SECURITIES PURCHASE AGREEMENT BETWEEN CAPITAL SOLUTIONS I, INC. AND BARRON PARTNERS LP AND THE OTHER INVESTORS NAMED HEREIN DATED December 3, 2007
BETWEEN
AND
XXXXXX
PARTNERS LP
AND
THE
OTHER INVESTORS NAMED HEREIN
DATED
December
3, 2007
This
Securities Purchase Agreement (the “Agreement”)
is
made and entered into as of the 3rd
day of
December, 2007, between Capital
Solutions I, Inc.,
a
Delaware corporation (the “Company”), and Xxxxxx
Partners LP, a
Delaware limited partnership (“Xxxxxx”),
and
any other investors named on the signature page of this Agreement (together
with
Xxxxxx, the “Investors”
and
each an “Investor”).
RECITALS:
WHEREAS,
the
Investors wish to purchase from the Company, upon the terms and subject to
the
conditions of this Agreement, for the Purchase Price, as hereinafter defined,
(a) an aggregate of 3,090,090 shares of the Company’s Series A Convertible
Preferred Stock (“Series
A Preferred Stock”),
with
each share of Series A Preferred Stock being initially convertible into one
share of the Company’s Common Stock, subject to adjustment, (b) common stock
purchase warrants (the “Warrants”)
to
purchase 2,060,606 shares of Common Stock at $1.80 per share, (c) Warrants
to
purchase 4,121,212 shares of Common Stock at $3.00 per share, all shares and
per
share information reflecting the Share Distribution, as hereinafter defined;
and
WHEREAS,
each
Investor is purchasing Series A Preferred Stock and Warrants in the principal
amount set forth in Schedule A of this Agreement; and
WHEREAS,
contemporaneously with the Closing, the Company is acquiring all of the issued
and outstanding capital stock of Moral Star Development Limited, a British
Virgin Islands corporation (“BVI Company”), which is the sole stockholder of
Jiangxi Moral Star Copper Technology Co., Ltd., a corporation organized under
the laws of the Peoples’ Republic of China as a wholly foreign owned enterprise
(“Moral Star”); and
WHEREAS,
Moral
Star is a party to agreements with Jiangxi
Xxxxxx Xxxx Copper Co., Ltd.
(“Xxxx”),
pursuant to which Moral Star has the right to advise, consult, manage and
operate Xxxx and collect and own all of their net profits, and, pursuant to
a
proxy and voting agreement and a voting trust and escrow agreement, the
stockholders of Xxxx have vested their voting control over Xxxx to Moral Star;
and
WHEREAS,
the
parties intend to memorialize the terms on which the Company will sell to the
Investors and the Investors will purchase the Securities;
NOW,
THEREFORE,
in
consideration of the mutual covenants and premises contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
PAGE
1
Article
1
INCORPORATION
BY REFERENCE AND DEFINITIONS
1.1 Incorporation
by Reference.
The
foregoing recitals and the Exhibits and Schedules attached hereto and referred
to herein, are hereby acknowledged to be true and accurate, and are incorporated
herein by this reference.
1.2 Supersedes
Other Agreements.
This
Agreement, to the extent that it is inconsistent with any other instrument
or
understanding among the parties, shall supersede such instrument or
understanding to the fullest extent permitted by law. A copy of this Agreement
shall be filed at the Company’s principal office.
1.3 Certain
Definitions.
For
purposes of this Agreement, the following capitalized terms shall have the
following meanings (all capitalized terms used in this Agreement that are not
defined in this Article 1 shall have the meanings set forth elsewhere in this
Agreement):
1.3.1 “4.9%
Limitation”
has
the
meaning set forth in Section 2.1.3 of this Agreement.
1.3.2 “1933
Act”
means
the Securities Act of 1933, as amended.
1.3.3 “1934
Act”
means
the Securities Exchange Act of 1934, as amended.
1.3.4 “Adjustment
Percentage”
shall
have the meaning set forth in Section 6.15.5 of this Agreement.
1.3.5 “Affiliate”
means
a
Person or Persons directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Person(s) in
question. The term “control,” as used in the immediately preceding sentence,
means, with respect to a Person that is a corporation, the right to the
exercise, directly or indirectly, of more than 50% of the voting rights
attributable to the shares of such controlled corporation and, with respect
to a
Person that is not a corporation, the possession, directly or indirectly, of
the
power to direct or cause the direction of the management or policies of such
controlled Person.
1.3.6 “Articles”
means
the certificate of incorporation of the Company, as the same may be amended
from
time to time.
1.3.7 “Authorized
Stock Proviso”
has
the
meaning set forth in Section 4.4.3 of this Agreement.
1.3.8 “Bylaws”
means
the bylaws of the Company, as the same may be amended from time to
time.
1.3.9 “Certificate
of Designation”
means
the certificate of the rights, preferences and privileges, subject to the
limitations, with respect to the Series A Preferred Stock. The Certificate
of
Designation shall be in substantially the form of Exhibit
A
to this
Agreement.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
2
1.3.10 “Closing” means
the
consummation of the transactions contemplated by this Agreement, all of which
transactions shall be consummated contemporaneously with the
Closing.
1.3.11 “Closing
Date”
means
the date on which the Closing occurs.
1.3.12 “Closing
Escrow Agreement”
shall
mean the agreement between the Company, the Investors and the Escrow Agent
pursuant to which securities are deposited into escrow to be held as provided
in
Section 6 of this Agreement. The Closing Escrow Agreement shall be in
substantially the form of Exhibit
B
to this
Agreement.
1.3.13 “Common
Stock”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.0000001 per share. Pursuant to the Restated Certificate, the par
value will be changed to $.001 per share.
1.3.14 “Company’s
Governing Documents”
means
the Articles and Bylaws.
1.3.15 “Delaware
Law”
shall
mean the Delaware General Corporation Law.
1.3.16 “EBIT”
means
income
before income taxes and interest, determined in accordance with GAAP plus (a)
any charges which are reflected under GAAP in the Company’s financial statements
which relate to the transaction contemplated by this Agreement and the
Registration Rights Agreement and the other Transaction Documents, including
the
issuance of the Series A Preferred Stock and Warrants and any other securities
issuable pursuant to this Agreement, the Registration Rights Agreement and
the
other Transaction Documents, minus (b) the amount, if any, by which all
non-recurring losses or expenses exceed all non-recurring items or income or
gain.
EBIT
shall not be adjusted if all non-recurring items of income or gain exceed all
non-recurring losses or expenses. Items shall be deemed to be non-recurring
only
if they qualify as non-recurring pursuant to GAAP.
1.3.17 “EBITDA”
means
consolidated earnings before interest, taxes, depreciation and amortization,
determined in accordance with GAAP.
1.3.18 “Exempt
Issuance”
means
the
issuance of (a) shares of Common Stock or options to employees, officers,
directors of and consultants (other than consultants whose services relate
to
the raising of funds) of the Company pursuant to any stock or option plan that
was or may be adopted by a majority of independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose, including the shares of
Common Stock issuable upon exercise of options granted pursuant to this clause
(a), (b) securities upon the exercise of or conversion of any securities issued
hereunder and pursuant to the Registration Rights Agreement, the Warrants and
the Certificate of Designation, or any other options, warrants or convertible
securities which are outstanding on after completion of the Closing, (c)
warrants issued to an investor relations firm and the shares of Common Stock
issuable upon exercise of such warrants; and (d) securities issued pursuant
to
acquisitions, licensing agreements, or other strategic transactions, provided
any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business which the Company’s board of
directors believes is beneficial to the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
3
1.3.19 “GAAP”
means
United States generally accepted accounting principles consistently
applied.
1.3.20 “Information
Statement”
means
an information statement pursuant to Section 14(c) of the 1934 Act advising
stockholders that the holders of a majority of the shares of Common Stock have
approved the Restated Certificate, whichever shall be appropriate.
1.3.21 “Material
Adverse Effect”
means
any adverse effect on the business, operations, properties or financial
condition of the Company or any of its Subsidiaries that is material and adverse
to the Company and its Subsidiaries taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company or any Subsidiary to perform any of its material
obligations under this Agreement, the Registration Rights Agreement or the
Warrants or to perform its obligations under any other material agreement.
1.3.22 “Person”
means
an individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
1.3.23 “PRC
Agreements”
shall
mean the agreements between Moral Star and Xxxx.
1.3.24 “PRC
Company Stockholders”
shall
mean the stockholders of Xxxx, which, as of the date of this Agreement, is
XX
Xxxxxx.
1.3.25 “Preferred
Stock”
means
the preferred stock, par value $.000001 per share, as created by the Restated
Certificate. Pursuant to the Restated Certificate, the par value will be changed
to $.001 per share.
1.3.26 “Purchase
Price”
means
the $3,400,000 to be paid by the Investors to the Company for the
Securities.
1.3.27 “Registration
Rights Agreement”
means
the registration rights agreement between the Investor and the Company in
substantially the form of Exhibit
C
to this
Agreement.
1.3.28 “Registration
Statement”
means
the registration statement under the 1933 Act to be filed with the SEC for
the
registration of the Shares pursuant to the Registration Rights
Agreement.
1.3.29 “Related
Companies”
shall
mean BVI Company, Moral Star and Xxxx, each of which is a “Related
Company.”
1.3.30 “Restated
Certificate”
means
the restated certificate of incorporation, which is in substantially the form
of
Exhibit
D
to this
Agreement.
1.3.31 “Restricted
Stockholders”
shall
have the meaning set forth in Section 6.16 of this Agreement.
1.3.32 “Restriction
Termination Date”
shall
mean the date on which the Investors shall have (a) converted all shares of
Series A Preferred Stock and exercised all Warrants (other than Warrants that
shall have expired unexercised) and (b) sold the underlying Shares in the public
market.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
4
1.3.33 “Restriction
Termination Date at 90%”
shall
mean the date on which the Investors shall have (a) converted shares of Series
A
Preferred Stock and exercised Warrants (other than Warrants that shall have
expired unexercised) and (b) sold 90% of the Total Shares.
1.3.34 “Securities”
means
the shares of Series A Preferred Stock, the Warrants and the
Shares.
1.3.35 “SEC”
means
the Securities and Exchange Commission.
1.3.36 “SEC
Documents”
means,
at any given time, the Company’s latest Form 10-K or Form 10-KSB and all Forms
10-Q or 10-QSB and 8-K and all proxy statements or information statements filed
between the date the most recent Form 10-K or Form 10-KSB was filed and the
date
as to which a determination is being made.
1.3.37 “Series
A Preferred Stock”
means
the shares of Series A Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.
1.3.38 “Share
Distribution”
shall
mean the 3.2-for-one share distribution whereby each outstanding share of Common
Stock becomes and is converted into 3.2 shares of Common Stock, with cash being
paid for fractional shares.
1.3.39 “Shares”
means,
collectively, the shares of Common Stock issued or issuable (i) upon conversion
of the Series A Preferred Stock and (ii) upon exercise of the
Warrants.
1.3.40 “Subsidiary”
means
an entity in which the Company and/or one or more other Subsidiaries directly
or
indirectly own either 50% of the voting rights or 50% of the equity
interests.
1.3.41 “Subsequent
Financing”
means
any offer and sale of shares of Preferred Stock or debt that is initially
convertible into shares of Common Stock or otherwise senior or superior to
the
Series A Preferred Stock.
1.3.42 “Target
Number”
has
the
meaning set forth in Section 6.15.2 of this Agreement.
1.3.43 “Total
Shares”
means
the number of shares of Common Stock as have been or would be issued upon
conversion of the Series A Preferred Stock and Warrants. The number of Total
Shares shall be adjusted to reflect any change in the conversion price of the
Series A Preferred Stock and the expiration of any Warrants.
1.3.44 “Transaction
Documents”
means
this Agreement, all Schedules and Exhibits attached hereto, the Certificate
of
Designation, the Warrants, the Registration Rights Agreement, the Closing Escrow
Agreement and all other documents and instruments to be executed and delivered
by the parties in order to consummate the transactions contemplated
hereby.
1.3.45 “Unsold
Shares”
means
the difference between (a) the number of shares of Series A Preferred Stock
which were initially issued at the Closing and (b) the number of shares of
Series A Preferred Stock, regardless of when such shares were issued, which
have
been converted into Common Stock with the Common Stock having been
sold.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
5
1.3.46 “Warrants”
means
the common stock purchase warrants in substantially the forms of Exhibits
E-1 and E-2
to this
Agreement.
1.4 References.
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
1.5 Value
of Series A Preferred Stock.
Wherever this Agreement provides for the delivery of shares of Series A
Preferred Stock in satisfaction of an obligation under this Agreement, a share
of Series A Preferred Stock shall have a value equal to its liquidation
preference as set forth in the Certificate of Designation.
Article
2
SALE
AND PURCHASE OF NOTES; PURCHASE PRICE
2.1 Sale
of Securities.
2.1.1 Upon
the
terms and subject to the conditions set forth herein, and in accordance with
applicable law, the Company agrees to sell to the Investors, and each Investor
severally agrees to purchase from the Company, on the Closing Date, the shares
of Series A Preferred Stock and Warrants set forth after the Investor’s name on
Schedule A to this Agreement for that portion of the Purchase Price as it set
forth in said Schedule A. At or prior to the Closing each Investor shall wire
the Investor’s portion of the Purchase Price to the Escrow Agent, who shall
release the Purchase Price to the Company upon receipt of instructions from
the
Investor and the Company as provided in the Escrow Agreement. The Company shall
cause the shares to Series A Preferred Stock and Warrants to be issued to the
Investors upon the release of the Purchase Price to the Company by the Escrow
Agent.
2.1.2 The
Series A Preferred Stock shall be convertible into Common Stock in the manner
set forth in the first introductory paragraph of this Agreement, all as set
forth in the Certificate of Designation.
2.1.3 Except
as
expressly provided in the Certificate of Designation and the Warrants, an
Investor shall not be entitled to convert the Series A Preferred
Stock
into
shares of Common Stock or to exercise the Warrants to the extent that such
conversion or exercise would result in beneficial ownership by the Investor
and
its Affiliates of more than 4.9% of the then outstanding number of shares of
Common Stock on such date after giving effect to such conversion or exercise.
For the purposes of this Agreement beneficial ownership shall be determined
in
accordance with Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.
The limitation set forth in this Section 2.1.3 is referred to as the
“4.9%
Limitation.”
As
a
result of the 4.9% Limitation, no Investor will have 5% of the voting power
of
the Company; provided, however, that this sentence shall not affect any of
an
Investor’s rights under the Certificate of Designation.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
6
Article
3
CLOSING
DATE AND DELIVERIES AT CLOSING
3.1 Closing
Date.
The
Closing of the transactions contemplated by this Agreement, unless expressly
determined herein, shall be held at the offices of the Sichenzia Xxxx Xxxxxxxx
Xxxxxxx LLP, 00 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 2:00 P.M. local time,
on
the Closing Date or on such other date and at such other place as may be
mutually agreed by the parties, including closing by facsimile with originals
to
follow.
3.2 Deliveries
by the Company.
In
addition to and without limiting any other provision of this Agreement, the
Company agrees to deliver, or cause to be delivered, to the escrow agent under
the Escrow Agreement, the following:
(a) At
or
prior to Closing, an executed Agreement with all exhibits and schedules attached
hereto;
(b) At
the
Closing, certificates for the Series A Preferred Stock in the names of the
Investors for the number of shares set forth in Schedule A to this
Agreement;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) Evidence
that the Company has acquired all of the outstanding shares of BVI
Company.
(f) Copies
of
all SEC correspondence since last Form 10-KSB and any correspondence which
was
issued prior to the last Form 10-KSB which has not been resolved to the
satisfaction of the SEC.
(g) Schedule
of all amounts owed (cash and stock) to officers, consultants and key employees
(salary, bonuses, etc.).
(h) Certifications
in form and substance acceptable to the Company and the Investors from any
and
all brokers or agents involved in the transactions contemplated hereby as to
the
amount of commission or compensation payable to such broker or agent as a result
of the consummation of the transactions contemplated hereby and from the Company
or Investor, as appropriate, to the effect that reasonable reserves for any
other commissions or compensation that may be claimed by any broker or agent
have been set aside;
(i) Management
letter from the Company’s registered independent accounting firm or confirmation
from such firm that no such letter were issued in connection with the Company’s
most recent audit;
(j) Evidence
of approval of the Board of Directors of the Company of the Transaction
Documents, the Share Distribution and the transactions contemplated hereby
and
thereby;
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
7
(k) Evidence
of the filing of the Certificate of Designation with the Secretary of State
of
the State of Delaware;
(l) Agreements
from the Restricted Stockholders pursuant to Section 6.16 of this
Agreement.
(m) Evidence
that the Restated Certificate has been approved by the directors, and that
the
board of directors has authorized the filing of the Information Statement with
the SEC.
(n) Good
standing certificate from the Secretary of State of the State of
Delaware;
(o) Copy
of
the Company’s Articles, as currently in effect, certified by the Secretary of
State of the State of Delaware;
(p) An
opinion from the Company’s counsel concerning the Transaction Documents and the
transactions contemplated hereby in form and substance reasonably acceptable
to
Investors;
(q) An
opinion from the Company’s PRC counsel that (i) each of the Related Companies is
legally established and validly existing as an independent legal entity; (ii)
each of the Related Companies is an independent legal person and none of them
is
exposed to liabilities incurred by the other party; (iii) the PRC Agreements
constitute valid and binding obligations of the parties to such agreements,
and
(iv) each of the PRC Agreements and the rights and obligations of the parties
thereto are enforceable and valid in accordance with the laws of the
PRC;
(r) An
agreement between Moral Star and Xxxx pursuant to which Xxxx transfer to Moral
Star all of the patent, trademark and other intellectual property rights and
other intangible assets;
(s) Evidence
that all agreement between Moral Star and Xxxx are executed and are satisfactory
in all material respects to the Investors;
(t) The
executed disbursement instructions pursuant to the Escrow Agreement, which
shall
provide that the Escrow Agent continue to hold $100,000 to pay the Company’s
anticipated obligations to its investor relations company;
(u) Copies
of
all executive employment agreements, all past and present financing
documentation or other documentation where stock could potentially be issued
or
issued as payment, all past and present litigation documents;
(v) Copies
of
the non-competition agreements provided in Section 4.17 of this
Agreement;
(w) Such
other documents or certificates as shall be reasonably requested by Investors
or
their counsel; and
(x) The
Company must be current in its filings with the SEC, and the Company’s Common
Stock must be trading on the OTC Bulletin Board.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
8
3.3 Deliveries
by Investors.
In
addition to and without limiting any other provision of this Agreement, the
Investors agree to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
(a) A
deposit
from each Investor as to the Investor’s portion of the Purchase
Price;
(b) The
executed Agreement with all Exhibits and Schedules attached hereto;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) The
executed disbursement instructions pursuant to the Escrow Agreement;
and
(f) Such
other documents or certificates as shall be reasonably requested by the Company
or its counsel.
3.4 Delivery
of Original Documents.
In the
event any document provided to the other party in Paragraphs 3.2 and 3.3 herein
are provided by facsimile, the party shall forward an original document to
the
other party within seven (7) business days.
3.5 Further
Assurances.
The
Company and each Investor shall, upon request, on or after the Closing Date,
cooperate with each other (specifically, the Company shall cooperate with the
Investors, and each Investor shall cooperate with the Company) by furnishing
any
additional information, executing and delivering any additional documents and/or
other instruments and doing any and all such things as may be reasonably
required by the parties or their counsel to consummate or otherwise implement
the transactions contemplated by this Agreement.
3.6 Waiver.
An
Investor may waive any of the requirements of Section 3.2 of this Agreement,
and
the Company may waive any of the provisions of Section 3.3 of this Agreement.
The Investors may also waive any of the requirements of the Company under the
Escrow Agreement.
Article
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investors as of the date hereof and
as of
Closing Date (which warranties and representations shall survive the Closing
regardless of any examinations, inspections, audits and other investigations
the
Investors have heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:
4.1 Organization
and Qualification.
Each of
the Company, each Subsidiary and each of the Related Companies is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified to do business in any other
jurisdiction by virtue of the nature of the businesses conducted by it or the
ownership or leasing of its properties, except where the failure to be so
qualified will not, when taken together with all other such failures, have
a
Material Adverse Effect on the business, operations, properties, assets,
financial condition or results of operation of the Company, its Subsidiaries
and
the Related Companies taken as a whole.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
9
4.2 Company’s
Governing Documents.
The
complete and correct copies of the Company’s Governing Documents (a) have been
provided to the Investor and (b) have been filed with the SEC in accordance
with
the regulations of the SEC and (c) will be in full force and effect on the
Closing Date.
4.3 Capitalization.
4.3.1 The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and as adjusted to reflect the issuance and sale of the Securities
pursuant to this Agreement is set forth in Schedule 4.3.l to this Agreement.
Schedule 4.3.1 lists all shares and potentially dilutive events, including
shares issuable pursuant to employment, consulting and other services
agreements, acquisition agreements, options and equity-based incentive plans,
debt securities, convertible securities, financing or business relationships
as
well as each agreement, plan, arrangement or understanding pursuant to which
any
shares of any class of capital stock may be issued, a copy of each of which
has
been provided to the Investors.
4.3.2 All
shares of capital stock issuable pursuant to this Agreement, the Registration
Rights Agreement and upon conversion of the Series A Preferred Stock and upon
exercise of the Warrants have been duly authorized and when issued, will be
validly issued, fully paid and non-assessable and free of preemptive rights.
4.3.3 Except
pursuant to this Agreement and as set forth in Schedule 4.3.1, there are no
outstanding options, warrants, rights to subscribe for, calls or commitments
of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any class of capital stock of the Company, or
agreements, understandings or arrangements to which the Company is a party,
or
by which the Company is or may be bound, to issue additional shares of its
capital stock or options, warrants, scrip or rights to subscribe for, calls
or
commitment of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of any class of its capital
stock. The Company agrees to inform the Investors in writing of any additional
warrants granted prior to the Closing Date.
4.3.4 None
of
Xxxx, or Moral Star or BVI COMPANY has any agreement or understanding, whether
formal or informal, which could result in the issuance of any equity securities
or right to purchase or otherwise acquire equity securities of such
corporation.
4.4 Authority.
4.4.1 The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, the Series A Preferred Stock and Warrants issuable pursuant
to
this Agreement, the Registration Rights Agreement, the Closing Escrow Agreement
and any other Transaction Documents to which the Company is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Securities issuable pursuant to this Agreement and upon conversion of the
Series A Preferred Stock and exercise of the Warrant, the Registration Rights
Agreement, the Closing Escrow Agreement and any other Transaction Documents
to
which the Company is a party have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
is necessary to authorize this Agreement or to consummate the transactions
contemplated hereby and thereby except as disclosed in this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against
the
Company in accordance with its terms, except as enforceability may be limited
by
bankruptcy, insolvency and other laws of general application affecting the
enforcement of creditors’ rights and except that any the granting of equitable
relief is in the discretion of the court.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
10
4.4.2 Series
A
Preferred Stock will, when issued pursuant to this Agreement, be duly and
validly authorized and issued, fully paid and non-assessable and the Warrants
will be the valid and binding obligations of the Company, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws of general application affecting the
enforcement of creditors’ rights and except that any the granting of equitable
relief is in the discretion of the court. The Common Stock issuable upon
conversion of the Series A Preferred Stock and exercise of the Warrants issuable
pursuant to this Agreement will, when so issued, be duly and validly authorized
and issued, fully paid and non-assessable. All such Securities, when so issued,
will be free and clear of all liens, charges, claims, options, pledges,
restrictions, preemptive rights, rights of first refusal and encumbrances
whatsoever (other than those incurred by the Investor).
4.4.3 Notwithstanding
any contrary representations and warranties, no
representation is made with respect to the ability of any Investor to convert
the Series A Preferred Stock or exercise any Warrant if and to the extent that
the conversion price of the Series A Preferred Stock, as defined in the
Certificate of Designation, or the number of Shares issuable upon exercise
of
the Warrants would result in the issuance of a number of shares of Common Stock
which is greater than the amount by which the authorized Common Stock exceeds
the sum of the outstanding Common Stock and the shares of Common Stock reserved
for issuance pursuant to outstanding agreements and outstanding options,
warrants, rights, convertible securities and other securities upon the exercise
or conversion of which or pursuant to the terms of which additional shares
of
Common Stock may be issuable (the foregoing proviso being referred to as the
“Authorized
Stock Proviso”).
4.4.4 Each
Related Company is legally established, and validly existing as an independent
legal entities; (ii) each Related Company is an independent legal person and
none of them is exposed to liabilities incurred by the other party; (iii) the
PRC Agreements constitute valid and binding obligations of the parties to such
agreements, and (iv) each of the PRC Agreements and the rights and obligations
of the parties thereto are enforceable and valid in accordance with the laws
of
the PRC.
4.5 No
Conflict; Required Filings and Consents.
Neither
the execution and delivery of this Agreement by the Company nor the issuance
of
the Securities as contemplated by this Agreement, nor any other Transaction
Documents, and the performance by the Company of its obligations hereunder
and
thereunder will: (i) conflict with or violate the Company’s or any Subsidiary’s
Governing Instruments; (ii) conflict with, breach or violate any federal, state,
foreign (including the Peoples’ Republic of China) or local law, statute,
ordinance, rule, regulation, order, judgment or decree (collectively,
“Laws”)
in
effect as of the date of this Agreement and applicable to the Company or any
Subsidiary; or (iii) result in any breach of, constitute a default (or an event
that with notice or lapse of time or both would become a default) under, give
to
any other entity any right of termination, amendment, acceleration or
cancellation of, require payment under, or result in the creation of a lien
or
encumbrance on any of the properties or assets of the Company or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets is bound, other than such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens that would not, in the aggregate, have a Material Adverse
Effect
except
to the extent that stockholder approval may be required as a result of the
Authorized Stock Proviso, in which event, the Company will seek stockholder
approval to an increase in the authorized Common Stock sufficient to enable
the
Company to be in compliance with this Section 4.5. Neither the execution of
this
Agreement nor the consummation of the terms contemplated by this Agreement
will
impair Moral Star’s rights under the PRC Agreements.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
11
4.6 Reports
and Financial Statements.
4.6.1 The
consolidated financial statements of the Related Companies for the years ended
December 31, 2006 and 2005, including consolidated balance sheets, statements
of
operations, stockholders’ equity and cash flows, together with the notes
thereon, certified by Xxxxxxxxx & Pinchuk LLP (“Xxxxxxxxx”),
the
Company’s independent registered accounting firm, together with the unaudited
consolidated financial statements for the nine months ended September 30, 2007
and 2007, consisting of a balance sheet at September 30, 2007, statement of
stockholders’ equity for the six months ended September 30, 2007, and statements
of operations and cash flows for the six months ended September 30, 2007 and
2006, which have been reviewed by Xxxxxxxxx have been delivered to the
Investors. Each of the consolidated balance sheets fairly presents the financial
position of the Related Companies, as of its date, and each of the consolidated
statements of income, stockholders’ equity and cash flows (including any related
notes and schedules thereto) fairly presents the results of operations, cash
flows and changes in stockholders’ equity, as the case may be, of the Related
Companies for the periods to which they relate, in each case in accordance
with
GAAP consistently applied during the periods involved. Xxxxxxxxx is independent
as to the Company and each of the Related Companies in accordance with the
rules
and regulations of the SEC. The books and records of the Related Companies
have
been, and are being, maintained in all material respects in accordance with
GAAP
and any other applicable legal and accounting requirements and reflect only
actual transaction. Neither the Company nor any of the Related Companies has
received any advice from Xxxxxxxxx to the effect that there is any significant
deficiency or material weakness in the Company’s or any Related Party’s controls
or recommending any corrective action on the part of the Company or any Related
Party. Neither the Company nor any Related Party has any contingent liability
that is not reflected in the financial statements. To the extent that the
consolidated financial statements of BVI Company do not include the financial
condition or results of operations of Xxxx, separate statements for Xxxx,
conforming to the delivery requirements of this Section 4.6.1, shall have been
delivered.
4.6.2 The
Company’s Form 10-KSB for the year ended April 30, 2007, contains the audited
financial statements of the Company, certified by Bagell, Josephs, Xxxxxx &
Company, L.L.C., (“BJL”),
the
Company’s independent registered accounting firm, for the years ended May 31,
2007 and 2006, and the Company’s Form 10-QSB for the quarter ended August 31,
2007 contains the unaudited financial statements of the Company which have
been
reviewed by BJL. The balance sheets fairly present the financial position of
the
Company, as of their respective dates, and each of the consolidated statements
of income, stockholders’ equity and cash flows (including any related notes and
schedules thereto) fairly presents the results of operations, cash flows and
changes in stockholders’ equity, as the case may be, of the Company for the
periods to which they relate, in each case in accordance with GAAP consistently
applied during the periods involved. BJL is independent as to the Company in
accordance with the rules and regulations of the SEC. The books and records
of
the Company have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transaction. The Company has not received any letters
of
comments from the SEC relating to any filing made by the Company with the SEC
which has not been addressed by an amended filing, and each amended filing
fully
responds to the questions raised by the staff of the SEC. The Company maintains
disclosure controls and procedures that are effective to ensure that information
required to be disclosed by the Company in its annual and quarterly reports
filed with the SEC is accumulated and communicated to the Company’s management,
including its principal executive and financial officers as appropriate, to
allow timely decisions regarding required disclosure. There were no significant
changes in the Company’s internal controls or other factors that could
significantly affect such controls subsequent to May 31, 2007. The Company
has
not received any advice from BJL to the effect that there is any significant
deficiency or material weakness in the Company’s controls or recommending any
corrective action on the part of the Company or any Subsidiary. The Company
does
not have any contingent liabilities.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
12
4.7 Compliance
with Applicable Laws.
Neither
the Company nor any Subsidiary nor any Related Party is in violation of, or,
to
the knowledge of the Company is under investigation with respect to or has
been
given notice or has been charged with the violation of, any Law of a
governmental agency, except for violations which individually or in the
aggregate do not have a Material Adverse Effect.
4.8 Brokers.
Except
as set forth on Schedule 4.8, no broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or
on behalf of the Company.
4.9 SEC
Documents.
The
Investors acknowledge that the Company is a publicly held company and has made
available to the Investors upon request true and complete copies of any
requested SEC Documents. The Company has registered its Common Stock pursuant
to
Section 12(d) of the 1934 Act, and the Common Stock is quoted and traded on
the
OTC Bulletin Board of the National Association of Securities Dealers, Inc.
The
Company has received no notice, either oral or written, with respect to the
continued quotation or trading of the Common Stock on the OTC Bulletin Board.
The Company has not provided to the Investor any information that, according
to
applicable law, rule or regulation, should have been disclosed publicly prior
to
the date hereof by the Company, but which has not been so disclosed. As of
their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act, and rules and regulations of the SEC promulgated
thereunder and the SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.10 Litigation.
To the
knowledge of the Company, no litigation, claim, or other proceeding before
any
court or governmental agency is pending or to the knowledge of the Company,
threatened against the Company or any of the Related Companies, the prosecution
or outcome of which may have a Material Adverse Effect.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
13
4.11 Employment
Agreements.
Except
as disclosed in the Company’s Form 10-KSB for the year ended May 31, 2007 or as
otherwise disclosed pursuant to this Agreement, the Company does not have any
agreement or understanding with any officer or director, and there has been
no
material change in the compensation of any officer and director from that shown
in said Form 10-KSB.
4.12 Exemption
from Registration.
Subject
to the accuracy of the Investors’ representations in Article V of this
Agreement, except as required pursuant to the Registration Rights Agreement,
the
issuance of Series A Preferred Stock and Warrants pursuant to this Agreement
or
the issuance of the Common Stock upon conversion of the Series A Preferred
Stock
or exercise of the Warrants will not require registration under the 1933 Act.
When issued upon conversion of the Series A Preferred Stock or upon exercise
of
the Warrants in accordance with their terms, the Shares underlying the Preferred
Stock and the Warrants will be duly and validly authorized and issued, fully
paid, and non-assessable. The Company is issuing the Preferred Stock and the
Warrants in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D as promulgated
by the SEC under the 1933 Act, and/or Section 4(2) of the 1933 Act.
4.13 No
General Solicitation or Advertising in Regard to this
Transaction.
Neither
the Company nor any of its Affiliates nor, to the knowledge of the Company,
any
Person acting on its or their behalf (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D as
promulgated by the SEC under the 0000 Xxx) or general advertising with respect
to the sale of the Preferred Stock or Warrants, or (ii) made any offers or
sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the, Series A Preferred Stock,
Common Stock or Warrants, under the 1933 Act, except as required
herein.
4.14 No
Material Adverse Effect.
Since
December 31, 2006, no event or circumstance resulting in a Material Adverse
Effect has occurred or exists with respect to the Company, any Subsidiary or
any
Related Party. No material supplier or customer has given notice, oral or
written, that it intends to cease or reduce the volume of its business with
the
Company, any Subsidiary or any Related Party from historical levels. Since
December 31, 2006, no event or circumstance has occurred or exists with respect
to the Company, any Subsidiary or any Related Party, that, under any applicable
law, rule or regulation, requires or would require, public disclosure or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed in writing to the Investor.
4.15 Material
Non-Public Information.
The
Company has not disclosed to the Investors any material non-public information
that (i) if disclosed, would reasonably be expected to have a material effect
on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the
date
hereof but which has not been so disclosed.
4.16 Internal
Controls And Procedures.
The
Company and its Subsidiaries and each of the Related Parties maintain books
and
records and internal accounting controls which provide reasonable assurance
that
(i) all transactions to which the Company or any Subsidiary or any Related
Party
is a party or by which their respective properties are bound are executed with
management’s authorization; (ii) the recorded accounting of the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company’s, any
Subsidiary’s or any Related Party’s consolidated assets is permitted only in
accordance with management’s authorization; and (iv) all transactions to which
the Company or any Subsidiary or any Related Party is a party or by which any
of
their respective properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company and the Related Companies
individually (unless the financial condition and results of operations and
cash
flows are consolidated with those of the Company under GAAP) in accordance
with
GAAP.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
14
4.17 Non-Competition
Agreement.
Each of
the Company’s executive officers shall have entered into an agreement with the
Company pursuant to which they agree that, to the maximum extent permitted
by
law, the Company’s executive officers shall not be involved in any business
venture, whether as an officer, director, partner, manager, lender, guarantor,
consultant or any other capacity in any business which competes with or is
similar in nature to the Company in China. To the extent that the provisions
of
this Section 4.17 are not enforceable under applicable law, the non-competition
agreement shall provide that it shall be deemed to restrict the executive
officers only to the maximum extent permitted by law. A copy of a true and
correct English translation of each of these agreements has been provided to
the
Investors.
4.18 Full
Disclosure.
No
representation or warranty made by the
Company in
this
Agreement and no certificate or document furnished or to be furnished to the
Investor pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not
misleading.
Article
5
REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS
Each
Investor severally and not jointly represents and warrants to the Company
that:
5.1 Concerning
the Investors.
The
state in which any offer to purchase shares hereunder was made or accepted
by
such Investor is the state shown as such Investor’s address. The Investor was
not formed for the purpose of investing solely in the Securities.
5.2 Authorization
and Power.
The
Investor has the requisite power and authority to enter into and perform this
Agreement and to purchase the securities being sold to it hereunder. The
execution, delivery and performance of this Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby have been
duly authorized by all necessary partnership action where appropriate. This
Agreement, the Registration Rights Agreement and the Closing Escrow Agreement
have been duly executed and delivered by such Investor and at the Closing shall
constitute valid and binding obligations of such Investor enforceable against
the Investor in accordance with their terms, except as such enforceability
may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
5.3 No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Investor of the transactions contemplated hereby or relating hereto do
not
and will not (i) result in a violation of such Investor’s charter documents or
bylaws where appropriate or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Investor
is
a party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such
Investor or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on such Investor). The Investor is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or
governmental agency in order for it to execute, deliver or perform any of such
Investor’s obligations under this Agreement or to purchase the securities from
the Company in accordance with the terms hereof, provided that for purposes
of
the representation made in this sentence, the Investor is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
15
5.4 Financial
Risks.
Such
Investor acknowledges that such Investor is able to bear the financial risks
associated with an investment in the securities being purchased by such Investor
from the Company and that it has been given full access to such records of
the
Company and its Subsidiaries and to the officers of the Company and its
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. Such Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the Investor from
the Company by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters and the
Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Company.
5.5 Accredited
Investor.
The
Investor is (i) an “accredited investor” as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act by reason of Rule 501(a)(3) and
(6),
(ii) experienced in making investments of the kind described in this Agreement
and the related documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors (who are
not
affiliated with or compensated in any way by the Company or any of its
affiliates or selling agents), to protect its own interests in connection with
the transactions described in this Agreement, and the related documents, and
(iv) able to afford the entire loss of its investment in the securities being
purchased by the Investor from the Company.
5.6 Brokers.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or Commission in connection with the transactions contemplated by
this
Agreement based upon arrangements made by or on behalf of such Investor. Such
Investor understands that any obligations under agreements or arrangements
with
brokers disclosed in Schedule 4.8 are obligations of the Company.
5.7 Knowledge
of Company.
Such
Investor and such Investor’s advisors, if any, have been, upon request,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the securities
being purchased by such Investor from the Company. Such Investor and such
Investor’s advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received complete and satisfactory answers to any such
inquiries.
5.8 Risk
Factors.
Each
Investor understands that such Investor’s investment in the securities being
purchased by such Investor from the Company involves a high degree of risk.
Such
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the securities being purchased by the Investor from the Company.
Such Investor warrants that such Investor is able to bear the complete loss
of
such Investor’s investment in the securities being purchased by the Investor
from the Company.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
16
5.9 Full
Disclosure.
No
representation or warranty made by such Investor in this Agreement and no
certificate or document furnished or to be furnished to the Company pursuant
to
this Agreement contains or will contain any untrue statement of a material
fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as set forth or referred
to
in this Agreement, Investor does not have any agreement or understanding with
any person relating to acquiring, holding, voting or disposing of any equity
securities of the Company.
Article
6
COVENANTS
OF THE COMPANY
6.1 Registration
Rights.
The
Company shall cause the Registration Rights Agreement to remain in full force
and effect according to the provisions of the Registration Rights Agreement
and
the Company shall comply in all material respects with the terms thereof. The
Company does not have any agreement or obligation which would enable any Person
to include securities in any registration statement required to be filed on
behalf of the Investors pursuant to the Registration Rights Agreement and will
not take any action which will give any Person any right to include securities
in any such registration statement. Except as contemplated by the Registration
Rights Agreement, no Person has any demand or piggyback registration right
with
respect to any securities of the Company. The Company will not file any
registration statement covering any shares of Common Stock issuable to any
officers, directors, Affiliates of or consultants to the Company until the
earlier of (a) thirty (30) months from the Closing Date or (b) the Restriction
Termination Date at 90%; provided, however, that the Company may file a
registration statement on Form S-8 for shares issued or issuable pursuant to
employee stock option plans for employees who are not officers, directors or
Affiliates of the Company.
6.2 Reservation
of Common Stock.
As of
the date hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, the maximum
number of shares of Common Stock for the purpose of enabling the Company to
issue the shares of Common Stock underlying the Series A Preferred Stock and
Warrants.
6.3 Compliance
with Laws.
The
Company hereby agrees to comply and to cause each Subsidiary and each Related
Party to comply in all respects with the Company’s reporting, filing and other
obligations under the Laws.
6.4 Exchange
Act Registration.
The
Company will continue its obligation to report to the SEC under Section 12
of
the 1934 Act and will use its best efforts to comply in all respects with its
reporting and filing obligations under the 1934 Act, and will not take any
action or file any document (whether or not permitted by the 1934 Act or the
rules thereunder) to terminate or suspend any such registration or to terminate
or suspend its reporting and filing obligations under the 1934 until the
Investors have disposed of all of their Shares.
6.5 Corporate
Existence; No Conflicting Agreements.
The
Company will take all steps necessary to preserve and continue the corporate
existence of the Company. The Company shall not enter into any agreement, the
terms of which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any of the
other agreements attached as exhibits hereto.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
17
6.6 Listing,
Securities Exchange Act of 1934 and Rule 144
Requirements.
6.6.1 The
Company shall not take any action that would cause its Common Stock not to
be
traded on the OTC Bulletin Board, except that the Company may list the Common
Stock on the Nasdaq Stock Market or the American or New York Stock Exchange
if
it meets the applicable listing requirements. If, for any time after the
Closing, the Company is no longer in compliance with this Section 6.6.1, then
the Company shall pay to the Investors as liquidated damages and not as a
penalty, an amount equal to twelve percent (12%) per annum, based on the lesser
of (a) the Purchase Price or (b) that percentage of the Purchase Price which
the
Unsold Shares bears to the number of shares of Common Stock initially issuable
upon conversion of the Series A Preferred Stock sold pursuant to this Agreement.
Such
damages shall be payable quarterly on the tenth (10th)
day of
the following calendar quarter, and shall cease at the time the Company begins
complying with the provisions of this Section 6.6.1.
6.6.2 Commencing
not later than eighteen months from the Closing Date, the
Company shall made application for the listing of its Common Stock on the Nasdaq
Global Market or Nasdaq Capital Market or the New York or American Stock
Exchange, and, from and after the date of such listing, the Common stock shall
continue to be listed on one of such markets or exchanges until the Restriction
Termination Date at 90%. If, for any time after the Closing and prior to the
Restriction Termination Date at 90%, the Company is not in compliance with
this
Section 6.6.2, then the Company shall pay to the Investors as liquidated damages
and not as a penalty, an amount equal to six percent (6%) per annum, based
on
the lesser of (a) the Purchase Price or (b) that percentage of the Purchase
Price which the Unsold Shares bears to the number of shares of Common Stock
initially issuable upon conversion of the Series A Preferred Stock. Notwithstanding
the foregoing, no liquidated damages shall be payable pursuant to this Section
6.6.2 during any period for which liquidated damages are payable pursuant to
Section 6.6.1.
6.6.3 Liquidated
damages payable pursuant to Sections 6.6.1 and 6.6.2 shall be payable in shares
of Series A Preferred Stock or cash, as the Investors may request. In no event
shall the total liquidated damages payable pursuant to Sections 6.6.1 and 6.6.2,
whether in cash or Series A Preferred Stock, exceed in the aggregate twelve
percent (12%) of the Purchase Price of the Unsold Shares that are outstanding
as
of the date on which a computation is being made.
6.7 No
Convertible Debt or Preferred Stock.
On
or
prior to the Closing Date, the Company will cause to be cancelled or paid all
convertible debt in the Company. Until the earlier of (a) three years from
the
Closing Date or (b) the Restriction Termination Date, the Company will not
issue
any convertible debt or any shares of any class or series of Preferred Stock.
This Section 6.7 will not prohibit the Company from obtaining funding from
the
sale of Common Stock, subject to the provisions of Section 6.8, Section 6.9,
Section 6.13, Section 6.14 and Section 6.15.
6.8 Debt
Limitation.
The
Company agrees until the earlier of (a) three years after Closing Date or (b)
the Restriction Termination Date at 90%, it will not have outstanding any debt
in an amount greater than twice the sum of the EBITDA from continuing operations
for the past four quarters. Nothing in this Section 6.8 shall be construed
to
prohibit the Company from borrowing from the Chinese government or from Chinese
banks as long as such loans do not result in the Company being in default of
any
of its covenants set forth in this Article 6.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
18
6.9 Reset
Equity Deals.
On
or
prior to the Closing Date, the Company will cause to be cancelled any and all
reset features related to any shares outstanding that could result in additional
shares being issued. Until the earlier of (a) five years from the Closing Date
or (b) the Restriction Termination Date, the Company will not enter into any
transactions that have any reset features that could result in additional shares
being issued.
6.10 Independent
Directors.
6.10.1 The
Company shall have caused the appointment of the majority of the board of
directors, which shall not consist of more than nine members, to be independent
directors, as defined by the rules
of
the Nasdaq Stock Market, not later than the ninety (90) days after the Closing
Date.
6.10.2 If,
at
any time subsequent to ninety (90) days after the Closing Date until the earlier
of (a) three years from the Closing or (b) the Restriction Termination Date
at
90%, the board of directors shall not be composed of a majority of independent
directors:
6.10.2.1 for
a
reason other than for an Excused Reason, the Company shall have 60 days to
take
such steps as are necessary so that a majority of the Company’s directors are
independent directors, and
6.10.2.2 for
an
Excused Reason, the Company shall have 75 days from the date that the Company
becomes aware of the event (or the last event if there are more than one such
event) giving rise to the Excused Reason, to take such steps as are necessary
so
that a majority of the Company’s directors are independent
directors.
6.10.3 The
term
“Excused Reason” shall mean the death or resignation of an independent director
or the occurrence of an event whereby an independent director ceases to be
independent.
6.10.4 From
and
after the Closing Date, the Company shall have a chief financial officer who
speaks fluently and understands both English and Chinese, is familiar with
GAAP
and has experience in preparing and filing annual and quarterly reports with
the
SEC and professional experience such as being a manager or partner at an
auditing firm that requires knowledge of SEC filings or holding a senior
accounting position with a public company (a “qualified CFO”). In the event that
at any time subsequent to the Closing Date the Company fails to have a qualified
CFO, the Company shall, within 60 days from the date that the Company ceases
to
have a qualified CFO, hire a qualified CFO. If the Company shall not be able
to
hire a qualified CFO promptly upon the resignation or termination of employment
of the former chief financial officer, the Company may engage an accountant
or
accounting firm to perform the duties of the chief financial officer until
a
qualified CFO can be hired. In no event shall the Company either (i) fail to
file an annual, quarterly or other report in a timely manner because of the
absence of a qualified CFO, or (ii) not have a person who can make the
statements and sign the certifications required to be filed in an annual or
quarterly report under the 1933 Act. Notwithstanding the foregoing, the Company
shall, within thirty (30) days after the Closing, engage an accounting
consultant, which may be an accounting firm, that has experience in preparing
financial statements for public companies and in advising public companies
on
the implementation of internal controls as required by the 1934 Act, and shall
continue to engage such firm as a consultant until not earlier than the date
on
which the Company shall have both (i) filed two consecutive annual or quarterly
reports with the SEC on time and without requesting an extension, and (ii)
filed
a registration statement pursuant to the Registration Rights Agreement and
shall
have responded to all accounting comments raised by the staff of the SEC to
the
satisfaction of the accounting examiner at the SEC.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
19
6.10.5 If,
at
the time set forth in Section 6.10.1, or during the period referred to in
Section 6.10.2 of this Agreement, the Company shall have failed to have a board
of directors composed of a majority of independent directors after the date
by
which such situation was to have been cured pursuant to Section 6.10.2.1 or
Section 6.10.2.2 of this Agreement, whichever shall apply, or if the Company
shall have failed to file an annual or quarterly report in a timely manner,
the
Company shall pay to the Investors, as liquidated damages and not as a penalty,
an amount equal to twelve percent (12%) per annum of the Purchase Price of
the
then outstanding shares of Series A Preferred Stock, payable monthly on the
tenth (10th)
day of
the following month, in cash or in Series A Preferred Stock at the option of
the
Investors, based on the number of days that such condition exists beyond the
applicable grace period. The parties agree that the only damages payable for
a
violation of such provisions shall be such liquidated damages. The parties
hereto agree that the liquidated damages provided for in this Section 6.10.5
constitute a reasonable estimate of the damages that may be incurred by the
Investors by reason of the failure of the Company to have a majority of
directors as independent directors or to make the required SEC filings. If
the
Company fails to comply with Section 6.10.1, the period for measuring liquidated
damages pursuant to this Section 6.10.5 shall commence at the end of the 90
day
period referred to therein and continue until the Company shall have a majority
of independent directors, and the grace periods allowed by Section 6.10.2 shall
not apply.
6.10.6 In
no
event shall the total payments made pursuant to this Section 6.10 and Section
6.11, whether in cash or Series A Preferred Stock exceed in the aggregate twelve
percent (12%) of the Purchase Price of the Unsold Shares as of the date on
which
the computation is being made.
6.11 Independent
Directors; Committees. No
later
than ninety (90) days after the Closing Date, the Company will have an audit
committee comprised solely of not less than three independent directors and
a
compensation committee comprised of not less than three directors, a majority
of
whom are independent directors. Further, if the Company shall form an executive
or nominating committee or any other committee, a majority of the members of
such committee shall be independent directors. If at any time subsequent to
the
Closing Date during the period when the Company is required to have a majority
of independent directors pursuant to Section 6.10 of this Agreement, independent
directors do not comprise all of the members of the audit committee and a
majority of the members of the compensation committee or any other committee
within the grace periods provided in Section 6.10, the Company shall pay to
the
Investors, as liquidated damages and not as a penalty, an amount equal to twelve
percent (12%) per annum of the Purchase Price of the then outstanding Series
A
Preferred Stock payable in the manner and at the time provided in Section 6.10,
such payment shall be based on the number of days that such condition exists.
The parties agree that the only damages payable for a violation of the terms
of
this Agreement with respect to which liquidated damages are expressly provided
shall be such liquidated damages. Notwithstanding the foregoing, no liquidated
damages shall be payable pursuant to this Section 6.11 during any period for
which liquidated damages are payable pursuant to Section 6.10.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
20
6.12 Use
of Proceeds.
The
Company will use the net proceeds from the sale of the Securities, after payment
of legal fees and other closing costs, including a payment of not more than
$625,000 in connection with the reverse acquisition, and of the balance of
the
net proceeds, not less than 75% shall be used to purchase new equipment in
accordance with a schedule previously provided to the Investors. The Company
shall also allocate $200,000 which will be retained in escrow, of which $100,000
shall be allocated to pay the Company’s anticipated obligations to its investor
relations firm and $100,000 shall be retained for the payment of professional
fees payable subsequent to the Closing. In addition, not less than 50% of the
proceeds from the exercise of warrants shall be used by Moral Star to purchase
scheduled assets and equipment for use in its business, with the balance being
used for working capital and corporate purposes. All equipment required for
the
business shall be purchased by Moral Star with Xxxx having the right to use
the
equipment without charge in connection with Moral Star’s business. Neither the
Company nor any Subsidiary shall use any portion of the proceeds from the sale
of the Series A Preferred Stock and the exercise of the Warrants to make any
payment to Xxxx except for the purchase of capital in a transaction in which
all
of the proceeds of such purchase are used by Xxxx for the manufacture of
products to be sold by Moral Star.
6.13 Right
of First Refusal.
6.13.1 Until
the
earlier of (i) three years from the date of this Agreement or (ii) such time
as
the Investors, as a group, cease to own at least five percent (5%) of the total
number of shares of Common Stock that were issued or are issuable upon
conversion of Series A Preferred Stock that were initially issued to the
Investors, in the event that the Company seeks to raise additional funds through
a
private
placement of its securities (a “Proposed
Financing”),
other
than Exempt Issuances, each Investor shall have the right to participate in
any
subsequent funding by the Company of the offering price on a pro rata basis,
based on the percentage that (a) the number of such Investor’s Percentage
Shares, without regard to the 4.9% Limitation but excluding shares of Common
Stock issuable upon exercise of Warrants, bears to (b) the total number of
shares of Common Stock outstanding plus the number of Shares issuable upon
conversion of the Series A Preferred Stock and any other series of convertible
preferred stock or debt securities, without regard to the 4.9% Limitations
any
other limitations on exercise such other convertible preferred stock or debt
securities. This Section 6.13 shall apply to each such offering based on the
total purchase price of the securities being offered by the Company. This right
is personal to the Investors and is not transferable, whether in connection
with
the sale of stock or otherwise.
6.13.2 The
terms
on which the Investors shall purchase securities pursuant to Proposed Financing
shall be the same as such securities are purchased by other investors. The
Company shall give the Investors the opportunity to participate in the offering
by giving the Investors not less than ten (10) days notice setting forth the
terms of the Proposed Financing. In the event that the terms of the Proposed
Financing are changed in a manner which is more favorable to the potential
investor, the Company shall provide the Investors, at the same time as the
notice is provided to the other potential investors, with a new ten (10) day
notice setting forth the revised terms that are provided to the other potential
investors.
6.13.3 In
the
event that the Investors does not exercise its right to participate in the
Proposed Financing within the time limits set forth in Section 6.13.2 of this
Agreement, the Company may sell the securities in the Proposed Financing at
a
price and on terms which are no more favorable to the investors than the terms
provided to the Investors. If the Company subsequently changes the price or
terms so that the price is more favorable to the investors or so the terms
are
more favorable to the investors, the Company shall provide the Investors with
the opportunity to purchase the securities on the revised terms in the manner
set forth in Section 6.13.2
of this
Agreement.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
21
6.14 Price
Adjustment.
From
the
Closing Date until such time as the Restriction Termination Date, except
for Exempt Issuances, as to which this Section
6.14
does not
apply, if the Company closes on the sale or issuance of Common Stock at a price,
or warrants, options, convertible
debt or
equity securities with a exercise price per share or exercise price per share
which is less than the Conversion Price, as defined in the Certificate of
Designation, then in effect (such lower sales price, conversion or exercise
price, as the case may be, being referred to as the “Lower Price”), the
Conversion Price in effect from and after the date of such transaction shall
be
reduced to the Lower Price. For purpose of determining the exercise price of
warrants issued by the Company, the price, if any, paid per share for the
warrants shall be added to the exercise price of the warrants. A similar
provision shall be included in the Warrants.
6.15 Deliveries
from Escrow Based on EBIT Per Share.
6.15.1 At
the
Closing, the Company shall deliver to the Escrow Agent 3,000,000 shares of
Series A Preferred Stock to be held pursuant to the Closing Escrow Agreement.
6.15.2 In
the
event the Company’s consolidated EBIT per share, on a fully-diluted basis, for
the year ended December 31, 2007 or 2008 is less than the amount per share
hereinafter provided (the “Target
Number”),
the
percentage shortfall shall be determined by dividing the amount of the shortfall
by the applicable Target Number. The Target Number for 2007 shall be RMB¥1.665
per share. The Target Number for 2008 shall be (a) RMB¥2.3152 per share if
neither clause (b) or clause (c) of this Section 6.15.2 shall be applicable;
(b)
RMB¥2.6152 per share if all of the $1.80 Warrants are exercised by June 30, 2008
and 50% of the $3.00 warrants are exercised by September 30, 2008, and (c)
RMB¥3.0653 per share if all of the $1.80 Warrants are exercised by June 30, 2008
and all of the $3.00 Warrants are exercised by September 30, 2008.
6.15.3 If
the
percentage shortfall for 2007 is equal to or greater than fifty percent (50%),
then the Escrow Agent shall deliver the 3,000,000 shares of Series A Preferred
Stock to the Investors in the ratio of their initial purchase of
Securities.
6.15.4 If
the
percentage shortfall for 2007 is less than fifty percent (50%), then the
Adjustment Percentage shall be determined as provided in Section 6.15.5. The
Escrow Agent shall deliver to the Investors in the ratio of their initial
purchase of Securities such number of shares of Series A Preferred Stock as
is
determined by multiplying the Adjustment Percentage by 3,000,000 shares and
retain the balance.
6.15.5 The
Adjustment Percentage shall mean the percentage that is determined by the
following formula: Adjustment percentage equals (1/(1-P)) - 1, where P equals
the percentage shortfall, expressed as a decimal. By way of example, the
following table shows the Adjustment Percentage, based on several assumptions
as
to the shortfall from the Target Number.
|
Percentage
Shortfall
|
Adjustment
Percentage
|
|||
|
10%
|
11.11
|
%
|
||
|
25%
|
33.33
|
%
|
||
|
40%
|
66.67
|
%
|
||
|
50%
|
100.00
|
%
|
||
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
22
6.15.6 If
the
percentage shortfall for 2008 is equal to or greater than fifty percent (50%),
then the Escrow Agent shall deliver all of the shares of Series A Preferred
Stock then held by the Escrow Agent to the Investors in the ratio of their
initial purchase of Securities.
6.15.7 If
the
percentage shortfall for 2008 is less than fifty percent (50%), then the
Adjustment Percentage for 2008 shall be determined. The maximum number of shares
to be delivered shall be determined by multiplying the Adjustment Percentage
by
3,000,000 shares. The number of shares to be delivered to the Investors shall
be
the lesser of the number of shares of Series A Preferred Stock then held by
the
Escrow Agent or the number of shares determined by the preceding sentence.
The
Escrow Agent shall deliver to the Investors the number of shares of Series
A
Preferred Stock as is determined pursuant to this Section 6.15.7 in the ratio
of
their initial purchase of Securities.
6.15.8 For
purpose of determining EBIT per share on a fully-diluted basis, all shares
of
Common Stock issuable upon conversion of convertible securities and upon
exercise of warrants and options (whether or not vested) shall be deemed to
be
outstanding, regardless of whether (i) such shares are treated as outstanding
for determining diluted earnings per share under GAAP, (ii) such securities
are
“in the money,” or (iii) such shares may be issued as a result of the 4.9%
Limitation; provided, however, that none of the shares of Series A Preferred
Stock held in escrow pursuant to this Section 6.15 nor the shares of Common
Stock issuable upon conversion of such Series A Preferred Stock shall be deemed
outstanding for purpose of this Section 6.15. The number of fully-diluted shares
of Common Stock on the date of this Agreement is 19,998,167. The EBIT per share
for either 2007 or 2008 shall be based on the number of fully-diluted shares
on
December 31, 2007 and 2008, respectively.
6.15.9 The
distribution of shares of Series A Preferred Stock pursuant to this Section
6.15
shall be made within five (5) business days after the Company files its Form
10-KSB with the SEC for the applicable year. In the event that the Company
does
not file its Form 10-KSB for the year ended December 31, 2007 or 2008 with
the
SEC within thirty (30) days after the date that filing was required, after
giving effect to any extension pursuant to Rule 12b-25 of the Exchange Act,
all
of the shares of Series A Preferred Stock then held pursuant to the Closing
Escrow Agreement shall be delivered to the Investors.
6.15.10 The
parties understand that, pursuant to the Closing Escrow Agreement, the Escrow
Agent will not make any deliveries of shares without the signed written
instructions from the Company and the Investors.
6.15.11 All
references to shares of Common Stock and per share information in this Section
6.15 shall be adjusted to reflect any stock dividends, distributions, splits,
reverse splits, combination of shares or other recapitalizations.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
23
6.16 Insider
Selling.
No
Restricted
Stockholders may sell any shares of Common Stock in the public market prior
to
the earlier of 27 months from the Closing Date or the Restriction Termination
Date; provided, however, that if any Restricted Stockholder who is director
and
not an executive officer of the Company shall cease to be a director, such
Person may sell not more than a total of 50,000 shares of Common Stock in the
public market during the period set forth in this sentence; and provided
further, that, commencing one year from the Closing Date and for the balance
of
the 27 month period, Xx Xxx, Zhao Xx Xxxx and Xxxxxx International Capital
Investment Limited may sell, on a non-cumulative basis, 10% of the shares of
Common Stock per month then owned by such Person. Restricted Stockholders shall
mean any Person who is an officer, director or Affiliate of the Company or
who
becomes an officer or director of the Company subsequent to the Closing Date.
Without
limiting the generality of the foregoing, the Restricted Stockholders shall
not
to directly or indirectly offer to sell, grant an option for the purchase or
sale of, transfer, pledge assign, hypothecate, distribute or otherwise encumber
or dispose of any securities in the Company in a transaction which is not in
the
public market unless the transferee agrees to be bound by the provisions of
this
Section 6.16. The
Company shall require any newly elected officer or director to agree to the
restriction set forth in this Section 6.16. Xxxxxx Xxxxxx Xxxxxx and the
Investors shall not be considered Restricted Stockholders. The restrictions
in
this Section 6.16 shall not apply to shares issued pursuant to a stock option
or
long-term incentive plans which may be approved by the Compensation Committee
provided that such committee is comprised of a majority of independent
directors.
6.17 Employment
and Consulting Contracts.
Until
the
earlier of (a) the Restriction Termination Date at 90% or (b) three
years after the Closing, the Company shall have a unanimous approval from the
Compensation Committee that any awards other than salary are usual, appropriate
and reasonable for any officer, director or consultants whose compensation
is
more than $100,000 per annum. This Section 6.17 does not apply to attorneys,
accountants and other persons who provide professional services to the
Company.
6.18 Subsequent
Equity Sales.
From
the
date hereof until the Restriction Termination Date, the Company shall be not
effect or enter into an agreement to effect any Subsequent Financing involving
a
“Variable
Rate Transaction”
or
an
“MFN
Transaction”
(each
as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock.
The
term “MFN
Transaction”
shall
mean a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions which grants
to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor
in
such offering. Any Investor shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in
addition to any right to collect damages. Notwithstanding the foregoing, this
Section 6.18 shall not apply in respect of an Exempt Issuance, except that
no
Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
24
6.19 Restated
Certificate. The
Company’s board of directors has approved the Restated Certificate. The Company
shall promptly, but not later than thirty (30) days after the Closing Date,
file
the Information Statement with the SEC, and shall mail the Information Statement
to stockholders within five (5) business days after the SEC has completed its
review of the Information Statement, of, if the SEC does not review the
Information Statement, within fifteen (15) business days after the Information
Statement is filed with the SEC.
6.20 Stock
Splits.
All
forward and reverse stock splits shall effect all equity and derivative holders
proportionately.
6.21 Retention
of Investor Relations Firm.
The
Company shall instruct the Escrow Agent to retain $100,000 of the proceeds
of
the sale of the Securities to be utilized for payment to investor relations
firms. The Company shall retain an investor relations firm within 30 days after
the Closing Date.
6.22 Payment
of Due Diligence Expenses.
At
Closing the Escrow Agent shall disperse to Xxxxxx the sum of $85,000.00 for
its
due diligence expenses.
6.23 No
Outside Interests.
Until
the Restriction Termination Date, the Company’s chairman and chief executive
officer will devote their full time and attention to the business of the Company
and shall not have any business interests or activities other than
as chairman or chief executive officer, as the case may be, except that
he or she may devote time, which shall not be material and which shall not
interfere with his or her duties as the Company’s chairman or chief
executive officer, as the case may be, to personal passive investments and
charitable and community activities. Furthermore, none of the PRC Company
Stockholders shall have any interests or engage in any business that is directly
or indirectly competitive with that of the Company or any Related
Party.
6.24 No
Waiver of Non-Competition Obligations.
Until
the Restriction Termination Date, the Company shall not waive the obligations
of
its executive officers pursuant to the non-competition agreements described
in
Section 4.17 of this Agreement.
6.25 No
Loans or Advances.
Until
the first to occur of three years from the Closing Date or the Restriction
Termination Date at 90%, the Company and its Subsidiaries will not make, and
will use their commercially reasonable best efforts to ensure that no PRC
Company shall make, any loans, advances or other extensions of credit to the
executive officers or directors of the Company, any Subsidiary or any Related
Company or any family member or Affiliate of any of such executive officers
or
directors.
6.26 Related
Party Agreement.
Xx
Xxxxxx shall cause Yiyang Kunpeng Worn Metal Recycle Co., Ltd. (“Kunpeng”) to
sell raw materials, including recycled copper, exclusively to the PRC Company
and/or Moral Star and only at a price equal to Kunpeng’s cost, but not more than
local spot market price.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
25
Article
7
COVENANTS
OF THE INVESTOR
Each
Investor, severally and not jointly, covenants and agrees with the Company
as
follows:
7.1 Compliance
with Law.
Each
Investor’s trading activities with respect to shares of the Company’s Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of any public market
on
which the Company’s Common Stock is listed.
7.2 Transfer
Restrictions. The
Investor’s acknowledge that (a) the Preferred Stock, Warrants and Shares
underlying the Preferred Stock and Warrants have not been registered under
the
provisions of the 1933 Act, and may not be transferred unless (i) subsequently
registered thereunder or (ii) the Investor shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance
to
the Company, to the effect that the Preferred Stock, Warrants and Shares to
be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration; and (b) any sale of the Shares underlying the Preferred
Stock
and Warrants made in reliance on Rule 144 promulgated under the 1933 Act may
be
made only in accordance with the terms of said Rule and further, if said Rule
is
not applicable, any resale of such securities under circumstances in which
the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the
SEC
thereunder. Each Investor agrees that until the Restriction Termination Date
it
will not sell the Common Stock short or effect any sales based upon market-based
metrics.
7.3 Restrictive
Legend. Each
Investor acknowledges and agrees that the Securities and the Shares shall bear
a
restrictive legend and a stop-transfer order may be placed against transfer
of
any such Securities except that the requirement for a restrictive legend shall
not apply to Shares sold pursuant to a current and effective registration
statement or a sale pursuant Rule 144 or any successor rule.
Article
8
CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS
The
obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:
8.1 No
Termination.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
8.2 Representations
True and Correct.
The
representations and warranties of the Investors contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date
with the same force and effect as if made on as of the Closing
Date.
8.3 Compliance
with Covenants.
The
Investors shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
8.4 No
Adverse Proceedings.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
26
Article
9
CONDITIONS
PRECEDENT TO INVESTOR’S OBLIGATIONS
The
obligation of the Investors to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date unless
specified otherwise, of the following conditions:
9.1 No
Termination.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
9.2 Representations
True and Correct.
The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on as of the Closing Date.
9.3 Compliance
with Covenants .
The
Company shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
9.4 No
Adverse Proceedings.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
Article
10
TERMINATION,
AMENDMENT AND WAIVER
10.1 Termination.
This
Agreement may be terminated at any time prior to the Closing Date
10.1.1 by
mutual
written consent of the Investor and the Company;
10.1.2 by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of any Investor set forth in this Agreement, or any
Investor upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company or the Investor, respectively, shall
have become untrue, in either case such that any of the conditions set forth
in
Article 8 or Article 9 hereof would not be satisfied (a “Terminating
Breach”),
and
such breach shall, if capable of cure, not have been cured within five (5)
business days after receipt by the party in breach of a notice from the
non-breaching party setting forth in detail the nature of such
breach.
10.2 Effect
of Termination.
Except
as otherwise provided herein, in the event of the termination of this Agreement
pursuant to Section 10.1 hereof, there shall be no liability on the part of
the
Company or any Investor or any of their respective officers, directors, agents
or other representatives and all rights and obligations of any party hereto
shall cease.
10.3 Amendment
and Waiver.
10.3.1 This
Agreement may be amended by the parties hereto any time prior to the Closing
Date by an instrument in writing signed by the parties hereto, subject to the
provisions of Section 10.3.3; provided, however that the 4.9% Limitation may
not
be amended or waived.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
27
10.3.2 At
any
time prior to the Closing Date, the Company or the Investors, as appropriate,
may: (a) extend the time for the performance of any of the obligations or other
acts of other party or; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto which
have been made to it or them; or (c) waive compliance with any of the agreements
or conditions contained herein for its or their benefit other than the 4.9%
Limitation which may not be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties
to
be bound thereby, subject to Section 10.3.3 of this Agreement.
10.3.3 Any
amendment or waiver signed by the holders of 75% of the then outstanding shares
of Series A Preferred Stock or, after the conversion of all shares of Series
A
Preferred Stock, the holders of Warrants to purchase a majority of the shares
of
Common Stock then issuable upon exercise of the Warrants, shall be deemed to
be
approval of the Investors; provided, that any amendment or waiver which changes
the conversion rate or conversion price of the Series A Preferred Stock or
the
exercise price of the Warrants shall require the approval of all of the holders
of the Warrants.
Article
11
GENERAL
PROVISIONS
11.1 Transaction
Costs
Except
as otherwise provided herein, each of the parties shall pay all of his or its
costs and expenses (including attorney fees and other legal costs and expenses
and accountants’ fees and other accounting costs and expenses) incurred by that
party in connection with this Agreement; provided, the Company shall pay
Investor such due diligence expenses as described in Section 6.22.
11.2 Indemnification.
The
Investor agrees to indemnify, defend and hold the Company (following the Closing
Date) and its officers and directors harmless against and in respect of any
and
all claims, demands, losses, costs, expenses, obligations, liabilities or
damages, including interest, penalties and reasonable attorney’s fees, that it
shall incur or suffer, which arise out of or result from any breach of this
Agreement by the Investors or failure by the Investors to perform with respect
to the representations, warranties or covenants contained in this Agreement
or
in any exhibit or other instrument furnished or to be furnished under this
Agreement. The Company agrees to indemnify, defend and hold the Investors
(following the Closing Date) harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities or damages,
including interest, penalties and reasonable attorney’s fees, that it shall
incur or suffer, which arise out of, result from or relate to any breach of
this
Agreement or failure by the Company to perform with respect to the
representations, warranties or covenants contained in this Agreement or in
any
exhibit or other instrument furnished or to be furnished under this Agreement.
In no event shall the Company or the Investors be entitled to recover
consequential or punitive damages resulting from a breach or violation of this
Agreement nor shall any party have any liability hereunder in the event of
gross
negligence or willful misconduct of the indemnified party. In the event of
the
failure of the Company to issue the Series A Preferred Stock and Warrants in
violation of the provisions of this Agreement, the Investors, as their sole
remedy, shall be entitled to pursue a remedy of specific performance upon tender
into the Court an amount equal to the Purchase Price hereunder. The
indemnification by the Investors shall be limited to $50,000.00. This Section
11.2 shall not relate to indemnification under the Registration Rights
Agreement.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
28
11.3 Headings.
The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of
this Agreement.
11.4 Entire
Agreement.
This
Agreement (together with the Schedule, Exhibits, Warrants and documents referred
to herein) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties,
or any of them, with respect to the subject matter hereof.
11.5 Notices.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the third business
day after it is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
|
If
to the Company:
|
||
|
Capital
Solutions I, Inc.
|
||
|
c/o
Jiangxi Moral Star Copper Technology Co., Ltd.
|
||
|
Ge
Xxx Xx, Xxx Xxxx, Xxxxxx
|
||
|
Xxxxxxx,
XXX 000000
|
||
|
Attention:
Xx.Xx Yiting, Chief Executive Officer
|
||
|
E-mail:
xxx0000@000.xxx
|
||
|
Fax:
00 000 0000000
|
||
|
With
a copy to:
|
||
|
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
|
||
|
00
Xxxxxxxx
|
||
|
Xxx
Xxxx, Xxx Xxxx 00000
|
||
|
Attention:
Xxxxx X. Xxxxxxxx PC
|
||
|
E-mail:
xxxxxxxxx@xxxx.xxx
|
||
|
Fax:
(000) 000-0000
|
||
|
If
to Xxxxxx:
|
||
|
Xxxxxx
Partners L.P.
|
||
|
c/x
Xxxxxx Capital Advisors, LLC
|
||
|
000
Xxxxx Xxxxxx, 00xx
Xxxxx
|
||
|
Xxx
Xxxx, Xxx Xxxx 00000
|
||
|
Attn:
Xxxxxx Xxxxxx Xxxxxx
|
||
|
E-mail:
xxx@xxxxxxxxxxxxxx.xxx
and xxx@xxxxxxxxxxxxxx.xxx
|
||
|
Fax:
(000)
000-0000
|
||
|
If
to the other Investors, at their addresses set forth on Appendix
A.
|
||
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
29
11.6 Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon
such
determination that any such term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
11.7 Binding
Effect.
All the
terms and provisions of this Agreement whether so expressed or not, shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective administrators, executors, legal representatives, heirs,
successors and assignees.
11.8 Preparation
of Agreement.
This
Agreement shall not be construed more strongly against any party regardless
of
who is responsible for its preparation. The parties acknowledge each contributed
and is equally responsible for its preparation. In
resolving any dispute regarding, or construing any provision in, this Agreement,
there shall be no presumption made or inference drawn because of the drafting
history of the Agreement, or because of the inclusion of a provision not
contained in a prior draft or the deletion or modification of a provision
contained in a prior draft.
11.9 Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law.
11.10 Jurisdiction;
Waiver of Jury Trial.
If
any action is brought among the parties with respect to this Agreement or
otherwise, by way of a claim or counterclaim, the parties agree that in any
such
action, and on all issues, the parties irrevocably waive their right to a trial
by jury.
Exclusive jurisdiction and venue for any such action shall be the federal and
state courts situated in the City, County and State of New York. In the event
suit or action is brought by any party under this Agreement to enforce any
of
its terms, or in any appeal therefrom, it is agreed that the prevailing party
shall be entitled to reasonable attorneys fees to be fixed by the arbitrator,
trial court, and/or appellate court if such party prevails on substantially
all
issues in dispute.
11.11
Preparation
and Filing of Securities and Exchange Commission
filings.
The
Investors shall reasonably assist and cooperate with the Company in the
preparation of all filings with the SEC after the Closing Date due after the
Closing Date.
11.12 Further
Assurances, Cooperation.
Each
party shall, upon reasonable request by the other party, execute and deliver
any
additional documents necessary or desirable to complete the transactions herein
pursuant to and in the manner contemplated by this Agreement. The parties hereto
agree to cooperate and use their respective best efforts to consummate the
transactions contemplated by this Agreement.
11.13 Survival.
The
representations, warranties, covenants and agreements made herein shall survive
the Closing of the transaction contemplated hereby.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
30
11.14 Third
Parties.
Except
as disclosed in this Agreement, nothing in this Agreement, whether express
or
implied, is intended to confer any rights or remedies under or by reason of
this
Agreement on any persons other than the parties hereto and their respective
administrators, executors, legal representatives, heirs, successors and
assignees. Nothing in this Agreement is intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement,
nor
shall any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
11.15 Failure
or Indulgence Not Waiver; Remedies Cumulative.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall nay single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and
remedies existing under this Agreement are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
11.16 Counterparts.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, but all of which taken together shall constitute
one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
PAGE
31
IN
WITNESS WHEREOF,
the
Investors and the Company have as of the date first written above executed
this
Agreement.
|
THE
COMPANY:
|
|||
|
CAPITAL
SOLUTIONS I, INC.
|
|||
|
By:
/s/
Xx Xxxxxx
|
|||
|
Xx
Xxxxxx, CEO
|
|||
|
INVESTORS:
|
|||
|
XXXXXX
PARTNERS LP
|
|||
|
By:
Xxxxxx Capital Advisors, LLC, its General Partner
|
|||
|
/s/
Xxxxxx Xxxxxx Xxxxxx
|
|||
|
Xxxxxx
Xxxxxx Xxxxxx, President
|
|||
|
EOS
HOLDINGS
|
|||
|
By:
/s/ Xxx X. Xxxxxx
|
|||
|
Xxx
X.Xxxxxx, President
|
|||
|
SILVER
ROCK I, LTD.
|
|||
|
By:
/s/
Xxxx Xxxxx
|
|||
|
Xxxx
Xxxxx
|
Jiangxi
Xxxxxx Xxxx Copper Co., Ltd.
hereby
agrees to the provisions of Section 6.25 of this Agreement.
|
JIANGXI
XXXXXX XXXX COPPER CO., LTD.
|
||
| |
|
|
| By: | /s/ Xx Xxxxxx | |
|
Xx
Xxxxxx, CEO
|
||
The
undersigned hereby agrees to be bound by the provisions of Sections 6.16 and
6.23 of this Agreement.
|
/s/
Wu Yaxu
|
/s/
Wu Xxxxxx
|
||
|
Xx
Yaxu
|
Xx
Xxxxxx
|
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
The
undersigned hereby agrees to be bound by the provisions of Sections 6.26 of
this
Agreement.
|
YIYANG
KUNPENG WORN METAL RECYCLE CO., LTD.
|
|||
|
/s/
Xx Xxxxxx
|
By:
/s/ Xx Xxxxxx
|
||
|
Xx
Xxxxxx
|
Xx
Xxxxxx, CEO
|
SECURITIES
PURCHASE AGREEMENT BETWEEN
CAPITAL
SOLUTIONS I, INC. AND XXXXXX PARTNERS LP
Schedule
A
|
Name
and Address
|
Amount
of Investment
|
Shares
of Series A Preferred Stock
|
Number
of Shares
of
Preferred Stock
into
Which Note
is
Convertible
|
Number
of Shares
Underlying
$1.80 Warrants/ $3.00 Warrants
|
|||||||||
|
Xxxxxx
Partners LP
000
Xxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attn:
Xxxxxx Xxxxxx Xxxxxx
xxx@xxxxxxxxxxxxxx.xxx
|
$
|
3,125,000
|
2,840,909
|
2,840,909
|
1,893,939/
3,787,879
|
||||||||
|
Eos
Holdings
0000
Xxxxxxxx Xx.
Xxx
Xxxxx, XX 00000
Attn:
Xxx X. Xxxxxx, President
xxxxxxx@xxxxxxxx.xxx
|
$
|
100,000
|
90,909
|
90,909
|
60,606/
121,212
|
||||||||
|
Silver
Rock I, Ltd
0xx
Xxxxx, Xxxxx
Xxxxxxxx
Xxxx
Reef
P.O.
Box 765
Road
Town, Tortola ,
British
Virgin Islands
Attn:
Xxxx Xxxxx
xxxxxxx@xxxxxxxxxxxxxxxxxxx.xxx
|
$
|
175,000
|
159,091
|
159,091
|
106,061/
212,121
|
||||||||
|
$
|
3,400,000
|
3,090,909
|
3,090,909
|
2,060,060/
4,121,212
|
|||||||||
Schedule
4.3.1
XXXX
-
Capital Solutions Capitalization Table
|
3.2-for-1
|
%
w/
|
%
w/
|
||||||||||||||
|
stk
distrib
|
Percent
|
Preferred
|
Pref.
& Wts
|
|||||||||||||
|
Outstanding
shares
|
66,732
|
|||||||||||||||
|
Purchase
from controlling s/h
|
50,001
|
|||||||||||||||
|
Public
float
|
16,731
|
53,539
|
0.50
|
%
|
0.39
|
%
|
0.27
|
%
|
||||||||
|
Belmont
|
33,517
|
107,254
|
1.00
|
%
|
0.78
|
%
|
0.54
|
%
|
||||||||
|
Trustee
and Wu transferees
|
3,137,389
|
10,039,645
|
93.61
|
%
|
72.66
|
%
|
50.20
|
%
|
||||||||
|
Trustee
Transferees
|
164,063
|
525,002
|
4.89
|
%
|
3.80
|
%
|
2.63
|
%
|
||||||||
|
Total
|
3,351,700
|
10,725,440
|
100.00
|
%
|
||||||||||||
|
Xxxxxx
Preferred
|
3,090,909
|
22.37
|
%
|
15.46
|
%
|
|||||||||||
|
Total
w/ Xxxxxx Preferred
|
13,816,349
|
100.00
|
%
|
|||||||||||||
|
Xxxxxx
Warrants $1.80
|
2,060,606
|
10.30
|
%
|
|||||||||||||
|
Xxxxxx
Warrants $3.00
|
4,121,212
|
20.61
|
%
|
|||||||||||||
|
Total
w/ Xxxxxx Preferred and Wts
|
19,998,167
|
100.00
|
%
|
|||||||||||||
|
RMB
Exchange Rate
|
RMB7.4
to US$1.00
|
|||||||||
|
$500K
reduction in targets
|
3,700,000
|
|||||||||
|
Period
|
RMB
|
per
share
|
USD/sh
|
|||||||
|
2007
|
33,300,000
|
1.66515
|
$
|
0.22502
|
||||||
|
2008(a)
|
46,300,000
|
2.31521
|
$
|
0.31287
|
||||||
|
2008(b)
|
52,300,000
|
2.61524
|
$
|
0.35341
|
||||||
|
2008(c)
|
61,300,000
|
3.06528
|
$
|
0.41423
|
||||||
(a)
applies
is none of the conditions in (b) or (c) apply
(b)
applies if all of the $1.80 warrants are exercised by 6/30/08 and 50% of
the
$3.00 warrants are exercised by 9/30/08
(c)
applies if all of the $1.80 warrants are exercised by 6/30/08 and all of
the
$3.00 warrants are exercised by 9/30/08
|
|
Purchase
|
Series
A
|
$1.80
|
$3.00
|
||||||||||||
|
Investor
|
Percentage
|
Price
|
Preferred
|
Warrants
|
Warrants
|
|||||||||||
|
Xxxxxx
Partners
|
91.91
|
%
|
$
|
3,125,000
|
2,840,909
|
1,893,939
|
3,787,879
|
|||||||||
|
Silver
Rock I, Ltd.
|
5.15
|
%
|
$
|
175,000
|
159,091
|
106,061
|
212,121
|
|||||||||
|
Eos
Holdings
|
2.94
|
%
|
$
|
100,000
|
90,909
|
60,606
|
121,212
|
|||||||||
|
$
|
3,400,000
|
3,090,909
|
2,060,606
|
4,121,212
|
||||||||||||
|
Jibrin
Xxxx Xxxxxx AlJibrin, Trustee
|
7,017,620
|
|||||||||||||||
|
XX
Xxx-Hong
|
350,250
|
|||||||||||||||
|
XX
Xxx-Qin
|
265,780
|
|||||||||||||||
|
XX
Xxx
|
350,325
|
|||||||||||||||
|
XXXXX
Xxx-E
|
475,000
|
|||||||||||||||
|
XX
Xxx-Xxx
|
475,000
|
|||||||||||||||
|
ZUO
Su-Hua
|
322,350
|
|||||||||||||||
|
XXXXX
Xxxx-Xxxxx
|
333,320
|
|||||||||||||||
|
XX
Xxx-Xxxx
|
100,000
|
|||||||||||||||
|
ZHANG
Ning
|
100,000
|
|||||||||||||||
|
XXX
Xx-Xxxxx
|
100,000
|
|||||||||||||||
|
XXX
Xxxx-Xxxx
|
100,000
|
|||||||||||||||
|
YU
Zeshi
|
50,000
|
|||||||||||||||
|
10,039,645
|
||||||||||||||||
|
XX,
Xxx
|
140,000
|
|||||||||||||||
|
ZHAO,
Xx Xxxx
|
70,000
|
|||||||||||||||
|
Xxxxxx
International Capital Investment Limited
|
315,002
|
|||||||||||||||
|
525,002
|
||||||||||||||||
|
Total
|
10,564,647
|
|||||||||||||||
Schedule
4.8
Schedule
of Brokers
Xx
Xxxxx
shall receive a financing commission at the rate of 5%, of which $170,000 at
the
closing, based on $3,400,000 financing, an additional $185,455 when all of
the
$1.80 warrants are exercised and $618,182 when all of the $3.00 warrants are
exercised.
