GRANTO, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This
SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made
as of the 29th day of March, 2010, among Granto, Inc., a Nevada corporation (the
“Company”), and
the investors listed on the signature page to this Agreement (each an “Investor”).
Recitals
WHEREAS,
the Company desires to sell and issue to each Investor, and each Investor
desires to purchase from the Company, shares of the Company’s Series A Preferred
Stock (the “Series A
Preferred”) convertible into shares of the Company’s common stock, par
value $0.001 per share (“Common
Stock”).
WHEREAS,
in connection with the sale of Series A Preferred, the Company shall issue to
the Investors Series A share purchase warrants (the “Series A Warrants”)
in the form attached hereto as Exhibit A and Series
B share purchase warrants (the “Series B Warrants”)
in the form attached hereto as Exhibit B
(collectively, the “Warrants”), with the Series A Warrants entitling the
Investors to purchase one (1) share of the Company’s Common Stock (the “A Warrant Shares”)
for every Four Dollars and forty four and eight tenth Cents ($4.448) paid by the
Investor for Series A Preferred, and with the Series B Warrants entitling the
Investors to purchase one (1) share of the Company’s Common Stock (the “B Warrant Shares” and
together with the A Warrant Shares, the “Warrant Shares”) for
every Four Dollars and forty four and eight tenth Cents ($4.448) paid by the
Investor for Series A Preferred (collectively the Series A Preferred
and Warrants are referred to as the “Purchased
Securities”).
NOW,
THEREFORE, in consideration of the mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
Terms
of Agreement
1. Defined
Terms. The terms defined in this Section 1 shall have
such defined meaning throughout this Agreement.
1.1 “Affiliate” of a
Person means any Person that directly or indirectly, Controls, is Controlled by,
or is under common Control with, the Person in question.
1.2 “Certificate” means the Certificate of
Designations, Preferences and Rights of Series A Preferred Stock of the Company
attached to this Agreement as Exhibit
C, as the same may be
amended from time to time.
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1.3
“Control” or
“Controlled”
means the power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise.
1.4 “Lien” shall mean,
with respect to any property or asset (whether tangible or intangible), any
mortgage, lien, pledge, charge, security interest, encumbrance, or other adverse
claim of any kind in respect of such property or asset.
1.5 “Material Adverse
Effect” means any material adverse change in, or material adverse effect
on, the business, assets, prospects, results of operations, value, financial or
other condition of the Company and its Subsidiaries taken as a whole, or any
event or circumstance that could reasonably be expected to have any such effect
or that could reasonably be expected to prevent, hinder or delay the
consummation of any of the transactions contemplated by this Agreement or any of
the other documents, instruments or agreements contemplated hereby and
thereby.
1.6 “Person” means an
individual, corporation, partnership, limited liability company, association,
trust, or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
1.7 “Subsidiary” means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity.
1.8 “Taxes” means any
federal, state, local, or foreign income, gross receipts, franchise, estimated,
alternative minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, severance, stamp, occupation, premium, windfall profit, customs,
duties, real property, personal property, capital stock, intangibles, social
security, unemployment, disability, payroll, license, employee, or other tax or
levy, of any kind whatsoever, including any interest, penalties, or additions to
tax in respect of the foregoing.
1.9 “Trading Day” means a
day on which the Common Stock is traded on a Trading Market.
1.10 “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the
OTC Bulletin Board.
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2. Purchase and Sale of
Stock.
2.1 Authorization. On
or prior to the Closing Date, the Company shall have (i) authorized
the sale and issuance to the Investors of up to 3,000,000 shares of Series A
Preferred, (ii) reserved 3,000,000 shares of the Company’s
Common Stock to be issued upon conversion of the Series A Preferred (the “Conversion Shares”)
and (iii) reserved 4,000,000 shares of the Company’s Common Stock to be
issued upon exercise of the Warrants. The Series A Preferred Stock
shall have the rights, preferences, privileges and restrictions set forth in the
Certificate of in the form attached hereto as Exhibit
C.
2.2 Sale and
Issuance. Subject to the terms and conditions set forth in
this Agreement, each Investor agrees, severally and not jointly, to purchase at
the Closing, and the Company agrees to sell and issue to each Investor at the
Closing, that number of shares (the “Purchased Shares”) of
the Company’s Series A Preferred Stock set forth opposite such Investor’s name
on the signature page to this Agreement, for the purchase price of $2.78107 per
share (the “Purchase
Price”). Upon the following terms and conditions and for no
additional consideration, each of the Investors shall be issued Series A
Warrants in the form attached hereto as Exhibit A and Series B Warrants in
the form attached hereto as Exhibit B with the
Series A Warrants entitling the Investors to purchase one (1) share of the
Company’s Common Stock for every for every Four Dollars and forty four and eight
tenth Cents ($4.448) paid by the Investor for Purchased Shares, and
with the Series B Warrants entitling the Investors to purchase one (1) share of
the Company’s Common Stock for every Four Dollars and forty four and eight tenth
Cents ($4.448) paid by the Investor for Purchased Shares as set forth on the
signature pages hereto. The Warrants shall expire five (5) years following the
Closing Date, and the Series A Warrants and Series B Warrants shall have an
initial exercise price of $3.47 and $4.17, respectively.
2.3 Closing; Delivery of
Certificates.
(a) Closing. The
purchase and sale of the Series A Preferred and Warrants (the “Closing”) shall take
place on March 26, 2010 (the “Closing Date”) at the
offices of The Xxxxx Law Group, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, XX 00000, or at such other time and place mutually agreeable to the
Company and Investors acquiring a majority of the Purchased Shares to be issued
and sold at the Closing.
(b) Delivery. At
each Closing, the Company shall deliver to each Investor participating therein a
certificate or certificates, registered in the name or names directed by each
such Investor, representing the number of Purchased Shares to be purchased by
such Investor together with Warrants to purchase such number of shares of Common
Stock as set forth in Section 2.2, against
payment of the Purchase Price, by check, wire transfer or any combination
thereof. The Company and the Investors shall, upon request, on or
after the Closing Date, cooperate with each other (specifically, the Company
shall cooperate with the Investors, and the Investors shall cooperate with the
Company) by furnishing any additional information, executing and delivering any
additional documents and/or other instruments and doing any and all such things
as may be reasonably required by the parties or their counsel to consummate or
otherwise implement the transactions contemplated by this
Agreement.
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3. Representations and
Warranties of the Company. Except as set forth on the Schedule
of Exceptions attached hereto as Schedule 1 (the
“Schedule of
Exceptions”), which exceptions shall be deemed to be representations and
warranties as if made under this Section 3, the
Company hereby makes the following representations and warranties to each
Investor as of the Closing Date. The Schedule of Exceptions will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs in
this Section
3.
3.1 Organization, Good Standing
and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to own and operate
its properties and to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure to so qualify,
individually or in the aggregate, would have a Material Adverse
Effect. The Company has delivered to the Investors true and complete
copies of its Articles of Incorporation and Bylaws, as amended through the date
hereof.
3.2 Capitalization and Voting
Rights. The authorized capital stock of the Company consists
of the following:
(a) Preferred
Stock. The rights, privileges and preferences of the Preferred
Stock will be as stated in the Certificate. No shares of preferred
stock are issued and outstanding.
(b) Common Stock.
90,000,000 shares of common stock, par value $0.001 per share (“Common Stock”), of
which 21,286,789 shares are issued and outstanding.
(c) Other
Rights. Except for the conversion privileges of the Series A
Preferred, the Class A Warrants and Class B Warrants being issued pursuant to
this Agreement, Class C Warrants to purchase an aggregate of
333,333shares of Common Stock of the Company at $2.44 per share and Class D
Warrants to purchase an aggregate of 333,333 shares of Common Stock of the
Company at $2.93 per share, there are no outstanding options, warrants, rights
(including purchase, conversion or preemptive rights), calls, commitments,
subscription rights, exchange rights, profit participation, or other agreements
for the purchase or acquisition from the Company, or similar rights to acquire
from the Company or similar obligations of the Company to issue, any shares of
its capital stock. The Company is not a party or subject to any
agreement or understanding, and, to the Company’s knowledge, there is no
agreement or understanding between any Persons that affects or relates to the
voting or giving of written consents with respect to any security of the Company
or by a director of the Company.
(d) Valid
Issuance. The outstanding shares of Common Stock and
Series A Preferred, and all warrants and options to purchase the capital
stock of the Company were duly and validly authorized and issued, fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as amended (the “1933 Act”) and any
relevant state securities laws or pursuant to valid exemptions
therefrom.
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3.3 Subsidiaries. Except
as set forth in Schedule 1, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity, and is not a
participant in any joint venture, partnership, or similar
arrangement.
3.4 Authorization. The
Company has all requisite power and authority to execute, deliver and perform
this Agreement, the transactions contemplated by this Agreement, the
Certificate, the Escrow Agreement dated as of the date of this Agreement among
the Company, certain officers of the Company and the escrow agent named therein
in the form attached hereto as Exhibit E (the
“Escrow Agreement”) and the Warrants (collectively the “Transaction
Agreements”). All corporate action on the part of the Company
and its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the performance of all obligations
of the Company hereunder and the authorization, issuance, sale and delivery of
the Purchased Securities being sold at the Closing and the Common Stock issuable
upon conversion of such Series A Preferred and exercise of the Warrants has been
taken or will be taken prior to the Closing. The Transaction
Agreements have been duly executed and delivered by the Company, and constitute
valid and legally binding obligations of the Company, enforceable against the
Company in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, and (b) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.5 Valid Issuance of Preferred
and Common Stock. The Purchased Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
set forth herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of all Liens and restrictions on transfer other
than the restrictions on transfer contained in this Agreement and under
applicable state and federal securities laws. The Conversion Shares
have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate, will be duly and validly issued,
fully paid, and nonassessable and will be free of all Liens and restrictions on
transfer other than the restrictions on transfer contained in this Agreement and
under applicable state and federal securities laws. The Warrant Shares have been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Warrants, will be duly and validly issued, fully paid, and
nonassessable and will be free of all Liens and restrictions on transfer other
than the restrictions on transfer contained in this Agreement and under
applicable state and federal securities laws.
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3.6 Governmental and Third Party
Consents; Compliance with Laws and Court Orders. No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority or any third party on the part of the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement, except qualification or filings under applicable securities laws as
may be required in connection with the transactions contemplated by this
Agreement. The Company is not in violation of any provisions of any
laws, statutes, ordinances, regulations, administrative interpretations,
judgements, injunctions, orders, policies or decrees of any court or
governmental or administrative authority that are applicable to the Company or
its assets, except for violations that have not had and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect.
3.7 Offering. Subject
in part to the truth and accuracy of each Investor’s representations set forth
in Section 4 of
this Agreement, the offer, sale and issuance of the Purchased Securities are
exempt from the registration requirements of any applicable state and federal
securities laws.
3.8 Litigation. There
is no action, suit, proceeding, arbitration, complaint, charge or investigation
pending or, to the Company’s knowledge, currently threatened against the Company
or any of its Affiliates that questions the validity of this Agreement or the
right of the Company to enter into such agreement, or to consummate the
transactions contemplated hereby, or that might result, either individually or
in the aggregate, in a Material Adverse Effect. Neither the Company,
nor to the Company’s knowledge, any of its Affiliates, is a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or its Affiliates currently
pending.
3.9 Intellectual
Property. There is no trademark, copyright, service xxxx, trade name,
patent (including any registrations or applications for registration of any of
the foregoing), or trade secret, including, but not limited to, any such legal
rights included in any schematics, technology, know-how, computer software
programs or applications (in both source code and object code form) and in other
tangible or intangible information or material not currently owned or licensed
to the Company that are necessary for the operation of the business of the
Company or its Subsidiaries as presently conducted and as presently contemplated
to be conducted, and none of the Company’s owned or licensed trademarks,
copyrights, service marks, trade names, patents or trade secrets conflict with
or infringe the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses, encumbrances, claims or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, domain names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other Person. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, domain names, copyrights, trade secrets
or other proprietary rights or processes of any other Person. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee’s best efforts to
promote the interest of the Company or that would conflict with the Company’s
business. The Company’s registered copyrights, unregistered and
registered trademarks, patents and patent applications owned, or under license
to, the Company (“Company IP Rights”)
will be owned or available for use by the Company on identical terms and
conditions immediately subsequent to the Closing. The Company has
taken all actions reasonably necessary to protect the Company IP
Rights. The Company does not believe it is or will be necessary to
use any inventions of any of its employees made prior to or outside the scope of
their employment by the Company.
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3.10 Compliance with Other
Instruments. The Company is not in violation or default of any
provision of its Articles of Incorporation or its Bylaws, or, in any material
respect, of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound, or of any provision of any federal or
state statute, rule or regulation applicable to it. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a material default under any such instrument, judgment, order,
writ, decree or contract, or an event that results in the creation of any Lien
upon any material assets of the Company, or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material permit, license,
authorization or approval applicable to the Company, its business, operations,
assets or properties.
3.11 Permits. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business, the lack of which could have a
Material Adverse Effect. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
3.12 Employee Benefit
Plans. All pension, profit-sharing, deferred compensation,
bonus, stock option, share appreciation right, severance, group or individual
health, dental, medical, life insurance, survivor benefit, and similar plans,
policies and arrangements, whether formal or informal, established or maintained
by the Company for the benefit of any director, officer, consultant, or employee
of the Company (collectively, “Employee Benefit
Plans”) is, and has been, maintained and operated in compliance in all
material respects with the terms of such plan and with the requirements
prescribed (whether as a matter of substantive law or as necessary to secure
favorable tax treatment) by any and all statutes, governmental or court orders,
or governmental rules or regulations in effect from time to time, including but
not limited to ERISA, except where the failure would not cause a Material
Adverse Effect.
3.13 Tax Returns, Payments and
Elections. The Company has timely filed, or timely filed for
an extension which extension has not lapsed, all Tax Returns required to be
filed by it, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true and accurate
in all respects. All Taxes due and payable by the Company and each of
its Subsidiaries have been paid. No claim has ever been made by a
taxing authority in a jurisdiction where the Company does not pay Taxes or file
Tax Returns that the Company is, or may be subject to, Taxes assessed by such
jurisdiction. There are no Liens for Taxes (other than current Taxes
not yet due and payable) on the assets of the Company. The Company
has withheld and paid all Taxes required to have been withheld and paid by it in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other Person, except where the failure would not cause a Material
Adverse Effect.
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3.14 Full
Disclosure. No representation or warranty of the Company made
in this Agreement, including any schedules or exhibits hereto or thereto, nor
any written statement furnished by the Company to the Investors pursuant hereto,
or in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading. There is no fact or information known to the
Company which the Company has not disclosed to the Investors in writing which
the Company presently believes has or could have a Material Adverse Effect other
than any changes in the prospects of the Company which result from developments
affecting general economic or industry conditions.
3.15 Agreements;
Actions.
(a) Other
than (i) standard employee benefits generally made available to all employees,
(ii) standard director and officer indemnification agreements approved by the
Board of Directors, (iii) the purchase of shares of the Company’s capital stock
and the issuance of options to purchase shares of the Company’s Common Stock, in
each instance, approved by the Board of Directors (all of which purchases and
issuances are reflected in the capitalization representations set forth in
Section 3.2) and (iv) the transactions contemplated by the Transaction
Agreements, there are no agreements, understandings or proposed transactions
between the Company and any of its Affiliates.
(b) Except
for the Transaction Agreements, there are no agreements,
understandings, instruments, contracts or proposed transactions to
which the Company or any of its Subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to,
the Company or any of its Subsidiaries in excess of, $15,000, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company or any of its Subsidiaries other than the license to the
Company of standard, generally commercially available “off-the-shelf”
third-party products that are not and will not to any extent be a part of or
influence the development of any product or service or intellectual property of
the Company or any of its Subsidiaries, or (iii) the grant of rights to
manufacture, produce, assemble, license, market, or sell its products to any
other Person or affect the Company’s or any of its Subsidiaries’ exclusive right
to develop, manufacture, assemble, distribute, market or sell its
products.
(c) The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $15,000 or in excess of $50,000 in
the aggregate, (iii) made any loans or advances to any Person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
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(d) For
the purposes of subsections (b) and (c) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same Person (including Persons the Company has reason to believe
are Affiliated with that Person) shall be aggregated for the purposes of meeting
the individual minimum dollar amounts of each such subsection.
3.16
Related-Party
Transactions. No employee, officer or director of the Company
(a “Related
Party”) or member of such Related Party's immediate family, or any
corporation, partnership or other entity in which such Related Party is an
officer, director or partner, or in which such Related Party has an ownership
interest or otherwise controls, is indebted to the Company or any of its
Subsidiaries, nor is the Company or any of its Subsidiaries indebted (or
committed to make loans or extend or guarantee credit) to any of
them. To the Company’s knowledge, no Related Party or member of their
immediate families is directly or indirectly interested in any material contract
with the Company or any of its Subsidiaries. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.17 Rights of Registration and
Voting Rights. Except as provided in Section 7.1, the Company
is not under any obligation to register under the 1933 Act any of its currently
outstanding securities or any securities issuable upon exercise or conversion of
its currently outstanding securities. To the Company’s knowledge, no
stockholder of the Company has entered into any agreements with respect to the
voting of capital shares of the Company.
3.18 Title to Property and
Assets. The Company and each of its Subsidiaries owns its
property and assets free and clear of all mortgages, deeds of trust, liens,
loans and encumbrances, except for statutory liens for the payment of current
taxes that are not yet delinquent and encumbrances and liens that arise in the
ordinary course of business and do not materially impair the Company’s
ownership or use of such property or assets. With respect to the
property and assets it leases, the Company and each of its Subsidiaries is in
material compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
3.19
Financial
Statements. Except as set forth on the (a) Company’s balance
sheet as of December 31, 2009, and (b) the consolidated balance sheet of Rongfu
Aquaculture, Inc. (“Rongfu”) and its subsidiaries as of September 30, 2009,
neither the Company nor any of its Subsidiaries has any material liabilities,
contingent or otherwise, other than (i) in the case of the Company, liabilities
incurred after December 31, 2009 in the ordinary course of business that are not
material, individually or in the aggregate, , (ii) in the case of Rongfu,
liabilities incurred after September 30, 2009 in the ordinary course of its
business and (iii) obligations under contracts and commitments incurred in the
ordinary course of business which would not be required under generally accepted
accounting principles to be reflected in financial statements of the Company
prepared in accordance with generally accepted accounting principles, if such
financial statements had been prepared as of the date hereof.
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3.20 Changes. Since
September 30, 2009 there has not been:
(a) any
change in the assets, liabilities, financial condition or operating results of
the Company or any of its Subsidiaries, except changes in the ordinary course of
business that have not been, in the aggregate, materially adverse;
(b) any
damage, destruction or loss, whether or not covered by insurance, that
constitutes a Material Adverse Effect;
(c) any
waiver or compromise by the Company or any of its Subsidiaries of a valuable
right or of a material debt owed to it;
(d) any
satisfaction or discharge of any lien, claim, or encumbrance or payment of any
obligation by the Company or any of its Subsidiaries, except in the ordinary
course of business and the satisfaction or discharge of which would not have a
Material Adverse Effect;
(e) any
material change to a material contract or agreement by which the Company, any of
its Subsidiaries or any of their assets are bound or subject;
(f) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(g) any
sale, assignment, license or transfer by the Company or any of its Subsidiaries
of any patents, trademarks, copyrights, trade secrets or other intangible
assets;
(h) any
resignation or termination of employment of any officer or key employee of the
Company and the Company is not aware of any impending resignation or termination
of employment of any such officer or key employee;
(i) any
material change, except in the ordinary course of business, in a contingent
obligation of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(j) any
mortgage, pledge, transfer of a security interest in, or Lien, created by the
Company or any of its Subsidiaries, with respect to any of its material
properties or assets, except Liens for taxes not yet due or payable and liens
that arise in the ordinary course of business and do not materially impair the
Company’s or any of its Subsidiaries’ ownership or use of such property or
assets (owned or leased);
(k) any
loans or guarantees made by the Company or any of its Subsidiaries to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any
declaration, setting aside or payment or other distribution in respect to any of
the Company’s capital stock, or any direct or indirect redemption, purchase, or
other acquisition of any of such stock by the Company;
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(m) to
the Company’s knowledge, any other event or condition of any character, other
than events affecting the economy or the Company’s industry generally,
that could reasonably be expected to result in a Material Adverse Effect;
or
(n) any
arrangement or commitment by the Company or any of its Subsidiaries to do any of
the things described in this Section 3.20.
3.21 Employee Benefit
Plans. The Schedule of Exceptions sets forth all employee
benefit plans maintained, established or sponsored by the Company, or in or to
which the Company participates or contributes, which is subject to the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”).
3.22 Employment
Matters. The Company is not aware that any officer or key
employee intends to terminate his or her employment with the Company, nor does
the Company have any present intention to terminate the employment of any
officer or key employee. The employment of each officer and employee
of the Company is terminable at the will of the Company. To its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment. The Company is not a party to or bound by any
currently effective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, severance, retirement agreement, or
other employee compensation agreement not described in
Section 3.21.
3.23 Confidential Information and
Invention Assignment Agreements. Each current and former
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information substantially
in the form or forms delivered to the counsel for the Investors. The
Company is not aware that any of its employees or consultants is in violation
thereof, and the Company will use its best efforts to prevent any such
violation.
3.24 [Reserved]
3.25 Corporate
Documents. The Articles of Incorporation and Bylaws of the
Company are in the forms provided to counsel for the Investors. The
copy of the minute books of the Company provided to the Investors’ counsel
contains minutes of all meetings of directors and stockholders and all actions
by written consent without a meeting by the directors and stockholders since the
date of incorporation and reflects all actions by the directors (and any
committee of directors) and stockholders with respect to all transactions
referred to in such minutes accurately in all material respects.
3.26 No
Brokers. Neither the Company nor any Subsidiary has taken any
action which would give rise to any claim by any person for brokerage
commissions, finder’s fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
11
4. Representations and
Warranties of the Investors. Each Investor, severally but not
jointly, hereby represents and warrants that:
4.1 Authorization. It
has the full power and authority to enter into this Agreement and (assuming due
execution by the Company and the other parties hereto) this Agreement
constitutes its valid and legally binding obligation, enforceable against it in
accordance with its terms.
4.2 Purchase Entirely for Own
Account. The Purchased Shares are being acquired for
investment for such Investor’s own account, not as a nominee or agent and not
with a view to the resale or distribution of any part thereof.
4.3 Disclosure of
Information. It has received all the information it
considers necessary or appropriate for deciding whether to purchase the
Purchased Shares and that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of this offering and
the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of
this Agreement or the right of the Investor to rely thereon.
4.4 Investment
Experience. Such Investor understands that the purchase of the
Purchased Shares involves substantial risk. It is an investor in
securities of companies in the developmental stage and acknowledges that it can
bear the economic risk of its investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of its investment in the Purchased Shares. If other than an
individual, such Investor also represents it has not been organized for the
purpose of acquiring the Purchased Shares.
4.5 Accredited
Investor. It is an “accredited investor” within the meaning of
Securities Exchange Commission (“SEC”) Rule 501 of Regulation D, as presently in
effect.
4.6 Restricted
Securities. It understands that the Purchased Shares are
characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Act only in certain
limited circumstances. In this connection, such Investor represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby, including Rule 144(i).
4.7 Legends. It
understands that the certificates evidencing the Purchased Shares may bear a
legend substantially similar to the following:
“THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.”
12
5. Conditions of Investors’
Obligations at the Closing. The obligations of each Investor
participating in the Closing are subject to the fulfillment, on or before the
Closing, of each of the following conditions, the waiver of which shall not be
effective against any Investor who does not consent thereto:
5.1 Authorization. The
Company shall have authorized (a) the sale and issuance to the Investors of up
to 3,000,000 shares of the Series A Preferred and (ii) the issuance of the
Warrants and the Conversion Shares.
5.2 Representations and
Warranties. The representations and warranties of the Company
contained in Section
3 shall be true and correct as of the Closing Date.
5.3 Performance. The
Company shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on, or prior to, the Closing Date.
5.4 Compliance
Certificate. The President of the Company shall deliver to the
Investors at the Closing a certificate certifying that the conditions specified
in Sections 5.2 and 5.3 have been fulfilled.
5.5 Opinion of Company
Counsel. The Investors shall have received from counsel for
the Company an opinion, dated as of the Closing, in substantially the form
of Exhibit D.
5.6 Share
Exchange. The Company and the stockholders of Rongfu shall
have entered into and consummated a Share Exchange Agreement in the form
attached hereto as Exhibit F pursuant to
which all of the outstanding shares of common stock shall have been transferred
to the Company in exchange for the issuance of shares of the Company’s Common
Stock.
5.7 Transaction
Agreements. The Company shall have filed the Certificate with
the Secretary of State of Nevada, the Company shall have executed the Warrants
and Company, and each Investor and certain other parties shall have executed and
delivered the Escrow Agreement in substantially the form attached as Exhibit
E.
5.8 [Reserved]
5.9 Secretary’s
Certificate. The Secretary of the Company shall deliver to the
Investors at the Closing a certificate certifying (i) the Articles of
Incorporation, (ii) the Bylaws of the Company, and (iii) resolutions of the
Board of Directors of Company approving the Transaction Agreements and the
transactions contemplated hereby and thereby.
13
5.10 Qualifications. All
authorizations, approvals, consents or permits, if any, of any Person that are
required in connection with the lawful issuance and sale of the Purchased Shares
pursuant to this Agreement shall be duly obtained and effective as of the
Closing Date.
5.11 No Material Adverse
Change. Nothing shall have occurred or be threatened that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
5.12 Delivery of
Certificates. The Company shall have delivered to each
Investor a certificate representing the number of Purchased Shares to be
purchased by such Investor at the Closing together with Warrant certificates in
the amounts set forth in Section 2.2.
6. Conditions of the Company’s
Obligations at Closing. The obligations of the Company to each
Investor participating in the Closing are subject to the fulfillment on or prior
to the Closing of each of the following conditions by that
Investor:
6.1 Representations and
Warranties. The representations and warranties of the
Investor contained in Section 4 shall be
true and correct as of the Closing.
6.2 Payment of Purchase
Price. The Investor shall have delivered the Purchase
Price for the number of shares listed opposite such Investor’s name on the
signature page hereof.
14
7. Covenants of the
Company. The Company covenants and agrees with the Investors
as follows:
7.1
Registration
Rights.
(a) Registration Statement
Requirements. Subject to the next sentence, the Company will
register for resale not less than 100% of the Conversion Shares and the Warrant
Shares (the “Registrable Shares”).
The Company shall file with the SEC a Form S-1 registration statement (the
“Registration
Statement”) (or such other form that it is eligible to use) in order to
register all or such portion of the Registrable Shares as permitted by the SEC
(provided that the Company shall use reasonable efforts to advocate with the SEC
for the registration of all of the Registrable Shares) pursuant to Rule 415 for
resale and distribution under the 1933 Act on or before the date (the “Required Filing
Date”) which is forty five (45) calendar days after the Closing Date, and
use its best efforts to cause the Registration Statement to be declared
effective by the date (the “Required Effective
Date”) which is not later than (x) one hundred fifty (150) calendar days
after the Closing Date, or (y) if the SEC performs a “full review” of the
Registration Statement, two hundred and ten (210) calendar days after the
Closing Date. In the event that the Company is required by the SEC to
cut back the number of shares being registered in the Registration Statement
pursuant to Rule 415, then the Company shall reduce each Investor’s Registrable
Shares on a pro rata basis based on the total Registrable Shares of all
Investors. The Registration Statement shall also state that, in
accordance with Rules 416 and 457 under the 1933 Act, it also covers such
indeterminate number of additional shares of common stock as may become issuable
with respect to the Registrable Shares to prevent dilution resulting from stock
splits, stock dividends or similar transactions. Notwithstanding anything to the
contrary contained in this Section 7.1, if the Company receives comments on the
Registration Statement from the SEC (“SEC Comments”), and
following discussions with and responses to the SEC in which the Company uses
its reasonable best efforts and time to cause as many Registrable Shares for as
many Investors as possible to be included in the Registration Statement filed
pursuant to Section 7.1(a) without characterizing any Investor as an
underwriter, the Company is unable to cause the inclusion of all Registrable
Shares in such Registration Statement, then the Company may, following not less
than three (3) Trading Days prior written notice to the Investors, (x) remove
from the Registration Statement such Registrable Shares (the “Cut Back Shares”)
and/or (y) agree to such restrictions and limitations on the registration and
resale of the Registrable Shares, in each case as the SEC may require in order
for the SEC to allow such Registration Statement to become effective
(collectively, the “SEC Restrictions”);
provided, that
in no event may the Company name any Investor as an underwriter without such
Investor’s prior written consent and provided, further,
that unless the SEC Restrictions shall otherwise require, any cut-back imposed
by the SEC shall first consist of Registrable Shares consisting of Conversion Shares,
then, if all Conversion Shares have been removed from the Registration
Statement, any additional cut-back shall be of B Warrant Shares and finally, if
all Conversion Shares and B Warrant Shares have been removed from the
Registration Statement, any additional cut-back shall be of the A Warrant
Shares. Unless the SEC Restrictions otherwise require, any cut-back
imposed pursuant to this Section 7.1(a) shall be allocated among the Registrable
Shares of the Investors on a pro rata basis. No liquidated damages under Section
7.1(d) shall accrue on or as to any Cut Back Shares, and the required SEC
Effectiveness Date for such additional Registration Statement including the
Cutback Shares will be tolled, until such time as the Company is able to effect
the registration of the Cut Back Shares in accordance with any SEC Restrictions
(such date, the “Restriction Termination
Date”). From and after the Restriction Termination Date, all provisions
of this Section 7.1 (including, without limitation, the liquidated damages
provisions, subject to tolling as provided above) shall again be applicable to
the Cut Back Shares (which, for avoidance of doubt, retain their character as
“Registrable Shares”) so that the Company will be required to file with and
cause to be declared effective by the SEC such additional Registration
Statements in the time frames set forth herein as necessary to ultimately cause
to be covered by effective Registration Statements all Registrable Shares (if
such Registrable Shares cannot at such time be resold by the Investors thereof
pursuant to Rule 144). The Company will offer to a single firm of counsel
designated by the Investors ( “Investor’s Counsel”)
an opportunity to review and comment on the Registration Statement and all
amendments and supplements thereto between three and five business days prior to
the proposed filing date thereof, and not file any document in a form to which
such counsel reasonably objects. Upon the initial filing of the Registration
Statement, the Company shall pay to Investor’s Counsel a fee of $5,000 as
reimbursement for services rendered to the Investors in connection with the
Registration Statement and all amendments and supplements thereto.
15
(b) Registration
Procedures. If and whenever the Company is required by the provisions of
Section 7.1(a) to effect the registration of any Registrable Shares under the
1933 Act, the Company will, as expeditiously as possible:
(i) subject
to the timelines provided in this Agreement, prepare and file with the SEC a
registration statement required by Section 7.1(a), with respect to such
securities and use its best commercially reasonable efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to Investor’s Counsel copies of all filings and SEC letters of comment
and notify the Investors (by telecopier and by e-mail addresses provided by the
Investors) and Investor’s Counsel (by telecopier and by email) on or before the
second business day thereafter that the Company receives notice that
(i) the SEC has no comments or no further comments on the registration
statement, and (ii) the registration statement has been declared
effective;
(ii) prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective until such registration statement has
been effective for the later of (a) a period of two (2) years, or (b) until the
Purchased Securities can been sold by the Investors pursuant to Rule 144
without volume restrictions (the “Effectiveness
Period”);
(iii) furnish
to the Investors, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such Investors reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(iv) use
its reasonable best efforts to register or qualify the Registrable Shares
covered by such registration statement under the securities or “blue sky” laws
of such jurisdictions as the Investors shall request in writing, provided, however,
that the Company shall not for any such purpose be required to qualify to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to service of process in any such
jurisdiction;
(v) list
the Registrable Shares covered by such registration statement with any
securities exchange on which the common stock of the Company is then
listed;
16
(vi) notify
the Investors within twenty-four hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a SEC, state or other governmental order suspending the
effectiveness of the registration statement covering any of the Registrable
Shares. Each Investor hereby covenants that it will not sell any Registrable
Shares pursuant to such prospectus during the period commencing at the time at
which the Company gives such Investor notice of the suspension of the use of
such prospectus in accordance with this Section 7.1(b)(vi) and ending at the
time the Company gives such Investor notice that such Investor may thereafter
effect sales pursuant to the prospectus, or until the Company delivers to such
Investor or files with the SEC an amended or supplemented
prospectus;
(vii) provided
same would not be in violation of the provision of Regulation FD under the
Securities Exchange Act of 1934, make available for inspection by the Investors
during reasonable business hours, and any attorney, accountant or
other agent retained by the Investors or underwriter, all publicly available,
non-confidential financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the Investors, or their attorneys, accountants or agents
in connection with such registration statement at such requesting Investor’s
expense; and
(viii) provide
to the Investors copies of the Registration Statement and amendments thereto
five business days prior to the filing thereof with the SEC. Any
Investor’s failure to comment on any registration statement or other document
provided to an Investor or its counsel shall not be construed to constitute
approval thereof nor the accuracy thereof.
(c) Provision of
Documents. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Shares of a
particular Investor that such Investor shall furnish to the Company in
writing such information and representation letters, with respect to itself and
the proposed distribution by it as the Company may reasonably request to assure
compliance with federal and applicable state securities laws.
17
(d) Non-Registration
Events. The Company and the Investors agree that the Investors
will suffer damages if the Registration Statement is not filed by the Required
Filing Date and not declared effective by the SEC by the Required Effective Date
or if, after it is declared effective, its effectiveness is not maintained in
the manner and within the time periods contemplated by Section 7.1(a), and it
would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if (A) the Registration Statement is not
filed on or before the Required Filing Date, (B) the Registration Statement is
not declared effective on or before the Required Effective Date, (C) the
Registration Statement is not declared effective within five
(5) Trading Days after receipt by the Company or its attorneys of a
written or oral communication from the SEC that the Registration Statement will
not be reviewed or that the SEC has no further comments, (D) any registration
statement described in Section 7.1(a) is declared effective, but shall
thereafter cease to be effective during the Effectiveness Period for a period of
time which shall exceed 20 days in the aggregate per year (defined as a period
of 365 days commencing on the date the Registration Statement is declared
effective) (each such event referred to in clauses A through D of this Section
7.1(d), a “Non-Registration
Event”), then the Company shall deliver to the Investors, as liquidated
damages (“Liquidated
Damages”), an amount equal to one percent (1.0%) of the Purchase Price of
the Purchased Shares owned of record by such holder on the first business day
after the Non-Registration Event and for each subsequent thirty (30) day period
(pro rata for any period less than thirty days) which are subject to such
Non-Registration Event. The maximum aggregate Liquidated Damages
payable to the Investors under this Agreement shall be six percent (6.0%) of the
aggregate Purchase Price paid by the Investor pursuant to this Agreement. The
Company must pay the Liquidated Damages in cash. In the event a Registration
Statement is filed by the Required Filing Date, but is withdrawn prior to being
declared effective by the SEC without the consent of Investors holding a
majority of the Registrable Shares, then such Registration Statement will be
deemed to have not been filed.
(e) Expenses. All
expenses incurred by the Company in complying with Section 7.1, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, fees of
the FINRA, transfer taxes, and fees of transfer agents and registrars, are
called “Registration
Expenses.” The Company will pay all Registration Expenses in connection
with any registration statement described in Section 7.1.
(f) Indemnification and
Contribution.
(i) In
the event of a registration of any Registrable Shares under the 1933 Act
pursuant to Section 7.1, the Company will, to the extent permitted by law,
indemnify and hold harmless the Investor, each of the officers, directors,
agents, Affiliates, members, managers, control persons, and principal
shareholders of the Investor, each underwriter of such Registrable Shares
thereunder and each other person, if any, who controls such Investor or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Investor, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Shares was registered under the 1933 Act pursuant
to Section 7.1, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will, subject to the provisions of
Section 7.1(f)(iii), reimburse the Investor, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however,
that the Company shall not be liable to the Investor solely to the extent
that any such damages arise out of or are based upon an untrue statement or
omission made in any preliminary prospectus if (i) (A) the Investor failed to
send or deliver a copy of the final prospectus delivered by the Company to the
Investor with or prior to the delivery of written confirmation of the sale by
the Investor to the person asserting the claim from which such damages arise and
(B) the final prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (ii) any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Investor in writing specifically for use
in such registration statement or prospectus.
18
(ii) In
the event of a registration of any of the Registrable Shares under the 1933 Act
pursuant to Section 7.1, each Investor, severally but not jointly, will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Shares were registered under the 1933 Act pursuant
to Section 7.1, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however,
that the Investor will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Investor, as such, furnished in writing to the Company by such Investor
specifically for use in such registration statement or prospectus, and provided, further,
however, that the liability of the Investor hereunder shall be limited to
the net proceeds actually received by the Investor from the sale of Registrable
Shares pursuant to such registration statement.
19
(iii) Promptly
after receipt by an indemnified party hereunder of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 7.1(f)(iii) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 7.1(f)(iii),
except and only if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 7.1(f)(iii) for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided,
however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnifying party shall
have reasonably concluded that there may be reasonable defenses available to
indemnified party which are different from or additional to those available to
the indemnifying party or if the interests of the indemnified party reasonably
may be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel, reasonably satisfactory to the indemnified and indemnifying party, and
to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(iv) In
order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) a Investor, or any
controlling person of a Investor, makes a claim for indemnification pursuant to
this Section 7.1(f) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.1(f) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Investor or
controlling person of the Investor in circumstances for which indemnification is
not provided under this Section 7.1(f); then, and in each such case, the Company
and the Investor will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Investor is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Investor will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation and provided, further, however,
that the liability of the Investor hereunder shall be limited to the net
proceeds actually received by the Investor from the sale of Registrable Shares
pursuant to such registration statement.
20
7.2 Listing. The
Company will use its best efforts to achieve the quotation or listing of its
common stock (the “Uplisting”) on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq
Global Select Market or New York Stock Exchange (the “Uplisted Market”), by
the one year anniversary of the Closing Date (the “Uplisting
Date”). If the Company does not achieve Uplisting on an
Uplisted Market by the Uplisting Date, the Company shall pay to each Investor,
an amount in cash, as partial liquidated damages and not as a penalty, equal to
0.5% of the Purchase Price paid by such Investor pursuant to this Agreement on
the Uplisting Date and an additional 0.5% of the aggregate Purchase Price paid
for each thirty (30) day period that this Section is not complied with until the
Uplisting is completed; provided, however, in
no event shall the penalty payable under this Section 7.2 together with the
penalty paid under Section 7.1 exceed 6% of the Purchase Price.
7.3
Right of First
Refusal. During the period from the Closing Date through
and including the second anniversary of the effective date of the
Registration Statement, the Investors shall be given not less than ten business
days prior written notice (the “Notice of Sale”) of
any proposed sale by the Company of its common stock or other securities or debt
obligations, except in connection with (i) full or partial consideration in
connection with a strategic merger, acquisition, consolidation or purchase of
substantially all of the securities or assets of corporation or other entity
which holders of such securities or debt are not at any time granted
registration rights, (ii) the Company’s issuance of securities in connection
with strategic license agreements and other partnering arrangements so long as
such issuances are not for the purpose of raising capital and which holders of
such securities or debt are not at any time granted registration rights, (iii)
the Company’s issuance of common stock or the issuances or grants of options to
purchase common stock to employees, directors, and consultants, and (iv)
securities upon the exercise or exchange of or conversion of any securities
exercisable or exchangeable for or convertible into shares of common stock
issued and outstanding on the date of this Agreement and described on Schedule 1
(collectively the foregoing are “Excepted
Issuances”). The Investors shall have the right during the ten
business days following receipt of the Notice of Sale (the “Notice Period”) to
purchase in the aggregate such offered common stock, debt or other securities
strictly in accordance with the terms and conditions set forth in the Notice of
Sale in the same proportion as that of the Investor’s Purchase Shares in the
Offering. In the event such terms and conditions are modified during
the Notice Period, the Investors shall be given prompt notice (the “Notice of
Modification”) of such modification and shall have the right during the
ten business days following the Notice of Modification to exercise such purchase
right strictly in accordance with the terms and conditions set forth in the
Notice of Modification in the same proportion as that of the Investor’s Purchase
Shares in the Offering.
7.4 Termination
Fee. The Investors shall be entitled to a fee in the amount of
$500,000 as liquidated damages and not as a penalty if (i) prior to the Closing
Date, the Company or any of its Affiliates accepts or approves any proposal
(other than that of the Investors) that provides equity of debt financing to the
Company (an “Alternative
Transaction”) or (ii) the Company fails to meet any of the Closing
conditions set out in Section 5 within 30 days after the Investors are ready,
willing and able to consummate this Agreement in accordance with the terms
hereof. The fee payable under this Section 7.4(i) shall be payable on
the date of acceptance or approval of the Alternate Transaction and the fee
payable under this Section 7.4(ii) shall be payable 30 days after the Investors
are ready, willing and able to consummate this Agreement in accordance with the
terms hereof. Notwithstanding the foregoing provisions of this
Section 7.4, no fee will be payable to Investors under this Section 7.4 if the
Investors terminate this Agreement prior to the Closing Date for any reason
other than (a) due to the Company’s willful failure to meet any of the Closing
conditions set out in Section 5, which, in
the opinion of the Investors is for the purpose of delaying or preventing the
Closing or (b) the Company’s failure to adhere to the Closing Date.
21
7.5 Indemnification. Each
Investor understands that the Purchased Securities are being offered and sold in
reliance on a transactional exemption from the registration requirement of
Federal and state securities laws and the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Investor set forth herein in order to determine the
applicability of such exemptions and the suitability of the Investor to acquire
the Purchased Securities. The Company agrees to indemnify, hold harmless,
reimburse and defend the Investors, the Investors’ officers, directors, agents,
Affiliates, members, managers, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Investors or any such person which results, arises out of or is based upon (i)
any material misrepresentation by the Company or breach of any representation or
warranty by the Company in this Agreement or in any Exhibits or Schedules
attached hereto in any Transaction Agreements, or (ii) after any applicable
notice and/or cure periods, any breach or default in performance by the Company
of any material covenant or undertaking to be performed by the Company
hereunder, or any other material agreement entered into by the Company and
Investors relating hereto.
7.6 Publicity. The
Company undertakes to file a Form 8-K describing the Offering on the fourth
business day after the Closing Date. Such Form 8-K will be provided
to Investors for their review and approval (which shall not be unreasonably
withheld or delayed) at least one Trading Day before filing
thereof. The Company agrees to timely file a Form D with respect to
the Purchased Securities if required under Regulation D and to provide a copy
thereof to each Investor promptly after such filing.
7.7 Board of
Director and
CFO. The Company shall promptly appoint an independent
director to its board as designated by the Investors Guerrilla Partners, LP
(“Guerrilla”) and Hua-Mei 21st Century
Partners, LP (“Hua-Mei”) and such Investors shall have the right to approve
(such approval not to be unreasonably withheld or delayed) the hiring of an
English speaking CFO after the Closing.
22
8. Miscellaneous.
8.1 Survival of
Warranties. The warranties, representations and covenants of
the Company and the Investors contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for a
period of three years.
8.2 Successors and
Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under, or by reason of, this Agreement,
except as expressly provided in this Agreement.
8.3 Governing
Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of New York,
without giving effect to principles of conflicts of law. 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 New
York or in the federal courts located in the state and county of New
York. The parties to this Agreement hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non
conveniens. The parties executing this Agreement
and other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably waive trial by jury. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, or the Certificate, the substantially prevailing party shall be
entitled to reasonable attorney’s fees, costs and necessary disbursements in
addition to any other relief to which such party may be
entitled. 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 to 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. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other Transaction Agreements 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
other manner permitted by law. To the maximum extent permitted by
law, in no event will the Investors be liable for punitive damages arising out
of this Agreement or any of the Transaction Agreements.
8.4 Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which, together, shall constitute one and the same
instrument.
23
8.5 Titles and
Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. Except
as otherwise provided herein, all notices, requests, waivers and other
communications made pursuant to this Agreement shall be in writing and shall be
conclusively deemed to have been duly given (a) when hand delivered to the
other party, (b) when received by facsimile at the address and number for
such party set forth on the signature page hereto, (c) three (3) business
days after deposit in the U.S. mail with first class or certified mail receipt
requested, postage prepaid, and addressed to the other party as set on the
signature page hereto, or (d) the next business day after deposit with a
national overnight delivery service, postage prepaid, addressed to the parties
as set forth on the signature page below, with next business day delivery
guaranteed. A party may change or supplement its addresses for the
purposes of receiving notice pursuant to this Section 8.6 by giving
the other parties written notice of the new address in the manner set forth
above.
8.7 Finder’s
Fee. Each party represents that it neither is nor will be
obligated for any finders’ fee or commission in connection with this
transaction. Each Investor agrees to indemnify and hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders’ fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees or representatives is responsible, and the Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finder’s fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.8 Expenses. The
Company and the Investors shall each bear their own expenses and legal fees
incurred on the behalf of each with respect to this Agreement and the
transactions contemplated hereby; provided, however,
that the Company shall pay Guerrilla and Hua-Mei an aggregate of $40,000 on or
before the Closing Date to cover reasonable fees and actual out-of-pocket
expenses incurred by the Investors for due diligence and investment
documentation, including legal expenses.
8.9 Amendments and
Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the shares of
Series A Preferred then outstanding. Any amendment or waiver effected
in accordance with this Section 8.9 shall be
binding upon each holder of outstanding shares of Series A
Preferred.
8.10 Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
24
8.11 Further
Assurances. The Company and the Investors shall take all
further actions and execute and deliver all further documents that are
reasonably be required to effect the transactions contemplated by this
Agreement.
8.12 Entire
Agreement. This Agreement and the documents referred to herein
constitute the entire agreement and understanding among the parties hereto and
supercede all prior negotiations and agreements, whether oral or
written.
* * *
25
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
|
INVESTORS:
|
||||
|
By:
|
/s/
Xxxxxx Xxxx
|
Guerrilla
Partners, LP
|
||
|
Name:
Xxxxxx Xxxx
|
By:
|
/s/
Xxxxx X. Xxxxx
|
||
|
Title:
President
|
||||
|
Name:
Managing Director
|
||||
| Address: | ||||
| Xxxxxx Xxxx 000, |
Number
of Shares:
|
|||
| Xx.000 Xxxxxxxxxxx Xxxx | ||||
| Xxxxxxxxx Xxxx |
Total
Purchase Price:
|
|||
| People’x Xxxxxxxx xx Xxxxx 000000 | ||||
|
Address:
|
||||
| Phone: 000-00-00-0000-0000 |
000
Xxxx Xxxxxx 0xx Xxxxx
|
|||
|
Xxx
Xxxx, XX 00000
|
||||
| Fax: 000-00-00-0000-0000 | ||||
|
Hua-Mei
21st
Century Partners, LP
|
||||
|
By:
|
/s/
Xxxxx X. Xxxxx
|
|||
|
Name:
Managing Director
|
||||
|
Number
of Shares:
|
||||
|
Total
Purchase Price:
|
||||
|
Address:
|
||||
|
000
Xxxx Xxxxxx 0xx Xxxxx
|
||||
|
Xxx
Xxxx, XX 00000
|
||||
|
[ ]
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Number
of Shares:
|
||||
|
Total
Purchase Price:
|
||||
|
Address:
|
||||
SCHEDULE
1
Schedule of
Exceptions
PREFERRED
STOCK PURCHASE AGREEMENT
March
__, 2010
