SUBSCRIPTION AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“Agreement”),
dated
as of August 2, 2007, by and among Ever-Glory International Group,
Inc.,
a
Florida corporation
(the
“Company”),
and
the subscribers identified on the signature page hereto (each a “Subscriber”
and
collectively “Subscribers”).
WHEREAS,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “1933
Act”).
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase up to $2,000,000 (the
“Purchase
Price”)
of
principal amount of promissory notes of the Company (“Note”
or
“Notes”),
a
form of which is annexed hereto as Exhibit
A,
convertible into shares of the Company's Common Stock, $0.0001 par value (the
“Common
Stock”)
at a
per share conversion price set forth in the Note (“Conversion
Price”);
and
share purchase warrants (the “Warrants”),
in
the form annexed hereto as Exhibit
B,
to
purchase shares of Common Stock (the “Warrant
Shares”).
The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
the
Warrants and the Warrant Shares are collectively referred to herein as the
“Securities”;
and
WHEREAS,
the
aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to
be
executed by the parties substantially in the form attached hereto as
Exhibit
C
(the
“Escrow
Agreement”).
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1. Closing
Date.
The
“Closing
Date”
shall
be the date that the Purchase Price is transmitted by wire transfer or otherwise
credited to or for the benefit of the Company. The consummation of the
transactions contemplated herein shall take place at the offices of Grushko
& Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
upon the satisfaction or waiver of all conditions to closing set forth in this
Agreement. Each Subscriber shall purchase and the Company shall sell to each
Subscriber a Note in the Principal Amount designated on the signature page
hereto for the Purchase Price indicated thereon, and Warrants as described
in
Section 2 of this Agreement.
2. Warrants.
On the
Closing Date, the Company will issue and deliver Class A Warrants to the
Subscribers. One Class A Warrant will be issued for each Share which would
be
issued on the Closing Date assuming the complete conversion of the Note on
the
Closing Date the conversion price of the Notes in effect on the Closing Date.
The exercise price of the Class A Warrants will be the closing bid price of
Company’s stock on the date prior to the Closing Date as reported by Bloomberg,
L.P., subject to adjustment as described in the Class A Warrant, provided
however, that in no event shall the initial Warrant exercise price be less
than
$0.32 or greater than $0.38. The Class A Warrants shall be exercisable until
five years after the issue date of the Warrants.
3. Security
Interest.
The
Subscribers will be granted a security interest in all the assets of the
Company, excluding ownership of Subsidiaries (as defined in Section 5(a) of
this Agreement), and in the assets of the Subsidiaries which security interest
will be memorialized in a “Security
Agreement,”
a
form
of which is annexed hereto as Exhibit
D.
As
further security the Company will arrange for the Pledge of shares of the
Company owned by Xxxx Xx Hua, pursuant to a Stock Pledge Agreement, a form
of
which is attached hereto as Exhibit
E.
The
Company will execute such other agreements, documents and financing statements
reasonably requested by Subscribers, which will be filed at the Company’s
expense with the jurisdictions, states and counties designated by the
Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscriber to memorialize and further protect the
security interest described herein. The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest
to
be granted to the Subscribers. The appointment will be pursuant to a
“Collateral
Agent Agreement,”
a
form
of which is annexed hereto as Exhibit
F.
1
4. Subscriber's
Representations and Warranties.
Each
Subscriber hereby represents and warrants to and agrees with the Company only
as
to such Subscriber that:
(a) Organization
and Standing of the Subscribers.
If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization
and Power.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Notes and Warrants being sold to it hereunder.
The
execution, delivery and performance of this Agreement by such Subscriber and
the
consummation by it of the transactions contemplated hereby and thereby have
been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by Subscriber and constitutes,
or shall constitute when executed and delivered, a valid and binding obligation
of the Subscriber enforceable against the Subscriber in accordance with the
terms thereof.
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Subscriber of the transactions contemplated hereby or relating hereto
do
not and will not (i) result in a violation of such Subscriber’s charter
documents or bylaws or other organizational documents 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 or obligation to which such Subscriber is a party or by which its
properties or assets are bound, 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 Subscriber 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 Subscriber). Such Subscriber 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 its obligations under this Agreement or to purchase
the Securities in accordance with the terms hereof, provided that for purposes
of the representation made in this sentence, such Subscriber is assuming and
relying upon the accuracy of the relevant representations and agreements of
the
Company herein.
(d) Information
on Company.
The
Subscriber has been furnished with or has had access at the XXXXX Website of
the
Commission to the Company's Form 10-KSB filed on March 16, 2007 for the fiscal
year ended December 31, 2006, and the financial statements included therein
for
the year ended December 31, 2006, together with all subsequent filings made
with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the “Reports”).
In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters
as
the Subscriber has requested in writing identified thereon as OTHER WRITTEN
INFORMATION (such other information is collectively, the “Other
Written Information”),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
2
(e) Information
on Subscriber.
The
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of the Warrants, an “accredited
investor”,
as
such term is defined in Regulation D promulgated by the Commission under the
1933 Act, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with
its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber
is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(f) Purchase
of Notes and Warrants.
On the
Closing Date, the Subscriber will purchase the Notes and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution
thereof.
(g) Compliance
with Securities Act.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
The
Subscribers will comply with all applicable rules and regulations in connection
with the sales of the securities including laws relating to short
sales.
(h) Shares
Legend.
The
Shares, and the Warrant Shares shall bear the following or similar
legend:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.”
(i) Warrants
Legend.
The
Warrants shall bear the following or
similar legend:
“THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY
THAT
SUCH REGISTRATION IS NOT REQUIRED.”
3
(j) Note
Legend.
The
Note shall bear the following legend:
“THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE
COMPANY
THAT
SUCH REGISTRATION IS NOT REQUIRED.”
(k) Communication
of Offer.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(l) Authority;
Enforceability.
This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full power and authority necessary to enter into this
Agreement and such other agreements and to perform its obligations hereunder
and
under all other agreements entered into by the Subscriber relating
hereto.
(m) Restricted
Securities.
Subscriber understands that the Securities have not been registered under the
1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
hypothecate or otherwise transfer any of the Securities unless pursuant to
an
effective registration statement under the 1933 Act, or unless an exemption
from
registration is available. Notwithstanding anything to the contrary contained
in
this Agreement, such Subscriber may transfer (without restriction and without
the need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate includes each subsidiary of the Company. For
purposes of this definition, “control”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(n) No
Governmental Review.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(o) Correctness
of Representations.
Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date shall be
true and correct as of the Closing Date.
(p) No-Shorting.
Each
Subscriber Agrees not to “short” or enter into any similar transactions
regarding the Common Stock of the Company either directly or indirectly for
as
long as such Subscriber is holding any portion of the Notes.
4
(q) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
5. Company
Representations and Warranties.
The
Company represents and warrants to and agrees with each Subscriber
that:
(a) Due
Incorporation.
The
Company is a corporation or other entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power to own
its
properties and to carry on its business as presently
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other
than
those jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purposes of this Agreement, a “Material
Adverse Effect”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company and its Subsidiaries taken
as
a whole. For purposes of this Agreement, “Subsidiary”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. The Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a).
(b) Outstanding
Stock.
All
issued and outstanding shares of capital stock of the Company and Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Authority;
Enforceability.
This
Agreement, the Notes, the Warrants, the Security Agreement, and Stock Pledge
Agreements, the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively “Transaction
Documents”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company
has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.
(d) Additional
Issuances.
There
are
no outstanding agreements or preemptive or similar rights affecting the
Company's Common Stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of Common
Stock or equity of the Company or Subsidiaries or other equity interest in
the
Company except as described in the Reports or on Schedule
5(d).
The
Common Stock of the Company on a fully diluted basis outstanding as of the
last
Business Day preceding the Closing Date is set forth on Schedule
5(d).
(e) Consents.
Except
for the authorization of additional shares of Common Stock, no consent,
approval, authorization or order of any court, governmental agency or body
or
arbitrator having jurisdiction over the Company, or any of its Affiliates,
the
OTC Bulletin Board (the “Bulletin
Board”)
nor
the Company's shareholders is required for the execution by the Company of
the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder has been approved by the Company’s
directors.
5
(f) No
Violation or Conflict.
Assuming the representations and warranties of the Subscribers in Section 4
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option
or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
“lock-up” or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party; except the violation,
conflict, breach, or default of which would not have a Material Adverse
Effect;
or
(ii) result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or
(iii) except
as
described in Schedule
5(d),
result
in the activation of any anti-dilution rights or a reset or repricing of any
debt or security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any obligation of
the
Company; or
(iv) will
result in the triggering of any piggy-back registration rights of any person
or
entity holding securities of the Company or having the right to receive
securities of the Company.
(g) The
Securities.
The
Securities upon issuance:
(i) are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii) have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares upon conversion of the Notes and the Warrant Shares and upon exercise
of
the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and non-assessable and if registered pursuant to the 1933 Act and
resold pursuant to an effective registration statement will be free trading
and
unrestricted;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders; and
6
(v) assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.
(h) Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports, there is no pending or, to the best knowledge of the Company, basis
for
or threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have
a
Material Adverse Effect.
(i) No
Market Manipulation.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold.
(j) Information
Concerning Company.
The
Reports and Other Written Information contain all material information relating
to the Company and its operations and financial condition as of their respective
dates which information is required to be disclosed therein. Since the date
of
the financial statements included in the Reports, and except as modified in
the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports and Other Written Information do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein,
taken
as a whole, not misleading in light of the circumstances when made.
(k) Stop
Transfer.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(l) Defaults.
The
Company is not in violation of its articles of incorporation or bylaws. The
Company is (i) not in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect.
(m) No
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the Bulletin Board which would impair the exemptions relied
upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Nor will the Company nor any of its Affiliates take
any
action or steps that would cause the offer or issuance of the Securities to
be
integrated with other offerings which would impair the exemptions relied upon
in
this Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering
or
the Company’s ability to timely comply with its obligations
hereunder.
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(n) No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 0000 Xxx)
in
connection with the offer or sale of the Securities.
(o) No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company
businesses since June 30, 2006 and which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect,
except
as disclosed in the Reports or on Schedule
5(o).
(p) No
Undisclosed Events or Circumstances.
Since
June 30, 2006, no event or circumstance has occurred or exists with respect
to
the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure
or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in the Reports.
(q)
Capitalization.
The
authorized and outstanding capital stock of the Company and Subsidiaries as
of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth in the Reports or on Schedule
5(d).
Except
as set forth on Schedule
5(d),
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries.
(r) Dilution.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes, and the Warrant Shares upon exercise of the Warrants,
is binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company or parties entitled to receive equity of the Company.
(s)
No
Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise between the Company and the accountants
and
lawyers presently employed by the Company, including but not limited to disputes
or conflicts over payment owed to such accountants and lawyers, nor have there
been any such disagreements during the two years prior to the Closing
Date.
(t) Investment
Company.
Neither
the Company nor any Affiliate of the Company is an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.
(u) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate funds, (iii)
failed to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in violation
of law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
8
(v) Reporting
Company.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13 of the Securities Exchange Act of 1934, as amended (the “1934
Act”)
and
has a class of Common Stock registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely filed
all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve months.
(w) Listing.
The
Company's Common Stock is quoted on the Bulletin Board under the symbol XXXX.OB.
The Company has not received any oral or written notice that its Common Stock
is
not eligible nor will become ineligible for quotation on the Bulletin Board
nor
that its Common Stock does not meet all requirements for the continuation of
such quotation. The Company satisfies all the requirements for the continued
quotation of its Common Stock on the Bulletin Board.
(x) DTC
Status.
The
Company’s transfer agent is a participant in and the Common Stock is eligible
for transfer pursuant to the Depository Trust Company Automated Securities
Transfer Program. The name, address, telephone number, fax number, contact
person and email address of the Company transfer agent is set forth on
Schedule
5(x)
hereto.
(y) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Notes
hereunder, (i) the Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities)
as
they mature; (ii) the Company’s assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on
or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on
or
in respect of its debt).
(z) Company
Predecessor and Subsidiaries.
The
Company makes each of the representations contained in Sections 5(a), (b),
(c),
(d), (e), (f), (h), (j), (l), (o), (p), (q), (s), (t), and (u) of this
Agreement, as same relate to the Subsidiary of the Company. All representations
made by or relating to the Company of a historical or prospective nature and
all
undertakings described in Sections 9(g) through 9(l) shall relate, apply and
refer to the Company and its predecessors.
(AA) Correctness
of Representations.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(BB) Survival.
The
foregoing representations and warranties shall survive the Closing Date for
a
period of three years.
6. Regulation
D Offering/Legal Opinion.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
G.
The
Company will provide, at the Company's expense, such other legal opinions in
the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement, Rule 144 under the 1933 Act
or
an exemption from registration.
9
7.1. Conversion
of Note.
(a) Upon
the
conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified
at
conversion representing the number of shares of Common Stock issuable upon
such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain
no
legend other than the usual 1933 Act restriction from transfer legend. If and
when the Subscriber sells the Shares, assuming (i) the Registration Statement
(as defined below) is effective and the prospectus, as supplemented or amended,
contained therein is current and (ii) the Subscriber or its agent confirms
in
writing to the transfer agent that the Subscriber has complied with the
prospectus delivery requirements, the Company will reissue the Shares without
restrictive legend and the Shares will be free-trading, and freely transferable.
In the event that the Shares are sold in a manner that complies with an
exemption from registration, the Company will promptly instruct its counsel
to
issue to the transfer agent an opinion permitting removal of the legend
(indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or for 90 days if
pursuant to the other provisions of Rule 144 of the 1933 Act).
(b) Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, or part thereof by telecopying, or otherwise delivering a completed
Notice of Conversion (a form of which is annexed as Exhibit
A
to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be
required to surrender the Note
until
the Note has been fully converted or satisfied. Each date on which a Notice
of
Conversion is telecopied to the Company in accordance with the provisions hereof
by 6 PM ET (or if received by the Company after 6 PM ET then the next business
day) shall be deemed a “Conversion
Date.”
The
Company will itself or cause the Company’s transfer agent to transmit the
Company's Common Stock certificates representing the Shares issuable upon
conversion of the Note to the Subscriber via express courier for receipt by
such
Subscriber within three (3) business days after receipt by the Company of the
Notice of Conversion (such third day being the “Delivery
Date”).
In
the event the Shares are electronically transferable, then delivery of the
Shares must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Subscriber.
A Note representing the balance of the Note not so converted will be provided
by
the Company to the Subscriber if requested by Subscriber, provided the
Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion of a Note,
the Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.
(c) The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively later than two business days
after
the Delivery Date or the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation to
the
Subscriber for such loss, the Company agrees to pay (as liquidated damages
and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of
Note
principal amount (and proportionately for other amounts) being converted of
the
corresponding Shares which are not timely delivered. The Company shall pay
any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares within seven (7) business days after the Delivery Date
or
make payment within seven (7) business days after the Mandatory Redemption
Payment Date (as defined in Section 7.2 below), the Subscriber will be entitled
to revoke all or part of the relevant Notice of Conversion or rescind all or
part of the notice of Mandatory Redemption by delivery of a notice to such
effect to the Company whereupon the Company and the Subscriber shall each be
restored to their respective positions immediately prior to the delivery of
such
notice, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the
Company.
10
(d) The
Company agrees and acknowledges that despite the pendency of a not yet effective
Registration Statement which includes for registration the Registrable
Securities (as defined in Section 11.1(iv)), the Subscriber is permitted to
and
the Company will issue to the Subscriber Shares upon conversion of the Note
and
Warrant Shares upon exercise of the Warrants. Such Shares will, if required
by
law, bear the legends described in Section 4 above and if the requirements
of
Rule 144 under the 1933 Act are satisfied be resalable thereunder.
7.2. Mandatory
Redemption at Subscriber’s Election.
Upon
the occurrence of: (i) a Change in Control (as defined below), or (ii) of the
liquidation, dissolution or winding up of the Company, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber, a sum of money equal to 100% of the outstanding
principal amount of the Note designated by the Subscriber together with accrued
but unpaid interest thereon and all other sums due pursuant to the Transaction
Documents (“Mandatory
Redemption Payment”).
Upon
receipt of the Mandatory Redemption Payment, the corresponding Note principal
and interest will be deemed paid and no longer outstanding. For purposes of
this
Section 7.2, “Change
in Control”
shall
mean (i) the Company becoming a Subsidiary of another entity (other than a
corporation formed by the Company for purposes of reincorporation in another
U.S. jurisdiction), or (ii) sale, lease or transfer of all or substantially
all
the assets of the Company.
7.3. Maximum
Conversion.
The
Subscriber shall not be entitled to convert on a Conversion Date that amount
of
the Note in connection with that number of shares of Common Stock which would
be
in excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its Affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such Conversion Date. For the purposes of the provision to
the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
increase the permitted beneficial ownership amount up to 9.99% upon and
effective after 61 days’ prior written notice to the Company. The Subscriber may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 4.99% amount described above and which
shall
be allocated to the excess above 4.99%.
7.4. Injunction
Posting of Bond.
In the
event a Subscriber shall elect to convert a Note or part thereof, the Company
may not refuse conversion or exercise based on any claim that such Subscriber
or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of such Note
shall have been sought and obtained by the Company or at the Company’s request
or with the Company’s assistance, and
the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Shares which are sought to be 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 Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
11
7.5. Buy-In.
In
addition to any other rights available to the Subscriber, if the Company fails
to deliver to the Subscriber such shares issuable upon conversion of a Note
by
the Delivery Date and if after seven (7) business days after the Delivery Date
the Subscriber or a broker on the Subscriber’s behalf purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a “Buy-In”),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty. For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall
be
required to pay the Subscriber $1,000 plus interest. The Subscriber shall
provide the Company written notice and evidence indicating the amounts payable
to the Subscriber in respect of the Buy-In.
7.6 Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants shall be equitably adjusted
and as otherwise described in this Agreement, the Notes and
Warrants.
7.7. Redemption.
The
Notes shall redeemable by the Company in accordance with the terms set forth
in
the Notes.
8. Broker/Due
Diligence/Legal Fees.
(a) Broker.
The
Company on the one hand, and each Subscriber (for himself only) on the other
hand, agree to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or finder’s
fees on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby or in connection with any investment in the Company at
any
time, whether or not such investment was consummated and arising out of such
party’s actions. The Company represents that there are no parties entitled to
receive fees, commissions, or similar payments in connection with the Offering
except as identified on Schedule
8(a)
who will
receive the amount of compensation described in Schedule 8(a). The Company
is
solely responsible for payment to the broker(s) identified on Schedule
8(a).
(b) Subscriber’s
Legal Fees.
The
Company shall pay to Grushko & Xxxxxxx, P.C., a fee of $25,000
(“Subscriber’s
Legal Fees”)
(of
which $7,480 has been paid) as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of
the
Notes and Warrants (the “Offering”).
The
Subscriber’s Legal Fees will be payable out of funds held pursuant to the Escrow
Agreement. Grushko & Xxxxxxx, P.C. will be reimbursed at Closing for all
lien searches, filing fees, and printing and shipping costs for the closing
statements to be delivered to Subscribers.
9. Covenants
of the Company.
The
Company covenants and agrees with the Subscribers as follows:
12
(a) Stop
Orders.
The
Company will advise the Subscribers, within twenty-four hours after it receives
notice of issuance by the Commission, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale
in
any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b) Listing/Quotation.
The
Company shall promptly secure the quotation or listing of the Shares and Warrant
Shares upon each national securities exchange, or automated quotation system
upon which they are or become eligible for quotation or listing (subject to
official notice of issuance) and shall maintain same so long as any Warrants
are
outstanding. The Company will maintain the quotation or listing of its Common
Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq Global
Market, Nasdaq Global Select Market, Bulletin Board, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock (the “Principal
Market”)),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(c) Market
Regulations.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d) Filing
Requirements.
From
the
date of this Agreement and until the last to occur of (i) two (2) years after
the Closing Date, (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations or (iii) the Notes
are no longer outstanding (the date of occurrence of the last such event being
the “End
Date”),
the
Company will (A) cause its Common Stock to be registered under Section 12(b)
or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the End Date. Until the End Date, the Company
will continue the listing or quotation of the Common Stock on a Principal Market
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
(e) Use
of
Proceeds.
The
proceeds of the Offering will be employed by the Company as described on
Schedule
9(e).
The
Purchase Price may not and will not be used for accrued and unpaid officer
and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date. For so long as any Notes are outstanding, without the prior
consent of the holders of a majority in interest of the Notes, the Company
will
not prepay any financing related debt obligations nor redeem any equity
instruments of the Company, if the Company has at such time or would have as
a
result of such prepayment or redemption, cash or cash equivalents of less than
an amount equal to (i) USD $1,500,000 plus (ii) the total principal amount
then
outstanding under the Notes.
13
(f) Reservation.
Prior
to the Closing Date, and at all times thereafter, the Company shall have
reserved, pro rata,
on
behalf of each holder of a Note or Warrant, from its authorized but unissued
Common Stock, a number of common shares equal to 120%
of
the amount of Common Stock necessary to allow each holder of a Note to be able
to convert all such outstanding Notes and interest and reserve the amount of
Warrant Shares issuable upon exercise of the Warrants.
(g)
Increase
in Authorization.
Not
later than 60 days after the Closing Date, the Company undertakes have increased
its authorized Common Stock to 500,000,000 shares. The undertaking in this
section 9(g) is a material term of this Agreement.
(h) Taxes.
From
the date of this Agreement and until the End Date, the Company will promptly
pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
(i) Insurance.
From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not
in
any event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against
other
hazards and risks and liability to persons and property to the extent and in
the
manner customary for companies in similar businesses similarly situated and
to
the extent available on commercially reasonable terms.
(j) Books
and Records.
From the
date of this Agreement and until the End Date, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs
in
accordance with generally accepted accounting principles applied on a consistent
basis.
(k) Governmental
Authorities.
From the
date of this Agreement and until the End Date, the Company shall duly observe
and conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(l) Intellectual
Property.
From
the date of this Agreement and until the End Date, the Company shall maintain
in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed by
it
and reasonably deemed to be necessary to the conduct of its business, unless
it
is sold for value.
(m) Properties.
From the
date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and
tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably
be
expected to have a Material Adverse Effect.
14
(n) Confidentiality/Public
Announcement.
From the
date of this Agreement and until the End Date, the Company agrees that except
in
connection with a Form 8-K and the registration statement or statements
regarding the Subscribers’ securities or in correspondence with the SEC
regarding same, it will not disclose publicly or privately the identity of
the
Subscribers unless expressly agreed to in writing by a Subscriber or only to
the
extent required by law and then only upon two days prior notice to Subscriber.
In any event and subject to the foregoing, the Company undertakes to file a
Form
8-K or make a public announcement describing the Offering not later than the
fourth business day after the Closing Date. Prior to filing or announcement,
such Form 8-K or public announcement will be provided to Subscribers for their
review and approval. In the Form 8-K or public announcement, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing. Upon delivery by the Company to Subscriber after the
Closing Date of any notice or information, in writing, electronically or
otherwise, and while a Note, Shares, Warrants, or Warrant Shares are held by
Subscriber, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or
Subsidiaries, the Company shall within one business day after
any such delivery publicly disclose such material, nonpublic
information on a Report on Form 8-K or otherwise.
In
the event that the Company believes that a
notice or communication to Subscriber contains material, nonpublic
information, relating to the Company or Subsidiaries, the Company shall so
indicate to the Subscriber contemporaneously with delivery of such notice or
information. In the absence of any such indication, the Subscriber shall be
allowed to presume that all matters relating to such notice and information
do
not constitute material, nonpublic information relating to the Company or
Subsidiaries.
(o) Non-Public
Information.
The
Company covenants and agrees that except for the Reports, Other Written
Information and schedules and exhibits to this Agreement, which information
thereon will be publicly disclosed not later than the Actual Effective date,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such
Subscriber shall have agreed in writing to keep such information in confidence.
The Company understands and confirms that each Subscriber shall be relying
on
the foregoing representations in effecting transactions in securities of the
Company.
(p) Negative
Covenants.
So long
as a Note is outstanding, without the consent of the Subscriber, the Company
will not directly or indirectly:
(i) create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon
any of its property, whether now owned or hereafter acquired except for: (A)
the
Excepted Issuances (as defined in Section 12 hereof), (B) (a) Liens imposed
by
law for taxes that are not yet due or are being contested in good faith and
for
which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property; and (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “Permitted
Lien”)
and
(C) indebtedness for borrowed money which is not senior or pari passu, in right
of payment to the Notes, or in distribution of the Company’s assets to the
holders of the Notes;
15
(ii) amend
its
certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscribers, except to
increase the number of shares authorized for issuance;
(iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire make pay any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv) engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or
(v) prepay
or
redeem any financing related debt or past due obligations outstanding as of
the
Closing Date.
(q) Further
Registration Statements.
Except
for a registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement, and as set forth on Schedule
11.1
hereto,
the Company will not, without the consent of the Subscribers, file with the
Commission or with state regulatory authorities any registration statements
or
amend any already filed registration statement to increase the amount of Common
Stock registered therein, or reduce the price of which such Common Stock is
registered therein, (including but not limited to Forms S-8), until the
expiration of the “Exclusion
Period,”
which
shall be defined as the sooner of (i) the Registration Statement having been
current and available for use in connection with the resale of all of the
Registrable Securities (as defined in Section 11.1(i)) for a period of eighty
(80) days, or (ii) until all the Shares and Warrant Shares have been resold
or
transferred by the Subscribers pursuant to the Registration Statement or Rule
144, without regard to volume limitations. The Exclusion Period will be tolled
or reinstated, as the case may be, during the pendency of an Event of Default
as
defined in the Note.
(r) Blackout.
The
Company undertakes and covenants that, until the end of the Exclusion Period,
the Company will not enter into any acquisition, merger, exchange or sale or
other transaction or fail to take any action that could have the effect of
delaying the effectiveness of any pending Registration Statement or causing
an
already effective Registration Statement to no longer be effective or current
for a period of twenty or more days in the aggregate during any three hundred
and sixty-five day period.
(s) Offering
Restrictions.
For the
180 day period after the Closing and/or during the pendency of an Event of
Default, except for the Excepted Issuances, the Company will not enter into
an
agreement to issue nor issue any equity, convertible debt or other securities
convertible into Common Stock or equity of the Company nor modify any of the
foregoing which may be outstanding at anytime, without the prior written consent
of the Subscriber, which consent may be withheld for any reason. For so long
as
the Notes are outstanding, except for the Excepted Issuances, the Company will
not enter into any Equity Line of Credit or similar agreement, nor issue nor
agree to issue any floating or Variable Priced Equity Linked Instruments nor
any
of the foregoing or equity with price reset rights (collectively, the
“Variable
Rate Restrictions”),
without the prior written consent of holders of a majority in interest of the
then outstanding Notes. For
purposes hereof, “Equity Line of Credit” shall include any transaction involving
a written agreement between the Company and an investor or underwriter whereby
the Company has the right to “put” its securities to the investor or underwriter
over an agreed period of time and at an agreed price or price formula, and
“Variable Priced Equity Linked Instruments” shall include: (A) any debt or
equity securities which are convertible into, exercisable or exchangeable for,
or carry the right to receive additional shares of Common Stock either (1)
at
any conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for Common Stock at
any
time after the initial issuance of such debt or equity security, or (2) with
a
fixed conversion, exercise or exchange price that is subject to being reset
at
some future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has
the
option to (or the investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which
are
valued at a price that is based upon and/or varies with the trading prices
of or
quotations for Common Stock at any time after the initial issuance of such
debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions). The only officer, director, employee and consultant stock
option or stock incentive plan currently in effect or contemplated by the
Company is described on Schedule
5(d).
16
(t) Limited
Standstill.
The
Company will deliver to the Subscribers on or before the Closing Date and
enforce the provisions of an irrevocable lockup agreement (“Lockup
Agreement”)
in the
form annexed hereto as Exhibit
H,
with
the persons identified on Schedule
9(t).
(u) Branded
Retail Division.
The
Company will deliver to the Subscribers on or before the Closing Date a copy
of
a letter of intent obtained by the Company to purchase Escela V Fashion Co.,
Ltd., a corporation based in the PRC (“Option”)
in the
form annexed hereto as Exhibit
I.
The
Company may not modify the terms of the Option without the consent of the
Subscribers which may withheld for any reason.
(v) Non-Compete.
The
Company will deliver to the Subscribers on or before the Closing Date and
enforce the provisions of an irrevocable non-compete agreement (“Non-Compete
Agreement”)
in the
form annexed hereto as Exhibit
I,
with
the persons identified on Schedule
9(v).
(w) Seniority.
Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company; nor issue any debt, equity
or
other instrument which would give the holder thereof directly or indirectly,
a
right in any assets of the Company, superior to any right of the holder of
a
Note in or to such assets. For purposes of this Agreement, “Permitted
Lien”
means
the individual and collective reference to the following: (a) liens for taxes,
assessments and other governmental charges or levies not yet due or liens for
taxes, assessments and other governmental charges or levies being contested
in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established
in
accordance with GAAP; (b) liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ liens, statutory landlords’ liens, and other similar liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company or (y) are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing for the foreseeable future
the
forfeiture or sale of the property or asset subject to such lien; (c) liens
incurred in connection with lease obligations and purchase money indebtedness
of
up to $100,000, in the aggregate, incurred in connection with the acquisition
of
capital assets and lease obligations with respect to newly acquired or leased
assets, provided that such liens are not secured by assets of the Company other
than the assets so acquired or leased; and (d) liens on the Company’s equity
interest in its Subsidiaries or on the assets of the Subsidiaries.
17
(w) Notices.
For so
long as the Subscribers hold any Securities, the Company must maintain as United
States address and United States fax number for notices purposes under the
Transaction Documents.
(x) DTC
Program.
At all
times that Notes or Warrants are outstanding, the Company will employ as the
transfer agent for the Common Stock, Shares and Warrant Shares a participant
in
the Depository Trust Company Automated Securities Transfer Program.
10. Covenants
of the Company and Subscriber Regarding Indemnification.
(a) The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b) Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon (i)
any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking to
be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and Subscribers, relating hereto.
(c) In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities
(as
defined herein).
(d) The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1. Registration
Rights.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i) On
one
occasion, for a period commencing 240 days after the Closing Date, but not
later
than twenty four (24) months after the Closing Date, upon a written request
therefor from any record holder or holders of more than 50% of the Shares issued
and issuable upon conversion of the outstanding Notes, outstanding Warrant
Shares, and Purchased Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
not
include Securities which are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
receipt of such request, the Company shall promptly give written notice to
all
other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration
right
under this Section 11.1(i).
18
(ii) If
the
Company at any time proposes to register any of its securities under the 1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except with respect to registration statements
on Forms X-0, X-0 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are
not
otherwise registered for resale by the Subscribers or Holder pursuant to an
effective registration statement, each such time it will give at least fifteen
(15) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Unless objected to by written request
of
the holder, received by the Company within ten (10) days after the giving of
any
such notice by the Company, to register any of the Registrable Securities not
previously registered, the Company will cause such Registrable Securities as
to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed
by
the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller”
or
“Sellers”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of Common Stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii) If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv) The
Company shall file with the Commission one or more Forms SB-2 registration
statements (as defined below) (or such other form that it is eligible to use)
in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Registration Statement with respect to the Common Stock
issuable upon conversion of the Notes (“Note
Registration Statement”)
must
be filed not later than sixty (60) days after the Closing Date (“Note
Filing Date”)
and
declared effective by the Commission not later than the third Business Day
after
receipt by the Company or its counsel of a written or oral communication from
the Commission that the Registration Statement will not be reviewed or that
the
Commission has no comments or further comments that would impede the declaration
of effectiveness of the Registration Statement (“Note
Effective Date”).
The
Registration Statement with respect to the Warrant Shares (“Warrant
Registration Statement”)
must
be filed not later than three hundred (300) days after the Closing Date
(“Warrant
Filing Date”)
and
declared effective by the Commission not later than the sooner of (y) the third
Business Day after receipt by the Company or its counsel of a written or oral
communication from the Commission that the Registration Statement will not
be
reviewed or that the Commission has no comments or further comments that would
impede the declaration of effectiveness of the Registration Statement, or (z)
one hundred and twenty (120) days after the filing date of such Registration
Statement (“Warrant
Effective Date”).
Each
of the Note Registration Statement and Warrant Registration Statement is
referred to herein as Registration Statement. The Note Filing Date and Warrant
Filing Date are referred to herein as the “Filing
Date”.
The
Note Effective Date and Warrant Effective Date are referred to herein as the
“Effective
Date”.
The
Company will register not less than a number of shares of Common Stock in the
aforedescribed Registration Statements that is equal to 120%
of
the Shares issuable upon conversion of the Notes issued to the Subscribers
and
100% of the Warrant Shares issuable pursuant to this Agreement upon exercise
of
the Warrants (collectively the “Registrable
Securities”).
The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder, pro rata,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will be amended or additional
registration statements will be filed by the Company as soon as reasonably
practicable, and in any event no later that 30 days after such need arises,
as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of holders of a majority of the
Registrable Securities, or as described on Schedule
11.1
hereto,
no securities of the Company other than (a) the Registrable Securities, and
(b)
securities issued in connection with an underwritten public offering of the
Company, will be included in the Registration Statement. The date each
Registration Statement is declared effective by the Commission shall be referred
to herein as the “Actual
Effective Date.”
19
(v) The
amount of Registrable Securities required to be included in the Registration
Statement as described in Section 11.1(iv) ("Initial Registrable Securities")
shall be limited to not less than 100% of the maximum amount ("Rule 415 Amount")
of Common Stock which may be included in a single Registration Statement without
exceeding registration limitations imposed by the Commission pursuant to Rule
415 of the 1933 Act but in any event not less than 6,000,000 shares of Common
Stock. In the event that less than all of the Initial Registrable
Securities are included in the Registration Statement as a result of the
limitation described in this Section 11.1(v), then the Company will be required
to file additional Registration Statements each registering the Rule 415 Amount
(each such Registration Statement a "Subsequent Registration Statement"),
seriatim, until all of the Initial Registrable Securities have been
registered. The Filing Date and Effective Date of each such additional
Registration Statement shall be, respectively, fourteen (14) and sixty (60)
days
after the first day such Subsequent Registration Statement may be filed without
objection by the Commission based on Rule 415 of the 1933 Act.
11.2. Registration
Procedures.
If and
whenever the Company is required by the provisions of Section 11.1(i) or
11.1(ii) to effect the registration of any Registrable Securities under the
1933
Act, the Company will, as expeditiously as possible:
(a) subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to promptly cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as herein provided), promptly provide to the
holders of the Registrable Securities copies of all filings and Commission
letters of comment and notify Subscribers (by e-mail addresses provided by
Subscribers) and Grushko & Xxxxxxx, P.C. (by email to Xxxxxxxxx@xxx.xxx)
on or
before the first business day thereafter that the Company receives notice that
(i) the Commission has no comments or no further comments on the Registration
Statement, and (ii) the registration statement has been declared effective
(failure to timely provide notice as required by this Section 11.2(a) shall
be a
material breach of the Company’s obligation and an Event of Default as defined
in the Notes
and
a Non-Registration Event as defined in Section 11.4 of this Agreement);
20
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c) furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d) use
its
commercially
reasonable best efforts to register or qualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e) if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) notify
the Subscribers within two hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the
Shares;
(g) provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, make available for inspection by the Sellers, and any attorney, accountant
or other agent retained by the Seller or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents
and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the seller, attorney, accountant or agent in connection
with such registration statement; and
(h) provide
to the Sellers copies of the Registration Statement and amendments thereto
five
business days prior to the filing thereof with the Commission.
11.3. Provision
of Documents.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4. Non-Registration
Events.
The
Company and the Subscribers agree that the Sellers will suffer damages if a
required Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any Registration
Statement required under Section 11.1(i) or 11.1(ii) is not filed within 60
days
after written request and declared effective by the Commission within 120 days
after such request, and maintained in the manner and within the time periods
contemplated by Section 11 hereof, and it would not be feasible to ascertain
the
extent of such damages with precision. Accordingly, if:
21
(A)
a
required Registration Statement is not filed on or before the applicable Filing
Date,
(B)
a
required Registration Statement is not declared effective on or before the
applicable Effective Date,
(C)
if
a
Registration Statement described in Sections 11.1(i) or 11.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request,
(D)
any
Registration Statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is
filed and declared effective but shall thereafter cease to be effective without
being succeeded within twenty (20) business days by an effective replacement
or
amended registration statement or for a period of time which shall exceed thirty
(30) trading days in the aggregate per year (defined as a period of 365 days
commencing on the Actual Effective Date; or
(E)
the
Company fails to register for unrestricted resale on behalf of the Subscribers
at least 120%
of
the amount of Common Shares issuable upon full conversion of all sums due under
the Notes with respect to the Note Registration Statement and 100% of the
Warrant Shares issuable upon exercise of the Warrants with respect to the
Warrant Registration Statement
(each
such event referred to in clauses A through E of this Section 11.4 is referred
to herein as a “Non-Registration
Event”);
then
the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days (or
such
lesser prorated amount for any period of less than thirty (30) days) of the
Purchase Price of the outstanding Notes and purchase price of Shares issued
upon
conversion of the Notes owned of record by such holder which are subject to
such
Non-Registration Event. The Liquidated Damages payable to each Subscriber
pursuant to this Section 11.4 shall not exceed ten percent (10%) of the initial
principal amount of the Note issued to each such Subscriber. The Company must
pay the Liquidated Damages in cash. The Liquidated Damages must be paid within
ten (10) days after the end of each thirty (30) day period or shorter part
thereof for which Liquidated Damages are payable. In the event a Registration
Statement is filed by the Filing Date but is withdrawn prior to being declared
effective by the Commission, then such Registration Statement will be deemed
to
have not been filed. All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to within
ten (10) business days after receipt of comments from the Commission.
Failure
to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of
Registrable Securities at the same rate set forth above. Liquidated Damages
will
not accrue nor be payable pursuant to this Section 11.4 nor will a
Non-Registration Event be deemed to have occurred for times during which
Registrable Securities are transferable by the holder of Registrable Securities
pursuant to Rule 144(k) under the 1933 Act.
11.5. Expenses.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fee of one counsel not to exceed $5,000,
for all Sellers are called “Registration
Expenses.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling
Expenses."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
22
11.6. Indemnification
and Contribution.
(a) In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon
an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by
the
Company to the Seller with or prior to the delivery of written confirmation
of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
23
(c) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 0000 Xxx) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7. Delivery
of Unlegended Shares.
(a) Within
three (3) business days (such third business day being the “Unlegended
Shares Delivery Date”)
after
the business day on which the Company has received (i) a notice that Warrant
Shares have been sold pursuant to a registration statement or Rule 144 under
the
1933 Act, (ii) a representation that the prospectus delivery requirements,
or
the requirements of Rule 144, as applicable and if required, have been
satisfied, and (iii) the original share certificates representing the shares
of
Common Stock that have been sold, and (iv) in the case of sales under Rule
144,
customary representation letters of the Subscriber and/or Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery
of
shares of Common Stock without any legends including the legend set forth in
Section 4 above, reissuable pursuant to any effective and current Registration
Statement described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the “Unlegended
Shares”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Warrant Shares certificate, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer
or
otherwise on or before the Unlegended Shares Delivery Date.
24
(b) In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“DTC”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company must cause its transfer agent to electronically transmit the Unlegended
Shares by crediting the account of Subscriber’s prime Broker with DTC through
its Deposit Withdrawal Agent Commission system. Such delivery must be made
on or
before the Unlegended Shares Delivery Date.
(c) The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof after the Unlegended Shares Delivery Date could
result in economic loss to Subscriber. As compensation to Subscriber for such
loss, the Company agrees to pay late payment fees (as liquidated damages and
not
as a penalty) to the Subscriber for late delivery of Unlegended Shares in the
amount of $100 per business day after the Delivery Date for each $10,000 of
Purchase Price (as defined in the Warrants) (and proportionately for other
amounts) of the Unlegended Shares subject to the delivery default. If during
any
360 day period, the Company fails to deliver Unlegended Shares as required
by
this Section 11.7 for an aggregate of thirty (30) days, then each Subscriber
or
assignee holding Securities subject to such default may, at its option, require
the Company to redeem all or any portion of the Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Warrant
Shares (“Unlegended
Redemption Amount”).
(d) In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a “Buy-In”), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of Common Stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the
Buy-In.
(e) In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the amount of the aggregate purchase price
of the Common Stock and Warrant Shares which are subject to the injunction
or
temporary restraining order, 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 Subscriber to the extent Subscriber obtains judgment
in
Subscriber’s favor.
25
12. (a) Right
of First Refusal.
Until
one year after the Actual Effective Date, the Subscribers shall be given not
less than ten business days prior written notice of any proposed sale by the
Company of its Common Stock or other securities or equity linked debt
obligations, except in connection with (i) full or partial consideration in
connection with a merger, acquisition, consolidation or purchase of
substantially all of the securities
or assets of corporation or other entity which holders of such securities or
debt are not at any time granted registration rights, (ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital and which holders of such securities or debt are
not
at any time granted registration rights, (iii) the Company’s issuance of Common
Stock or the issuances or grants of options to purchase Common Stock to
employees, directors, and consultants , not to exceed, in the aggregate, two
percent (2%) of the amount of shares outstanding immediately prior to closing,
as compensation for services, (iv) as a result of the exercise of Warrants
or
conversion of Notes which are granted or issued pursuant to this Agreement,
(v)
the Company’s issuance of Common Stock
in
connection with an acquisitions of an entity other than an affiliate, having
a
fair market value not less than $8,000,000, (vi) the
Company’s issuance of Common Stock
to
non-affiliates in connection with services rendered or to be rendered to the
Company, not
to
exceed, in the aggregate, two percent (2%) of the amount of shares outstanding
immediately prior to closing, and (vii) the Company’s issuance of securities in
connection with a bona fide underwritten public offering resulting in gross
proceeds in excess of $5,000,000 (collectively the foregoing are “Excepted
Issuances”).
The
Subscribers who exercise their rights pursuant to this
Section
12(a) shall have the right during the ten business days following receipt of
the
notice to purchase in cash or by using the outstanding balance including
principle, interest, liquidated damages and any other amount then owing to
such
Subscriber by the Company, in the aggregate up to all of such offered Common
Stock, debt or other securities in accordance with the terms and conditions
set
forth in the notice of sale in the same proportion to each other as their
purchase of Notes in the Offering. In the event such terms and conditions are
modified during the notice period, the Subscribers shall be given prompt notice
of such modification and shall have the right during the ten business days
following the notice of modification to exercise such right.
(b) Right
of Participation. Until
five years after the Closing Date, the Subscribers shall be given not less
than
ten business days prior written notice of any proposed sale by the Company
of
its Common Stock or other securities or equity linked debt obligations, except
for Excepted Issuances. The
Subscribers who exercise their rights pursuant to this
Section
12(b) shall have the right during the ten business days following receipt of
the
notice to participate in such offered Common Stock, debt or other securities
in
accordance with the terms and conditions set forth in the notice of sale by
using the outstanding balance including principle, interest, liquidated damages
and any other amount then owing to such Subscriber by the Company, to pay for
such participation. In the event such terms and conditions are modified during
the notice period, the Subscribers shall be given prompt notice of such
modification and shall have the right during the ten business days following
the
notice of modification to exercise such right.
(c) Favored
Nations Provision.
Other
than in connection with the Excepted Issuances, if at any time the Notes or
Warrants are outstanding, the Company shall agree to or issue (the “Lower Price
Issuance”) any Common Stock or securities convertible into or exercisable for
shares of Common Stock (or modify any of the foregoing which may be outstanding)
to any person or entity at a price per share or conversion or exercise price
per
share which shall be less than the Conversion Price in respect of the Shares
,
or if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of each Subscriber, then the Company shall issue, for each
such occasion, additional shares of Common Stock to each Subscriber respecting
those Notes, Warrants and Shares that remain outstanding at the time of the
Lower Price Issuance so that the average per share purchase price of the shares
of Common Stock issued to the Subscriber (of only the Common Stock or Warrant
Shares still owned by the Subscriber) is equal to such other lower price per
share and the Conversion Price and Warrant exercise price shall automatically
be
reduced to such other lower price. The average Purchase Price of the Shares
and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon conversion of the
Notes and separately for Warrant Shares. The delivery to the Subscriber of
the
additional shares of Common Stock shall be not later than the closing date
of
the transaction giving rise to the requirement to issue additional shares of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock. For
purposes of the issuance and adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares
of
Common Stock upon the sooner of the agreement to or actual issuance of such
convertible security, warrant, right or option and again at any time upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the Conversion
Price or Warrant exercise price in effect upon such issuance. The rights of
the
Subscriber set forth in this Section 12 are in addition to any other rights
the
Subscriber has pursuant to this Agreement, the Note, any Transaction Document,
and any other agreement referred to or entered into in connection herewith
or to
which the Subscriber and Company are parties. The Subscriber is also given
the
right to elect to substitute any term or terms of any other offering in
connection with which the Subscriber has rights as described in Section 12(a),
for any term or terms of the Offering in connection with Securities owned by
Subscriber as of the date the notice described in Section 12(a) is required
to
be given to Subscriber.
26
(d) Maximum
Exercise of Rights.
In the
event the exercise of the rights described in Sections 12(a), 12(b) or 12(c)
would
or
could result in the issuance of an amount of Common Stock of the Company that
would exceed the maximum amount that may be issued to a Subscriber calculated
in
the manner described in Section 7.3 of this Agreement, then the issuance of
such
additional shares of Common Stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such Common Stock without exceeding the applicable maximum
amount set forth calculated in the manner described in Section 7.3 of this
Agreement. The determination of when such Common Stock may be issued shall
be
made by each Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
| To Company: | Ever-Glory International Group, Inc.,
000
X. Xxxxxxxx Xxx # 000
Xxxx
Xxxxxx, XX 00000,
Attn:
Xxxxxx Xxxx
Fax:
(000)000-0000
|
27
| With a copy by fax to: |
Attn:
Xxxxx X. Xxxx, Esq.
Xxxxxxxxxx
& Xxxxx LLP
00000
Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx
Xxxxxxx, XX 00000
Fax:
(000) 000-0000
|
| To Subscribers: |
To
the addresses and fax numbers set
forth
on the signature pages
hereto.
|
| With a copy by fax to: |
Grushko
& Xxxxxxx, P.C.
000
Xxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxx, Xxx Xxxx 00000
Fax:
(000) 000-0000
|
(b) Entire
Agreement; Assignment.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c) Counterparts/Execution.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d) Law
Governing this Agreement.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state and county of New York.
The
parties to this Agreement hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum
non conveniens.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to
the
in personam jurisdiction of such courts and hereby irrevocably waive trial
by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
(e) Specific
Enforcement, Consent to Jurisdiction.
The
Company and Subscriber acknowledge and agree that irreparable damage would
occur
in the event that any of the provisions of this Agreement were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction
or
injunctions to prevent or cure breaches of the provisions of this Agreement
and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(d) hereof, the Company hereby irrevocably waives, and
agrees not to assert in any such suit, action or proceeding, any claim that
it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
28
(f) Independent
Nature of Subscribers.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given by
any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The
Company acknowledges that nothing contained in any Transaction Document, and
no
action taken by any Subscriber pursuant hereto or thereto (including, but not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
(g) Damages.
In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
(h) Consent.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of Subscribers holding a majority in interest of the Notes held by
Subscribers.
(i) Equal
Treatment.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered and paid to all the Subscribers and their
permitted successors and assigns.
(j) Maximum
Payments.
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
(k) Calendar
Days.
All
references to “days” in the Transaction Documents shall mean calendar days
unless otherwise stated. The terms “business days” and “trading days” shall mean
days that the New York Stock Exchange is open for trading for three or more
hours. Time periods shall be determined as if the relevant action, calculation
or time period were occurring in New York City.
29
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT
IN
WITNESS WHEREOF, the undersigned have caused this Subscription Agreement to
be
duly executed by their respective authorized signatories as of the date first
indicated above.
|
a
Florida corporation
|
||
| |
|
|
| By: | ||
|
Yi
Xxx Xxxx
Chief
Executive Officer
|
||
|
Dated:
August 2, 2007
|
||
30
SUBSCRIBER
SIGNATURE PAGE
IN
WITNESS WHEREOF, the undersigned have caused this Subscription Agreement to
be
duly executed by their respective authorized signatories as of the date first
indicated above.
Name
of
Purchaser:
__________________________________________________
Signature
of Authorized
Signatory
of Purchaser:
__________________________________________________
Name
of
Authorized Signatory: __________________________________________________
Title
of
Authorized Signatory: __________________________________________________
Facsimile
Number of Subscriber: _________________________________
Address
for Notice of Subscriber:
Address
for Delivery of Securities for Subscriber (if not same as above):
Subscription
Amount: _____________
Principal
Amount:
_____________
Class
A
Warrant Shares: _____________
31
LIST
OF EXHIBITS AND SCHEDULES
|
Exhibit
A
|
Form
of Note
|
|
Exhibit
B
|
Form
of Class A Warrant
|
|
Exhibit
C
|
Escrow
Agreement
|
|
Exhibit
D
|
Form
of Security Agreement
|
|
Exhibit
E
|
Form
of Stock Pledge Agreement
|
|
Exhibit
F
|
Form
of Collateral Agent Agreement
|
|
Exhibit
G
|
Form
of Legal Opinion
|
|
Exhibit
H
|
Form
of Lockup Agreement
|
|
Exhibit
I
|
Copy
of Option
|
|
Exhibit
J
|
Form
of Non-Compete Agreement
|
|
Schedule
5(a)
|
Subsidiaries
|
|
Schedule
5(d)
|
Additional
Issuances / Capitalization / Reset Rights
|
|
Schedule
5(o)
|
Undisclosed
Liabilities
|
|
Schedule
5(x)
|
Transfer
Agent
|
|
Schedule
8(a)
|
Brokerage
Fee
|
|
Schedule
9(e)
|
Use
of Proceeds
|
|
Schedule
9(t)
|
Person
signing a Lockup Agreement
|
|
Schedule
9(v)
|
Persons
signing a Non-Compete Agreement
|
|
Schedule
11.1
|
Other
Registrable Securities
|
32
SCHEDULES
TO SUBSCRIPTION AGREEMENT
Schedule
5(a)
| Name of Company | State of Incorporation |
| Perfect Dream Limited | British Virgin Islands |
| Nanjing New-Taliun Garments Company Limited | China |
| Goldenway Nanjing Garments Company limited | China |
Schedule
5(d)
The
Company agreed to issue 20,830,000 shares of common stock (in addition to cash
consideration) to Ever-Glory Enterprises (HK) Ltd, a British Virgin Islands
corporation (“Seller”) in connection with the acquisition, through its wholly
owned subsidiary, Perfect Dream Ltd, a British Virgin Islands corporation
(“Perfect Dream”), of all of the Seller’s interest in Nanjing New-Tailun
Garments Co, Ltd, a Chinese limited liability company (“New-Tailun”) pursuant to
an Agreement for the Purchase and Sale of Stock (the “Agreement”) with the
Seller pursuant to which Company has agreed to acquire and Seller has agreed
to
sell all of the Seller’s interest in New-Tailun. Further details concerning this
acquisition are available in the Company’s current report on Form 8-K filed with
SEC on November 13, 2006, in addition to the Company’s other filings with the
SEC.
In
connection with the Company’s acquisition of Nanjing
Catch-Luck Garments Co, Ltd., a Chinese limited liability company (“Catch-Luck”)
by Perfect Dream, Ltd., a British Virgin Island company (“Perfect Dream”), a
wholly-owned subsidiary of the Company, pursuant to the terms of an Agreement
for the Purchase and Sale of Stock (the “Purchase Agreement”), dated June 26,
2006, by and among the Company, Perfect Dream, Ever-Glory Enterprises (HK)
Ltd.,
a British Virgin Islands company and Catch-Luck, the Company agreed in addition
to the payment of cash consideration, to issue a total of $9.4 million dollars
of its common stock (subject to the satisfaction of certain conditions), based
on the preceding 30-day average of the high bid and the low ask price for the
Company’s shares as quoted on the Over-the-Counter Bulletin Board as of the
Closing of the acquisition. Further details concerning this acquisition are
available in the Company’s current
report on Form 8-K filed with SEC on July 29, 2006, in addition to the Company’s
other filings with the SEC.
Schedule
5(o)
None.
Schedule
5(x)
Xxxxxxxx
Stock Transfer, Inc.
0000
X.
00xx Xxxxx Xxxxxxxxxx, XX 00000
Telephone:
(000) 000-0000
Fax
number: (000) 000-0000
33
Schedule
8(a)
The
Company will pay, upon Closing, a commission of USD $126,000, plus USD$15,000
in
reimbursement of expenses, to E-Tech Securities, Inc.
The
Company will pay, upon Closing, a finder’s commission of USD $54,000 to Sino
Venture Group LLC.
Schedule
9(e)
The
total
net proceeds received by the Company resulting from the issuance of securities
pursuant to the Subscription Agreement dated July 26, 2007 shall be used for
the
following purposes:
| A. |
The
Company shall engage a law firm to serve as corporate counsel to
the
Company reasonably acceptable to the Subscribers, which the parties
agree
may include (i) Xxxxxxxxxx & Xxxxx LLP and/or (ii) Xxxxx Rozymko LLP.
|
| B. |
The
Company shall engage an auditing firm reasonably acceptable to the
Subscribers, which shall include a firm to be identified by the Company
that is PCAOB certified and well qualified to audit U.S. public reporting
companies.
|
| C. |
The
Company shall engage CCG Investor Relations or a similar investor
relations firm.
|
| D. |
The
Company shall use a portion of the funds to establish a U.S. branch
office
and hire full time executive level personnel, to among other objectives,
enhance the Company’s presence in the financial and other markets.
|
Schedule
9(t)
Xx.
Xxxxx
Xxxx
Schedule
9(v)
Xx.
Xxxxx
Xxxx
Schedule
11.1
Securities
of the Company issued in connection with a bona fide underwritten public
offering resulting in gross proceeds to the Company in excess of USD $5,000,000.
34
EXHIBIT
G
LOCKUP
AGREEMENT
This
AGREEMENT (the “Agreement”) is made as of the ____ day of July, 2007, by ______
(“Holder”), in connection with his ownership of shares of Ever-Glory
International Group, Inc.,
a
Florida
corporation (the “Company”).
NOW,
THEREFORE, for good and valuable consideration, the sufficiency and receipt
of
which consideration are hereby acknowledged, Holder agrees as
follows:
1. Background.
a.
Holder
is
the beneficial owner of the amount of shares of the Common Stock, $.0001 par
value, of the Company (“Common Stock”) designated on the signature page
hereto.
x. Xxxxxx
acknowledges that the Company has entered into or will enter into at or about
the date hereof agreements with subscribers to the Company’s Notes, some of
which are convertible into Common Stock (“Notes”) and Warrants (the
“Subscribers”). Holder understands that, as a condition to proceeding with the
Offering, the Subscribers have required, and the Company has agreed to obtain
on
behalf of the Subscribers an agreement from the Holder to refrain from selling
any securities of the Company from the date of the Subscription Agreement until
one year after the Closing Date (as defined in the Subscription Agreement)
(the
“Restriction Period”).
2. Share
Restriction.
a. Holder
hereby agrees that during the Restriction Period, the Holder will not sell
or
otherwise dispose of any shares of Common Stock or any options, warrants or
other rights to purchase shares of Common Stock or any other security of the
Company which Holder owns or has a right to acquire as of the date hereof,
other
than in connection with an offer made to all shareholders of the Company in
connection with merger, consolidation or similar transaction involving the
Company. Holder further agrees that the Company is authorized to and the Company
agrees to place “stop orders” on its books to prevent any transfer of shares of
Common Stock or other securities of the Company held by Holder in violation
of
this Agreement. The Company agrees not to allow to occur any transaction
inconsistent with this Agreement.
b. Any
subsequent issuance to and/or acquisition by Holder of Common Stock or options
or instruments convertible into Common Stock will be subject to the provisions
of this Agreement.
c. Notwithstanding
the foregoing restrictions on transfer, the Holder may, at any time and from
time to time during the Restriction Period, transfer the Common Stock (i) as
bona fide gifts or transfers by will or intestacy, (ii) to any trust for the
direct or indirect benefit of the undersigned or the immediate family of the
Holder, provided that any such transfer shall not involve a disposition for
value, (iii) to a partnership which is the general partner of a partnership
of
which the Holder is a general partner, provided, that, in the case of any gift
or transfer described in clauses (i), (ii) or (iii), each donee or transferee
agrees in writing to be bound by the terms and conditions contained herein
in
the same manner as such terms and conditions apply to the undersigned. For
purposes hereof, “immediate family” means any relationship by blood, marriage or
adoption, not more remote than first cousin.
3. Miscellaneous.
a. At
any
time, and from time to time, after the signing of this Agreement Holder will
execute such additional instruments and take such action as may be reasonably
requested by the Subscribers to carry out the intent and purposes of this
Agreement.
35
b. This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
New
York or in the federal courts located in the state of New York. The parties
to
this Agreement hereby irrevocably waive any objection to jurisdiction and venue
of any action instituted hereunder and shall not assert any defense based on
lack of jurisdiction or venue or based upon forum
non conveniens.
The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith agree to submit to the in personam jurisdiction
of such courts and hereby irrevocably waive trial by jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
c. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder or to which the Holder is subject to by applicable law.
d. This
Agreement shall be binding upon Holder, its legal representatives, successors
and assigns.
e. This
Agreement may be signed and delivered by facsimile and such facsimile signed
and
delivered shall be enforceable.
f.
The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with this Agreement.
g.
The
Holder acknowledges that this Lockup Agreement is being entered into for the
benefit of the Subscribers identified in the Subscription Agreement dated August
2, 2007 between the Company and the Subscribers, may be enforced by the
Subscribers and may not be amended without the consent of the Subscriber, which
may be withheld for any reason.
h.
In
the
event that the Holder is required by an underwriter to enter into a lockup
agreement in connection with an underwritten public offering of the Company
(“Underwriter Lockup”), this Lockup Agreement shall be superseded by the
Underwriter Lockup upon entry into the Underwriter Lockup, provided that the
restrictions under such Underwriter Lockup shall not lapse prior to the end
of
the Restriction Period set forth in this Lockup Agreement. If the Underwriter
Lockup lapses prior to the end of the Restriction Period, this Lockup Agreement
shall once again be enforceable until the end of the Restriction
Period.
36
IN
WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed
this Agreement as of the day and year first above written.
HOLDER:
________________________________
(Signature
of Holder)
________________________________
(Print
Name of Holder)
________________________________
Number
of
Shares of Common Stock
Beneficially
Owned
COMPANY:
By:______________________________
Yi
Xxx
Xxxx
Chief
Executive Officer
37
