Exhibit 99.1
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
XXXXXXXXXX HOLDINGS III, INC.
AND
XXXXXX PARTNERS LP
DATED
FEBRUARY 8, 2006
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and
entered into as of the 8th day of February, 2006 between XXXXXXXXXX HOLDINGS
III, INC., a corporation organized and existing under the laws of the State of
Delaware (the "Company") and XXXXXX PARTNERS LP, a Delaware limited partnership
("XXXXXX"), XXX AND XXX XXXXXX, JTROS, XXXXX XXXXX and XXXXXXX X. XXXXXX
(collectively, with Xxxxxx, the "INVESTORS" and each, individually, an
"INVESTOR")
PRELIMINARY STATEMENT:
WHEREAS, the Investors wish to purchase from the Company, upon the terms
and subject to the conditions of this Agreement, three million one hundred
twenty thousand (3,120,000) shares of Series A Convertible Preferred Stock, par
value $.0001 per share ("Series A Preferred Stock"), of the Company, with such
preferred stock being as described in the Certificate of Designations, Rights
and Preferences (the "CERTIFICATE OF DESIGNATION") in substantially the form
attached hereto as EXHIBIT A for the Purchase Price set forth in Section 1.3.14
hereof. Subject to the limitations set forth in the Certificate of Designation,
the Series A Preferred Stock shall be initially convertible into shares of
common stock of the Company at any time at a conversion rate (the "CONVERSION
RATE") of one (1) share of Common Stock, par value $.0001 per share ("COMMON
STOCK"), for each share of Series A Preferred Stock, subject to adjustment as
provided in the Certificate of Designation. In addition, the Company will issue
to the Investors two Common Stock Purchase Warrants (the "WARRANTS") to purchase
up to three million six hundred ninety four thousand, seven hundred thirty eight
(3,694,738) shares of Common Stock of the Company at one and 75/100 dollars
($1.75) per share, and three million six hundred ninety four thousand, seven
hundred thirty eight (3,694,738) shares of Common Stock of the Company at two
and 50/100 dollars ($2.50) per share; and
WHEREAS, the parties intend to memorialize the purchase and sale of such
Series A Preferred Stock and the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby conclusively acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
INCORPORATION BY REFERENCE, SUPERSEDER AND DEFINITIONS
1.1. INCORPORATION BY REFERENCE. The foregoing recitals and the Exhibits and
Schedules attached hereto and referred to herein, are hereby acknowledged to be
true and accurate, and are incorporated herein by this reference.
1.2. SUPERSEDER. This Agreement, to the extent that it is inconsistent with any
other instrument or understanding among the parties governing the affairs of the
Company, shall supersede such instrument or understanding to the fullest extent
permitted by law. A copy of this Agreement shall be filed at the Company's
principal office.
1.3. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
capitalized terms shall have the following meanings (all capitalized terms used
in this Agreement that are not defined in this Article 1 shall have the meanings
set forth elsewhere in this Agreement):
1.3.1. "1933 ACT" means the Securities Act of 1933, as amended.
1.3.2. "1934 ACT" means the Securities Exchange Act of 1934, as amended.
1.3.3. "AFFILIATE" means a Person or Persons directly or indirectly,
through one or more intermediaries, controlling, controlled by or under common
control with the Person(s) in question. The term "control," as used in the
immediately preceding sentence, means, with respect to a Person that is a
corporation, the right to the exercise, directly or indirectly, of more than 50%
of the voting rights attributable to the shares of such controlled corporation
and, with respect to a Person that is not a corporation, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such controlled Person.
1.3.4. "ARTICLES" means the Certificate of Incorporation of the Company,
as the same may be amended from time to time.
1.3.5. "CLOSING" shall mean the Closing of the transactions contemplated
by this Agreement on the Closing Date.
1.3.6. "CLOSING DATE" means the date on which the payment of the Purchase
Price (as defined herein) by the Investors to the Company is completed pursuant
to this Agreement to purchase the Series A Preferred Stock and Warrants, which
shall occur on or before January 31, 2005.
1.3.7. "COMMON STOCK" means shares of common stock of the Company, par
value $0.0001 per share.
1.3.8. "EBITDA" shall mean earnings before interest, taxes, depreciation
and amortization, determined in accordance with U.S. GAAP.
1.3.9. "ESCROW AGREEMENT" shall mean the Escrow Agreement among the
Company, the Investors and Katsky Xxxxxx LLP, as Escrow Agent, attached hereto
as Exhibit D it being acknowledged that the Escrow Agent is counsel for the
Company.
1.3.10. "EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock
or options to employees, officers, directors of and consultants (other than
consultants whose services relate to the raising of funds) the Company pursuant
to the Company's 2006 long-term incentive plan and any other stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder and pursuant to the
Registration Rights Agreement and any other options, warrants or convertible
securities which are outstanding on after completion of the Closing and the
effectiveness of the Merger, as hereinafter defined, and (c) securities issued
pursuant to acquisitions, licensing agreements, or other strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business which the Company's board
of directors believes is beneficial to the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.
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1.3.11. "MATERIAL ADVERSE EFFECT" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries, taken as a whole
and/or any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to perform any of
its material obligations under this Agreement or the Registration Rights
Agreement or to perform its obligations under any other material agreement.
1.3.12. "DELAWARE ACT" means the Delaware General Corporation Law, as
amended.
1.3.13. "PERSON" means an individual, partnership, firm, limited liability
company, trust, joint venture, association, corporation, or any other legal
entity.
1.3.14. "PRE-TAX INCOME" means income before income taxes on a fully
diluted basis as reported for the audited fiscal year ended December 31, 2006
from recurring operations before (a) any charges relating to the transaction
contemplated by this Agreement and the Registration Rights Agreement, and (b)
any other non-recurring items, including the issuance of warrants which are not
issued under a stock option or other equity-based incentive plan.
1.3.15. "PURCHASE PRICE" means the three million nine hundred thousand
dollars ($3,900,000) to be paid by the Investors to the Company for the Series A
Preferred Stock and the Warrants, with each Investor, severally, paying that
portion of the Purchase Price as is set forth on Schedule A to this Agreement
1.3.16. "REGISTRATION RIGHTS AGREEMENT" shall mean the registration rights
agreement between the Investors and the Company attached hereto as Exhibit B.
1.3.17. "REGISTRATION STATEMENT" shall mean the registration statement
under the 1933 Act to be filed with the Securities and Exchange Commission for
the registration of the Shares pursuant to the Registration Rights Agreement.
1.3.18. "SECURITIES" means the shares of Series A Preferred Stock, the
Warrants and the Shares.
1.3.19. "SEC" means the Securities and Exchange Commission.
1.3.20. "SEC DOCUMENTS" shall mean the Company's latest Form 10SB, Form
10-K or Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K
filed thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation to
maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
1.3.21. "SHARES" shall mean, collectively, the shares of Common Stock of
the Company issued upon conversion of the Series A Preferred Stock subscribed
for hereunder and those shares of Common Stock issuable to the Investors upon
exercise of the Warrants.
1.3.22. "SUBSEQUENT FINANCING" shall mean any offer and sale of shares of
the Company's preferred stock, par value $.0001 per share, or debt that is
initially convertible into shares of Common Stock or otherwise senior or
superior to the Series A Preferred Stock.
1.3.23. "TRANSACTION DOCUMENTS" shall mean this Agreement, all Schedules
and Exhibits attached hereto and all other documents and instruments to be
executed and delivered by the parties in order to consummate the transactions
contemplated hereby, including, but not limited to the documents listed in
Sections 3.2 and 3.3 hereof.
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1.3.24. "WARRANTS" shall mean the Common Stock Purchase Warrants in the
form attached hereto Exhibit C.
ARTICLE II
SALE AND PURCHASE OF PREFERRED STOCK AND WARRANTS; PURCHASE PRICE
2.1. SALE OF SERIES A PREFERRED STOCK AND ISSUANCE OF WARRANTS.
2.1.1. Upon the terms and subject to the conditions set forth herein, and
in accordance with applicable law, the Company agrees to sell to the Investors,
and each Investor, severally, agrees to purchase from the Company, on the
Closing Date the number of shares of Series A Preferred Stock and the number of
Warrants set forth after his name on Schedule A to this Agreement for the
Purchase Price set forth in said Schedule A. The Purchase Price shall be paid by
the Investors to the Company on the Closing Date by a wire transfer of the
Purchase Price into escrow to be held by the escrow agent pursuant to the terms
of the Escrow Agreement. The Company shall cause the Series A Preferred Stock
and the Warrants to be issued to the Investors upon the release of the Purchase
Price to the Company by the escrow agent pursuant to the terms of the Escrow
Agreement. The Company shall register the shares of Common Stock into which the
Series A Preferred Stock is convertible pursuant to the terms and conditions of
a Registration Rights Agreement attached hereto as EXHIBIT B.
2.1.2. Each share of Series A Preferred Stock shall initially be
convertible by the Investors into one (1) share of Common Stock; provided,
however, that no Investor shall be entitled to convert the Series A Preferred
Stock into shares of Common Stock or to exercise the Warrants to the extent that
such conversion or exercise would result in beneficial ownership by such
Investors and its Affiliates of more than 4.9% of the then outstanding number of
shares of Common Stock on such date. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. The limitation set forth in this Section 2.1.2 is referred to
as the "4.9% Limitation."
2.1.3. Upon execution and delivery of this Agreement and the Company's
receipt of the Purchase Price from the Escrow Agent pursuant to the terms of the
Escrow Agreement, the Company shall issue to the Investors the Warrants to
purchase an aggregate of 7,389,476 shares of Common Stock at exercise prices as
stated in the Warrants, all pursuant to the terms and conditions of the form of
Warrants attached hereto as Exhibit C; and subject to 4.9% Limitation as
provided in Section 2.1.2 of this Agreement.
2.2. PURCHASE PRICE. The Purchase Price shall be delivered by the Investors in
the form of wire transfers in United States dollars from the Investors to the
escrow agent pursuant to the Escrow Agreement on the Closing Date.
2.3. ACQUISITION OF KONZERN STOCK. The Company shall have acquired all of the
outstanding capital stock of Guangzhou Konzern Medicine Co. Ltd., a company
organized under the laws of the People's Republic of China ("Konzern"), in
exchange for an aggregate of 6,530,000 shares of Common Stock, and no Person
shall have any right, title or interest in, or any right or option to acquire,
any shares of any class of capital stock of Konzern except as set forth in
Schedule 4.1.3 or as otherwise contemplated by this Agreement.
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ARTICLE III
CLOSING DATE AND DELIVERIES AT CLOSING
3.1. CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "CLOSING"), unless expressly determined herein, shall be held at
the offices of the Company, at 1:00 P.M. local time, on the Closing Date or on
such other date and at such other place as may be mutually agreed by the
parties, including closing by facsimile with originals to follow.
3.2. DELIVERIES BY THE COMPANY. In addition to and without limiting any other
provision of this Agreement, the Company agrees to deliver, or cause to be
delivered, to the escrow agent under the Escrow Agreement, the following:
(a) At or prior to Closing, an executed Agreement with all exhibits and
schedules attached hereto;
(b) At or prior to Closing, executed Warrants in the name of the Investors
in the form attached hereto as Exhibit C;
(c) The executed Registration Rights Agreement;
(d) Certifications in form and substance acceptable to the Company and the
Investors from any and all brokers or agents involved in the transactions
contemplated hereby as to the amount of commission or compensation payable to
such broker or agent as a result of the consummation of the transactions
contemplated hereby and from the Company or Investors, as appropriate, to the
effect that reasonable reserves for any other commissions or compensation that
may be claimed by any broker or agent have been set aside;
(e) Evidence of approval of the board of directors of the Company of the
Transaction Documents and the transactions contemplated hereby;
(f) Certificate of the President and the Secretary of the Company that the
Certificate of Designation has been adopted and filed;
(g) Evidence that the Certificate of Amendment to the Certificate of
Incorporation of the Company adopting the provision described in Section 6.19
has been approved by the Company's board of directors subject to stockholder
approval.
(h) Good standing certificates of the Company issued by the Secretary of
State of Delaware;
(i) An opinion from the Company's special counsel concerning the
Transaction Documents and the transactions contemplated hereby in form and
substance reasonably acceptable to Investors;
(j) An opinion from Konzern's Chinese counsel concerning the Konzern and
the transactions contemplated hereby in form and substance reasonably acceptable
to Investors;
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(k) Stock certificate in the name of Investors evidencing the Series A
Preferred Stock;
(l) The executed Escrow Agreement; and
(m) Copies of all executive employment agreements, all past and present
financing documentation or other documentation where stock could potentially be
issued or issued as payment, all past and present litigation documents and
historical financials, not previously provided to Investors.
(n) Such other documents or certificates as shall be reasonably requested
by Investors or its counsel.
3.3. DELIVERIES BY INVESTORS. In addition to and without limiting any other
provision of this Agreement, the Investors agrees to deliver, or cause to be
delivered, to the escrow agent under the Escrow Agreement, the following:
(a) A deposit in the amount of the Purchase Price;
(b) The executed Agreement with all Exhibits and Schedules attached
hereto;
(c) The executed Registration Rights Agreement;
(d) The executed Escrow Agreement; and
(e) Such other documents or certificates as shall be reasonably requested
by the Company or its counsel.
In the event any document provided to the other party in Paragraphs 3.2 and 3.3
herein are provided by facsimile, the party shall forward an original document
to the other party within seven (7) business days.
3.4. FURTHER ASSURANCES. The Company and the Investors shall, upon request, on
or after the Closing Date, cooperate with each other (specifically, the Company
shall cooperate with the Investors, and the Investors shall cooperate with the
Company) by furnishing any additional information, executing and delivering any
additional documents and/or other instruments and doing any and all such things
as may be reasonably required by the parties or their counsel to consummate or
otherwise implement the transactions contemplated by this Agreement.
3.5. WAIVER. The Investors may waive any of the requirements of Section 3.2 of
this Agreement or any of its rights under the Escrow Agreement, and the Company
at its discretion may waive any of its rights of Section 3.3 of this Agreement
or any of its rights under the Escrow Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors as of the date
hereof and as of Closing (which warranties and representations shall survive the
Closing regardless of what examinations, inspections, audits and other
investigations the Investors has heretofore made or may hereinafter make with
respect to such warranties and representations) as follows:
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4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and Konzern is a Chinese equity joint venture, which is similar to a
limited liability company, and each of the Company and Konzern has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and is duly qualified to do
business in any other jurisdiction by virtue of the nature of the businesses
conducted by it or the ownership or leasing of its properties, except where the
failure to be so qualified will not, when taken together with all other such
failures, have a Material Adverse Effect on the business, operations,
properties, assets, financial condition or results of operation of the Company
and its subsidiaries taken as a whole.
4.2. ARTICLES OF INCORPORATION AND BY-LAWS. The complete and correct copies of
the Company's Articles and By-Laws, as in effect on the Closing Date, has been
delivered to the Investors.
4.3. CAPITALIZATION.
4.3.1. The authorized and outstanding capital stock of the Company as of
the date of this Agreement and as adjusted to reflect issuances pursuant to or
contemplated by this Agreement is set forth in Schedule 4.3.1 to this Agreement.
Schedule 4.3.1 contains all shares and derivatives currently and potentially
outstanding. The Company hereby represents that any and all shares and current
potentially dilutive events have been included in Schedule 4.3.1, including
employment agreements, acquisition, consulting agreements, debts, payments,
financing or business relationships that could be paid in equity, derivatives or
resulting in additional equity issuances.
4.3.2. All outstanding shares of capital stock have been duly authorized
and are validly issued, and are fully paid and non-assessable and free from
preemptive rights. All shares of capital stock described above to be issued have
been duly authorized and when issued, will be validly issued, fully paid and
non-assessable and free from preemptive rights.
4.3.3. Except pursuant to this Agreement and as set forth in Schedule
4.3.1 hereto, and as set forth in the Company's SEC Documents, filed with the
SEC, as of the date hereof and as of the Closing Date, there are not now
outstanding options, warrants, rights to subscribe for, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any class of capital stock of the Company, or
agreements, understandings or arrangements to which the Company is a party, or
by which the Company is or may be bound, to issue additional shares of its
capital stock or options, warrants, scrip or rights to subscribe for, calls or
commitment of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of any class of its capital
stock. The Company agrees to inform the Investors in writing of any additional
warrants granted prior to the Closing Date.
4.3.4. The Company on the Closing Date (i) will have full right, power,
and authority to sell, assign, transfer, and deliver, by reason of record and
beneficial ownership, to the Investors, the Series A Preferred Stock hereunder,
free and clear of all liens, charges, claims, options, pledges, restrictions,
and encumbrances whatsoever; and (ii) upon conversion of the Series A Preferred
Stock or exercise of the Warrants, the Investors will acquire title to such
Shares, free and clear of all liens, charges, claims, options, pledges,
restrictions, and encumbrances whatsoever, except as otherwise provided in this
Agreement as to the limitation on the voting rights of such Shares in certain
circumstances and except for any of the foregoing which results from actions or
omissions on the part of the Investors.
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4.4. AUTHORITY. The Company has all requisite corporate power and authority to
execute and deliver this Agreement, the Series A Preferred Stock, and the
Warrants, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Company is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
except as disclosed in this Agreement. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms;
provided, however, that no representation is made with respect to the ability of
the Investors to convert the Series A Preferred Stock or exercise any Warrant if
and to the extent that the Conversion Price, as defined in the Certificate of
Designation, of the Series A Preferred Stock or the number of Shares issuable
upon exercise of the Warrants would result in the issuance of a number of shares
of Common Stock which is greater than the amount by which the authorized Common
Stock exceeds the sum of the outstanding Common Stock and the shares of Common
Stock reserved for issuance pursuant to outstanding agreements and outstanding
options, warrants, rights, convertible securities and other securities upon the
exercise or conversion of which or pursuant to the terms of which additional
shares of Common Stock may be issuable (the foregoing proviso being referred to
as the "AUTHORIZED STOCK PROVISO").
4.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution and delivery of
this Agreement by the Company does not, and the performance by the Company of
its obligations hereunder will not: (i) conflict with or violate the Articles or
By-Laws or other governing instruments of the Company or Konzern; (ii) conflict
with, breach or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively, "Laws") in
effect as of the date of this Agreement and applicable to the Company or
Konzern; or (iii) result in any breach of, constitute a default (or an event
that with notice or lapse of time or both would become a default) under, give to
any other entity any right of termination, amendment, acceleration or
cancellation of, require payment under, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company or Konzern
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or Konzern is a party or by the Company or Konzern or any of their
respective properties or assets is bound. Excluding from the foregoing are such
violations, conflicts, breaches, defaults, terminations, accelerations,
creations of liens, or incumbency that would not, in the aggregate, have a
Material Adverse Effect except to the extent that stockholder approval may be
required as a result of the Authorized Stock Proviso, in which event, the
Company will seek stockholder approval to an increase in the authorized Common
Stock sufficient to enable the Company to be in compliance with this Section
4.5.
4.6. REPORT AND FINANCIAL STATEMENTS.
4.6.1. The Company has delivered to the Investors the audited balance
sheet of Konzern as of December 31, 2004 and the audited statements of
operations, stockholders equity and cash flows for the years ended December 31,
2004 and 2003, and the unaudited balance sheet as of September 30, 2005 and
unaudited statements of operations and cash flows for the nine months ended
September 30, 2005 and 2004 and stockholders' equity for the nine months ended
September 30, 2005, in each cash including notes to the financial statements
(collectively, the "Financial Statements"). Each of the balance sheets contained
in such Financial Statements (including the related notes and schedules thereto)
fairly presented the financial position of Konzern, as of its date, and each of
the statements of operations, stockholders' equity and cash flows in such
Financial Statements (including any related notes and schedules thereto) fairly
presents, changes in stockholders' equity and changes in cash flows, as the case
may be, of Konzern, for the periods to which they relate, in each case in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") consistently applied during the periods involved, except in each case as
may be noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements. The books and records of the Company have been, and are
being, maintained in all material respects in accordance with U.S. GAAP and any
other applicable legal and accounting requirements and reflect only actual
transaction. Xxxxx Xxxxxxxx Xxxxx Xxxxxx and Xxxxxx, LLP, who audited the
audited financial statements, is independent within the meaning of the
regulations of the SEC.
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4.6.2. The Company has provided the Investors with a copy of the
management letter issued by Xxxxx Xxxxxxxx Xxxxx Xxxxxx and Xxxxxx, LLP in
connection with its audit of Konzern's audited financial statements for 2004 if
such firm issued a management letter. The Company has addressed, to the
satisfaction of Xxxxx Xxxxxxxx Xxxxx Xxxxxx and Xxxxxx, LLP any deficiencies
reflected in the management letter.
4.7. COMPLIANCE WITH APPLICABLE LAWS. The Company is not in violation of, or, to
the knowledge of the Company is under investigation with respect to or has been
given notice or has been charged with the violation of any Law of a governmental
agency, except for violations which individually or in the aggregate do not have
a Material Adverse Effect.
4.8. BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or Commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
4.9. SEC DOCUMENTS. The Investors acknowledges that the Company is a publicly
held company and has made available to the Investors true and complete copies of
any requested SEC Documents. The Company has registered its Common Stock
pursuant to Section 12(g) of the 1934 Act. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed.
4.10. LITIGATION. To the knowledge of the Company, no litigation, claim, or
other proceeding before any court or governmental agency is pending or to the
knowledge of the Company, threatened against the Company or Konzern, the
prosecution or outcome of which, if adversely determined, is likely to have a
Material Adverse Effect.
4.11. EXEMPTION FROM REGISTRATION. Subject to the accuracy of the Investors'
representations in Article V, except as required pursuant to the Registration
Rights Agreement, the sale of the Series A Preferred Stock and Warrants by the
Company to the Investors will not require registration under the 1933 Act, but
may require registration or exemption from registration under New York state
securities law if applicable to the Investors. When validly converted in
accordance with the terms of the Series A Preferred Stock, and upon exercise of
the Warrants in accordance with their terms, the Shares underlying the Series A
Preferred Stock and the Warrants will be duly and validly issued, fully paid,
and non-assessable. The Company is issuing the Series A Preferred Stock and the
Warrants in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D as promulgated
by the SEC under the 1933 Act, and/or Section 4(2) of the 1933 Act; provided,
however, that certain filings and registrations may be required under state
securities "blue sky" laws depending upon the residency of the Investors.
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4.12. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its Affiliates nor, to the knowledge of the
Company, any Person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D as promulgated by the SEC under the 0000 Xxx) or general
advertising with respect to the sale of the Series A Preferred Stock or
Warrants, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Series A Preferred Stock or Warrants, under the 1933 Act,
except as required herein.
4.13. NO MATERIAL ADVERSE EFFECT. Since September 30, 2005, no event or
circumstance resulting in a Material Adverse Effect has occurred or exists with
respect to Konzern. To the knowledge of the Company, no material supplier or
customer has given notice, oral or written, that it intends to cease or reduce
the volume of its business with Konzern from historical levels.
4.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not disclosed to any
Investor any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed; provided, however, that the Company has disclosed to the
Investors matters relating to the Company's acquisition of Konzern and the
financing of such acquisition.
4.15. INTERNAL CONTROLS AND PROCEDURES. To the knowledge of the Company, Konzern
maintains books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which Konzern or any
subsidiary is a party or by which its properties are bound are executed with
management's authorization; (ii) the recorded accounting of Konzern's
consolidated assets is compared with existing assets at regular intervals; (iii)
access to Konzern's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which Konzern or any
subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with standards of the Public Company Accounting Oversight Board; it
being understood that Konzern has not conducted an internal controls audit and
that no such audit has been required under applicable law.
4.16. FULL DISCLOSURE. No representation or warranty made by the Company in this
Agreement and no certificate or document furnished or to be furnished to the
Investors pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein, taken as a whole,
not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investors severally (except for Section 5.1.1, as to which the
representation is made by Baron) represent and warrant to the Company that:
5.1. ORGANIZATION AND STANDING OF THE INVESTORS.
5.1.1. Xxxxxx represents that it is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware.
Xxxxxx was not formed for the purpose of investing solely in the Series A
Preferred Stock, the Warrants or the shares of Common Stock which are the
subject of this Agreement. Xxxxxx has the requisite power and authority to enter
into and perform this Agreement and to purchase the securities being sold to it
hereunder. The execution, delivery and performance of this Agreement by such
Investor and the consummation by such Investor of the transactions contemplated
hereby have been duly authorized by all necessary partnership action where
appropriate.
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5.1.2. The state in which any offer to purchase Preferred Stock hereunder
was made or accepted by such Investor is the state shown as such Investors'
address.
5.2. AUTHORIZATION AND POWER. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by such Investor and at the
Closing shall constitute valid and binding obligations of such Investor
enforceable against such Investor in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
5.3. NO CONFLICTS. The execution, delivery and performance of this Agreement and
the consummation by such Investor of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such Investors'
charter documents or bylaws where appropriate or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which such Investor is a party, or result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Investor or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a Material Adverse Effect on such Investors). Such Investor is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of such Investors' obligations under this
Agreement or to purchase the securities from the Company in accordance with the
terms hereof, provided that for purposes of the representation made in this
sentence, such Investor is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.
5.4. FINANCIAL RISKS. Such Investor acknowledges that such Investor is able to
bear the financial risks associated with an investment in the securities being
purchased by such Investor from the Company and that it has been given full
access to such records of the Company and the subsidiaries and to the officers
of the Company and the subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation. Such Investor is capable of evaluating
the risks and merits of an investment in the securities being purchased by such
Investor from the Company by virtue of its experience as an Investors and its
knowledge, experience, and sophistication in financial and business matters and
such Investor is capable of bearing the entire loss of its investment in the
securities being purchased by such Investor from the Company.
5.5. ACCREDITED INVESTORS. Such Investor is (i) an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated under the 1933 Act by
reason of Rule 501(a)(3) and (6), (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an entity)
and professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the securities being purchased by such Investor from the Company. Such
Investor is acquiring the Securities for investment and not with a view to the
sale or distribution thereof and understands that such Securities are restricted
securities, as defined in the 1933 Act, and may not be sold or otherwise
distributed except pursuant to an effective registration statement or an
exemption from the registration requirements of the 1933 Act and that the
certificates for such securities shares and Warrants will bear an investment
legend.
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5.6. BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or Commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of such Investor.
5.7. KNOWLEDGE OF COMPANY. Such Investor and such Investor's advisors, if any,
have been, upon request, furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the securities being purchased by such Investor from the Company. Such
Investor and such Investor's advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries.
5.8. RISK FACTORS. Such Investor understands that such Investor's investment in
the securities being purchased by such Investor from the Company involves a high
degree of risk. Such Investor understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the securities being purchased by such Investor
from the Company. Such Investor warrants that such Investor is able to bear the
complete loss of such Investor's investment in the securities being purchased by
such Investor from the Company. In acquiring the Securities, such Investor is
not relying upon any projections of the future financial condition, results of
operations or cash flows relating to the Company.
5.9. FULL DISCLOSURE. No representation or warranty made by such Investor in
this Agreement and no certificate or document furnished or to be furnished to
the Company pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
Except as set forth or referred to in this Agreement, (a) such Investor does not
have any agreement or understanding with any person relating to acquiring,
holding, voting or disposing of any equity securities of the Company. and (b)
during the past five years there has not occurred any event listed in Item
401(f) of Regulation S-K or any investigation relating to any such event with
respect to such Investor nor any of its managing partners.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1. REGISTRATION RIGHTS. The Company shall cause the Registration Rights
Agreement to remain in full force and effect according to the provisions of the
Registration Rights Agreement and the Company shall comply in all material
respects with the terms thereof.
6.2. RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Shares underlying the Series A Preferred Stock
and Warrants; provided, however, that if, as a result of the Authorized Stock
Proviso, there are not sufficient shares reserved as required in this Section
6.2, the Company shall, within thirty (30) days after the Company becomes aware
of such deficiency, prepare and file with the Commission a proxy statement
pursuant to which the Company will seek stockholder approval for an increase in
the authorized Common Stock sufficient to enable the Company to be in compliance
with this Section 6.2. Such Investor agrees to vote in favor of such proposal.
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6.3. COMPLIANCE WITH LAWS. The Company hereby agrees to comply in all material
respects with the Company's reporting, filing and other obligations under the
Laws.
6.4. EXCHANGE ACT REGISTRATION. The Company will use its best efforts to comply
in all respects with its reporting and filing obligations under the 1934 Act,
and will not take any action or file any document (whether or not permitted by
the 1934 Act or the rules thereunder) to terminate or suspend any such
registration or to terminate or suspend its reporting and filing obligations
under the 1934 until the Investors have disposed of all of their Shares.
6.5. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will take all
steps necessary to preserve and continue the corporate existence of the Company.
The Company shall not enter into any agreement, the terms of which agreement
would restrict or impair the right or ability of the Company to perform any of
its obligations under this Agreement or any of the other agreements attached as
exhibits hereto.
6.6. SERIES A PREFERRED STOCK. Until the earlier of (a) three years from the
Closing or (b) such date as the Investors shall have converted not less than 90%
of the shares of Series A Preferred Stock and sold the underlying Shares or (c)
such date as the Investors shall have transferred not less than 90% of the
shares of Series A Preferred Stock or (d) such date as the total number of
shares of Preferred Stock which the Investors shall have either transferred or
converted and sold the underlying Shares shall represent not less than 90% of
the shares of Series A Preferred Stock issued to the Investors, the Company will
not issue any preferred stock of the Company with the exception of Series A
Preferred Stock issued to the Investors.
6.7. CONVERTIBLE DEBT. On or prior to the Closing Date, the Company will cause
to be cancelled all convertible debt in the Company. Until the earlier of (a)
three years from the Closing or (b) such date as the Investors shall have
converted not less than 90% of the shares of Series A Preferred Stock and sold
the underlying Shares or (c) such date as the Investors shall have transferred
not less than 90% of the shares of Series A Preferred Stock or (d) such date as
the total number of shares of Preferred Stock which the Investors shall have
either transferred or converted and sold the underlying Shares shall represent
not less than 90% of the shares of Series A Preferred Stock issued to the
Investors, the Company will not issue any convertible debt.
6.8. DEBT LIMITATION. The Company agrees for two years after Closing not to
enter into any new borrowings of more than three times the sum of the EBITDA
from recurring operations over the trailing four quarters.
6.9. RESET EQUITY DEALS. On or prior to the Closing Date, the Company will cause
to be cancelled any and all reset features related to any shares outstanding
that could result in additional shares being issued. For a period of three years
from the closing the Company will not enter into any transactions that have any
reset features that could result in additional shares being issued. For purposes
of this Section 6.9, a reset provision for a convertible security or derivative
security shall mean a provision whereby the issuance of securities at a lower
price or having a lower conversion or exercise price will result in the
conversion or exercise price of the security being reduced to the lower price or
lower conversion or exercise price or more shares being issued, as the case may
be or which have a conversion or exercise price that is based on the market
price at the time of conversion or exercise or any other device which results in
an adjustment to the exercise price or conversion price of the above mentioned
securities in section 6.9 other than stock dividends, stock splits, stock
distributions, combination of shares, reverse splits, and other
recapitalizations, as long as they effect all stockholders appropriately.
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6.10. INDEPENDENT DIRECTORS.
6.10.1. The Company shall have caused the appointment of the majority of
the board of directors to be independent directors, as defined by the rules of
the Nasdaq Stock Market, not later than sixty (60) days after Closing.
6.10.2. If, at any time from the expiration of such sixty (60) day
period and until the earlier of (a) three years from the Closing or (b) such
date as the Investors shall have converted not less than 90% of the shares of
Series A Preferred Stock and sold the underlying Shares or (c) such date as the
Investors shall have transferred not less than 90% of the shares of Series A
Preferred Stock, the board of directors shall not be composed of a majority of
independent directors:
6.10.2.1. for a reason other than for an excused reason, the Company
shall have 75 days, to take such steps as are necessary so that a majority of
the Company's directors are independent directors, and
6.10.2.2. for an excused reason, the Company shall have 75 days from
the date that the Company becomes aware of the event (or the last event if there
are more than one such event) giving rise to the excused reason, to take such
steps as are necessary so that a majority of the Company's directors are
independent directors.
6.10.3. For purposes of this Section 6.10, an excused reason shall mean
the death or resignation of an independent director or the occurrence of an
event whereby an independent director ceases to be independent.
6.10.4. If, during the period referred to in Section 6.10.2 of this
Agreement, the Company shall have failed to have a board of directors composed
of a majority of independent directors after the date by which such situation
was to have been cured pursuant to Section 6.10.2.1 or Section 6.10.2.2 of this
Agreement, whichever shall apply, the Company shall pay to the Investors, as
liquidated damages and not as a penalty, an amount equal to twelve percent (12%)
per annum of the Purchase Price of the then outstanding shares of Series A
Preferred Stock, payable monthly in cash or Series A Preferred Stock at the
option of the Investors, based on the number of days that such condition exists.
The parties agree that the only damages payable for a violation of such
provisions shall be such liquidated damages. Nothing shall preclude the
Investors from pursuing or obtaining specific performance or other equitable
relief with respect to this Agreement. The parties hereto agree that the
liquidated damages provided for in this Section 6.10.4 constitute a reasonable
estimate of the damages that may be incurred by the Investors by reason of the
failure of the Company to have a majority of directors as independent directors.
6.10.5. In no event shall the total payments made pursuant to this Section
6.10 and Section 6.11, whether in cash or Series A Preferred Stock exceed in the
aggregate eighteen percent (18%) of the Purchase Price of the outstanding shares
of Series A Preferred Stock
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6.11. INDEPENDENT DIRECTORS BECOME MAJORITY OF AUDIT AND COMPENSATION
COMMITTEES. The Company will cause the appointment of a majority of independent
directors to the audit and compensation committees of the board of directors
within sixty (60) days after Closing. If at any time after the expiration of
such sixty (60) day period, independent directors do not compose the majority of
the audit and compensation committees, the Company shall pay to the Investors,
pro rata, as liquidated damages and not as a penalty, an amount equal to twelve
percent (12%) per annum of the Purchase Price of the then outstanding Series A
Preferred Stock, payable monthly in cash or Series A Preferred Stock at the
option of the Investors, such payment shall be based on the number of days that
such condition exists. The parties agree that the only damages payable for a
violation of the terms of this Agreement with respect to which liquidated
damages are expressly provided shall be such liquidated damages. Nothing shall
preclude the Investors from pursuing other remedies or obtaining specific
performance or other equitable relief with respect to this Agreement.
Notwithstanding the foregoing, no liquidated damages shall be payable pursuant
to this Section 6.11 during any period for which liquidated damages are payable
pursuant to Section 6.10.
6.12. CHIEF FINANCIAL OFFICER. The Company will elect a chief financial officer
who is familiar with both the conduct of business in China and the SEC's rules
and regulations relating to accounting, financial statements and accounting
controls within fifteen days after Closing.
6.13. USE OF PROCEEDS. The Company will use the net proceeds from the sale of
the Series A Preferred Stock and the Warrants (excluding amounts paid by the
Company for legal and administrative fees and other expenses of the transaction)
for working capital.
6.14. RIGHT OF FIRST REFUSAL
6.14.1. In the event that the Company seeks to raise additional funds
through a private placement of its securities (a "Proposed Financing"), other
than Exempt Issuances, the Investors shall have the right to participate in any
subsequent funding by the Company of the offering price on a pro rata basis,
based on the percentage that (a) the number of Shares held by each Investors
plus the number of Shares issuable upon exercise of the Series A Preferred Stock
then owned by such Investor, without regard to the 4.9% Limitation, bears to (b)
the total number of shares of Common Stock outstanding plus the number of Shares
issuable upon conversion of the Series A Preferred Stock and any other series of
convertible preferred stock or debt securities, without regard to the 4.9%
Limitations any other limitations on exercise such other convertible preferred
stock or debt securities.
6.14.2. The terms on which the Investors shall purchase securities
pursuant to Proposed Financing shall be the same as such securities are
purchased by other Investors. The Company shall give the Investors not less than
ten (10) days notice setting forth the terms of the Proposed Financing. In the
event that the terms of the Proposed Financing are changed, the Company shall
provide the Investors with the same notice of the revised terms that are
provided to the other Investors.
6.14.3. In the event that the Investors do not exercise its right to
participate in the Proposed Financing, the Company may sell the securities in
the Proposed Financing at a price and on terms which are no more favorable to
the Investors than the terms provided to the Investors. If the Company
subsequently changes the price or terms so that the terms are at a price or more
favorable to the Investors, the Company shall reoffer the securities to the
Investors as provided in Section 6.14.2 of this Agreement.
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6.15. PRICE ADJUSTMENT. From the date hereof until such time as the Investors
hold no Securities, except for Exempt Issuances, as to which this Section 6.15
does not apply, if the Company closes on the sale or issuance of Common Stock at
a price, or warrants, options, convertible debt or equity securities with a
exercise price per share or exercise price per share which is less than the
Conversion Price then in effect (such lower sales price, conversion or exercise
price, as the case may be, being referred to as the "Lower Price"), the
Conversion Price in effect from and after the date of such transaction shall be
reduced to the Lower Price. For purpose of determining the exercise price of
warrants issued by the Company, the price, if any, paid per share for the
warrants shall be added to the exercise price of the warrants. A similar
provision shall be included in the Warrants.
6.16. PRICE ADJUSTMENTS BASED ON PRE-TAX INCOME PER SHARE AND ADJUSTED EBITDA.
The Certificate of Designation shall contain the following provisions, and a
similar provision shall be included in the Warrants.
6.16.1. In the event Konzern's Adjusted EBITDA for the year ended December
31, 2005 is less than $5,650,000, then the Conversion Price shall be reduced by
the percentage shortfall, up to a maximum of 30%. Thus, if Adjusted EBITDA for
2005 is $3,955,000 or less, the Conversion Price shall be reduced by 30%. As
used in this Section 6.16.1, Adjusted EBITDA shall mean shall mean earnings
before interest, taxes, depreciation and amortization, determined in accordance
with U.S. GAAP, minus capital expenditures. Such reduction shall be made at the
time the Company files its Form 10-KSB for the year ended December 31, 2005, and
shall apply to the all of the Series A Preferred Stock which is outstanding on
the date the Form 10-KSB is filed, or, if not filed on time, on the date that
filing was required.
6.16.2. In addition to any adjustment pursuant to Section 6.16.1 if this
Agreement, in the event the Company's Pre-Tax Income for the year ended December
31, 2006 is between $0.40 and $0.20 (50% Decline) per share on a fully-diluted
basis, then the conversion price shall be reduced proportionately by 0% if the
fully-diluted Pre Tax Income is $0.40 per share or greater and by 50% if the
fully-diluted Pre Tax Income is $0.20 per share (50% decrease) or less. For
example if the earnings are $0.32 per share (20% Decline) then the Conversion
Price, as defined in the Certificate of Designation, shall be reduced by 20% of
the then current conversion price per share. Fully-diluted Pre-Tax Income Per
Share shall be based on the number of outstanding shares of Common Stock plus
all shares of Common Stock issuable upon conversion of all outstanding
convertible securities and upon exercise of all outstanding warrants, options
and rights, regardless of whether (i) such shares would be included in
determining diluted earnings per share and (ii) such convertible securities are
subject to a restriction or limitation on exercise. Thus, for purpose of
determining fully-diluted Pre-Tax Income Per Share, the 4.9% Limitation shall be
disregarded. The adjustment to the conversion price shall be made within five
business days of the audited numbers being reported to the SEC. This Section
6.16.2 shall apply to the all of the Series A Preferred Stock which is
outstanding on the date the Form 10-KSB or Form 10-K is filed, or, if not filed
on time, on the date that filing was required.
6.17. INSIDER SELLING. The earliest any "Insiders" can start selling their
shares in the public market shall be eighteen months from Closing. After
eighteen months following the Closing, no Insider shall sell more than 10% of
his or her shares in the Company in the public market, and such shares may be
sold pursuant to either Rule 144 or any registration statement which may cover
such shares. Insiders shall include all persons who are officers and directors
of the Company. Xxxxxx Xxxxxx Xxxxxx and the Investors shall not be considered
"Insiders." The restrictions in this Section 6.17 shall apply to shares issued
pursuant to a stock option or long-term incentive plans which may be approved by
the Compensation Committee provided that such committee is comprises of a
majority of independent directors. The Company may include in the registration
statement filed pursuant to the Registration Rights Agreement all of the shares
of Common Stock which are outstanding immediately prior to the Closing, none of
which shall be owned by Affiliates of the Company or Konzern.
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6.18. EMPLOYMENT AND CONSULTING CONTRACTS. For three years after the Closing,
Company must have a unanimous opinion from the Compensation Committee of the
Board of Directors that any awards other than salary are usual, appropriate and
reasonable for any officer, director or consultants whose compensation is more
than $100,000 per annum holding a similar position in other public companies
with independent majority boards with similar market capitalizations in the same
industry with securities listed on the OTCBB, ASE, NYSE or Nasdaq.
6.19. SUBSEQUENT EQUITY SALES. From the date hereof until such time as the
Investors hold no more than 5% of the Shares (determined as if the Series A
Preferred Stock were fully converted and the Warrants fully exercised), the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a "Variable Rate Transaction" or an
"MFN Transaction" (each as defined below). The term "Variable Rate Transaction"
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock. The
term "MFN Transaction" shall mean a transaction in which the Company issues or
sells any securities in a capital raising transaction or series of related
transactions which grants to an investor the right to receive additional shares
based upon future transactions of the Company on terms which are more favorable
to such Investors than the terms granted to the Investors in this Agreement. Any
Investor shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages. Notwithstanding the foregoing, this Section 6.19 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate Transaction
or MFN Transaction shall be an Exempt Issuance.
6.20. AMENDMENT TO CERTIFICATE OF INCORPORATION. At or before the next annual
meeting of the stockholders of the Company, the Board of Directors shall propose
and submit to the holders of the Common Stock for approval, an amendment to the
Certificate of Incorporation that provides substantially as follows:
"The terms and conditions of any rights, options and warrants
approved by the Board of Directors may provide that any or all of such
terms and conditions may be waived or amended only with the consent of
the holders of a designated percentage of a designated class or classes
of capital stock of the Corporation (or a designated group or groups of
holders within such class or classes, including but not limited to
disinterested holders), and the applicable terms and conditions of any
such rights, options or warrants so conditioned may not be waived or
amended absent such consent."
6.21. STOCK SPLITS. All forward and reverse stock splits shall effect all equity
and derivative holders proportionately.
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6.22. PAYMENT OF DUE DILIGENCE EXPENSES. At Closing the Escrow Agent shall
disperse to the Investors Fifty Thousand Dollars ($50,000.00) for due diligence,
legal and any other expenses which the Investors may incur in connection with
this Agreement.
ARTICLE VII
COVENANTS OF THE INVESTORS
7.1. COMPLIANCE WITH LAW. The Investors' trading activities with respect to
shares of the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules and
regulations of any public market on which the Company's Common Stock is listed.
7.2. TRANSFER RESTRICTIONS. The Investors' acknowledge that (1) the Series A
Preferred Stock, Warrants and shares underlying the Series A Preferred Stock and
Warrants have not been registered under the provisions of the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Investors shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Series A Preferred Stock, Warrants and Shares underlying the Series A Preferred
Stock and Warrants to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration; and (2) any sale of the Series A
Preferred Stock, Warrants and shares underlying the Series A Preferred Stock and
Warrants made in reliance on Rule 144 promulgated under the 1933 Act may be made
only in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder.
7.3. RESTRICTIVE LEGEND. The Investors acknowledges and agrees that the Series A
Preferred Stock, the Warrants and the Shares underlying the Series A Preferred
Stock and Warrants, and, until such time as the Shares underlying the Series A
Preferred Stock and Warrants have been registered under the 1933 Act and sold in
accordance with an effective Registration Statement, certificates and other
instruments representing any of the Shares, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of any such securities):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, OR (2) IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S, OR (3) AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS AND THE HOLDER HAS PROVIDED THE COMPANY WITH AN OPINION OF
COUNSEL TO SUCH EFFECT."
7.4. AMENDMENT TO CERTIFICATE OF INCORPORATION. Investors hereby agree to vote
any shares of capital stock that they may own directly or beneficially, for the
amendment to the Certificate of Incorporation referenced in Section 6.20.
Pending adoption of such amendment, Investors hereby agrees for itself and its
successors and assigns that neither this Section 7.4 or Section 6.20 above, or
any restriction on exercise of the Warrant shall be amended, modified or waived
without the consent of the holders of a majority of the shares of Common Stock
held by Persons who are not Affiliates of the Company, or the Investors or
Affiliates of the Investors; except that the 4.9% Limitation may not be amended.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the transactions contemplated
hereby shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:
8.1. NO TERMINATION. This Agreement shall not have been terminated pursuant to
Article X hereof.
8.2. REPRESENTATIONS TRUE AND CORRECT. The representations and warranties of the
Investors contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as if made
on as of the Closing Date.
8.3. COMPLIANCE WITH COVENANTS. The Investors shall have performed and complied
in all material respects with all covenants, agreements, and conditions required
by this Agreement to be performed or complied by it prior to or at the Closing
Date.
8.4. NO ADVERSE PROCEEDINGS. On the Closing Date, no action or proceeding shall
be pending by any public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the consummation
of this Agreement or the transactions contemplated hereby or to recover any
damages or obtain other relief as a result of the transactions proposed hereby.
ARTICLE IX
CONDITIONS PRECEDENT TO INVESTORS' OBLIGATIONS
The obligation of the Investors to consummate the transactions
contemplated hereby shall be subject to the fulfillment, on or prior to Closing
Date unless specified otherwise, of the following conditions:
9.1. NO TERMINATION. This Agreement shall not have been terminated pursuant to
Article X hereof.
9.2. REPRESENTATIONS TRUE AND CORRECT. The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as if made
on as of the Closing Date.
9.3. COMPLIANCE WITH COVENANTS. The Company shall have performed and complied in
all material respects with all covenants, agreements, and conditions required by
this Agreement to be performed or complied by it prior to or at the Closing
Date.
9.4. NO ADVERSE PROCEEDINGS. On the Closing Date, no action or proceeding shall
be pending by any public authority or individual or entity before any court or
administrative body to restrain, enjoin, or otherwise prevent the consummation
of this Agreement or the transactions contemplated hereby or to recover any
damages or obtain other relief as a result of the transactions proposed hereby.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1. TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date
10.1.1. by mutual written consent of the Investors and the Company;
10.1.2. by the Company upon a material breach of any representation,
warranty, covenant or agreement on the part of the Investors set forth in this
Agreement, or the Investors upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company or the Investors,
respectively, shall have become untrue, in either case such that any of the
conditions set forth in Article VIII or Article IX hereof would not be satisfied
(a "TERMINATING BREACH"), and such breach shall, if capable of cure, not have
been cured within five (5) business days after receipt by the party in breach of
a notice from the non-breaching party setting forth in detail the nature of such
breach.
10.2. EFFECT OF TERMINATION. Except as otherwise provided herein, in the event
of the termination of this Agreement pursuant to Section 10.1 hereof, there
shall be no liability on the part of the Company or the Investors or any of
their respective officers, directors, agents or other representatives and all
rights and obligations of any party hereto shall cease.
10.3. AMENDMENT. This Agreement may be amended by the parties hereto any time
prior to the Closing Date by an instrument in writing signed by the parties
hereto; provided, however that the 4.9% Limitation may not be amended or waived.
10.4. WAIVER. At any time prior to the Closing Date, the Company or the
Investors, as appropriate, may: (a) extend the time for the performance of any
of the obligations or other acts of other party or; (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto which have been made to it or them; or (c) waive
compliance with any of the agreements or conditions contained herein for its or
their benefit other than the 4.9% Limitation which may not be waived. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound hereby.
ARTICLE XI
GENERAL PROVISIONS
11.1. TRANSACTION COSTS. Except as otherwise provided herein, each of the
parties shall pay all of his or its costs and expenses (including attorney fees
and other legal costs and expenses and accountants' fees and other accounting
costs and expenses) incurred by that party in connection with this Agreement;
provided, the Company shall pay Investors for its expenses as provided in
Section 6.22.
11.2. INDEMNIFICATION. The Investors agrees to indemnify, defend and hold the
Company (following the Closing Date) and its officers and directors harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities or damages, including interest, penalties and
reasonable attorney's fees, that it shall incur or suffer, which arise out of or
result from any breach of this Agreement by such Investors or failure by such
Investors to perform with respect to the representations, warranties or
covenants contained in this Agreement or in any exhibit or other instrument
furnished or to be furnished under this Agreement. The Company agrees to
indemnify, defend and hold the Investors (following the Closing Date) harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities or damages, including interest, penalties and
reasonable attorney's fees, that it shall incur or suffer, which arise out of,
result from or relate to any breach of this Agreement or failure by the Company
to perform with respect to the representations, warranties or covenants
contained in this Agreement or in any exhibit or other instrument furnished or
to be furnished under this Agreement. In no event shall the Company or the
Investors be entitled to recover consequential or punitive damages resulting
from a breach or violation of this Agreement nor shall any party have any
liability hereunder in the event of gross negligence or willful misconduct of
the indemnified party. In the event of the failure of the Company to issue the
Series A Preferred Stock and Warrants in violation of the provisions of this
Agreement, the Investors, as its sole remedy, shall be entitled to pursue a
remedy of specific performance upon tender into the Court an amount equal to the
Purchase Price hereunder. The indemnification by the Investors shall be limited
to $50,000.00. This Section 11.2 shall not relate to indemnification under the
Registration Rights Agreement.
-20-
11.3. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
11.4. ENTIRE AGREEMENT. This Agreement (together with the Schedule, Exhibits,
Warrants and documents referred to herein) constitute the entire agreement of
the parties and supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof.
11.5. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received if
delivered by facsimile transmission followed by registered or certified mail
confirmation; (iii) on the date delivered by an overnight courier service; or
(iv) on the on the date of delivery as shown on the return receipt, if mailed by
registered or certified mail, return receipt requested with postage and other
fees prepaid as follows:
If to the Company or Konzern:
Guangzhou Konzern Medicine Co. Ltd.
Xxxx 000 Xxxxxxx Xxxxxxx Xx. 0
Xxxxx Xxxxxx Xin Chengsi, Guangzhou
China
Attention: Xx. Xxxxxxx Xxxx, CEO
Facsimile:
With a copy to:
Katsky Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx P.C.
Facsimile No.: (000) 000-0000
and
-21-
Xx. Xxxxx Xxx 00 Xxxxxxx Xxxxx; Xxxxx X-00 Xxxx
Xxxxxxx Professional Center Xxxxxxxxx Xxxxxxxx, XX
00000 Facsimile: (000) 000-0000
If to the Investors:
at their respective addresses set forth in Schedule A
11.6. SEVERABILITY. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any such term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
11.7. BINDING EFFECT. All the terms and provisions of this Agreement whether so
expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors, legal
representatives, heirs, successors and assignees.
11.8. PREPARATION OF AGREEMENT. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its preparation.
The parties acknowledge each contributed and is equally responsible for its
preparation.
11.9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law.
11.10. JURISDICTION. This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of New York. If any action is
brought among the parties with respect to this Agreement or otherwise, by way of
a claim or counterclaim, the parties agree that in any such action, and on all
issues, the parties irrevocably waive their right to a trial by jury. Exclusive
jurisdiction and venue for any such action shall be the federal and state courts
situated in the City, County and State of New York. In the event suit or action
is brought by any party under this Agreement to enforce any of its terms, or in
any appeal therefrom, it is agreed that the prevailing party shall be entitled
to reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court if such party prevails on substantially all issues in dispute.
11.11. PREPARATION AND FILING OF SECURITIES AND EXCHANGE COMMISSION FILINGS. The
Investors shall reasonably assist and cooperate with the Company in the
preparation of all filings with the SEC after the Closing Date due after the
Closing Date.
11.12. FURTHER ASSURANCES, COOPERATION. Each party shall, upon reasonable
request by the other party, execute and deliver any additional documents
necessary or desirable to complete the transactions herein pursuant to and in
the manner contemplated by this Agreement. The parties hereto agree to cooperate
and use their respective best efforts to consummate the transactions
contemplated by this Agreement.
-22-
11.13. SURVIVAL. The representations, warranties, covenants and agreements made
herein shall survive the Closing of the transaction contemplated hereby.
11.14. THIRD PARTIES. Except as disclosed in this Agreement, nothing in this
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective administrators, executors, legal
representatives, heirs, successors and assignees. Nothing in this Agreement is
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party to this
Agreement.
11.15. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty, covenant or agreement herein, nor
shall nay single or partial exercise of any such right preclude other or further
exercise thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
11.16. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement. A facsimile transmission of this
signed Agreement shall be legal and binding on the party who delivered the
Agreement by facsimile transmission; provided, that such party shall promptly
deliver the signed Agreement by overnight courier services.
[SIGNATURES ON FOLLOWING PAGE]
-23-
IN WITNESS WHEREOF, the Investors and the Company have as of the date
first written above executed this Agreement.
THE COMPANY:
XXXXXXXXXX HOLDINGS III, INC.
----------------------------
By: Xxxxx Xxx, President
INVESTORS:
XXXXXX PARTNERS LP
By: Xxxxxx Capital Advisors, LLC, its General Partners
By:________________________________
Xxxxxx Xxxxxx Xxxxxx
President
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx XX 00000
----------------------------
Ray and Xxx Xxxxxx, JTROS
00 Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
----------------------------
Xxxxx Xxxxx
00 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
----------------------------
Xxxxxxx X Xxxxxx
00 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
-24-
SCHEDULE A
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES
AMOUNT OF INTO WHICH PREFERRED UNDERLYING "A"
NAME AND ADDRESS INVESTMENT STOCK IS CONVERTIBLE AND "B" WARRANTS
---------------- ---------- -------------------- ---------------------
Xxxxxx Partners LP
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 $3,300,000 2,640,000 3,126,316 / 3,126,316
Attn: Xxxxxx Xxxxxx Xxxxxx
Xxx and Xxx Xxxxxx, JTROS 200,000 160,000 189,474/189,474
00 Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
Xxxxx Xxxxx 200,000 160,000 189,474/189,474
00 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Xxxxxxx X Xxxxxx 200,000 160,000 189,474/189,474
00 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
-25-
SCHEDULE 4.3.1 - CAPITALIZATION
-26-
EXHIBIT A
FORM OF CERTIFICATE OF DEISGNATION
-27-
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
-28-
EXHIBIT C
WARRANTS
-29-
EXHIBIT D
ESCROW AGREEMENT
-30-
