EXHIBIT 10.5
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of July 18, 2003, by
and among American Oriental Bioengineering Inc., a Nevada corporation (the
"Company" or "AOBO"), and BH Capital Investments, LP, an Ontario Limited
Partnership and Excalibur Limited Partnership, an Ontario Limited Partnership,
(collectively the "Investors").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein , the Investor shall invest up to $3,000,000 to
purchase the Company's common stock, $0.001 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as amended (the "1933 ACT"),
Rule 506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as it may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as it may be
amended.
"AFFILIATE" shall have the meaning specified in Section 5(f).
"AGREEMENT" shall mean this Investment Agreement.
"APPROVED MARKET" shall mean the American Stock Exchange, Inc., the New
York Stock Exchange, Inc., the Nasdaq National Market System, the Nasdaq
SmallCap Market or the National Association of Securities Dealer's, Inc. OTC
electronic bulletin board.
"CLOSING" shall have the meaning specified in Section 2(f).
"CLOSING DATE" shall mean, as defined in Section 2(f), the date which
is three (3) Trading Days following the Put Date.
"COMPANY DESIGNATED MINIMUM PRICE" shall mean a minimum purchase price
per Share acceptable to the Company, which price the Company has sole discretion
to determine.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section
5(f).
"DAILY TRADING VOLUME" shall mean the closing bid price multiplied by
the volume of trading in the Shares for a particular full trading day.
"EFFECTIVE DATE" shall mean the date of this Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(m).
"ESCROW AGENT" shall mean Computershare Trust Company, Inc.
"ESCROW AGREEMENT" shall mean the Escrow Agreement entered into between
the Company, Investor and Escrow Agent and attached as Exhibit C.
"EXECUTION DATE" shall mean the date all Transaction Documents are
executed by the Company and Investor.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section
10.
"INEFFECTIVE PERIOD" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (as defined in
the Registration Rights Agreement) becomes outdated, ineffective or unavailable
for use for the resale of any or all of the Registrable Securities (as defined
in the Registration Rights Agreement) for any reason (or in the event the
prospectus under either of the above is not current and deliverable) during any
time period required under the Registration Rights Agreement.
"INVESTOR" shall mean the undersigned investors.
"MARKET PRICE" shall mean the average of the five (5) lowest closing
bid prices of the Shares over the Pricing Period.
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section
4(a).
"OPEN PERIOD" shall mean the period beginning on and including the
Trading Day immediately following the Effective Date and ending on the
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(j).
"PRICING PERIOD" shall mean ten (10) Trading Days before the Put Date.
"PRINCIPAL MARKET" shall mean the National Association of Securities
Dealer's, Inc. OTC electronic bulletin board or, if the Common Stock ceases to
be traded on the OTC electronic bulletin board, such other Approved Market on
which the Common Stock is principally listed or quoted.
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"PROSPECTUS" shall mean the prospectus, preliminary prospectus and
supplemental prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the total amount being paid by the
Investor on a particular Closing Date to purchase the Shares.
"PURCHASE PRICE" shall mean ninety percent (90%) of the Market Price.
If during the Open Period the Company sells any common stock or securities
convertible or exchangeable into common stock for cash at a higher percentage
discount to the market price of the Common Stock on the date of issuance then
the discount percentage to the Purchase Price will automatically and immediately
be increase by the same amount except for the issuances of securities on shares
of common stock pursuant to an employee benefit or incentive plan or the Warrant
issued as part of this agreement.
"PUT AMOUNT" shall mean, with respect to any single Put Notice, up to
one hundred and twenty five percent (125%) of the Weighted Average Daily Dollar
Volume of the Common Stock for the 10 trading days prior to Put Notice Date, but
in no event shall the Put Amount be less than $50,000.
"PUT DATE" shall mean fifteen (15) Trading Days after the PUT NOTICE
DATE
"PUT NOTICE" shall mean a written notice sent to the Investor by the
Company stating the Put Amount of Shares the Company intends to sell to the
Investor pursuant to the terms of the Agreement and stating the current number
of Shares issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day during the Open Period on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 5:00 p.m. Eastern Time (receipt
being deemed to occur if the Company possesses a facsimile confirmation showing
completed transmission by such time), or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 5:00 p.m. Eastern Time on
a Trading Day (receipt being documented as described in (i) above). No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into
by the Company with Investor for the registration for resale of the Shares
issuable as contemplated by this transaction.
"REGISTRATION STATEMENT" means the registration statement of the
Company filed under the 1933 Act covering the Shares issuable in connection with
transactions contemplated hereunder.
"RELATED PARTY" shall have the meaning specified in Section 5(f).
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"REPURCHASE EVENT" shall have the meaning specified in Section 2(j).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of Common Stock and Warrants issued
pursuant to the terms of the Agreement.
"SHARE" OR "SHARES" shall mean the shares of common stock of the
Company having a par value of $0.001 per share.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
"TERMINATION WARRANTS" shall mean the warrants, in substantially the
form of Exhibit G attached hereto, issued to the Investors pursuant to Section 9
hereof.
"TRADING DAY" shall mean any day on which the Principal Market for the
Company's common stock is open for trading.
"TRANSACTION DOCUMENTS" shall mean the Agreement, Registration Rights
Agreement and the Escrow Agreement.
"WARRANTS" shall mean the warrants to be issued or issuable to the
Investors hereunder including the Initial Warrants, the Termination Warrants and
the 15% Warrants.
"WARRANT SHARES" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
"15% WARRANTS" shall mean the warrants, in substantially the form of
Exhibit G attached hereto, issued to the Investors pursuant to Section 2(i)
hereof.
"WEIGHTED AVERAGE DAILY DOLLAR VOLUME" shall mean the closing bid price
multiplied by the volume of trading of shares for a particular full trading day
averaged over specified number of days.
2. PURCHASE AND SALE OF COMMON STOCK.
a. PURCHASE AND SALE OF COMMON STOCK. Upon the terms and
conditions set forth herein, the Company shall issue and sell
to the Investor, and the Investor shall purchase from the
Company, up to that number of Shares having an aggregate
Purchase Price of $3,000,000 and a per Share price equal to
the Purchase Price (as defined herein); provided, that the
Company is not required to sell and the Investor is not
required to purchase, any Share with Share at price less than
the Company's designated Minimum Price. Also, upon signing of
the investment Term Sheet associated with this Investment
Agreement, the Company should as soon as practical, but no
later than the execution of this Agreement issues Initial
Warrants to the Investor covering the rights to purchase
450,000 Shares at the exercise price of $0.30 per share in the
form specified in Exhibit G.
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b. DELIVERY OF PUT NOTICES. Subject to the terms and conditions
of the Transaction Documents, at any time and from time to
time during the Open Period, the Company may, in its sole
discretion, deliver a Put Notice to the Investor which states
(i) the Put Amount which the Company intends to sell to the
Investor during the Pricing Period and (ii) the Company
Designated Minimum Price. If the Company fails to designate a
Company Designated Minimum Price in a Put Notice, the Company
Designated Minimum Price for the related Pricing Period shall
be the Purchase Price on the put date. There will be a minimum
of fifteen (15) Trading Days between each Put Notice. The
Purchase Price shall be equal to 90% of the Market Price.
c. INVESTOR'S OBLIGATION TO PURCHASE SHARES. Subject to the
conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the
Investor shall be required to purchase from the Company at the
Closing Date that number of Shares equal to the lesser of (i)
the Put Amount set forth in the Put Notice divided by the
Purchase Price and (ii) 125% of daily average trading volume
of the Shares during the applicable Pricing Period, but only
if (i) the said Shares bear no restrictive legend, are not
subject to stop transfer instructions and are being held in
escrow, pursuant to Section 2(h), prior to the applicable
Closing Date; (ii) the Weighted Average Daily Dollar Volume
within the Pricing Period shall be at least US$ 100,000; (iii)
the average closing bid price shall be at least $1.00 per
Share over the Pricing Period, and (iv) the Company is not in
default under any of the Transaction Documents.
d. LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement, in
no event shall the Investor be required to purchase, and the
Company shall in no event sell to the Investor, that number of
Shares, which when added to the sum of the number of Shares
beneficially owned (as such term is defined under Section
13(d) and Rule 13d-3 of the 0000 Xxx) by the Investor, would
exceed 4.99% of the number of Shares outstanding on the Put
Notice Date for such Pricing Period, as determined in
accordance with Rule 13d-1(j) promulgated under the 1934 Act.
Each Put Notice shall include a representation of the Company
as to the number of Shares outstanding on the related Put
Notice Date as determined in accordance with Section 13(d) of
the 1934 Act. In the event that the number of Share
outstanding as determined in accordance with Section 13(d) of
the 1934 Act is different on any date during a Pricing Period
than the number of Share outstanding on the Put Notice Date
associated with such Pricing Period, then the number of Shares
outstanding on such date during such Pricing Period shall
govern for purposes of determining whether the Investor would
be acquiring beneficial ownership of more than 4.99% of the
number of Shares outstanding during such period.
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e. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES.
Notwithstanding anything to the contrary in this Agreement,
the Company shall not be entitled to deliver a Put Notice and
require the Investor to purchase any Shares at a Closing (as
defined in Section 2(f)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared
effective and shall remain effective and available
for the immediate resale of all the Registrable
Securities (as defined in the Registration Rights
Agreement) at all times during the Pricing Period;
Also the Company must not be aware of any
circumstances that may result in an Ineffective
Period within 3 months of Put Date.
(ii) at all times during the period beginning on the
related Put Notice Date and ending on and including
the related Closing Date, the Common Stock shall have
been listed on the Principal Market or Approved
Markets and shall not have been suspended from
trading, nor has the Company received or been
notified of any delisting notices from Approved
Market;
(iii) the Company has complied in all material respects
with its obligations and is otherwise not in breach
of a material provision, or in material default
under, this Agreement, the Escrow Agreement, the
Registration Rights Agreement or the Warrant, which
has not been corrected prior to delivery of the Put
Notice; (iv) no injunction, rule, regulation, order
or ruling shall have been issued and remain in force,
or action commenced by a governmental authority which
has not been stayed or abandoned, prohibiting the
purchase or the issuance of the Common Stock or other
transactions contemplated by this Agreement; and
(v) the issuance of the Common Stock will not violate the
shareholder approval requirements of the Principal
Market
(vi) the Company has delivered a certificate at each Put
Date executed by its Chief Executive Officer to the
effect that all conditions have been satisfied.
If any of the events described in clauses (i) through
(v) above occurs during a Pricing Period, then the
Investor shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable
Put Notice.
f. MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the
satisfaction of the conditions set forth in Sections 2(e), 7
and 8, the closing of the purchase by the Investor of Shares
during any Pricing Period (each, a "CLOSING") shall occur on
the date which is three (3) Trading Days following the
applicable Put Date (each, a "CLOSING DATE"). Prior to each
Closing Date, (i) the Company shall deliver to the Escrow
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Agent pursuant to the Escrow Agreement, annexed hereto as
Exhibit C, certificates representing the Shares to be issued
to the Investor on such date and registered in the name of the
Investor or deposit such Shares into the account(s) (with the
Investor receiving confirmation that the Shares are in such
account(s)) designated by the Investor for the benefit of the
Investor and (ii) the Investor shall deliver to the Escrow
Agent the Purchase Price to be paid for such Shares (after
receipt of confirmation of delivery of such Shares),
determined as aforesaid, by wire transfer. In lieu of
delivering physical certificates representing the Common Stock
and provided that the Company's transfer agent then is
participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request
of the Investor, the Company shall use its commercially
reasonable efforts to cause its transfer agent to
electronically transmit the Shares by crediting the account of
the Investor's prime broker (which shall be specified by the
Investor a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission ("DWAC")
system, and provide proof satisfactory to the Escrow Agent of
such delivery. In case of electronic delivery of shares, the
Escrow Agent with arrange with the transfer agent to transfer
the shares on Closing Date before transferring the Purchase
Price to the Company.
g. PARTIAL RELEASE OF SHARES. There shall be no partial release
of Shares allowed.
h. OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding
anything contained herein to the contrary, during the Open
Period, to the extent the Company were to become listed on the
Principal Market or Approved Market that limits the number of
shares of Common Stock that may be issued without shareholder
approval, then the number of Shares issuable by the Company
and purchasable by the Investor, including the shares of
Common Stock issuable to the Investors pursuant to Section
11(b), shall not exceed that number of the shares of Common
Stock that may be issued without shareholder approval, subject
to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the
Common Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), UNLESS the
issuance of Shares hereunder (including any Common Stock to be
issued to the Investors pursuant to Section 11(b)) in excess
of the Maximum Common Stock Issuance shall first be approved
by the Company's shareholders in accordance with applicable
law, the rules of the Principal Market or Approved market and
the By-laws and Articles of Incorporation of the Company. The
parties understand and agree that the Company's failure to
seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the
issuance and sale of Shares hereunder or the Investor's
obligation in accordance with the terms and conditions hereof
to purchase a number of Shares in the aggregate up to the
Maximum Common Stock Issuance limitation, and that such
approval pertains only to the applicability of the Maximum
Common Stock Issuance limitation provided in this Section
2(h).
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i. THE WARRANTS. The Investor shall receive 15% warrant coverage
in 5 year warrants to purchase the Shares with an exercise
price equal to 120% of the average of the closing bid price
over the Pricing Period with provisions for cashless exercise
at the Investor's option. The said warrant is to be issued at
each closing on the form attached as Exhibit G.
j. DELISTING; SUSPENSION. If at any time during a Pricing Period
or the twenty (20) Trading Days following the end of any
Pricing Period, (i) the Registration Statement, after it has
been declared effective, shall not remain effective and
available for sale of all the Registrable Securities (as
defined in the Registration Rights Agreement), (ii) the Common
Stock shall not be listed on the Principal Market or shall
have been suspended from trading thereon (excluding
suspensions of not more than one Trading Day resulting from
business announcements by the Company) or the Company shall
have been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock, (iii) the
Registration Statement is no longer effective or becomes stale
for a period of more than ten (10) Trading Days as a result of
the Company's failure to timely file its financials, the
Company shall have obligation to repurchase within thirty (30)
calendar days of the occurrence of one of the events listed in
clauses (i), (ii) or (iii) above (each a "REPURCHASE EVENT"),
subject to the limitations imposed by applicable federal and
state law, all or any part of the Shares issued to the
Investor and then held by the Investor at a price per Share
equal to the highest closing sale price on any day during the
period beginning on the date of the Repurchase Event and
ending on and including the date on which the Investor is paid
by the Company for the repurchase of the Shares (the "PAYMENT
AMOUNT"). If the Company fails to pay to the Investor the full
aggregate Payment Amount within ten (10) calendar days after
the occurrence of a Repurchase Event, the Company shall pay to
the Investor compounded annual interest of 18% on such Payment
Amount during the period, beginning on the day following such
tenth calendar day, during which such Payment Amount, or any
portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES. The Investor represents
and warrants to the Company that:
a. SOPHISTICATED INVESTOR. The Investor has such knowledge,
sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks
of the prospective investment in the Securities. The Investor
acknowledges that it is able to bear the financial risks
associated with an investment in the Securities and that it
has been given full access to the records of the Company and
its Subsidiaries and to the officers of the Company and its
subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
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b. INFORMATION. The Investor understands that its investment in
the Shares involves a high degree of risk. The Investor has
sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision
with respect to its acquisition of the Shares.
c. ORGANIZATION. The Investor is a limited partnership duly
organized, validly existing and in good standing under the
laws of Ontario, Canada.
d. AUTHORIZATION; ENFORCEMENT. The Investor has the requisite
power and authority to enter into and perform its obligations
under the Transaction Documents in accordance with the terms
hereof and thereof, (i) the execution and delivery of the
Transaction Documents by the Investor and the consummation by
it of the transactions contemplated hereby and thereby have
been duly and validly authorized by the Investor and no
further consent or authorization is required by the Investor,
(ii) the Transaction Documents have been duly and validly
executed and delivered by the Investor, and (iii) the
Transaction Documents constitute the valid and binding
obligations of the Investor enforceable against the Investor
in accordance with their terms, except as such enforceability
may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors' rights and remedies.
e. COMPLIANCE WITH THE SECURITIES LAWS. During the Open Period,
the Investor will comply with all of the provisions of federal
securities laws, and the rules promulgated thereunder, with
respect to its transactions involving the Common Stock.
f. ACCREDITED INVESTOR. Investor is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D of the
1933 Act.
g. NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by
the Investor of the transactions contemplated hereby and
thereby will not result in a violation of documents of
organization of the Investor.
h. ACKNOWLEDGEMENTS. The Investor acknowledges that in the
ordinary course of the Company's business, the Company's stock
price and volume have been and are likely to continue to be
highly volatile; provided, that, the foregoing acknowledgement
is not intended to relieve the Company from any liability or
diminish the Company's liability under this Agreement for a
breach of its representations or warranties made to the
Investor herein.
i. The Investor is not a broker-dealer or an affiliate of a
broker-dealer in the United States and is purchasing the
Securities for its own account.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the Schedules attached hereto, the Company represents and warrants to the
Investor that:
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a. ORGANIZATION AND QUALIFICATION. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any
entity in which the Company, directly or indirectly, owns more
than 50% of the outstanding capital stock or holds an equity
or similar interest representing at least 50% of the
outstanding equity or similar interests of such entity) (a
complete list of which is set forth in Schedule 4(a)) are
corporations duly organized and validly existing in good
standing under the laws of the respective jurisdictions of
their incorporation, and have the requisite corporate power
and authorization to own their properties and to carry on
their business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. As used in
this Agreement, "MATERIAL ADVERSE EFFECT" means any material
adverse effect on the business, properties, assets,
operations, results of operations or financial condition of
the Company and its Subsidiaries, if any, taken as a whole, or
on the transactions contemplated hereby or by the agreements
and instruments to be entered into in connection herewith, or
on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined in
Section 1 and 4(b)below).
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and
authority to enter into and perform its obligations under the
Transaction Documents, and to issue the Shares and Warrants in
accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation
the reservation for issuance of the Shares and Warrants
pursuant to this Agreement, have been duly and validly
authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board
of Directors, or its shareholders, except for, if required by
the Principal Market, approval by the Company's shareholders
prior to the issuance of a number of shares of Common Stock
equal to or in excess of 20% of the number of shares of Common
Stock outstanding immediately prior to the date hereof, (iii)
the Transaction Documents have been duly and validly executed
and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of
creditors' rights and remedy
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 60,000,000 shares of Common
Stock and 2,000,000 shares of Preferred Stock, of which as of
June 30, 2003, 31,625,827 shares of Common Stock and 1,000,000
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shares of Preferred Stock are issued and outstanding. All of
such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. (i) No
shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, (ii) there
are no outstanding debt securities, (iii) there are no
outstanding shares of capital stock, options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no
agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities of
the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to
redeem a security of the Company or any of its Subsidiaries,
(vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by
the issuance of the Securities as described in this Agreement,
(vii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or
agreement and (viii) there is no dispute as to the class of
any shares of the Company's capital stock. The Company has
furnished to the Investor, or the Investor has had access
through XXXXX to, true and correct copies of the Company's
Articles of Incorporation, as in effect on the date hereof
(the "ARTICLES OF INCORPORATION"), and the Company's By-laws,
as in effect on the date hereof (the "BY-LAWS `), and the
terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in
respect thereto.
d. ISSUANCE OF SHARES. Upon issuance in accordance with this
Agreement and the Warrants, the Securities and the Warrant
shares will be validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the
issue thereof. Subject to the accuracy of the Investor's
representations in the Article 3, the Company's sales of the
Securities do not and will not require registration under the
Securities Act and any applicable State securities laws
e. NO CONFLICTS. Except as disclosed in Schedule 4(e), the
execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby will not
(i) result in a violation of the Articles of Incorporation,
any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the
By-laws; or (ii) conflict with, or constitute a material
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default (or an event which with notice or lapse of time or
both would become a material default) under, or give to others
any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture
mortgage, indebtedness or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a
violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities
laws and regulations and the rules and regulations of the
Principal Market or principal securities exchange or trading
market on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its
Subsidiaries is bound or affected. The business of the Company
and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, statute, ordinance, rule,
order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either
individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is
not required to obtain any consent, authorization, permit or
order of, or make any filing or registration (except the
filing of a registration statement) with, any court,
governmental authority or agency, regulatory or
self-regulatory agency or other third party in order for it to
execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with
the terms hereof or thereof. All consents, authorizations,
permits, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof and
are in full force and effect as of the date hereof.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 2000,
the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1933 Act
and the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Investor or its
representatives, or they have had access through XXXXX, true
and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the 1933 Act and the 1934
Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such
financial statements have been prepared in accordance with
generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements,
to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
12
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule
4(g) of the SEC Documents filed at least five (5) days prior
to the date hereof, since November 30, 2001, there has been no
change or development in the business, properties, assets,
operations, financial condition or results of operations of
the Company or its Subsidiaries which has had or, to the
knowledge of the Company and its Subsidiaries, reasonably
could have a Material Adverse effect. The Company has not
taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor
does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of
Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their
capacities as such, in which an adverse decision could have a
Material Adverse Effect.
i. ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The
Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect
to the Transaction Documents and the transactions contemplated
hereby and thereby. The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby
and thereby and any advice given by the Investor or any of its
respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby
and thereby is merely incidental to the Investor's purchase of
the Securities. The Company further represents to the Investor
that the Company's decision to enter into the Transaction
Documents has been based solely on the independent evaluation
by the Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. No event, liability, development or
circumstance has occurred or exists, or to its knowledge is
contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets,
operations or financial condition, that would be required to
be disclosed by the Company under applicable securities laws
on a registration statement filed with the SEC relating to an
issuance and sale by the Company of its Shares and which has
not been publicly announced.
13
k. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to
the knowledge of the Company or any of its Subsidiaries, is
any such dispute threatened.
l. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. None of the
Company's trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government
authorizations, trade secrets or other intellectual property
rights necessary to conduct its business as now or as proposed
to be conducted have expired or terminated or infringe the
intellectual property of another party.
m. ENVIRONMENTAL LAWS. The Company and its Subsidiaries are in
compliance with any and all applicable foreign, federal, state
and local laws and regulations relating to the protection of
human health and safety ("ENVIRONMENTAL LAWS").
n. TITLE. The Company and its Subsidiaries have good and
marketable title to all real property and good and marketable
title to all personal property owned by them which is material
to the business of the Company and its Subsidiaries, in each
case free and clear of all liens and encumbrances.
o. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks that are customary in its
industry and with customary coverage amounts.
p. REGULATORY PERMITS. The Company and its Subsidiaries have in
full force and effect all certificates, approvals,
authorizations and permits from the appropriate federal,
state, local or foreign regulatory authorities and comparable
foreign regulatory agencies, necessary to own, lease or
operate their respective properties and assets and conduct
their respective businesses, except where the failure to
possess such certificates, approvals, authorizations or
permits would not result in a Material Adverse Effect.
q. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access
to assets is permitted only in accordance with management's
general or specific authorization.
14
r. TAX STATUS. The Company and each of its Subsidiaries has made
or filed all United States federal and state income and all
other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set
aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such
returns, reports and declarations, except those being
contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of
no basis for any such claim.
s. CERTAIN TRANSACTIONS. Except for those already disclosed in
the SEC documents and for arm's length transactions pursuant
to which the Company makes payments in the ordinary course of
business upon terms no less favorable than the Company could
obtain from third parties, none of the officers, directors, or
employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors).
t. DILUTIVE EFFECT. The Company understands and acknowledges that
the number of shares of Common Stock issuable upon purchases
may have dilutive effect on the ownership interests of other
shareholders of the Company.
u. LOCK UP PERIOD. The Company shall not, without the prior
written consent of the Investor for one (1) year from
Effective Date, make any offerings of common stock or
securities convertible into common stock at a discount
exceeding 10% from the market price of the Common Stock on the
date of issuance. If within the one (1) year lock up period
the Company sells any common stock or securities convertible
into common stock for cash at a discount of more than 10%, the
discount to the Purchase Price for the Investor shall also be
adjusted by the same percentage amount.
v. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged
in any form of general solicitation or general advertising
(within the meaning of Regulation D) or has engaged or will
engage in any directed selling efforts in violation of the
requirements of Regulation S in connection with the offer or
sale of the Securities offered hereby.
5. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as
provided in Sections 7 and 8 of this Agreement.
15
b. SECURITIES LAW COMPLIANCE. The Company shall, at its sole cost
and expense, on or before each of the Closing Dates, take such
action as the Company shall reasonably determine is necessary
to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Investor at each of the Closings
pursuant to this Agreement under applicable federal and state
securities or "Blue Sky" laws in the United States.
c. REPORTING STATUS. Until the earlier to occur of (i) the first
date which is after the date this Agreement is terminated
pursuant to Section 9 and on which the Holders (as that term
is defined in the Registration Rights Agreement) may sell all
of the Securities acquired pursuant to this Agreement without
restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto), and (ii) the date on which (A) the
Holders shall have sold all the Securities issuable hereunder
and (B) this Agreement has been terminated pursuant to Section
9 (the "REGISTRATION PERIOD"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as a
reporting company under the 1934 Act.
d. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Shares (excluding amounts paid by the Company for
fees as set forth in the Transaction Documents) in order to
expand the Company's business, to pursue mergers and
acquisitions and for other legally permissible general
corporate and working capital purposes.
e. LISTING. The Company shall promptly secure the listing of all
of the Registrable Securities (as defined in the Registration
Rights Agreement) upon the Principal Market and shall
maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market. Neither
the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting
or suspension of the Common Stock on the Principal Market
(excluding suspensions of not more than one trading day
resulting from business announcements by the Company).
f. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
cause each of its Subsidiaries not to, enter into, amend,
modify or supplement, or permit any Subsidiary to enter into,
amend, modify or supplement, any agreement, transaction,
commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at
any time during the previous two years, shareholders who
beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption
to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest
(each a "RELATED PARTY"), except for (i) customary employment
arrangements and benefit programs on reasonable terms, (ii)
any agreement, transaction, commitment or arrangement on an
arms-length basis on terms no less favorable than terms which
16
would have been obtainable from a person other than such
Related Party, or (iii) any agreement, transaction, commitment
or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any
Subsidiary of the Company shall not be a disinterested
director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof
means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a 5% or more
equity interest in that person or entity, (ii) has 5% or more
common ownership with that person or entity, (iii) controls
that person or entity, or (iv) shares common control with that
person or entity. "CONTROL" or "CONTROLS" for purposes hereof
means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person
or entity.
g. FILING OF FORM 8-K. On or before the date required by
applicable law, the Company shall file a Current Report on
Form 8-K with the SEC describing the terms of the transaction
contemplated by the Transaction Documents in the form required
by the 1934 Act, if such filing is required.
h. CORPORATE EXISTENCE. The Company shall use its best efforts to
preserve and continue the corporate existence of the Company.
6. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT
TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Shares: (i) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of any Registration Statement or the initiation of
any proceedings for that purpose; (ii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
a Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the related prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The maximum period for such
suspension will be restricted to 60 days in aggregate during any 365 day period.
In case the period of suspension exceeds 60 days, it will be a Repurchase Event
as defined in Section 2(j). The Company cannot deliver to the Investor any Put
Notice during the continuation of the foregoing events
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
hereunder of the Company to issue and sell the Shares to the Investor is further
subject to the satisfaction, at or before each Closing Date, of each of the
following conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
17
a. The Investor shall have executed each of the Transaction
Documents and deliver the same to the Company.
b. The Investor shall have delivered to the Escrow Agent on
behalf of the Company and the Escrow Agent on behalf of the
Company shall have received the Purchase Price for the Shares
being purchased by the Investor at such Closing (after receipt
of confirmation of delivery of such Shares) by wire transfer
of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of the Investor shall be
true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except
for representations and warranties that speak as of a specific
date), and the Investor shall have performed, satisfied and
complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed,
satisfied or complied with by the Investor at or prior to such
Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE. The
obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
a. The Company shall have executed each of the Transaction
Documents and delivered the same to the Investor.
b. The Common Stock shall be authorized for quotation on the
Principal Market and trading in the Common Stock shall not
have been suspended by the Principal Market or the SEC, at any
time beginning on the date hereof and through and including
the respective Closing Date (excluding suspensions of not more
than one Trading Day resulting from business announcements by
the Company, provided that such suspensions occur and are
lifted prior to the Company's delivery of the Put Notice
related to such Closing).
c. The representations and warranties of the Company shall be
true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except
for (i) representations and warranties that speak as of a
specific date and (ii) with respect to the representations
made in Sections 4(g), (h) and (j) hereof, events which occur
on or after the date of this Agreement and are disclosed in
SEC filings) and the Company shall have performed, satisfied
18
and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed,
satisfied or complied with by the Company on or before such
Closing Date. The Investor may request an update as of such
Closing Date regarding the representation contained in Section
4(c) above.
d. Investor shall have received an opinion letter of the
Company's counsel on or before the first Closing Date.
e. The Company shall have executed and delivered to the Escrow
Agent or Investor the certificates representing, or have
executed electronic book-entry transfer of, the Shares, (in
such denominations as such Investor shall request) being
purchased by the Investor at such Closing.
f. The board of directors of the Company shall have adopted
resolutions consistent with Section 4(b)(ii) above and in a
form reasonably acceptable to the Investor (the "RESOLUTIONS")
and such Resolutions shall not have been amended or rescinded
prior to such Closing Date.
g. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
h. The Registration Statement shall be effective on each Closing
Date and no stop order suspending the effectiveness of the
Registration statement shall be in effect or shall be pending
or threatened.
i. There shall have been no filing of a petition in bankruptcy,
either voluntarily or involuntarily, with respect to the
Company and there shall not have been commenced any
proceedings under any bankruptcy or insolvency laws, or any
laws relating to the relief of debtors, readjustment of
indebtedness or reorganization of debtors, and there shall
have been no calling of a meeting of creditors of the Company
or appointment of a committee of creditors or liquidating
agents or offering of a composition or extension to creditors
by, for, with or without the consent or acquiescence of the
Company.
j. The conditions to such Closing set forth in Section 2(e) shall
have been satisfied on or before such Closing Date.
9. TERMINATION. This Agreement shall terminate upon any of the
following events:
a. when the Investor has purchased an aggregate of $3,000,000 in
the Common Stock of the Company pursuant to this Agreement;
provided that the Company's representations, warranties and
covenants contained in this Agreement insofar as applicable to
the transactions consummated hereunder prior to such
termination, shall survive the termination of this Agreement
for the period of any applicable statute of limitations;
19
b. on the date which is twelve (12) months after the Effective
Date;
c. if the Company shall file or consent by answer or otherwise to
the entry of an order for relief or approving a petition for
relief, reorganization or arrangement or any other petition in
bankruptcy for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or shall
make an assignment for the benefit of its creditors, or shall
consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers of itself or of any
substantial part of its property, or shall be adjudicated a
bankrupt or insolvent, or shall take corporate action for the
purpose of any of the foregoing, or if a court or governmental
authority of competent jurisdiction shall enter an order
appointing a custodian, receiver, trustee or other officer
with similar powers with respect to the Company or any
substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy or insolvency law, or an order for the
dissolution, winding up or liquidation of the Company, or if
any such petition shall be filed against the Company;
d. at any time by the Company if (a) the Investor fails to
deliver the appropriate funds to the Company for the purchase
of the Shares pursuant to this Agreement within three (3)
Trading Days after any Closing Date (regardless of whether
such failure is subsequently cured), (b) the Investor
materially breaches any of its obligations under this
Agreement or the Registration Rights Agreement, or (c) the
Investor receives notice from a governmental or
self-regulatory agency that the Investor does not then possess
one or more required registrations or approvals to perform it
obligations under this Agreement;
e. the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of thirty days (30)
cummulative Trading Days during the Open Period; (vii) the
Registration Statement has not been declared effective within
one hundred and eighty days (180) calendar days of the date
hereof;
f. The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market or Approved Markets;
g. The Company requires shareholder approval under Nasdaq rules
to issue additional shares and such approval is not obtained
within 60 days from the date when the Company has issued its
19.9% maximum allowable shares; or
h. at any time by the Investor upon a Repurchase Event; or
i. at any time by the Company, in its sole discretion.
Upon the occurrence of one of the above-described events, the Company
shall send written notice of such event to the Investor; provided that the
Investor shall provide the Company with written notice of its receipt of a
notice pursuant to subsection (iv)(c).
20
Upon Termination, if the Company has not drawn a minimum of $750,000
under the Agreement (whether due to failure to draw or a breach by Company), the
Company shall issue to Investor, upon Termination, number of warrants that cover
for the undrawn balance which equals to $750,000 minus the drawn amount before
the Termination ("Undrawn Balance") with an exercise price equal to 100% of the
average of the closing bid prices of the Shares over one month period prior to
Termination. The form of the warrants will be the same as stipulated in Exhibit
G and the number of shares issuable upon exercise of the warrants will be
equaled to the Undrawn Balance divided by 100% of the average of the closing bid
prices of the Share over one month period prior to Termination.
10. INDEMNIFICATION.
a. In consideration of the Investor's execution and delivery of
the this Agreement and acquiring the Shares hereunder and in
addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless the Investor and all of its
officers, directors, employees and direct investors and any of
the foregoing person's agents or other representatives from
and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, reasonable fees, liabilities
and damages, and reasonable expenses in connection therewith
as a result of any misrepresentation or breach of any material
representation or warranty covenant or agreement made by the
Company in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby.
b. In consideration of the Company's execution and delivery of
the Agreement, and in addition to all of the Company's other
obligations under the Transaction Documents, the Investor
shall defend, protect, indemnify and hold harmless the Company
and all of its officers, directors, employees, shareholders
and any of the foregoing persons' agents or other
representatives from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, reasonable
fees, liabilities and damages, and expenses in connection and
therewith as a result of any illegal or grossly negligent or
wilfully wrongful actions concerning or related to the trading
of the Shares.
11. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW.
(i) Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach,
termination or invalidity thereof, shall be finally
and exclusively resolved by an arbitration tribunal
(the "Tribunal") in accordance with the Arbitration
Rules of the American Arbitration Association ("AAA")
as at present in force. THE DECISION OF THE TRIBUNAL
SHALL BE FINAL AND BINDING UPON THE PARTIES HERETO.
21
(ii) The arbitration shall take place in New York City,
the State of New York and shall be conducted in the
English language. The parties hereby submit
themselves to the exclusive jurisdiction of the
arbitration tribunal in the City of New York, the
State of New York under the auspices of AAA. The
arbitration shall be conducted by three (3)
arbitrators, one to be appointed by the Company, one
to be appointed by the Consultant and a third by the
two arbitrators so selected.
(iii) Each party shall cooperate with the other in making
full disclosure of and providing complete access to
all information and documents requested by the other
party in connection with the arbitration proceedings.
Arbitration shall be the sole, binding, exclusive and
final remedy for resolving any dispute between the
parties; either party may apply to any court of
competent jurisdiction in the State of New York for
enforcement of any award granted by the Tribunal.
(iv) To the extent permitted by law, the award of the
Tribunal may include, without limitation, one or more
of the following: a monetary award, a declaration of
rights, an order of specific performance, an
injunction, reformation of the contract.
(v) The cash expenses of the arbitration (including
without limitation reasonable fees and expenses of
counsel, experts and consultants) shall be borne by
the Party against whom the decision of the
arbitrators is rendered; provided that if a Party
prevails only partially, such Party shall be entitled
to be reimbursed for such costs and expenses in the
proportion that the dollar amount successfully
claimed by the prevailing Party bears to the
aggregate dollar amount claimed.
(vi) During the period when a dispute is being resolved,
except for the matter being disputed, the parties
shall in all other respects continue to abide by the
terms of this Agreement.
b. COMMITMENT FEES; ADVISORY FEES; LEGAL FEES; AND ESCROW FEES.
(i) Upon execution of this Agreement, the Company shall
issue warrants for purchasing 300,000 shares of
common stock to FirsTrust Group, Inc. or its
designee. The warrants shall have the same terms,
including registration rights, as the Investors'
warrants. The exercise price of the warrants shall be
$0.30 per Share. The warrants shall have a cashless
exercise provision, be exercisable immediately after
the date of issuance, and shall expire 5 years after
the date of issuance, unless otherwise extended by
the Company. The warrants shall also be transferable,
subject only to the securities laws, by the holders
thereof.
22
(ii) The Company has paid to Investors' counsel, Xxxxxx
Xxxxxxx Xxxxx & Xxxxxx LLP, a fee of $3,000 for its
initial review of the Transaction Documents. The
Company shall also pay the fees and expenses, if any,
of Investor's counsel as may be necessary to complete
the Registration Statement.
(iii) The Company shall also pay the Escrow Agent for
escrow services pursuant to a separate escrow
agreement.
(iv) Except as otherwise set forth herein, each party
shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and
performance of this Agreement. In the event that any
suit or action is instituted to enforce any provision
of this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect
to this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and
accountants, which shall include, all fees, costs and
expenses of appeals. The Company shall pay all stamp
and other taxes and duties levied in connection with
the issuance of any Securities issued pursuant
hereto.
c. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one
and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to
the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.
d. HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are
for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement. Whenever
required by the context of this Agreement, the singular shall
include the plural and masculine shall include the feminine.
e. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.
f. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Investor,
the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the
other Transaction Documents) contain the entire understanding
of the parties with respect to the matters covered herein and
23
therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company
and the Investor, and no provision hereof may be waived other
than by an instrument in writing signed by the party against
whom enforcement is sought.
g. NOTICES. Any notices or other communications required or
permitted to be given under the terms of this Agreement must
be in writing (including electronic forms of communication)
and will be deemed to have been delivered (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall
be:
If to the Company:
Xx. 00 Xxxxxx Xxxx, Xxxxxxx Xxxxxxxx
Xxxxxx, Xxxxx
Attention: Xxxxxx Xxx, Chairman and CEO
with a copy to:
Davies Xxxx Xxxxxxxx & Xxxxxxxx LLP
000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx
XX 00000, XXX
If to the Investor:
At the Address given on Signature Page
With a copy to:
Xxxxxx Xxxxxxx Xxxxx & Xxxxxx LLp
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile
number.
h. NO ASSIGNMENT. This Agreement may not be assigned.
24
i. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and is not for the benefit
of, nor may any provision hereof be enforced by, any other
person.
j. SURVIVAL. The representations and warranties of the Company
and the Investor contained in Sections 3 and 4, the agreements
and covenants set forth in Sections 5 and 6, and the
indemnification provisions set forth in Section 10, shall
survive each of the Closings; but in no event shall any other
provisions of this Agreement survive the termination of this
Agreement in accordance with Section 9.
k. PUBLICITY. The Company and Investor shall consult with each
other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated
hereby and no party shall issue any such press release or
otherwise make any such public statement without the prior
written consent of the other parties, which consent shall not
be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by
law or the rules of a stock exchange, in which such case the
disclosing party shall use commercially reasonable efforts to
provide the other parties with prior notice of such public
statement. Investor acknowledges that this Agreement and all
or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item
601(b)(10) of Regulation S-K, and that the Company may
therefore be required to file such documents as exhibits to
reports or registration statements filed under the Securities
1933 Act or the 1934 Act. Investor further agrees that the
status of such documents and materials as material contracts
shall be determined solely by the Company, in consultation
with its counsel.
l. FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party
may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
m. BROKER'S FEES. Except as set forth in Section 11(b) hereof,
party hereto represents and warrants that no placement agent,
broker, investment banker, person or firm acting on behalf of
or under the authority of such party hereto is or will be
entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the
transactions contemplated by the Transaction Documents. Each
party hereto further agrees to indemnify each the other party
for any claims, losses or expenses incurred by such other
party as a result of the representation in this Section 11(m)
being untrue.
n. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict
construction will be applied against any party.
25
o. REMEDIES. The Investor and each holder of the Shares shall
have all rights and remedies set forth in this Agreement and
the Registration Rights Agreement and all rights and remedies
which such holders have been granted at any time under any
other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other
security), to recover damages by reason of any default or
breach of any provision of this Agreement, including the
recovery of reasonable attorneys fees and costs, and to
exercise all other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Investor hereunder or the
Registration Rights Agreement or the Investor enforces or
exercises its rights hereunder or thereunder, and such payment
or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from,
disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any
other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such
enforcement or setoff had not occurred.
q. CHOICE OF LAW. This Agreement shall be construed under the
laws of the State of New York, without regard to choice of law
provisions
[Balance of this page intentionally left blank.]
26
IN WITNESS WHEREOF, the parties have caused this Investment Agreement
to be duly executed as of the day and year first above written.
AMERICAN ORIENTAL BIOENGINEERING, INC.
By:
--------------------------------------
Name:
Title: President and CEO
BH Capital Investments, LP
000 Xxxxx Xxxxxx Xxxx,
Xxxxx Tower, Suite 705,
Toronto, ON X0X 0X0
Xxxxxx
By:
--------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: President of General Partner
Excalibur Limited Partnership
00 Xxxxxx Xxxxxx Xxxxxx,
Xxxxxxx, XX X0X 0X0
Xxxxxx
By:
-----------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President of General Partner
27
LIST OF EXHIBITS
-----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C Escrow Agreement
EXHIBIT D Broker Representation Letter
EXHIBIT F Put Notice
EXHIBIT G Form of Warrants
28
EXHIBIT D
[BROKER'S LETTERHEAD]
Date
Via Facsimile
Attention:
----------------------
----------------------
----------------------
Re: AMERICAN ORIENTAL BIOENGINEERING, INC.
Dear __________________:
It is our understanding that the Form______ Registration Statement
bearing SEC File Number ( ___-______) filed by AMERICAN ORIENTAL BIOENGINEERING,
INC. on Form _____ on __________, 200_ was declared effective on _________,
200_.
This letter shall confirm that ______________ shares of the common
stock of AMERICAN ORIENTAL BIOENGINEERING, INC. are being sold on behalf of
__________________ and that we shall comply with the prospectus delivery
requirements set forth in that Registration Statement by filing the same with
the purchaser.
If you have any questions please do not hesitate to call.
Sincerely,
----------------------
29
EXHIBIT F
PUT NOTICE NO. ______
AMERICAN ORIENTAL BIOENGINEERING, INC.., a Nevada corporation (the
"Company"), hereby elects to exercise its right pursuant to the Investment
Agreement to require Investor to purchase shares of its common stock. The
Company hereby certifies that:
1. The Put Amount is: $_______________.
2. The Pricing Period runs from ___________________ to
___________________.
3. The current number of shares of common stock issued and
outstanding as of _____________ are
__________________________.
4. The Company Designated Minimum Price is: $
_____________________.
The undersigned has executed this Put Notice as of this __ day of ______, 200_.
AMERICAN ORIENTAL BIOENGINEERING, INC.
By:
-----------------------------------
Name and Title:
30
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of July 18, 2003 by and among BH Capital Investments, LP and
Excalibur Limited Partnership (Collectively the "Investor") and American
Oriental Bioengineering, Inc., a Nevada corporation (the "Company" and, together
with the Investor, the "Parties").
WHEREAS, the Company has an authorized capitalization of 60,000,000
shares of common stock (the "Common Stock") and 2,000,000 shares of preferred
stock;
WHEREAS, the Company and the Investor have entered into an Investment
Agreement (" Investment Agreement") dated of even date hereof;
WHEREAS, the Investor has agreed to up purchase to $3 million worth of
shares of common stock and Warrants ("Securities") pursuant to the Investment
Agreement by and among the Company and the Investor made as of the date hereof;
WHEREAS, the Investor was induced to purchase the Securities in part by
the Company's agreement to enter into this Agreement; and
WHEREAS, the Parties desire that the Investor has registration rights
with respect to the Securities as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto
agree as follows:
12. Registration Rights. The Company covenants and agrees as
follows:
a. Definitions. For purposes of this Section 1:
(i) "Act" shall mean the Securities Act of 1933, as
amended;
(ii) "Agreement" shall have the meaning set forth in the
recital above;
(iii) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended;
(iv) "Form S-4 or S-8" means such form under the Act as in
effect on the date hereof or any registration form
under the Act subsequently adopted by the SEC which
permits the registration of securities to be issued
in a merger or other Rule 145 transaction under the
Act, or securities to be issued to an employee,
consultant or other similar person pursuant to a
plan;
(v) "Holder" means a holder of Registrable Securities;
31
(vi) "register," "registered," and "registration" refer to
a registration effected by preparing and filing a
registration statement or similar document in
compliance with the Act, and the declaration or
ordering of effectiveness of such registration
statement or document;
(vii) "Registrable Securities" means (i) the Shares and
Warrant Shares, whether issued or issuable and (ii)
any shares of capital stock issued or issuable with
respect to the foregoing as a result of any stock
split, stock dividend, recapitalization,
anti-dilution adjustment, exchange or similar event
or otherwise without regard to any limitation on
exercise of warrants; and
(viii) "SEC" shall mean the Securities and Exchange
Commission.
Terms not defined herein shall have the definitions ascribed
to them in the Investment Agreement.
b. COMPANY REGISTRATION.
(i) MANDATORY REGISTRATION. The Company shall prepare,
and, as soon as practicable (the "Schedule Filing
Date"), file with the SEC a Registration Statement or
registration Statements (as is necessary) on Form
SB-2 the resale of all of the Registrable Securities.
In the event SB-2 is unavailable for such
registrations, the Company shall use such other form
as is available for such registrations, subject to
the provisions of this Section 1.2. Any Registration
Statement prepared pursuant hereto shall register for
resale sufficient number of shares of Common Stock
equal to the number of Registrable Securities issued
and issuable as of the date immediately preceding the
date the Registration Statement is initially filed
with the SEC including an estimate for the number of
Shares and Warrant Shares potentially issuable
assuming puts for the full $3,000,000 at an assumed
purchase Price equal to 70% of the current Market
Price. The Company shall use its best efforts to have
each Registration Statement declared effective by the
SEC as soon as practicable but in no event later than
November 15, 2003 (the "Scheduled Effective Date").
The Company represents and covenants that no Person
other than an Investor has or will have the right to
include any securities of the Company in the
Registration Statement to be filed in accordance with
this Section 1.2.a. The Company will not include any
selling stockholder other than the investor in any
Registration Statement it files pursuant to this
Section 1.2.a without the Investors' written consent.
(ii) PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter
denied) the Company proposes to file with the SEC a
Registration Statement relating to an offering for
its own account or the account of others under the
1933 Act of any of its securities (other than a
32
Registration Statement on Form S-4 or Form S-8 (or
their equivalents at such time) relating to
securities to be issued solely in Registrable
Securities included in such Registration Statement
for such transferor. Any shares of Common Stock
included in a Registration Statement and which remain
allocated to any Person which ceases to hold any
Registrable Securities shall be allocated to the
remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors.
(iii) Allocation of Registrable Securities. The Initial
number of Registrable Securities included in any
Registration Statement and each increase in the
number of Registrable Securities included therein
shall be allocated pro rata among the investors based
on the number of Registrable Securities held by each
Investor at the time the Registration Statement
covering such initial number of Registrable
Securities or increase thereof is declared effective
by the SEC.
(iv) LEGAL COUNSEL. Subject to Section 5 hereof, the
Investors holding a majority of the Registrable
Securities shall have the right to select one legal
counsel to review and oversee as their counsel any
offering pursuant to this Section 2 ("Legal
Counsel"), which shall be Xxxxx Xxxxxx of Xxxxxx
Xxxxxxx Xxxxx & Xxxxxx LLP or such other counsel as
thereafter designated by the holders of a majority of
Registrable Securities. The Company shall reasonably
cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
(v) Ineligibility for Form SB-2. In the event that Form
SB-2 is unavailable for any registration of
Registrable Securities hereunder, the Company shall
(i) register the sale of the Registrable Securities
on another appropriate form and (ii) undertake to
register the Registrable Securities on Form SB-2 as
soon as such form is available, provided that the
Company shall maintain the effectiveness of the
Registration Statement then in effect until such time
as a Registration Statement on Form SB-2 covering the
Registrable Securities has been declared effective by
the SEC.
c. OBLIGATIONS OF THE COMPANY. Whenever required hereunder to
effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable Securities
and use all commercially reasonable efforts to cause
such registration statement to become effective, and
to keep such registration statement effective until
the distribution contemplated by the Company of its
securities registered under the registration
statement has been completed; PROVIDED, HOWEVER, in
the case of any registration by the Company (and
incidentally by the Holders) on Form SB-2 which are
intended to be offered on a continuous or delayed
basis, the Company may keep such registration
effective for so long as is necessary to sell all of
the securities registered thereunder;
33
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the
Agreement and the provisions of the Act with respect
to the disposition of all securities covered by such
registration statement;
(iii) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such
other documents as the Holders may reasonably request
in order to facilitate the disposition of Registrable
Securities owned by them;
(iv) use all commercially reasonable efforts to register
and qualify the securities covered by such
registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders;
(v) notify each Holder of Registrable Securities covered
by such registration statement at any time when a
prospectus relating thereto is required to be
delivered under the Act of the happening of any event
as a result of which the prospectus included in such
registration statement, as then in effect, includes
an untrue statement of a material fact or omits to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading in the light of the circumstances then
existing and then amend or supplement such
registration statement to correct any such
misstatement or omission as soon as reasonably
practicable but in any event within 30 days, and then
prompt deliver a copy of the amended or supplemental
documents to the Investors. Maximum Ineffective
Period shall be on aggregation of 60 days during any
365-day period;
(vi) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder
and a CUSIP number for all such Registrable
Securities, in each case not later than the effective
date of such registration;
d. INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any
selling Holder that the Holder shall furnish to the Company
such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of
the Holder's Registrable Securities.
e. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration,
filing or qualification of Registrable Securities with respect
to any registration pursuant to Section 1.2 for each Holder
(which right may be assigned as provided in Section 1.12),
including (without limitation) all registration, filing, and
34
qualification fees, printers and accounting fees relating or
apportionable thereto and the fees and disbursements of
counsel for the Company , the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders
selected by them, but the reimbursement of expenses shall
exclude underwriting discounts and commissions relating to the
offer and sale of the Registrable Securities.
x. XXXXX OF REGISTRATION. No Holder shall have the right to
obtain or seek an injunction restraining or otherwise delaying
any such registration as the result of any controversy that
might arise with respect to the interpretation or
implementation of this Section 1, except in the case of bad
faith or unreasonable determinations by the Company or the
chosen underwriters.
g. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any
underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the
Exchange Act, against losses, claims, damages, or
liabilities (joint or several) to which they may
become subject under the Act, the Exchange Act, or
other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material
fact contained in such registration statement,
including any preliminary prospectus or final
prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to
be stated therein, or necessary to make the
statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the
Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Act, the
Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim,
damage, liability, or action; PROVIDED, HOWEVER, that
the indemnity agreement contained in this subsection
1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage,
liability, or action to the extent that it arises out
of or is based upon a violation which occurs in
reliance upon and in conformity with written
information furnished expressly for use in connection
with such registration by the Holder, underwriter or
controlling person,
35
(ii) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company against
any losses, claims, damages, or liabilities caused by
the Holder to which of the Company may become
subject, under the Act, the Exchange Act or other
federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect
thereto) directly arise out of or are based directly
upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs as a
result of the Company's reliance upon and inclusion
of in such registration of written information
provided by the Holder in connection with such
registration and in each case to the extent (and only
to the extent) that such violation occurs as a result
of the gross negligence or wilful misconduct of such
Holder provided, however, that liability of such
Holder hereunder shall not in any event exceed the
amount of the proceeds received by such Holder from
the sale of the Registrable Securities covered by
such registration statement and/or prospectus and
provided further, that the indemnity agreement
contained in this Section 1.7(b) shall not apply to
amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is
effected without the consent of such Holder, which
consent shall not be unreasonably withheld.
(iii) Promptly after receipt by an indemnified party under
this Section 1.7 of notice of the commencement of any
action (including any governmental action), such
indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under
this Section 1.7, deliver to the indemnifying party a
written notice of the commencement thereof and the
indemnifying party shall have the right to
participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defence
thereof with counsel mutually satisfactory to the
parties; PROVIDED, HOWEVER, that an indemnified party
(together with all other indemnified parties which
may be represented without conflict by one counsel)
shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the
indemnifying party, if representation of such
indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to
actual or potential differing interests between such
indemnified party and any other party represented by
such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party
within a reasonable time of the commencement of any
such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of
any liability to the indemnified party under this
Section 1.7, but the omission so to deliver written
notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified
party otherwise that under this Section 1.8.
36
(iv) If the indemnification provided for in this Section
1.7 is held by a court of competent jurisdiction to
be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and
of the indemnified party on the other in connection
with the statements or omissions that resulted in
such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations
However, in any such case a Holder will not be
required to contribute any amount in excess of the
proceeds received by such Holder from the sale of the
Registrable Securities covered by such registration
statement and/or prospectus, and no person or entity
guilty of fraudulent misrepresentation (within the
meaning of Section 12 (f) of the Act) will be
entitled to contribution from any person or entity
who is not guilty of such fraudulent
misrepresentation. The relative fault of the
indemnifying party and of the indemnified party shall
be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a
material fact or the omission to state a material
fact relates to information supplied by the
indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent
such statement of omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution
contained in the underwriting agreement entered into
in connection with the underwritten public offering
are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall
control.
(vi) The obligations of the Company under this Section 1.7
shall survive the completion of any offering of
Registrable Securities in a registration statement
under this Section 1, and otherwise.
h. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Act
and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the
public without registration or pursuant to a registration on
Form S-3 or another registration form that permits a
comparable amount of information to be incorporated by
reference, the Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at
all times after ninety (90) days after the effective
date of the first registration statement filed by the
Company for the offering of its securities to the
general public;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act
and the Exchange Act; and
37
(iii) furnish to any Holder forthwith upon request (i) a
written statement by the Company that it has complied
with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective
date of the first registration statement filed by the
Company), the Act and the Exchange Act (at any time
after it has become subject to such reporting
requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the
Company and such other reports and documents so filed
by the Company, and (iii) such other information as
may be reasonably requested in availing the Holder of
any rule or regulation of the SEC which permits the
selling of any such securities without registration
or pursuant to such form.
i. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this
Section 1 may be assigned to a transferee or assignee of such
securities, PROVIDED THAT (a) the Company is, within a
reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee
and the securities with respect to which such registration
rights are being assigned, and (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and
conditions of this Agreement.
j. REGISTRATION DEFAULT. Each of the following events shall
constitute a "Registration Default" for a purpose of this
agreement:
(i) The SEC's failure to declare a Registration effective
on or before sixty (60) days following the Scheduled
Effective Date except where the failure to meet such
deadline is the result solely of actions by the
holders of Registrable Securities or their Legal
Counsel;
(ii) The Company's failure to request acceleration of the
effectiveness of a Registration Statement within
three (3) business days after the SEC has notified
the Company that it may file such an acceleration
request as required by Section 3.a hereof, except
where the failure to meet such deadline is a result
solely of actions by the holders of Registrable
Securities or Legal Counsel; or
(iii) The Investors' inability to sell all Registrable
Securities pursuant to an effective Registration
Statement (whether because of a failure to keep the
Registration Statement effective, to disclose such
information as is necessary for sales to be made
pursuant to the Registration Statement, to register
sufficient shares of Common Stock, or otherwise)
Upon the occurrence of a Registration Default, the Company
shall pay each Investor an amount determined in accordance
with the following formula for each 30-day period of such
Registration Default for a period starting from commencing of
a Registration Default and ending upon the earlier of (a) one
year from the Effective Date, or (b) a termination of the
Investment Agreement by the Investors:
38
1.0% x P x N
Where
P = the average closing sale price of the Common Stock on the
Principal Market for the applicable thirty (30) days; and
N = the number of Registrable Securities that such Investor
holds or may acquire pursuant to exercise of Warrants on the
last day of the applicable 30-day period (without giving
effect to any of the limitations on exercise).
If a Registration Default is cured before the end of a 30-day
period, the applicable formula shall be pro-rated. The Company
shall pay such amount in cash on demand by an Investor made at
any time during the continuance or after termination of such
Registration Default. If the Company does not remit payment of
the amount due to such Investor, the Company will pay the
Investor's reasonable costs of collection, including
attorneys' fees. An Investor's right to demand such payment
shall be in addition to any other rights it may have under
this Agreement, the Investment Agreement or otherwise.
13. Miscellaneous.
a. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions hereof shall inure to the benefit of
and be binding upon the respective successors and assigns of
the parties (including transferees or assignees of any shares
of Registrable Securities). Nothing herein, express or
implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by
reason hereof, except as expressly provided herein.
b. REGISTRATION RIGHTS GRANTED TO THIRD PARTIES. The Company
shall not, pursuant to a subsequent registration rights
agreement, grant to any third party registration rights more
favorable than as provided to Holders pursuant to this
Agreement. In any event, Holders shall be entitled to any
future registration rights granted by the Company under a
subsequent registration rights agreement that are more
favorable than the registration rights provided to Holders
hereunder and this Agreement shall be amended to reflect any
such more favorable registration rights.
c. AMENDMENTS AND WAIVERS. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally
or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company
and the holders of a majority of the Registrable Securities
then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each
Holder, and each future Holder of all such Registrable
Securities, and the Company.
39
d. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
constitutes the full and entire undertaking by the Company and
the full agreement of the Holder with regard to the
registration rights contemplated by this Agreement.
e. GOVERNING LAW AND JURISDICTION.
(i) Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach,
termination or invalidity thereof, shall be finally
and exclusively resolved by an arbitration tribunal
(the "Tribunal") in accordance with the Arbitration
Rules of the American Arbitration Association ("AAA")
as at present in force. THE DECISION OF THE TRIBUNAL
SHALL BE FINAL AND BINDING UPON THE PARTIES HERETO.
(ii) The arbitration shall take place in New York City,
the State of New York and shall be conducted in the
English language. The parties hereby submit
themselves to the exclusive jurisdiction of the
arbitration tribunal in the City of New York, the
State of New York under the auspices of AAA. The
arbitration shall be conducted by three (3)
arbitrators, one to be appointed by the Company, one
to be appointed by the Investor and a third by the
two arbitrators so selected.
(iii) Each party shall cooperate with the other in making
full disclosure of and providing complete access to
all information and documents requested by the other
party in connection with the arbitration proceedings.
Arbitration shall be the sole, binding, exclusive and
final remedy for resolving any dispute between the
parties; either party may apply to any court of
competent jurisdiction in the State of New York for
enforcement of any award granted by the Tribunal.
(iv) To the extent permitted by law, the award of the
Tribunal may include, without limitation, one or more
of the following: a monetary award, a declaration of
rights, an order of specific performance, an
injunction, reformation of the contract.
(v) The cash expenses of the arbitration (including
without limitation reasonable fees and expenses of
counsel, experts and consultants) shall be borne by
the Party against whom the decision of the
arbitrators is rendered; PROVIDED THAT if a Party
prevails only partially, such Party shall be entitled
to be reimbursed for such costs and expenses in the
proportion that the dollar amount successfully
claimed by the prevailing Party bears to the
aggregate dollar amount claimed.
40
(vi) During the period when a dispute is being resolved,
except for the matter being disputed, the parties
shall in all other respects continue to abide by the
terms of this Agreement.
f. CHOICE OF LAW. This Agreement shall be construed under the
laws of the State of New York, without regard to choice of law
provisions
g. COUNTERPARTS. This Agreement can be executed in several
counterparts with each counterpart properly executed having
the same validity and legal force.
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly
executed and delivered by each party hereto as of the date first above written.
AMERICAN ORIENTAL BIOENGINEERING, INC.
By:
------------------------------------
Name:
Title:
BH Capital Investments, LP
000 Xxxxx Xxxxxx Xxxx,
Xxxxx Tower, Suite 705,
Toronto, ON X0X 0X0
Xxxxxx
By:
------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: President of General Partner
Excalibur Limited Partnership
00 Xxxxxx Xxxxxx Xxxxxx,
Xxxxxxx, XX X0X 0X0
Xxxxxx
By:
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President of General Partner
41
