SERIES A AND SERIES B NOTES CONVERSION AGREEMENT
SERIES
A AND SERIES B NOTES CONVERSION AGREEMENT
THIS
SERIES A AND SERIES B NOTES CONVERSION AGREEMENT (this “Agreement”), dated as of
January 7, 2010 (the “Agreement
Date”), by and among Solar EnerTech Corp., a Delaware corporation (the
“Company”), and the
holders of Notes (as defined below) representing at least seventy-five percent
(75%) of the aggregate principal amount of the outstanding Notes (the “Required Holders”).
RECITALS
WHEREAS, the Company entered
into a Securities Purchase Agreement, dated March 7, 2007, pursuant to which the
Company issued to certain investors Series A Convertible Notes (each a “Series A Note,” and
collectively, the “Series A
Notes”), Series B Convertible Notes (each a “Series B Note,” and collectively, the
“Series B Notes”, and
together with the Series A Notes, the “Notes”), Series A Warrants to
Purchase Common Stock (the “Series A Warrants”) and Series
B Warrants to Purchase Common Stock (the “Series B
Warrants”).
WHEREAS, pursuant to terms and
conditions of the Series A Notes, any unpaid principal and any accrued but
unpaid interest owed under the Series A Notes are convertible into shares of
Common Stock at a conversion price per share of common stock of $0.69 per share
(the “Series A Conversion
Price”).
WHEREAS, pursuant to terms and
conditions of the Series B Notes, any unpaid principal and any accrued but
unpaid interest owed under the Series B Notes are convertible into shares of
Common Stock at a conversion price per share of common stock of $0.57 per share
(the “Series B Conversion
Price”).
WHEREAS, the Company entered
into a Securities Purchase Agreement, dated January 11, 2008, pursuant to which
the Company issued and sold to certain investors shares of the Company’s Common
Stock and Series C Warrants to Purchase Common Stock (the “Series C Warrants,” and
together with the Series A Warrants and the Series B Warrants, collectively, the
“Warrants”).
WHEREAS, the Company and
Required Holders desire to amend the Series A Notes and Series B Notes to, among
other things, reduce the Series A Conversion Price and the Series B
Conversion Price to
$0.15 per share (the “New Conversion Price”) in consideration for
the conversion of all outstanding amounts owed under the Notes into shares of
the Company’s Common Stock (the “Conversion
Stock”).
WHEREAS, upon the closing of
the transactions contemplated by this Agreement, the Company will enter into an
Amendment to the Series A, Series B and Series C Warrants to, among other
things, amend the exercise price of the Warrants to $0.15.
WHEREAS, Section 15 of the
Notes provides that the Notes may be amended by written consent of the Required
Holders.
AGREEMENT
NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained
in this
Agreement, the Company and Required Holders hereby agree as
follows:
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1.
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AMENDMENT
OF SERIES A NOTES AND SERIES B NOTES. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below, the Required
Holders having the power to amend the Series A and Series B Notes,
effective upon the Closing (as defined in Section 6(a)), hereby
amend each Series A Note and Series B Note as
follows:
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(a)
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Section
(3)(b) of each Series A Note and Series B Note is hereby amended in its
entirety to read as follows:
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“Forced
Conversion. In the event that the Required Holders elect to
convert all of the Notes held by the Required Holders, then (i) all of
outstanding principal of all outstanding Notes, (ii) all accrued and unpaid
interest with respect to all outstanding Notes and (iii) all accrued and unpaid
Late Charges with respect to all outstanding Notes will be automatically
converted at the Conversion Price (as defined below) on the date the Required
Holders’ provide their written election to convert (the “Forced Conversion”) such that
no Notes will be outstanding after the date thereof, no interest or Late Charges
will thereafter be payable. Notwithstanding anything set forth in
this Note or elsewhere, the Holder is not required to take any further action to
automatically convert this Note under a Forced Conversion except that the Holder
shall physically surrender to the Company this Note by delivery of the same to
the Company’s outside counsel at DLA Piper LLP (US), 0000 Xxxxxxxxxx Xxx, Xxxx
Xxxx Xxxx, XX 00000, Attention: Xxx Xxx, Esq. in order to receive a
stock certificate for the number of shares of Common Stock to which the Holder
shall be entitled to upon the Forced Conversion.
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(b)
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Section
3(c)(ii) of each Series A Note and Series B Note is hereby amended in its
entirety to read as follows:
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““Conversion Price” means, as of any
Conversion Date (as defined below) or other date of determination, an amount
equal to $0.15.”
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(c)
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Section
3(d) of each Series A Note and Series B Note is hereby amended in its
entirety to read as follows:
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“Mechanics of
Conversion.
(i) Forced
Conversion. Upon the Forced Conversion, (the “Conversion Date”), no separate
notice of conversion (“Conversion Notice”) shall be
required and the Required Holders’ election to convert all of the Notes shall be
deemed to constitute the Conversion Notice for all outstanding
Notes. After physical surrender the Note to a common carrier for
delivery to the Company (to its counsel DLA Piper LLP (US), 0000 Xxxxxxxxxx
Xxxxxx, Xxxx Xxxx Xxxx, XX 00000, Attention: Xxx Xxx, Esq.) as soon
as practicable on or following such date (or an indemnification undertaking with
respect to the Note in the case of its loss, theft or destruction) and an
instruction letter specifying the contact information and the address to which
the shares of Common Stock shall be delivered, on or before the second (2nd)
Trading Day following the date of the Company’s receipt of the Note and
instruction letter, the Company shall transmit by facsimile or electronic mail a
confirmation of receipt of such Note to the Holder (to the number or address
provided to the Company in the instruction letter) and to the Company's transfer
agent (the “Transfer
Agent”). The Person or Persons entitled to receive the shares
of Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date.
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(ii)
Delivery of
Certificates. On or before the third (3rd) Trading Day following the date
of the Company’s receipt of the Note (the “Share Delivery Date”), the
Company shall (X) provided that the Transfer Agent is participating in the
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system
or (Y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
with instruction letter accompanying the Note, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled.
(A) If such delivery is made after the
Share Delivery Date (a “Conversion Failure”), then the
Company will compensate the Holder at a rate of $100 per day for each of the
first ten (10) Trading Days and $200 per day thereafter for each $10,000 of
securities.
(B) If the certificates have not been
delivered by the fifth (5th)
Trading Day after the Share Delivery Date and the Holder has purchased (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by the Holder of Common Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a “Buy-In”), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at
which point the Company's obligation to deliver such certificate (and to issue
such Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Common
Stock and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the Conversion Date.
(iii)
Registration;
Book-Entry. The Company shall maintain a register (the “Register”) for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the “Registered Notes”). The
entries in the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat each Person
whose name is recorded in the Register as the owner of a Note for all purposes,
including, without limitation, the right to receive payments of principal and
interest hereunder, notwithstanding notice to the contrary. A Registered Note
may be assigned or sold in whole or in part only by registration of such
assignment or sale on the Register. Upon its receipt of a request to assign or
sell all or part of any Registered Note by a Holder, the Company shall record
the information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 17.
(iv)
“[Intentionally Omitted.]”
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(d)
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Section
3(e) of each Series A Note and Series B Note is hereby amended in its
entirety to read as follows:
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“[Intentionally
Omitted.]”
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(e)
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Section
8 of each Series A Note and Series B Note is hereby amended in its
entirety to read as follows:
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“[Intentionally
Omitted.]”
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2.
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CONVERSION
OF THE NOTES. Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 7 and 8 below, effective upon
the Closing, the undersigned, constituting the Required Holders, hereby
elect and agree to convert all of amounts owed under the Notes held by the
Required Holders into shares of the Company’s Common Stock at the New
Conversion Price in accordance with the terms of such Notes, as amended by
this Agreement. Notwithstanding anything in the Notes, the
holders of the Notes shall not be required to deliver a notice of
conversion attached to each Note as Schedule I. Pursuant to the
newly amended Section 3(b) of each of the Series A Notes and Series B
Notes, all of the outstanding principal, accrued and unpaid interest due
under all of the Notes shall, upon the Closing, be automatically converted
at the Conversion Price (as amended) pursuant to the Forced
Conversion. Notwithstanding anything set forth in the Notes and
this Agreement, effective upon the Closing, (i) the Company shall not be
responsible to pay and the Required Holder waive on behalf of all of the
holders of Notes any Late Charges owed in connection with the failure by
the Company to pay the Interest payment due on January 1, 2010 to the
holders of the Notes for the fiscal quarter period beginning on October 1,
2009 and ending on December 31, 2009 (the “2009 Q4 Interest Payment”), and
(ii) the Required Holders deem that the failure to pay the 2009 Q4
Interest Payment did not constitute a Trigger Event (as defined in the
Notes).
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3.
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REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. Except as set forth in
the SEC Documents (as defined below) and the Disclosure Schedule attached
hereto as Exhibit
A (the “Disclosure
Schedule”), which both shall be deemed a part hereof and shall
qualify any representation made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedule, the
Company hereby represents and warrants to the Required Holders that, as of
the date of this Agreement (unless otherwise expressly stated, as used in
this Section 3, the term the
“Company” includes Solar EnerTech (Shanghai) Co., Ltd. (the “Shanghai
Subsidiary”)):
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(a)
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Subsidiaries.
The Company has no direct or indirect subsidiaries other than as specified
or disclosed in the SEC Documents. Except as disclosed in the SEC
Documents, the Company owns, directly or indirectly, all of the capital
stock of each subsidiary free and clear of any and all liens other than
liens disclosed in the SEC Documents, and all the issued and outstanding
shares of capital stock of each subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar
rights.
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(b)
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Organization and
Qualification. The Company and its subsidiaries (which
for purposes of this Agreement means any joint venture or any entity in
which the Company, directly or indirectly, owns any of the capital stock
or holds an equity or similar interest) are entities validly existing and
in good standing under the laws of the jurisdiction in which they are
formed, and have the requisite power and authorization to own their
properties and to carry on their business as now being
conducted. Each of the Company and its subsidiaries is duly
qualified as a foreign entity to do business and, is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would
not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations or condition (financial or otherwise) of
the Company and its subsidiaries, individually or taken as a whole, or on
the transactions contemplated hereby or in the other Transaction Documents
(as defined below) or by the agreements and instruments to be entered into
in connection herewith or therewith, or on the authority or ability of the
Company to perform in any material respect its obligations under the
Transaction Documents.
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(c)
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Authorization;
Enforcement; Validity. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations
under this Agreement, and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the “Transaction Documents”) and to issue
the Conversion Stock in accordance with the terms hereof and thereof; (ii)
the execution and delivery of the Transaction Documents by the Company and
the consummation by the Company of the transactions contemplated hereby
and thereby, including, without limitation, the issuance of the Conversion
Stock have been duly authorized by the Company’s Board of Directors and,
except as set forth in Section 3(f), no further
filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders; and (iii) this Agreement and the other
Transaction Documents of even date herewith or as of the Closing Date (as
defined below) have been (or upon delivery will have been) duly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited
by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
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(d)
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Issuance of
Securities. The issuances of the Conversion Stock are
duly authorized and are free from all taxes, liens and charges with
respect to the issue thereof. The issuance by the Company of
the Conversion Stock is exempt from registration under the requirements of
the Securities Act of 1933, as amended (the “Securities
Act”).
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(e)
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No Conflicts.
The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance of the Conversion Stock) will not (i) result in a violation of
any certificate of incorporation, certificate of formation, any articles
of designations or other constituent documents of the Company or any of
its subsidiaries, any capital stock of the Company or any of its
subsidiaries or bylaws of the Company or any of its subsidiaries; (ii)
conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or result in the imposition
of any lien upon any of the material properties or assets of the Company
or of any subsidiary pursuant to, any material agreement, credit facility,
debt or other instrument (evidencing a Company or subsidiary debt or
otherwise) or other understanding to which the Company or any subsidiary
is a party or by which any property or asset of the Company or any
subsidiary is bound or affected; or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including foreign,
federal and state securities laws and regulations and the rules and
regulations of the Financial Industry Regulatory Authority’s (FINRA)
Over-The-Counter Bulletin Board (the “Principal Market”))
applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected, except in the case of each of clauses (ii) and (iii), such as
would not be reasonably likely to have or reasonably be expected to result
in a Material Adverse Effect.
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(f)
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Consents. No
consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state
or local governmental authority by the Company or any subsidiary is
required in connection with the consummation of the transactions
contemplated by this Agreement except for any required disclosures with
the U.S. Securities and Exchange Commission (the “SEC”) pursuant to
applicable securities laws. The Company is not in violation of
the listing requirements of the Principal Market and has no knowledge of
any facts that would reasonably lead to delisting or suspension of the
Common Stock on the Principal Market in the foreseeable
future.
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(g)
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Application of
Takeover Protections; Rights Agreement. The Company and
its board of directors (the “Board”) have taken all
necessary action in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under
the Certificate of Incorporation or the laws of the state of its
incorporation which is or could become applicable to Required Holders as a
result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Conversion Stock and
Required Holders’ ownership of the Conversion
Stock.
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(h)
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SEC Documents;
Financial Statements. Except as set forth in the
Disclosure Schedule or the SEC Documents, during the two (2) years prior
to the date hereof, the Company has timely filed (or has received a valid
extension of such time of filing and has filed all SEC Documents prior to
the expiration of any such extension) all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act of 1934, as
amended (the “Exchange
Act”) (all of the foregoing filed prior to the date hereof along
with the draft of the Form 10-K for the fiscal year ended September 30,
2009 delivered to the Required Holders and all exhibits included therein
and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
“SEC
Documents”). The Company has delivered to the Required
Holder or its representative true, correct and complete copies of the SEC
Documents not available on the XXXXX system. As of their
respective filing dates, the SEC Documents complied (and with respect to
the draft Form 10-K for the fiscal year ended September 30, 2009, such
Form 10-K will comply) in all material respects with the requirements of
the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents,
at the time they were filed with the SEC, contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied (and with
respect to the draft Form 10-K for the fiscal year ended September 30,
2009, such financials included in the Form 10-K will comply) as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information
provided by the Company directly to the Required Holders which is not
included in the SEC Documents contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are
or were made not misleading. All material contracts of the
Company and the Shanghai Subsidiary have been filed with the SEC
Documents. The Company anticipates filing its Form 10-K for the
fiscal year ended September 30, 2009 in substantially the form provided to
the Required Holders, except that the Company expects that the Form 10-K
as filed will not contain a going-concern audit disclaimer opinion from
the Company’s auditors.
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(i)
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Absence of Certain
Changes. Since the date of the latest unaudited
financial statements included in the Company’s Form 10-Q filed on August
14, 2009 and except as specifically disclosed in a subsequent SEC
Documents filed prior to the date hereof or as set forth the Disclosure
Schedule, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse
Effect, or be required to be disclosed by the Company under applicable
securities laws on a registration statement filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which has not
been publicly announced, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities incurred in the ordinary course of business
not required to be reflected in the Company’s financial statements
pursuant to U.S. Generally Accepted Accounting Principles or
disclosed in filings made with the SEC, (iii) the Company has not altered
its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock plans or pursuant to conversion of outstanding
debt. The Company does not have pending before the SEC any
request for confidential treatment of information. Except as
set forth in the Disclosure Schedule, any event, liability or development
with respect to the Company or its subsidiaries or their respective
business, properties, operations or financial condition, required to be
disclosed by the Company under applicable securities laws has been
disclosed at least five (5) Trading Days prior to the date
hereof. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance
with generally accepted accounting
principles.
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“Affiliate” for purposes hereof
means, with respect to any Person (as defined below) or entity, another person
or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that Person or entity, (ii) has ten percent (10%) or more
common ownership with that Person or entity, (iii) controls that person or
entity, or (iv) shares common control with that Person or
entity. “Control” or “Controls” for purposes hereof
means that a Person or entity has the power, direct or indirect, to conduct or
govern the policies of another Person or entity.
“Trading Day” means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided that “Trading Day” shall not include any day on which the
Common Stock are scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock are suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
time).
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(j)
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Conduct of Business;
Regulatory Permits. Neither the Company nor any of its
subsidiaries is in violation of any term of or in default under its
respective Certificates of Incorporation or its Bylaws or their
organizational charter or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable
to the Company or its subsidiaries, and neither the Company nor any of its
subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or
requirements of the Approved Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by its Approved Market in the foreseeable
future. Since March 10, 2006, (i) the Common Stock has been
designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market and
(iii) the Company has received no communication, written or oral, from the
SEC or the Principal Market regarding the suspension or delisting of the
Common Stock from the Principal Market. The Company and its
subsidiaries possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such
certificates, authorizations or permits would not be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such subsidiary has received any written
notice of proceedings relating to the revocation or modification of any
such certificate, authorization or
permit.
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(k)
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Control of Shanghai
Subsidiary. The Company is the holder of all of the
equity of the Shanghai Subsidiary and conducts substantially all of its
business through the Shanghai Subsidiary. The Company has the
right, through the action of its board of directors, to exercise absolute
control over the Shanghai Subsidiary and to remove and replace the
Shanghai Subsidiary’s officers, directors, chairman and any other person
without the consent of (or any material condition imposed by) any person
or entity, governmental or
otherwise.
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(l)
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Foreign Corrupt
Practices. Neither the Company nor any of its
subsidiaries nor any director, officer, agent, employee or other Person
acting on behalf of the Company or any of its subsidiaries has, in the
course of its actions for, or on behalf of, the Company or any of its
subsidiaries (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political
activity; (ii) made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or
employee.
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(m)
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Neither
the issuance of the Conversion Stock to the holder of the Notes as
registered on the Company’s books (the “Registered Holder”), nor
the use of the respective proceeds thereof, shall cause the Registered
Holder to violate the U.S. Bank Secrecy Act, as amended, and any
applicable regulations thereunder or any of the sanctions programs
administered by the U.S. Department of the Treasury’s Office of Foreign
Assets Control (“OFAC”) of the United
States Department of Treasury, any regulations promulgated thereunder by
OFAC or under any affiliated or successor governmental or
quasi-governmental office, bureau or agency and any enabling legislation
or executive order relating thereto. Without limiting the
foregoing, neither the Company nor any subsidiary (a) is a Person whose
property or interests in property are blocked or subject to blocking
pursuant to Section 1 of Executive Order 13224 of September 23, 200l
Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (b)
engages in any dealings or transactions prohibited by Section 2 of such
executive order, or is otherwise associated with any such Person in any
manner violative of Section 2, or (c) is a Person on the list of Specially
Designated Nationals and Blocked Persons or subject to the limitations or
prohibitions under any other OFAC regulation or executive
order.
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(n)
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Xxxxxxxx-Xxxxx
Act. Except as set forth in the Disclosure Schedule or
the SEC Documents, the Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are
effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the
date hereof.
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(o)
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Transactions With
Affiliates. Except (i) as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof or the draft of the
Form 10-K for the fiscal year ended September 30, 2009 delivered to the
Required Holders, (ii) standard employee benefits generally made available
to all employees, (iii) standard director and officer indemnification
agreements approved by the Company’s Board of Directors, (iv) standard
employment agreements, and (v) other than the grant of stock or stock
options disclosed on the Disclosure Schedule, none of the employees of the
Company or any of its subsidiaries is presently a party to any transaction
with the Company or any of its subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee or
partner.
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9
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(p)
|
Equity
Capitalization. As of the date hereof, the
capitalization of the Company is as set forth in the Disclosure Schedule,
both before and after giving effect to the transactions contemplated by
this Agreement. Except as disclosed in the Disclosure Schedule: (i) as of
the Closing Date (as defined below), none of the Company’s capital stock
is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any capital
stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its subsidiaries is or may become bound to issue additional capital stock
of the Company or any of its subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its
subsidiaries; (iii) except as previously disclosed in the SEC Documents,
there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing
Indebtedness (as defined below) of the Company or any of its subsidiaries
or by which the Company or any of its subsidiaries is or may become bound;
(iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection
with the Company or any of its subsidiaries; (v) there are no agreements
or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the
Securities Act; (vi) there are no outstanding securities or instruments of
the Company or any of its subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to redeem a security of the Company or
any of its subsidiaries; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by
the issuance of the Conversion Stock; (viii) the Company does not have any
stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) the Company and its subsidiaries have
no liabilities or obligations required to be disclosed in the SEC
Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its subsidiaries’
respective businesses and which, individually or in the aggregate, do not
or would not have a Material Adverse
Effect.
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(q)
|
Indebtedness and Other
Contracts. Since the date of the latest unaudited
financial statements included in the Company’s Form 10-Q filed on August
14, 2009 and except as disclosed in the Disclosure Schedule or the SEC
Documents, neither the Company nor any of its Subsidiaries (i) has any
additional outstanding Indebtedness, (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which,
by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument, including, without limitation, contracts, agreements or
instruments relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect.
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10
For
purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication, (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and (z) “Person” means an individual or
legal entity, including but not limited to a corporation, a limited liability
company, a partnership, a joint venture, a trust, an unincorporated organization
and a government or any department or agency thereof.
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(r)
|
Absence of
Litigation. There is no action, suit or proceeding which
(i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Conversion Stock
or (ii) except as specifically disclosed in the SEC Documents, could, if
there were an unfavorable decision, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any subsidiary, nor any director or officer thereof (in
his capacity as such), is or has been the subject of any action involving
a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty, except as specifically
disclosed in the SEC Documents. There has not been, and to the knowledge
of the Company, there is not pending any investigation by the Principal
Market, any court, public board, government agency, self-regulatory
organization or body, involving the Company or any current or former
director or officer of the Company (in his or her capacity as
such).
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11
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(s)
|
Insurance. The
Company and its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as are prudent and customary in the businesses in which the Company and it
subsidiaries are engaged. Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business on terms consistent with the market for
the Company’s and such Subsidiaries’ respective lines of business at a
cost that would not have a Material Adverse Effect. The
Disclosure Schedule sets forth a description of all claims made by the
Company against its insurers since one month prior to the prior renewal of
any policy under which such claim was
made.
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(t)
|
Employee
Relations. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or employs
any member of a union. The Company and its subsidiaries believe
that their relations with their employees are good and are not aware of
any threatened or pending work stoppages, strikes or similar
activities. No executive officer of the Company or any of its
subsidiaries (as defined in Rule 501(f) of the Securities Act) has
notified the Company or any such subsidiary that such officer intends to
leave the Company or any such subsidiary or otherwise terminate such
officer’s employment with the Company or any such
subsidiary. To the knowledge of the Company, no executive
officer of the Company or any of its subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its subsidiaries to any
liability with respect to any of the foregoing matters. The
Company and its subsidiaries are in compliance in all material respects
with all federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be
in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse
Effect.
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(u)
|
Title. The
Company and its subsidiaries have good and marketable title in fee simple
to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except for encumbrances that do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and any of its
subsidiaries. Any real property and facilities held under lease
by the Company and any of its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its
subsidiaries.
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12
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(v)
|
Intellectual Property
Rights. The Company and its subsidiaries own or possess
adequate rights or licenses to use all trademarks, service marks and all
applications and registrations therefor, trade names, patents, patent
rights, copyrights, original works of authorship, inventions, trade
secrets and other intellectual property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now
conducted. None of the Company’s registered, or applied for,
Intellectual Property Rights, to the extent the Company has such
Intellectual Property Rights, have expired or terminated or have been
abandoned, or are expected to expire or terminate or expected to be
abandoned, within three years from the date of this
Agreement. The Company does not, after reasonable
investigation, have any knowledge of any infringement by the Company or
its Subsidiaries of Intellectual Property Rights of
others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property
Rights. Neither the Company nor any of its Subsidiaries is
aware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The
Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their
Intellectual Property Rights, except where failure to do so would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the
foregoing, each of the Company’s employees and consultants (with respects
to consultants, only those who have been provided access to intellectual
property) has executed and delivered an agreement that contains a clause
assigning to the Company any intellectual property developed by the them
while providing services to the Company (“IP Assignment
Clause”). The employees and consultants (with respects
to consultants, only those who have been provided access to intellectual
property) of the Company in the future will be required to execute and
deliver to the Company an agreement that contains an IP Assignment Clause,
with such changes as may be advisable for applicable laws and
regulations.
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(w)
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Environmental
Laws. The Company and its subsidiaries, to their
knowledge, after commercially reasonable investigation: (i) are in
compliance with any and all Environmental Laws (as hereinafter defined),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses, (iii) are in compliance with all terms and conditions of any
such permit, license or approval, (iv) do not own or operate, and have not
owned or operated, any real property (including soils, groundwater,
surface water, buildings or other structures) contaminated with any
substance that is in violation of Environmental Laws, (v) are not subject
to liability for any Hazardous Materials disposal or contamination on any
third party property; (vi) have not been associated with any release or
threat of release of any Hazardous Materials; and (vii) are not liable for
any off-site disposal or contamination pursuant to any Environmental
Laws. There is no civil, criminal or administrative action,
suit, investigation, inquiry or proceeding pending or, to the knowledge of
the Company, threatened by or before any court or governmental authority
against the Company or any of its subsidiaries relating to or arising from
the Company’s nor any subsidiary’s non-compliance with any Environmental
Laws, nor has the Company received written notice of any alleged
violations of Environmental
Laws.
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13
The term
“Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
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(x)
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Subsidiary
Rights. The Company or one of its subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital
securities of its subsidiaries as owned by the Company or such
subsidiary.
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(y)
|
Tax
Status. The Company and each of its subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it
is subject, (ii) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good
faith and (iii) has set aside on its books provision reasonably adequate
for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
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(z)
|
Internal Accounting
and Disclosure Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing
assets and liabilities at reasonable intervals and appropriate action is
taken with respect to any
difference.
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The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the Exchange Act) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed in to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve months
prior to the date hereof neither the Company nor any of its subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its subsidiaries.
14
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(aa)
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Off Balance Sheet
Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in
its Exchange Act filings and is not so disclosed or that otherwise would
be reasonably likely to have a Material Adverse
Effect.
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(bb)
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Investment Company
Status. The Company is not, and upon consummation of the
sale of the Securities will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such
terms are defined in the Investment Company Act of 1940, as
amended.
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(cc)
|
Transfer
Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid
in connection with issuance of the Conversion Stock will be, or will have
been, fully paid or provided for by the Company, and all laws imposing
such taxes will be or will have been complied
with.
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(dd)
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Manipulation of
Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the
price of any security of the Company, or (ii) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
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(ee)
|
Disclosure. All
disclosures provided to the undersigned Required Holders regarding the
Company, its Subsidiaries and their respective businesses and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement) are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading.
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(ff)
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ERISA. Neither
the Company nor any ERISA Affiliate maintains, contributes to, or has ever
maintained or contributed to, any liability or contingent liability with
respect to any employee benefit plan subject to
ERISA.
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(gg)
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Registration
Requirements. Mr. Xxx
Xxxxx, the Chief Executive Officer of the Company, is a citizen of the
United States and is not required to register his investment activities
relating to the Company with any foreign exchange authority or similar
governmental entity in the People’s Republic of China (“PRC”).
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4.
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Restrictive
Legends. Each stock certificate representing the
Conversion Stock, and any other securities issued in respect of the
Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event shall be stamped or otherwise
imprinted with legends in substantially the following
form:
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15
“THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”
Any
legend endorsed on a certificate pursuant to this Section and the stop transfer
instructions with respect to such legended securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
securities, if such securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144.
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5.
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COVENANTS.
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(a)
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Best
Efforts. Each party shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 7
and 8 of this Agreement.
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(b)
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Pledge of
Securities. The Company acknowledges and agrees that the
Conversion Stock may be pledged by the Registered Holder in connection
with a bona fide margin agreement or other loan or financing arrangement
that is secured by the Conversion Stock, including the existing pledge of
The Quercus Trust’s Series A Notes and Series B Note (and, after the
effectuation of the conversion contemplated hereunder, The Quercus Trust’s
Conversion Stock) to Xxxxxxx Sachs Bank USA or any of its Affiliates,
successors or assigns (hereinafter collectively referred to as “Xxxxxxx Xxxxx”) pursuant
to the Revolving Loans (Committed Loan) Loan Agreement dated December 15,
2009 between Xxxxxxx Sachs and Kaziikini, LLC (the “Credit Agreement”) and
the Guaranty, Security and Pledge Agreement dated December 15, 2009 made
by The Quercus Trust in favor of Xxxxxxx Xxxxx Bank USA (the “Guaranty and Security
Agreement”) or any of the other Loan Documents (as that term is
defined in the Credit Agreement). The pledge of Conversion
Stock and the effectuation by Xxxxxxx Sachs of its rights and remedies
under any of the Loan Documents shall not be deemed to be a transfer, sale
or assignment of the Conversion Stock hereunder, and the
Registered Holder shall not be required to provide the Company with any
further notice thereof, obtain the consent of the Company or otherwise
make any delivery to the Company pursuant to this Agreement or any other
Transaction Document. The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Conversion Stock (including
Xxxxxxx Xxxxx) may reasonably request in connection with a pledge of the
Conversion Stock to such pledgee by the Registered Holder or the
effectuation of the rights and remedies of any pledgee under the documents
governing such pledge.
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(c)
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Conduct of
Business. The business of the Company and its
subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would
not result, either individually or in the aggregate, in a Material Adverse
Effect.
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16
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(d)
|
Delivery of
Certificates. Upon any request for removal of
restrictive legends on the Conversion Stock, certificates for shares of
Common Stock will be delivered to the Registered Holder within three (3)
Trading Days.
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(e)
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Existing Management
Agreements and Equity Compensation. The Required Holders
agree not to take any action which would not honor in any material
respect: (i) all existing Management Agreements and Executive Incentive
Agreements entered into by the Company, all of which have been previously
filed with the SEC; and (ii) all outstanding stock options and restricted
stock grants issued by the Company under the Company’s current outstanding
equity incentive and restricted stock plans, all of which have been
previously filed with the SEC.
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(f)
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Equity Incentive
Plans. The Required Holders agree to take all necessary
actions required to approve the number of shares authorized under the
Company’s equity incentive plans to increase the number of shares of
common stock authorized to be issued under such equity incentive plans to
equal twenty percent (20%) of the Company’s fully-diluted outstanding
stock (including the conversion of all of the Notes and
Warrants). The Required Holders further agree to take all
necessary actions required to provide for the grants of additional stock
options equal to approximately thirty (30%) of the current option holding
of each employee in good standing with the Company, which options shall
have an exercise price of $0.15 per share. Shares of the
Company’s restricted stock forfeited by departed or departing directors or
employees shall be reserved for use as equity compensation and
re-designated by Mr. Xxx Xxxxx as the Company’s Chief Executive
Officer. The Company shall comply with all applicable tax
withholding requirements with respect to any future Company equity
incentive grants.
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(g)
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Compensation Committee
Approval. The Company agrees that all new options and
restricted stock grants pursuant to Section 5(f), other than restricted
stock grants to be redesignated by Xx. Xxxxx as provided for in Section
5(f) above, shall be approved by the Company’s Compensation Committee of
the Board of Directors (the “Compensation
Committee”).
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(h)
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New Employment
Agreements. Upon the Closing, the Company shall enter
into new employment contracts with its key management members, as
designated by the Company’s Chief Executive Officer in the form provided
to the Required Holders.
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(i)
|
Future Employment
Agreements. The Company
agrees that all future employment agreements with its employees (whether
employed directly by the Company or through the Shanghai Subsidiary) shall
include, in accordance with and to the extent enforceable under applicable
law, (i) appropriate intellectual
property assignment clauses pursuant
to which the Company shall own all relevant intellectual property
rights generated by its
employees and (ii) appropriate
confidentiality and non-compete
covenants.
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(j)
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Termination of
Securities Purchase Agreement. With respect to the
Securities Purchase Agreement dated March 7, 2007 pursuant to which the
Company issued to certain investors the Notes, the Series A Warrants and
the Series B Warrants, the Company and the Required Holders (as the
holders of at least 60% of the aggregate number of shares issuable
collectively under the Notes, the Series A Warrants and the Series B
Warrants) hereby agree to terminate such agreement, effective upon the
Closing.
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17
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(k)
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Stockholders’
Meeting. The Company shall hold a stockholders’ meeting
within 45 days of the Closing. In the event that it fails to
perform, observe, or discharge its obligation to hold such meeting within
the 45 day period after Closing, the Required Holder shall be entitled to
seek temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages and without posting a bond or
other security. Following the transactions contemplated by
Sections 8(f) and (g) hereof through the date of the stockholders’ meeting
and any adjournments thereof, the Company shall maintain the number of
members on its Board of Directors at five
members.
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(l)
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Stock/Option Plan
Approvals. The Company
shall use its best efforts to cause all PRC citizens employed by the
Shanghai Subsidiary who have or will participate in the Company’s stock or
option plan to obtain, through the Shanghai Subsidiary, the approval of
the relevant foreign exchange authority or similar governmental entity
to the extent required under applicable PRC laws.
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(m)
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Amendment to Articles
of Association of Shanghai Subsidiary. As soon as practicable after the Closing,
the Company shall cause the Articles
of Association of the Shanghai Subsidiary to be amended to comply with
current PRC law, including, without limitation, providing that the
shareholder of the Shanghai Subsidiary shall be its highest authority and make all important
decisions relating to its business
operations.
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(n)
|
Registered
Capital. The
Company’s registered capital required under the Shanghai
Subsidiary’s governing documents is
USD$47,500,000. As of the
date hereof, the Company’s paid-in registered capital is
USD$31,960,028.87. In accordance with the Company’s discussions
with local authorities, the Company believes it will be able to amend its
registered capital to lower the amount required such that
additional paid-in capital is not
required to be contributed or otherwise extend the date by which the
registered capital is required to be contributed such that, in any event,
the failure to have currently paid-in registered capital at the registered
amount will not have a Material Adverse
Effect.
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(o)
|
Registration
Rights. Upon the request
of holders of a majority of the shares of Conversion Stock originally
issued upon the conversion of the Notes, the Company shall use its best
reasonable efforts to file and cause to be effective a registration
statement registering the re-sale of shares of Conversion Stock to the
extent not previously registered, and provide for substantially similar
registration rights as those provided to the holders of the Series A Notes
pursuant to that certain Registration Rights Agreement dated March 7, 2007
by and among the Company and the holders of the Series A
Notes.
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6.
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CLOSING
MATTERS.
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(a)
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The
Closing. Subject to the termination of this Agreement as
provided in Section 9
below, the closing of the conversion of the Notes by the Required
Holders and the issuance by the Company of the Conversion Stock (the
“Closing”) shall
be held at the offices of DLA Piper LLP (US), counsel to the Company at
0000 Xxxxxxxxxx Xxxxxx, Xxxx Xxxx Xxxx, XX 00000, on January 7,
2010, or such other date as the Company and the Required Holders shall
agree (such date, the “Closing Date”).
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18
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(b)
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Conversion
Deliverables. As soon as practicable after the
Closing,
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(i)
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each
Required Holder will physically surrender its
Note;
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(ii)
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the
Company will deliver via electronic mail the Stock Issuance Letter to
Continental Stock Transfer & Trust Company, the Company’s transfer
agent, to issue stock certificates for the Conversion Stock issuable for
all Notes physically surrendered to the Company (the “Issuance Letter”);
and
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(iii)
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within
three (3) Trading Days after the delivery of the Issuance Letter to
Continental Stock Transfer & Trust Company, the Company will issue to
each Required Holder a stock certificate representing the Required
Holder’s Conversion Stock for all Notes physically surrendered to the
Company.
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7.
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CONDITIONS
TO THE COMPANY’S OBLIGATION TO CLOSE. The obligation of
the Company hereunder to issue the Conversion Stock at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole
discretion by providing the Required Holders with prior written notice
thereof:
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(a)
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Executed
Agreement. The Required Holders shall have executed this
Agreement and delivered the same to the
Company.
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(b)
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Executed Voting
Agreement. The Required Holders shall have executed the
Voting Agreement dated as of the Closing Date and attached hereto as Exhibit
B (the “Voting
Agreement”).
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(c)
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Executed Warrant
Amendment. The Required Holders shall have executed the
Warrant Amendment dated as of the Closing Date and attached hereto as
Exhibit
C (the “Warrant
Amendment”).
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(d)
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Consent to Conversion
by Xxxxxxx Xxxxx. The Quercus Trust shall have delivered
a consent from Xxxxxxx Sachs consenting to the conversion of Notes held by
The Quercus Trust pursuant to this
Agreement.
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8.
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CONDITIONS
TO REQUIRED HOLDER’S OBLIGATION TO CLOSE. The obligation
of each Required Holder to surrender and convert the Required Holder’s
Notes is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for
each Required Holder’s sole benefit and may be waived by such Required
Holder at any time in its sole discretion by providing the Company with
prior written notice thereof:
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(a)
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Executed
Agreements. The Company shall have duly executed and
delivered (physically or by electronic copy) to such Required Holder an
executed signature page to this Agreement, the Warrant Amendment and the
Voting Agreement.
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19
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(b)
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Incorporation
Documents; Good Standing Certificates. The Company shall
have delivered to such Required Holder a certificate evidencing the
formation and good standing of the Company and each of its U.S.
subsidiaries in such entity’s jurisdiction of formation issued by the
Secretary of State (or comparable office) of such
jurisdiction.
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(c)
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Foreign
Qualifications; Good Standing Certificates. The Company
shall have delivered to such Required Holder a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued
by the Secretary of State (or comparable office) in each jurisdiction in
which the Company has so qualified.
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(d)
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Accuracy of
Representations and Warranties. The representations and
warranties of the Company shall be true and correct in all material
respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true
and correct in all respects) as of the date when made and as of the
Closing Date, as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and
correct as of such specified date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Required Holder shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated
as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Required Holder in the form
attached hereto as Exhibit
D;
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(e)
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Size of
Board. The Company shall have increased the size of its
Board of Directors by three seats.
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(f)
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Appointment of
Directors. The Company shall have nominated two directors nominated
by the holders of the Notes holding a majority of the outstanding
principal of the Notes (the “Noteholder Nominees”),
who shall have been appointed to fill vacancies on the Board by the then
current directors, effective upon date which his the later of (i) the
Closing and (ii) the filing of the Company’s Form 10-K with the Securities
and Exchange Commission for the fiscal year ended September 30,
2009.
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(g)
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Resignation of
Directors. After appointment of the Noteholder Nominees,
the Company shall have received from each Xxxxxx Xxxxxxxx and Xxxxx Xxx a
letter resigning from the Company’s Board of Directors, effective upon the
later of (i) the Closing and (ii) the filing of the Company’s Form 10-K
with the Securities and Exchange Commission for the fiscal year ended
September 30, 2009.
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(h)
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Consent to Conversion
by Xxxxxxx Sachs. The Quercus Trust shall have delivered
a consent from Xxxxxxx Xxxxx consenting to the conversion of Notes held by
The Quercus Trust pursuant to this
Agreement.
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9.
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TERMINATION. This
Agreement may be terminated by (i) the Company with written notice to the
Required Holders or (ii) the Required Holders by written notice to the
Company, if the Closing has not been consummated on or before January 30,
2010; provided, however, that
no such termination will affect the right of any party to xxx for any
breach by the other party (or
parties).
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20
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10.
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MISCELLANEOUS.
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(a)
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Governing Law;
Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of Delaware, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the
State of Delaware. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in County
of Kent, Delaware for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
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(b)
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Counterparts. This
Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument. The exchange of a fully executed signature page to
this Agreement (in counterparts or otherwise) by facsimile or by
electronic delivery in PDF format shall be sufficient to bind the parties
to the terms and conditions of this
Agreement.
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(c)
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Expenses. The
Company and the Required Holders shall each bear their respective expenses
and legal fees incurred in connection with the negotiation and
consummation of this Agreement
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(d)
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Headings. The
headings of this Agreement are for convenience of reference and shall not
form part of, or affect the interpretation of, this
Agreement.
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(e)
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Non-Severability. Unless
otherwise agreed to by the Company and the Required Holders, if any
material provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall cause the
Agreement to be null and void and the parties shall be entitled to rescind
the transactions contemplated by this
Agreement.
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21
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(f)
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Entire Agreement;
Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Require Holders, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement,
the other Transaction Documents and the instruments referenced herein and
therein contain the entire understanding of the parties with respect to
the matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor any Required Holders
makes any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and a
majority of the Required Holders. No provision hereof may be
waived other than by an instrument in writing signed by the party against
whom enforcement is sought.
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(g)
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Notices. Any
notice, request or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been duly given if
delivered personally, by facsimile when receipt is electronically
confirmed, one business day after delivery to a nationally recognized
courier service that promises overnight delivery, or otherwise upon
receipt, addressed (i) if to a Required Holder, at the address set forth
below the Required Holder’s name on the signature page to this Agreement,
and (ii) if to the Company, at the address set forth below the Company’s
name on the signature page to this Agreement. Any party hereto may, by ten
(10) days’ prior notice so given, change its address for future notices
hereunder.
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(h)
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Successors and
Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and
assigns. The Required Holder may not assign any of its rights
hereunder without the consent of the
Company.
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(i)
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No Third Party
Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other Person.
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(j)
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Survival. Unless
this Agreement is terminated under Section 9, the
representations and warranties of the Company contained in Sections 3, and the
agreements and covenants set forth in Sections 4, 5 and 9 shall survive
the Closing. Each Required Holder shall be responsible only for
its own representations, warranties, agreements and covenants
hereunder.
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(k)
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Further
Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated
hereby.
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(l)
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No Strict
Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
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22
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(m)
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Remedies. The
Company, each Required Holder, and each holder of the Conversion Stock
shall have all rights and remedies set forth in the Transaction Documents
and all rights and remedies which such Company or holders have been
granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having
any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by
law. Furthermore, the Company recognizes that in the event that
it fails to perform, observe, or discharge any or all of its obligations
under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Required Holders. The Company
therefore agrees that each Required Holder shall be entitled to seek
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages and without posting a bond or other
security.
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(n)
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Attorney’s
Fees. In the event that any suit or action is instituted
under or in relation to this Agreement, including without limitation to
enforce any provision in this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of
appeals.
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(o)
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Replacement of
Securities. If any certificate or instrument evidencing
any Conversion Stock is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and
upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such
replacement Conversion Stock. If a replacement certificate or instrument
evidencing any Conversion Stock is requested due to a mutilation thereof,
the Company may require delivery of such mutilated certificate or
instrument as a condition precedent to any issuance of a
replacement.
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[Signature Pages
Follows]
23
IN
WITNESS WHEREOF, the parties hereto have caused this Series A and Series B Note
Conversion Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
COMPANY
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By:
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/s/ Xxx Xxx
Xxxxx
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Name:
Xxx Xxx Young
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Title:
Chief Executive Officer
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Address
for Notice:
000
Xxxxxx Xxxxxx, Xxxxx# 000
Xxxxxxxx
Xxxx, XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxx Xxx Young,
Chief
Executive Officer
With a
copy to (which shall not constitute notice):
Xxxx
Xxxx
DLA Xxxxx
LLP (US)
0000
Xxxxxxxxxx Xxx
Xxxx Xxxx
Xxxx, XX 00000
Facsimile:
(000) 000-0000
IN
WITNESS WHEREOF, the parties hereto have caused this Series A and Series B Note
Conversion Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
REQUIRED
HOLDER
The
Quercus Trust
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By:
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/s/ Xxxxx
Xxxxxxx
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Name:
Xxxxx Xxxxxxx
Title:
Address
for Notice:
0000
Xxxxxxx Xxxx.
A109 -
PMB 467
Xxxxx
Xxxx, XX 00000
With a
copy to (which shall not constitute notice):
Xxxxxx X.
Xxxxxxxx, Esq.
The Law
Offices of Xxxxxx X. Xxxxxxxx
00000
Xxxxxx Xxxx. #X
Xxxxxxx
Xxxxxxxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
And:
Xxxxxxx
Sachs Bank USA
The
Xxxxxxxx Building
000
Xxxxxxx Xxx, 0xx Xxxxx
Xxxx Xxxx
Xxxx, XX 00000
Facsimile:
000-000-0000
Attention: Chief
Credit Officer
