CHINA PUBLIC SECURITY HOLDINGS LIMITED TOPWELL TREASURE LTD. RITA LEUNG KWAI FONG AND CHINA INFORMATION SECURITY TECHNOLOGY, INC

Share Purchase Agreement

Share Purchase Agreement

  TABLE OF CONTENTS  

1.

DEFINITIONS AND INTERPRETATION

2

2.

SALE AND PURCHASE OF SHARES

5

3.

CONSIDERATION

5

4.

COMPLETION

7

5.

WARRANTIES BY THE SELLER

7

6.

WARRANTIES BY CIST

10

CIST warrants that:

10

7.

WARRANTIES BY THE PURCHASER

11

The Purchaser warrants that:

11

8.

PURCHASER'S RIGHT TO RESCIND

11

9.

SELLER'S COVENANTS

12

10.

FURTHER ASSURANCE

14

11.

INFORMATION

14

12.

ANNOUNCEMENTS

14

13.

COSTS

14

14.

SUCCESSORS AND ASSIGNMENT

15

15.

ENTIRE AGREEMENT

15

16.

VARIATIONS

16

17.

WAIVER

16

18.

AGREEMENT CONTINUES IN FORCE

16

19.

SEVERABILITY

16

20.

NOTICES

16

21.

COUNTERPARTS

18

22.

GOVERNING LAW AND DISPUTE RESOLUTION

18

23.

LANGUAGE

18

SCHEDULE 1

1

SCHEDULE 2

2

SCHEDULE 3

18

SCHEDULE 4

21

Share Purchase Agreement

(1)

China Public Security Holdings Limited, a company registered in the British Virgin Islands with company number 1005693, whose registered office is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. ( “ Purchaser “ );

(2)

Rita Kwai Fong Leung, a citizen of the Hong Kong Special Administrative Region of the People’s Republic of China. ( “Seller” );

(3)

Topwell Treasure Ltd., a limited company registered in Hong Kong with company number 1293603, whose registered office is UNIT H 28/F, BLK 1, THE APEX, 33 WO YI HOP RD, KWAI CHUNG, NT, Hong Kong ( “Company” ); and

(4)

China Information Security Technology, Inc. , a Nevada corporation, with tax identification number E0089792008-0, whose principal executive offices are located at 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong, 518040 People’s Republic of China (“CIST”).

A

The Company holds 100% of the shares of a Shenzhen based company, Huipu Electronics (Shenzhen) Co., Ltd. (“ Subsidiary ”). Further information relating to the Company is set out in Schedule 1 hereto.

B

The Seller is the legal and beneficial owner of 100% of the ordinary shares of the Company (the “ Shares ”).

C

The Seller has agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Seller, the Shares for the consideration and upon the terms and conditions set out in this Agreement.

D

CIST is the parent company of the Purchaser, who will issue to the Seller a certain amount of newly issued shares of the common stock, $0.01 par value, of CIST (“ CIST Common Stock ”), as set out in this Agreement as part of the consideration for the purchase of the Shares.

Share Purchase Agreement

1.

DEFINITIONS AND INTERPRETATION

1.1

In this Agreement the following words and expressions will (except where the context otherwise requires) have the following meanings:

“Account” means the Company’s financial statements provided by the Seller to the Purchaser;

“Account Date” means June 30, 2009;

“Business Day” means a day other than a Saturday or Sunday on which banks are open for commercial business in Hong Kong;

“Business Intellectual Property” means all Intellectual Property used, or likely or required to be used, by the Company or any member of the Group in, or in connection with, its business;

“Completion” means the performance of all the obligations of the parties to this Agreement set out in clause 4;

“Completion Date” means October 1, 2009, or such other date being not later than October 31, 2009 as is agreed in writing by the parties;

“Confidential Information” means information (however stored) relating to or connected with the business, customers or financial or other affairs of the Company or any member of the Group details of which are not in the public domain including, without limitation, information concerning or relating to:

(a)

the Business Intellectual Property and any other property of the Company or any member of the Group in the nature of intellectual property;

(b)

any technical processes, future projects, business development or planning, commercial relationships and negotiations; and

(c)

the marketing of goods or services including, without limitation, customer, client and supplier lists, price lists, sales targets, sales statistics, market share statistics, market research reports and surveys and advertising or other promotional materials and details of contractual arrangements and any other matters concerning the clients or customers of or other persons having dealings with the Company or any member of the Group.

Share Purchase Agreement

Share Purchase Agreement

“PRC” means the People’s Republic of China, but excluding Hong Kong, Macao and Taiwan for the purpose of this Agreement;

“RMB” means Renminbi, the lawful currency of the PRC;

“Shares” means the 100% of the issued and allotted ordinary shares in the capital of the Company;

“Subsidiary” means the Company’s wholly-owned Chinese subsidiary Huipu Electronics (Shenzhen) Co., Ltd.;

“Transaction” means the sale and purchase of the Shares under this Agreement;

“US$” means US Dollars, the lawful currency for the time being of the United States of America; and

“USA” means the United States of America ;

“Warranties” means the representations, warranties and undertakings set out in clause 5, clause 6, clause 7 and Schedule 2 and “Warranty” will mean any of them.

1.2

In this Agreement where the context allows:

1.2.1

reference to a statutory provision includes reference to:

1.2.1.1

any order, regulation, statutory instrument or other subsidiary legislation at any time made under it for the time being in force (whenever made);

1.2.1.2

any modification, amendment, consolidation, re-enactment or replacement of it or provision of which it is a modification, amendment, consolidation, re-enactment or replacement except to the extent that any modification, amendment, consolidation, re- enactment or replacement made after the date of this Agreement would increase the liability of any of the parties hereto;

1.2.2

reference to a clause, schedule or paragraph is to a clause, schedule or a paragraph of a schedule of or to this Agreement respectively;

Share Purchase Agreement

1.2.3

reference to the parties to this Agreement includes their respective successors, permitted assigns and personal representatives;

1.2.4

reference to any party to this Agreement comprising more than one person includes each person constituting that party;

1.2.5

reference to any gender includes the other genders;

1.2.6

reference to persons includes bodies corporate or unincorporated;

1.2.7

reference to any professional firm or company includes any firm or company effectively succeeding to the whole, or substantially the whole, of its practice or business;

1.2.8

the index, headings and any descriptive notes are for ease of reference only and will not affect the construction or interpretation of this Agreement;

1.2.9

this Agreement incorporates the schedules to it; and

1.2.10

for the purposes of this clause, “control”, in relation to a body corporate, means the holding of more than 50% of the voting power at general meetings of that body corporate or being in a position to control the composition of a majority of the board of directors of that body corporate and in relation to a partnership, means the right to a share of more than one-half of the assets, or of more than one-half of the income, of the partnership.

2.

SALE AND PURCHASE OF SHARES

2.1

The Seller will sell the Shares with full title guarantee and the Purchaser will, in reliance on the Warranties, purchase the Shares free from all Encumbrance and together with all rights of any nature which are now or which may at any time become attached to them or accrue in respect of them including all dividends and distributions declared paid or made in respect of them on or after the date of this Agreement.

3.

CONSIDERATION

The Consideration payable by the Purchaser for the purchase of the Shares shall consist of:

Share Purchase Agreement

3.1

US$8,000,000 shall be paid in cash with RMB54,640,000, which will be changed into RMB by the exchange rate(1US$ = 6.83RMB)and shall be remitted in full amount to the bank account as designated by the Seller, payable on or before November 28, 2009;

3.2

CIST, the parent company of the Purchaser, shall, within 90 days following the Completion Date, issue and deliver to the Seller or her designee(s), certificates of CIST representing 1,101,930 shares of CIST Common Stock valued at Four Million United States Dollars (US$4,000,000), or approximately $3.63 per share (the average of the closing price of the Company’s common stock as quoted by the NASDAQ Capital Market for the 20 trading days prior to August 28, 2009); and

3.3

CIST agrees to issue to the Seller or her designee(s), within 90 days after the filing of CIST’s annual report on Form 10-K for the period with the Securities and Exchange Commission (the “ SEC ”), the corresponding amounts of newly issued shares of CIST Common Stock, valued at $3.63 per share (the average of the closing price of the Company’s common stock as quoted by the NASDAQ Capital Market for the 20 trading days prior to August 28, 2009), if the Company meets or exceeds the audited consolidated after-tax net income (“ ATNI ”) thresholds outlined below:

Share Purchase Agreement

4.

COMPLETION

4.1

Completion will take place in Hong Kong on the Completion Date when the provisions of Schedule 3 have been complied with.

4.2

The Purchaser will not be obliged to complete the purchase of the Shares under this Agreement unless the Seller complies fully with its obligations under Schedule 3 and unless the purchase of all the Shares is completed simultaneously.

4.3

If Completion does not take place on the Completion Date because the Seller fails to comply with any of its obligations under Schedule 3, the Purchaser may, by prior written notice to the Seller:

4.3.1

proceed to Completion to the extent reasonably practicable;

4.3.2

postpone Completion to a date not more than sixty (60) Business Days after the Completion Date; or

4.3.3

terminate this Agreement.

4.4

If the Purchaser postpones Completion to another date in accordance with clause 4.3.2, the provisions of this Agreement shall apply as if that other date were the Completion Date.

4.5

If the Purchaser terminates this Agreement pursuant to clause 4.3.3 each party's further rights and obligations will cease immediately on termination, but termination will not affect a party's accrued rights and obligations as at the date of termination.

5.

WARRANTIES BY THE SELLER

5.1

The Seller warrants and undertakes that, at the date of this Agreement, each of the statements set out in Schedule 2 is true, accurate and complete in all respects and not misleading and will be true and accurate in all respects and not misleading at all times after the date of this Agreement up to and including the Completion Date.

5.2

In addition to the warranties as set out in Schedule 2, the Seller further warrants that:

Share Purchase Agreement

5.2.1

save and except the liabilities and debts the Seller has otherwise disclosed to the Purchaser, there are no other liabilities, debts, claims, expenses, charges, costs, outstanding against and payable by the Company to any third party, including those owed to related companies, financial institutions, banks, and other related interests and the Seller shall fully indemnify and keep indemnified the Purchaser against any such liabilities.

5.2.2

the Company is not in default of any contracts, agreements or legal obligations pursuant to which it may be subject to any claims, proceedings, action or be liable to any charges, costs, expenses, damages or other liabilities.

5.2.3

the Seller warrants to the Purchaser that there are no outstanding liabilities or debts owed to any of the employees of the Company, nor are any of the employees responsible for any liabilities and debts for which the Company may become liable, and shall indemnify the Purchaser for any expenses, costs, charges (including legal fees), liabilities incurred or claims, proceedings, actions taken against the Purchaser by any third party or employee of the Company for any such liabilities or debts.

5.3

The Seller acknowledges that the Purchaser is entering into this Agreement in reliance on each Warranty which has also been given as a representation and with the intention of inducing the Purchaser to enter into this Agreement and that the Purchaser has been induced to enter into this Agreement on the basis of and in full reliance upon them.

5.4

Each of the Warranties is to be construed as a separate and independent warranty and (except where this Agreement provides otherwise) will not be limited or restricted by reference to or inference from any other term of this Agreement or any other Warranty.

5.5

The rights and remedies of the Purchaser in respect of any breach of any of the Warranties will survive Completion.

5.6

The Seller waives and may not enforce any right which it may have in respect of any misrepresentation, inaccuracy or omission in or from any information or advice supplied or given by the Company or its officers or employees in enabling the Seller to give the Warranties and any representations or to prepare the Disclosure Letter.

Share Purchase Agreement

5.7

Between the execution of this Agreement and Completion the Seller agrees that it will:

5.7.1

procure that neither the Seller nor the Company nor any member of the Group will allow or procure any act or omission which would constitute a breach of any of the Warranties;

5.7.2

procure that the Company complies with the provisions of Schedule 4; and

5.7.3

immediately disclose in writing to the Purchaser any event or circumstance which may arise or become known to the Seller which would be a breach of clause 5.7.2 or which constitutes a breach of or is materially inconsistent with any of the Warranties or which might make any of them inaccurate or misleading or which has or is likely to have an adverse effect on the financial position or business prospects of the Company or which is otherwise material to be known by a purchaser for value of the Shares.

5.8

The Warranties will not be deemed in any way modified or discharged by reason of any investigation made or to be made by or on behalf of the Purchaser or by reason of any information relating to the Company of which the Purchaser has knowledge (actual, implied or constructive) except that the Warranties will be qualified by such information as is Disclosed.

5.9

If on or before the Completion Date the Purchaser considers that the Seller is in breach of any of the Warranties or any other provision of this Agreement, the Purchaser may by prior written notice to the Seller elect to proceed to Completion or terminate this Agreement.

5.10

If the Purchaser terminates this Agreement pursuant to clause 5.9:

5.10.1

the Seller indemnifies the Purchaser against all costs incurred by it relating to the negotiation, preparation, execution or termination of this Agreement or the satisfaction of any of the Conditions; and

5.10.2

each party's further rights and obligations will cease immediately on termination, but termination will not affect a party's accrued rights and obligations as at the date of termination.

Share Purchase Agreement

5.11

If there is any breach or non-fulfilment of any of the Warranties resulting in:

5.11.1

the value of any of the Company's assets being or becoming less than it would have been had the relevant circumstances been as so warranted; or

5.11.2

the Company having incurred or incurring any liability or an increase in a liability which it would not have incurred had the relevant circumstances been as so warranted;

then the Seller agrees to pay to the Purchaser on demand (at the option of the Purchaser) an amount equal to either:

5.11.3

the reduction in value of the assets or (as the case may be) the liability or increased liability incurred by the Company as a result of such a breach or non-fulfilment of any of the Warranties; or

5.11.4

an amount equal to the reduction caused in the value of the Shares .

5.12

The Seller agrees to indemnify the Purchaser in full for and against all costs (including legal costs on a full indemnity basis) and expenses incurred by the Purchaser either before or after the commencement of any action in connection with:

5.12.1

the settlement of any claim that any of the Warranties has been breached or is untrue, inaccurate or misleading;

5.12.2

any legal proceedings arising out of or in connection with any claim for breach of Warranty in which judgment is given in favour of the Purchaser; or

5.12.3

the enforcement of any such settlement or judgment.

5.13

The rights of the Purchaser under clauses 5.11 and 5.12 will be in addition and without prejudice to any other right or remedy available to it under this Agreement or otherwise.

6.

WARRANTIES BY CIST

CIST warrants that:

Share Purchase Agreement

6.1

It has and shall have full power and authority to enter into and perform this Agreement which constitutes binding obligations on it in accordance with the terms;

6.2

CIST shall issue to the Seller or her designee(s), within 90 days as of the Completion Date, an aggregate of 1,101,930 CIST Common Stock, free from all Encumbrance; and

6.3

CIST shall issue to the Seller or her designee(s), within 90 days as of the filing of its annual report on Form 10-K with the SEC for the applicable period, up to an aggregate of 1,101,930 shares of Common Stock, issuable in connection with the Company’s achievement of the performance thresholds set forth in Section 3.3 of this Agreement.

7.

WARRANTIES BY THE PURCHASER

The Purchaser warrants that:

7.1

It has and shall have full power and authority to enter into and perform this Agreement which constitutes binding obligations on it in accordance with the terms;

7.2

Its performance of this Agreement does not constitute any breach or violation of any contract or agreement to which it is a party;

7.3

It shall pay the Consideration to the Seller in accordance with the terms set out in clause 3 herein without delay;

7.4

It shall cause its parent company CIST to issue, within 90 days as of the Completion Date, the 1,101,930 shares in the manner as specified in clause 6.2 to the Seller and its designee(s); and

7.5

It shall cause its parent company CIST to issue to the Seller or her designee(s), within 90 days as of the filing of its annual report on Form 10-K with the SEC for the applicable period, up to an aggregate of 1,101,930 shares of Common Stock, issuable in connection with the Company’s achievement of the performance thresholds set forth in Section 3.3 of this Agreement.

8.

PURCHASER'S RIGHT TO RESCIND

If the Seller discloses any event or circumstance pursuant to clause 5.7.3 or if there is a breach of any of the Warranties or a breach or non-fulfilment of any other term of this Agreement by the Seller, the Purchaser will be entitled, in addition and without prejudice to any other right or remedy available to it, to rescind this Agreement without any liability to any other party whereupon the Seller must indemnify the Purchaser in full for and against all costs and expenses incurred or suffered by the Purchaser (including but not limited to all legal expenses and other professional fees on a full indemnity basis) in connection with the negotiation, preparation and rescission of this Agreement.

Share Purchase Agreement

9.

SELLER'S COVENANTS

9.1

The Seller undertakes to and covenants with the Purchaser that (except with the consent in writing of the Purchaser) it will not at any time after Completion:

9.1.1

(except as required by law) disclose or divulge to any person (other than to officers or employees of the Purchaser whose province it is to know the same) or use (other than for the benefit of the Purchaser) any Confidential Information which may be within or have come to its knowledge and it must use all reasonable endeavours to prevent such publication, disclosure or misuse of any Confidential Information;

9.1.2

do anything to damage the goodwill or reputation of the Company or any member of the Group or of any business carried on by the Company nor any member of the Group or which may lead any person to cease to do business with the Company or any other member of the Group on substantially equivalent terms to those previously offered or not to engage in business with the Company or any member of the Group.

9.2

The Seller undertakes to and covenants with the Purchaser that it will not, for a period of five years after the date of this Agreement, either on its own behalf or jointly with any other person, directly or indirectly:

9.2.1

approach, canvass, solicit or otherwise act with a view to enticing away from or seeking in competition with any business of the Company or any member of the Group any person who at any time during the period of 12 months preceding the Completion Date or at any time after the Completion Date prior to his ceasing to be employed by the Company or any member of the Group is or has been a customer of the Company or any member of the Group and during such period it must not use its knowledge of or influence over any such customer to or for its own benefit or the benefit of any other person carrying on business in competition with the Company or any member of the Group or otherwise use its knowledge of or influence over any such customer to the detriment of the Company or any member of the Group;

Share Purchase Agreement

9.2.2

seek to contract with or engage (in such a way as adversely to affect the business of the Company or any member of the Group as carried on at the date of this Agreement) any person who has been contracted with or engaged to supply or deliver products, goods, materials or services to the Company or any member of the Group at any time during the period of twelve months preceding the date of this Agreement or, at any time after that, before he ceases to be employed by the Company or any member of the Group;

9.2.3

approach, canvass, solicit, engage or employ or otherwise endeavour to entice away any person who at any time during the period of [six] months preceding the Completion Date or (if later) the date of his ceasing to be employed by the Company or any member of the Group will be or will have been an employee, officer, manager, consultant, sub-contractor or agent of the Company or any member of the Group with a view to the specific knowledge or skills of such person being used by or for the benefit of any person carrying on business in competition with the business carried on by the Company or any member of the Group.

9.3

Each of the covenants contained in clauses 9.1 and 9.2 will constitute an entirely separate and independent restriction on the Seller.

9.4

References in this clause 9 to the “business of the Company or any member of the Group” (refers to the development and research, producing, sales of various medical information systems thereof as well as relevant technical service) includes the business of the Company and/or any member of the Group that may from time to time be transferred to any company which is a member of the same group as the Purchaser.

9.5

The Seller agrees and acknowledges that the restrictions contained in this clause 9 are fair and reasonable and necessary to assure to the Purchaser the full value and benefit of the Shares but, in the event that any such restriction is found to be void or unenforceable but would be valid and effective if some part or parts of the restriction were deleted, such restriction will apply with such deletion as may be necessary to make it valid and effective.

Share Purchase Agreement

10.

FURTHER ASSURANCE

On and after Completion, the Seller must, at the request of the Purchaser, do and execute or procure to be done and executed all such acts, deeds, documents and things as may be necessary to give effect to this Agreement.

11.

INFORMATION

The Seller must provide or procure to be provided to the Purchaser all such information in its possession or under its control as the Purchaser will from time to time reasonably require (both before and after the Completion Date) relating to the business and affairs of the Company and/or any member of the Group and in any case where such information is not the exclusive property of the Company and/or any member of the Group will give or procure to be given to the Purchaser, its directors and agents access to such information and will permit the Purchaser to take copies of the same.

12.

ANNOUNCEMENTS

No announcement, communication or circular concerning this Agreement will be made (whether before or after the Completion Date) by or on behalf of the parties to this Agreement without the prior approval of the other (such approval not to be unreasonably withheld or delayed) save for:

12.1

Announcements to employees, customers, suppliers and agents of the Company and/or any member of the Group and/or the Purchaser and/or any company which is a member of the same group as the Purchaser in such form as may be reasonably required by the Purchaser; and

12.2

Such announcements as may be required by the law of any relevant jurisdiction or by any securities exchange or regulatory or governmental body to which that party and/or its affiliates are subject.

13.

COSTS

13.1

Subject to the provisions of clause 5.12 and clause 8, each of the parties will bear and pay its own legal, accountancy and other fees and expenses incurred in and incidental to the preparation and implementation of this Agreement and of all other documents.

Share Purchase Agreement

13.2

The cost of all stamp duty and other similar duty payable in respect of the sale and purchase of the Shares will be borne by the Seller, on the one hand, and the Purchaser, on the other in equal shares.

14.

SUCCESSORS AND ASSIGNMENT

14.1

This Agreement will be binding on and inure for the benefit of each party's successors, permitted assigns and personal representatives but will not be assignable except that:

14.1.1

the Purchaser may assign the whole or any part of the benefit of this Agreement and the Warranties to any transferee of any shares in the capital of the Company; and

14.1.2

the Purchaser may assign its rights under this Agreement to any company of which it is a subsidiary or of which it is a holding company..

14.2

Except as otherwise expressly provided, all rights and benefits under this Agreement are personal to the parties and may not be assigned at law or in equity without the prior written consent of the other parties.

15.

ENTIRE AGREEMENT

15.1

This Agreement together with the schedules attached to it and any revisions thereto as may be agreed upon by the parties (“Acquisition Documents”) constitute the entire agreement between the parties with respect to the subject matter of this Agreement.

15.2

Except for any misrepresentation or breach of warranty which constitutes fraud:

15.2.1

the Acquisition Documents supersede and extinguish all previous agreements between the parties relating to the subject matter contained in the Acquisition Documents and any representations and warranties previously given or made other than those contained in the Acquisition Documents;

Share Purchase Agreement

15.2.2

each party acknowledges to the o