LEAKOUT AGREEMENT
This AGREEMENT (the “Agreement”) is
made as of the ___ day of January 2010, by the undersigned (“Holder”), in
connection with his, her or its ownership of shares of China Yongxin
Pharmaceuticals, Inc., a Delaware corporation (the “Company”).
NOW, THEREFORE, for good and valuable
consideration, the sufficiency and receipt of which consideration are hereby
acknowledged, Holder agrees as follows:
1. Background.
a. Holder
is the beneficial owner of __________ shares of the Common Stock, $0.001 par
value, of the Company (“Common Stock”).
x. Xxxxxx
acknowledges that the Company has entered into or will enter into an
equity-linked financing in a private placement with one of more accredited
investors under a subscription agreement dated on or around the date of this
Agreement, in order to raise capital for its operations (“Offering”) involving
the issuance of convertible notes (“Notes”).
x. Xxxxxx
understands that, as a condition to proceeding with the Offering, the investors
in the Offering have required, and the Company has agreed to obtain on behalf of
the investors, an agreement from the Holder to limit certain sales of securities
of the Company for as long as the Notes are outstanding (“Restriction Period”)
except as described below.
2. Sale
Restriction.
a. Rule
144. Holder agrees to comply at all times with the
requirements of Rule 144 promulgated under the Securities Act of
1933.
b. Restriction on
Sale. In addition to the applicable restrictions under Rule
144 as described in Section 2(a) above, Holder hereby agrees that during the
Restriction Period:
(i) for
every share sold at a sale price of over $0.50 per share (as appropriately
adjusted for stock splits, recapitalizations and similar events), the Holder
will not be subject to any restrictions in addition to Section 2(a);
and
(ii) for
every share sold below a sale price of $0.50 per share (as appropriately
adjusted for stock splits, recapitalizations and similar events) during the
Restriction Period, notwithstanding the foregoing the Holder shall be subject to
an aggregate maximum limit on the sale of such shares of 1.00% of the total
number of shares of outstanding Common Stock of the Company during any
ninety-day period, calculated at the commencement of such ninety day period;
this paragraph 2(b)(ii) shall not apply in connection with an offer made to all
stockholders of the Company in connection with merger, consolidation or similar
transaction involving the Company.
At the
first closing of the Offering, the Company will advise the Holder of the number
of shares of Common Stock which it believes the Holder may sell under Rule 144
and under 2(a) above, at such time.
At the
first closing of the Offering, the Company will advise the Holder of the number
of shares of Common Stock which it believes the Holder may sell pursuant to
Section 2(b)(ii) during the applicable ninety-day period. On each
occasion where the closing price for the Common Stock is below $0.50 per share,
upon written request the Company will advise the Holder of the number of shares
of Common Stock which it believes the Holder may sell pursuant to Section
2(b)(ii) during the applicable ninety-day period.
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c. Notice of Lapse of
Restrictions. The Company agrees to provide prompt notice to
the Holder in the event that the Notes are repaid or otherwise
discharged.
d. Loan to
Holder. Provided that the Holder executes and delivers this
Agreement to the Company, and conditioned upon the first closing of the Offering
with minimum gross proceeds of $350,000, the Company agrees to loan the Holder
the amount of $25,000, which amount shall be advanced at the time of closing,
and evidenced by receipt by the Company of an executed promissory note in the
form attached as Exhibit
A.
e. Additional
Conditions. (i) Holder’s acceptance is subject to the Offering
closing on or before January 20, 2010 in the minimum gross amount of $350,000,
and (ii) the Company shall provide at its sole expense a legal opinion as to
what date Holder’s shares are no longer restricted under Rule 144.
f. Broker. In
connection with the sale of the Common Stock, the Holder agrees to (a) use and
maintain one (1) broker (“Broker”) for the sale of Common Stock during the
Restriction Period, (2) inform such Broker of the sale restrictions in this
Agreement, and (3) the Company at its sole expense shall provide up to one legal
opinion per ninety day period regarding the numbers of shares of Common Stock
that may be sold pursuant to this Agreement.
g. Sale
Information. Holder agrees to cause its Broker to provide a
copy of each sale ticket evidencing each sale of Common Stock made during the
Restriction Period to the Company and to the collateral agent appointed by the
investors, within five days of such sale, to the following
contacts:
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(1)
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Collateral
Agents, LLC
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000 Xxxx
00xx
Xxxxxx, Xxxxx 0000
Xxx Xxxx,
XX 00000
Attn:
General Counsel
Facsimile:
(000) 000-0000
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(2)
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China
Yongxin Pharmaceuticals, Inc.
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000
Xxxxxx Xxxxx
Xxxx xx
Xxxxxxxx, XX 00000
Attn:
Xxxxxxx Xxx, CEO
Facsimile:
(000) 000-0000
Holder
hereby authorizes the Company and Collateral Agent to obtain such sales
information from the Holder’s Broker at any time or from time to time during the
Restriction Period, as well as any related information, and agrees to inform its
Broker of such consent, which may not be revoked during the Restriction
Period.
h. Stop
Orders. Holder further agrees that the Company is authorized
to and the Company agrees to place “stop orders” on its books to prevent any
transfer of shares of Common Stock or other securities of the Company, limited
to the following instances:
(1) the Holder proposes or
attempts to sell a number of shares of Common Stock in excess of the number of
shares permitted pursuant to Section 2(a) as indicated by the Company pursuant
to Section 2(b); or
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(2) the Holder proposes or attempts to
sell a number of shares of Common Stock in excess of the number of shares
permitted pursuant to Section 2(b)(ii) as indicated by the Company pursuant to
Section 2(b).
The
Company agrees not to allow to occur any transaction inconsistent with this
Agreement.
i. Subsequent
Issuances. Any subsequent issuance to and/or acquisition by
Holder of Common Stock or options or instruments convertible into Common Stock
will be subject to the provisions of this Agreement.
3. Miscellaneous.
a. At
any time, and from time to time, after the signing of this Agreement Holder will
execute such additional instruments and take such action as may be reasonably
requested by the Subscribers to carry out the intent and purposes of this
Agreement, subject to review and approval by Holder’s legal counsel
b. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in the
state courts of California or in the federal courts located in the state of
California. The prevailing party shall be entitled to recover from
the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
c. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: China Yongxin
Pharmaceuticals, Inc., 000 Xxxxxx Xxxxx, Xxxx xx Xxxxxxxx, XX 00000, Attn:
Xxxxxxx Xxx, CEO, facsimile: (000) 000-0000, with a copy to: Xxxxxxxxxx &
Xxxxx, LLP, 00000 Xxxxxxxx Xxxx., Xxxxx 000, Xxx Xxxxxxx, XX 00000, Attn: Xxxxxx
Xxxxx, Esq., facsimile: (000) 000-0000, (ii) if to the Holder, to: the addresses
and fax numbers indicated on the signature page hereto.
d. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder in writing or to which the Holder is subject to by applicable
law.
e. This
Agreement shall be binding upon Holder, its legal representatives, successors
and assigns.
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f. This
Agreement may be signed and delivered by facsimile, electronically and such
facsimile or electronically signed and delivered Agreement shall be
enforceable.
g. The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with this Agreement.
[Signature Page
Follows]
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IN WITNESS WHEREOF, and intending to be
legally bound hereby, Holder has executed this Agreement as of the day and year
first above written.
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HOLDER:
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(Print Name of Holder)
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(Signature of Holder)
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Title:
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Address for notices:
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Fax:
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COMPANY:
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CHINA YONGXIN PHARMACEUTICALS, INC.
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By:
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Xxxxxxx Xxx, CEO
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