SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
This
Securities Purchase Agreement (this “Agreement”) is dated
as of February 28, 2008 between China North East Petroleum Holdings, Inc., a
Nevada corporation with its address at 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
(the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively the “Purchasers”).
ARTICLE
I.
“Action” shall have
the meaning ascribed to such term in Section 3.1(j).
“Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 under the Securities Act. With
respect to a Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such Purchaser will
be deemed to be an Affiliate of such Purchaser.
“Business Day” means
any day except Saturday, Sunday, any day which is a federal legal holiday in the
United States or any day on which banking institutions in the State of New York
are authorized or required by law or other governmental action to
close.
“Class A Warrants”
means the Common Stock warrants to purchase an aggregate of 1.2 million shares
of the Company with an exercise price of U.S. $0.01 per share and substantially
in the form of Exhibit
A hereto.
“Class B Warrants”
means the Common Stock warrants to purchase an aggregate of 1.5 million shares
of the Company with an exercise price of U.S. $3.20 per share and substantially
in the form of Exhibit
B hereto.
“Class C Warrants”
means the Common Stock warrants to purchase an aggregate of 2.1 million shares
of the Company with an exercise price of U.S. $3.45 per share and substantially
in the form of Exhibit
C hereto.
“Closing” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing Date” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Commission” means the
Securities and Exchange Commission.
“Common Stock” means
the common stock of the Company, par value $.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed into.
“Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Company Counsel”
means Xxxxx Rozynko LLP, with offices located at 000 Xxxxxxxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxxxxxxx, Xxxxxxxxxx, 00000.
“Corporate Authorization
Documents” means (i) the resolutions of the Board of Directors of the
Company, in form and substance satisfactory to the
Purchasers, authorizing the transactions contemplated herein,
including, without limitation, the issuance of the Debentures and the Warrants
and the execution and delivery of the remaining Transaction Documents (ii) a
certificate of the Secretary of the Company in usual and customary form
attesting to the copies of the certificate of incorporation and bylaws of the
Company attached thereto.
2
“Debentures” means the
8% Secured Debentures due, subject to the terms therein, four (4) years from
their date of issuance, issued by the Company to the Purchasers hereunder, in
the form of Exhibit
D attached hereto.
“Disclosure Schedules”
shall have the meaning ascribed to such term in Section 3.1.
“Effective Date” means
the date that the initial Registration Statement filed by the Company pursuant
to the Registration Rights Agreement is first declared effective by the
Commission.
“EGS” means Ellenoff,
Xxxxxxxx & Schole LLP with their address at 000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000.
“Escrow Agent” shall
mean Xxxxx Fargo Bank, National Association, 000 Xxxxxxxx Xxxx, 00xx xxxxx,
Xxx Xxxxxxx, Xx 00000.
“Escrow Agreement”
shall mean the escrow agreement entered into prior to the date hereof, by and
among the Company, the Purchasers and the Escrow Agent pursuant to which the
Purchasers shall deposit Subscription Amounts with the Escrow Agent to be
applied to the transactions contemplated hereunder.
“Evaluation Date”
shall have the meaning ascribed to such term in Section 3.1(r).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose by a majority of the non-employee members of the Board
of Directors of the Company or a majority of the members of a committee of
non-employee directors established by the Board of Directors, provided, however,
in no event shall the number of shares reserved under any such plan or issued
under such plan or issued to employees, officers, directors or officers of the
Company exceed a number of shares equal to 5% of the issued and outstanding
shares of Common Stock of the Company on the date hereof or; (b) securities upon
the exercise or exchange of or conversion of any Securities issued hereunder
and/or other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities.
“Fundamental
Transaction” means any of the following actions or agreements by the
Company or any Subsidiary: (i) a merger or consolidation in which the Company is
not the surviving entity or the shareholders (or owners of registered capital or
other form of ownership) of the Company or its Subsidiary are not the
controlling shareholders after such
transaction (ii) a sale of all or substantially all of the assets of the Company
or any Subsidiary, as the case may be, or (iii) the sale of any of the legal and
benefical ownership of any Subsidiary.
3
“Funding
Post Closing Conditions” means the post closing conditions set forth in Sections
4.6, 4.17 and 4.18(a), 4.18(b) and 4.18(d) hereof and as otherwise defined in
Section 2.3 hereof.
“GAAP” shall have the
meaning ascribed to such term in Section 3.1(h).
“Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(aa).
“Individual Pledgor”
means Xx. Xxxx Hong Jun with his address at 171 Qingnan Dajie Zhanjian Road,
Song Yuan Jilin People’s Republic of China and who is the legal and beneficial
owner of an aggregate of 6,732,000 shares of Common Stock of the
Company.
“Intellectual Property
Rights” shall have the meaning ascribed to such term in Section
3.1(o).
“Legend Removal Date”
shall have the meaning ascribed to such term in Section 4.1(c).
“Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“Material Adverse
Effect” shall have the meaning assigned to such term in Section
3.1(b).
“Material Oil Drilling
Agreements” means any of the following: (i) Qian-112 Oilfield Cooperative
Development Contract effective as of May 28, 2002 by and between PetroChina Oil
and Gas Company Limited Jilin Oil Field Branch Company and Song Yuan City Yu
Qiao Oil and Gas Development Company Limited, and (ii) He301 Oilfield
Cooperative Development Contract effective as of May 28, 2003 by and between
PetroChina Oil and Gas Company Limited Jilin Oil Field Branch Company and Xxxxx
Xxxx Long De Oil and Gas Development Limited.
“Material Permits”
shall have the meaning ascribed to such term in Section 3.1(m).
“Maximum Rate” shall
have the meaning ascribed to such term in Section 6.17.
“Onshore Pledge
Agreement” means the agreement between the Company and the Purchasers
providing for the pledge by the Company of its legal and beneficial ownership of
66% of the registered capital of Song Yuan upon the terms set forth therein,
which Onshore Pledge Agreement shall be in the form annexed hereto as Exhibit
E.
4
“Option Agreement”
means the agreement between the Company and the Purchasers granting the
Purchasers to acquire an additional 24% of the registered capital of Song Yuan
upon the terms set forth therein, which Option Agreement shall be in the form
annexed hereto as Exhibit
F.
“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Personal Pledge
Agreement” means the pledge agreement entered into by and between the
Individual Pledgor and the Purchasers whereby the Individual
Pledgor pledges all of the 6,732,000 shares of Common Stock of the
Company legally and beneficially owned by him (directly and through any
affiliates) as additional collateral security for the repayment of the
Debentures, which Personal Pledge Agreement shall be in the form of Exhibit
G.
“Pre-Notice” shall
have the meaning ascribed to such term in Section 4.13.
“PRC” means the
People’s Republic of China.
“Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“Purchaser Party”
shall have the meaning ascribed to such term in Section 4.11.
“Registration Rights
Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit H attached
hereto.
“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.
“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).
“Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities” means the
Debentures, Warrants and the Underlying Shares.
5
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Security Agreement”
means the Security Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit I attached
hereto.
“Security Documents”
shall mean the Security Agreement, the Personal Pledge Agreement, the Onshore
Pledge Agreement and any other documents and filing required thereunder in order
to grant the Purchasers a first priority security interest in the assets of the
Company as provided in the Security Agreement, including all UCC-1 filing
receipts.
“Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Song Yuan” means Song
Yuan North East Petroleum Technical Service Co. Ltd. a company existing under
the laws of the PRC as a contractual Sino Foreign joint venture, of which the
Company owns 90% of the registered capital.
“Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid for Debentures and
Warrants purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.
“Subsequent Financing”
shall have the meaning ascribed to such term in Section 4.13.
“Subsequent Financing
Notice” shall have the meaning ascribed to such term in Section
4.13.
“Subsidiary” means any
subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.
“Subsidiary Note”
means the 8% Note issued by the Company’s subsidiary Song Yuan to the Company in
the principal amount of U.S. $15,000,000.
“Trading Day” means a
day on which the New York Stock Exchange is open for trading.
“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.
“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the Onshore Share Pledge
Agreement,
the Option Agreement, the Escrow Agreement, the Personal Pledge Agreement and
all exhibits and schedules thereto and hereto and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
6
“Transfer Agent” means
Interest Transfer Company, Inc. with a mailing address of 0000 Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxx 000, Xxxx Xxxx Xxxx, XX 00000 and a facsimile number of
(000) 000-0000 and any successor transfer agent of the Company.
“Underlying Shares”
means the shares of Common Stock issued and issuable upon exercise of the
Warrants
“VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
New York City time to 4:02 p.m. New York City time); (b) if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in
good faith by the Purchasers of a majority in interest of the Securities then
outstanding and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
“Warrants” means any
of the Class A Warrants, Class B Warrants and Class C Warrants.
ARTICLE
II.
(a) On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, in the aggregate, up to $15,000,000 in
principal amount of the Debentures and the Class A Warrants, Class B Warrants
and the Class C Warrants. Each Purchaser shall deliver to the
Company, via wire transfer or a certified check, immediately available funds
equal to its Subscription Amount to the account as specified in the Escrow
Agreement and the Company shall deliver to each Purchaser its respective
Debenture and the respective Warrants, as determined pursuant to Section 2.2(a),
and the Company and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of EGS or such other location or via email and facsimile as the parties
shall mutually agree.
7
(a) On
the Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:
|
|
(i)
|
this
Agreement duly executed by the
Company;
|
|
|
(ii)
|
a
legal opinion of Company Counsel, in substantially the form ofExhibit J
attached hereto;
|
|
|
(iii)
|
a
Debenture with a principal amount equal to such Purchaser’sSubscription
Amount, registered in the name of such Purchaser andthe corresponding
Warrants;
|
|
|
(iv)
|
the
Security Agreement, duly executed by the Company along with
all of the Security Documents duly executed by the parties thereto;
|
|
|
(v)
|
the
Registration Rights Agreement duly executed by the
Company;
|
|
|
(vi)
|
the
Onshore Share Pledge Agreement duly executed by
theCompany;
|
|
|
(vii)
|
the
Escrow Agreement;
|
|
|
(vii)
|
the
Corporate Authorization Documents and a true and correctexecuted copy of
the Subsidiary Note;
|
|
|
(viii)
|
the
Warrants; and
|
|
|
(ix)
|
the
Option Agreement;
|
(b) On
the Closing Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:
|
|
(i)
|
this
Agreement duly executed by such
Purchaser;
|
8
|
|
(ii)
|
such
Purchaser’s Subscription Amount by wire transfer to the Escrow
account as specified in writing by the Company and Escrow
Agent;
|
|
|
(iii)
|
the Security Agreement. Onshore Share Pledge Agreement andOption Agreement duly executed by such Purchaser; |
|
|
(iv)
|
the Registration Rights Agreement duly executed by suchPurchaser; and |
|
|
(v)
|
the Escrow Agreement duly executed by such Purchaser. |
(c) On
the Closing Date, the Individual Pledgor shall deliver the PersonalPledge
Agreement, the certificate(s) for the shares subject to the Personal
PledgeAgreement and at least one undated stock power signature medallion
guaranteed.
(a)
The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:
|
|
(i)
|
the
accuracy in all material respects on the Closing Date of
therepresentations and warranties of the Purchasers contained
herein;
|
|
|
(ii)
|
all
obligations, covenants and agreements of each Purchaserrequired to be
performed at or prior to the Closing Date shall havebeen performed;
and
|
|
|
(iii)
|
the delivery by each Purchaser of the items set forth in Section2.2(b) of this Agreement. |
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
|
|
(i)
|
the accuracy in all material respects when made and on the ClosingDate of the representations and warranties of the Companycontained herein; |
|
|
(ii)
|
all obligations, covenants and agreements of the Company requiredto be performed at or prior to the Closing Date shall have beenperformed; |
|
|
(iii)
|
the delivery by the Company of the items set forth in Section2.2(a) of this Agreement; |
|
|
(iv)
|
there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and |
9
|
|
(v)
|
from the date hereof to the Closing Date, trading in the CommonStock shall not have been suspended by the Commission or theCompany’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing. |
(c) Prior
to the release of funds, the parties shall execute a written notice to the
Escrow Agent with respect to the release of any funds from Escrow, and no funds
shall be released without a joint written instruction. The
Subscription Funds shall be released from the escrow as follows:
(i) Upon
closing, the sum of $1,750,000 shall be released to the Company, of which
$510,000 shall be utilized by the Company to pay its capital contribution to
Song Yuan as provide in Section 4.5 hereof
(ii) Upon
satisfaction by the Company, to the satisfaction of the
Purchasers, of (A) the covenant contained in Section 3.3 (f) hereof
and (B) the post closing conditions set forth in Sections 4.6, 4.17 and 4.18(a),
4.18(b) and 4.18(d) hereof (sometimes collectively referred to as the “Funding
Post Closing Conditions”), all remaining funds in escrow shall be released from
escrow.
ARTICLE
III.
10
11
12
The
Company has not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.
13
14
15
16
17
18
19
(dd) Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(ee) of
the Disclosure Schedule. To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as required by
the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report on Form 10-K
for the year ending December 31, 2007.
(i) The
Company and each of its Subsidiaries has at all times complied with all
environmental legislation in force, relevant or applicable to each company,
where in the PRC or elsewhere (the “Environmental Legislation”) and there is
nothing in, on, or under the Property upon which the presence, existence or
condition of which constitutes a breach of such Environmental Legislation nor is
there or has there been any manufacturing, storage, generation, servicing,
treatment, disposal or other process carried on at the Property in such a way as
to amount to a breach of the same.
20
(ii) No
complaints have been received from any third party (includingany employee of any
of the Company and/or its subsidiaries or governmental, regulatory,supervisory
oradministrative body) with regard to any breach of the Environmental
Legislation in connection with the Property and the development and construction
thereon and, after due and careful enquiry, the Vendor is not aware of any
events, circumstances or matters which may lead to such complaint.
(iii) No
toxic industrial waste or toxic substance (as defined in
anyEnvironmental Legislation) or any other similar substance
(howsoever termed) has beensplit, released, discharged or disposed in the soil
or water in, under, around or upon the Property.
For purposes of this clause, the term
“Property” shall mean any and all locations in which the Company and/or each of
its subsidiaries carry on their respective business operations.
(jj) The Company and each
Subsidiary is in compliance with the terms and conditions of all of its
contracts and leases and other agreements with PetroChina Limited and its
Affiliates, and is not aware of any dispute or disagreement with PetroChina
Limited or its Affiliates regarding such contracts or leases. The Company is not
aware of, and has not received any notice of (whether written or oral) or any
disputes, defaults or claims under the Material Oil Drilling
Contracts
21
(mm) No Sale to the
U.S. The Company is not, nor any person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the Company (each such person, an
“Affiliate”),
or any person acting on its or their behalf has, directly or indirectly, made
offers or sales of any security, or solicited offers to buy, sell or offer to
sell or otherwise negotiate in respect of, in
the United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a manner or
under circumstances that would require the registration of the Securities under
the Act.
22
(a) The
constitutional documents and certificates and related material contracts of the
Company and the Company’s subsidiaries have been established under the laws of
the PRC for purposes of this Section 3.2 (sometimes referred to as a “PRC
Company”) and are valid and have been duly approved or registered (as
applicable) by competent PRC Governmental Authorities.
(b) All
material consents, approvals, authorizations or licenses requisite under PRC law
for the due and proper establishment and operation of each PRC Company have been
duly obtained from the relevant PRC Governmental Authorities and are in full
force and effect.
23
(c) All
filings and registrations with the PRC Governmental Authorities required in
respect of each of the PRC the Company and their respective operations
including, without limitation, the registrations with the Ministry of Commerce,
the State Administration of Industry and Commerce, the State Administration for
Foreign Exchange, tax bureau and customs authorities have been duly completed in
accordance with the relevant PRC rules and regulations.
(d) The
Company has complied with all relevant PRC laws and regulations regarding the
contribution and payment of its registered share capital, the payment schedule
of which has been approved by the relevant PRC Government
Authorities. There are no outstanding rights of, or commitments made
by, the Company to sell any equity interest in any PRC Company, or by any of the
other PRC Company’ shareholders to sell any equity interest in such other PRC
the Company. To the extent that any controlling shareholder of the Company or
any Subsidiary is subject to or under the jurisdiction of Circular 75 issued by
the PRC State Administration of Foreign Exchange on October 21, 2005, including
any amendment, implementing rules, or official interpretation thereof or any
replacement, successor or alternative legislation having the same subject matter
thereof (collectively “Circular
75”), each of the Company and its Subsidiaries and any controlling
shareholder represents and warrants to the Purchaser that it shall
fully complied in all respects with Circular 75 and any related requirement of
law, including without limitation, the completion of any applicable foreign
exchange registration, settlement or remittance requirement therein within 90
days of the Closing.
(e) The
Company is not in receipt of any letter or notice from any relevant PRC
Governmental Authority notifying it of revocation of any licenses or
qualifications issued to it or any subsidy granted to it by any PRC Governmental
Authority for non-compliance with the terms thereof or with applicable PRC laws,
or the need for compliance or remedial actions in respect of the activities
carried out by the Company.
(f) The
Company has conducted its business activities within the permitted scope of
business or has otherwise operated its business in compliance with all relevant
legal requirements and with all requisite licenses and approvals granted by
competent PRC Governmental Authorities.
(g) As
to licenses, approvals and government grants and concessions requisite or useful
for the conduct of any part of the PRC, the Company’s business which are subject
to periodic renewal, the Company has no knowledge of any grounds on which such
requisite renewals will not be granted by the relevant PRC Governmental
Authorities.
(h) With
regard to employment and staff or labor, each of the Company has complied with
all applicable PRC laws and regulations in all material respects, including
without limitation, laws and regulations pertaining to welfare funds, social
benefits, medical benefits, insurance, retirement benefits, pensions or the
like.
24
(i) All
of the Material Oil Drilling Agreements have been duly authorized by the Company
and any Subsidiary party thereto, and such agreements constitute the valid and
binding obligations of the Company or the Subsidiary, as the case may be,
enforceable against the Company or the Subsidiary in accordance with its terms
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(a) Prior
to making any public disclosure or filings as may be required byapplicable law
with respect to this Agreement and the transactions contemplated hereby,to
provide the Purchaser and its counsel with the reasonable opportunity to review
and comment on such public disclosure documents and consider in good faith any
comments received from the Purchaser or its counsel.
(b) The
Company will use its reasonable efforts not to become, and cause itsSubsidiaries
not to become, a PFIC. If the Company determines that it or any of
itsSubsidiaries has become a PFIC, the Company will promptly notify the
Purchaser and provide all information requested by the Purchaser that is
necessary for the Purchaser to make a qualified electing fund (QEF) election
under Section 1295 of the Internal Revenue Code.
(c) The
Company shall not, directly or indirectly, use the proceeds of the saleof the
Debentures, or lend, contribute or otherwise make available such proceeds to
anySubsidiary, joint venture or other Person for the purposes of financing the
activities of any Person currently subject to any U.S. sanctions administered by
OFAC.
(d) The Company
shall conduct its operations at all times in compliance withthe Money Laundering
Laws of applicable jurisdictions, the rules and regulationsthereunder and any
related or similar rules, regulations or guidelines, issued administered or
enforced by any applicable Governmental Authorities.
(e) The
Company agrees that it will not register any transfer of the Securitiesthat is
not (i) made in accordance with the provisions of Regulation S under the Act,
(ii)made pursuant to registration under the Act, or (iii) made pursuant to an
available exemption under the Act.
(f) The
Company shall, as soon as reasonably practicable, use its reasonablebest efforts
to (i) obtain approvals from, and complete filing procedures with,
relevantGovernmental Authorities in order to create valid and enforceable
security interests over all of the equity interests of Song Yuan North East
Petroleum Technical Service Co., Ltd. pursuant to the Onshore Share
Pledge Agreement, and (ii) procure a Person who is reasonably acceptable to
Purchaser as sponsor to act on behalf of the Company in making the foregoing
filings and completing such procedures which sponsor shall act at the
instruction of the Collateral Agent. If the PRC Governmental Authorities require
anyamendments, modifications or changes to the Onshore Share Pledge
Agreements as acondition to their approval of such agreements, then the Company
shall use its best efforts to effect such amendments, modifications or changes
to such agreements, as the case may be, to obtain such approvals from the
relevant Governmental Authorities
25
(g) The
Company shall use its best efforts to assist the Purchaser to timely filethe UCC
Financing Statement under Article 9 of the UCC of Nevada with the Secretaryof
the State of the State of Nevada (and such other states as may be requested by
Purchasers) with respect to the pledge of equity interests of the Company, which
initial filing shall be completed no later than five (5) days from the date of
the Closing.
26
27
ARTICLE
IV.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement, Regulation S or Rule 144,
to the Company or to an Affiliate of a Purchaser or in connection with a pledge
as contemplated in Section 4.1(c), the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a
legend on any of the Securities in the following form:
28
THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
(c) The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer of
the Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
(d) Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are
eligible for sale under Rule 144 or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a time when
there is an effective registration statement to cover the
resale of the Underlying Shares, or if such Underlying Shares may be sold under
Rule 144 or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Underlying
Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Transfer Agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section. Certificates for Underlying Shares subject to
legend removal hereunder shall be transmitted by the Transfer Agent to the
Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System as directed by such
Purchaser.
29
(e) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $5.00 per Trading Day
(increasing to $10.00 per Trading Day 45 Trading Days after such damages have
begun to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend. Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(f) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that such
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein, and acknowledges that the removal of the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company’s reliance upon this
understanding.
30
31
4.7 Securities Laws Disclosure;
Publicity. The Company shall, by 8:30 a.m. (New York City
time) on the Trading Day following the date hereof, issue a Current Report on
Form 8-K disclosing the material terms of the transactions contemplated hereby
and attaching the Transaction Documents as exhibits thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the filing
of final Transaction Documents (including signature pages thereto) with the
Commission and (ii) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this clause (ii).
32
33
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.
(b) If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then the
Board of Directors of the Company shall use commercially reasonable efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.
(d) The
Company shall make an application with the Nasdaq Stock Market or the American
Stock Exchange to obtain a listing of its Common Stock promptly following the
Closing Date, and to use its best efforts obtain such listing within
a date which is 12 months after the Closing Date.
(a) From
the date hereof until the date that the Purchases hold in the aggregate an
amount less than 500,000 shares of the Company’s issued and outstanding common
stock pursuant to the Warrants (on an as-exercised basis) upon any issuance by
the Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a “Subsequent
Financing”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to such Purchaser’s pro-rata
percentage of the Company’s total issued and outstanding common stock
on an as-exercised basis on the same terms, conditions and price
provided for in the Subsequent Financing.
(b) At
least ten (10) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”). Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document relating
thereto as an attachment. The Subsequent Financing Notice shall also
include an analysis or description of the effect of such Subsequent Financing
upon the exercise price of the Warrants and the capitalization of the
Company.
34
(c) Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 10th Trading
Day after all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no notice from a Purchaser as of such
10th
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate.
(d) If
by 5:30 p.m. (New York City time) on the 10th Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.
(e) The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in
this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.
(f) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance.
(a) From
the date hereof until 180 days after the Effective Date, neither the Company nor
any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 180 day
period set forth in this Section 4.13 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Underlying Shares.
(b) From
and after the Effective Date the Company shall not issue inconnection with an
acquisition transaction (whether in one transaction or a series oftransactions
(and regardless of the structure of any such transaction, including, without
limitation, a purchase of securities of the to be acquired entity, a purchase or
assets or a joint venture) or the purchase) shares of its Common Stock (or
securities convertible into Common
Stock) equal to or in excess of 20% of the shares of Common Stockoutstanding on
the date hereof without the prior written consent of the Purchaser, whichconsent
shall not be unreasonably withheld.
35
36
(a) Within 30 days of the
Closing, the Company shall enter into a written agreement with each of (i) Ai
Xxxxx Xxxx to release an amount of the registered capital of Changling Long De
Oil and Gas Development Co., Ltd. (“Long De”) held in trust by Ai Xxxxx Xxxx for
the benefit of Song Yuan Technical, equal to 10% of all outstanding registered
capital of Long De, from such trust and transfer ownership of such registered
capital to Song Yuan Technical and (ii) Xxx Xxxx to release all of the
registered capital of Long De held by Xxx Xxxx for the benefit of Song Yuan
Technical, equal to 10% of all outstanding registered capital of Long De, from
such trust and transfer ownership of such registered capital to Song Yuan
Technical.
(b) Within 30 days of the
Closing, the Company shall enter into a written agreement with Meng Xxxxx Xxx to
release all registered capital of Song Yuan City Yu Qiao Oil and Gas Exploration
Limited Corp. (“Yu Qiao”) held by Meng Xxxxx Xxx in trust for the benefit of
Song Yuan Technical, equal to 20% of all outstanding registered capital of Yu
Qiao, from such trust and transfer ownership of such registered capital to Song
Yuan Technical.
(c) Within 90 days of the
Closing, the Company shall enter into a written agreement with Xxxx Xxxx Wu to
transfer ownership of all of the registered capital of Yu Qiao held by Xxxx Xxxx
Wu in trust for the benefit of Song Yuan Technical, equal to 10% of all
outstanding registered capital of Yu Qiao, to Wang Hong Jun to continue to hold
in trust for the benefit of Song Yuan Technical.
(d) The Company shall make
all appropriate applications with the proper authorities in the PRC to register
the ownership transfer and termination of trust contemplated in Sections 4.18(a) and
4.18(b) within
45 days of the Closing.
(e) The Company shall make all
appropriate applications with the proper authorities in the PRC to register the
ownership transfer contemplated in Section 4.18(c)
within 90 days of the Closing.
4.19
Right to Appoint
Nominee to Board of Directors. Effective at Closing, the Purchasers shall
have the right (but not the obligation), for so long as at least any of the
principal amount of Debenture remains unpaid, to have a nominee,
reasonably acceptable to the Company, serve on the Board of Directors of the
Company, which nominee shall serve as an independent director. The
Board of Directors shall consist of not more than five (5) persons. Further, the
Purchasers shall have the right, but not the obligation to approve the
independent members of the Board if Directors.
37
ARTICLE V.
(a) execute
and deliver to the Purchasers a Security Document upon substantially the same
terms granting a Lien upon such assets or Property to the Purchasers of
Debentures, which Lien shall be first priority if such assets or Property is not
then encumbered by any other Lien (other than Liens required by law) or a second
priority Lien if such assets or Property is at that time so
encumbered;
(b) cause
the Lien to be granted in such Security Document to be duly perfected in any
manner permitted by law; and
(c) deliver
to the Purchasers an Opinion of Counsel confirming as to such Security Document
the matters set forth as to the Security Documents and Liens thereunder in the
Opinions of Counsel delivered to Purchasers on the Issue Date and, if the
property subject to such Security Document is an interest in real estate, such
local counsel opinions, insurance policies, surveys and other supporting
documents as the Trustee may reasonably request.
ARTICLE
VI.
38
6.4 Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
39
40
41
(Signature
Pages Follow)
42
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
|
CHINA
NORTH EAST PETROLEUM HOLDINGS, LIMITED
|
Address for
Notice:
|
||
|
By:
|
/s/ Xxxx Xxxxxxx |
Fax:
|
|
| Name: Xxxx Xxxxxxx | |||
| Title: Chairman and President | |||
With a
copy to (which shall not constitute notice):
Xxxxx
Rozynko LLP
000
Xxxxxxxxxx Xxxxxx
Xxxxx
0000
Xxx
Xxxxxxxxx, XX 00000
Fax:
(000) 000-0000
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
43
PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
Name of
Purchaser: Lotusbox Investments
Limited
Signature of Authorized Signatory of
Purchaser: /s/
Xxxxx The Xxx Xxxx
Name of
Authorized Signatory: Xxxxx The Xxx Xxxx
Title of
Authorized Signatory: General Counsel, signing authority pursuant to Lotusbox
Investments Limited’s Board of Directors’ Resolutions dated 25 February
2008
Email
Address of Purchaser: c/o xxxxxx.xxxxxxx@xxxxxxxxxxxxxxxxxxxxxx.xxx;
Xxxxx.xxx@xxxxxxxxxxxxxx.xxx.xx
Facsimile
Number of Purchaser: x00 0000 0000
Address
for Notice of Purchaser: x/x 000, Xxxxx Xxxx Xxxxxx, #00-00/00,
Xxxxxxxxx 000000
Address
for Delivery of Securities for Purchaser (if not same as above):
Xxxxx
Xxxxxxxxx
x/x
XXX
0xx Xxxxx,
0000 Avenue of the Americas
Xxx Xxxx,
XX 00000
With a
copy to the Purchaser’s address as stated above.
Subscription
Amount: US$15,000,000
Warrant
Shares: 4,800,000
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
44