AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT BETWEEN CHINA WIND SYSTEMS, INC. AND BARRON PARTNERS LP AND THE OTHER INVESTORS NAMED HEREIN dated November 13, 2007 and amended and restated on January 31, 2008
AMENDED
AND RESTATED
BETWEEN
AND
XXXXXX
PARTNERS LP
AND
THE
OTHER INVESTORS NAMED HEREIN
dated
November
13, 2007
and
amended and restated on
January
31, 2008
AMENDED
AND RESTATED SECURITIES PURCHASE AGREEMENT
This
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (the “Agreement”)
amends
and restates that certain Securities Purchase Agreement made and entered into
as
of the 13th
day of
November, 2007 (“Prior
Agreement”)
between Malex,
Inc.,
a
Delaware corporation, renamed China Wind Systems, Inc. (the “Company”),
and
Xxxxxx
Partners LP, a
Delaware limited partnership (“Xxxxxx”),
and
any other investors named on the signature page of this Agreement (together
with
Xxxxxx, the “Investors”
and
each an “Investor”).
This
Agreement is made and entered into as of January 31, 2008.
RECITALS:
WHEREAS,
under
the Prior Agreement, the Investors purchased from the Company, upon the terms
and subject to the conditions of the Prior Agreement, for the Purchase Price,
as
hereinafter defined, one or more convertible notes (the “Notes”)
in the
aggregate principal amount of $5,525,000, which Notes are convertible into
either
(a)
an
aggregate of (i) 14,787,135 shares of the Company’s Series A Convertible
Preferred Stock, par value $.001 per share (“Series
A Preferred Stock”),
with
each share of Series A Preferred Stock being initially convertible into one
(1)
share of the Company’s common stock, par value $.001 per share (“Common Stock”),
subject to adjustment, and (ii) common stock purchase warrants (the “Warrants”)
to purchase 11,176,504 shares of Common Stock at $0.58 per share, 5,588,252
shares of Common Stock at $0.83 per share, and 2,065,000 shares at $0.92 per
share; or
(b)
an
aggregate of (i) 14,787,135 shares of the Common Stock, subject to adjustment,
and (ii) Warrants to purchase 11,176,504 shares of Common Stock at $0.58 per
share, 5,588,252 shares of Common Stock at $0.83 per share, and 2,065,000 shares
at $0.92 per share; or
(c)
if
the Restated Certificate and the Certificate of Designation, as hereinafter
defined, shall not have been filed as required by this Agreement and the Note,
33,616,891 shares of Common Stock; and
WHEREAS,
each
Investor purchased Notes in the principal amount set forth in Schedule A of
the
Agreement;
WHEREAS,
contemporaneously with the Closing, the Company acquired all of the issued
and
outstanding capital stock of Fulland Limited, a Cayman Islands corporation
(“Fulland”), which is the sole stockholder of Greenpower Environmental
Technologies Co., Ltd., a corporation organized under the laws of the Peoples’
Republic of China as a wholly foreign owned enterprise (“Greenpower”);
and
Amended
and Restated Securities Purchase Agreement between China Wind Systems, Inc.
and
Xxxxxx Partners, LP
Page
1
WHEREAS,
Greenpower is a party to agreements with Huayang Dye Machine Co., Ltd.
(“Dye
Co.”)
and
Huayang Electricity Power Equipment Co., Ltd. (“Power
Co.”)
and,
together with Dye Co., collectively, the “PRC
Companies”),
pursuant to which Greenpower has the right to advise, consult, manage and
operate the PRC Companies and collect and own all of their net profits, and,
pursuant to a proxy and voting agreement and a voting trust and escrow
agreement, the stockholders of the PRC Companies have vested their voting
control over the PRC Companies to Greenpower; and
WHEREAS,
the
parties are entering into this Agreement to amend and restate certain terms
of
the Prior Agreement;
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
1
INCORPORATION
BY REFERENCE 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 Supersedes
Other Agreements.
This
Agreement, to the extent that it is inconsistent with any other instrument
or
understanding among the parties, 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 “4.9%
Limitation”
has
the
meaning set forth in Section 2.1.3 of this Agreement.
1.3.2 “1933
Act”
means the Securities Act of 1933, as amended.
1.3.3 “1934
Act”
means
the Securities Exchange Act of 1934, as amended.
1.3.4 “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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
2
1.3.5 “Articles”
means
the certificate of incorporation of the Company, as the same may be amended
from
time to time.
1.3.6 “Authorized
Stock Proviso”
has
the
meaning set forth in Section 4.4.3 of this Agreement.
1.3.7 “Bylaws”
means
the bylaws of the Company, as the same may be amended from time to
time.
1.3.8 “Certificate
of Designation”
means
the certificate of the rights, preferences and privileges, subject to the
limitations, with respect to the Series A Preferred Stock. The Certificate
of
Designation shall be in substantially the form of Exhibit
A
to this
Agreement.
1.3.9 “Closing” means
the
consummation of the transactions contemplated by this Agreement, all of which
transactions shall be consummated contemporaneously with the
Closing.
1.3.10 “Closing
Date”
means
the date on which the Closing occurs.
1.3.11 “Closing
Escrow Agreement”
shall
mean the agreement between the Company, the Investors and the Escrow Agent
pursuant to which securities are deposited into escrow to be held as provided
in
Section 6 of this Agreement. The Closing Escrow Agreement shall be in
substantially the form of Exhibit
B
to this
Agreement.
1.3.12 “Common
Stock”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.00002 per share. Pursuant to the Restated Certificate, the par
value
will be changed to $.001 per share.
1.3.13 “Company’s
Governing Documents”
means
the Articles and Bylaws.
1.3.14 “Delaware
Law”
shall
mean the Delaware General Corporation Law.
1.3.15 “EBITDA”
means
consolidated earnings before interest, taxes, depreciation and amortization,
determined in accordance with GAAP.
1.3.16 “Escrow
Agreement”
means
the Escrow Agreement dated November 6, 2007, among the Company, Xxxxxx Partners
and Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, as Escrow Agent.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
3
1.3.17 “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) of the Company pursuant to any stock or option plan that
was or may be adopted by a majority of independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose, (b) securities upon the
exercise of or conversion of any (i) securities issued hereunder and pursuant
to
the Registration Rights Agreement, the Notes, the Warrants and the Certificate
of Designation, (ii) any other options, warrants or convertible securities
which
are outstanding on after completion of the Closing or (iii) securities issued
pursuant to options and warrants issued under a plan adopted pursuant to (a)
above, 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.
1.3.18 “GAAP”
means
United States generally accepted accounting principles consistently
applied.
1.3.19 “Make-Good
Note”
shall
mean the note issued pursuant to Section 6.15.9 of this Agreement, and shall
be
in substantially the form of Exhibit C to this Agreement.
1.3.20 “Material
Adverse Effect”
means
any adverse effect on the business, operations, properties or financial
condition of the Company or any of its Subsidiaries 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 or any Subsidiary to perform any of its material
obligations under this Agreement, the Registration Rights Agreement or the
Warrants or to perform its obligations under any other material agreement.
1.3.21 “Note(s)”
shall
have the meaning set forth in the introductory paragraph of this Agreement
and
shall be in substantially the form of Exhibit
D
to this
Agreement.
1.3.22 “Person”
means
an individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
1.3.23 “PRC
Agreements”
shall
mean the agreements between Greenpower and the PRC Companies.
1.3.24 “PRC
Company Stockholders”
shall
mean the stockholders of the PRC Companies, which, as of the date of this
Agreement, are XX Xxxxxxx and XXXX Xxxxx, as to Dye Co. and XXXX Xxxxx, WU
Haoyang (WU Jianhua’s son) and Dye Co., as to Power Co.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
4
1.3.25 “Preferred
Stock”
means
the preferred stock, par value $.001 per share, as created by the Restated
Certificate.
1.3.26 “Pre-Tax
Income”
means income
before income taxes determined in accordance with GAAP plus (a) any charges
under GAAP which are reflected in the Company’s financial statements which
relate to the transaction contemplated by this Agreement and the Registration
Rights Agreement and the other Transaction Documents, including the issuance
of
the Note and any other securities issuable pursuant to this Agreement, the
Note
and the Registration Rights Agreement, minus (b) the amount, if any, by which
all non-recurring losses or expenses exceed all non-recurring items or income
or
gain.
Pre-Tax Income shall not be adjusted if all non-recurring items of income or
gain exceed all non-recurring losses or expenses. Items shall be deemed to
be
non-recurring only if they qualify as non-recurring pursuant to
GAAP.
1.3.27 “Proxy
Statement”
means
a
proxy statement filed with the SEC pursuant to Section 14(a) of the 1934 Act
which seeks stockholder approval of the Restated Certificate or an information
statement pursuant to Section 14(c) of the 1934 Act advising stockholders that
the holders of a majority of the shares of Common Stock have approved the
Restated Certificate, whichever shall be appropriate.
1.3.28 “Purchase
Price”
means
the $5,525,000 to be paid by the Investors to the Company for the
Securities.
1.3.29 “Registration
Rights Agreement”
means
the registration rights agreement between the Investor and the Company in
substantially the form of Exhibit
E
to this
Agreement.
1.3.30 “Registration
Statement”
means
the registration statement under the 1933 Act to be filed with the SEC for
the
registration of the Shares pursuant to the Registration Rights
Agreement.
1.3.31 “Related
Companies”
shall
mean Fulland, Greenpower and the PRC Companies, each of which is a “Related
Company.”
1.3.32 “Restated
Certificate”
means
the restated certificate of incorporation which is in substantially the form
of
Exhibit
F
to this
Agreement.
1.3.33 “Restricted
Stockholders”
shall
have the meaning set forth in Section 6.16 of this Agreement.
1.3.34 “Restriction
Termination Date”
shall
mean the date on which the Investors shall have (a) converted all Notes and
shares of Series A Preferred Stock and exercised all Warrants (other than
Warrants that shall have expired unexercised) and (b) sold the underlying Shares
in the public market.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
5
1.3.35 “Restriction
Termination Date at 90%”
shall
mean the date on which the Investors shall have (a) converted Notes and shares
of Series A Preferred Stock and exercised Warrants (other than Warrants that
shall have expired unexercised) and (b) sold 90% of the Total
Shares.
1.3.36 “Securities”
means
the Note, the shares of Series A Preferred Stock, the Warrants and the
Shares.
1.3.37 “SEC”
means
the Securities and Exchange Commission.
1.3.38 “SEC
Documents”
means,
at any given time, the Company’s latest Form 10-K or Form 10-KSB and all Forms
10-Q or 10-QSB and 8-K and all proxy statements or information statements filed
between the date the most recent Form 10-K or Form 10-KSB was filed and the
date
as to which a determination is being made.
1.3.39 “Series
A Preferred Stock”
means
the shares of Series A Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.
1.3.40 “Shares”
means,
collectively, the shares of Common Stock issued or issuable (i) upon conversion
of the Notes or Series A Preferred Stock and (ii) upon exercise of the
Warrants.
1.3.41 “Subsidiary”
means
an entity in which the Company and/or one or more other Subsidiaries directly
or
indirectly own either 50% of the voting rights or 50% of the equity
interests.
1.3.42 “Subsequent
Financing”
means
any offer and sale of shares of Preferred Stock or debt that is initially
convertible into shares of Common Stock or otherwise senior or superior to
the
Series A Preferred Stock.
1.3.43 “Target
Number”
has
the
meaning set forth in Section 6.15.2 of this Agreement.
1.3.44 “Total
Shares”
means
the number of shares of Common Stock as have been or would be issued upon
conversion of the Notes and the Series A Preferred Stock and Warrants issuable
upon conversion of the Notes. The number of Total Shares shall be adjusted
to
reflect any change in the conversion price of the Notes or Series A Preferred
Stock and the expiration of any Warrants.
1.3.45 “Transaction
Documents”
means
this Agreement, all Schedules and Exhibits attached hereto, the Notes, the
Certificate of Designation, the Warrants, the Registration Rights Agreement,
the
Closing Escrow Agreement and all other documents and instruments to be executed
and delivered by the parties in order to consummate the transactions
contemplated hereby.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
6
1.3.46 “Unsold
Shares”
means
the difference between (a) the number of shares of Series A Preferred Stock
which were initially issued upon conversion of the Notes and (b) the number
of
shares of Series A Preferred Stock, regardless of when such shares were issued,
which have been converted into Common Stock with the Common Stock having been
sold.
1.3.47 “Warrants”
means the common stock purchase warrants in substantially the forms of
Exhibits
G-1, G-2 and G-3
to this Agreement.
1.4 References.
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
1.5 Value
of Series A Preferred Stock.
Whereever this Agreement provides for the delivery of shares of Series A
Preferred Stock in satisfaction of an obligation under this Agreement, a share
of Series A Preferred Stock shall have a value equal to its liquidation
preference as set forth in the Certificate of Designation.
Article
2
SALE
AND PURCHASE OF NOTES; PURCHASE PRICE
2.1 Sale
of Notes.
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, Notes for
portion of the Purchase Price set forth after the Investor’s name on Schedule A
to this Agreement in the principal amount set forth in said Schedule A. At
or
prior to the Closing each Investor shall wire the Investor’s portion of the
Purchase Price to the Escrow Agent, who shall release the Purchase Price to
the
Company upon receipt of instructions from the Investor and the Company as
provided in the Escrow Agreement. The Company shall cause the Notes 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.
2.1.2 The
Notes
shall be convertible into Preferred Stock and Warrants, or Common Stock and
Warrants or Common Stock in the manner set forth in the first introductory
paragraph of this Agreement, all as set forth in the Notes. As provided in
the
Notes, upon filing of the Restated Certificate and the Certificate of
Designation, the Notes shall be automatically converted, without any action
on
the part of the holder thereof, into an aggregate of 14,787,135 shares of Series
A Preferred Stock and Warrants to purchase an aggregate of 11,176,504 shares
of
Common Stock at $0.58 per share, 5,588,252 shares of Common Stock at $0.83
per
share, and 2,065,000 shares at $0.92 per share, less any securities issued
as a
result of a conversion prior to such automatic conversion. The Warrants are
subject to redemption by the Company as provided in those Warrants.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
7
2.1.3 Except
as
expressly provided in the Certificate of Designation and the Warrants, an
Investor shall not be entitled to convert the Notes or 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 the Investor
and
its Affiliates of more than 4.9% of the then outstanding number of shares of
Common Stock on such date after giving effect to such conversion or exercise.
For the purposes of this Agreement beneficial ownership shall be determined
in
accordance with Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.
The limitation set forth in this Section 2.1.3 is referred to as the
“4.9%
Limitation.”
As a result of the 4.9% Limitation, no Investor will have 5% of the voting
power
of the Company; provided, however, that this sentence shall not affect any
of an
Investor’s rights under the Certificate of Designation.
Article
3
CLOSING
DATE AND DELIVERIES AT CLOSING
3.1 Closing
Date.
The
Closing of the transactions contemplated by this Agreement, unless expressly
determined herein, shall be held at the offices of the Sichenzia Xxxx Xxxxxxxx
Xxxxxxx LLP, 00 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 2:00 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
the
Closing, Notes in the names of the Investors in the amounts set forth in
Schedule A to this Agreement;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) Evidence
that the Company has acquired all of the outstanding shares of
Fulland.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
8
(f) Copies
of all SEC correspondence since last Form 10-KSB and any correspondence which
was issued prior to the last Form 10-KSB which has not been resolved to the
satisfaction of the SEC.
(g) Schedule
of all amounts owed (cash and stock) to officers, consultants and key employees
(salary, bonuses, etc.).
(h) 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 Investor, 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;
(i) Management
letter from the Company’s registered independent accounting firm or confirmation
from such firm that no such letter were issued in connection with the Company’s
most recent audit;
(j) Evidence
of approval of the Board of Directors of the Company of the Transaction
Documents and the transactions contemplated hereby and thereby;
(k) Agreements
from the Restricted Stockholders pursuant to Section 6.16 of this
Agreement.
(l) Evidence
that the Restated Certificate has been approved by the directors, and that
the
board of directors has authorized the filing of the Proxy Statement with the
SEC.
(m) Good
standing certificate from the Secretary of State of the State of
Delaware;
(n) Copy
of
the Company’s Articles, as currently in effect, certified by the Secretary of
State of the State of Delaware;
(o) An
opinion from the Company’s counsel concerning the Transaction Documents and the
transactions contemplated hereby in form and substance reasonably acceptable
to
Investors;
(p) An
opinion from the Company’s PRC counsel that (i) each of the Related Companies is
legally established and validly existing as an independent legal entity; (ii)
each of the Related Companies is an independent legal person and none of them
is
exposed to liabilities incurred by the other party; (iii) the PRC Agreements
constitute valid and binding obligations of the parties to such agreements,
and
(iv) each of the PRC Agreements and the rights and obligations of the parties
thereto are enforceable and valid in accordance with the laws of the
PRC;
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
9
(q) An
agreement between Greenpower and the PRC Companies pursuant to which the PRC
Companies transfer to Greenpower all of the patent, trademark and other
intellectual property rights and other intangible assets;
(r) Evidence
that all agreement between Greenpower and the PRC Companies are executed and
are
satisfactory in all material respects to the Investors;
(s) The
executed disbursement instructions pursuant to the Escrow Agreement, which
shall
provide that the Escrow Agent continue to hold $100,000 to pay the Company’s
anticipated obligations to its investor relations company;
(t) Evidence
satisfactory to the Investors that (i) the PRC Companies have, in the aggregate,
not less than RMB¥3,500,000
in cash on the Closing Date; (ii) the combined debt of the PRC Companies and
Greenpower shall not exceed RMB¥5,000,000 on the Closing Date; and (iii) all
accrued and unpaid taxes as of the Closing Date shall have been
forgiven.
(u) 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;
(v) Copies
of
the non-competition agreements provided in Section 4.17 of this
Agreement;
(w) Such
other documents or certificates as shall be reasonably requested by Investors
or
their counsel; and
(x) The
Company must be current in its filings with the SEC, and the Company’s Common
Stock must be trading on the OTC Bulletin Board.
3.3 Deliveries
by Investors.
In
addition to and without limiting any other provision of this Agreement, the
Investors agree to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
(a) A
deposit
from each Investor as to the Investor’s portion of the Purchase
Price;
(b) The
executed Agreement with all Exhibits and Schedules attached hereto;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) The
executed disbursement instructions pursuant to the Escrow Agreement;
and
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
10
(f) Such
other documents or certificates as shall be reasonably requested by the Company
or its counsel.
3.4 Delivery
of Original Documents.
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.
3.5 Further
Assurances.
The
Company and each Investor shall, upon request, on or after the Closing Date,
cooperate with each other (specifically, the Company shall cooperate with the
Investors, and each Investor 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.
3.6 Waiver.
An
Investor may waive any of the requirements of Section 3.2 of this Agreement,
and
the Company may waive any of the provisions of Section 3.3 of this Agreement.
The Investors may also waive any of the requirements of the Company under the
Escrow Agreement.
Article
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investors as of the date hereof and
as of
Closing Date (which warranties and representations shall survive the Closing
regardless of any examinations, inspections, audits and other investigations
the
Investors have heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:
4.1 Organization
and Qualification.
Each of
the Company, each Subsidiary and each of the Related Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and 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, its Subsidiaries
and
the Related Companies taken as a whole.
4.2 Company’s
Governing Documents.
The
complete and correct copies of the Company’s Governing Documents (a) have been
provided to the Investor and (b) have been filed with the SEC in accordance
with
the regulations of the SEC and (c) will be in full force and effect on the
Closing Date.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
11
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 the issuance and sale of the Securities
pursuant to this Agreement is set forth in Schedule 4.3.l to this Agreement.
Schedule 4.3.1 lists all shares and potentially dilutive events, including
shares issuable pursuant to employment, consulting and other services
agreements, acquisition agreements, options and equity-based incentive plans,
debt securities, convertible securities, financing or business relationships
as
well as each agreement, plan, arrangement or understanding pursuant to which
any
shares of any class of capital stock may be issued, a copy of each of which
has
been provided to the Investors.
4.3.2 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
of preemptive rights.
4.3.3 Except
pursuant to this Agreement and as set forth in Schedule 4.3.1, there are no
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 Neither
of the PRC Companies, nor Greenpower nor Fulland has any agreement or
understanding, whether formal or informal, which could result in the issuance
of
any equity securities or right to purchase or otherwise acquire equity
securities of such corporation.
4.4 Authority.
4.4.1 The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, Notes and the Securities issuable upon conversion of the Notes,
the Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Notes and the Securities issuable upon conversion of the Notes, the
Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party 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 and thereby 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, except as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the
court.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
12
4.4.2 The
Note,
when issued pursuant to this Agreement, constitutes the valid, binding and
obligation of the Company enforceable in accordance with its terms, except
as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the court.
The
Restated Certificate has been approved by the board of directors. Upon the
filing of the Restated Certificate and the Certificate of Designation, the
equity Securities issuable upon conversion of the Note, when so issued, will
be
duly and validly authorized and issued, fully paid and non-assessable and the
Warrants will be the valid and binding obligations of the Company, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws of general application affecting the
enforcement of creditors’ rights and except that any the granting of equitable
relief is in the discretion of the court. All such Securities, when so issued,
will be free and clear of all liens, charges, claims, options, pledges,
restrictions, preemptive rights, rights of first refusal and encumbrances
whatsoever (other than those incurred by the Investor).
4.4.3 Notwithstanding
any contrary representations and warranties, no
representation is made with respect to the ability of any Investor to convert
the Note or, following the filing of the Restated Certificate and the
Certificate of Designation, the Series A Preferred Stock or exercise any Warrant
if and to the extent that the conversion price of the Note or the Series A
Preferred Stock, as defined in the Note or the Certificate of Designation,
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”).
4.4.4 Each
Related Company is legally established, and validly existing as an independent
legal entities; (ii) each Related Company is an independent legal person and
none of them is exposed to liabilities incurred by the other party; (iii) the
PRC Agreements constitute valid and binding obligations of the parties to such
agreements, and (iv) each of the PRC Agreements and the rights and obligations
of the parties thereto are enforceable and valid in accordance with the laws
of
the PRC.
4.5 No
Conflict; Required Filings and Consents.
Neither
the execution and delivery of this Agreement by the Company nor the issuance
of
the Notes and other Transaction Documents, and the performance by the Company
of
its obligations hereunder and thereunder will: (i) conflict with or violate
the
Company’s or any Subsidiary’s Governing Instruments; (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 any
Subsidiary; 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 any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets is bound, other than such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens 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. Neither the execution of
this
Agreement nor the consummation of the terms contemplated by this Agreement
will
impair Greenpower’s rights under the PRC Agreements.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
13
4.6 Reports
and Financial Statements.
4.6.1 The
consolidated financial statements of the Related Companies for the years ended
December 31, 2006 and 2005, including consolidated balance sheets, statements
of
operations, stockholders’ equity and cash flows, together with the notes
thereon, certified by Sherb & Co., LLP (“Sherb”),
the
Company’s independent registered accounting firm, together with the unaudited
consolidated financial statements for the six months ended June 30, 2007 and
2007, consisting of a balance sheet at June 30, 2007, statement of stockholders’
equity for the six months ended June 30, 2007, and statements of operations
and
cash flows for the six months ended June 30, 2007 and 2006, which have been
reviewed by Sherb have been delivered to the Investors. Each of the consolidated
balance sheets fairly presents the financial position of the Related Companies,
as of its date, and each of the consolidated statements of income, stockholders’
equity and cash flows (including any related notes and schedules thereto) fairly
presents the results of operations, cash flows and changes in stockholders’
equity, as the case may be, of the Related Companies for the periods to which
they relate, in each case in accordance with GAAP consistently applied during
the periods involved. Sherb is independent as to the Company and each of the
Related Companies in accordance with the rules and regulations of the SEC.
The
books and records of the Related Companies have been, and are being, maintained
in all material respects in accordance with GAAP and any other applicable legal
and accounting requirements and reflect only actual transaction. Neither the
Company nor any of the Related Companies has received any advice from Sherb
to
the effect that there is any significant deficiency or material weakness in
the
Company’s or any Related Party’s controls or recommending any corrective action
on the part of the Company or any Related Party. Neither the Company nor any
Related Party has any contingent liability which is not reflected in the
financial statements. To the extent that the consolidated financial statements
of Fulland do not include the financial condition or results of operations
of
the PRC Companies, separate statements for the PRC Companies, conforming to
the
delivery requirements of this Section 4.6.1, shall have been
delivered.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
14
4.6.2 The
Company’s Form 10-KSB for the year ended April 30, 2007, contains the audited
financial statements of the Company, certified by Xxxxxxxx and Company,
(“Xxxxxxxx”),
the
Company’s independent registered accounting firm, for the years ended April 30,
2007 and 2006, and the Company’s Form 10-QSB for the quarter ended April 30,
2007 contains the unaudited financial statements of the Company which have
been
reviewed by Xxxxxxxx. The balance sheets fairly present the financial position
of the Company, as of their respective dates, and each of the consolidated
statements of income, stockholders’ equity and cash flows (including any related
notes and schedules thereto) fairly presents the results of operations, cash
flows and changes in stockholders’ equity, as the case may be, of the Company
for the periods to which they relate, in each case in accordance with GAAP
consistently applied during the periods involved. Xxxxxxxx is independent as
to
the Company in accordance with the rules and regulations of the SEC. The books
and records of the Company have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transaction. The Company has not received
any letters of comments from the SEC relating to any filing made by the Company
with the SEC which has not been addressed by an amended filing, and each amended
filing fully responds to the questions raised by the staff of the SEC. The
Company maintains disclosure controls and procedures that are effective to
ensure that information required to be disclosed by the Company in its annual
and quarterly reports filed with the SEC is accumulated and communicated to
the
Company’s management, including its principal executive and financial officers
as appropriate, to allow timely decisions regarding required disclosure. There
were no significant changes in the Company’s internal controls or other factors
that could significantly affect such controls subsequent to December 31, 2006.
The Company has not received any advice from Xxxxxxxx to the effect that there
is any significant deficiency or material weakness in the Company’s controls or
recommending any corrective action on the part of the Company or any Subsidiary.
The Company does not have any contingent liabilities.
4.7 Compliance
with Applicable Laws.
Neither
the Company nor any Subsidiary nor any Related Party is 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.
Except
as set forth on Schedule 4.8, 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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
15
4.9 SEC
Documents.
The
Investors acknowledge that the Company is a publicly held company and has made
available to the Investors upon request true and complete copies of any
requested SEC Documents. The Company has registered its Common Stock pursuant
to
Section 12(d) of the 1934 Act, and the Common Stock is quoted and traded on
the
OTC Bulletin Board of the National Association of Securities Dealers, Inc.
The
Company has received no notice, either oral or written, with respect to the
continued quotation or trading of the Common Stock on the OTC Bulletin Board.
The Company has not provided to the Investor 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. As of
their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act, and rules and regulations of the SEC promulgated
thereunder and the SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
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, the prosecution or outcome of which may have
a
Material Adverse Effect.
4.11 Employment
Agreements.
Except
as disclosed in the Company’s Form 10-KSB for the year ended December 31, 2006
or as otherwise disclosed pursuant to this Agreement, the Company does not
have
any agreement or understanding with any officer or director, and there has
been
no material change in the compensation of any officer and director from that
shown in said Form 10-KSB.
4.12 Exemption
from Registration.
Subject
to the accuracy of the Investors’ representations in Article V of this
Agreement, except as required pursuant to the Registration Rights Agreement,
the
sale of the Note by the Company to the Investor or the issuance of Series A
Preferred Stock or Common Stock and Warrants will not require registration
under
the 1933 Act. When issued upon conversion of the Notes or the Series A Preferred
Stock, as the case may be, or upon exercise of the Warrants in accordance with
their terms, the Shares underlying the Preferred Stock and the Warrants will
be
duly and validly authorized and issued, fully paid, and non-assessable. The
Company is issuing Notes, and upon conversion of the Notes, the 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.
4.13 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 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 Notes, Series A Preferred
Stock, Common Stock or Warrants, under the 1933 Act, except as required
herein.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
16
4.14 No
Material Adverse Effect.
Since
December 31, 2006, no event or circumstance resulting in a Material Adverse
Effect has occurred or exists with respect to the Company, any Subsidiary or
any
Related Party. No material supplier or customer has given notice, oral or
written, that it intends to cease or reduce the volume of its business with
the
Company, any Subsidiary or any Related Party from historical levels. Since
December 31, 2006, no event or circumstance has occurred or exists with respect
to the Company, any Subsidiary or any Related Party, that, under any applicable
law, rule or regulation, requires or would require, public disclosure or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in writing to the Investor.
4.15 Material
Non-Public Information.
The
Company has not disclosed to the Investors 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.
4.16 Internal
Controls And Procedures.
The
Company and its Subsidiaries and each of the Related Parties maintain books
and
records and internal accounting controls which provide reasonable assurance
that
(i) all transactions to which the Company or any Subsidiary or any Related
Party
is a party or by which their respective properties are bound are executed with
management’s authorization; (ii) the recorded accounting of the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is permitted only in
accordance with management’s authorization; and (iv) all transactions to which
the Company or any Subsidiary or any Related Party is a party or by which any
of
their respective properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company and the Related Companies
individually (unless the financial condition and results of operations and
cash
flows are consolidated with those of the Company under GAAP) in accordance
with
GAAP.
4.17 Non-Competition
Agreement.
Each of
the Company’s executive officers shall have entered into an agreement with the
Company pursuant to which they agree that, to the maximum extent permitted
by
law, the Company’s executive officers shall not be involved in any business
venture, whether as an officer, director, partner, manager, lender, guarantor,
consultant or any other capacity in any business which competes with or is
similar in nature to the Company in China. To the extent that the provisions
of
this Section 4.17 are not enforceable under applicable law, the non-competition
agreement shall provide that it shall be deemed to restrict the executive
officers only to the maximum extent permitted by law. A copy of a true and
correct English translation of each of these agreements has been provided to
the
Investors.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
17
4.18 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
Investor 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.
Article
5
REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS
Each
Investor severally and not jointly represents and warrants to the Company
that:
5.1 Concerning
the Investors.
The
state in which any offer to purchase shares hereunder was made or accepted
by
such Investor is the state shown as such Investor’s address. The Investor was
not formed for the purpose of investing solely in the Securities.
5.2 Authorization
and Power.
The
Investor 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 the Investor and the
consummation by the Investor of the transactions contemplated hereby have been
duly authorized by all necessary partnership action where appropriate. This
Agreement, the Registration Rights Agreement and the Closing Escrow 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
the 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 Investor’s 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 Investor). The 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
Investor’s 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, the Investor is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
18
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 its Subsidiaries and to the officers of the Company and its
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. Such Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the Investor from
the Company by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters and the
Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Company.
5.5 Accredited
Investor.
The
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 the Investor from the Company.
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. Such
Investor understands that any obligations under agreements or arrangements
with
brokers disclosed in Schedule 4.8 are obligations of the Company.
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.
Each
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 the 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 the Investor
from the Company.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
19
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, 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.
Article
6
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. The
Company does not have any agreement or obligation which would enable any Person
to include securities in any registration statement required to be filed on
behalf of the Investors pursuant to the Registration Rights Agreement and will
not take any action which will give any Person any right to include securities
in any such registration statement. Except as contemplated by the Registration
Rights Agreement, no Person has any demand or piggyback registration right
with
respect to any securities of the Company. The Company will not file any
registration statement covering any shares of Common Stock issuable to any
officers, directors, Affiliates of or consultants to the Company until the
earlier of (a) thirty (30) months from the Closing Date or (b) the Restriction
Termination Date at 90%; provided, however, that the Company may file a
registration statement on Form S-8 for shares issued or issuable pursuant to
employee stock option plans for employees who are not officers, directors or
Affiliates of the Company.
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, the maximum
number of shares of Common Stock for the purpose of enabling the Company to
issue the shares of Common Stock underlying the Notes, Series A Preferred Stock
and Warrants.
6.3 Compliance
with Laws.
The
Company hereby agrees to comply and to cause each Subsidiary and each Related
Party to comply in all respects with the Company’s reporting, filing and other
obligations under the Laws.
6.4 Exchange
Act Registration.
The
Company will continue its obligation to report to the SEC under Section 12
of
the 1934 Act and 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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
20
6.5 Corporate
Existence; No 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 Listing,
Securities Exchange Act of 1934 and Rule 144
Requirements.
6.6.1 The
Company shall not take any action which would cause its Common Stock not to
be
traded on the OTC Bulletin Board, except that the Company may list the Common
Stock on the Nasdaq Stock Market or the American or New York Stock Exchange
if
it meets the applicable listing requirements. If, for any time after the
Closing, the Company is no longer in compliance with this Section 6.6.1, then
the Company shall pay to the Investors as liquidated damages and not as a
penalty, an amount equal to twelve percent (12%) per annum, based on the lesser
of (a) the Purchase Price or (b) that percentage of the Purchase Price which
the
Unsold Shares bears to the number of shares of Common Stock initially issuable
upon conversion of the Series A Preferred Stock sold pursuant to this Agreement.
The Unsold Shares shall mean shares of Series A Preferred Stock with respect
to
which both (i) the Series A Preferred Stock has not been converted and (ii)
the
underlying shares of Common Stock have not been sold or otherwise transferred
pursuant to a registration statement or Rule 144. Such
damages shall be payable quarterly on the tenth (10th)
day of the following calendar quarter, and shall cease at the time the Company
begins complying with the provisions of this Section 6.6.1.
6.6.2 Commencing
not later than two years from the Closing Date, the
Company shall have caused its Common Stock to be listed on the Nasdaq Global
Market or Nasdaq Capital Market or the New York or American Stock Exchange,
and,
from and after the date of such listing, the Common stock shall continue to
be
listed on one of such markets or exchanges until the Restriction Termination
Date at 90%. If, for any time after the Closing and prior to the Restriction
Termination Date at 90%, the Company is not in compliance with this Section
6.6.2, then the Company shall pay to the Investors as liquidated damages and
not
as a penalty, an amount equal to six percent (6%) per annum, based on the lesser
of (a) the Purchase Price or (b) that percentage of the Purchase Price which
the
Unsold Shares bears to the number of shares of Common Stock initially issuable
upon conversion of the Series A Preferred Stock issued upon conversion of the
Note. Notwithstanding
the foregoing, no liquidated damages shall be payable pursuant to this Section
6.6.2 during any period for which liquidated damages are payable pursuant to
Section 6.6.1.
6.6.3 Liquidated
damages payable pursuant to Sections 6.6.1 and 6.6.2 shall be payable in shares
of Series A Preferred Stock or cash, as the Investors may request. In no event
shall the total liquidated damages payable pursuant to Sections 6.6.1 and 6.6.2,
whether in cash or Series A Preferred Stock, exceed in the aggregate twelve
percent (12%) of the Purchase Price of the Unsold Shares that are outstanding
as
of the date on which a computation is being made.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
21
6.7 No
Convertible Debt or Preferred Stock.
On
or
prior to the Closing Date, the Company will cause to be cancelled or paid all
convertible debt in the Company. Until the earlier of (a) four years from the
Closing Date or (b) the Restriction Termination Date, the Company will not
issue
any convertible debt or any shares of any class or series of Preferred
Stock.
6.8 Debt
Limitation.
The
Company agrees until the earlier of (a) three years after Closing Date or (b)
the Restriction Termination Date at 90%, it will not have outstanding any debt
in an amount greater than twice the sum of the EBITDA from continuing operations
for the past four quarters. Nothing in this Section 6.8 shall be construed
to
prohibit the Company from borrowing from the Chinese government or from Chinese
banks as long as such loans do not result in the Company being in default of
any
of its covenants set forth in this Article 6.
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. Until the earlier of (a) five years from the Closing Date
or (b) the Restriction Termination Date, the Company will not enter into any
transactions that have any reset features that could result in additional shares
being issued.
6.10 Independent
Directors.
6.10.1 The
Company shall have caused the appointment of the majority of the board of
directors, which shall not consist of more than nine members, to be independent
directors, as defined by the rules
of the Nasdaq Stock Market, not later than the ninety (90) days after the
Closing Date.
6.10.2 If,
at any time subsequent to ninety (90) days after the Closing Date until the
earlier of (a) three years from the Closing or (b) the Restriction Termination
Date at 90%, 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 60 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 The
term “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 From
and after the Closing Date, the Company shall have a chief financial officer
who
speaks and understands both English and Chinese and is familiar with GAAP (a
“qualified CFO”), who may serve on a part time basis until three months after
the Closing Date, by which time the Company shall have a full-time qualified
CFO. In the event that at any time subsequent to the Closing Date the Company
fails to have a qualified CFO, the Company shall, within 60 days from the date
that the Company ceases to have a qualified CFO, hire a qualified CFO. If the
Company shall not be able to hire a qualified CFO promptly upon the resignation
or termination of employment of the former chief financial officer, the Company
may engage an accountant or accounting firm to perform the duties of the chief
financial officer until a qualified CFO can be hired. In no event shall the
Company either (i) fail to file an annual, quarter or other report in a timely
manner because of the absence of a qualified CFO, or (ii) not have a person
who
can make the statements and sign the certifications required to be filed in
an
annual or quarterly report under the 1934 Act.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
22
6.10.5 If,
at
the time set forth in Section 6.10.1, or 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, or if the Company
shall have failed to file an annual or quarterly report in a timely manner
because of the absence or lack of a qualified CFO, 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 on the tenth (10th)
day of
the following month, in cash or in Series A Preferred Stock at the option of
the
Investors, based on the number of days that such condition exists beyond the
applicable grace period. The parties agree that the only damages payable for
a
violation of such provisions shall be such liquidated damages. The parties
hereto agree that the liquidated damages provided for in this Section 6.10.5
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. If the Company fails to comply with Section
6.10.1, the period for measuring liquidated damages pursuant to this Section
6.10.5 shall commence at the end of the 90 day period referred to therein and
continue until the Company shall have a majority of independent directors,
and
the grace periods allowed by Section 6.10.2 shall not apply.
6.10.6 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 twelve
percent (12%) of the Purchase Price of the shares of Series A Preferred Stock
that are outstanding as of the date on which a computation is being
made.
6.10.7 Within
three months from the Closing Date, the Company shall hire a bilingual (English
and Chinese) technical sales person at the level which is not less than that
of
a vice president.
6.11 Independent
Directors; Committees. No
later
than ninety (90) days after the Closing Date, the Company will have an audit
committee comprised solely of not less than three independent directors and
a
compensation committee comprised of not less than three directors, a majority
of
whom are independent directors. Further, if the Company shall form an executive
or nominating committee or any other committee, a majority of the members of
such committee shall be independent directors. If at any time subsequent to
the
Closing Date during the period when the Company is required to have a majority
of independent directors pursuant to Section 6.10 of this Agreement, independent
directors do not comprise all of the members of the audit committee and a
majority of the members of the compensation committee or any other committee
within the grace periods provided in Section 6.10, 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 Series
A
Preferred Stock payable in the manner and at the time provided in Section 6.10,
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. 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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
23
6.12 Use
of Proceeds.
The
Company will use the net proceeds from the sale of the Securities, after payment
of legal fees and other closing costs, including a payment of not more than
$625,000 in connection with the reverse acquisition, $400,000 to a stockholder
as previously approved by the Investors, and to provided funds for
Greenpower to purchase and own new equipment in accordance with a schedule
previously provided to the Investors, with Greenpower having the right to permit
the PRC Companies to use the equipment in connection with Greenpower’s business.
The Company shall also allocate $200,000 which will be retained in escrow,
of
which $100,000 shall be allocated to pay the Company’s anticipated obligations
to its investor relations firm and $100,000 shall be retained for the payment
of
professional fees payable subsequent to the Closing. In addition, not less
than
75% of the proceeds from the exercise of warrants shall be used by Greenpower
to
purchase scheduled assets and equipment for use in its business. Neither the
Company nor any Subsidiary shall use any portion of the proceeds from the sale
of the Notes or the exercise of the Warrants to make any payment to either
of
the PRC Companies except as for the purchase of capital in a transaction in
which all of the proceeds of such purchase are used by the PRC Companies for
the
manufacture of products to be sold by Greenpower.
6.13 Right
of First Refusal.
6.13.1 Until
the
earlier of (i) three years from the date of this Agreement or (ii) such time
as
the Investors, as a group, cease to own at least five percent (5%) of the total
number of shares of Common Stock that were issued or are issuable upon
conversion of Series A Preferred Stock that were initially issued to the
Investors, 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, each Investor 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 such Investor’s Percentage
Shares, without regard to the 4.9% Limitation but excluding shares of Common
Stock issuable upon exercise of Warrants, 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. This Section 6.13 shall apply to each such offering based on the
total purchase price of the securities being offered by the Company. This right
is personal to the Investors and is not transferable, whether in connection
with
the sale of stock or otherwise.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
24
6.13.2 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 the opportunity to participate in the offering
by giving 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 in a manner which is more favorable to the potential
investor, the Company shall provide the Investors, at the same time as the
notice is provided to the other potential investors, with a new ten (10) day
notice setting forth the revised terms that are provided to the other potential
investors.
6.13.3 In
the
event that the Investors does not exercise its right to participate in the
Proposed Financing within the time limits set forth in Section 6.13.2 of this
Agreement, 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 price is more favorable to the investors or so the terms
are
more favorable to the investors, the Company shall provide the Investors with
the opportunity to purchase the securities on the revised terms in the manner
set forth in Section 6.13.2
of this
Agreement.
6.14 Price
Adjustment.
From
the
Closing Date until such time as the Restriction Termination Date, except
for Exempt Issuances, as to which this Section
6.14
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, as defined in the Note and the
Certificate of Designation, 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.
6.15 Deliveries
from Escrow Based on Pre-Tax Earnings Per Share.
6.15.1 At
the Closing, the Company shall deliver to the Escrow Agent the Make-Good Note
as
provided in Section 6.15.9, and following the Closing, and promptly after the
filing of the Company’s Certificate of Designation setting forth the rights
preferences and privileges of the Series A Preferred Stock as provided in the
Make-Good Note, and pursuant to the Closing Escrow Agreement, the Company shall
deliver to the Escrow Agent 24,787,135 shares of Series A Preferred Stock,
of
which 14,787,135 shares are held pursuant to this Section 6.15.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
25
6.15.2 In
the
event the Company’s consolidated Pre-Tax Earning per share, on a fully-diluted
basis, for the year ended December 31, 2007 or 2008 is less than the amount
per
share hereinafter provided (the “Target
Number”),
the
percentage shortfall shall be determined by dividing the amount of the shortfall
by the applicable Target Number. The Target Number for 2007 shall be $0.08316
per share, and the Target Number for 2008 shall be $0.13131 per
share.
6.15.3 If
the
percentage shortfall for 2007 is equal to or greater than fifty percent (50%),
then the Escrow Agent shall deliver the 14,787,135 shares of Series A Preferred
Stock to the Investors in the ratio of their initial purchase of
Securities.
6.15.4 If
the
percentage shortfall for 2007 is less than fifty percent (50%), then the
adjustment percentage shall be determined. The adjustment percentage shall
mean
the percentage that the percentage shortfall bears to fifty percent (50%).
The
Escrow Agent shall deliver to the Investors in the ratio of their initial
purchase of Securities such number of shares of Series A Preferred Stock as
is
determined by multiplying the adjustment percentage by 14,787,135 shares and
retain the balance. For example, if the percentage shortfall is 20%, the
adjustment percentage would be 40%, and 40% of the 14,787,135 shares of Series
A
Preferred Stock, or 5,914,854 shares, would be delivered to the Investors,
with
the balance being retain by the Escrow Agent.
6.15.5 If
the
percentage shortfall for 2008 is equal to or greater than fifty percent (50%),
then the Escrow Agent shall deliver all of the shares of Series A Preferred
Stock then held by the Escrow Agent to the Investors in the ratio of their
initial purchase of Securities.
6.15.6 If
the
percentage shortfall for 2008 is less than fifty percent (50%), then the
adjustment percentage for 2008 shall be determined. The adjustment percentage
shall mean the percentage that the percentage shortfall bears to fifty percent
(50%). The maximum number of shares to be delivered shall be determined by
multiplying the adjustment percentage by 14,787,135 shares. The number of shares
to be delivered to the Investors shall be the lesser of the number of shares
of
Series A Preferred Stock then held by the Escrow Agent or the number of shares
determined by the preceding sentence. The Escrow Agent shall deliver to the
Investors the number of shares of Series A Preferred Stock as is determined
pursuant to this Section 6.15.6 in the ratio of their initial purchase of
Securities.
6.15.7 For
purpose of determining Pre Tax Earning Per Share on a fully-diluted basis,
all
shares of Common Stock issuable upon conversion of convertible securities and
upon exercise of warrants and options (whether or not vested) shall be deemed
to
be outstanding, regardless of whether (i) such shares are treated as outstanding
for determining diluted earnings per share under GAAP, (ii) such securities
are
“in the money,” or (iii) such shares may be issued as a result of the 4.9%
Limitation; provided, however, that none of the shares of Series A Preferred
Stock held in escrow pursuant to this Section 6.15 nor the shares of Common
Stock issuable upon conversion of such Series A Preferred Stock shall be deemed
outstanding for purpose of this Section 6.15.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
26
6.15.8 The
distribution of shares of Series A Preferred Stock pursuant to this Section
6.15
shall be made within five (5) business days after the Company files its Form
10-KSB with the SEC for the applicable year. In the event that the Company
does
not file its Form 10-KSB for the year ended December 31, 2007 or 2008 with
the
SEC within thirty (30) days after the date that filing was required, after
giving effect to any extension pursuant to Rule 12b-25 of the Exchange Act,
all
of the remaining 14,787,135 shares of Series A Preferred Stock shall be
delivered to the Investors.
6.15.9 The
Company’s obligation pursuant to this Section 6.15 and Section 6.24 is to place
in escrow a total of 24,787,135 shares of Series A Preferred Stock. Since the
Company does not presently have authorized Preferred Stock, at the Closing,
in
lieu of the 14,787,135 shares of Series A Preferred Stock which would be
delivered pursuant to Section 6.15.9 and the 10,000,000 shares of Series A
Preferred Stock which would be delivered pursuant to Section 6.25, the Company
shall deliver to the Escrow Agent the Company’s 6% convertible promissory note
due March 31, 2008, in the principal amount of $3,000,000 (the “Make-Good
Note”),
which shall automatically convert into 24,787,135 shares of Series A Preferred
Stock upon the filing of the Restated Articles and the Certificate of
Designation; provided, that if the Restated Articles and the Certificate of
Designation shall not have been filed by the maturity date, the Make-Good Note
shall automatically convert into 24,787,135 shares of Common Stock.
6.15.10 The
parties understand that, pursuant to the Closing Escrow Agreement, the Escrow
Agent will not make any deliveries of shares without the signed written
instructions from the Company and the Investors.
6.16 Insider
Selling.
No
Restricted
Stockholders may sell any shares of Common Stock in the public market prior
to
the earlier of 27 months from the Closing Date or the Restriction Termination
Date; provided, however, that if any Restricted Stockholder who is director
and
not an executive officer of the Company shall cease to be a director, such
Person may sell not more than a total of 50,000 shares of Common Stock in the
public market during the period set forth in this sentence. Restricted
Stockholders shall mean any Person who is an officer, director or Affiliate
of
the Company or who becomes an officer or director of the Company subsequent
to
the Closing Date. Without
limiting the generality of the foregoing, the Restricted Stockholders shall
not
to directly or indirectly offer to sell, grant an option for the purchase or
sale of, transfer, pledge assign, hypothecate, distribute or otherwise encumber
or dispose of any securities in the Company in a transaction which is not in
the
public market unless the transferee agrees to be bound by the provisions of
this
Section 6.16. The
Company shall require any newly elected officer or director to agree to the
restriction set forth in this Section 6.16. Xxxxxx Xxxxxx Xxxxxx and the
Investors shall not be considered Restricted Stockholders. The restrictions
in
this Section 6.16 shall not 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 comprised of a majority of independent
directors.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
27
6.17 Employment
and Consulting Contracts.
For
three years after the Closing, the Company shall have a unanimous approval
from
the Compensation Committee 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. This Section 6.17 does not apply
to attorneys, accountants and other persons who provide professional services
to
the Company.
6.18 Subsequent
Equity Sales.
From
the
date hereof until the Restriction Termination Date, the Company shall be not
effect or enter 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 more favorable than those granted to such investor
in
such offering. 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 6.18 shall not apply in respect of an Exempt Issuance, except that
no
Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
6.19 Restated
Certificate. The
Company’s board of directors has approved the Restated Certificate. The Company
shall promptly, but not later than thirty (30) days after the Closing Date,
file
the Proxy Statement with the SEC, and shall mail the Proxy Statement to
stockholders within five (5) business days after the SEC has completed its
review of the Proxy Statement, of, if the SEC does not review the Proxy
Statement, within fifteen (15) business days after the Proxy Statement is filed
with the SEC.
The Company shall schedule an annual or special meeting of stockholders as
soon
as possible, but not later than twenty five (25) days after the Proxy Statement
is mailed to stockholders. The Company shall file the Restated Certificate
with
the Secretary of State of the State of Delaware promptly, but not later than
three (3) business days after the meeting of stockholders at which the Restated
Certificate is approved. Xx Xxxxxxx, Xxxx Xxxxx and Ren Yunxia each agree to
vote in favor of the Restated Certificate.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
28
6.20 Stock
Splits.
All
forward and reverse stock splits shall effect all equity and derivative holders
proportionately.
6.21 Retention
of Investor Relations Firm.
The
Company shall instruct the Escrow Agent to retain $100,000 of the proceeds
of
the sale of the Securities to be utilized for payment to investor relations
firms. The Company shall retain an investor relations firm within 30 days after
the Closing Date.
6.22 Payment
of Due Diligence Expenses.
At
Closing the Escrow Agent shall disperse to Xxxxxx the sum of $30,000.00 for
its
due diligence expenses.
6.23 No
Outside Interests.
Until
the Restriction Termination Date, the Company’s chairman and chief executive
officer will devote their full time and attention to the business of the Company
and shall not have any business interests or activities other than
as chairman or chief executive officer, as the case may be, except that
he or she may devote time, which shall not be material and which shall not
interfere with his or her duties as the Company’s chairman or chief
executive officer, as the case may be, to personal passive investments and
charitable and community activities. Furthermore, none of the PRC Company
Stockholders shall have any interests or engage in any business which is
directly or indirectly competitive with that of the Company or any Related
Party.
6.24 No
Waiver of Non-Competition Obligations.
Until
the Restriction Termination Date, the Company shall not waive the obligations
of
its executive officers pursuant to the non-competition agreements described
in
Section 4.17 of this Agreement.
6.25 Issuance
of Additional Shares based on Tax Obligations.
The
Company has represented to the Investors that neither the Company nor any
Subsidiary nor any Related Party has any tax liabilities or obligations to
the
government of the PRC or any PRC governmental authority or taxing agency, and
that all previously accrued taxes have been forgiven in accordance with the
laws
of the PRC. In the event that, based on the Company’s audited financial
statements for the year ended December 31, 2007 or 2008, the Company or any
of
its Subsidiaries or any Related Company owes taxes to any such government or
government agency for any period ended on or prior to September 30, 2007 (the
“Covered
Period”),
the
Company shall issue to the Investors, in proportion to their investment, four
shares of Series A Preferred Stock for each US$1.00 of tax liability shown
on
the balance sheet or owed or paid by any of the Company, any Subsidiary or
any
Related Company to any such government or government agency relating to the
Covered Period; provided, however, that, subject to the further provision of
this Section 6.25, in no event shall the number of shares of Series A Preferred
Stock issuable pursuant to this Section 6.25 exceed 10,000,000 shares. Such
shares shall be delivered not later than five days after the Company’s Form
10-KSB for the each of the years ended December 31, 2007 and 2008 with respect
to any tax payment or accruals covered by this Section 6.25 for such year;
provided, however, that if the Company shall not have filed its Form 10-KSB
for
2008 within 45 days after such form is required to be filed, the Company shall
issue to the Investors, 10,000,000 shares of Series A Preferred Stock. In the
event that more than 10,000,000 shares are due, the excess shall be taken from
the 14,787,135 shares of series A preferred stock held in escrow pursuant to
the
Section 6.15 of this Agreement. Notwithstanding the foregoing, if, at any time
prior to the completion of the audit for 2007 or 2008 it shall be determined
that the Company, any Subsidiaries or any Related Party has any tax obligation
or pays or accrued any taxes relating to the Covered Period, the payment
pursuant to this Section 6.25 shall be made at that time. If a final settlement
shall have been made, after making delivery of shares to the Investors pursuant
to this Section 6.25, the Company’s obligations under this Section 6.25 shall
terminate, otherwise, the Company’s obligations set forth in this Section 6.25
shall continue as herein provided. The Company shall, at the Closing, deliver
a
certificate for 10,000,000 shares of Series A Preferred Stock, which shall
be
issued in the name of the Escrow Agent, pursuant to the Closing Escrow
Agreement. Any shares not delivered to the Investors pursuant to this Section
6.25 shall be returned to the Company and cancelled at such time as the
Company’s obligations under this Agreement terminate.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
29
6.26 No
Loans or Advances.
Until
the first to occur of three years from the Closing Date or the Restriction
Termination Date at 90%, the Company and its Subsidiaries will not make, and
will use their commercially reasonable best efforts to ensure that no PRC
Company shall make, any loans, advances or other extensions of credit to the
executive officers or directors of the Company, any Subsidiary or any Related
Company or any family member or Affiliate of any of such executive officers
or
directors.
Article
7
COVENANTS
OF THE INVESTOR
Each
Investor, severally and not jointly, covenants and agrees with the Company
as
follows:
7.1 Compliance
with Law.
Each
Investor’s 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
Investor’s acknowledge that (a) the Preferred Stock, Warrants and Shares
underlying the Preferred Stock and Warrants have not been registered under
the
provisions of the 1933 Act, and may not be transferred unless (i) subsequently
registered thereunder or (ii) the Investor 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 Preferred Stock, Warrants and Shares
underlying the Notes and Warrants to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (b) any sale
of
the Shares underlying the 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. Each Investor agrees
that until the Restriction Termination Date it will not sell the Common Stock
short or effect any sales based upon market-based metrics.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
30
7.3 Restrictive
Legend. Each
Investor acknowledges and agrees that the Securities and the Shares shall bear
a
restrictive legend and a stop-transfer order may be placed against transfer
of
any such Securities except that the requirement for a restrictive legend shall
not apply to Shares sold pursuant to a current and effective registration
statement or a sale pursuant Rule 144 or any successor rule.
Article
8
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 10
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
9
CONDITIONS
PRECEDENT TO INVESTOR’S 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:
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
31
9.1 No
Termination.
This
Agreement shall not have been terminated pursuant to Article 10
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.
Article
10
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 Investor and the Company;
10.1.2 by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of any Investor set forth in this Agreement, or any
Investor 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 Investor, respectively, shall
have become untrue, in either case such that any of the conditions set forth
in
Article 8 or Article 9 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 any Investor 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
and Waiver.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
32
10.3.1 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, subject to the
provisions of Section 10.3.3; provided, however that the 4.9% Limitation may
not
be amended or waived.
10.3.2 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 thereby, subject to Section 10.3.3 of this Agreement.
10.3.3 Any
amendment or waiver signed by the holders of 75% of the principal amount of
the
Note or, after the issuance of the Series A Preferred Stock, 75% of the holders
of the then outstanding shares of Series A Preferred Stock, or, after the
conversion of all shares of Series A Preferred Stock, the holders of Warrant
to
purchase a majority of the shares of Common Stock then issuable upon exercise
of
the Warrants, shall be deemed to be approval of the Investors; provided, that
any amendment or waiver which changes the conversion rate or conversion price
of
the Notes or Series A Preferred Stock or the exercise price of the Warrants
shall require the approval of all of the holders of the Warrants.
Article
11
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
Investor such due diligence expenses as described in Section 6.22.
11.2 Indemnification.
The
Investor 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 the Investors or failure by the 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 their 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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
33
11.3 Headings.
The
table of contents and 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 third business
day after it is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
If
to
the Company:
China
Wind Systems, Inc.
c/o
Greenpower Environmental Technologies, Inc.
Qianzhou
Town, Wuxi City
Jiangsu,
PRC 214181
Attention:
Xx Xxxxxxx
E-mail:
00000000000@x000.xxx
Fax:
00 000 0000000
With
a
copy to:
Xxxxxxxxxx
& Xxxxx LLP
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx
Xxxxxxx, XX 00000
Attention:
Xxxxx X. Xxxxx
E-mail:
xxxxxx@xxxxxxxxxxxxxxx.xxx
Fax:
(000) 000-0000
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
34
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxx X. Xxxxxxxx PC
E-mail:
xxxxxxxxx@xxxx.xxx
Fax:
(000) 000-0000
If
to
Xxxxxx:
Xxxxxx
Partners L.P.
c/x
Xxxxxx Capital Advisors, LLC
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn:
Xxxxxx Xxxxxx Xxxxxx
E-mail:
xxx@xxxxxxxxxxxxxx.xxx
and
xxx@xxxxxxxxxxxxxx.xxx
Fax:
(000)
000-0000
If
to the
other Investors, at their addresses set forth on Appendix 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. In
resolving any dispute regarding, or construing any provision in, this Agreement,
there shall be no presumption made or inference drawn because of the drafting
history of the Agreement, or because of the inclusion of a provision not
contained in a prior draft or the deletion or modification of a provision
contained in a prior draft.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
35
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;
Waiver of Jury Trial.
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.
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.
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
36
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 all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
Amended
and Restated Securities Purchase Agreement
between China Wind Systems, Inc. and Xxxxxx Partners, LP
Page
37
IN
WITNESS WHEREOF,
the
Investors and the Company have as of the date first written above executed
this
Agreement.
THE
COMPANY:
| CHINA WIND SYSTEMS, INC. | ||
| |
|
|
| By: | /s/ Wu Xxxxxxx | |
|
Xx Xxxxxxx, CEO |
||
INVESTORS:
|
XXXXXX
PARTNERS LP
By:
Xxxxxx Capital Advisors, LLC, its General Partner
|
||
| |
|
|
| By: | /s/ Xxxxxx Xxxxxx Xxxxxx | |
|
Xxxxxx Xxxxxx Xxxxxx, President |
||
| EOS HOLDINGS | ||
| By: | /s/ Xxx X. Xxxxxx | |
|
Xxx X.Xxxxxx, President |
||
| /s/ Xxxxx Xxxxx | ||
| Xxxxx Xxxxx | ||
Huayang
Dye Machine Co., Ltd. and Huayang Electricity Power Equipment Co., Ltd. hereby
agree to the provisions of Section 6.26 of this Agreement.
| Huayang Dye Machine Co., Ltd. | Huayang Electricity Power Equipment Co., Ltd. | |||
| By: | /s/ Xx Xxxxxxx | By: | /s/ Xxxx Xxxxx | |
| Name: | Xx Xxxxxxx | Name: | Xxxx Xxxxx | |
|
Title:
|
Title:
|
|||
The
undersigned hereby agrees to be bound by the provisions of Sections 6.16, 6.19
and 6.23 of this Agreement.
| /s/ Xx Xxxxxxx | /s/ Xxxx Xxxxx | /s/ Ren Xxxxxx | ||
|
Xx
Xxxxxxx
|
Xxxx
Xxxxx
|
Xxx
Yunxia
|
||
SECURITIES
PURCHASE AGREEMENT BETWEEN
CHINA
WIND SYSTEMS, INC. AND XXXXXX PARTNERS LP
SIGNATURE
PAGE
Schedule
A
|
Name
and
Address
|
Amount
of Investment
|
Principal
Amount
of
Note
|
Number
of Shares
of
Preferred Stock
into
Which Note
is
Convertible
|
Number
of Shares
Underlying
$0.58 Warrants
|
Number
of Shares Underlying $0.83 Warrants
|
Number
of Shares
Underlying
$0.92 Warrants
|
|||||||||||||
|
Xxxxxx
Partners LP
000
Xxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attn:
Xxxxxx Xxxxxx Xxxxxx
|
$
|
5,275,000
|
$
|
5,275,000
|
14,118,034
|
10,670,780
|
5,335,390
|
1,971,561
|
|||||||||||
|
Eos
Holdings
0000
Xxxxxxxx Xx.
Xxx
Xxxxx, XX 00000
Attn:
Xxx X. Xxxxxx, President
|
$
|
150,000
|
$
|
150,000
|
401,461
|
303,434
|
151,717
|
56,063
|
|||||||||||
|
Xxxxx
Xxxxx
000
Xxxxx Xxxxxx
Xxx
0000
Xxxxxxxx
XX 00000
|
$
|
100,000
|
$
|
100,000
|
267,640
|
202,290
|
101,145
|
37,376
|
|||||||||||
|
TOTAL:
|
$
|
5,525,000
|
$
|
5,525,000
|
14,787,135
|
11,176,504
|
5,588,252
|
2,065,000
|
|||||||||||
Schedule
4.3.1
China
Wind Systems, Inc.
Authorized
and Outstanding Capital As of January 31, 2008:
|
Number
of Shares
|
||||
|
Total
common stock authorized:
|
75,000,000
shares
|
|||
|
Total
common stock issued and outstanding:
|
36,987,214
shares
|
|||
|
Adjustments
to reflect sale and issuance of the preferred stock and warrants
to Xxxxxx
investors:
|
||||
|
(1)
Total common stock to be issued on full conversion of preferred
stock
(assuming an unadjusted conversion price of $0.374 per
share):
|
14,784,135
shares
|
|||
|
(2)
Total common stock to be issued on full exercise of warrants (assuming
no
adjustment for the number of warrant shares and assuming exercise
for
cash):
|
18,829,755
shares
|
|||
|
Total
common stock issued (including adjustments (1) and (2)):
|
70,604,105
shares
|
|||
|
Total
preferred stock authorized:
|
Nil
|
|||
On
November 13, 2007, we issued 247,800 shares of common stock to Synergy Business
Consulting, LLC, and 43, 729 shares of common stock to Synergy Law Group
Holdings, for services rendered.
Schedule
4.8
Schedule
of Brokers
None.
Exhibit
A
CHINA
WIND SYSTEMS, INC.
Statement
of Designations
Section
1.
Definitions.
Capitalized terms used and not otherwise defined herein that are defined in
the
Purchase Agreement (as defined below) shall have the meanings given such terms
in the Purchase Agreement. For the purposes hereof, the following terms shall
have the following meanings:
“4.9%
Limitation”
shall
have the meaning set forth in the Purchase Agreement.
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not stayed
or
dismissed within 90 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 90 days; (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors;
(f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (g) the Company or any Significant Subsidiary thereof, by any
act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for
the purpose of effecting any of the foregoing.
“Closing
Date”
means
the Closing Date, as defined in the Purchase Agreement.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.00002 per share. Pursuant to the Restated Certificate, the par
value will be changed to $.001 per share.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“Conversion
Date”
shall
have the meaning set forth in Section 6(a).
“Conversion
Ratio”
shall
mean the number of shares of Common Stock issuable upon conversion of one share
of Series A Preferred Stock. Each share of Series A Preferred Stock shall be
convertible into one (1.0) share of Common Stock (the “Conversion Ratio”),
subject to adjustment as provided in this Statement of
Designations.
“Conversion
Price”
shall mean $0.374,
subject
to adjustment as provided in this Statement of Designations.
“Conversion
Shares”
means,
collectively, the shares of Common Stock into which the shares of Series A
Preferred Stock are convertible in accordance with the terms
hereof.
“Conversion
Shares Registration Statement”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of the Conversion Shares by the Holder,
who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“Conversion
Value”
means
an amount determined by multiplying the number of Conversion Shares as to which
a value is to be determined by the average of the closing prices of the Common
Stock on the principal market or exchange on which the Common Stock is traded
for the five days prior to the date as of which a Conversion Value is being
determined.
“Dilutive
Issuance”
shall
have the meaning set forth in Section 7(b) hereof.
“Effective
Date”
means
the date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Exempt
Issuance”
shall
have the meaning set forth in the Purchase Agreement.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 7(f)(iv) hereof.
“Holder”
shall
have the meaning given such term in Section 2 hereof.
“Investors”
shall
mean the persons named in Schedule A to the Purchase Agreement.
“Original
Issue Date”
shall
mean the date of the first issuance of any shares of the Series A Preferred
Stock regardless of the number of transfers of any particular shares of Series
A
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
“Person”
means
a
corporation, an association, a partnership, a limited liability company, a
business association, an individual, a trust, a government or political
subdivision thereof or a governmental agency.
“Purchase
Agreement”
means
the Securities Purchase Agreement dated as of November 13, 2007, relating to
the
sale of (a) 14,787,135 shares of the Company’s Series A Preferred Stock, (b)
warrants to purchase (i) 11,176,504 shares of Common Stock at $0.58 per share,
and (ii) 5,588,252 shares of Common Stock at $0.83 per share, and (iii)
2,065,000 shares of Common Stock at $0.92 per share, as such agreement may
be
amended, modified or supplemented from time to time, a copy of which is on
file
at the principal offices of the Company.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the Closing Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time.
“Securities”
shall
have the meaning set forth in Section 1.3.33 of the Purchase
Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Series
A Preferred Stock”
shall
have the meaning set forth in Section 2.
“Subsidiary”
shall
mean a corporation, limited liability company, partnership, joint venture or
other business entity of which the Company owns beneficially or of record more
than a majority of the equity interest.
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on
a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Series A Preferred
Stock then outstanding.
Rank
of Series.
For
purposes of this Statement of Designations, any stock of any series or class
of
the Corporation shall be deemed to rank:
(a)
senior to the shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if the holders
of
such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series A Preferred Stock;
(b)
on a
parity with shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
A
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the holders of
shares of Series A Preferred Stock;
(c)
junior to shares of Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of Series A Preferred Stock shall
be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or classes.
Section
2.
Designation
and Amount.
The
series of preferred stock, par value $.001 per share (“Preferred Stock”)
consisting of sixty million (60,000,000) shares shall be designated as the
Company’s Series A Convertible Preferred Stock (the “Series
A Preferred Stock”)
and
the number of shares so designated shall be (which shall not be subject to
increase without the consent of all of the holders of 75% of the then
outstanding shares of Series A Preferred Stock (each a “Holder”
and
collectively, the “Holders”).
In
the event that the Company shall change the par value of the Preferred Stock,
the par value of the Series A Preferred Stock shall be likewise changed. In
the
event of the conversion of shares of Series A Preferred Stock into this
Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once
more
designated as part of a particular Series by the Company’s Board of Directors.
In addition, if the Company shall not issue the maximum number of shares of
Series A Preferred Stock, the Company may, from time to time, by resolution
of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares
of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the number
of shares of Series A Preferred Stock then issued or reserved for issuance.
The
number of shares by which the Series A Preferred Stock is reduced shall have
the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company’s Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of Nevada such certificate
as shall be necessary to reflect any reduction in the number of shares
constituting the Series A Preferred Stock.
Section
3.
Dividends
and Other Distributions.
No
dividends shall be payable with respect to the Series A Preferred Stock. No
dividends shall be declared or payable with respect to the Common Stock or
the
Series B Preferred Stock while the Series A Preferred Stock is outstanding.
The
Company shall not redeem or purchase any shares of Common Stock or any other
class or series of capital stock which is junior to or on a parity with the
Series A Preferred Stock while the Series A Preferred Stock is
outstanding.
Section
4.
Voting
Rights.
The
Series A Preferred Stock shall have no voting rights except as required by
law.
However, so long as any shares of Series A Preferred Stock are outstanding,
the
Company shall not, without the affirmative approval of the Holders of 75% of
the
shares of the Series A Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend this Statement of Designations, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 5) senior to or otherwise pari passu with
the
Series A Preferred Stock, or any of preferred stock possessing greater voting
rights or the right to convert at a more favorable price than the Series A
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in breach of any of the provisions hereof, (d) increase the authorized
number of shares of Series A Preferred Stock or the number of authorized shares
of Preferred Stock, or (e) enter into any agreement with respect to the
foregoing. Notwithstanding any other provision of the Statement of Designations;
the provisions of Section 6(c) of this Statement of Designations may not be
amended or waived.
Section
5.
Liquidation.
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary
or
involuntary (a “Liquidation”),
the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to thirty eight and 4/10 cents ($0.384) per share of Series
A
Preferred Stock, which amount is referred to as the “Liquidation
Preference,”
before
any distribution or payment shall be made to the holders of any securities
which
are junior to the Series A Preferred Stock upon voluntary or involuntary
liquidation, dissolution or winding up and after any distributions or payments
made to holders of any class or series of securities which are senior to the
Series A Preferred Stock upon voluntary or involuntary liquidation, dissolution
or winding up, and if the assets of the Company shall be insufficient to pay
in
full such amounts, then the entire assets to be distributed to the Holders
shall
be distributed among the Holders ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon
were
paid in full. In the event the assets of the Company available for distribution
to the holders of shares of Series A Preferred Stock upon dissolution,
liquidation or winding up of the Company, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 5, no such distribution shall be made on account
of
any shares of any other class or series of capital stock of the Company ranking
on a parity with the shares of Series A Preferred Stock upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the shares of Series A Preferred Stock, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation
or
winding up. At the election of a Holder made by written notice delivered to
the
Company at least two (2) business days prior to the effective date of the
subject transaction, as to the shares of Series A Preferred Stock held by such
Holder, a Fundamental Transaction (excluding for purposes of this Section 5
any
Fundamental Transaction described in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or
Change of Control shall be treated as a Liquidation as to such Holder.
Section
6. Conversion.
(a) Conversions
at Option of Holder.
Each
share of Series A Preferred Stock shall be initially convertible (subject to
the
limitations set forth in Section 6(c)), into such number of shares of Common
Stock based on the Conversion Ratio at the option of the Holders, at any time
and from time to time from and after the Original Issue Date; provided, however,
that until the Restated Certificate, as defined in the Purchase Agreement,
is
filed with the Secretary of State of the State of Delaware, the Series A
Preferred Stock shall not be convertible into Common Stock to the extent that
such conversion would result in the issuance of more than the number of
authorized shares of Common Stock. Holders shall effect conversions by providing
the Company with the form of conversion notice attached hereto as Annex
A
(a
“Notice
of Conversion”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of the stock certificate(s) representing the number of
shares of Series A Preferred Stock so converted, with such stock certificates
being duly endorsed in full for transfer to the Company or with an applicable
stock power duly executed by the Holder in the manner and form as deemed
reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
shall specify the number of shares of Series A Preferred Stock to be converted,
the number of shares of Series A Preferred Stock owned prior to the conversion
at issue, the number of shares of Series A Preferred Stock owned subsequent
to
the conversion at issue, the stock certificate number and the shares of Series
A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the applicable stock certificates to the Company by overnight delivery service
(the “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued. If the Conversion Price is adjusted pursuant
to Section 7 or as otherwise provided in this Statement of Designations, the
Conversion Ratio shall likewise be adjusted and the new Conversion Ratio shall
determined by multiplying the Conversion Ratio in effect by a fraction, the
numerator of which is the Conversion Price in effect before the adjustment
and
the denominator of which is the new Conversion Price. Thereafter, subject to
any
further adjustments in the Conversion Price, each share of Series A Preferred
Stock shall be initially convertible into Common Stock based on the new
Conversion Ratio.
(b) Automatic
Conversion Upon Change of Control.
Subject
to Section 5, all of the outstanding shares of Series A Preferred Stock shall
be
automatically converted into the Conversion Shares upon the close of business
on
the business day immediately preceding the date fixed for consummation of any
transaction resulting in a Change of Control of the Company (an “Automatic
Conversion Event”). A “Change in Control” means a consolidation or merger of the
Company with or into another company or entity in which the Company is not
the
surviving entity or the sale of all or substantially all of the assets of the
Company to another company or entity not controlled by the then existing
stockholders of the Company in a transaction or series of transactions. The
Company shall not be obligated to issue certificates evidencing the Conversion
Shares unless certificates evidencing the shares of Series A Preferred Stock
so
converted are either delivered to the Company or its transfer agent or the
holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by
it in connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 6(b), the Company shall promptly send written notice
thereof, by hand delivery or by overnight delivery, to the holders of record
of
all of the Series A Preferred Stock at their addresses then shown on the records
of the Company, which notice shall state that certificates evidencing shares
of
Series A Preferred Stock must be surrendered at the office of the Company (or
of
its transfer agent for the Common Stock, if applicable).
(c) Beneficial
Ownership Limitation.
Except
as provided in Section 6(b) of this Statement of Designations, which shall
apply
as stated therein if an Automatic Conversion Event shall occur, the right of
the
Holder to convert the Series A Preferred Stock shall be subject to the 4.9%
Limitation, with the result that Company shall not effect any conversion of
the
Series A Preferred Stock, and the Holder shall not have the right to convert
any
portion of the Series A Preferred Stock, to the extent that after giving effect
to such conversion, the Holder (together with the Holder’s affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.9% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For
the purposes of this Agreement beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act, and Regulation 13d-3
thereunder. For
purposes of this Section 6(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in the most recent of the following: (A) the Company’s
most recent quarterly reports (Form 10-Q or Form 10-QSB), Annual Reports (Form
10-K or Form 10-KSB), or definitive proxy statement or information statement
as
filed with the Commission under the Exchange Act, (B) a more recent public
announcement by the Company, or (C) any other written notice by the Company
or
the Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company
shall within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the
Series A Preferred Stock, by the Holder or its affiliates since the date as
of
which such number of outstanding shares of Common Stock was publicly reported
by
the Company. The 4.9% Limitation may be not be waived or amended.
(d) Mechanics
of Conversion
(i) Delivery
of Certificate Upon Conversion.
Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Series A Preferred Stock, and (B) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay
accrued dividends in cash). After the Effective Date, the Company shall, upon
request of the Holder, deliver any certificate or certificates required to
be
delivered by the Company under this Section electronically through the
Depository Trust Company or another established clearing Company performing
similar functions if the Company’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after the Conversion Date,
the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return
the
certificates representing the shares of Series A Preferred Stock tendered for
conversion.
(ii) Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of Series A Preferred Stock in accordance with the terms hereof are absolute
and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any or all of its Series A Preferred Stock, the Company may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason (other than the inability of the Company
to
issue shares of Common Stock as a result of the limitation set forth in Section
6(c) hereof) unless an injunction from a court, on notice, restraining and
or
enjoining conversion of all or part of this Series A Preferred Stock shall
have
been sought and obtained and the Company posts a surety bond for the benefit
of
the Holder in the amount of 150% of the Conversion Value of Series A Preferred
Stock which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains judgment.
In
the absence of an injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 6(d)(i) within two Trading Days of the Share Delivery Date
applicable to such conversion, the Company shall pay to such Holder, in cash,
as
liquidated damages and not as a penalty, for each $5,000 of Conversion Value
of
Series A Preferred Stock being converted, $50 per Trading Day (increasing to
$100 per Trading Day after three (3) Trading Days and increasing to $200 per
Trading Day six (6) Trading Days after such damages begin to accrue) for each
Trading Day after the Share Delivery Date until such certificates are delivered.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Company’s failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(iii) Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
Date the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating
to
such Share Delivery Date (a “Buy-In”),
then
the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion
at
issue multiplied by (2) the price at which the sell order giving rise to such
purchase obligation was executed. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted conversion of shares of Series A Preferred Stock with respect
to
which the aggregate sale price giving rise to such purchase obligation is
$10,000, under clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the shares of Series
A
Preferred Stock as required pursuant to the terms hereof.
(iv) Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 7)
upon the conversion of all outstanding shares of Series A Preferred Stock.
The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement provided that the holder
or
its broker delivers confirmation to the Company or its transfer agent to the
effect that the Conversion Shares have been sold pursuant to such registration
statement.
(v) Fractional
Shares.
Upon a
conversion of the Series A Preferred Stock, the Company shall not be required
to
issue stock certificates representing fractional shares of Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of his or her Series A Preferred Stock shall
be dropped and eliminated.
(vi) Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion of the
Series A Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such shares of Series A Preferred Stock so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(vii) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Statement of Designations
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the liquidated damages (if any) on, the shares of Series
A
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
Section
7.
Certain
Adjustments.
(a) Stock
Dividends and Stock Splits.
If the
Company, at any time subsequent to the Closing Date as long as the Series A
Preferred Stock is outstanding: (i) shall pay a stock dividend or otherwise
make
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company pursuant to this Series A Preferred Stock), (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, (iii) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of shares
of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares
of
Common Stock outstanding after such event. Any adjustment made pursuant to
this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
(b) Price
Adjustment.
From
and after the Closing Date and until such time as the Investors hold no
Securities, except for (i) Exempt Issuances, (ii) issuances
covered by Sections 7(a) and 7(c) hereof or (iii) an issuance of Common Stock
upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7,
as to
all of which this Section 7(b) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or issues warrants, options, convertible
debt or equity securities with a exercise price per share or conversion price
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.
(c) Pro
Rata Distributions.
If the
Company, at any time from and after the Closing Date and as long as the Series
A
Preferred Stock is outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case
the
Conversion Price shall be determined by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case
the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) Calculations.
All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Company or any of its subsidiaries. For purposes of
this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares and shares owned by subsidiaries, if
any) actually issued and outstanding.
(e) Notice
to Holders.
(i) Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any of this Section 7,
the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of
an
MFN Transaction (as defined in the Purchase Agreement).
(ii) Notices
of Other Events.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Series A Preferred Stock, and shall cause to be mailed
to the Holders at their last addresses as they shall appear upon the
stock
books of
the Company, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to become
effective or close, and the date as of which it is expected that holders of
the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
(f) Exempt
Issuance.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
(g) Fundamental
Transaction.
If, at
any time while this Series A Preferred Stock is outstanding, (i) the Company
effects any merger or consolidation of the Company with or into another Person,
(ii) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (iii) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then
upon any subsequent conversion of this Series A Preferred Stock, the Holder
shall have the right to receive, for each Conversion Share that would have
been
issuable upon such conversion absent such Fundamental Transaction, the same
kind
and amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Statement of Designations with the same terms
and
conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder’s right to convert such preferred
stock into Alternate Consideration. The terms of any agreement pursuant to
which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(f)(iv) and insuring that this Series A Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. Notwithstanding the foregoing or any other
provisions of this Statement of Designations, in the event that the agreement
relating to a Fundamental Transaction provides for the conversion or exchange
of
the Series A Preferred Stock into equity or debt securities, cash or other
consideration and the agreement is approved by the holders of a majority of
the
then-outstanding shares of Series A Preferred Stock, then the holders of the
Series A Preferred Stock shall have only the rights set forth in such
agreement.
Section
8.
Miscellaneous.
(a) Notices.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at its principal address
as
reflected in its most recent filing with the Commission. Any and all notices
or
other communications or deliveries to be provided by the Company hereunder
shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given when received, and any notice by
telecopier shall be effective if confirmation of receipt is given by the party
to whom the notice is transmitted.
(b) Lost
or Mutilated Preferred Stock Certificate.
If a
Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if
requested, all reasonably satisfactory to the Company.
(c) Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
(d) Headings.
The
headings contained herein are for convenience only, do not constitute a part
of
this Statement of Designations and shall not be deemed to limit or affect any
of
the provisions hereof.
(e) Amendment.
This
Statement of Designations may be amended with the approval of the Company’s
board of directors and the consent of the holders of seventy-five percent (75%)
of the outstanding shares of Series A Preferred Stock, except that the 4.9%
Limitation may not be waived.
ANNEX
A
NOTICE
OF CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.001 per share (the “Common
Stock”),
of
China Wind Systems, Inc., a Delaware corporation (the “Company”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
|
|||
|
Number
of shares of Common Stock owned prior to Conversion:
|
|||
|
Number
of shares of Series A Preferred Stock to be Converted:
|
|||
|
Value
of shares of Series A Preferred Stock to be Converted:
|
|||
|
Number
of shares of Common Stock to be Issued:
|
|||
|
Certificate
Number of Series A Preferred Stock attached hereto:
|
|||
|
Number
of Shares of Series A Preferred Stock represented by attached
certificate:
|
| Number of shares of Series A Preferred Stock subsequent to Conversion: | ||
| [HOLDER] | ||
| |
|
|
| By: | ||
|
Name: |
||
| Title | ||
