SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
(the "Agreement"), dated
as of June __, 2009, by and among A-Power Energy Generation Systems, Ltd., a
company organized under the laws of British Virgin Islands, with headquarters
located at Xx. 00 Xxxxxxxx Xxxx, Xxxxx Xxxxxxxx, Xxxxxxxx Liaoning Province,
China 110021 (the "Company") and the investors
listed on the Schedule of Buyers attached hereto (individually, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the "SEC") under the 1933
Act.
B. The
Company has authorized a new series of senior convertible notes of the Company,
in substantially the form attached hereto as Exhibit A (the "Notes"), which notes shall be
convertible into, subject to the Shareholder Approval (as defined herein), the
Company's common shares, par value $0.0001 per share (the "Common Shares") (the Notes as
converted, collectively, the "Conversion Shares"), in
accordance with the terms of the Notes.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
Notes, set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate amount for all Buyers shall be [ ]) and
(ii) Warrants, in substantially the form attached hereto as Exhibit B,
representing the right, subject to Shareholder Approval, to acquire initially up
to that number of Common Shares set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (the "Warrants") (as exercised,
collectively, the "Warrant
Shares").
D. The
Notes bear interest which, subject to certain conditions, may be paid in Common
Shares (the "Interest
Shares").
E. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities
laws.
F. The
Notes will rank senior to all outstanding and future indebtedness of the Company
(other than certain Permitted Indebtedness (as defined in the Notes) of the
Company pursuant to the terms of the Notes) and the obligation of Xx. Xxxxxxxx
Xx, the Chairman of the Board of Directors of the Company and the Chief
Executive Officer of the Company ("Xx. Xx") to deliver the Lu
Conversion Shares, the Lu Warrant Shares and the Lu Additional Conversion Shares
(as such terms are defined below) upon exercise of each Buyer's rights pursuant
to the Put Agreement (as defined below) shall each be secured by a first
priority, perfected security interest in certain Common Shares pledged by Xx. Xx
to Xxxxxx Bay Fund LP, as collateral agent for the Buyers (in such capacity, and
not in its capacity as a Buyer or a holder of Notes or Warrants, the "Collateral Agent" which term
includes any successor collateral agent appointed pursuant to Section 4(y)
hereof) as evidenced by the pledge agreement attached hereto as Exhibit D (the "Pledge Agreement" and any
ancillary documents related thereto, collectively the "Security
Documents").
G. At
Closing (as defined in Section 1(a)), the Company, the Collateral Agent and Xx.
Xx, in his individual capacity, shall execute and deliver a Put Agreement to
each Buyer, substantially in the form attached hereto as Exhibit E (each a
"Put Agreement" and,
collectively, the "Put
Agreements"), pursuant to which if the Shareholder Approval (as defined
in Section 4(r)) is not obtained on or prior to the six (6) month anniversary of
the Closing Date (as defined in Section 1(b)), each Buyer shall have the option,
but not the obligation, to put some or all of its Notes and/or Warrants to Xx.
Xx for certain Common Shares owned by Xx. Xx (the Common Shares delivered by Xx.
Xx upon a put of Notes, the "Lu
Conversion Shares," the Common Shares delivered by Xx. Xx upon a put of
Warrants accompanied by delivery of the exercise price of the Warrants to Xx. Xx
(unless the put is exercised on a "cashless" basis in accordance with the terms
set forth in the Put Agreements), the "Lu Warrant Shares"), and the
Common Shares delivered by Xx. Xx in satisfaction of the Company's obligation to
pay the Additional Conversion Obligations (as defined in the Put Agreements) to
such Holder, the "Lu Additional
Conversion Shares") pursuant to the terms and conditions set forth in the
Put Agreements.
H. The
Notes, the Conversion Shares, the Warrants, the Warrant Shares and the Interest
Shares collectively are referred to herein as the "Company Securities" and the
Company Securities, the Lu Conversion Shares, the Lu Warrant Shares and the Lu
Additional Conversion Shares are referred to herein as the "Securities".
NOW, THEREFORE, the Company
and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES
AND WARRANTS.
(a) Purchase of Notes and
Warrants. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), (x) a principal amount
of Notes as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall
be $50,000,000) and (y) Warrants to acquire up to that number of Warrant Shares
as is set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers (the "Closing").
(b) Closing. The
date and time of the Closing (the "Closing Date") shall be 10:00
a.m., New York City time, on the date hereof (or such other date and time as is
mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below, at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000.
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(c) Prepaid
Interest. The Company shall prepay a portion of interest
payable under the Notes in an amount that is set forth opposite such Buyer's
name in column (6) of the Schedule of Buyers (for each Buyer, its "Prepaid Interest"), which
Prepaid Interest shall be nonrefundable.
(d) Purchase
Price. The aggregate purchase price for the Notes and the
Warrants to be purchased by each such Buyer at the Closing (the "Purchase Price") shall be the
amount set forth opposite each Buyer's name in column (5) of the Schedule of
Buyers. Each Buyer shall pay $1,000 for each $1,000 of principal
amount of Notes and related Warrants to be purchased by such Buyer at the
Closing. The Buyers and the Company agree that the Notes and the
Warrants constitute an "investment unit" for purposes of Section 1273(c)(2) of
the Internal Revenue Code of 1986, as amended (the "Code"). On or prior
to the Closing Date, the Buyers and the Company shall agree of their
determination of the allocation of the issue price of such investment unit
between the Notes and the Warrants in accordance with Section 1273(c)(2) of the
Code and Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor the
Company shall take any position inconsistent with such allocation in any tax
return or in any judicial or administrative proceeding in respect of
taxes.
(e) Form of
Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price less its Prepaid Interest (such net amount as set forth opposite
such Buyer's name in Column (7) of the Schedule of Buyers, its "Net Purchase Price") to the
Company for the Notes and the Warrants to be issued and sold to such Buyer at
the Closing (less, in the case of Xxxxxx Bay Fund LP ("Xxxxxx Bay"), the amounts
withheld pursuant to Section 4(g)), by wire transfer of immediately available
funds in accordance with the Company's written wire instructions and
(ii) the Company shall deliver to each Buyer the Notes (allocated in the
principal amounts as such Buyer shall request) which such Buyer is then
purchasing hereunder along with the Warrants (allocated in the amounts as such
Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.
2. BUYER'S REPRESENTATIONS AND
WARRANTIES. Each Buyer, severally and not jointly, represents
and warrants with respect to only itself that, as of the date hereof and as of
the Closing Date:
(a) No Public Sale or
Distribution. Such Buyer is (i) acquiring the Notes and the
Warrants, (ii) upon conversion of the Notes and exercise of the Warrants will
acquire the Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants and (iii) upon exercise of
such Buyer's put rights under the Put Agreement will acquire the Lu Conversion
Shares, the Lu Warrant Shares or the Lu Additional Conversion Shares, in each
case, for its own account (or in connection with, or pursuant to, one or more
participation agreements by such Buyer with, and for the benefit of, one or more
funds or managed accounts that are "accredited investors" (as defined in Rule
501(a) of Regulation D) that are managed by the investment manager of such
Buyer) and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act. Such Buyer
is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person (as defined in Section
3(s)) to distribute any of the Securities.
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(b) Accredited Investor
Status. Such Buyer is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D.
(c) Reliance on
Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such
Buyer and its advisors, if any, have been 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 that have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of and receive answers from the Company and to
obtain any additional information which the Company possesses or can acquire
without undue effort or expense, and all such questions have been answered to
the satisfaction of such Buyer. Neither such inquiries nor any other
due diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer's right to rely on
the Company's representations and warranties contained herein. Such
Buyer understands that its investment in the Securities involves a high degree
of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental
Review. Such Buyer 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 or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
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(f) Transfer or
Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably satisfactory to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A
promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, "Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may
be made only in accordance with the terms of Rule 144 and further, if Rule 144
is not applicable, any resale of the 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 defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC promulgated thereunder; and (iii) neither the Company nor any other Person
is under any obligation to register the Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing, the Securities
may be pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Securities and such pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as
defined in Section 3(b)), including, without limitation, this Section
2(f).
(g) Legends. Such
Buyer understands that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the resale of the Conversion
Shares and the Warrant Shares (or the Lu Conversion Shares and the Lu Warrant
Shares, as the case may be) have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the "blue sky" laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A, IF APPLICABLE, UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. [On the Note only: ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.]
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The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if, unless otherwise
required by state securities laws, (i) such Securities are registered for resale
under the 1933 Act, (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a form
reasonably satisfactory to the Company, to the effect that such sale, assignment
or transfer of the Securities may be made without registration under the
applicable requirements of the 1933 Act, or (iii) the Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A, if applicable; provided, that such
holder provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 or Rule 144A, if
applicable. The Company shall be responsible for the fees of its
transfer agent and all DTC fees associated with such issuance.
(h) Validity;
Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and
remedies.
(i) No
Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such Buyer
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 Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws)
applicable to such Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations which would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the ability of such Buyer to perform its obligations hereunder.
(j) Residency. Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
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(k) Certain Trading
Activities. Such Buyer has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Buyer
which had knowledge of the transactions contemplated hereby, (x) has or shares
discretion relating to such Buyer's investments and trading or information
concerning such Buyer's investments or (y) is subject to such Buyer's review or
input concerning such Person's investments or trading (the foregoing, "Buyer Trading Affiliates"),
engaged in any sale or purchase in the securities of the Company (including,
without limitation, any Short Sales involving the Company's securities) since
the time that such Buyer was first contacted by the Company regarding the
investment in the Company contemplated herein. "Short Sales" include, without
limitation, all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the Securities Exchange Act of 1934, as amended (the "1934 Act") ("Regulation SHO") and all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker dealers or foreign
regulated brokers (but shall not be deemed to include the location and/or
reservation of borrowable Common Shares). Notwithstanding the
foregoing, for the avoidance of doubt, nothing contained herein shall constitute
a representation or warranty, or preclude any actions, with respect to the
identification of the availability of, or securing of, available shares to
borrow in order to effect short sales or similar transactions in the future.
Such Buyer is not as of the date hereof, and will not be immediately
following the Closing, a "beneficial owner" (as defined pursuant to Rule 13d-3
of 0000 Xxx) of more than 10% of the Company's issued and outstanding Common
Shares (calculated based on the assumption that all Common Shares Equivalents
(as defined in Section 4(o)(i)(3)) owned by such Buyer, whether or not presently
exercisable or convertible, have been fully exercised or converted (as the case
may be) but taking into account any limitations on exercise or conversion
contained therein).
(l) General
Solicitation. Such Buyer is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
3. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date:
(a) Organization and
Qualification. Each of the Company and its "Subsidiaries" (which for
purposes of this Agreement means any entity in which the Company, directly or
indirectly, owns a majority of the capital stock or holds a majority of the
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have a Material Adverse Effect. As used in
this Agreement, "Material
Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, individually or
taken as a whole, or on the transactions contemplated hereby or on the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents. The
Company has no Subsidiaries except as set forth on Schedule
3(a). Notwithstanding the foregoing, the entities in which the
Company, directly or indirectly, owns any of the capital shares or holds an
equity or similar interest which are not Subsidiaries, taken as whole, do not
have operations, income or assets which are material to the Company and its
Subsidiaries taken as a whole.
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(b) Authorization; Enforcement;
Validity. The Company has the requisite power and authority to
enter into and perform its obligations under this Agreement, the Notes, the
Registration Rights Agreement, the Voting Agreement (as defined in Section
4(s)), the Lock-Up Agreements (as defined in Section 4(t)), the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)), the Security
Documents, the Warrants, the Put Agreements and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents") to
which the Company is a party and to issue the Company Securities in accordance
with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Warrants, the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion
of the Notes and the reservation for issuance and the issuance of the Interest
Shares issuable pursuant to the terms of the Notes, the reservation for issuance
and issuance of Warrant Shares issuable upon exercise of the Warrants have been
duly authorized by the Company's Board of Directors and (other than (i) the
filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) other filings as may
be required by state securities agencies, (iii) the filing with the Principal
Market of a "Notification: Listing of Additional Shares," (iv) the receipt of
Shareholder Approval, (v) the filing of an amended Memorandum and Articles of
Association of the Company with the Registrar of Corporate Affairs, British
Virgin Islands to reflect the amendments described in Section 4(u)(ii), (vi) the
furnishing of one or more reports on Form 6-K to the SEC with the documents
distributed to solicit Shareholder Approval and as contemplated by Section 4(i),
(vii) the filing of Form D as contemplated by Section 4(b) and (viii) the filing
of one or more amendments to Schedule 13D by Xx. Xx) no further filing, consent,
or authorization is required by the Company, its Board of Directors or its
shareholders. This Agreement and the other Transaction Documents to
which the Company is a party have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(c) Issuance of
Securities. The issuance of the Notes and the Warrants are
duly authorized and, upon issuance in accordance with the terms of the
Transaction Documents, shall be validly issued and free from all taxes, liens
and charges with respect to the issue thereof. As of the Shareholder
Approval Date (as defined below), a number of Common Shares shall have been duly
authorized and reserved and maintained for issuance which equals or exceeds 130%
of the aggregate of the maximum number of Common Shares (the "Required Reserved Amount)
issuable (i) upon conversion of the Notes and upon exercise of the Warrants
(without taking into account any limitations on the Conversion of the Notes or
exercise of the Warrants set forth in the Notes and Warrants, respectively) and
(ii) as Interest Shares pursuant to the terms of the Notes. Upon
conversion or payment in accordance with the Notes or exercise and payment of
the exercise price, unless exercised pursuant to Cashless Exercise (as defined
in the Warrants) in accordance with the Warrants, as the case may be, the
Conversion Shares, the Interest Shares and the Warrant Shares, respectively,
when issued, will be validly issued, fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Shares. Assuming the accuracy of each of the
representations and warranties set forth in Section 2 of this Agreement and in
Section 5 of the Put Agreements, the offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
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(d) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Warrants and, subject to Shareholder Approval,
reservation for issuance and issuance of the Conversion Shares, the Interest
Shares, and the Warrant Shares) will not (i) result in a violation of any
memorandum of association, certificate of incorporation, certificate of
formation, any certificate of designations or other constituent documents of the
Company or any of its Subsidiaries, any capital stock of the Company or any of
its Subsidiaries or the articles of association or bylaws of the Company or any
of its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of The NASDAQ Global Select Market (the "Principal Market") and
applicable laws of the British Virgin Islands and of the People's Republic of
China ("China"))
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, except in
the case of clause (ii) or clause (iii) above, to the extent such conflicts,
defaults or violations could not reasonably be expected to have a Material
Adverse Effect.
(e) Consents. Except
as provided in Section 3(b), neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain prior to the Closing Date
pursuant to the preceding sentence have been obtained or effected on or prior to
the Closing Date, and the Company and its Subsidiaries are unaware of any facts
or circumstances that might prevent the Company from obtaining or effecting any
of the registration, application or filings pursuant to the preceding
sentence. The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Shares in the foreseeable
future. The issuance by the Company of the Company Securities and the
delivery of the Lu Conversion Shares, the Lu Warrant Shares and the Lu
Additional Conversion Shares pursuant to the terms of the Put Agreements shall
not have the effect of delisting or suspending the Common Shares from the
Principal Market.
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(f) Acknowledgment Regarding
Buyer's Purchase of Securities. The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company or any of its Subsidiaries, (ii) an "affiliate" of the Company or
any of its Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of
the Company, a "beneficial owner" of more than 10% of the Common Shares (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "1934
Act")). The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The
Company further represents to each Buyer that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
(g) No General Solicitation;
Placement Agent's Fees. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby, including, without
limitation, placement agent fees payable to Xxxxxxxxxxx Asia, as placement agent
(the "Placement Agent")
in connection with the sale of the Company Securities. The Company
acknowledges that it has engaged the Placement Agent in connection with the sale
of the Company Securities. Other than the Placement Agent, neither
the Company nor any of its Subsidiaries has engaged any placement agent or other
agent in connection with the sale of the Company Securities.
(h) No Integrated
Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of the issuance of
any of the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or, except for the Shareholder Approval, cause this
offering of the Securities to require approval of shareholders of the Company
for purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of the
issuance of any of the Securities under the 1933 Act or cause the offering of
the Securities to be integrated with other offerings for purposes of any such
applicable shareholder approval provisions.
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(i) Dilutive
Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that subject to
receipt of Shareholder Approval, its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the Notes and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company.
(j) Application of Takeover
Protections; Rights Agreement. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Memorandum of Association or
Articles of Association ,or the laws of the jurisdiction of its formation which
is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Company Securities and any Buyer's ownership of the
Securities. The Company has not adopted a shareholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Common
Shares or a change in control of the Company.
(k) SEC Documents; Financial
Statements. During the two (2) years prior to the date hereof,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof or prior to the date of the Closing, and all exhibits included therein
and financial statements, notes and schedules thereto and documents incorporated
by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the XXXXX system. As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied ("GAAP"), during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information provided by
or on behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement or in the disclosure schedules to this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein not misleading, in the
light of the circumstance under which they are or were made.
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(l) Absence of Certain
Changes. Except as disclosed in the Company's press release
regarding fourth quarter 2008 earnings, as furnished to the SEC under cover of
Form 6-K dated April 9, 2009 and in Schedule 3(l), since
December 31, 2007, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in the Company's press release
regarding fourth quarter 2008 earnings, as furnished to the SEC under cover of
Form 6-K dated April 9, 2009 and in Schedule 3(l), since
December 31, 2007, neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, (ii) sold any assets to a third party,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in a
series of related payments in the aggregate, in excess of
$350,000. Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any bankruptcy law nor does the Company
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. The Company and its
Subsidiaries, individually and on a consolidated basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), "Insolvent" means, with respect
to any Person, (i) the present fair saleable value of such Person's assets is
less than the amount required to pay such Person's total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted.
(m) No Undisclosed Events,
Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is reasonably
expected to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form F-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Shares and which
has not been publicly announced.
(n) Conduct of Business;
Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under any certificate
of designations of any outstanding series of preferred stock of the Company, its
Memorandum of Association or Articles of Association or their organizational
charter or memorandum of association or certificate of incorporation or articles
of association or bylaws, respectively. Neither the Company nor any
of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except, in all cases, for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Shares by the Principal Market in the foreseeable
future. Since June 2, 2008 the Common Shares have been listed on the
Principal Market and from January 22, 2008 until June 2, 2008, the Common Shares
were listed on The NASDAQ Capital Market. During the two (2) years
prior to the date hereof, (i) trading in the Common Shares have not been
suspended by the SEC, The NASDAQ Capital Market or the Principal Market and (ii)
the Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Shares from
the Principal Market. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
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(o) Foreign Corrupt
Practices. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company or any of its Subsidiaries (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx
Act. The Company is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof.
(q) Transactions With
Affiliates. Except as set forth on Schedule 3(q) and
except as set forth in the Put Agreements, none of the officers, directors or
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries in which the amount
involved exceeds $300,000 individually or in the aggregate (other than for
ordinary course services as employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
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(r) Equity
Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 Common Shares, of which as of
the date hereof, 33,706,938 shares are issued and outstanding, 2,000,000 shares
are reserved and maintained for issuance pursuant to the Company's stock option
and purchase plans, and 8,000,000 shares are issuable to Xx. Xx upon the Company
achieving certain operating milestones pursuant to a stock purchase agreement
dated April 14, 2007, and no shares are reserved for issuance pursuant to
securities (other than the aforementioned options, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, Common Shares and (ii)
1,000,000 preferred shares, par value $0.0001 per share, of which as of the date
hereof, none of such preferred shares are issued and outstanding. All
of such outstanding shares have been, or upon issuance will be, validly issued
and are fully paid and nonassessable. Except as disclosed in Schedule 3(r): (i)
none of the Company's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Company Securities or by the delivery of the Lu Conversion Shares, the Lu
Warrant Shares and the Lu Additional Conversion Shares pursuant to the terms of
the Put Agreements; (viii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement;
and (ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiary's' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The
Company has furnished or made available to the Buyers true, correct and complete
copies of the Company's Memorandum of Association, as amended and as in effect
on the date hereof (the "Memorandum of Association"),
and the Company's Articles of Association, as amended and as in effect on the
date hereof (the "Articles of
Association"), and the terms of all securities convertible into, or
exercisable or exchangeable for, Common Shares and the material rights of the
holders thereof in respect thereto.
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(s) Indebtedness and Other
Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument would reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule 3(s)
provides a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness" of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including, without limitation, "capital leases" in
accordance with United States GAAP (other than trade payables entered into in
the ordinary course of business), (C) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (F) all monetary obligations
under any leasing or similar arrangement which, in connection with GAAP,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "Contingent Obligation" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof, including in China.
(t) Absence of
Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Shares or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors in their capacities
as such, except as set forth in Schedule 3(t). Except
as described therein, the matters set forth in Schedule 3(t) would
not would reasonably be expected to have a Material Adverse Effect.
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(u) Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(v) Employee
Relations.
(i) Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are
good. No executive officer of the Company or any of its Subsidiaries
(as defined in Rule 501(f) of the 0000 Xxx) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary
or otherwise terminate such officer's employment with the Company or any such
Subsidiary. No executive officer of the Company or any of its
Subsidiaries, to the knowledge of the Company or any of its Subsidiaries, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer, to the
Company's knowledge, does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters.
(ii) The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title. The Company
and its Subsidiaries have land use rights as permitted under China law with
respect to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
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(x) Intellectual Property
Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service xxxx registrations, service names, original works of authorship,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("Intellectual Property Rights")
necessary to conduct their respective businesses as now conducted, except for
any such Intellectual Property Rights the non-ownership or non-possession of
which would not reasonably be expected to result in a Material Adverse
Effect. All of the Company's material Intellectual Property Rights
and relevant applications therefor have been duly registered by the China Patent
and Trademark Office, or the equivalent offices of non-US jurisdictions, and
have been properly maintained in accordance with applicable law in China and
such other jurisdictions. None of the Company's material Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement. The Company does not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company or any of its
Subsidiaries, being threatened, against the Company or any of its Subsidiaries
regarding its material Intellectual Property Rights. Neither the
Company nor any of its Subsidiaries is aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
(y) Environmental
Laws. The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply and receive any such permit, license or other approval could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental Laws" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary
Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(aa) Investment Company
Status. The Company is not, and upon consummation of the sale
of the Securities, and for so long any Buyer holds any Securities, will not be,
an "investment company," a company controlled by an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
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(bb) Tax
Status. The Company and each of its Subsidiaries (i) has made
or filed all China and other foreign, U.S. federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply, except in each case where the failure to
file, pay or set aside would not reasonably be expected to have a Material
Adverse Effect. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
(cc) Internal Accounting and
Disclosure Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset and liability accountability, (iii) access to assets
or incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-15 under the 1900 Xxx) that are effective
in ensuring that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed in to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is accumulated and
communicated to the Company's management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required
disclosure. Except for the qualified report the Company expects to
receive from its independent auditors in connection with the Company's upcoming
annual report filing on Form 20-F for fiscal year ended December 31, 2008,
during the twelve months prior to the date hereof neither the Company nor any of
its Subsidiaries has received any notice or correspondence from any accountant
relating to any material weakness in any part of the system of internal
accounting controls of the Company or any of its Subsidiaries.
(dd) Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its 1934 Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.
(ee) Ranking of
Notes. Except as set forth in Schedule 3(ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
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(ff) Eligibility for
Registration. The Company is eligible to register the
Conversion Shares, the Interest Shares, if any, and the Warrant Shares for
resale by the Buyers using Form F-3 promulgated under the 1933 Act.
(gg) Transfer
Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.
(hh) Manipulation of
Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Placement Agent, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(ii) Acknowledgement Regarding
Buyers' Trading Activity. It is understood and acknowledged by
the Company that (i) none of the Buyers has been asked to agree by the Company,
any of its Subsidiaries or any of their respective officers, directors,
employees or agents, nor has any Buyer agreed with the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or
agents, to desist from purchasing or selling, long and/or short, securities of
the Company, or "derivative" securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) any Buyer, and
counter-parties in "derivative" transactions to which any such Buyer is a party,
directly or indirectly, presently may have a "short" position in the Common
Shares which was established (excluding the location and/or reservation of
borrowable Common Shares) prior to such Buyer's knowledge of the transactions
contemplated by the Transaction Documents, and (iii) each Buyer shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that one or more Buyers may engage in hedging
and/or trading activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Conversion Shares, the Warrant Shares and/or the Interest Shares
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing shareholders' equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Notes, the Warrants or any of the documents executed in connection
herewith.
(jj) U.S. Real Property Holding
Corporation. The Company is not, has never been, and so long
as any Securities remain outstanding, shall not become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon any Buyer's
request.
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(kk) Bank Holding Company
Act. Neither the Company nor any of its Subsidiaries or
affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal
Reserve. Neither the Company nor any of its Subsidiaries or
affiliates exercises a controlling influence over the management or policies of
a bank or any entity that is subject to the BHCA and to regulation by the
Federal Reserve.
(ll) No Additional
Agreements. The Company does not have any agreement or
understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction
Documents.
(mm) Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company
understands and confirms that each of the Buyers will rely on the foregoing
representations made on the date hereof and as of the Closing Date in effecting
transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company, or any of its Subsidiaries, their business and
the transactions contemplated hereby, including the disclosure schedules to this
Agreement, furnished by or on behalf of the Company is true and correct and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading. Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release 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 the light of the circumstances under
which they were made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed, other than the occurrence of the Closing under
this Agreement. The Company acknowledges and agrees that no Buyer
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 2 and in Section 5 of the Put Agreement.
(nn) China
Subsidiaries.
(i) Schedule 3(nn) sets
forth, for each Subsidiary that is incorporated in China, not including Hong
Kong (a "China
Subsidiary"), (i) the legal classification of such entity under the
applicable company laws and foreign investment laws of China, including true and
correct copies of the relevant currently effective business license by the
relevant China governmental approval authority for the location in which the
Subsidiary maintains an office or premises for business operations; (ii) the
total registered capital; (iii) the holders of record of the registered capital;
(iv) the authorized legal representative, directors, officers, legal address and
each business address, as well as the original China approval authority and
China governmental authority with current jurisdiction over the entity; and (v)
any agreements with respect to the registered capital, including outstanding
securities, contracts, commitments or arrangements granting any party the right
to obtain any equity ownership of the Subsidiary.
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(ii) For
each China Subsidiary the holders of record of its registered capital have
contributed in full its subscribed share of the entity's registered capital
pursuant to the articles of association and, as applicable, relevant joint
venture contracts, and all such contributions have been verified and certified
by a Chinese registered public accountant according to applicable China law,
approved by all relevant China governmental authorities and fully paid, and
verification certificates have been issued to each such holder of record or
previous investor accordingly. All previous transfers or assignments
of registered capital have been approved by the relevant China governmental
authorities and all necessary corporate action.
(iii) Each
Subsidiary incorporated in China is a limited liability company duly organized,
validly existing and in good standing under the applicable company laws and, as
applicable, the foreign investment laws of China, has, as applicable, the status
of a foreign investment enterprise, and is a legal person with all requisite
corporate power to own (to the extent permitted under the laws of China), lease
and operate its properties and to carry on its business as now being conducted
in each place where its business is conducted. Each China Subsidiary
and its business operations are in compliance with the terms and conditions of
its business license, joint venture contract (where applicable) and articles of
association. The construction of the China Subsidiary's operating
facilities and operation of its business is and has been in full compliance with
its relevant feasibility study and business license, as
applicable. Each Subsidiary has received all authorizations,
approvals, license, permits and other rights from China governmental authorities
necessary and appropriate for the continued operation of the Company's
business.
(iv) All
necessary approvals from China governmental authorities have been received to
ensure that each China Subsidiary will continue to enjoy, to the extent
permitted by applicable China law, all of the tax clearances, concessions and
other benefits available to such China Subsidiary prior to the Closing Date, or
otherwise available under applicable China law to foreign investment enterprises
similarly situated.
(v) Each
Subsidiary is and has been in compliance with applicable China laws relating to
its relationship to its employees or suppliers or to any governmental taxing or
customs authority, and relating to any other aspect of its
business. Each Subsidiary is in compliance with applicable China law
relating to anti-competitive practices, price fixing, and environmental matters,
respectively, and, to its knowledge, there are no proceedings pending or
threatened regarding any violation by it of applicable China law, including work
safety, environmental and employment laws.
(vi) Each
Subsidiary has obtained all required China product registrations for the
products related to its business.
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(oo)
Stock Option
Plans. Each stock option granted by the Company was granted (i) in
accordance with the terms of the applicable Company stock option plan and (ii)
with an exercise price at least equal to the fair market value of the Common
Stock on the date such stock option would be considered granted under GAAP of
the United States and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not
knowingly granted, and there is no and has been no Company policy or practice to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(pp) Rule
144(i). For purposes of confirming the availability to the
Buyers of Rule 144 upon satisfaction of the requisite holding period, the
Company hereby represents and warrants that it (i) has ceased to be an issuer
described in Rule 144(i)(1)(i); (ii) is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act; (iii) has filed all reports and other
materials required to be filed by Section 13 or 15(d) of the 1934 Act, as
applicable, during the preceding 12 months (or for such shorter period that the
Company was required to file such reports and materials), other than Form 8-K or
Form 6-K reports; and (iv) has filed current "Form 10 information" with the SEC
reflecting its status as an entity that is no longer an issuer described in Rule
144 (i)(1)(i) at least six months prior to the date hereof.
4. COVENANTS.
(a) Best
Efforts. Each party shall use its reasonable best efforts
timely to satisfy each of the covenants and the conditions to be satisfied by it
as provided in Sections 5, 6 and 7 of this Agreement.
(b) Form D and Blue
Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The
Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States following the Closing Date.
(c) Reporting
Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares,
the Interest Shares, if any, and Warrant Shares and none of the Notes
or Warrants are
outstanding (the "Reporting
Period"), the Company shall timely file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would no longer require or otherwise
permit such termination, and the Company shall take all actions necessary to
maintain its eligibility to register the Conversion Shares, Warrant Shares and
Interest Shares, if any, for resale by the Investors on Form F-3.
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(d) Use of
Proceeds. The Company will use the proceeds from the sale of
the Securities for general corporate and for working capital purposes and not
for (i) the repayment of any outstanding Indebtedness of the Company or any of
its Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries' equity securities.
(e) Financial
Information. The Company agrees to send the following to each
Investor during the Reporting Period unless the following are filed with the SEC
through XXXXX and are available to the public through the XXXXX system,
(i) within one (1) Business Day after the filing thereof with the
SEC, a copy of its Annual Reports on Form 20-F, any Reports on Form 6-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders. As used herein,
"Business Day" means any
day other than Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain
closed.
(f) Listing.
(i) The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Shares
are then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents on such national securities exchange or automated
quotation system. The Company shall maintain the authorization for
quotation of the Common Shares on the Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common
Shares on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
4(f).
(ii) In
addition, the Company shall take all necessary actions to cause the Warrants to
be listed for quotation on (A) the OTC Bulletin Board, including, without
limitation, using its reasonable best efforts to obtain the agreement of at
least one broker-dealer that is a member of the Financial Industry Regulatory
Authority to act as a market maker with respect to the Warrants, or (B) at the
Company's discretion, on any other Eligible Market (as defined in the Notes), in
each case as soon as practicable, but in no event later than the one (1) year
anniversary of the Closing Date, and to maintain such listing until the earlier
to occur of (x) the expiration date of the Warrants and (y) such time as all of
the Warrants have been exercised in full. The Buyers shall use their
reasonable best efforts to assist the Company in complying with its obligations
pursuant to this Section 4(f)(ii), including, without limitation, providing such
information as is reasonably requested by the Company.
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(g) Fees. The
Company shall reimburse Xxxxxx Bay (a Buyer) or its designee(s) (in addition to
any other expense amounts paid to any Buyer or its counsel prior to the date of
this Agreement) for all reasonable costs and expenses incurred in connection
with the transactions contemplated by the Transaction Documents (including all
reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents
and due diligence in connection therewith) in an amount not to exceed $240,000,
which amount may be withheld by Xxxxxx Bay from its Purchase Price at the
Closing. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or broker's commissions (other
than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby, including, without limitation, any fees or
commissions payable to the Placement Agent. The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such
payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.
(h) Pledge of
Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder except as may otherwise
be required under applicable securities laws, and no Investor effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
(i) Disclosure of Transactions
and Other Material Information. On or before 8:30 a.m., New
York City time, on the first Business Day after this Agreement has been
executed, the Company shall issue a press release and file a Current Report on
Form 6-K describing the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement,
the form of the Notes, the form of Warrant, the form the Registration Rights
Agreement, the form of Put Agreements, the Security Documents, the form of
Voting Agreement and the form of Lock-Up Agreement as exhibits to such filing
(including all attachments, the "6-K Filing"). From
and after the filing of the 6-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company, any
of its Subsidiaries or any of their respective officers, directors, employees or
agents, that is not disclosed in the 6-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 6-K Filing with the SEC without
the prior express written consent of such Buyer. If a Buyer has, or
believes it has, received any such material, nonpublic information regarding the
Company or any of its Subsidiaries from the Company or a "person" acting on
behalf of the Company" within the meaning of Rule 101(c) of Regulation FD in
breach of the immediately preceding sentence (and not including any such
information made available to such Buyer in connection with a Subsequent
Placement after such Buyer requested an Offer Notice pursuant to the procedure
set forth in Section 4(o)(iii)(1)), it may provide the Company with written
notice thereof. If the Company and its counsel agree that such
information is material, nonpublic information, the Company shall, within two
(2) Trading Days (as defined in the Notes) of receipt of such notice, make
public disclosure of such material, nonpublic information (the "MNPI
Disclosure"). In the event the Company fails to make the MNPI
Disclosure, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders or agents for any such disclosure. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 6-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its
release). Without the prior written consent of any applicable Buyer,
neither the Company nor any of its Subsidiaries or affiliates shall disclose the
name of such Buyer in any filing (other than in the exhibits to the 6-K Filing),
announcement, release or otherwise, except as otherwise required by any law,
rule or regulation applicable to the Company after consultation with such
Buyer.
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(j) Restriction on Redemption
and Cash Dividends. So long as any Notes are outstanding, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, the Common Shares without the prior express written
consent of the Required Holders (as defined in the Notes).
(k) Additional Notes; Variable
Securities; Dilutive Issuances. So long as any Buyer
beneficially owns any Securities, the Company will not issue any Notes other
than to the Buyers as contemplated hereby and the Company shall not issue any
other securities that would cause a breach or default under the
Notes. For so long as any Notes or Warrants remain outstanding, the
Company shall not, in any manner, issue or sell any rights, warrants or options
to subscribe for or purchase Common Shares or directly or indirectly convertible
into or exchangeable or exercisable for Common Shares at a price which varies or
may vary with the market price of the Common Shares, including by way of one or
more reset(s) to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable Conversion
Price (as defined in the Notes) with respect to the Common Shares into which any
Note is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Shares into which any Warrant is
exercisable. For so long as any Notes or Warrants remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive Issuance
(as defined in the Notes) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Note or exercise of
any Warrant any Common Shares in excess of that number of Common Shares which
the Company may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company's obligations under the rules or regulations of
the Principal Market or any applicable Eligible Market (as defined in the
Registration Rights Agreement).
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(l) Corporate
Existence. So long as any Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence and shall not be
party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants.
(m) Reservation of
Shares. So long as any Buyer owns any Securities, the Company
shall take all action necessary to at all times after the Shareholder Approval
(as defined below) have authorized, and reserved and maintained for the purpose
of issuance, no less than 130% of the sum of the number of Common Shares
issuable (A) upon conversion of the Notes, (B) upon exercise of the Warrants
then outstanding (without taking into account any limitations on the conversion
of the Notes or exercise of the Warrants set forth in the Notes and Warrants,
respectively) and (C) as Interest Shares pursuant to the terms of the
Notes. If at any time the number of Common Shares authorized and
reserved and maintained for issuance is not sufficient to meet the Required
Reserved Amount, the Company will promptly take all corporate action necessary
to authorize and reserve and maintain for issuance a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under Section
3(c), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares of the
Company in favor of an increase in the authorized shares of the Company to
ensure that the number of authorized shares is sufficient to meet the Required
Reserved Amount.
(n) Conduct of
Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of
Securities.
(i)
For purposes of this Section 4(o), the following definitions shall
apply.
(1) "Common Shares Equivalents" means,
collectively, Options and Convertible Securities.
(2) "Convertible Securities" means
any stock or securities (other than Options) convertible into or exercisable or
exchangeable for Common Shares.
(3) "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.
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(ii) From
the date hereof until thirty (30) days after the date when all Registrable
Securities (as defined in the Registration Rights Agreement) have been
registered (the "Trigger
Date"), the Company will not, directly or indirectly, file any
registration statement with the SEC other than the Registration Statement (as
defined in the Registration Rights Agreement). From the date hereof
until the Trigger Date, the Company will not, (A) directly or indirectly, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any of its
or its Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Shares or Common Shares Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement")
or (B) be party to any solicitations, negotiations or discussions with regard to
the foregoing.
(iii) From
the Trigger Date until the second anniversary of the Closing Date, the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with this Section 4(o)(iii).
(1) The
Company shall deliver to each Buyer a written notice stating that the Company
may have information to share with such Buyer and requesting the Buyer to inform
the Company if it is willing to receive a notice of such
information. If such Buyer indicates its willingness to receive such
information, then the Company shall deliver promptly, but in any event no later
than one (1) Business Day after being informed by such Buyer of its willingness
to receive the information, a written notice (the "Offer Notice") of any proposed
or intended issuance or sale or exchange (the "Offer") of the securities
being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the number
or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Buyers fifty percent (50%) of the
Offered Securities, allocated among such Buyers (a) based on such Buyer's pro
rata portion of the aggregate principal amount of Notes purchased hereunder (the
"Basic Amount"), and (b)
with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription Amount"),
which process shall be repeated no more than one time so that the Buyers shall
have an opportunity to subscribe for any remaining Undersubscription
Amount.
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(2) To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the ninth (9th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer Period"), setting forth
the portion of such Buyer's Basic Amount that such Buyer elects to purchase and,
if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice of
Acceptance"). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "Available Undersubscription
Amount"), each Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent its deems reasonably
necessary. Notwithstanding anything to
the contrary contained herein, if the Company desires to modify or amend the
terms and conditions of the Offer prior to the expiration of the Offer Period,
the Company may deliver to the Buyers a new Offer Notice and the Offer Period
shall expire on the tenth (10th) Business Day after such Buyer's receipt of such
new Offer Notice.
(3) The
Company shall have seven (7) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused
Securities") pursuant to a definitive agreement (the "Subsequent Placement
Agreement") but only to the offerees described in the Offer Notice (if so
described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring person or persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of
such Subsequent Placement Agreement, and (b) either (x) the consummation of the
transactions contemplated by such Subsequent Placement Agreement or (y) the
termination of such Subsequent Placement Agreement, which shall be filed with
the SEC on a Current Report on Form 6-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.
(4) In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(o)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 4(o)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that any Buyer so elects to reduce
the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(o)(iii)(1)
above.
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(5) Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel. The Buyers and the Company shall each use their reasonable best efforts
to consummate such offering as promptly as commercially
practicable.
(6) Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.
(7) The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, (x) neither the Subsequent Placement Agreement with respect to such Offer
nor any other transaction documents related thereto (collectively, the "Subsequent Placement
Documents") shall include any term or provisions whereby any Buyer shall
be required to agree to any restrictions in trading as to any securities of the
Company owned by such Buyer prior to such Subsequent Placement, and (y) any
registration rights set forth in such Subsequent Placement Documents shall be
similar in all material respects to the registration rights contained in the
Registration Rights Agreement.
(8) Notwithstanding
anything to the contrary in this Section 4(o) and unless otherwise agreed to by
the Buyers, the Company shall either confirm in writing to the Buyers that the
transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case
in such a manner such that the Buyers will not be in possession of material
non-public information, by the sixteenth (16th)
Business Day following delivery of the Offer Notice. If by the
sixteenth (16th)
Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to
pursue such transaction with respect to the Offered Securities, the Company
shall provide each Buyer with another Offer Notice and each Buyer will again
have the right of participation set forth in this Section
4(o)(iii). The Company shall not be permitted to deliver more than
one such Offer Notice to the Buyers in any 60 day period.
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(iv) The
restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
not apply (x) in connection with the issuance of any Excluded Securities (as
defined in the Notes) and (y) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter which
generates gross proceeds to the Company in excess of the greater of (i)
$25,000,000 and (ii) the aggregate principal amount of Notes then outstanding
other than any Notes beneficially owned, directly or indirectly, by Xx. Xx (or
any of his family members, affiliates or agents), the Company or any of its
Subsidiaries. (other than an "at-the-market offering" as defined in Rule
415(a)(4) under the 1933 Act or equity lines).
(p)
Trading in Common
Shares.
(i) For
so long as such Buyer owns any Notes, such Buyer shall not maintain a Net Short
Position. For purposes hereof, a "Net Short Position" by a
Person means a position whereby such Person has executed one or more sales of
Common Shares that is marked as a short sale and that is executed at a time when
such Buyer has no equivalent offsetting long position in the Common Shares or
contract for the foregoing. For purposes of determining whether a
Buyer has an equivalent offsetting long position in the Common Shares, all
Common Shares (A) that are owned by such Buyer, (B) that may be issued as
Interest Shares pursuant to the terms of the Notes to the Buyer, (C) that would
be issuable upon conversion or exercise in full of all Securities then held by
such Buyer (assuming that such Securities were then fully convertible or
exercisable, notwithstanding any provisions to the contrary, and giving effect
to any conversion or exercise price adjustments that would take effect given
only the passage of time) or (D) that could be issuable pursuant to the Put
Agreements (assuming no restriction on issuance, notwithstanding any provision
to the contrary) shall be deemed to be held long by such Buyer.
(ii) During
the period commencing twenty (20) Trading Days immediately preceding the
Adjustment Date (as defined in the Notes) and ending with the close of trading
on the Principal Market on the Adjustment Date (such period, the "Restricted Period"), each
Buyer, severally and not jointly with the other Buyers, covenants that neither
it nor any of its Buyer Trading Affiliates will engage in any sale of the Common
Shares, including "short sales" as defined in Rule 200 of Regulation SHO under
the 1934 Act.
(iii) Except
as set forth in the Put Agreements, during the Restricted Period, neither the
Company nor any of its Subsidiaries, and no one acting on any of their behalf
(including, without limitation, any officer, director, employee, affiliate,
attorney or agent) shall purchase, directly or indirectly, any Common Shares or
any securities convertible, exercisable or exchangeable for Common
Shares.
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(iv) Except
as set forth in the Put Agreements, during the Restricted Period, neither the
Company nor any of its Subsidiaries, and no one acting on any of their behalf
(including, without limitation, any officer, director, employee, affiliate,
attorney or agent) shall, directly or indirectly, (A) take any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company, (B) sell, bid for, purchase, or pay any compensation
for soliciting any sale, bid for or purchase of any security of the Company,
including, without limitation, any Common Share, any of the Securities and any
short sales (as defined in Rule 200 of Regulation SHO under the 0000 Xxx)
related thereto (other than the offer, sale and issuance by the Company of
Excluded Securities to officers, directors and employees of the Company in the
ordinary course of business), (C) issue or offer any security of the Company or
any of its Subsidiaries to any Person (other than the offer, sale and issuance
by the Company of Excluded Securities to officers, directors and employees of
the Company in the ordinary course of business), (D) pay or agree to pay to any
Person any compensation for soliciting another to purchase or sell any
securities of the Company, or (E) enter into any agreement or other writing or
make any offer with respect to the foregoing actions.
(q) Public
Information. At any time during the period commencing from the
six (6) month anniversary of the Closing Date (the "Shareholder Approval
Deadline") and ending, if a registration statement is not available for
the resale of all of the Registrable Securities, at such time that all of the
Securities may be sold without restriction or limitation pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1), if the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a "Public Information Failure")
then, as partial relief for the damages to any holder of Securities by reason of
any such delay in or reduction of its ability to sell the Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each such holder an amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price of such holder's Company
Securities on the day of a Public Information Failure and on every thirtieth day
(pro rated for periods totaling less than thirty days) thereafter until the
earlier of (i) the date such Public Information Failure is cured and (ii) such
time that such public information is no longer required pursuant to Rule
144. The payments to which a holder shall be entitled pursuant to
this Section 4(q) are referred to herein as "Public Information Failure
Payments." Public Information Failure Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such
Public Information Failure Payments are incurred
and (II) the third Business Day after the event or failure giving rise to the
Public Information Failure Payments is
cured. In the event the Company fails to make Public Information
Failure Payments in
a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.
(r) Shareholder Approval.
The Company shall provide each shareholder entitled to vote at a special or
annual meeting of shareholders of the Company (the "Shareholder Meeting"), which
shall be called as promptly as practicable after the date hereof, but in no
event later than August 24, 2009 (the "Shareholder Meeting
Deadline"), a proxy statement, in a form reasonably acceptable to the
Buyers meeting the requirements of the laws of the British Virgin Islands after
review by Xxxxxxx Xxxx & Xxxxx LLP at the expense of the Company, not to
exceed $7,500, soliciting each such shareholder's affirmative vote at the
Shareholder Meeting for approval of resolutions (the "Resolutions") providing for
the issuance of all of the Securities as described in the Transaction Documents
in accordance with applicable law, the provisions of the Articles of Association
and the rules and regulations of the Principal Market (such affirmative approval
being referred to herein as the "Shareholder Approval" and the
date such approval is obtained, the "Shareholder Approval Date"),
and the Company shall use its reasonable best efforts to solicit its
shareholders' approval of such Resolutions and to cause the Board of Directors
of the Company to recommend to the shareholders that they approve the
Resolutions. The Company shall be obligated to seek to obtain the
Shareholder Approval by the Shareholder Meeting Deadline. If, despite
the Company's reasonable best efforts, the Shareholder Approval is not obtained
at the Shareholder Meeting, the Company shall cause an additional Shareholder
Meeting to be held each calendar quarter thereafter until Shareholder Approval
is obtained, unless all of the Notes and the Warrants have been put to Xx. Xx
pursuant to the Put Agreements for the Lu Conversion Shares and the Lu Warrant
Shares, respectively.
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(s) Voting
Agreement. The Company shall use its reasonable best efforts
to effectuate the transactions contemplated by the Voting Agreement,
substantially in the form attached hereto as Exhibit F (the "Voting Agreement"), executed
by the Company, Xx. Xx and Xx. Xxxx X. Xxx ("Xx. Xxx" and, collectively
with Xx. Xx, the "Principal
Shareholders"). The Company shall not amend or waive any
provision of the Voting Agreement and shall enforce the provisions of the Voting
Agreement in accordance with its terms. If the Principal Shareholders breach any
provisions of the Voting Agreement, the Company shall promptly use its
reasonable best efforts to seek specific performance of the terms of the Voting
Agreement in accordance with Section 4.02 thereof. In addition, if
the Company receives any notice from the Principal Shareholders pursuant to the
Voting Agreement, the Company shall promptly, but in no event later than two (2)
Business Days, deliver a copy of such notice to each Buyer.
(t) Lock-Up. The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
except to extend the term of the lock-up period.
(u) Buyers' Voting
Agreement. While any Buyer holds any Common Shares, each such
Buyer hereby agrees to cast an affirmative vote at any shareholder meeting with
respect to resolutions providing for (i) Shareholder Approval, (ii) the
amendment of the Company's Articles of Association to remove the requirement for
shareholder approval for Common Shares issuances and repurchases pursuant to
Sections 3 and 17 of the Articles of Association, respectively, and (iii) the
issuance to Xx. Xx of a number of Common Shares issuable pursuant to the Notes
and Warrants (on the terms set forth therein) delivered to Xx. Xx by one or more
Buyers pursuant to the Put Agreements. Notwithstanding the foregoing,
none of the Buyers shall be under any obligation to hold any Common Shares for
any length of time.
(v) Multiple
Certificates. From and after the Closing Date, if the
Collateral Agent delivers Common Share certificates and/or stock powers
representing the Pledged Shares to the Company with instructions to reissue
multiple certificates and stock powers in replacement of one or more
certificates and stock powers in larger denominations, the Company shall cause
its transfer agent to comply with such request promptly, but in no event later
than three (3) Trading Days after receipt of the Common Share certificates
representing the Pledged Shares; provided, that the
Company shall not be required to break down the Pledged Shares into more than
twenty (20) Common Share certificates and stock powers at any one
time.
(w) No Refusal or Delay to
Transfer Shares. Notwithstanding Section 11 of the Company's
Articles of Association, the Company hereby covenants not to refuse or delay the
registration of a share transfer with respect to transfers of the
Securities (i) by Xx. Xx to any Buyer (or any of its successors or
assigns) pursuant to the Put Agreement or the Pledge Agreement or
(ii) by any Buyer (or any of its successors or assigns) to any
other Person, so long as such transfer is in compliance with Section 2(f)
hereof.
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(x) Collateral
Agent.
(i) Each
Buyer hereby (a) appoints the Collateral Agent, as the collateral agent under
the Put Agreements and under the Pledge Agreement, and (b) authorizes the
Collateral Agent (and its officers, directors, employees and agents) to take
such action on such Buyer's behalf in accordance with the terms hereof and
thereof. The Collateral Agent shall not have, by reason hereof or the
Pledge Agreement, a fiduciary relationship in respect of any
Buyer. Neither the Collateral Agent nor any of its officers,
directors, employees and agents shall have any liability to any Buyer for any
action taken or omitted to be taken in connection hereof or the Pledge Agreement
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Collateral
Agent Indemnitees") from and against
any losses, damages, liabilities, obligations, penalties, actions, judgments,
suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent
Indemnitee, whether direct, indirect or consequential, arising from or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The
Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Transaction Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.
(iii) The
Collateral Agent may resign from the performance of all its functions and duties
hereunder and under the Notes, the Warrants and the Pledge Agreement at any time
by giving at least ten (10) Business Days prior written notice to the Company
and each holder of the Notes. Such resignation shall take effect upon
the acceptance by a successor Collateral Agent of appointment as provided
below. Upon any such notice of resignation, the Required Holders
shall appoint a successor Collateral Agent. Upon the acceptance of
the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations under this Agreement, the Notes and
the Pledge Agreement. After any Collateral Agent's resignation
hereunder, the provisions of this Section 4(x) shall inure to its benefit. If a
successor Collateral Agent shall not have been so appointed within said ten (10)
Business Day period, the retiring Collateral Agent shall then appoint a
successor Collateral Agent who shall serve until such time, if any, as the
Required Holders appoint a successor Collateral Agent as provided
above.
(iv) The
Collateral Agent hereby agrees to act, and the Company hereby agrees to take any
actions necessary to facilitate such necessary actions, in accordance with the
written instructions delivered to it by a Buyer, in substantially the form
attached as Schedule
I to Exhibit
I to the Put Agreements, including to deliver a share certificate (the
"Certificate")
representing a number of shares as requested by such Buyer (the "Exercise Notice Share Amount")
and a share power, duly executed by Xx. Xx with a medallion guarantee, each of
which is held by the Collateral Agent pursuant to the Pledge Agreement, to the
Company's Transfer Agent and to direct the Company's Transfer Agent, to (i)
issue the Exercise Notice Share Amount (as defined in the Put Agreements) of
such Common Shares in accordance with the Exercise Notice attached as Exhibit I to the Put
Agreements and (ii) if the number of Common Shares represented by the
Certificate exceeds the Exercise Notice Share Amount, deliver a certificate with
respect to such excess number of shares with an identical legend to any legend
set forth on the Certificate to the Collateral Agent.
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(y) Successor Collateral
Agent. The Company hereby covenants and agrees to take, or
cause to be taken, all actions reasonably requested by the Collateral Agent to
secure a successor Collateral Agent satisfactory to the Buyers, in their sole
discretion (it being acknowledged and agreed by the Buyers that The Bank of New
York Mellon is a satisfactory successor Collateral Agent), as promptly as
practicable but in no event later than sixty (60) days following the Closing
Date, including, without limitation, by paying all fees of such successor
Collateral Agent, by having the Company agree to indemnify any successor
Collateral Agent and by each of the Company and Xx. Xx executing a collateral
agency agreement or similar agreement and/or any amendment to the Pledge
Agreement reasonably requested or required by the successor Collateral
Agent.
(z) Closing
Documents. On or prior to thirty (30) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Xxxxxxx Xxxx & Xxxxx LLP executed copies of the Transaction
Documents, Securities and other document required to be delivered to any party
pursuant to Section 7 hereof or otherwise.
5.
REGISTER; TRANSFER
AGENT INSTRUCTIONS.
(a) Register. The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes and the Warrants have been
issued (including the name and address of each transferee), the principal amount
of Notes held by such Person, the number of Conversion Shares issuable upon
conversion of the Notes and Warrant Shares issuable upon exercise of the
Warrants held by such Person. The Company shall keep the register
open and available at all times during business hours for inspection of any
Buyer or its legal representatives.
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(b) Transfer Agent
Instructions. The Company shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to issue certificates
or credit shares to the applicable balance accounts at the DTC, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares,
the Interest Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as specified
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit G (the "Irrevocable Transfer Agent
Instructions"). The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section
5(b), and stop transfer instructions to give effect to Section 2(f) hereof, will
be given by the Company to its transfer agent, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the other Transaction
Documents. If a Buyer effects a sale, assignment or transfer of the
Securities in accordance with Section 2(f), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or
transfer involves the Conversion Shares, the Interest Shares or the Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a
Buyer. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to
all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being
required.
6.
CONDITIONS TO THE
COMPANY'S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Notes and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.
(ii) Such
Buyer shall have delivered to the Company the Net Purchase Price (less, in the
case of Xxxxxx Bay, the amounts withheld, if any, pursuant to Section 4(g)) for
the Notes and the related Warrants being purchased by such Buyer at the Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date which shall be true and correct as of such specified date), and
such Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the Closing
Date.
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7. CONDITIONS TO EACH BUYER'S
OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Notes and the related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice
thereof:
(i) The
Company shall have duly executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Notes (allocated in such principal amounts as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement and (C) the related Warrants (allocated in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.
(ii) Such
Buyer shall have received (A) the opinion of the New York Office of Xxxxx &
XxXxxxxx LLP, the Company's outside United States counsel, dated as of the
Closing Date, in substantially the form of Exhibit H-1
attached hereto, (B) the opinion of Xxxxxx and Calder, the Company's British
Virgin Islands outside counsel, dated as of the Closing Date, in substantially
the form of Exhibit H-2
attached hereto, (C) the opinion of the Hong Kong Office of Xxxxx XxXxxxxx LLP,
the Company's outside Hong Kong counsel, dated as of the Closing Date, in
substantially the form of Exhibit H-3
attached hereto and (D) the opinion of Tianyin Law Firm, the Company's outside
People's Republic of China counsel, dated as of the Closing Date, in
substantially the form of Exhibit H-4
attached hereto.
(iii) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit G
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(iv) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries in such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within ten (10) days of
the Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within ten (10) days of the Closing
Date.
(vi) The
Company shall have delivered to such Buyer a certified copy of the Memorandum of
Association as certified by the Secretary of State (or comparable office) of the
British Virgin Islands within ten (10) days of the Closing Date.
(vii) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Memorandum of
Association and (iii) the Articles of Association, each as in effect at the
Closing, in the form attached hereto as Exhibit I.
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(viii) The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date which shall be true and correct as of such specified date)
and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer in the form attached hereto as Exhibit
J.
(ix) The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of Common Shares outstanding as of a date within
five days of the Closing Date.
(x) The
Security Documents shall have been executed and delivered to such Buyer, and Xx.
Xx, in accordance with the terms of the Pledge Agreement, shall have delivered
to the Collateral Agent, with a copy to each Buyer, certificates representing
the Pledged Shares (as defined in the Pledge Agreement), along with duly
executed blank assignment form and/or stock powers for the Pledged Shares in a
form reasonably acceptable to the Company (and/or to the Company's transfer
agent or counsel, to the extent required or requested by the Company), including
a Medallion Guarantee on such assignment form and/or stock powers.
(xi) The
Common Shares (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market.
(xii) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Company Securities required
to be obtained prior to Closing.
(xiii) The
Voting Agreement shall have been executed and delivered to such Buyer by the
Company and each of the Principal Shareholders.
(xiv) The
Company shall have delivered to each Buyer a lock-up agreement in the form
attached hereto as Exhibit K executed
and delivered by each of Xx. Xx and Xx. Xxx (collectively, the "Lock Up
Agreements").
(xv) The
Company shall have delivered a Put Agreement to each Buyer duly executed and
delivered by each of the Company, Xx. Xx, the Collateral Agent and such
Buyer.
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(xvi) The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8.
TERMINATION. In
the event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) Business Days from the date hereof due to the Company's or such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction;
Jury Trial. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. The Company hereby appoints C T Corporation System,
with offices at 000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, as its agent for
service of process in New York. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted by
law. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(b) Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event that any signature is delivered by facsimile transmission or by an
e-mail which contains a portable document format (.pdf) file of an executed
signature page, such signature page shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original.
- 38
-
(c) Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability. If
any provision of this Agreement is prohibited by law or otherwise determined to
be invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith
negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to
that of the prohibited, invalid or unenforceable provision(s).
(e) Entire Agreement;
Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Required Holders, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, as applicable. No provision hereof
may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to
the extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration also
is offered to all of the parties to the Transaction Documents, holders of Notes
or holders of the Warrants, as the case may be. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without
limiting the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices. Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications
shall be:
- 39
-
If to the
Company:
With a
copy (for informational purposes only) to:
If to the
Transfer Agent:
If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers,
with a
copy (for informational purposes only) to:
or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
- 40
-
Any
document shall be deemed to have been duly served if marked for the attention of
the agent for service of process at its address (as set forth in Section 9(a))
or such other address in the United States as may be notified to the party
wishing to serve the document and delivered in accordance with the notice
provisions set forth in this Section 9(f).
If the
Company's agent for service of process at any time ceases for any reason to act
as such, the Company shall appoint a replacement agent having an address for
service in the United States and shall notify each Buyer in writing of the name
and address of the replacement agent. Failing such appointment and
notification, each Buyer shall be entitled by notice to the Company to appoint a
replacement agent to act on the Company's behalf. The provisions of
this Section 9(f) applying to service on an agent for service of process apply
equally to service on a replacement agent.
(g) Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.
(h) No Third Party
Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.
(i) Survival. Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the
Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(j) Further
Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
- 41
-
(k) Indemnification. In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their shareholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents, provided, however,
that the Company's obligations under this Section 9(k) with respect to
Indemnified Liabilities referred to in the preceding clauses (a) through (c) and
incurred under the Registration Rights Agreement shall be limited to the
Indemnified Liabilities for which indemnity is expressly provided pursuant to
Section 6 of the Registration Rights Agreement. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) No Strict
Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.
(m) Remedies. Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Buyers. The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.
(n) Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Buyer exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
- 42
-
(o) Payment Set
Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of
Buyers' Obligations and Rights. The obligations of each Buyer
under any Transaction Document are several and not joint with the obligations of
any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company shall not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges and each Buyer confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
(q) Currency. Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars. All amounts owing under this Agreement or any
Transaction Document shall be paid in US dollars. All amounts
denominated in other currencies shall be converted in the US dollar equivalent
amount in accordance with the Exchange Rate on the date of
calculation. "Exchange Rate" means, in
relation to any amount of currency to be converted into US dollars pursuant to
this Agreement, the US dollar exchange rate as published in The Wall Street
Journal on the relevant date of calculation.
(r) Judgment
Currency.
(i) If
for the purpose of obtaining or enforcing judgment against the Company in any
court in any jurisdiction it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 9(r) referred to
as the "Judgment
Currency") an amount due in US Dollars under this Agreement, the
conversion shall be made at the Exchange Rate prevailing on the Business Day
immediately preceding:
- 43
-
(1) the
date of actual payment of the amount due, in the case of any proceeding in the
courts of New York or in the courts of any other jurisdiction that will give
effect to such conversion being made on such date: or
(2) the
date on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section being hereinafter referred to as the "Judgment Conversion
Date").
(ii) If
in the case of any proceeding in the court of any jurisdiction referred to in
Section 9(r)(i)(2) above, there is a change in the Exchange Rate prevailing
between the Judgment Conversion Date and the date of actual payment of the
amount due, the applicable party shall pay such adjusted amount as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment, will produce
the amount of US Dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial order at the Exchange
Rate prevailing on the Judgment Conversion Date.
(iii) Any
amount due from the Company under this provision shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts due
under or in respect of this Agreement.
[Signature
Page Follows]
- 44
-
IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.
|
COMPANY:
|
|
|
A-POWER
ENERGY GENERATION
SYSTEMS,
LTD.
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
[Signature
Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Securities
Purchase Agreement to be duly executed as of the date first written
above.
|
BUYERS:
|
|
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
[Signature
Page to Securities Purchase Agreement]
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
(7)
|
(8)
|
|||||||
|
Buyer
|
Address
and
Facsimile
Number
|
Aggregate
Principal
Amount
of
Notes
|
Number
of
Warrant
Shares
|
Purchase
Price
|
Prepaid
Interest
|
Net
Purchase Price
|
Legal
Representative's
Address
and Facsimile
Number
|
|||||||
|
Xxxxxx
Bay Fund, LP
|
000
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxx Xxxx
Xxxxxx
Xxxxxxxxxxxx
Facsimile: 000-000-0000
Telephone:
000-000-0000
Residence:
United States
E-mail:
xxxxxxxxxxx@xxxxxxxxxxxxxxxx.xxx
xxxxxxxxxx@xxxxxxxxxxxxxxxx.xxx
|
$5,400,000
|
203,065
|
$5,400,000
|
$81,000
|
$5,319,000
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
Xxxxx, Esq.
Facsimile:
(000) 000-0000
Telephone: (000)
000-0000
|
|||||||
|
Xxxxxx
Bay Overseas Fund, Ltd.
|
000
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxx Xxxx
Xxxxxx
Xxxxxxxxxxxx
Facsimile: 000-000-0000
Telephone:
000-000-0000
Residence:
Cayman Islands
E-mail:
xxxxxxxxxxx@xxxxxxxxxxxxxxxx.xxx
xxxxxxxxxx@xxxxxxxxxxxxxxxx.xxx
|
$9,600,000
|
361,004
|
$9,600,000
|
$144,000
|
$9,456,000
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
Xxxxx, Esq.
Facsimile:
(000) 000-0000
Telephone: (000)
000-0000
|
|||||||
|
RCG
PB, Ltd
|
c/o
Ramius LLC
000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxxxxx
Xxxxx
Xxxx
Xxxxxxx
Facsimile: (000)
000-0000
(000) 000-0000
Telephone:
(000) 000-0000
(000) 000-0000
Residence: Cayman
Islands
|
$7,000,000
|
$263,232
|
$7,000,000
|
$105,000
|
$6,895,000
|
|
Ramius
Enterprise Master Fund Ltd
|
c/o
Ramius LLC
000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxxxxx
Xxxxx
Xxxx Xxxxxxx
Facsimile: (000)
000-0000
(000) 000-0000
Telephone:
(000) 000-0000
(000) 000-0000
Residence: Cayman
Islands
|
$3,000,000
|
$112,814
|
$3,000,000
|
$45,000
|
$2,955,000
|
||||||||
|
Iroquois
Master Fund Ltd.
|
c/o
Iroquois Capital
000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Attention:
Xxxxxx Xxxxxxxxx
Telephone: 000-000-0000
Facsimile:
000-000-0000
Email:
xxxxxxxxxx@xxxxxx.xxx
Residence: Cayman
Islands
|
$10,000,000
|
$376,046
|
$10,000,000
|
$150,000
|
$9,850,000
|
||||||||
|
Capital
Ventures International
|
c/o
Heights Capital Management, Inc.
000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxx
Xxxxxxxx
Facsimile: (000)
000-0000
Telephone:
(000) 000-0000
Residence: Cayman
Islands
|
$5,000,000
|
188,023
|
$5,000,000
|
$75,000
|
$4,925,000
|
||||||||
|
TOTAL
|
$40,000,000.00
|
$1,504,184.00
|
$40,000,000.00
|
$600,000.00
|
$39,400,000.00
|
EXHIBITS
|
Exhibit
A
|
Form
of Notes
|
|
Exhibit
B
|
Form
of Warrant Agreement
|
|
Exhibit
C
|
Form
of Registration Rights Agreement
|
|
Exhibit
D
|
Form
of Pledge Agreement
|
|
Exhibit
E
|
Form
of Put Agreement
|
|
Exhibit
F
|
Form
of Voting Agreement
|
|
Exhibit
G
|
Form
of Irrevocable Transfer Agent Instructions
|
|
Exhibit
H-1
|
Form
of Opinion of Company's U.S. Counsel
|
|
Exhibit
H-2
|
Form
of Opinion of Company's British Virgin Islands counsel
|
|
Exhibit
H-3
|
Form
of Opinion of Company's Hong Kong counsel
|
|
Exhibit
H-4
|
Form
of Opinion of Company's PRC counsel
|
|
Exhibit
I
|
Form
of Secretary's Certificate
|
|
Exhibit
J
|
Form
of Officer's Certificate
|
|
Exhibit
K
|
Form
of Lock-Up
Agreement
|
SCHEDULES
|
Schedule
3(a)
|
Subsidiaries
|
|
Schedule
3(l)
|
Absence
of Certain Changes
|
|
Schedule
3(q)
|
Transactions
with Affiliates
|
|
Schedule
3(r)
|
Equity
Capitalization
|
|
Schedule
3(s)
|
Indebtedness
and Other Contracts
|
|
Schedule
3(t)
|
Absence
of Litigation
|
|
Schedule
3(ee)
|
Ranking
of Notes
|
|
Schedule
3(nn)
|
China
Subsidiaries
|
Schedule 3(a)
Subsidiaries.
Head
Dragon Holdings Limited
Easy Flow
Limited
Liaoning
GaoKe Energy Group Company Limited
Liaoning
High-Tech Energy Saving and Thermoelectricity Design Research
Institute
Liaoning
International Construction and Engineering Group Limited
Shenyang
Jinxiang Power Equipment Limited
Shenyang
Ruixiang Wind Power Equipment Limited
Schedule 3(l) Absence of
Certain Changes.
Material
adverse change/material adverse development in the business, assets, properties,
operations, condition (financial or otherwise), results of operations or
prospects of the Company or its Subsidiaries:
|
·
|
Postponement
of $150 million distributed power generation project in
Thailand.
|
Capital
expenditures, individually or in a series of related payments in the aggregate,
in excess of $350,000:
|
·
|
Purchase
and Construction of the Company’s wind turbine assembly facility in
Shenyang.
|
|
·
|
Purchase
of 9,900 square meter building in Shenyang,
China.
|
|
·
|
Prepayment
for purchase of Fuhrlander wind
equipment.
|
|
·
|
Prepayment
for purchase of CC electronic wind equipment in October
2008.
|
Schedule 3(q) Transactions
with Affiliates.
Letter
agreement between the Company and Xx. Xx to reimburse him or make him whole for
his delivery of Common Shares to the Holders pursuant to the Put
Agreements.
In March,
2009, Xx. Xx provided a short-term non-interest bearing loan to Head Dragon
Holdings Limited for $3,000,000.
On April
14, 0000, Xxxxxxx Xxxxx Xxxxx Acquisition Corporation entered into a stock
purchase agreement with the Company and Xx. Xx, who was the sole holder of
all of the issued and outstanding ordinary shares of Head Dragon Holdings
Limited. Pursuant to terms of the stock purchase agreement, on January 18,
2008, the Company acquired all of the issued and outstanding ordinary
shares of Head Dragon Holdings Limited, gaining control of Liaoning GaoKe
Energy Group Company Limited and Xx. Xx is entitled to a total of 9,000,000
incentive shares over a period of six years upon the Company achieving certain
net profit milestones.
Xx. Xx
made a personal, unsecured, non-interest bearing loan to Liaoning GaoKe Energy
Group Company Limited prior to January 1, 2007, which was used to fund Liaoning
GaoKe Energy Group Company Limited’s general working capital needs. The loan had
no fixed terms of repayment and as of December 31, 2007, the outstanding
balance payable to Xx. Xx was approximately $376,000. A balance of $119,000
was outstanding as at December 31, 2008.
Fair City
Technology Ltd. provided the Company with consulting services in 2007, for which
the Company was billed $300,000 in 2007. Disbursements of $200,000 and
$100,000 were made to Fair City in 2007 and 2008 respectively. Xx. Xxx is
the sole director and shareholder of Fair City Technology Ltd.
Schedule 3(r) Equity
Capitalization.
(i) None.
(ii)
|
·
|
The
Company has reserved 2,000,000 shares of its common stock for issuance
pursuant to awards granted under the 2007 Equity Plan and, as of the
Closing Date, options exercisable for up to 1,350,833 shares have been
issued under the 2007 Equity Plan.
|
|
·
|
Company’s
2007 Equity Plan
|
|
·
|
Agreement
with Xxxxxxxxxxx & Co. Inc. to issue warrants related to the
successful completion of the transactions contemplated under the
Transaction Documents.
|
|
·
|
On
April 14, 2007, Chardan South China Acquisition Corporation entered into a
stock purchase agreement with the Company and Xx. Xx, who was the sole
holder of all of the issued and outstanding ordinary shares of Head Dragon
Holdings Limited. Pursuant to terms of the stock purchase agreement, on
January 18, 2008, The Company acquired all of the issued and outstanding
ordinary shares of Head Dragon Holdings Limited, gaining control of
Liaoning GaoKe Energy Group Company Limited and Xx. Xx is entitled to a
total of 9,000,000 incentive shares over a period of six years upon the
Company achieving certain net profit
milestones.
|
|
·
|
Letter
agreement between Company and Xx. Xx to reimburse him or make him whole
for his delivery of Common Shares to the Holders pursuant to the Put
agreements.
|
|
·
|
Registration
rights contained in Unit Purchase Option issued by Chardan China
Acquisition Corp. III to EarlyBirdCapital,
Inc.
|
(iii)
|
·
|
In
March, 2009, Xx. Xx provided a short-term non-interest bearing loan to
Head Dragon Holdings Limited for
$3,000,000.
|
|
·
|
Xx.
Xx made a personal, unsecured, non-interest bearing loan to Liaoning GaoKe
Energy Group Company Limited prior to January 1, 2007, which was used to
fund Liaoning GaoKe Energy Group Company Limited’s general working capital
needs. The loan had no fixed terms of repayment and as of December 31,
2007, the outstanding balance payable to Xx. Xx was approximately
$376,000. A balance of $119,000 was outstanding as at December 31,
2008.
|
(iv) None.
(v)
|
·
|
Registration
Rights Agreement among the Company (as successor to Chardan China
Acquisition Corp. III) and Li Zhang, Xxxxx Xxxxxxx, Jiangnan Xxxxx,
Xxxxxxx Capital Partners and SUJG, Inc. (filed as Exhibit 10.11 of the
registration statement on Form S-1 of Chardan South China Acquisition
Corporation (file no. 333-125018) filed with the Securities and Exchange
Commission on May 17, 2005).
|
|
·
|
Registration
rights contained in Unit Purchase Option issued by Chardan China
Acquisition Corp. III to EarlyBirdCapital,
Inc.
|
(vi) None.
(vii) None.
(viii)
|
·
|
Company’s
2007 Equity Plan
|
(ix) None.
Schedule 3(s) Indebtedness
and Other Contracts.
(i)
outstanding Indebtedness:
In March,
2009, Xx. Xx provided a short-term non-interest bearing loan to Head Dragon
Holdings Limited for $3,000,000.
Xx. Xx
made a personal, unsecured, non-interest bearing loan to Liaoning GaoKe Energy
Group Company Limited prior to January 1, 2007, which was used to fund Liaoning
GaoKe Energy Group Company Limited’s general working capital needs. The loan had
no fixed terms of repayment and as of December 31, 2007, the outstanding balance
payable to Xx. Xx was approximately $376,000. A balance of $119,000 was
outstanding as at December 31, 2008.
Schedule
3(ee) Ranking of Notes.
Indebtedness
of the Company pari passu with the Notes in right of payment:
|
·
|
In
March, 2009, Xx. Xx provided a short-term non-interest bearing loan to
Head Dragon Holdings Limited for
$3,000,000.
|
|
·
|
Xx.
Xx made a personal, unsecured, non-interest bearing loan to Liaoning GaoKe
Energy Group Company Limited prior to January 1, 2007, which was used to
fund Liaoning GaoKe Energy Group Company Limited’s general working capital
needs. The loan had no fixed terms of repayment and as of December 31,
2007, the outstanding balance payable to Xx. Xx was approximately
$376,000. A balance of $119,000 was outstanding as at December 31,
2008.
|
There
is no Indebtedness of the Company that is senior to the Notes in right of
payment.
Schedule 3(nn) China
Subsidiaries.
(i-iv)
|
Company
|
Legal
Classification
|
Registered
Capital
|
Holder(s)
of Record
|
Legal
Representative
|
Directors
|
|
Liaoning
GaoKe
Energy
Group Company
Limited
|
WFOE
|
XXX
00 Xxxxxxx
|
Xxxx
Dragon Holdings Limited (100%)
|
Xx.
Xx
|
Xx.
Xx (Chairman), Xxxxx
Xxxx, Jihe Li
|
|
Liaoning
High-Tech Energy Saving and Thermoelectricity Design Research
Institute
|
Domestic-funded
Enterprise
|
XXX
0 Xxxxxxx
|
Xxxxxxxx
GaoKeEnergy Group Company Limited (51%)
Xx.
Xx (36%)
Xxxxxx
Xx (13%).
|
Xx.
Xx
|
Xx.
Xx (Chairman)
|
|
Liaoning
International Construction and Engineering Group Limited
|
Domestic-funded
Enterprise
|
XXX
00 Xxxxxxx
|
Xxxxxxxx
XxxXxXxxxxx Group Company Limited (90%)
Liaoning
International Construction and Engineering Group (10%)
|
Xxxxxxx
Xx
|
Xx.
Xx (Chairman), Jihe
Li (Vice Chairman),
Xxxxxxx Xx, Xxxxxx Xxxx, Xxxxxxx Xx
|
|
Shenyang
Jinxiang Power Equipment Limited
|
Joint
Venture Enterprise of
Taiwan, Hong Kong, Macao and Foreign Investors
|
USD
26 Million
|
Easy
Flow Limited (100%)
|
Xx.
Xx
|
Xx.
Xx (Chairman),Xxxxx
Xxxx, Jihe Li, Perlading, Xxxxx Glogowksi
|
|
Shenyang
Ruixiang Wind Power Equipment Limited
|
Wholly
Owned by Taiwan, Hong Kong,
Macao Legal Person
|
USD
49.8 Million
|
Easy
Flow Limited (80%)
Norwin
A/S (15%)
Xxxxx
Xxxxxxxxx (5%).
|
Xx.
Xx
|
Xx.
Xx (Chairman), Xxxxx
Xxxx, Xxxxx Xxxx
|
|
Company
|
Legal
Address and Business Address
|
Original
China approval authority
|
|
Liaoning
GaoKe Energy Group Company Limited
|
XX.00-0,
Xxxxxxxx Xxxx, Xxxxxx Xxxxxxxx, Xxxxxxxx, Xxxxx
|
Shenyang
Municipal Administration for Industry and Commerce
|
|
Liaoning
High-Tech Energy Saving and Thermoelectricity Design Research
Institute
|
XX.00,
Xxxxxxxx Xxxx, Xxxxxx Xxxxxxxx, Xxxxxxxx, Xxxxx
|
Shenyang
Municipal Administration for Industry and Commerce
|
|
Liaoning
International Construction and Engineering Group Limited
|
XX.000,
Xxxxxxx Xxxx, Xxxxxx Xxxxxxxx, Xxxxxxxx, Xxxxx
|
Finance
and Commerce Development
Zone Sub-bureau, Shenyang Municipal Administration
for Industry and Commerce
|
|
Shenyang
Jinxiang Power Equipment Limited
|
9th
Floor of Tower B, XX.00, Xxxxx Xxxx, Xxxxxx Xxx Xxxxxxxx, Xxxxxxxx,
Xxxxx
|
1.Hi-tech Industry
Development Zone
Sub-bureau, Shenyang Municipal Administration for Industry and
Commerce;
2. Administration Committee of Shenyang Hi-tech
Industry Development Zone
|
|
Shenyang
Ruixiang Wind Power Equipment Limited
|
8th
Floor of Tower B, XX.00, Xxxxx Xxxx, Xxxxxx Xxx Xxxxxxxx, Xxxxxxxx,
Xxxxx
|
1.Hi-tech Industry
Development Zone
Sub-bureau, Shenyang Municipal Administration for Industry and
Commerce;
2. Administration Committee
of Shenyang Hi-tech Industry Development
Zone
|
(v)
None.
