Exhibit 10.1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (together with all schedules, exhibits and all
ancillary agreements contemplated herein, hereinafter referred to as this
"Agreement"), is entered into as of the 17th of August, 2004 by and among HQ
Sustainable Maritime Industries, Inc., a Delaware corporation ("HQSM" or
"Company"), Sino-Xxxx Canada (S.S.C.) Limited, a limited liability corporation
existing in Canada ("Owner"), and Sealink Wealth Limited, a limited liability
corporation existing in the British Virgin Islands ("Sealink"). Owner is owned
by the following shareholders and officers of HQSM: Xxxxxxx Sporns, Xxxxxxx Xxxx
Li and Xxxxx Xxxx Hua. Owner is the sole owner of Sealink, which is in turn, the
sole owner of the company producing nutraceutical products in China under the
name of Hainan Jiahua Marine Bio-products Co., Ltd., a limited liability
corporation existing in China ("Hainan"). Hainan is the subject of a fairness
opinion by an independent valuation (the "Appraisal") by Vigers Appraisal &
Consulting Limited, an independent appraiser in Hong Kong. The Appraisal is
attached as Exhibit A to this Agreement. Hereinafter, HQSM, Owner and Sealink
are each referred to individually as a "Party" and collectively as "Parties".
RECITALS
A. Owner and HQSM believe the acquisition of Hainan is of great
importance to HQSM's expansion.
B. Hainan maintains title to certain assets, including, but not limited
to: (i) plant buildings, (ii) manufacturing equipment, (iii) environmental
control equipment, (iv) the right to produce products arising from the operation
of Hainan, (v) the ownership rights to any intellectual property arising from
the operations of Hainan; and (vi) customer list and sales and distribution
contracts.
C. Owner owns 100% of the equity interest in Sealink, which in turn,
owns 100% of the equity interest in Hainan.
NOW THEREFORE, on the stated premises and for and in consideration of
the mutual covenants and agreements hereinafter set forth and the mutual
benefits to the Parties to be derived herefrom, it is hereby agreed as follows.
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF OWNER AND SEALINK
As an inducement to, and to obtain the reliance of HQSM, Owner and
Sealink each represents and warrants as follows:
Section 1.01--OWNERSHIP OF SEALINK. Owner is the sole legal and
beneficial owner of Sealink free and clear of any claims, charges, equities,
liens, security interests, or encumbrances whatsoever. Sealink is the sole legal
and beneficial owner of Hainan free and clear of any claims, charges, equities,
liens, security interests, or encumbrances whatsoever.
Section 1.02--VALID TRANSFER OF FULLY VESTED SHARES. Owner has full
right, power, and authority to transfer, assign, convey, and deliver his
ownership of Sealink. The delivery by Owner of the ownership interest of Sealink
with all of its assets (the "Company Assets") and liabilities at the Closing (as
described in Section 3.03 herein) will convey to HQSM good and marketable title
to Sealink, free and clear of any claims, charges, equities, liens, security
interests, or encumbrances whatsoever.
Section 1.03--ORGANIZATION OF OWNER AND SEALINK. Each of Owner and
Sealink has taken, or will have taken prior to Closing (as described in Section
3.03 herein), all actions required by law, or otherwise to authorize the
execution and delivery of this Agreement. Each of Owner and Sealink has or will
have prior to Closing (as described in Section 3.03 herein), the full power,
authority, and legal right and has or will have prior to Closing (as described
in Section 3.03 herein), taken all action required by law to consummate the
transactions herein contemplated.
Section 1.04--ENFORCEABLE OBLIGATION. The transactions contemplated by
this Agreement are the valid and binding obligations of Owner and Sealink,
enforceable against Owner and Sealink, by HQSM in accordance with the terms of
this Agreement.
Section 1.05--NO CONFLICTS. The execution and delivery by Owner and
Sealink of this Agreement, the performance by Owner and Sealink of their
respective obligations under this Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under, (iii) require Owner or Sealink
to obtain any consent, approval or action of, make any filing with or give any
notice to any person as a result or under the terms of, (iv) result in or give
to any person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments under, or (vi) result in the creation or imposition of any
lien upon Owner or Sealink or any of their respective assets and properties
under, any contract to which Owner or Sealink is a party or by which any of the
Company Assets is bound.
Section 1.06--GOVERNMENTAL AUTHORIZATIONS AND LICENSES. Each of Owner
and Sealink has, or will have upon Closing (as described in Section 3.03
herein), all licenses, franchises, permits, and other governmental
authorizations that are legally required to enable it to conduct its business in
all material respects as conducted. No authorization, approval, consent, or
order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
Owner and Sealink of this Agreement and consummation by Owner and Sealink of the
transactions contemplated hereby.
Section 1.07--BINDING OBLIGATION. When executed by Owner and Sealink,
this Agreement, and all exhibits hereto and the representations and warranties
contained herein and therein will constitute a valid and binding obligation of
Owner and Sealink, jointly and severally, enforceable in accordance with its
respective terms.
Section 1.08--OPTIONS OR WARRANTS OR SUBSCRIPTIONS. Except as set forth
in Schedule 1.08 to this Agreement, there are no existing options, warrants,
calls, subscriptions or commitments of any character relating to any equity
securities of Owner or Sealink.
Section 1.09--COMPLIANCE WITH LAWS AND REGULATIONS. Owner, Sealink and
Hainan each has complied with all applicable statutes and regulations in the
relevant jurisdiction except to the extent that noncompliance would not (i)
materially and adversely affect the business, operations, properties, assets, or
condition of Owner, Sealink or Hainan or (ii) result in the occurrence of any
material liability for Owner, Sealink or Hainan.
Section 1.10--LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or threatened or reasonably anticipated
against or affecting Owner, Sealink or Hainan or any assets or business of
either Owner, Sealink or Hainan or this Agreement or any exhibit hereto, at law
or in equity, by or before any court, arbitrator or governmental authority,
domestic or foreign.
Section 1.11--NO BANKRUPTCY. There has not been filed any petition or
application, nor any proceeding commenced by or against Owner, Sealink or Hainan
with respect to any assets of Owner, Sealink or Hainan under any law, domestic
or foreign, relating to bankruptcy, reorganization, fraudulent transfer,
compromise, arrangements, insolvency, readjustment of debt or creditors' rights,
and no assignment has been made by Owner, Sealink or Hainan for the benefit of
creditors generally.
Section 1.12--NO OPTION PLAN. There is no share option plan or similar
plan to acquire any additional shares or units or other equity interests, as the
case may be, of Owner or Sealink or securities convertible or exercisable into
or exchangeable for, or which otherwise confer on the holder thereof any right
to acquire, any such additional shares or units or equity interests, as the case
may be.
Section 1.13--FINANCIAL STATEMENTS OF HAINAN.
(a) Each set of financial statements (including, in each case,
any related notes thereto) contained in the audited financial statements of
Hainan as attached hereto as Schedule 1.13(a) and incorporated herein by
reference and made an integral part hereof (the "Hainan Financial Statements"),
was prepared in accordance with China GAAP applied on a consistent basis
throughout the periods involved.
(b) The Hainan Financial Statements are true, correct and
complete and accurately reflect the financial condition of Hainan as of each
period reflected therein. The Hainan Financial Statements fairly present the
financial condition of Hainan and the results of its operations and cash flows
as of the dates thereof. The Hainan Financial Statements include all adjustments
necessary to present fairly the information for such period.
(c) To the knowledge of Owner and Sealink, except as disclosed
in the Hainan Financial Statements, there has been no material change in the
financial condition, operations or business of Hainan since December 31, 2003.
(d) Except as otherwise disclosed in the Hainan Financial
Statements, Hainan does not have any material liabilities. Except as disclosed
in Schedule 1.13(d), Sealink does not have any material liabilities.
Section 1.14--TAX RETURNS. Except as set forth on Schedule 1.14, all
required tax returns and information returns and reports of or relating to any
tax and the information and data contained therein have been properly and
accurately compiled and completed in all material respects, and filed and paid
in a timely manner with the appropriate taxation authority for each of Owner,
Sealink and Hainan.
Section 1.15--GUARANTEES. Neither Owner nor Sealink nor Hainan has any
outstanding contracts or commitments guaranteeing (or indemnifying or making
contribution to others for breaches in connection with) the payment or
collection or the performance of the obligations of others, and none of them has
entered into any deficiency agreements, or issued any comfort letters, or
otherwise granted any material financial assistance to any person, firm,
corporation or other entity.
Section 1.16--NO NON-COMPETITION AGREEMENT. There is no restriction
agreement nor any non-solicitation or non-competition agreement or other
agreement restricting in any way the carrying on of the business of Owner,
Sealink or Hainan binding upon Owner, Sealink or Hainan.
Section 1.17--REAL PROPERTY. Owner does not own any real or otherwise
immovable property.
Section 1.18--PERSONAL PROPERTY; INTELLECTUAL PROPERTY.
(a) All of the personal property (other than Intellectual
Property, as hereinafter defined) (the "Personal Property") is in existence.
Each of Owner, Sealink and Hainan has good and marketable title to all of its
respective assets and properties, free and clear of all encumbrances or liens
howsoever defined and such assets and properties consist of all of the assets
and properties required by each of Owner, Sealink and Hainan to conduct its
respective businesses consistent with past practice. There are no material
defects, latent or patent, in the Personal Property. The machinery or equipment
of Sealink and Hainan are in proper operating condition and repair (subject to
normal wear and tear).
(b) Each of Owner, Sealink and Hainan owns or has the right to
use pursuant to license, sublicense, agreement, or permission all intellectual
property used for the operation of Hainan's business as presently conducted,
which intellectual property shall for purposes of this Agreement include, but
not be limited to, all (i) patents and patent rights, trademarks and trademark
rights, trade names and trade name rights, copyrights and copyright rights,
service marks and service xxxx rights, and all pending applications for and
registration of the same; (ii) brand names, trade dress, business and product
names, logos and slogans, and (iii) proprietary technology, including all
know-how, trade secrets, quality control standards, reports (including test
reports), designs, processes, market research and other data, computer software
and programs (including source codes and related documentation), formulae,
inventions and other ideas, methodologies, and technical information, (iv)
claims of the owner of any intellectual property for infringement of its rights
by a third party, no matter when arising, and (v) other intellectual property
(collectively, the "Intellectual Property").
Each item of Intellectual Property owned or used by Owner, Sealink and
Hainan immediately prior to the Closing hereunder will be owned or available for
use by Company on identical terms and conditions immediately subsequent to the
Closing hereunder. Each of Owner, Sealink and Hainan has taken all necessary and
desirable action to maintain and protect each item of Intellectual Property that
it owns or uses. Schedule 1.18(b) sets forth a true, correct and complete list
(together with description, registration number and registration date) of each
item of Intellectual Property owned by Owner, Sealink and Hainan or used in the
operation of Hainan's business, and, to the extent registered with any
governmental authority, the name, date of registration and registration number
of each such item. To the knowledge of Owner, Sealink and Hainan, no third party
has interfered with, infringed upon, misappropriated, or violated in any
material respect any Intellectual Property. The Intellectual Property
constitutes all the intellectual property that is material to the conduct of the
business of Hainan as now conducted. Hainan has taken reasonable steps to
protect its confidential information and trade secrets.
Section 1.19--NO MATERIALLY ADVERSE UNDISCLOSED FACTS. There is no fact
known to the management of Owner, Sealink or Hainan which has not previously
been disclosed in writing to Company which may materially adversely affect
Owner, Sealink and Hainan or any such company's respective assets, properties,
business, prospects, operation or condition (financial or otherwise), or which
should be disclosed to Company in order to make any of the warranties and
representations herein true and not misleading and no state of facts is known,
to the management of Owner, Sealink or Hainan, which would operate to prevent
Owner, Sealink or Hainan from continuing to carry on either of their businesses
in the manner in which carried on at the date hereof.
Section 1.20--XXXXXXXX-XXXXX COMPLIANCE.
(a) Each of Owner, Sealink and their subsidiaries maintains
accurate books and records reflecting its assets and liabilities and maintains
proper and adequate internal accounting controls which provide assurance that
(i) transactions are executed with management's authorization; (ii) transactions
are recorded as necessary to permit preparation of any requisite financial
statements to maintain accountability for its consolidated assets; (iii) access
to Sealink's assets is permitted only in accordance with management's
authorization; (iv) the reporting of Sealink 's assets is compared with existing
assets at regular intervals; and (v) accounts, notes and other receivables and
inventory are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
(b) Neither Owner nor Sealink has, since September 30, 2001,
extended or maintained credit, arranged for the extension of credit, or renewed
an extension of credit, in the form of a personal loan to or for any director or
executive officer (or equivalent thereof) of either Owner, Sealink or any
subsidiary thereof. Schedule 1.20(b) identifies any loan or extension of credit
maintained by Owner or Sealink to which the second sentence of Section 13(k)(1)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") applies.
(c) On or before Closing, each of Owner and Sealink and each
of its directors and its senior financial officers shall have consulted with
Owner's and Sealink's independent counsel, as appropriate, with respect to, and
(to the extent applicable to Owner or Sealink, as the case may be) is familiar
in all material respects with all of the requirements of the Xxxxxxxx-Xxxxx Act
of 2002. Each of Owner and Sealink is in compliance with the provisions of the
Xxxxxxxx-Xxxxx Act of 2002 applicable to it as of the date hereof and has
implemented such programs and has taken reasonable steps, upon the advice of
Owner's and Sealink's independent counsel, respectively, to ensure Owner's and
Sealink's future compliance (not later than the relevant statutory and
regulatory deadlines therefor) with all provisions of the Xxxxxxxx-Xxxxx Act of
2002 which shall become applicable to Owner and Sealink after the Closing Date
hereof.
(d) On or before Closing, each of Owner and Sealink shall
maintain disclosure controls and procedures required by Rule 13a-15 or 15d-15
under the Exchange Act; such controls and procedures shall be effective to
ensure that all material information concerning Owner, Sealink and its
subsidiaries is made known on a timely basis to management of Owner and Sealink.
Such disclosure controls will remain in effect on the Closing Date hereof and
made available to the parties responsible for the preparation of Company's
filings with the Commission and other public disclosure documents. Schedule
1.20(d) lists, and each of Owner and Sealink has delivered to Company copies of,
all written descriptions of, and all policies, manuals and other documents
promulgating, such disclosure controls and procedures.
Section 1.21--ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
contemplated by this Agreement or any transactions or developments contemplated
thereby, from the date of this Agreement until the completion of the Closing,
neither Owner nor Sealink will, other than as has been disclosed in writing to
Company: (i) incur any liability or obligation whatsoever, secured or unsecured,
direct or indirect, other than in the ordinary and usual course of its business;
(ii) enter into any contracts or agreements whatsoever, other than in the
ordinary and usual conduct and course of either of its businesses; (iii) change
any of its accounting methods, principles, practices or policies; (iv) cease to
operate its properties, if any, or fail to maintain any of its properties,
rights and assets consistently with past practices; (v) sell or otherwise in any
way alienate or dispose of any of its assets other than in the ordinary course
of business and in a manner consistent with past practices; (vi) modify its
charter documents or capital structure; (vii) make any dividend to any of its
shareholders or to any affiliate or associate thereof, or reserve or declare any
dividend; (viii) other than in the ordinary course of business, grant to any
customer any special allowance or discount, or change its pricing, credit or
payment policies; (ix) make any loan or advance, or assume, guarantee or
otherwise become liable with respect to the liabilities or obligations of any
person, or (x) purchase or otherwise acquire any shares or other equity
security, as the case may be, in any person.
Section 1.22--INFORMATION SUPPLIED. The information supplied by Owner
and Sealink specifically for inclusion in the information statement to be sent
to the shareholders of Company shall not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which it was made, not misleading or omit to state any
material fact necessary to correct any statement in any earlier communication to
the shareholders of Company with respect to this Agreement or any transaction or
development contemplated thereby or hereby, which has become false or
misleading.
Section 1.23--RELIANCE. All representations and warranties of Owner and
Sealink contained herein, shall be deemed to have been relied upon by Company
notwithstanding any investigation heretofore or hereafter made by Company or by
its counsel and shall survive the date hereof and continue in full force and
effect for the benefit of Company until the limitation period under any
applicable tax statute has expired or, in all other cases, until the first
anniversary of the date hereof.
Section 1.24--FULL DISCLOSURE. The representations and warranties of
Owner and Sealink contained in this Article I of this Agreement or to be
furnished in or in connection with documents mailed or delivered to the Company
in connection with the consummation of this Agreement, do not contain or will
not contain, any untrue statement of a material fact, or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND
WARRANTIES OF HQSM
As an inducement to, and to obtain the reliance of Owner and Sealink,
HQSM represents and warrants as follows:
Section 2.01--ORGANIZATION AND DUE AUTHORIZATION. HQSM is a corporation
duly organized, validly existing, and in good standing under the laws of the
state of Delaware and has the corporate power and is duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all of its properties and assets. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not violate any provision of HQSM's
certificate of incorporation or bylaws. HQSM has taken all action required by
law, its certificate of incorporation, its bylaws, or otherwise to authorize the
execution and delivery of this Agreement, and HQSM has full power, authority,
and legal right and has taken all action required by law, its certificate of
incorporation, bylaws, or otherwise to consummate the transactions herein
contemplated.
Section 2.02--CAPITALIZATION AND OUTSTANDING SHARES. As of August 17,
2004, HQSM'S authorized capital currently consists of 200,000,000 shares of
common stock, par value $0.001 (the "Common Stock"), of which 63,809,437 shares
of Common Stock are issued and outstanding. All issued and outstanding shares
are legally issued, fully paid, non-assessable and not issued in violation of
the pre-emptive or other rights of any person.
Section 2.03--APPROVAL OF AGREEMENT. The board of directors of HQSM has
approved this Agreement and the transactions contemplated herein.
ARTICLE III
PURCHASE AND SALE, PURCHASE PRICE AND CLOSING
Section 3.01--PURCHASE AND SALE, THE PURCHASE PRICE. At Closing, Owner
agrees to assign, transfer, and deliver to HQSM, free and clear of all liens,
pledges, encumbrances, charges, restrictions or known claims of any kind,
nature, or description, the whole ownership interest (represented by shares) of
Sealink against a total purchase price of twenty million US Dollars
(US$20,000,000) ("Purchase Price"), and HQSM agrees to issue and deliver: (i) an
aggregate consideration of twenty million US Dollars (US$20,000,000),
representing the fair market value of Hainan as set forth in the Appraisal
discounted by 15%, in the following manner: $8,888,655 in the form of 12,698,078
shares of HQSM's Common Stock up to but not exceeding 19.9% of the outstanding
shares of HQSM's Common Stock on a fully-diluted basis immediately prior to the
Closing Date, shall be issued by HQSM in a private placement transaction
pursuant to Section 4(2) of the Securities Act of 1933, as amended and delivered
to the shareholder listed in Schedule 3.04 hereto (the "Share Recipient") and
(ii) the remaining balance of $11,111,345 shall be delivered in the form of a
convertible promissory note issued to Owner by HQSM (the "Convertible Note"),
substantially in the form attached hereto as Exhibit B. The Convertible Note
shall accrue interest at the rate of 5% per annum and shall be convertible into:
first one hundred thousand US Dollars (US$100,000) for 100,000 shares of HQSM's
preferred stock, $0.001 par value per share, issuable pursuant to a certificate
of designation, substantially in the form attached hereto as Exhibit C, and
thereafter the remaining value of the Convertible Note in the amount of
US$11,011,345 into 15,730,493 shares of HQSM's Common Stock. The Convertible
Note shall be convertible only upon completion of an audit of the acquisition
that is the subject of this Agreement, performed to the satisfaction of HQSM and
receipt of all necessary shareholder consents and approvals.
Section 3.02--[RESERVED]
Section 3.03--CLOSING. The closing ("Closing") of the transactions
contemplated by this Agreement shall be at a mutually convenient time as
determined by the Parties ("Closing Date").
Section 3.04--CLOSING EVENTS. At the Closing, each of the Parties
hereto shall execute, acknowledge, and deliver (or shall ensure to be executed,
acknowledged, and delivered) the following:
(a) in the case of Owner, a share certificate representing the
whole ownership interest of Sealink duly endorsed for transfer or accompanied by
a stock power; and
(b) in the case of HQSM, (i) a stock certificate evidencing
the share ownership of the Share Recipient as set forth on Schedule 3.04 hereto
and (ii) the Convertible Note.
Each Party shall also deliver such other items as may be reasonably
requested by the other Party and/or their respective legal counsel in order to
effectuate or evidence the transactions contemplated hereby.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS OF HQSM
The obligations of HQSM under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 4.01--ACCURACY OF REPRESENTATIONS. The representations and
warranties made by Owner and Sealink in this Agreement were true when made and
shall be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and Owner, Sealink and each
Share Recipient shall have performed or complied with all covenants and
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing.
Section 4.02--NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business, or operations of Sealink or Hainan nor shall any event have
occurred which, with the lapse of time or the giving of notice, may cause or
create any material adverse change in the financial condition, business or
operations of Sealink or Hainan.
Section 4.03--AUDIT OF ACQUISITION. Sealink shall have caused the
preparation and subsequent audit of the consolidated financial statements of
Sealink and Hainan for the annual period ended December 31, 2003 to be performed
in accordance with US GAAP to the reasonable satisfaction of HQSM for the
purposes of the transactions herein contemplated.
Section 4.04--CONSENTS, ETC. HQSM shall have received evidence, in form
and substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities, shareholders and other third parties as necessary in connection
with the transactions contemplated hereby have been obtained.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF OWNER AND SEALINK
The obligations of Owner and Sealink under this Agreement are subject
to the satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01--ACCURACY OF REPRESENTATIONS. The representations and
warranties made by HQSM in this Agreement were true when made and shall be true
as of the Closing Date (except for changes therein permitted by this Agreement)
with the same force and effect as if such representations and warranties were
made at and as of the Closing Date, and HQSM shall have performed and complied
with all covenants and conditions required by this Agreement to be performed or
complied with by HQSM prior to or at the Closing.
Section 5.02--NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date,
there shall not have occurred any material adverse change in the financial
condition, business, or operations of HQSM nor shall any event have occurred
which, with the lapse of time or the giving of notice, may cause or create any
material adverse change in the financial condition, business or operations of
HQSM.
ARTICLE VI
MISCELLANEOUS
Section 6.01--GOVERNING LAW. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to the matters of state law, with the laws
of the State of New York, without regard to its conflicts of law principles.
Section 6.02--RESOLUTION OF DISPUTES.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, or the interpretation, breach, termination or
validity hereof, shall first be resolved through friendly consultation, if
possible. Such consultation shall begin immediately after one Party has
delivered to the respective Party a written request for such consultation (the
"Consultation Date"). If the dispute cannot be resolved within 30 days following
the Consultation Date, the dispute shall be submitted to arbitration upon the
request of either Party, with written notice to the other Party.
(b) ARBITRATION. The arbitration shall be conducted in New
York, New York under the auspices of the American Arbitration Association
("AAA") in accordance with the commercial arbitration rules and supplementary
procedures for international commercial arbitration of the AAA. There shall be
three arbitrators--one arbitrator shall be chosen by each party to the dispute
and those two arbitrators shall choose the third arbitrator. All arbitration
proceedings shall be conducted in English. Each party to the dispute shall
cooperate with the other in making full disclosure of and providing complete
access to all information and documents requested by the other party to the
dispute in connection with the arbitration proceedings. Arbitration shall be the
sole, binding, exclusive and final remedy for resolving any dispute between the
parties thereto; either party thereto may apply to any court of competent
jurisdiction in the State of New York for enforcement of any award granted by
the arbitrators.
(c) During the period when a dispute is being resolved, except
for the matter being disputed, the Parties shall in all other respects continue
to abide by the terms of this Agreement.
Section 6.03--ATTORNEY'S FEES. In the event that any Party institutes
any action or suit to enforce this Agreement or to secure relief from any
default hereunder or breach hereof, the breaching Party or Parties shall
reimburse the non-breaching Party or Parties for all costs, including reasonable
attorney's fees, incurred in connection therewith and in enforcing or collecting
any judgment rendered therein.
Section 6.04--SCHEDULES; KNOWLEDGE. Each Party is presumed to have full
knowledge of all information set forth in the other Party's schedules delivered
pursuant to this Agreement.
Section 6.05--ENTIRE AGREEMENT. This Agreement and any agreements,
documents and instruments to be executed and delivered pursuant hereto are
intended to embody the final, complete and exclusive agreement among the Parties
with respect to the subject matter of this Agreement, and are intended to
supersede all prior agreements, understandings and representations written or
oral, with respect thereto.
Section 6.06--SURVIVAL; TERMINATION. The representations, warranties,
and covenants of the respective Parties shall survive the Closing Date and the
consummation of the transactions herein contemplated for a period of three
months. All rights and obligations under this entire Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators and
assigns of the Parties.
Section 6.07--COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument. For purposes of this Agreement,
facsimile signatures may be deemed originals.
Section 6.08--AMENDMENT OR WAIVER. Every right and remedy provided
herein shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and no
waiver by any Party of the performance of any obligation by the other shall be
construed as a waiver of the same of any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all Parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance may be extended by a writing
signed by the Party or Parties for whose benefit the provision is intended.
Section 6.09--THIRD PARTY CONSENTS AND CERTIFICATES. The Parties agree
to cooperate with each other in order to obtain any required third party
consents to this Agreement and the transactions herein contemplated.
Section 6.10--NOTICE. Any notice or other communication given hereunder
shall be deemed sufficient if in writing and sent by registered or certified
mail, return receipt requested, addressed to HQSM, at its principal office, Wall
Street Center, 00 Xxxx Xxxxxx - 00xx Xxxxx Xxx Xxxx, XX 00000, Attention:
President, to Owner at the following address: 0000 Xxxxx-Xxxxxxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxx, Xxxxxx J4W 1A6, Attention: President, and to Sealink at Xxxx
0000, 00xx Xxxxx, Xxxxx 0, Xxxxxxxxxx Xxxxxx, #9 Xxxxx Xxxx Road, Kowloon Bay,
Hong Kong, Attention: President. Notices shall be deemed to have been given on
the date of mailing, except notices of change of address, which shall be deemed
to have been given when received.
Section 6.11--SEVERABILITY. In the event that any provision or any part
of any provision of this Agreement shall be void or unenforceable for any reason
whatsoever, then such provision shall be stricken and of no force and effect.
However, unless such stricken provision goes to the essence of the consideration
bargained for by a Party, the remaining provisions of this Agreement shall
continue in full force and effect, and to the extent required, shall be modified
to preserve their validity.
Section 6.12--NO THIRD PARTY RIGHTS. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and the
respective successors and assigns of the foregoing, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third persons to any Party, nor shall any provision hereof give any third
persons any right of subrogation or action over or against any Party.
Section 6.13--CONSTRUCTION. The language in all parts of this Agreement
shall in all cases be construed simply, according to its fair meaning, and not
strictly for or against any of the Parties. Without limitation, there shall be
no presumption against any Party on the ground that such Party was responsible
for drafting this Agreement or any part thereof.
Section 6.14--SECTION HEADINGS. The section headings of this Agreement
are for convenience of reference only and shall not be deemed to alter or affect
any provision hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties hereto have caused this Purchase
Agreement to be duly executed as of the day and year first above written.
HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
By: /s/ Xxxxxxx Sporns
--------------------------
Name: Xxxxxxx Sporns
Title: CEO and President
SINO-XXXX CANADA (S.S.C.) LIMITED
By: /s/ Xxxxxxx Xxxx Li
--------------------------
Name: Xxxxxxx Xxxx Li
Title: Director
SEALINK WEALTH LIMITED
By: /s/ Xxxxx Xxxx Hua
--------------------------
Name: Xxxxx Xxxx Hua
Title: Director
SCHEDULE 3.04
Name of Share Recipient and the number of shares it is to receive
pursuant to this Agreement:
EXHIBIT A
---------
FAIRNESS OPINION
----------------
[Vigers Appraisal & Consulting Limited letterhead]
--------------------------------------------------------------------------------
REPORT
CONSIDERING
THE FAIR MARKET VALUE
of
A 100% equity interest
in
HAINAN JIAHUA MARINE BIOPRODUCTS CO. LTD.
AS OF
30 JUNE 2004
Client : Hainan Jiahua Marine Bioproducts Co. Ltd.
Ref. No. : RHKK/EC/jcsf/VA 3601-2004
Report Date : 2 August 2004
--------------------------------------------------------------------------------
Ref No.: RHKK/EC/jcsf/VA 3601-2004
Date: 2 August 2004
The Board of Directors
Hainan Jiahua Marine Bioproducts Company Limited
Unit C, Dacheng Commercial Bldg.,
No.14 Haidian Si Dong Road,
Haikou, Hainan, the PRC
Dear Sirs / Madams,
In accordance with the instruction from Hainan Jiahua Marine Bioproducts Company
Limited ("the Company"), we have carried out a valuation of a 100 per cent.
equity interest in the Company as at 30 June 2004 (the "Valuation Date"). This
letter summarizes the principal conclusions of our valuation. We understand this
valuation is required as a reference for the acquisition of the Company by HQ
Sustainable Maritime Industries, Inc. ("HQSM"), a listed company in the U.S.
NASDAQ stock market.
Background
Initially established as a Sino-Canadian joint venture enterprise in the PRC in
February 2001 with a registered capital of US$3.0million, the Company was
previously held 60% in common equity by a Canadian company called Sino-Xxxx
Investment Consulting Company Limited ("Sino-Xxxx") and 40% in common equity by
a PRC company called [name of entity in Chinese omitted] (Hainan Jiahua Ocean
Product and Biopharmacy (Group) Company Limited) ("JOPB"). In 2004, the Company
was transformed into a 100% foreign-invested enterprise in the PRC having an
operating term of 20 years upon the approval of the Department of Commerce of
Hainan Province on the transfer of JOPB's 40% share ownership in the Company to
Sino-Xxxx on 26 July 2004. The Company is now wholly-own by Sealink Wealth
Limited ("Sealink Wealth"), a company incorporated in the British Virgin Islands
upon the approval of the Department of Commerce of Hainan Province (document
serial no. GengZi (2004) 142) on the transfer of the 100% share ownership in the
Company from Sino-Xxxx to Sealink Wealth on 4 August 2004.
THE BUSINESS
The Company is located in Wenchang City of Hainan Province, the PRC and is
principally engaged in the production and sales of marine bio-products and
healthcare products in the PRC. It currently holds two subsidiaries, a marine
bio-products factory and the Marine Organism Research Institute. The marine
bio-products factory is located in Wenchang City of Hainan Province having a
1
ground floor area of 16,667 sq. m. and a construction area of approximately
8,000 sq. m., and consists of two production lines: the powder-product line and
the oil-product line. We understand that the bio-products factory has obtained
the HACCP certification from the CIQ (China Entry-Exit Inspection and Quarantine
Bureau). The Marine Organism Research Institute is leaded by a group of science
experts specializing in the research and development of marine organisms in
China. It is our understanding that most of them have fruitful experience in the
research and development of shark cartilage, shark liver oil and seal derived
healthcare products and most are the winners of Science and Technology Progress
Awards at the national or provincial standards in the PRC. Besides, the Company
has established long-term relationship with the Qingdao University of
Oceanography in terms of production-research-training. Furthermore the
production lines are ideally suited for the manufacture of nutraceutical
components. The specific gravity molecular separator and accessory equipment in
the plant is required for the manufacture of nutraceutical products which can
serve as feed additives in feed production such as Tilapia and shrimp feed.
Six healthcare products are currently sold under the brand name "Jiahua" [name
of brand name in Chinese omitted] of the Company, namely, Jiahua Shark Cartilage
Capsule [name of product in Chinese omitted], Jiahua Shark Liver Oil Capsule
[name of product in Chinese omitted], Jiahua Shark Liver (soft gel) [name of
product in Chinese omitted], Jiahua Seal Oil (soft gel) [name of product in
Chinese omitted], Jiahua Seal Genitals Capsule [name of product in Chinese
omitted] and Jiahua Runlizi Tablet [name of product in Chinese omitted]. Shark
liver oil contains elements like Alkoxy-glycerols which are believed beneficial
to human immune system whereas shark liver also contains ingredients like
squalene, vitamin D and vitamin E that are helpful for maintaining human health.
Seal oil, obtained from fresh seal blubbers, is found to contain chemicals like
EPA, DHA and DPA (poly-unsaturated fatty acids of Omega series) that are also
proven beneficial to our health. Seal genitals are directly imported by the
Company from Canada and are purified through special bio-technological
processes. Its active ingredients are believed beneficial to human immune system
and reproductive system.
Basis and Methodology of Valuation
Our Valuation was carried out on a fair market value basis. Fair market value is
defined as "the estimated amount for which an asset should be exchanged on the
date of valuation between a willing buyer and a willing seller in an arm's
length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion."
The value of the Company was developed through the application of Income
Approach with the technique known as the Discounted Cash Flow Method to discount
the future economic benefits of the Company into a present market value. This
method eliminates the discrepancy in the time value of money by using a discount
rate to reflect all business risks including systematic and unsystematic risks
in relation to the business.
2
In applying the discounted cashflow method, we have determined an appropriate
discount rate for the assets under review. The cost of equity explaining the
systematic risks was developed through the Capital Asset Pricing Model ("CAPM")
whereas the unsystematic risk including size risk, lack of marketability and
specific risk of the business were also taken into account by making appropriate
adjustments in the determination of the discount rate of the business. The
discount rate and long-term growth rate used in this valuation exercise are
15.5% and 1.5% respectively and we believe these figures are reasonable for the
business under concern.
Our valuation requires consideration of all relevant factors affecting the
operation of the business and its ability to generate future investment returns.
The factors considered in the valuation included, but were not limited to, the
followings:
- present business nature and future development of the Company;
- global economic outlook in general and the specific economic
environment related to the business of the Company;
- historical and projected operating results of the Company;
- the financial and business risk of the Company including the
continuity of income and the projected future results;
- competitive advantages and disadvantages of the Company in related
industries;
As part of our analysis, we are furnished with information prepared by the
Company that includes related operational information and documents regarding
the subject business.
We have reviewed the information required and we believe no material factor has
been intentionally omitted or withheld from the given information in order to
reach an informed view.
MAJOR CONSIDERATIONS & ASSUMPTIONS
Assumptions considered to have significant sensitivity effects in this valuation
were evaluated and validated in order to provide a more accurate and reasonable
basis for arriving at our assessed value. Based on our experience in valuing
businesses of similar nature, we consider the assumptions made in this valuation
report to be reasonable.
Our major considerations and assumptions are listed as follows:
3
- There will be no material adverse change in the political, legal,
fiscal or economic condition in the countries in which the Company
carry on its business;
- Currency exchange rates in countries related to the business of the
Company will not differ materially from their current rates;
- The Company will retain its key management, competent personnel and
staff to support its ongoing operation;
- Market trend and conditions for the biopharmaceutical industry,
healthcare industry and other related industries in the regions
related to the business of the Company will not deviate significantly
from the economic forecasts in general;
- The regulatory policies concerning biopharmaceutical and healthcare
industries, hunting of sharks and seals, and export of seal genitals
in countries related to the business of the Company will not have any
adverse impact on the Company;
- We have estimated the future cashflow up to year 2009 and the cashflow
after year 2009 will be summed up as a terminal value;
- We have considered in this valuation the revenue of the Company from
the sales of six major products, namely, Jiahua Shark Cartilage
Capsule [name of product in Chinese omitted], Jiahua Shark Liver Oil
Capsule [name of product in Chinese omitted], Jiahua Shark Liver (soft
gel) [name of product in Chinese omitted], Jiahua Seal Oil (soft gel)
[name of product in Chinese omitted], Jiahua Seal Genitals Capsule
[name of product in Chinese omitted] and Jiahua Runlizi Tablet [name
of product in Chinese omitted] during the valuation period. We have
also estimated the revenue contribution from its new products that
will possibly be launched during the valuation period;
- We have only considered in this valuation the revenue from the sales
of the Company's major products and new products in the PRC;
- We have assumed that the bio-products factory of the Company will
continue to meet the required standards specified in the HACCP
certification during the valuation period;
- As per the management of the Company, we have assumed the Company will
not incur any substantial capital expenditure during the valuation
period;
- We have only considered a collection of operating income and related
expenses such as direct costs, management costs and taxes. We have not
made provision for non-operating cash flow items such as interest
income, investment income, subsidized income, exchange rate gain/loss,
provision for bad debt, etc. in the valuation model;
4
We have assumed the reasonableness of information provided and relied to a
considerable extent on such information in arriving at our opinion of value.
5
OPINION OF VALUE
The conclusion of value is based on accepted valuation procedures and practices
that rely substantially on the use of numerous assumptions and the consideration
of many uncertainties, not all of which can be easily quantified or ascertained.
While the assumptions and consideration of such matters are considered to be
reasonable, they are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company.
Based on the aforesaid investigation, analysis and valuation method employed, it
is our opinion that as of the Valuation Date, the fair market value of a 100 per
cent. equity interest in the Company is reasonably stated by the amount of
(RENMINBI ONE HUNDRED AND NINETY EIGHT MILLION TWO HUNDRED THOUSAND ONLY).
We have not investigated the title to or any liabilities against the business
being valued. We hereby certify that we have neither present nor prospective
interests in the Company or value reported.
Yours faithfully,
For and on behalf of
Vigers Appraisal & Consulting Limited
/s/ Xxxxxxx X. X. Ho
--------------------
Xxxxxxx X.X. Ho
MRICS MHKIS MSc (e-com)
Registered Professional Surveyor
Executive Director
Note:
Xx. Xxxxxxx X.X. Xx is a registered professional surveyor who has over 8 years
of experience in business valuation and intangible asset valuation in Hong Kong,
Macau and the PRC.
6
LIMITING CONDITIONS
1. Vigers Appraisal and Consulting Limited shall not be required to give
testimony or attendance in court or to any government agency by reason of
this valuation, with reference to the project described herein, unless
prior arrangements have been made.
2. No opinion is intended to express for matters that require legal or other
specialized expertise or knowledge, beyond that customarily employed by
valuers.
3. As part of our analysis, we have reviewed financial and business
information from public sources together with such financial information,
project documentation and other pertinent data concerning the project as
has been made available to us. Such information was provided by the Company
and related parties acting in concert. We assumed such information reliable
and legitimate. We have relied to a considerable extent on such information
provided in arriving at our opinion of value.
4. Our conclusions assume a continuation of prudent management policies over
whatever period of time, which is believed reasonable and is necessary to
maintain the character and integrity of the assets valued.
5. We assume that there are no hidden or unexpected conditions associated with
the assets valued that might adversely affect the reported value. Further,
we assume no responsibility for changes in market conditions, which may
require an adjustment in the valuation.
6. Neither the whole nor any part of this report and valuation, nor any
reference thereto, may be included in any document, circular or statement
without our written approval of the form and content in which it will
appear.
7. This report is confidential to the client for the specific purpose to which
it refers. In accordance with our standard practice, we must state that
this report and valuation is for the use only of the party to whom it is
addressed and no responsibility is accepted to any third party for the
whole or any part of its contents.
7
GENERAL SERVICE CONDITIONS
The service(s) provided by Vigers Appraisal and Consulting Limited will be
performed in accordance with professional appraisal standard. Our compensation
is not contingent in any way upon our conclusions of value. We assume, without
independent verification, the accuracy of all data provided to us. We will act
as an independent contractor and reserve the right to use subcontractors. All
files, working papers or documents developed by us during the course of the
engagement will be our property. We will retain this data for as long as we
wish.
Our report is to be used only for the specific purpose stated herein and any
other use is invalid. No reliance may be made by any third party without our
prior written consent. You may show our report in its entirety to those third
parties who need to review the information contained herein. No one should rely
on our report as a substitute for his or her own due diligence. No reference to
our name or our report, in whole or in part, in any document you prepare and/or
distribute to third parties may be made without our written consent.
You agree to indemnify and hold us harmless against and from any and all losses,
claims, actions, damages, expenses, or liabilities, including reasonable
attorneys' fees, to which we may become subjects in connection with this
engagement. You will not be liable for our negligence. Your obligation for
indemnification and reimbursement shall extend to any controlling person of
Vigers Hong Kong Limited, including any director, officer, employee,
subcontractor, affiliate or agent. In the event we are subject to any liability
in connection with this engagement, regardless of legal theory advanced, such
liability will be limited to the amount of fees we received for this engagement.
We reserve the right to include your company/firm name in our client list, but
we will maintain the confidentiality of all conversations, documents provided to
us, and the contents of our reports, subject to legal or administrative process
or proceedings. These conditions can only be modified by written
8
EXHIBIT B
---------
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE PROMISSORY NOTE
---------------------------
U.S.$ 11,111,345
August 17, 2004
1. FOR VALUE RECEIVED, the undersigned, HQ Sustainable Maritime
Industries, Inc., a Delaware corporation (the "Borrower"), hereby
unconditionally promises to pay to the order of SINO-XXXX CANADA
(S.S.C.) LIMITED, a limited liability corporation existing in Canada
(the "Lender") at the Lender's offices at 0000-000 Xxxx Xxxxxxxx Xxxx.
X. Xxxxxxxx, Xxxxxx X0X 0X0, the principal sum of ELEVEN MILLION ONE
HUNDRED AND ELEVEN THOUSAND THREE HUNDRED AND FORTY FIVE United States
Dollars (US$11,111,345) as hereinafter provided and to pay interest on
the principal balance hereof from time to time outstanding as
hereinafter provided.
2. The principal hereof shall be paid upon maturity, 90 days from the date
above first written or such date when the Lender shall have caused the
audited financial statements to be completed to the satisfaction of the
Borrower pursuant to Section 4.03 of the Purchase Agreement, dated as
of the date hereof, between the Borrower and the Lender (the "Purchase
Agreement"), whichever comes earlier (the "Maturity Date"). The
Borrower hereby agrees to grant to the Lender the right to convert all,
but not less than all, of the Note into common stock, $0.001 par value
per share of the Borrower ("Common Stock") and Series A Preferred
Stock, $0.001 par value per share of the Borrower (the "Preferred
Stock") on terms and subject to the conditions set forth in this Note.
At the Borrower's option, the Maturity Date may be extended for an
additional 90 days, provided that 10 Business Days' prior written
notice is given to the Lender by the Borrower. Whenever any payment of
principal or interest falls due on a day which is not a Business Day,
the due date for payment shall be extended to the next following
Business Day. "Business Day" shall mean any day on which banks are not
required or authorized by law to close in New York, New York or Canada.
The monetary obligations of the Borrower hereunder shall be
dischargeable only by payment in immediately available United States
dollars or other lawful currency of the United States, regardless of
any law, rule, regulation or statute, whether now or hereafter in
existence or in effect in any jurisdiction, which affects or purports
to affect such obligations.
3. The principal balance of this Note shall bear interest at the rate of
five percent (5%) per annum payable at Maturity or upon satisfaction or
discharge of this Note. This Note shall bear interest on the unpaid
principal amount from the date hereof until payment in full of such
principal amount. All payments to the Lender in respect of this Note
shall be applied to interest and to principal, in such order as the
Lender shall determine in its sole discretion. Interest for any period
will be calculated on the basis of the actual number of days elapsed
(including the first day but excluding the last day) and a year of 360
days. Notwithstanding anything in this Note to the contrary, in no
event shall the Borrower be required to make payments of interest in
excess of the maximum amount permitted by law.
4. This Note may be prepaid at any time without premium or penalty, but
with interest through the date of prepayment.
(a) This Note is referenced in the Purchase Agreement, and
memorializes the intent of the parties therein. No amendment or
modification of this Note shall be effective unless such amendment or
modification is permitted under the terms of the Purchase Agreement and
is executed in writing and signed by the Borrower and the Lender.
(b) The Lender has agreed to cause its wholly owned
subsidiary, Sealink Wealth Limited ("Sealink") to cause the preparation
and subsequent audit of the consolidated financial statements of
Sealink and Sealink's wholly owned subsidiary, Hainan Jiahua Marine
Bio-products Co., Ltd. for the annual period ended December 31, 2003 to
be performed in accordance with US GAAP to the reasonable satisfaction
of the Borrower pursuant to Section 4.03 of the Purchase Agreement.
(c) The Lender has agreed to furnish to the Borrower evidence,
in form and substance reasonably satisfactory to the Borrower, that
such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities, shareholders and
other third parties as necessary in connection with the transactions
contemplated hereby have been obtained.
(d) The Borrower and the Lender agree that at any time after
the Lender has performed its obligations under Section 4 above to the
reasonable satisfaction of the Borrower, but before the Maturity Date,
the Lender shall have the right, but not the obligation, to convert
all, but not less than all, of the outstanding principal amount of this
Note into the shares of Common Stock and Preferred Stock of the
Borrower, at the Conversion Price (as defined below).
(e) For purposes of Section 4(d) above and adjustments
thereunder, the per share conversion price shall be deemed to be
US$1.00 (One United States Dollar) per one (1) share of Preferred Stock
(the "Preferred Conversion Price") and US$.70 (Seventy United States
Cents) per one (1) share of Common Stock ("Common Conversion Price"),
subject to further adjustment as provided below. The Preferred and
Common Conversion Price shall be applied under this Note: (i) first to
100,000 shares of Preferred Stock, whereby the Lender shall be issued
100,000 shares of the Borrower's Preferred Stock within 10 Business
Days following conversion and the outstanding principal amount under
this Note shall be reduced by $100,000; and (ii) thereafter to
15,730,493 shares of Common Stock, until the remaining outstanding
principal balance hereunder has been converted. Any accrued interest on
this Note shall thereafter be payable in immediately available United
States dollars or other lawful currency of the United States. The
Common Conversion Price in effect at any time and the number and kind
of securities to be received by the Lender upon the exercise of the
Lender's conversion rights, shall be subject to adjustment from time to
time upon the happening of certain events as provided herein. In case
the Borrower shall (i) declare a dividend or make a distribution on its
outstanding shares of Common Stock or (ii) subdivide or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying such conversion price by a
fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. The number and kind of
securities shall also be proportionately adjusted. Such adjustment
shall be made successively whenever any event listed above shall occur.
5. Upon default in the prompt and full payment of any amounts due at
Maturity or upon satisfaction or discharge of this Note, the entire
outstanding principal hereof and interest thereon to the date of
payment shall immediately become due and payable at the option and upon
demand of the holder hereof.
(a) The Borrower hereby waives diligence, presentment, demand,
protest or notice of nonpayment or dishonor with respect to this Note.
(b) The failure of the holder hereof to exercise any of its
rights hereunder in any instance shall not constitute a waiver thereof
in that or any other instance.
(c) The Borrower hereby agrees to reimburse the holder hereof
for reasonable and documented costs and expenses incurred by such
holder in enforcing its rights under this Note.
(d) This Note shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to the
conflicts of laws principles thereof.
(e) Any failure or delay of the Lender to exercise any right
hereunder shall not be construed as a waiver of the right to exercise
the same or any other right at any other time. The waiver by the Lender
of a breach or default of any provision of this Note shall not operate
or be construed as a waiver of any subsequent breach or default
hereunder. The provisions of this Note are severable, and the
invalidity or unenforceability of any provision shall not alter or
impair the remaining provisions of this Note.
(f) All payments due to the Lender will be made without
set-off or counterclaim, free and clear of any deduction or withholding
on account of any present or future taxes, duties, or other charges
imposed by the United States of America or any political subdivision or
taxing authority thereof or therein (other than taxes imposed on or
measured by the net income of the Lender), all of which will be for the
account of Borrower and paid by it when due.
(g) Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified
mail, return receipt requested, addressed to the Borrower, at its
principal office, Wall Street Center, 00 Xxxx Xxxxxx - 00xx Xxxxx Xxx
Xxxx, XX 00000, Attention: President, and to the Lender at the
following address: 0000 Xxxxx-Xxxxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxx,
Xxxxxx J4W 1A6, Attention: President. Notices shall be deemed to have
been given on the date of mailing, except notices of change of address,
which shall be deemed to have been given when received.
(h) This Note shall be binding upon the Borrower and inure to
the benefit of the Lender and its successors and assigns.
(i) After the conversion, this Note shall be considered paid
in full and retired and cancelled.
IN WITNESS WHEREOF, the undersigned has caused this Note, consisting of
four (4) pages, this being the fourth page, to be duly executed and delivered by
its duly authorized officer.
HQ Sustainable Maritime Industries, Inc.
By:_____________________________________
Name:
Title:
EXHIBIT C
---------
HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
CERTIFICATE OF DESIGNATION
OF SERIES A PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
HQ Sustainable Maritime Industries, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: Pursuant to authority conferred upon the Board of Directors by
its Certificate of Incorporation, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of Directors
is authorized to issue Preferred Stock of the Company in one or more series and
has adopted the resolution set forth below on August 17, 2004:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of the
Certificate of Incorporation of the Corporation, as amended, out of the
authorized but unissued shares of Preferred Stock of the Corporation this Board
of Directors hereby creates a series of the Preferred Stock, par value $.001 per
share (the "Preferred Stock"), of the Corporation, and this Board of Directors
hereby fixes the powers, designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof (in addition to the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, set forth
in the Certificate of Incorporation of the Corporation which are applicable to
Preferred Stock of all series) as follows:
1. Designation. The designation of the series shall be "Series A Preferred
Stock" (the "Series A Preferred Stock").
2. Number. The number of shares constituting the Series A Preferred Stock
shall be 100,000.
3. Voting Rights.
a. General Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to the voting power equal to that
of one thousand shares of the Corporation's common stock, par value
$.001 per share (the "Common Stock") and with respect to such vote,
each such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the by-laws of the
Corporation, and shall be entitled to vote, together with holders of
Common Stock, with respect to any question upon which holders of Common
Stock have the right to vote.
b. Consent Needed for Authorization. Without the vote or consent of the
holders of at least a majority of the shares of Series A Preferred
Stock then outstanding, the Corporation may not (i) authorize, create
or issue, or increase the authorized number of shares of, any class or
series of capital stock ranking prior to or on a parity with the Series
A Preferred Stock either as to dividends or liquidation, (ii)
authorize, create or issue any class or series of common stock of the
Corporation other than the Common Stock, (iii) authorize any
reclassification of the Series A Preferred Stock, (iv) authorize,
create or issue any securities convertible into or exercisable for
capital stock prohibited by Section 3(b)(i) or (ii), (v) amend this
Certificate or (vi) enter into any disposal, merger or reorganization
involving 20% of the total capitalization of the Corporation.
4. Liquidation.
a. Preference. Subject to the rights of the holders of any other series
of Preferred Stock ranking senior to or on a parity with the Series A
Preferred Stock with respect to liquidation and any other class or
series of capital stock of the Corporation ranking senior to or on a
parity with the Series A Preferred Stock with respect to liquidation,
in the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the
holders of record of the issued and outstanding shares of Series A
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to the holders of shares of
Series A Preferred Stock, prior and in preference to any distribution
of any of the assets of the Corporation to the holders of Common Stock
and any other series of Preferred Stock ranking junior to the Series A
Preferred Stock with respect to liquidation and any other class or
series of capital stock of the Corporation ranking junior to the Series
A Preferred Stock with respect to liquidation, an amount in cash per
share equal to $1.00, plus an amount equal to all dividends accrued and
unpaid on each such share (whether or not declared) up to the date
fixed for distribution. If, upon such liquidation, dissolution or
winding up of the affairs of the Corporation, the assets of the
Corporation distributable among the holders of Series A Preferred Stock
and any other series of Preferred Stock ranking on a parity therewith
in respect thereto or any class or series of capital stock of the
Corporation ranking on a parity therewith in respect thereto shall be
insufficient to permit the payment in full to all such holders of
shares of the preferential amounts payable to them, then the entire
assets of the Corporation available for distribution to such holders of
shares shall be distributed ratably among such holders in proportion to
the respective amounts that would be payable per share if such assets
were sufficient to permit payment in full. After payment of the full
amount to which they are entitled upon liquidation pursuant to this
Section 4(a), the holders of shares of Series A Preferred Stock will
not be entitled to any further participation in any distribution of
assets by the Corporation. Neither a consolidation or merger of the
Corporation with another corporation or other entity nor a sale,
transfer, lease or exchange of all or part of the Corporation's assets
will be considered a liquidation, dissolution or winding up of the
affairs of the Corporation for purposes of this Section 4(a).
b. Adjustments. The liquidation preference provided for herein with
respect to the Series A Preferred Stock shall be equitably adjusted to
reflect any stock dividend, stock distribution, stock split or reverse
stock split, combination of shares, subdivision of shares or
reclassification of shares with respect to the Series A Preferred
Stock.
5. Optional Conversion Rights. The Series A Preferred Stock shall be
convertible as follows:
a. Optional Conversion. Subject to and upon compliance with the
provisions of this Section 5, the holder of any shares of Series A
Preferred Stock shall have the right at such holder's option (an
"Optional Conversion"), at any time or from time to time, and without
the payment of any additional consideration therefor, to convert any of
such shares of Series A Preferred Stock into fully paid and
nonassessable shares of Common Stock at the ratio of one share of
Series A Preferred Stock for two shares of the Common Stock of the
Corporation ("Optional Conversion Price"). In case the Corporation
shall (i) declare a dividend or make a distribution on its outstanding
shares of Common Stock or (ii) subdivide or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Optional
Conversion Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying such conversion price by a
fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. The number and kind of
securities shall also be proportionately adjusted. Such adjustment
shall be made successively whenever any event listed above shall occur.
b. Costs. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of
shares of Common Stock upon conversion of any shares of Series A
Preferred Stock; provided that the Corporation shall not be required to
pay any taxes which may be payable in respect of any transfer involved
in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Series A Preferred
Stock in respect of which such shares are being issued.
c. Dividends Upon Conversion. In connection with any conversion of
shares of Series A Preferred Stock, the Corporation shall pay accrued
and unpaid dividends thereon in accordance with the provisions of
Section 6.
6. Dividends.
a. Dividends.
(i) Subject to the rights of the holders of any other series
of Preferred Stock ranking senior to or on a parity with the
Series A Preferred Stock with respect to dividends and any
other class or series of capital stock of the Corporation
ranking senior to or on a parity with the Series A Preferred
Stock with respect to dividends, other than the Common Stock,
the holders of the Series A Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors,
cumulative dividends per share of Series A Preferred Stock at
a rate per annum as determined by the Board of Directors
during the period commencing after the date of original
issuance of any shares of Series A Preferred Stock until
converted pursuant to Section 5 above; provided, however, in
the event of an Optional Conversion, all accumulated dividends
will automatically be eliminated and no such dividends will be
due or payable to holders of Series A Preferred Stock.
(ii) Dividends on the Series A Preferred Stock will accrue on
each December 15, March 15, June 15, and September 15,
occurring after the date of original issuance, provided that
the Corporation shall have the option to pay dividends when
and as declared by the Board of Directors of the Corporation.
The party that holds the Preferred Stock on an applicable
record date for any dividend payment will be entitled to
receive such dividend payment and any other accrued and unpaid
dividends which accrued prior to such dividend payment date,
without regard to any sale or disposition of such shares of
Series A Preferred Stock subsequent to the applicable record
date but prior to the applicable dividend payment date.
(iii) The Corporation shall pay the dividends on the Series A
Preferred Stock described in Section 6(a)(i), at the
Corporation's option and in its sole discretion, out of funds
legally available therefor (A) in cash, (B) in shares of
Common Stock, such that the number of shares of Common Stock
to be distributed as a dividend to each holder of Series A
Preferred Stock shall be equal to the cash amount of such
dividend payable to such holder on such dividend payment date
divided by the average quote per share of Common Stock
reported by OTC Bulletin Board or any other stock exchange on
which the Common Stock is traded, as determined by the Company
(the "Per Share Market Value") for the fifteen (15) trading
days immediately preceding such dividend payment date, or (C)
in any combination of cash and shares of Common Stock that the
Corporation may determine in its sole discretion, with the
number of shares of Common Stock to be distributed in
connection therewith to be calculated on the basis set forth
in Section 6(a)(iii)(B).
(iv) No fractional shares of Common Stock or scrip shall be
issued upon payment of any dividends in shares of Common
Stock. If more than one share of Series A Preferred Stock
shall be held by the same holder at the time of any dividend
payment date, the number of full shares of Common Stock
issuable upon payment of such dividends shall be computed on
the basis of the aggregate dividend amount that the
Corporation has determined to pay in Common Stock shares.
Instead of any fractional shares of Common Stock which would
otherwise be issuable upon payment of such dividends, the
Corporation shall pay out of funds legally available therefor
a cash adjustment in respect of such fractional interest,
rounded to the nearest one hundredth (1/100th) of a share, in
an amount equal to that fractional interest of the average Per
Share Market Value for the fifteen (15) trading days
immediately preceding such dividend payment date, rounded to
the nearest cent ($.01).
b. Allocation of Dividends. Dividends on the Series A Preferred Stock,
if paid, or if declared and set apart for payment, must be paid or
declared and set apart for payment on all outstanding shares of Series
A Preferred Stock contemporaneously. In the event dividends on the
Series A Preferred Stock and any other series of Preferred Stock
ranking on a parity therewith in respect thereto or any other class or
series of capital stock of the Corporation ranking on a parity
therewith in respect thereto are declared and paid in an amount less
than all accumulated and current dividends on all of such shares, the
total amount declared and paid shall be allocated among all of such
shares so that the per share dividend to be declared and paid on each
share is the same percentage of the sum of the accumulated dividends
for each such share. In the event dividends are declared and paid on
the Series A Preferred Stock in a combination of cash and shares of
Common Stock, the percentage of the dividend paid in cash and the
percentage of the dividend paid in stock must be the same for each
share of Series A Preferred Stock.
c. Dividend Priorities. The Corporation shall not declare or pay any
distributions to the holders of the Common Stock or any other class or
series of capital stock ranking junior to the Series A Preferred Stock
in respect of dividends during any period of time in which any shares
of Series A Preferred Stock are outstanding or in which any dividends
payable on any shares of Series A Preferred Stock have not been
declared and paid in full. In this Section 6(c), "distribution" means
the transfer of cash or property without consideration, whether by way
of dividend or otherwise (except a dividend solely in shares of Common
Stock), or the purchase or redemption by the Corporation of shares of
Common Stock or any other shares of capital stock of the Corporation
ranking junior to the Series A Preferred Stock in respect of dividends
for cash or property, but does not include the repurchase by the
Corporation of shares from an officer, director, employee or consultant
of the Corporation.
7. Reacquired Shares. Any shares of Series A Preferred Stock purchased,
converted or otherwise acquired by the Corporation in any manner
whatsoever shall not be reissued as part of such series and shall be
retired promptly after the acquisition thereof. All such shares shall
upon their retirement become authorized but unissued shares of
Preferred Stock.
SECOND: That said determination of the powers, designation, preferences
and the relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, relating to said series of
Preferred Stock, was duly made by the Board of Directors of the Corporation
pursuant to the provisions of the Certificate of Incorporation of the
Corporation, as amended, and in accordance with the provisions of Section 151 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Xxxxxxx Sporns, its President, on the ___ day of ____________, _____.
HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
By: ____________________________________
Name: Xxxxxxx Sporns
Title: President
