CHINA-BIOTICS, INC. INVESTORS’ RIGHTS AGREEMENT
Exhibit
10.5
This
Investors’ Rights Agreement (the “Agreement”)
is
made as of the 22nd day of March, 2006, by and among China-Biotics, Inc., a
Delaware corporation (the “Company”),
and
the investors listed on the signature page hereto (each an “Investor”
and
collectively the “Investors”).
RECITALS
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A.
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Sinosmart
Group Inc., a British Virgins Islands corporation (“Sinosmart”)
and the Investors entered into a subscription agreement (the “Subscription
Agreement”),
dated as of the date hereof, for the purchase of ordinary shares
of
Sinosmart (the “Private
Placement”).
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B.
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In
connection with the execution of this Agreement, the Company, Sinosmart
and the shareholders of Sinosmart (the “Sinosmart
Shareholders”),
which include the Investors, are entering into and consummating a
Securities Exchange Agreement (the “Exchange
Agreement”),
pursuant to which the Company will acquire all of the shares of Sinosmart
from the Sinosmart Shareholders in exchange for the issuance of shares
of
common stock of the Company (“Common
Stock”).
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AGREEMENT
The
parties hereby agree as follows:
1. Covenants
of the Company.
1.1 Covenants.
The
Company shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least seventy-five percent
(75%) of the then outstanding shares of Common Stock:
(a) authorize
or issue, or obligate itself to issue, any other equity security, including
any
security convertible into or exercisable for any equity security, having a
preference over the Common Stock with respect to voting, dividends, conversion
or upon liquidation;
(b) amend
the
Company’s certificate of incorporation, except as required by law or by decree
or order of a court;
(c) redeem,
purchase or otherwise acquire (or pay into or set funds aside for a sinking
fund
for such purpose) any share or shares of Common Stock; provided, however, that
this restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons performing
services for the Company or any subsidiary pursuant to agreements under which
the Company has the option to repurchase such shares at cost upon the occurrence
of certain events, such as the termination of employment, or through the
exercise of any right of first refusal;
(d) engage,
or permit any of its subsidiaries to engage, in any line of business other
than
that (a) which is the same as or related, ancillary or complementary to any
of the businesses of the Company and its subsidiaries on the date hereof, or
(b) which is contemplated in the draft Registration Statement on
Form SB-2 attached as an exhibit to the Exchange Agreement;
(e) enter
into any agreement or transaction to sell all or substantially all of the
Company’s equity interests in any of its subsidiaries; provided that this
provision shall not apply to (i) any such agreement or transaction among
the Company and one or more of its subsidiaries, or among the Company's
subsidiaries, and (ii) any such agreement or transaction that the Company’s
board of directors, after consulting with the Company’s legal counsel,
determines in good faith is necessary for the Company’s board of directors to
comply with its fiduciary duties imposed by applicable law; or
(f) authorize
the payment by the Company of any dividends or distributions on the Common
Stock.
1.2 Notice.
The
Company shall give 30 days notice to the Investors prior to the consummation
of
any transaction described in Section 1.1(e). Each Investor agrees to treat
any such information as confidential unless the Company has otherwise publicly
disclosed such information.
1.3 Right
of First Offer.
Subject
to the terms and conditions specified in this Section 1.3, the Company
hereby grants to each Investor a right of first offer with respect to future
sales by the Company of any Discounted Shares (as hereinafter defined).
“Discounted
Shares”
shall
mean any shares of, or securities convertible into or exercisable for any shares
of, any class of capital stock of the Company issued or sold by the Company
at a
per share purchase price less than (i) if the Common Stock is listed on any
established stock exchange or traded on the Nasdaq National Market or the Nasdaq
SmallCap Market, the average closing sale price for the Common Stock (or the
closing bid, if no sale was reported) for the five trading days prior to the
effective date of any sale, as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock),
or
(ii) if the Common Stock is not listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the average
bid and ask prices quoted for the Common Stock for the five trading days prior
to the effective date of any sale; provided, that if no such bid or ask price
information is available for the prior five trading days, then the average
shall
be computed based on the last five trading days for which such information
is
available. Each time the Company proposes to offer any Discounted Shares, the
Company shall first make an offering of such Discounted Shares to each Investor
in accordance with the following provisions:
(a) The
Company shall deliver a notice (the “RFO
Notice”)
to the
Investors stating (i) its bona fide intention to offer such Discounted
Shares, (ii) the number of such Discounted Shares to be offered, and
(iii) the price and terms, if any, upon which it proposes to offer such
Discounted Shares.
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(b) Within
10
calendar days after delivery of the RFO Notice, the Investor may elect to
purchase or obtain, at the price and on the same terms as the Discounted Shares
are purchased by other third party purchasers, up to that portion of such
Discounted Shares which equals the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion and exercise of all
convertible or exercisable securities then held, by such Investor bears to
the
sum of (A) the total number of shares of Common Stock then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities) and (B) shares of Common Stock issuable to employees,
consultants or directors pursuant to a stock option plan, restricted stock
plan,
or other stock plan, agreement or arrangement approved by the Company’s Board of
Directors. Such purchase shall be completed at the same closing as that of
any
third party purchasers or at an additional closing thereunder. The Company
shall
promptly, in writing, inform each Investor that purchases all the shares
available to it (each, a “Fully-Exercising
Investor”)
of any
other Investor’s failure to do likewise. During the 10-day period commencing
after receipt of such information, each Fully-Exercising Investor shall be
entitled to obtain that portion of the Discounted Shares for which other
Investors were entitled to subscribe but which were not subscribed for by such
Investors that is equal to the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion and exercise of all
convertible or exercisable securities then held, by such Fully-Exercising
Investor bears to the total number of shares of Common Stock then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities).
(c) The
Company may, during the 60-day period following the expiration of the period
provided in subsection 1.3(b) hereof, offer the remaining unsubscribed
portion of the Discounted Shares to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than, those specified
in
the RFO Notice. If the Company does not enter into an agreement for the sale
of
the Discounted Shares within such period, or if such agreement is not
consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Discounted Shares shall not
be
offered unless first reoffered to the Investors in accordance
herewith.
(d) The
right
of first offer in this Section 1.3 shall not be applicable to (i) the
issuance of securities in connection with stock dividends, stock splits or
similar transactions; (ii) the issuance or sale of shares of capital stock
(or options therefor) to employees, consultants and directors of the Company,
directly or pursuant to a stock option plan, restricted stock purchase plans
or
other stock plan; (iii) the issuance of securities to financial
institutions, equipment lessors, brokers or similar persons in connection with
commercial credit arrangements, equipment financings, commercial property lease
transactions or similar transactions; (iv) the issuance of securities in
connection with bona fide acquisition, merger or similar transaction;
(v) the issuance of Common Stock in a Qualified Public Offering; or
(vi) the issuance of securities to an entity as a component of any business
relationship with such entity primarily for the purpose of (A) joint
venture, technology licensing or development activities, (B) distribution,
supply or manufacture of the Company’s products or services or (C) any
other arrangements involving corporate partners that are primarily for purposes
other than raising capital. “Qualified
Public Offering”
means
a
firm commitment underwritten public offering by the Company of shares of its
Common Stock pursuant to a registration statement under the Securities Act
of
1933, as amended, which results in aggregate cash proceeds to the Company of
at
least $15,000,000 (net of underwriting discounts and commissions). In addition
to the foregoing, the right of first offer in this Section 1.3 shall not be
applicable with respect to any Investor and any subsequent securities issuance,
if (i) at the time of such subsequent securities issuance, the Investor is
not an “accredited investor,” as that term is then defined in Rule 501(a)
under the Securities Act, and (ii) such subsequent securities issuance is
otherwise being offered only to accredited investors.
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2. Miscellaneous.
2.1 Termination.
This
Agreement shall terminate, and have no further force and effect, on the earlier
to occur of (a) such time as the Investors as a group hold less than
twenty-five percent (25%) of the then outstanding shares of Common Stock,
(b) two years from the date hereof, and (c) the date the put right set
forth in Section 1 of the Put Agreement, dated as of the date hereof, by
and among Sinosmart, and the persons and entities listed on the signature pages
thereto, is exercised pursuant to the terms thereof.
2.2 Entire
Agreement.
This
Agreement, and any schedules and exhibits hereto and other writings referred
to
in this Agreement or any such exhibit or other writing are part of this
Agreement, together they embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement
and
together they are referred to as this “Agreement” or the “Agreement.” There are
no restrictions, promises, warranties, agreements, covenants or undertakings,
other than those expressly set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the transaction or transactions contemplated by this
Agreement.
2.3 Successors
and Assigns.
This
Agreement and all of the provisions hereof shall be binding upon and inure
to
the benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned (whether voluntarily, involuntarily,
by
operation of law or otherwise) by any Investor without the prior written consent
of the Company.
2.4 Amendments
and Waivers.
Any
term of this Agreement may be amended or waived only with the written consent
of
the Company and the holders of at least a majority of the then outstanding
shares of Common Stock acquired in the Private Placement and held by the
Investors. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each party to the Agreement, whether or not such party
has
signed such amendment or waiver.
2.5 Notices.
All
notices, requests, demands and other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
and effective: (i) on the date of delivery, if delivered personally;
(ii) on the date of transmission, if sent by facsimile, telecopy, telex or
other similar telegraphic communications equipment; (iii) one business day
after delivery to an overnight delivery courier service for next-business day
delivery; or (iv) on the fifth business day following the date of mailing,
if sent by registered mail, return receipt requested, postage prepaid, and
in
each case addressed to such party at the address set forth in the Exchange
Agreement, or to such other person or address as such party shall furnish to
the
other parties hereto in writing.
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2.6 Severability.
The
provisions of this Agreement will be deemed severable and the invalidity or
unenforceability of any provision will not affect the validity or enforceability
of the other provisions hereof; provided that if any provision of this
Agreement, as applied to any party hereto or to any circumstance, is adjudged
by
an Authority, arbitrator, or mediator not to be enforceable in accordance with
its terms, the parties hereto agree that the Authority, arbitrator, or mediator
making such determination will have the power to modify the provision in a
manner consistent with its objectives such that it is enforceable, and/or to
delete specific words or phrases, and in its reduced form, such provision will
then be enforceable and will be enforced.
2.7 Governing
Law.
This
Agreement and the legal relations among the parties hereto shall be governed
by
and construed in accordance with the internal substantive laws of Delaware
(without regard to the laws of conflict that might otherwise apply) as to all
matters, including matters of validity, construction, effect, performance and
remedies.
2.8 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
2.9 Headings.
The
table of contents and the headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
2.10 No
Third Party Beneficiaries.
Nothing
in this Agreement shall entitle any person or entity (other than a party hereto
and his, her or its respective successors and assigns permitted hereby) to
any
claim, cause of action, remedy or right of any kind.
[Signature
Page Follows]
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The
parties have executed this Investors’ Rights Agreement as of the date first
above written.
| COMPANY: | |||
| CHINA-BIOTICS, INC. | |||
| /s/ Song Jinan | |||
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Name: Song
Jinan
Title: Chief
Executive Officer and President
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| INVESTORS: | |||
| Chinamerica Fund, L.P. | Chinamerica Sino-biotics Acquisition, LLC | ||
|
By: Chinamerica
Partners, LP
Its
General Partner
By: Chinamerica
Holdings, LLC
Its
General Partner
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By: Chinamerica
Partners, LP
Its
General Partner
By: Chinamerica
Holdings, LLC
Its
General Partner
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| /s/ Xxxx Xxxxxxx | /s/ Xxxx Xxxxxxx | ||
|
Name:
Xxxx Xxxxxxx
Title:
Manager
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Name:
Xxxx Xxxxxxx
Title:
Manager
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| Xxxx Investments LLC | Xxxx Xxxxxx | ||
| Xxxx Asset Management, LLC, Manager | |||
| /s/ Xxxxxxx X. Xxxxx | /s/ Xxxx Xxxxxx | ||
|
Name: Xxxxxxx
X. Xxxxx
Title: Member
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|
BFS
US Special Opportunities Trust PLC
|
Renaissance US Growth Investment Trust PLC | ||
| /s/ Xxxxxxx Xxxxxxxxx | /s/ Xxxxxxx Xxxxxxxxx | ||
|
Name:
Xxxxxxx Xxxxxxxxx
Title:
President
|
Name:
Xxxxxxx Xxxxxxxxx
Title:
President
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| Halter/Xxxx USX China Fund | |||
| /s/ Xxxxxxx Xxxx | |||
|
Name:
Xxxxxxx Xxxx
Title: President
Address:
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx,
XX 00000
Facsimile
No:
000-000-0000
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