Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
May __, 2008, among China Pharma Holdings, Inc., a Delaware corporation
(collectively with its predecessors, the "Company"), and the investors listed on
the Schedule of Buyers attached hereto as Annex A and identified on the
signature pages hereto (each, an "Investor" and collectively, the "Investors").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below)
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE 1.
DEFINITIONS
1.1. Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:
"Action" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"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
144.
"Business Day" means any day except Saturday, Sunday and any
day which is a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
"Buy-In" has the meaning set forth in Section 4.1(c).
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Article II.
"Closing Date" means the Business Day on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other
date as the parties may agree.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company Counsel" means King & Wood LLP.
"Company Deliverables" has the meaning set forth in Section
2.2(a).
"Disclosure Materials" has the meaning set forth in Section
3.1(h).
"Effective Date" means the date that the Registration
Statement required by Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.
"Escrow Agreement" means the Escrow Agreement, dated as of the
date hereof, between the Company, Xxxx Capital Partners, LLC and King and Wood
LLP (the "Escrow Agent") set forth therein, in the form of Exhibit C hereto.
"Evaluation Date" has the meaning set forth in Section 3.1(s).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means U.S. generally accepted accounting principles.
"Intellectual Property Rights" has the meaning set forth in
Section 3.1(p).
"Intellectual Property Rights Licensing Agreements" has the
meaning set forth in Section 3.1(p).
"Investment Amount" means, with respect to each Investor, the
Investment Amount indicated on such Investor's signature page to this Agreement.
"Investor Deliverables" has the meaning set forth in Section
2.2(b).
"Investor Party" has the meaning set forth in Section 4.7.
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.
"Losses" has the meaning set forth in Section 4.7.
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"Material Adverse Effect" means any of (i) a material and
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the
Company's ability to perform on a timely basis its obligations under any
Transaction Document.
"Money Laundering Laws" has the meaning set forth in Section
3.1(ee).
"New York Courts" means the state and federal courts sitting
in the City of New York, Borough of Manhattan.
"OFAC" has the meaning set forth in Section 3.1(dd).
"Outside Date" means the thirtieth (30th) calendar day
following the date of this Agreement; provided, that if such day should fall on
a day that is not a Business Day, the Outside Date shall be deemed the next day
that is a Business Day.
"Per Unit Purchase Price" equals $2.00.
"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.
"PRC" means the People's Republic of China, not including
Taiwan, Hong Kong and Macau.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Investors, in the form of Exhibit B hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Investors of the Shares and the Warrant Shares.
"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" has the meaning set forth in Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
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"Share Delivery Date" has the meaning set forth in Section
4.1(c).
"Shares" means the shares of Common Stock issued or issuable
to the Investors pursuant to this Agreement.
"Short Sales" include, without limitation, all "short sales"
as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act
and all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, swaps and similar arrangements (including on a total
return basis), and sales and other transactions through non-US broker dealers or
foreign regulated brokers.
"Subsidiary" means, as to the Company, any "subsidiary" as
defined in Rule 1-02(x) of the Regulation S-X promulgated by the Commission
under the Exchange Act.
"Trading Day" means (i) a day on which the Common Stock is
traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.
"Trading Market" means whichever of the New York Stock
Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the
NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which
the Common Stock is listed or quoted for trading on the date in question.
"Transaction Documents" means this Agreement, the Warrants,
the Registration Rights Agreement, the Escrow Agreement and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
"Warrants" means the Common Stock purchase warrants in the
form of Exhibit A, which are issuable to the Investors at the Closing.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE 2.
PURCHASE AND SALE
2.1. Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall, severally and not jointly, purchase from the Company, the
Securities representing such Investor's Investment Amount. The Closing shall
take place at the offices of Winston & Xxxxxx LLP, counsel to Xxxx Capital
Partners, LLC, 000 Xxxx Xxxxxx, Xxx Xxxx, XX 00000 on the Closing Date or at
such other location or time as the parties may agree.
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2.2. Closing Deliveries. (a) At the Closing, the Company shall deliver or
cause to be delivered to each Investor the following (the "Company
Deliverables"):
(i) a certificate evidencing a number of Shares equal to such
Investor's Investment Amount divided by the Per Unit Purchase Price, registered
in the name of such Investor; and
(ii) a Warrant, registered in the name of such Investor, pursuant
to which such Investor shall have the right to acquire the number of shares of
Common Stock equal to 25% of the number of Shares issuable to such Investor
pursuant to Section 2.2(a)(i); and
(iii) the legal opinion of Company Counsel, in agreed form,
addressed to the Investors.
(b) By the Closing, each Investor shall deliver or cause to be
delivered the agreements specified in Section 5.2(d), each duly signed by such
Investor (collectively, the "Investor Deliverables").
(c) Within one Business Day following the date of this Agreement, each
Investor shall cause to be delivered to the Escrow Agent, its Investment Amount,
in United States dollars and in immediately available funds, by wire transfer to
an account designated in writing by the Company for such purpose in accordance
with the terms of the Escrow Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Investor:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than as specified in the SEC Reports. Except as disclosed in Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock of
each Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights.
(b) Organization and Qualification. The Company and each Subsidiary
are duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. The Company and each Subsidiary are duly
qualified to conduct its respective businesses and are in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company or any
Subsidiary in connection therewith. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any United States
or PRC court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) the filing with the
Commission of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, (ii) filings required by
state securities laws, (iii) the filing of a Notice of Sale of Securities on
Form D with the Commission under Regulation D of the Securities Act, (iv) the
filings required in accordance with Section 4.5 hereof and (v) those that have
been made or obtained prior to the date of this Agreement.
(f) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens other than restrictions on transfer provided in the
Transaction Documents. The Company has reserved from its duly authorized capital
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stock the shares of Common Stock issuable pursuant to this Agreement and the
Warrants in order to issue the Shares and the Warrant Shares.
(g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company, and all shares of Common
Stock reserved for issuance under the Company's various option and incentive
plans, is specified in Schedule 3.1(g). Except as specified in Schedule 3.1(g),
no securities of the Company are entitled to preemptive or similar rights, and
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 specified in Schedule
3.1(g), 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 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
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. Except as set forth in Schedule
3.1(g), neither the Company nor any Subsidiary has issued any capital stock in a
private placement transaction in the PRC.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports) (the foregoing materials being collectively referred
to herein as the "SEC Reports" and, together with the Schedules to this
Agreement (if any), the "Disclosure Materials") on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(i) Press Releases. The press releases disseminated by the Company
during the twelve months preceding the date of this Agreement taken as a whole
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
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statements therein, in light of the circumstances under which they were made and
when made, not misleading.
(j) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) neither the Company nor any Subsidiary has incurred any liabilities
(direct, indirect, contingent, or otherwise) other than (A) trade payables,
accrued expenses and other liabilities incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the identity of its auditors, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any Company or Subsidiary officer, director or
Affiliate, except pursuant to existing Company stock option plans. The Company
does not have pending before the Commission any request for confidential
treatment of information.
(k) Litigation. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, could, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty, except as specifically
disclosed in the SEC Reports. There has not been, and to the knowledge of the
Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or
her capacity as such). The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company or any Subsidiary.
(m) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
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and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with all effective requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended,
and the rules and regulations thereunder, that are applicable to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate United States
and PRC federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such permits.
(o) Title to Assets. The Company and the Subsidiaries have valid land
use rights for all real property that is material to their respective businesses
and good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(p) Patents and Trademarks. Schedule 3.1(p) sets forth all of the
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and other similar rights that the Company and
its Subsidiaries owns or has the rights to use (collectively, the "Intellectual
Property Rights"). The Intellectual Property Rights constitute all of the
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and other similar rights that are necessary
for use by the Company and its Subsidiaries in connection with their respective
businesses as described in the SEC Reports. Neither the Company nor any of its
Subsidiaries has received a written or oral notice that the Intellectual
Property Rights used by any of them violates or infringes upon the rights of any
Person. Except as set forth in Schedule 3.1(p), all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights. To the knowledge of the Company and
its Subsidiaries, no former or current employee, no former or current
consultant, and no third-party joint developer of the Company or its
Subsidiaries has any Intellectual Property Rights made, developed, conceived,
created or written by the aforesaid employee, consultant or third-party joint
developer during the period of his or her retention by, or joint venture with,
such Company or Subsidiary which can be asserted against any of the Company or
any such Subsidiary. The Intellectual Property Rights and the owner thereof or
agreement through which they are licensed to any of the Company or its
Subsidiaries are set forth on Schedule 3.1(p). By the Closing, the Company shall
have entered into agreements by which it is granted irrevocable, exclusive,
royalty-free licenses on all Intellectual Property Rights that are registered to
or owned by any Person other than the Company or its predecessor. Such
agreements together with the agreements referenced in Schedule 3.1(p) are
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collectively the "Intellectual Property Rights Licensing Agreements." The
Company and its Subsidiaries will take such action as may be required, including
making and maintaining the filings set forth in Schedule 3.1(p) and shall cause
any such transfers of Intellectual Property Rights to the Company to be granted
as is required in order for the Company to become the registered owner (in its
current name) of all such Intellectual Property Rights (including, without
limitation, the entering into of any Intellectual Property Rights Licensing
Agreements as may be necessary and the filing and maintaining of any information
with the relevant PRC authority which relate to the change of name for those
Intellectual Property Rights currently in the name of an entity other than the
Company).
(q) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it will not be able to renew its and the Subsidiaries' existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
consistent with market for the Company's and such Subsidiaries' respective lines
of business without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(s) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's Form 10-KSB, 10-K, 10-Q or 10-QSB, as the case
may be, is being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures in accordance with Item
307 of Regulation S-K under the Exchange Act for the Company's most recently
ended fiscal quarter or fiscal year-end (such date, the "Evaluation Date"). The
Company presented in its most recently filed Form 10-KSB or Form 10-QSB the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
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Since the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 308(c) of
Regulation S-K under the Exchange Act) or, to the Company's knowledge, in other
factors that could significantly affect the Company's internal controls.
(t) Solvency. Based on the financial condition of the Company as of
the Closing Date (and assuming that the Closing shall have occurred), (i) the
Company's fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company's assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(u) Certain Fees. Except for fees payable to Xxxx Capital Partners,
LLC in connection with the transaction contemplated by this Agreement, no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
(v) Certain Registration Matters. Assuming the accuracy of the
Investors' representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Securities and Warrants and the offer of the Warrant Shares by the Company to
the Investors under the Transaction Documents. The Company is eligible to
register its Common Stock for resale by the Investors under Form S-1 promulgated
under the Securities Act. The Company has not granted or agreed to grant to any
Person other than the Investors pursuant to the Registration Rights Agreement
any rights (including "piggy-back" registration rights) to have any securities
of the Company registered with the Commission or any other governmental
authority that have not been satisfied.
(w) Listing and Maintenance Requirements. Except as specified in the
SEC Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market on which the Common Stock is
11
currently listed or quoted. The issuance and sale of the Securities under the
Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no
approval of the shareholders of the Company thereunder is required for the
Company to issue and deliver to the Investors the Securities contemplated by
Transaction Documents.
(x) Investment Company. The Company is not, and is not an Affiliate
of, and immediately following the Closing will not have become, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(y) Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Articles of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors as a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and the Investors' ownership
of the Securities.
(z) No Additional Agreements. The Company does not have any agreement
or understanding with any Investor with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.
(aa) Consultation with Auditors. The Company has consulted its
independent auditors concerning the accounting treatment of the transactions
contemplated by the Transaction Documents, and in connection therewith has
furnished such auditors complete copies of the Transaction Documents.
(bb) Accountants. There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the
accountants formerly or presently employed by the Company, that would,
individually or in the aggregate, have or reasonably be expected to result in, a
Material Adverse Effect.
(cc) Foreign Corrupt Practices Act. Neither the Company nor any
Subsidiary, nor to the knowledge of the Company, any agent or other person
acting on behalf of any of the Company or any Subsidiary, has, directly or
indirectly, (i) used any funds, or will use any proceeds from the sale of the
Securities, for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company or any
Subsidiary (or made by any Person acting on their behalf of which the Company is
aware) which is in violation of law, or (iv) has violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended,
and the rules and regulations thereunder.
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(dd) PFIC. Neither the Company nor any Subsidiary is or intends to become a
"passive foreign investment company" within the meaning of Section 1297 of the
U.S. Internal Revenue Code of 1986, as amended.
(ee) OFAC. Neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any director, officer, agent, employee, Affiliate or
Person acting on behalf of the Company or any Subsidiary is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department ("OFAC"); and the Company will not directly or
indirectly use the proceeds of the sale of the Securities, or lend, contribute
or otherwise make available such proceeds to any Subsidiary, joint venture
partner or other Person or entity, towards any sales or operations in Cuba,
Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the
purpose of financing the activities of any Person currently subject to any U.S.
sanctions administered by OFAC.
(ff) Money Laundering Laws. The operations of each of the Company and
any Subsidiary are and have been conducted at all times in compliance with the
money laundering statutes of applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any applicable governmental agency (collectively,
the "Money Laundering Laws") and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company and/or any Subsidiary with respect to the Money Laundering Laws is
pending or, to the best knowledge of the Company, threatened.
(gg) Additional PRC Representations and Warranties.
(i) All material consents, approvals, authorizations or licenses
requisite under PRC law for the due and proper establishment and operation of
the Company and the Subsidiaries have been duly obtained from the relevant PRC
governmental authorities and are in full force and effect.
(ii) All filings and registrations with the PRC governmental
authorities required in respect of the Company and the Subsidiaries and their
operations including, without limitation, the registration 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,
except where, the failure to complete such filings and registrations does not,
and would not, individually or in the aggregate, have a Material Adverse Effect.
(iii) The Company and the Subsidiaries have 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 governmental authorities. There are no outstanding rights of, or
commitments made by the Company or any Subsidiary to sell any of their
respective equity interests.
(iv) Neither the Company nor any Subsidiary is in receipt of any
letter or notice from any relevant PRC governmental authority notifying it of
the revocation, or otherwise questioning the validity, of any licenses or
qualifications issued to it or any subsidy granted to it by any PRC governmental
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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 or such Subsidiary, except such revocation as does
not, and would not, individually or in the aggregate, have a Material Adverse
Effect.
(v) The Company and the Subsidiaries have conducted their
respective business activities within their permitted scope of business or have
otherwise operated their respective businesses in compliance with all relevant
legal requirements and with all requisite licenses and approvals granted by
competent PRC governmental authorities other than such non-compliance that do
not, and would not, individually or in the aggregate, have a Material Adverse
Effect. As to licenses, approvals and government grants and concessions
requisite or material for the conduct of any part of the Company or any
Subsidiaries' business which is subject to periodic renewal, neither the Company
nor such Subsidiary has any knowledge of any grounds on which such requisite
renewals will not be granted by the relevant PRC governmental authorities.
(vi) With regard to employment and staff or labor, the Company
and the Subsidiaries have 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, other than such non-compliance that
do not, and would not, individually or in the aggregate, have a Material Adverse
Effect.
(hh) Disclosure. The Company confirms that neither it nor any Person
acting on its behalf has provided any Investor or its respective agents or
counsel with any information that the Company believes constitutes material,
non-public information concerning the Company, the Subsidiaries or their
respective businesses, except insofar as the existence and terms of the proposed
transactions contemplated hereunder may constitute such information. The Company
understands and confirms that the Investors will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company. All disclosure provided to the Investors regarding the Company, the
Subsidiaries or their respective businesses and the transactions contemplated
hereby, furnished by or on behalf of the Company (including the Company's
representations and warranties set forth in this Agreement and any business plan
or investor presentation provided by the Company or any Person acting on the
Company's behalf) are true and correct 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 made therein, in light of the circumstances under which they were
made, not misleading.
3.2. Representations and Warranties of the Investors. Each Investor hereby,
for itself and for no other Investor, represents and warrants to the Company as
follows:
(a) Organization; Authority. Such Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder. The execution, delivery and performance by such
Investor of the transactions contemplated by this Agreement has been duly
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authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership, limited liability company or other applicable like action, on
the part of such Investor. Each of this Agreement and the Registration Rights
Agreement has been duly executed by such Investor, and when delivered by such
Investor in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(b) Investment Intent. Such Investor is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Investor's right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business. Such
Investor does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
(c) Investor Status. At the time such Investor was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises Warrants it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer
under Section 15 of the Exchange Act. Such Investor has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Such Investor acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
(d) General Solicitation. Such Investor is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(e) Access to Information. Such Investor acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
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(f) Certain Trading Activities. Such Investor has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company's securities) since the earlier to occur of (1) the time that such
Investor was first contacted by the Company or Xxxx Capital Partners, LLC
regarding an investment in the Company and (2) the 30th day prior to the date of
this Agreement. Such Investor covenants that neither it nor any Person acting on
its behalf or pursuant to any understanding with it will engage in any
transactions in the securities of the Company (including Short Sales) prior to
the time that the transactions contemplated by this Agreement are publicly
disclosed.
(g) Independent Investment Decision. Such Investor has independently
evaluated the merits of its decision to purchase Securities pursuant to the
Transaction Documents, and such Investor confirms that it has not relied on the
advice of any other Investor's business and/or legal counsel in making such
decision. Such Investor has not relied on the business or legal advice of Xxxx
Capital Partners, LLC or any of its agents, counsel or Affiliates in making its
investment decision hereunder, and confirms that none of such Persons has made
any representations or warranties to such Investor in connection with the
transactions contemplated by the Transaction Documents.
ARTICLE 4.
OTHER AGREEMENTS OF THE PARTIES
4.1. (a) Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of the Securities
other than pursuant to an effective registration statement, to the Company, to
an Affiliate of an Investor or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, 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.
(b) Certificates evidencing the Securities (as defined in Section
4.1(c)) will contain the following legend, until such time as they are not
required under Section 4.1(c):
THESE SECURITIES HAVE 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
16
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. THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.
The Company acknowledges and agrees that an Investor may from time to
time pledge, and/or grant a security interest in some or all of the Securities
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor'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
thereof including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
stockholders thereunder. Except as otherwise provided in Section 4.1(c), any
Securities subject to a pledge or security interest as contemplated by this
Section 4.1(b) shall continue to bear the legend set forth in this Section
4.1(b) and be subject to the restrictions on transfer set forth in Section
4.1(a).
(c) Certificates evidencing Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i) while
a registration statement (including the Registration Statement) covering such
Shares and Warrant Shares is then effective, or (ii) following a sale or
transfer of such Shares or Warrant Shares pursuant to Rule 144 (assuming the
transferee is not an Affiliate of the Company), or (iii) while such Shares or
Warrant Shares are eligible for sale by the selling Investor without volume
restrictions under Rule 144. The Company agrees that following the Effective
Date or such other time as legends are no longer required to be set forth on
certificates representing Shares and Warrant Shares under this Section 4.1(c),
it will, no longer than five Trading Days following the delivery by an Investor
to the Company or the Transfer Agent of a certificate representing such Shares
or Warrant Shares containing a restrictive legend, deliver or cause to be
delivered to such investor Shares or Warrant Shares which are free of all
restrictive and other legends. If the Company is then eligible, certificates for
Shares and Warrant Shares subject to legend removal hereunder shall be
transmitted by the Company's transfer agent to an Investor by crediting the
prime brokerage account of such Investor with the Depository Trust Company
System as directed by such Investor. If an Investor shall make a sale or
transfer of Shares or Warrant Shares either (x) pursuant to Rule 144 or (y)
pursuant to a registration statement and in each case shall have delivered to
the Company or the Company's transfer agent the certificate representing the
applicable Shares or Warrant Shares containing a restrictive legend which are
the subject of such sale or transfer and a representation letter in customary
form (the date of such sale or transfer and Shares or Warrant Share delivery
being the "Share Delivery Date") and (1) the Company shall fail to deliver or
cause to be delivered to such Investor a certificate representing such Shares or
17
Warrant Shares that is free from all restrictive or other legends by the third
Trading Day following the Share Delivery Date and (2) following such third
Trading Day after the Share Delivery Date and prior to the time such Shares or
Warrant Shares are received free from restrictive legends, the Investor, or any
third party on behalf of such Investor, purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of such Shares or Warrant Shares (a "Buy-In"), then, in addition to any
other rights available to the Investor under the Transaction Documents and
applicable law, the Company shall pay in cash to the Investor (for costs
incurred either directly by such Investor or on behalf of a third party) the
amount by which the total purchase price paid for Common Stock as a result of
the Buy-In (including brokerage commissions, if any) exceed the proceeds
received by such Investor as a result of the sale to which such Buy-In relates.
The Investor shall provide the Company written notice indicating the amounts
payable to the Investor in respect of the Buy-In. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
4.2. Furnishing of Information. As long as any Investor owns any
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell the Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
4.3. Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the securities to the Investors.
4.4. Subsequent Registrations. Other than pursuant to the Registration
Rights Agreement, prior to the first to occur of (a) the Effective Date of a
Registration Statement resulting in all Registrable Securities (as defined in
the Registration Rights Agreement) being registered for resale pursuant to one
or more effective Registration Statements or (b) such time as all Registrable
Securities may be sold by the Investors without volume restrictions pursuant to
Rule 144, the Company may not file any registration statement (other than on
Form S-8) with the Commission with respect to any securities of the Company.
4.5. Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York City
time) on the Trading Day following the execution of this Agreement, and by 9:00
a.m. (New York City time) on the Trading Day following the Closing Date, the
Company shall issue press releases disclosing the transactions contemplated
hereby and the Closing. On the Trading Day following the execution of this
Agreement the Company will file a Current Report on Form 8-K disclosing the
18
material terms of the Transaction Documents (and attach as exhibits thereto the
Transaction Documents). In addition, the Company will make such other filings
and notices in the manner and time required by the Commission and the Trading
Market on which the Common Stock is listed. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Investor, or include the
name of any Investor in any filing with the Commission (other than a
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.
4.6. Limitation on Issuance of Future Priced Securities. During the six
months following the Closing Date, the Company shall not issue any "Future
Priced Securities" as such term is described by NASD IM-4350-1.
4.7. Indemnification of Investors. In addition to the indemnity provided in
the Registration Rights Agreement, the Company will indemnify and hold the
Investors and their directors, officers, shareholders, partners, employees and
agents (each, an "Investor Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation (collectively, "Losses") that any
such Investor Party may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 4.7 shall be the same as those set forth in
Section 5 of the Registration Rights Agreement.
4.8. Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Investor or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Investor shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Investor shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9. Listing of Shares and Warrant Shares. The Company agrees, (i) if the
Company applies to have the Common Stock traded on any other Trading Market, it
will include in such application the Shares and Warrant Shares, and will take
such other action as is necessary or desirable to cause the Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible, and
(ii) it will take all action reasonably necessary to continue the listing and
trading of its Common Stock on a Trading Market and will comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Trading Market.
4.10 English Speaking Executive. The Company will use its reasonable best
efforts to hire an English speaking senior executive within six months following
the Closing Date.
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4.11 Use of Proceeds. The Company will use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables and accrued expenses in the ordinary course of the Company's business
and consistent with prior practices), or to redeem any Common Stock or Common
Stock Equivalents.
ARTICLE 5.
CONDITIONS PRECEDENT TO CLOSING
5.1. Conditions Precedent to the Obligations of the Investors to Purchase
Securities. The obligation of each Investor to acquire Securities at the Closing
is subject to the satisfaction or waiver by such Investor, at or before the
Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing as though made on and as
of such date;
(b) Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;
(d) Adverse Changes. Since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably could have or
result in a Material Adverse Effect;
(e) No Suspensions of Trading in Common Stock; Listing. Trading in the
Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company) at
any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on a Trading
Market;
(f) Company Agreements. The Company shall have delivered:
(i) This Agreement, duly executed by the Company;
(ii) The Closing Escrow Agreement, duly executed by the Company
and the Escrow Agent; and
(iii) The Registration Rights Agreement, duly executed by the
Company.
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(g) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and
(h) Termination. This Agreement shall not have been terminated as to
such Investor in accordance with Section 6.5.
5.2. Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of each Investor contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made on
and as of such date;
(b) Performance. Each Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Investor at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;
(d) Investor Deliverables. Each Investor shall have delivered this
Agreement, the Registration Rights Agreement and the Escrow Agreement, each duly
executed by such Investor; and
(e) Termination. This Agreement shall not have been terminated as to
such Investor in accordance with Section 6.5.
ARTICLE 6.
MISCELLANEOUS
6.1. Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Securities. Notwithstanding the foregoing, at the Closing the Company will
reimburse Guerrilla Capital for its out of pocket legal expenses incurred in
connection with the transactions contemplated by the Transaction Documents.
6.2. Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
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6.3. 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 (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 6:30 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 specified in this Section on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (c) the 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 follows:
If to the Company: China Pharma Holdings, Inc.
2nd Floor, Xx. 00
Xxxxxx Xxxx
Xxxxxx, Xxxxxx Xxxxxxxx
Xxxxxx'x Xxxxxxxx of China
Attn: Chief Executive Officer
Facsimile:
With a copy to: King & Wood LLP
40th Floor, Office Tower A
Beijing Fortune Plaza 7
Dongsanhuan Zhonglu
Xxxxxxxx Xxxxxxxx
Xxxxxxx 000000, Xxxxxx'x Xxxxxxxx of China
Facsimile: 8610-58785588
Attn.: Xxxxxxx Law
If to an Investor: To the address set forth under such
Investor's name on the signature pages
hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
6.4. Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written instrument signed by the
Company and the Investors holding a majority of the Securities. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. No
consideration shall be offered or paid to any Investor to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the
same consideration is also offered to all Investors who then hold Securities.
Without the written consent or the affirmative vote of each Investor affected
thereby, an amendment or waiver under this Section 6.4 may not waive or amend
any Transaction Document the effect of which would be to permit the Company to
22
(1) name any Investor as an underwriter in a Registration Statement without such
Investor's specific written consent thereto, or (2) not include any Registrable
Securities (as defined in the Registration Rights Agreement) of an Investor in a
Registration Statement due to their refusal to be named as an underwriter
therein.
6.5. Termination. This Agreement may be terminated prior to Closing:
(a) by written agreement of the Investors and the Company, a copy of
which shall be provided to the Escrow Agent; and
(b) by the Company or an Investor (as to itself but no other Investor)
upon written notice to the other and to the Escrow Agent, if the Closing shall
not have taken place by 6:30 p.m. Eastern time on the Outside Date; provided,
that the right to terminate this Agreement under this Section 6.5(b) shall not
be available to any Person whose failure to comply with its obligations under
this Agreement has been the cause of or resulted in the failure of the Closing
to occur on or before such time.
In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Investors. Upon a termination in accordance
with this Section 6.5, the Company and the terminating Investor(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Investor will have any liability to any other
Investor under the Transaction Documents as a result therefrom.
6.6. Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
6.7. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the "Investors."
6.8. No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7 (as to each
Investor Party) and that Xxxx Capital Partners, LLC is a third party beneficiary
of the Company's representations and warranties contained herein.
6.9. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
23
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.
6.10. Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.
6.11. Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.12. Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13. Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
24
6.14. Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.15. Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16. Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17. Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
25
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor. Each Investor represents that it has been
represented by its own separate legal counsel in its review and negotiations of
this Agreement and the Transaction Documents.
6.18. Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
26
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 PHARMA HOLDINGS, INC.
By:
--------------------------------------------------
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
27
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.
NAME OF INVESTOR
-------------------------------------------------
By:
----------------------------------------------
Name:
Title:
Investment Amount: $
----------------------------
Tax ID No.:
--------------------------------------
ADDRESS FOR NOTICE
c/o:
---------------------------------------------
Street:
------------------------------------------
City/State/Zip:
----------------------------------
Attention:
---------------------------------------
Tel:
--------------------------------------------
Fax:
--------------------------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
---------------------------------------------
Street:
------------------------------------------
City/State/Zip:
----------------------------------
Attention:
---------------------------------------
Tel:
--------------------------------------------
28
Annex A
SCHEDULE OF BUYERS
(1) (2)
Address and
Buyer Facsimile Number
--------------------------------------------------------
-------------------------------------------------------
29
