation and agree that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by applicable law. The Corporation , by its acceptance of
Preferred Stock, any Holder hereby irrevocably waive, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Certificate of Designation. If
either party shall commence an action or proceeding to enforce any provisions of
this Certificate of Designation, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

 

xvii

 

 

--------------------------------------------------------------------------------

(c)

Waiver.  Any waiver by the Corporation or any Holder of a breach of any
provision of this Certificate of Designation shall not operate as or be
construed to be a waiver of any other breach of such provision or of any breach
of any other provision of this Certificate of Designation.  The failure of the
Corporation or any Holder to insist upon strict adherence to any term of this
Certificate of Designation on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Certificate of Designation. Any
waiver by the Corporation or any Holder must be in writing.

 

(d)

Severability.  If any provision of this Certificate of Designation is invalid,
illegal or unenforceable, the balance of this Certificate of Designation shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances.  

(e)

Headings.  The headings contained herein are for convenience only, do not
constitute a part of this Certificate of Designation and shall not be deemed to
limit or affect any of the provisions hereof.

xviii

 

 

--------------------------------------------------------------------------------

RESOLVED, FURTHER, that the President of the Corporation be and he hereby is
authorized and directed to prepare and file a Certificate of Designation of
Preferences, Rights and Limitations in accordance with the foregoing resolution
and the provisions of Colorado law.

        IN WITNESS WHEREOF, the undersigned has executed this Certificate this
___ day of ____________, 2012.

 

 

      _____________________________

     Name: Christopher J. Spencer

     Title:  President

     

 

 

xix

 

 

--------------------------------------------------------------------------------

ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)

The undersigned hereby elects to convert the number of shares of  Series B
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the “Common Stock”), of Wizzard Software Corporation, a
Colorado corporation (the “Corporation ”), according to the conditions hereof,
as of the date written below.

Conversion calculations:

 

 

Date to effect conversion: _____________________________________________

Number of shares of Preferred Stock owned prior to conversion: ______________

Number of shares of Preferred Stock to be converted: ______________________

Number of shares of Common Stock issued

and outstanding immediately prior to conversion: ___________________________

Number of shares of Common Stock to be issued: ___________________________

Number of shares of Preferred Stock subsequent to conversion: ________________

Address for delivery: ______________________

 

 

 

[HOLDER]

By:___________________________________

     Name:

     Title:

xx

 

 

--------------------------------------------------------------------------------

Exhibit C

Chart of Share Distribution – To be furnished prior to Closing

New Shareholders

Number of Initial COMPANY Shares at the Closing

Number of Convertible Preferred Shares

Percentage at the Closing

Digital HKco’s Shareholder

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

i

 

 

--------------------------------------------------------------------------------

Exhibit D Disclosure Schedules – To be furnished as provided in Section 8.10

i

 

 

--------------------------------------------------------------------------------

Exhibit E  Lock-up Agreement

LOCK-UP AGREEMENT

 

This LOCK-UP AGREEMENT (this “Agreement”) is dated as of ________, 2012 by and
among Universal Entertainment Group Limited, a company incorporated under the
law of the British Virgin Islands, with its registered office at P.O. Box 3321,
Drake Chambers, Road Town, Tortola (“Digital HKco’s Shareholder”), and Wizzard
Software Corporation, a Colorado corporation (the “Company”).

 

WHEREAS, Digital HKco’s Shareholder owns 100% of the issued and outstanding
shares of capital stock (the “Digital HKco Shares”) of Digital Entertainment
International Ltd., a company incorporated under the law of the Hong Kong
Special Administrative Region (“Digital HKco”), free and clear of any Liens;

WHEREAS, the Company wishes to acquire, and Digital HKco’s Shareholder wishes to
sell, all of the Digital HKco Shares in accordance with and subject to the terms
and conditions of that certain Share Exchange Agreement dated as of April 5,
2012, by and among Digital HKco’s Shareholder; Digital HKco; Beijing Dingtai
Guanqun Culture Co., Ltd.; Beijing FAB Culture Co., Ltd.; and Beijing FAB
Digital Entertainment Products Co., Ltd. (the “Share Exchange Agreement”)
(capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Share Exchange Agreement);

WHEREAS, in partial consideration for the purchase of the Digital HKco Shares
under the Share Exchange Agreement, the Company shall issue to Digital HKco’s
Shareholder at Closing (as defined in Section 2.2 of the Share Exchange
Agreement) such number of shares of the Company’s common stock, par value one
mill ($0.001) per share, as constitutes forty-nine percent (49%) of the
Company’s issued and outstanding common stock on a fully diluted basis
immediately following the Closing after issuance of such shares (the “Initial
Company  Shares,” as defined in Section 2.3(a) of the Share Exchange Agreement);

WHEREAS, in partial consideration for the purchase of the Digital HKco Shares
under the Share Exchange Agreement, the Company shall also issue to Digital
HKco’s Shareholder at Closing a certain number of shares of the Company’s Series
B Convertible Preferred Stock, which shares shall give Digital HKco’s
Shareholder the right to convert into the Company’s common stock and increase
Digital HKco’s Shareholder’s equity position in the Company  to 78% on a fully
diluted basis as of the date of the Closing,  upon attainment of certain
milestones  in the next 12 to 18 months in accordance with the Certificate of
Designation of Preferences, Rights and Limitations of Series B Convertible
Preferred Stock attached as Exhibit B to the Share Exchange Agreement (the
“Convertible Preferred Shares”, as defined in Section 2.3(b) of the Share
Exchange Agreement); and

 

WHEREAS, in order to enter into the Share Exchange Agreement, the Company and
Digital HKco’s Shareholder have agreed to define fifty percent (50%) of the
Initial Company Shares as the “Lock-up Shares”, and Digital HKco’s Shareholder
agrees not to sell any of the Lock-up Shares except in accordance with the terms
and conditions set forth herein (at the Closing, Digital HKco’s Shareholder will
provide a specific list of beneficiaries’ names and respective number of shares
which are subject to the Lock-up);

NOW, THEREFORE, in consideration of the covenants and conditions hereinafter
contained, the parties hereto agree as follows:

 

1. Restriction on Transfer; Term.

 

(a) Digital HKco’s Shareholder hereby agrees not to offer, sell, contract to
sell, assign, transfer, hypothecate, gift, pledge or grant a security interest
in, or otherwise dispose of, or enter into any transaction which is designed to,
or might reasonably be expected to, result in the disposition of (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise, directly or indirectly) (each, a “Transfer”), any of the Lock-Up
Shares until a date that is twelve (12) months following the date of the Closing
of the Share Exchange Agreement (the “Lock-Up Period”).

i

 

 

--------------------------------------------------------------------------------

(b)   It is the intention of the parties hereto that this Lock-up Agreement
shall create a first lien on the Lock-up Shares for the term of the Lock-Up
Period to secure the indemnification obligations of Digital HKCo’s Shareholder
under Article XI of the Share Exchange Agreement, which lien on the Lock-up
Shares shall be enforceable in accordance with the New York Uniform Commercial
Code in the event of any Claim under such Article XI.  The provisions of Section
1(a) notwithstanding, such lien shall not be released during the pendency of any
such Claim asserted by a third party unrelated to the Company prior to the end
of the Lock-Up Period to the extent of the amount of such Claim, but shall
otherwise be released at the end of the Lock-Up Period.  The provisions of this
Section 1(b) shall not be exclusive of any other remedies that the Company may
have under the terms of the Share Exchange Agreement.

(c)  Notwithstanding the foregoing, Digital HKco’s Shareholder may transfer
Shares without the prior consent of the Company in connection with (a) transfers
of Lock-up Shares as a bona fide gift, by will or intestacy or to a family
member or trust for the benefit of a family member, (b) transfers of Lock-up
Shares to a charity or educational institution, (c) transfers of Lock-up Shares
to any shareholder, partner or member of, or owner of similar equity interests
in, Digital HKco’s Shareholder, and (d) transfers of Lock-up Shares to any
corporation, partnership, limited liability company or other business entity
controlled by or under common control with Digital HKco’s Shareholder, provided,
in each case, that such transfer is not for value and does not violate the
Securities Act of 1933, as amended, or applicable Chinese securities laws rules
and regulations and further provided  that prior to any transfer of Lock-up
Shares under this Section 1(c), the transferee of such Lock-up Shares shall
first have executed a Lock-up Agreement on the same terms and conditions as set
forth in this Agreement and shall have forwarded such executed Lock-up Agreement
to the Company no later than five (5) business days prior to such transfer.

2. Ownership.  During the Lock-Up Period, Digital HKco’s Shareholder shall
retain all rights of ownership in all Lock-Up Shares except as otherwise
provided in this Agreement, the Share Exchange Agreement, or the Voting
Agreement as defined therein.

 

3. Company and Transfer Agent; Legends.  

(a)  The Company is hereby authorized and required to disclose the existence of
this Agreement to its transfer agent. The Company and its transfer agent are
hereby authorized and required to decline to make any transfer of the Lock-up
Shares if such transfer would constitute a violation or breach of this Agreement
and/or the Share Exchange Agreement.  

(b)  The following legend describing this Agreement shall be imprinted on each
stock certificate representing Lock-up Shares, in addition to the usual and
customary restrictive legend relating to “restricted” shares, and the transfer
records of the Company’s transfer agent shall reflect such restrictions:

THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS OF A LOCK-UP AGREEMENT
AND A SHARE EXCHANGE AGREEMENT WITH THE ISSUER.  THESE SHARES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, GIFTED OR OTHERWISE DISPOSED OF OTHER THAN IN ACCORDANCE
WITH THE TERMS OF SUCH AGREEMENTS, AND ANY ATTEMPT TO DO SO SHALL BE VOID.
 THESE SHARES ARE ALSO THE SUBJECT OF A LIQUIDATED DAMAGES CLAUSE OF THE SHARE
EXCHANGE AGREEMENT, WHICH PROVIDES THAT, IN THE EVENT OF ANY UNCURED   MATERIAL
BREACH THEREOF, THE SHARES REPRESENTED HEREBY SHALL BE IMMEDIATELY AND
AUTOMATICALLY FORFEITED AND CANCELLED ON THE BOOKS AND RECORDS OF THE ISSUER,
WITHOUT THE REQUIREMENT FOR DELIVERY OF THIS INSTRUMENT AND WITHOUT THE
REQUIREMENT FOR THE ISSUER TO POST ANY BOND OR TAKE ANY FURTHER ACTION
WHATSOEVER.

 

(c)  At the end of the Lock-up Period, the Company shall promptly coordinate
with its transfer agent to replace the Lock-up stock certificates with new ones
eliminating the above Legends upon request of Digital HKCo’s Shareholder.

ii

 

 

--------------------------------------------------------------------------------

4. Notices.  All notices, demands, consents, requests, instructions and other
communications to be given or delivered or permitted under or by reason of the
provisions of this Agreement or in connection with the transactions contemplated
hereby shall be in writing and shall be deemed to be delivered and received by
the intended recipient as follows: (i) if personally delivered, on the business
day of such delivery (as evidenced by the receipt of the personal delivery
service), (ii) if delivered by overnight courier (with all charges having been
prepaid), on the business day of such delivery (as evidenced by the receipt of
the overnight courier service of recognized standing), or (iii) if delivered by
facsimile transmission, on the business day of such delivery if sent by 6:00
p.m. in the time zone of the recipient, or if sent after that time, on the next
succeeding business day (as evidenced by the printed confirmation of delivery
generated by the sending party’s telecopier machine). If any notice, demand,
consent, request, instruction or other communication cannot be delivered because
of a changed address of which no notice was given (in accordance with this
Section 4), or the refusal to accept same, the notice, demand, consent, request,
instruction or other communication shall be deemed received on the second
business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.

 

If to the Company:

Wizzard Software Corporation

5001 Baum Blvd.

Suite 770

Pittsburgh, PA  15213

Attention: John Busshaus

Telephone No.: (412) 621-0902

Facsimile No.: (412) 621-2625

with copies (which copies shall not constitute notice to the Company) to:

Branden T. Burningham, Esq.

Burningham & Burningham

455 East 500 South

Suite 205

Salt Lake City, UT  84111

Tel. No.: (801) 363-7411

Fax No.: (801) 355-7126

If to Digital HKco’s Shareholder:

Address: 21 Fl., Wan-Shang Building    

Shijingshan District, Beijing, China

Attn:  Bob (Zhong Bing-Bin)       

Telephone: 100186-135-8190-0771

Fax: 01186-1066032873

or to such other address for either party as such party may specify by notice
given to the other party in accordance with this Section 4.

 

5. Amendment.  This Agreement may not be modified, changed, supplemented,
amended or terminated, nor may any obligations hereunder be waived, except by
written instrument signed by each of the parties hereto.

 

 

6. Entire Agreement.  This Agreement contains the entire understanding and
agreement of the parties relating to the subject matter hereof and supersedes
all prior and/or contemporaneous understandings and agreements of any kind and
nature (whether written or oral) among the parties with respect to such subject
matter.

 

7. Governing Law.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in

iii

 

 

--------------------------------------------------------------------------------

the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.

 

8. Waiver of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND
EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION
TO VENUE IN NEW YORK COUNTY OR SUCH DISTRICT, AND AGREES THAT SERVICE OF ANY
SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR
OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 4.

 

9. Severability.  The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or
more of the provisions or part of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement and such provision
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

 

10. Binding Effect; Assignment.  This Agreement and the rights and obligations
hereunder may not be assigned by Digital HKco’s Shareholder without the prior
written consent of the Company, except in connection with a transfer of Lock-up
Shares pursuant to Section 1(c). This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.

 

11. Headings.  The section headings contained in this Agreement are inserted for
reference purposes only and shall not affect in any way the meaning,
construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and vice
versa.

  

12. Counterparts.  This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other parties hereto, it being understood that all parties need not sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

 

 

 

 

iv

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

[SIGNATURE PAGE TO LOCK-UP AGREEMENT]

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above herein.

 

  

WIZZARD SOFTWARE CORPORATION

 

By:   _______________                                       

         Name: Christopher Spencer

         Title:  President and Chief Executive Officer

 

 

  

DIGITAL HKCO’S SHAREHOLDER:

  

 

Universal Entertainment Group Limited

 

By:                                                                            

         Name:

         Title:

 

 

 

v

 

 

--------------------------------------------------------------------------------

Exhibit F  Restructuring Plan

RESTRUCTURING PLAN

The specific actions to be undertaken in connection with the Restructuring shall
be as follows:

A.

Matters to be Completed Prior to the Closing

The completion of each of the following matters shall be a condition precedent
to the COMPANY’s obligations on the Closing:

1.

SAFE Circular 75 Initial Registration

Prior to the Closing, Mr. Zhang shall submit its initial registrations under the
SAFE Circular 75 and provide the submission evidence.

2.

Transfer of Intellectual Property

Prior to the Closing, Mr. Zhang and its Affiliates (if any) shall submit
applications for the transfer of all their Intellectual Property relating to the
Business to the PRC Entities.

3.

Appointment of Directors and Amendment of Articles of Association of FAB
Companies

The directors designated by the COMPANY shall have been appointed as members of
board of directors of each of the FAB Companies.

Articles of association of each of the FAB Companies should be amended to
provide that certain substantial matters can only be passed with consents of
directors designated by the COMPANY, the contents of such amendment to be
reasonably satisfactory the COMPANY.

4.

Share Pledge Registration

The pledge of the equity interest in the VIE Entities pursuant to the amended
VIE Contracts shall have been duly submitted to the competent Authorities for
registration.

B.

Matters to be Completed After the Closing

5.

Change of SAFE Circular 75 Registration

vi

 

 

--------------------------------------------------------------------------------

The Company (and/or any other FAB Parties, as the case may be) shall, as
promptly as practicable after the Closing (and in no event later than 90 days
after such Closing), to the reasonable satisfaction of the COMPANY, take all
requisite action to urge Mr. Zhang to apply for any necessary amendment to the
filing and registration pursuant to the SAFE Circular 75 with respect to the
consummation of the transactions on such Closing as contemplated by the Share
Exchange Agreement.

6.

Business Operation Licenses

Within six months after the Closing Date, the FAB Parties, when applicable,
shall have obtained all Licenses required to conduct the Business under the
applicable Laws in the PRC.

vii

 

 

--------------------------------------------------------------------------------

i

 

 

--------------------------------------------------------------------------------

Exhibit G-1 and G-2  Legal Opinions – Subject to insertion and finalization

i

 

 

--------------------------------------------------------------------------------

Exhibit H  Amended VIE Contracts – Subject to insertion and finalization

i

 

 

--------------------------------------------------------------------------------

Exhibit I  Labor Contract, Non- compete, Confidentiality and Proprietary
Information Agreements – Subject to insertion and finalization

i

 

 

--------------------------------------------------------------------------------

Exhibit J  Matters Requiring Approval of Board of Directors of the COMPANY

(a)

increase, reduce or cancel the authorized or issued share capital of the Company
and/or any Subsidiary or issue, allot, purchase or redeem any shares or
securities convertible into or carrying a right of subscription in respect of
shares or any share warrants or grant or issue any options rights or warrants or
which may require the issue of shares in the future;  

(b)

make any alteration or amendment to the articles of association of the Company
or any of its Subsidiaries;

(c)

take any action that authorizes, creates or issues shares of any class having
preferences superior to or on a parity with the Series A Shares;

(d)

take any action that reclassifies any outstanding shares into shares having
preferences or priority as to dividends or assets senior to or on a parity with
the preference of the Series A Shares;

(e)

cease to conduct or carry on the Business substantially as now conducted or, in
the case of a Subsidiary, as conducted at the time it became a Subsidiary of the
Company or change any part of its business activities;

(f)

sell or dispose of the whole or a substantial part of the undertaking, goodwill
or the assets of the Company and/or any of its Subsidiaries;

(g)

make any distribution of profits amongst the shareholders by way of dividends
(interim and final), capitalization of capital reserves or otherwise;

(h)

acquire any investment or incur any commitment (other than as approved in the
annual budget) in excess of US$50,000 at any time in respect of any one
transaction or in excess of US$200,000 at any time in related party transactions
in any financial year of the Company and/or any of its Subsidiaries;

(i)

borrow any money or obtain any financial facilities except pursuant to trade
facilities obtained from banks or other financial institutions in the ordinary
course of Business;

(j)

create, allow to arise or issue any debenture constituting a pledge, lien or
charge (whether by way of fixed or floating change, mortgage encumbrance or
other security) on all or any of the undertaking, assets or rights of the
Company and/or any of its Subsidiaries except for the purpose of securing
borrowings from banks or other financial institutions in the ordinary course of
Business;

(k)

make any advances or other credits involving more than US$5,000 in a single
transaction or more than US$10,000 in the aggregate in any fiscal year to any
person, or guarantee, indemnity, act as surety for, other otherwise secure or
accept or assume any direct or indirect liability for the liabilities of or
obligations of any person

--------------------------------------------------------------------------------

except as security for facilities or loans granted to the Company and any of its
Subsidiaries;

(l)

enter into any joint-venture agreements or the formation of any Subsidiaries

(m)

acquire any share capital or other securities of any body corporate or the
establishment of any brands in the Business;

(n)

settle or alter the terms of any bonus (other than as approved in the annual
budget) or profit sharing scheme or any employee share option or share
participation schemes;

(o)

amend the accounting policies previously adopted or change the financial year of
the Company and/ or its Subsidiaries;

(p)

appoint or change the auditors of the Company and/or any of its Subsidiary;

(q)

sell, transfer, license, charge, encumber or otherwise dispose of Intellectual
Property owned by the Company and/or any of its Subsidiaries;

(r)

pass any resolution for the winding up of the Company and /or any of its
Subsidiaries or undertake any merger, reconstruction or liquidation exercise
concerning the Company and/or any of its Subsidiaries or apply for the
appointment of a receiver, manager or judicial manager;

(s)

approve or make adjustments or modifications to terms of transactions involving
the interest of any director or shareholder of the Company and/or its
Subsidiaries, including but not limited to the making of any loans or advances,
whether directly or indirectly, or the provision of any guarantee, indemnity or
security for or in connection with any indebtedness of liabilities of any
director or shareholder of the Company and/or its Subsidiaries;

(t)

dispose or dilute the Company’s interest, directly or indirectly, in any of its
Subsidiaries;

(u)

approve any transfer of shares in the Company or any of its Subsidiaries;

(v)

change the size of the board of directors of the Company or any of its
Subsidiaries; and

(w)

enter into, alter or amend otherwise modify any terms of any financing or
lending agreements or arrangements to which the Company and/or any of its
Subsidiaries is a party.