Exhibit 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 3rd day of February, 2005, by and between Chinamerica Fund, LLP
and the other purchasers set forth on Schedule A hereto (collectively, the
"Purchasers") and Basic Empire Corporation, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Purchasers and the
Purchasers desire to purchase from the Company shares of Common Stock of the
Company, par value $.001 per share (the "Shares"), in reliance upon Rule 506 of
Regulation D under the Securities Act of 1933, as amended (the "Act") and upon
the terms, provisions, and conditions and for the consideration hereinafter set
forth.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby represent, warrant, covenant, and agree as follows:
Section 1. Issuance and Sale of Shares.
Based upon the representations, warranties, and covenants and subject
to the terms, provisions, and conditions contained in this Agreement, the
Company agrees to sell, issue and deliver to the Purchasers the Shares, free and
clear of all liens, pledges, encumbrances, security interests, and adverse
claims, and the Purchasers agree to purchase the Shares from the Company for the
consideration hereinafter set forth.
Section 2. Number of Shares; Purchase Price; Adjustments; and Use of Proceeds.
Upon execution hereof, the Purchasers shall purchase, and the Company
shall sell, issue and deliver to the Purchasers, up to 590,283 Shares at a
purchase price of $1.6941 per Share. The total purchase price of $ 1,000,000
shall be placed into escrow by the filing date of an 8-K with SEC for the
transaction of a reverse merger between the Company and China Tailong Holding
Company, Ltd. Upon the filing of a registration statement covering the shares
subscribed for by the Purchasers in a manner more fully described in Section 7
herein, the total purchase price shall be released from escrow. Once released,
$750,000 shall be wired to the Company at its designated bank account and the
$250,000 shall be deposited into an escrow according to this Section as
described below.
The Company hereby represents to the Purchasers that it's after tax net
income ("Net Income") for the Company's fiscal year ending 2004 shall be at
least $3,300,000. In the event that the Company does not generate Net Income of
at least $3,300,000 (the "Target Income") for its fiscal year ending 2004 (based
upon audited financial statements for the same period), the Company shall issue
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to the Purchasers additional Shares. The number of additional Shares to be
issued by the Company to the Purchasers shall be determined by (a) dividing
$1,000,000 by the product of the Target Income multiplied by six (6) and
increased by $1,000,000 then multiplying the percentage obtained thereby (the
"Target Percentage") times the total number of Shares then outstanding; and (b)
dividing $1,000,000 by the product of actual Net Income for the fiscal year
ending 2004 multiplied by six (6) and increased by $1,000,000 then multiplying
the percentage obtained thereby (the "Target Percentage") times the total number
of Shares then outstanding. The Company shall then issue that number of shares
equal to the difference between the number of Shares issued under Subsections
(a) and (b) above. Each Purchaser shall be entitled to receive a portion of the
additional shares based upon its pro rata ownership of the initial Shares issued
to it hereunder.
Example:
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If the audited net income for fiscal 2004 was reported to be $ 3 MM
instead of $ 3.3 MM, the shares issued to the investors would be
calculated as follows:
Targeted pre-money value ($ 3.3 MM x 6 = $ 19.80)
$ 1 MM investment thus represents $ 1 MM / $ 20.80 MM = 4.77 %
Actual Pre-money value based on $ 3 MM net income ($ 3 MM x 6 = $ 18
MM)
$ 1 MM investment should thus represent $ 1 MM / $ 19 MM = 5.26 %
An adjustment would thus be made to adjust the investor's fully diluted
ownership up to 5.26 % of the Company.
The Company hereby represents to the Purchasers that it's after tax net
income ("Net Income") for the Company's fiscal year ending 2005 shall be at
least $3,800,000. In the event that the Company does not generate Net Income of
at least $3,800,000 for its fiscal year ending 2005 (based upon audited
financial statements for the same period), the Company shall cause the
shareholders of the Company listed on Schedule B hereto (the "Controlling
Shareholders"), to forfeit Shares owned by them (pro rata based on their
respective percentages of ownership of all of the then outstanding Shares). The
number of Shares to be forfeited by the Controlling Shareholders shall be
determined based upon the earnings the Company ("Earnings"). Earnings shall be
determined within 15 days of the receipt by the Company of its audited 2005 Net
Income but in no event later than April 1, 2006. Upon receipt of the audits, the
Net Income reflected in the audit will be compared to $ 3,800,000. To the extent
that the audited Net Income is less than $ 3,800,000, a number of shares equal
to the Forfeited Amount shall be retired by the Controlling Shareholders. The
Forfeited Amount shall be calculated as follows: The total number of shares at
risk shall be equal to 33 % of the fully diluted shares held by the Controlling
Shareholders as of the date of the adjustment (if any). To this number will be
applied a percentage calculated by taking 1 - (the actual net income for 2005 /
$ 3.8 MM). It shall be a condition to the Purchasers' acquisition of the Shares
that the Controlling Shareholders agree in writing to the provisions of this
Section 2.
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Example:
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If the audited net income for fiscal 2005 were reported to be $ 3.5 MM
instead of the targeted number of $ 3.8 MM, the following adjustment to
the shares outstanding would be made by having the controlling
shareholders retire the indicated number of shares to the treasury.
Total shares held by controlling shareholders = 10,000,000 (this is an
assumption for the purpose of this illustration).
Percentage that the actual net income was under the targeted net income
= 1-(Actual Net / Target Net) = 1-(3,500,000 / 3,800,000) = 1- (.9211)
= .0789 = 7.89 %
An adjustment would then be made to the shares total shares held by the
controlling shareholders by taking .0789 x 10,000,000 (their total
shares) = 789,000 shares. This is the number of shares that would be
retired to treasury.
In no event, no matter what the actual net income turned out to be,
would the adjustment be greater than 33 % of the shares held by the
Controlling shareholders.
The Company hereby agrees to use the proceeds of the purchase of the
Shares hereunder by the Purchasers for: (a) expansion of the business of the
Company; (b) general working capital purposes, including the costs associated
with this transaction and contemplated corporate restructuring transactions; (c)
regulatory compliance and public reporting obligations under the Act and the
Exchange Act of 1934, as amended; and (d) implementation and execution of a
corporate communications program; provided, however, that with respect to the
proceeds to be expended by the Company in connection with corporate
communications program, the Company hereby agrees: (x) to expend $250,000 of the
proceeds of the Purchasers' acquisition of Shares on such program (the "Program
Funds"); and (y) the Program Funds will be held back by the Escrow Agent
(defined below) and not released unless and until the Company shall have entered
into a separate escrow agreement with the Escrow Agent (to which each Purchaser
is a party), providing for the retention of the Program Funds and timely and
orderly disposition thereof. It is expressly understood that under such separate
escrow agreement the Company shall have the sole authority to select the
recipients of such program funds and the approximate timing of their
disbursement by the escrow agent.
Section 3. The Closing.
Upon execution of this Agreement, the Company shall deliver to the
Purchasers certificates evidencing the Shares determined to be purchased by the
Purchasers hereunder. Such certificates shall be issued in the name of
Purchasers as set forth on Schedule A hereto (the "Closing"). Immediately upon
Closing and delivery to the Purchasers of the foregoing certificates, the
Purchasers shall deliver to Securities Transfer Corporation, as the Company's
escrow agent (the "Escrow Agent") the aggregate purchase price payable for the
Shares acquired by the Purchasers hereunder (the "Purchase Price"). The release
of the Purchase Price to the Company shall be effected in accordance with the
terms of this Agreement and an escrow agreement to be entered into by and among
the Escrow Agent, the parties hereto and such other parties referenced therein
(the "Escrow Agreement").
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Section 4. Representations and Warranties of the Purchasers.
Each Purchaser acknowledges and understands that the Shares are being
acquired for investment in a transaction undertaken in reliance upon the
exemption from registration under Rule 506 of Regulation D under the Act. Each
Purchaser hereby represents and warrants to the Company that:
a) The Purchaser is acquiring the Shares solely for investment
purposes and not with a view to, or for resale in connection
with, any distribution thereof or with any present intention
of distributing or selling any of the Shares, except in
accordance with applicable provisions of the Act.
b) The Purchaser will hold the Shares subject to all of the
applicable provisions of the Act, and Purchaser will not at
any time make any sale, transfer, or other disposition of the
Shares in contravention of said Act (references herein to the
Act shall include the rules and regulations thereunder).
c) The Purchaser acknowledges that it must bear the economic risk
of its investment in the Shares for an indefinite period of
time since issuance of the Shares has not been registered
under the Act and that the Shares therefore cannot be sold or
transferred unless such sale or transfer is registered under
the Act or an exemption from the registration requirements of
the Act is available.
d) The sale of the Shares to Purchaser is being made without any
public solicitation or advertisements.
Section 5. Representations and Warranties of the Company.
The Company hereby represents and warrants to each Purchaser as
follows, it being understood that each reference to the Company hereafter with
respect to each such representation and warranty shall pertain to the Company
and any direct and indirect subsidiaries:
5.1. Organization, Standing and Power.
The Company is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated. The Company has
the requisite corporate power and authority to carry on its business as now
being conducted. The Company is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not have a Company Material
Adverse Effect (defined below). For purposes of this Agreement, the term
"Company Material Adverse Effect" means any material adverse effect with respect
to the Company, taken as a whole, or any change or effect that adversely, or is
reasonably expected to adversely, affect the ability of the Company to maintain
its current business operations or to consummate the transactions contemplated
by this Agreement in any material respect.
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5.2. Validity of Transaction; Consents.
This Agreement and each other agreement contemplated hereby to which
the Company is a party (the "Ancillary Agreements") are valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms against the Company, except as limited by bankruptcy,
insolvency and similar laws affecting creditors generally, and by general
principles of equity. At the time that the Shares are sold, assigned,
transferred and conveyed to Purchasers pursuant to this Agreement, the Shares
will be duly authorized, validly issued, fully paid and nonassessable. The
execution, delivery and performance of this Agreement have been duly authorized
by the Company and will not violate any applicable federal or state law, any
order of any court or government agency or the articles or certificate of
incorporation of the Company. The execution, delivery and performance of this
Agreement and each Ancillary Agreement by the Company will not result in any
breach of or default under, or result in the creation of any encumbrance upon
any of the assets of the Company pursuant to the terms of any agreement by which
the Company or any of its respective assets may be bound. No consent, approval
or authorization of, or registration or filing with any governmental authority
or other regulatory agency, is required for the validity of the execution and
delivery by the Company of this Agreement, any Ancillary Agreement or any other
documents related hereto or thereto.
5.3. Capital Structure.
The authorized capital stock of the Company consists of 100 million
shares of common stock, par value $.001 per share (previously defined as the
"Shares"). On the date of Closing (the "Closing Date"), there will be 12,374,903
Shares issued and outstanding. The Shares and any other outstanding shares of
capital stock of the Company will have been duly authorized and validly issued,
and will be fully paid and nonassessable and not subject to preemptive or
similar rights. No bonds debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the stockholders of the
Company may vote are issued or outstanding. The Company does not have, and at
Closing will not have, any outstanding option, warrant, call, subscription or
other right, agreement or commitment which either (a) obligates the Company to
issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any
shares of the capital stock of the Company, or (b) restricts the voting,
disposition or transfer of shares of capital stock of the Company. There are no
outstanding stock appreciation rights or similar derivative securities or rights
of the Company.
5.4. Authority: Noncontravention.
The Company has the requisite corporate power and authority to enter
into this Agreement and any Ancillary Agreements. The Company has the requisite
corporate power and authority to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and any Ancillary
Agreements by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and, assuming this Agreement
constitutes the valid and binding agreement of Purchaser, constitutes a valid
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and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies and to general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
The execution and delivery of this Agreement and any Ancillary Agreements do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions hereof and thereof will not, (a) conflict
with any of the provisions of the charter documents or bylaws of the Company,
(b) subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
first refusal, termination, cancellation or acceleration of any obligation
(including to pay any sum of money) or loss of a benefit under, or require the
consent of any person under, any indenture or other agreement, permit,
concession, ground lease, franchise, license or similar instrument or
undertaking to which the Company is a party or by which the Company or any of
the assets of either entity are bound, result in the creation or imposition of a
material Lien or other restriction or encumbrance on any material asset of the
Company, which, singly or in the aggregate, would have a Company Material
Adverse Effect, or (c) subject to the governmental filings and other matters
referred to in the following sentence, violate any domestic or foreign law, rule
or regulation or any order, writ, judgment, injunction, decree, determination or
award currently in effect except for such violations, which, singly or in the
aggregate, would only have an immaterial effect. Except as otherwise required by
applicable state or federal securities laws, no consent, approval or
authorization of, or declaration or filing with, or notice to, any domestic or
foreign governmental agency or regulatory authority (a "Governmental Entity") or
any third party which has not been received or made, is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for consents, approvals, authorizations,
declarations, filings and notices that, if not obtained or made, will not,
individually or in the aggregate, result in a Company Material Adverse Effect.
"Lien" means, collectively, all material pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever.
5.5. Absence of Certain Changes or Events; No Undisclosed Material
Liabilities.
The Company does not have any loans or liabilities from any financial
institutions in any jurisdictions.
5.6. Compliance with Applicable Laws.
The Company has and after giving effect to the transactions
contemplated hereby will have in effect all federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights ("Permits") necessary for it to own, lease
or operate its properties and assets and to carry on its business as now
conducted, and to the knowledge of the Company there has occurred no default
under any such Permit, except for the lack of Permits and for defaults under
Permits which individually or in the aggregate would not have a Company Material
Adverse Effect. To the Company's knowledge, the Company is in compliance with,
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and has no liability or obligation under, all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity, including
any liability or obligation to undertake any remedial action under hazardous
substances laws, except for instances of non-compliance, liabilities or
obligations, which individually or in the aggregate would only have an
immaterial effect.
5.7. Litigation, etc.
As of the date hereof, (a) there is no suit, claim, action or
proceeding (at law or in equity) pending or, to the knowledge of the Company,
threatened against the Company (including, without limitation, any product
liability claims) before any court or governmental or regulatory authority or
body, and (b) the Company is not subject to any outstanding order, writ,
judgment, injunction, order, decree or arbitration order that, in any such case
described in clauses (a) and (b), (i) could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect or (ii)
involves an allegation of criminal misconduct or a violation of the Racketeer
and Influenced Corrupt Practices Act, as amended. As of the date hereof, there
are no suits, actions, claims or proceedings pending or, to the Company's
knowledge, threatened, seeking to prevent, hinder, modify or challenge the
transactions contemplated by this Agreement.
5.8. Disclosure.
The representations and warranties and statements of fact made by the
Company in this Agreement are accurate, correct and complete in every respect
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained herein not false or misleading.
Section 6. Survival of Representations and Warranties.
All representations, warranties, covenants, and agreements contained
herein shall not be discharged or dissolved upon, but shall survive the Closing
and shall be unaffected by any investigation made by any party at any time.
Section 7. Registration Rights
7.1. Registration by the Company.
(a) Mandatory Registration. As promptly as practicable (but in no event
later than 30 days after the Closing, the Company shall file a
registration statement (the "Registration Statement") with the
Commission under the Act for the registration of the Shares. Further,
in the event additional shares are issuable hereunder (i.e. Section
2.2) at the time of filing of the Registration Statement, the Company
shall piggy-back such additional shares in the next available
Registration Statement. Any possible income tax incurred between the
market price of the stock per share when the Registration Statement is
filed for such additional shares and the current $1.6941 per Share
shall be born by the Company, if there is any.
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(b) Registration Statement Form. Registrations under this Section 7.1
shall be on such appropriate registration form of the Commission as
shall be reasonably selected by the Company and approved by each
Purchaser, which approval shall not be unreasonably withheld. The
Company shall provide drafts of the Registration Statement proposed to
be filed by it to the Purchasers in advance of the filing thereof and
provide the Purchasers with a reasonable amount of time to review and
comment on the same prior to its filing.
(c) Effective Registration Statement. A registration required pursuant
to this Section 7.1 shall not be deemed to have been effected unless
the Registration Statement has been declared effective by the
Securities and Exchange Commission (the "Commission") and has remained
effective in compliance with the provisions of the Act with respect to
the disposition of all of the Shares covered by such Registration
Statement until such time as all of the Shares have been disposed of in
accordance with the intended methods of disposition by each Purchaser
set forth in such Registration Statement (unless the failure to so
dispose of such Shares shall be caused solely by reason of a failure on
the part of the Purchaser).
7.2. Priority Registrations.
Notwithstanding anything else set forth herein and subject to the
limitations set forth below, the Registration Statement may include, in addition
to the Shares, other securities of the Company which are proposed to be sold for
the account of the Company or any other stockholders thereof.
7.3. Registration Procedures.
The Company shall, as expeditiously as possible:
a) prepare and file with the Commission the requisite Registration
Statement to effect such registration and thereafter use its reasonable
best efforts to cause such Registration Statement to be declared
effective by the Commission;
b) prepare and file with the Commission such amendments and supplements
to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to
the disposition of all the Shares covered by such Registration
Statement until the earlier of the time as all of such Shares have been
disposed of in accordance with the intended methods of disposition by
the Purchasers set forth in such Registration Statement or the date
that the Shares are eligible for resale pursuant to the provisions of
Rule 144 under the Act;
c) furnish such number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus
contained in such Registration Statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed
under Rule 424 under the Act, in conformity with the requirements of
the Act, and such other documents, as the Purchasers may reasonably
request;
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d) use its reasonable best efforts (i) to register or qualify the
Shares under such other securities or blue sky laws of such States of
the United States of America where an exemption is not available and as
Purchaser shall reasonably request, (ii) to keep such registration or
qualification in effect for so long as such Registration Statement
remains in effect, and (iii) to take any other action which may be
reasonably necessary or advisable to enable the Purchasers to
consummate the disposition in such jurisdictions of the securities to
be sold by the Purchasers, except that the Company shall not for any
such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for
the requirements of this subdivision (d) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
e) use its reasonable best efforts to cause all Shares covered by such
Registration Statement to be registered with or approved by such other
federal or state governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel to the
Purchasers to enable the Purchasers to consummate the disposition of
such Shares;
f) notify the Purchasers at any time when a prospectus relating thereto
is required to be delivered under the Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus
included in such Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, in the light of the circumstances under which
they were made, and at the request of the Purchasers promptly prepare
and furnish to it a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made;
g) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and, if required,
make available to its security holders simultaneously with its
disclosure to the public, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 promulgated
thereunder, and promptly furnish to Purchaser a copy of any amendment
or supplement to such Registration Statement or prospectus;
h) provide and cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for all the Shares covered by
such Registration Statement from and after a date not later than the
effective date of such registration; and
i) use its reasonable best efforts to list the Shares on any national
securities exchange on which the shares of the same class covered by
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such Registration Statement are then listed and, if no such shares are
so listed, on any national securities exchange on which the common
stock is then listed.
Each Purchaser agrees by acquisition of the Shares that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in subdivision (f) of this Section 7.3, such holder will forthwith
discontinue such disposition of the Shares pursuant to the Registration
Statement until Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by subdivision (f) of this Section 7.3 and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such holder's possession
of the prospectus relating to the Shares current at the time of receipt of such
notice.
7.4. Indemnification.
(a) Indemnification by the Company. The Company will, and hereby does,
indemnify and hold harmless, in the case of the Registration Statement
filed pursuant to Section 7.1, each Purchaser and its respective
directors, officers, partners, agents and affiliates, against any
losses, claims, damages or liabilities, joint or several, to which such
Purchaser or any such director, officer, partner, agent, affiliate or
controlling person may become subject under the Act or otherwise,
including, without limitation, the fees and expenses of legal counsel,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon any untrue statement or untrue statement of
any material fact contained in any Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, and
the Company will reimburse such Purchaser and each such director,
officer, partner, agent, affiliate and controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration
Statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
such Purchaser, specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such
Purchaser or any such director, officer, partner, agent, affiliate or
controlling person and shall survive the transfer of such securities by
the Purchaser.
(b) Indemnification by the Purchasers. As a condition to including the
Shares in the Registration Statement, the Company shall have received
an undertaking from each Purchaser, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in Section 7.4(a))
each other seller, if any, the Company, and each director of the
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Company and each officer of the Company, with respect to any statement
or alleged statement in or omission or alleged omission from such
Registration Statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company by such Purchaser specifically
stating that it is for use in the preparation of such Registration
Statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that the
liability of such indemnifying party under this Section 7.4(b) shall be
limited to the amount of proceeds received by such indemnifying party
giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such Purchaser.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 7.4 (a) or (b), such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this Section 7.4, except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that any indemnified party may,
at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action or proceeding in
which both the Company and an indemnified party is, or is reasonably
likely to become, a party, such indemnified party shall have the right
to employ separate counsel at the Company's expense and to control its
own defense of such action or proceeding if (a) there are or may be
legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those
available to the Company or (b) any actual conflict exists between the
Company and such indemnified party that would make such separate
representation advisable; provided, however, that the Company may limit
the fees and expenses that it pays in any one legal action or group of
related legal actions to those fees and expenses of one firm of
attorneys (together with appropriate local counsel), which firm of
attorneys (together with appropriate legal counsel) shall be designated
in writing by a majority of the indemnified parties who are a party to,
or are reasonably likely to become parties to, such legal action or
group of related legal actions. No indemnifying party shall be liable
for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld or
delayed. No indemnifying party shall, without the consent of the
indemnified party, which consent shall not be unreasonably withheld or
delayed, consent to entry of any judgment or enter into any settlement
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which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation or which requires
action other than the payment of money by the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section
7.4 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 7.4(a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof,
then, in lieu of the amount paid or payable under Section 7.4(a) or
(b), the indemnified party and the indemnifying party under Section
7.4(a) or (b) shall contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred
in connection with investigating the same), (i) in such proportion as
is appropriate to reflect the relative fault of the Company and the
Purchaser which resulted in such loss, claim, damage or liability, or
action or proceeding in respect thereof, with respect to the statements
or omissions which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, as well as any other
relevant equitable considerations or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as shall be appropriate to reflect the relative benefits received by
the Company and each Purchaser from the offering of the securities
covered by such Registration Statement, provided, that for purposes of
this clause (ii), the relative benefits received by each Purchaser
shall be deemed not to exceed the amount of proceeds received by such
Purchaser. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. Each Purchaser's obligation to contribute as
provided in this Section 7.4(d) is several in proportion to the
relative value of its respective Shares covered by such Registration
Statement and not joint. In addition, no person shall be obligated to
contribute hereunder any amounts in payment for any settlement of any
action or claim effected without such person's consent, which consent
shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subdivisions of this Section 7.4 (with
appropriate modifications) shall be given by the Company and each
Purchaser with respect to any required registration or other
qualification of securities under any federal or state law or
regulation of any governmental authority other than the Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 7.4 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as
and when bills are received or expense, loss, damage or liability is
incurred.
Section 8. Put Option
(a) Subject to the provisions of subparagraphs (b) and (c) or this
Section 8, the Company hereby grants to the Purchasers the right to
require the Company to repurchase any or all of the Shares acquired by
the Purchasers hereunder at the price per Share paid by the Purchasers
hereunder (the "Put Option").
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(b) The Put Option may be exercised at any time after the Closing and
shall expire upon the date on which the Registration Statement is filed
by the Company with the Commission (the "Expiration Date").
(c) The Put Option may be exercised by written notice given by the
Purchaser to the Company and the Escrow Agent exercising the Put
Option. If the Put Option is not exercised by the Expiration Date, then
the Put Option will terminate, and be null, void and of no further
effect immediately following the Expiration Date.
Section 9. Board Representation.
Upon Closing, the Purchasers shall, collectively, have the right to
designate one member of the Company's board of directors who shall serve as its
Vice Chairman and, to the extent that such designation requires the consent of
the Company's shareholders under applicable state law, the Company shall
promptly submit such designee for approval of the Company's shareholders, shall
support and recommend such designee's appointment to the board of directors and
shall use its best efforts to cause such designee to be elected by the Company's
shareholders.
Section 10. Entirety and Modification.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior agreements and understandings, whether oral or written, between the
parties hereto relating to such subject matter. No modification, alteration,
amendment, or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by all parties hereto.
Section 11. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto, their successors and permitted assigns, heirs, and
personal representatives.
Section 12. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement as of the date first written above.
PURCHASERS: CHINAMERICA FUND, LLP
By: /s/ Xxxx Xxxxxxx
---------------------------------
Name:
Title:
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ADDITIONAL PURCHASERS
By: /s/ Xxxx X. Xxxxx
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
COMPANY: BASIC EMPIRE CORPORATION
By: /s/ Xxxxx Xx
---------------------------------
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SCHEDULE A
--------------------------- ------------------------- --------------------------
PURCHASER NUMBER OF SHARES PURCHASING PRICE
--------------------------- ------------------------- --------------------------
CHINAMERICA FUND, LLP 531,256 US$900,000
--------------------------- ------------------------- --------------------------
XXXX X. XXXXX 59,028 US$100,000
--------------------------- ------------------------- --------------------------
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SCHEDULE B
CONTROLLING SHAREHOLDERS
China Tailong Group Ltd.
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