SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is dated as of
May 29, 2008, among HANKERSEN INTERNATIONAL CORP., a Delaware corporation
(together with its successors and assigns, the "COMPANY"), and the investors
identified on the signature pages hereto (each, an "INVESTOR" and collectively,
the "INVESTORS").
BACKGROUND
Subject to the terms and conditions set forth in this Agreement and
pursuant to the Securities Act (as defined below), 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.
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:
"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.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which is a 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.
"CLOSING" means the closing of the purchase and sale of the
Promissory Note pursuant to Article 2.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXEMPT ISSUANCE" means the issuance of (a) securities to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by the Board of Directors of the Company or a majority of the
members of a committee of directors established for such purpose, (b) securities
upon the exercise or exchange of or conversion of any Securities issued
hereunder or to any placement agents in connection with the transactions
contemplated hereby and/or convertible securities issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
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decrease the exercise, exchange or conversion price of any such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities.
"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.
"PROMISSORY NOTE" means the convertible promissory note issued
by the Company in the form attached hereto as EXHIBIT A.
"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.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"UNDERLYING SHARES" means the shares of the Company's common
stock issuable upon the conversion of the Promissory Note or the exercise of the
Warrant.
"WARRANT" means the warrant to purchase securities of the
Company in the form attached hereto as EXHIBIT B.
ARTICLE 2
PURCHASE AND SALE
2.1. CLOSING. Subject to the terms and conditions set forth in this
Agreement, upon the execution hereof the Company shall issue and sell to each
Investor, and each Investor shall, severally and not jointly, purchase from the
Company, a Promissory Note in the principal amount set forth on the signature
page hereof (the "INVESTMENT AMOUNT"), together with a Warrant. The Closing
shall take place at the offices of XxXxxxxxxx & Xxxxx LLP on the date hereof or
at such other location or time as the parties may agree. The Promissory Note,
the Warrant and the equity securities issuable upon conversion or exercise
thereof (and the securities issuable upon conversion of such equity securities)
are collectively referred to herein as the "SECURITIES."
2.2. CLOSING DELIVERIES.
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(a) Upon the execution hereof, the parties shall deliver or
cause to be delivered to the parties entitled thereto the Promissory Note,
Warrant, and Escrow Agreement (together with this Agreement, the "Transaction
Documents") along with the shares of stock and stock powers, duly executed by
the registered holder(s) thereof.
(b) Upon the execution hereof, each Investor shall cause to be
delivered its Investment Amount, less with respect to Ancora Greater China Fund
LP (the "Lead Investor") the expense reimbursement amount set forth in SECTION
4.4 below, in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing by the Company.
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) ORGANIZATION AND QUALIFICATION. The Company and each of
its subsidiaries is 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. Each of the Company and the
subsidiaries is duly qualified to conduct business and is 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 have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a "Material Adverse Effect") and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and to carry out its obligations hereunder. The execution
and delivery hereof and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. This Agreement, the Promissory Note and Warrant 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.
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(c) SUBSIDIARIES. Except as set forth on Schedule 3.1(c), the
Company owns, directly or indirectly, all of the capital stock or other equity
interests of its subsidiary. The Company owns all of such capital stock or other
equity interests free and clear of any Liens, and all of 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 to
subscribe for or purchase securities.
(d) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and 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, result
in the creation of any Lien upon any of the properties or assets of the Company
or any subsidiary, 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) conflict with or 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 have or reasonably be expected to result in a Material Adverse
Effect.
(e) FILINGS, CONSENTS AND APPROVALS. Except for required
filings with the Securities and Exchange Commission (the "SEC") and applicable
"Blue Sky" or state securities commissions, no material consent, approval,
license, permit, order or authorization ("CONSENT") of, or registration,
declaration or filing with, or permit from, any governmental entity is required
to be obtained or made by or with respect to the Company or any subsidiary in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The
Underlying Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Underlying Shares.
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(g) CAPITALIZATION. Except as provided in Schedule 3.1(g), the
capitalization of the Company is as set forth in the Company's filings with the
SEC (the "SEC Reports") The Company has not issued any capital stock since its
most recently audited financial statements, other than pursuant to the exercise
of employee stock options under the Company's stock option plans, the issuance
of shares of Common Stock to employees pursuant to the Company's employee stock
purchase plans and pursuant to the conversion or exercise of Common Stock
Equivalents outstanding as of the date of the most recently audited financial
statements. No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any
of such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company's
stockholders.
(h) FINANCIAL STATEMENTS. The financial statements of the
Company for the period ended December 31, 2007 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 United States
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company, 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) MATERIAL CHANGES. Except as disclosed in the SEC Reports,
since December 31, 2007, (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) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses 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, (iii) the Company has not altered its method of accounting, (iv) the
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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 officer, director or Affiliate, except
pursuant to existing Company stock option plans.
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "ACTION") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any subsidiary, nor any director or officer thereof, 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. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.
(k) 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 which could reasonably be expected to result in a Material Adverse
Effect. None of the Company's or its Subsidiaries' employees is a member of a
union that relates to such employee's relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to
the knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) 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, money laundering laws, the
Foreign Corrupt Practices Act of 1977, environmental laws and all other foreign,
federal, state and local laws applicable to its business and all such laws that
affect the environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
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(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not reasonably be expected to result in a Material Adverse Effect ("MATERIAL
PERMITS"), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
The Company and its Subsidiaries have paid all fees for permits and licenses
required to be paid by them in the PRC in connection with the operation of their
respective businesses except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(n) TITLE TO ASSETS. Except as disclosed in the SEC Reports
and the financial statements included therein, the Company and the Subsidiaries
have good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, 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 and Liens for
the payment of PRC, federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties. Except as set forth in the SEC
Reports, any real property and facilities held under lease or government
authorization by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases or government authorizations with which the
Company and the Subsidiaries are in compliance in all material respects. )
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar rights
necessary or material for use in connection with their respective businesses and
which the failure to so have could have a Material Adverse Effect (collectively,
the "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(p) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as
contemplated by this Agreement or as disclosed 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,
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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, in each case in excess of 60,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(q) INTERNAL CONTROLS. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization, (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 quarterly
intervals and appropriate action is taken with respect to any material
differences.
(r) LEASES. The Company and each Subsidiary is in compliance
with the material terms and conditions of all of its material contracts and
leases, and is not aware of any dispute or disagreement with the other parties
or their Affiliates regarding such contracts or leases. The Company is not aware
of, and has not received any notice of (whether written or oral) or any
disputes, defaults or claims under such contracts or leases.
(s) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
board of directors have 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 certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the Securities.
(t) DISCLOSURE. All disclosure furnished by or on behalf of
the Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct in all material respects and does 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. 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 statements therein, in light of the circumstances under which they were
made and when made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.3 hereof.
(u) ACCOUNTANTS. The Company's accounting firm is set forth in
the SEC Reports. To the knowledge and belief of the Company, such accounting
firm is a registered public accounting firm as required by the Exchange Act. If
such accounting firm is not now, or in the future fails to be, a registered
public accounting firm as required by the Exchange Act, such accounting firm
will be replaced as soon as practicable with an accounting firm that is a
registered public accounting firm as required by the Exchange Act.
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(v) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company which could affect the Company's
ability to perform any of its obligations under any of the Transaction
Documents.
(w) TAX STATUS. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns (including, without
limitation, all PRC tax returns and filings) and has paid or accrued all taxes
shown as due thereon, has paid all PRC taxes and the Company has no knowledge of
a tax deficiency which has been asserted or threatened against the Company or
any Subsidiary. The Company warrants that the transactions contemplated by the
Transaction Documents will not subject the Company or its subsidiaries to U.S.
taxation or require the Company to deem income in any material amount from its
subsidiaries to be subject to U.S. taxation. The Company is not nor intends to
become a "passive foreign investment company" (a "PFIC") within the meaning of
Section 1297 of the Internal Revenue Code. [CONFIRM WITH ACCOUNTANTS]
(x) CERTAIN FEES. Other than fees payable to Xxxxx
Securities-Xxxxxx Freihofner Capital, 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 the Transaction
Documents. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims 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 the Transaction Documents.
(y) PRIVATE PLACEMENT. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby.
(z) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1940, as amended.
(aa) NO INTEGRATED OFFERING. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act which would require the registration
of any such securities under the Securities Act.
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(bb) NO GENERAL SOLICITATION. Neither the Company nor any of
its Affiliates, or any person acting on its or their behalf, directly or
indirectly, (i) has conducted or will conduct any general solicitation (as that
term is used in Rule 502(c) of Regulation D as promulgated by the Commission
under the Securities Act) or general advertising with respect to the sale of the
Common Stock or Warrants, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Common Stock or Warrants, under the Securities Act,
except as required herein.
(cc) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated thereby and any
advice given by any Purchaser or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers' purchase of the
Securities. The Company further represents to each Purchaser that the Company's
decision to enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(dd) SOVEREIGN IMMUNITY. Under the laws of their respective
jurisdiction of incorporation and the PRC, neither the Company nor any
subsidiary, is, nor are any of their respective properties, assets or revenues,
entitled to any right of immunity on the grounds of sovereignty from any legal
action, suit or proceeding, from set-off or counterclaim, from the jurisdiction
of any court, from service of process, from attachment prior to or in aid of
execution of judgment, or from other legal process or proceeding for the giving
of any relief or for the enforcement of any judgment.
(ee) OTHER REPRESENTATIONS AND WARRANTIES RELATING TO THE PRC
BY THE COMPANY.
(i) The constitutional documents and certificates and related
material contracts of the Company and the Company's subsidiaries have
been established under the laws of the PRC for purposes of this Section
3.1 (sometimes referred to as a "PRC COMPANY") and are valid and have
been duly approved or registered (as applicable) by competent PRC
governmental authorities.
(ii) All material consents, approvals, authorizations or
licenses requisite under PRC law for the due and proper establishment
and operation of each PRC Company has been duly obtained from the
relevant PRC governmental authorities and are in full force and effect.
(iii) All filings and registrations with the PRC governmental
authorities required in respect of each of the PRC Company and their
respective operations including, without limitation, the registrations
with the Ministry of Commerce, the State Administration of Industry and
Commerce, the State Administration for Foreign Exchange, tax bureau and
customs authorities have been duly completed in accordance with the
relevant PRC rules and regulations.
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(iv) The Company has complied with all relevant PRC laws and
regulations regarding the contribution and payment of its registered
share capital, the payment schedule of which has been approved by the
relevant PRC government authorities. There are no outstanding rights
of, or commitments made by, the Company to sell any equity interest in
any PRC Company, or to the Company's knowledge by any of the other PRC
Company's shareholders to sell any equity interest in such other PRC
Company. To the extent that any controlling shareholder of the Company
or any Subsidiary is subject to or under the jurisdiction of Circular
75 issued by the PRC State Administration of Foreign Exchange on
October 21, 2005, including any amendment, implementing rules, or
official interpretation thereof or any replacement, successor or
alternative legislation having the same subject matter thereof
(collectively "CIRCULAR 75"), each of the Company and its Subsidiaries
represents and warrants to the Purchaser that it shall fully comply in
all respects with Circular 75 and any related requirement of law,
including without limitation, the completion of any applicable foreign
exchange registration, settlement or remittance requirement therein
within 90 days of the Closing.
(v) The Company is not in receipt of any letter or notice from
any relevant PRC governmental authority notifying it of revocation of
any licenses or qualifications issued to it or any subsidy granted to
it by any PRC governmental authority for non-compliance with the terms
thereof or with applicable PRC laws, or the need for compliance or
remedial actions in respect of the activities carried out by the
Company.
(vi) The Company has conducted its business activities within
the permitted scope of business or has otherwise operated its business
in compliance with all relevant legal requirements and with all
requisite licenses and approvals granted by competent PRC governmental
authorities.
(vii) As to licenses, approvals and government grants and
concessions requisite or useful for the conduct of any part of the PRC,
the Company's business which are subject to periodic renewal, the
Company has no knowledge of any grounds on which such requisite
renewals will not be granted by the relevant PRC governmental
authorities.
(viii) With regard to employment and staff or labor, the
Company has complied with all applicable PRC laws and regulations in
all material respects, including without limitation, laws and
regulations pertaining to welfare funds, social benefits, medical
benefits, insurance, retirement benefits, pensions or the like.
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. If such Investor is a business
entity, 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 hereby and to carry out its obligations
hereunder. The execution, delivery and performance by such Investor of the
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transactions contemplated by this Agreement have been duly authorized by all
necessary action on the part of such Investor. This 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 for its own account for investment purposes only and not with a view
towards, or resale in connection with, a public sale or distribution of 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 and the terms of the Promissory
Note and Warrant, 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 such 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 such Securities.
(c) INVESTOR STATUS. The Investor is 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.
(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.
(e) ACCESS TO INFORMATION. Such Investor acknowledges that it
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 its 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.
(f) INDEPENDENT INVESTMENT DECISION. Such Investor has
independently evaluated the merits of its decision to purchase Securities 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
confirms that none of such Persons has made any representations or warranties to
such Investor in connection with the transactions contemplated hereby.
(g) RESTRICTIONS. So long as Investor continues to holds any
Securities acquired hereunder, such Investor will not, nor will it knowingly
through its Affiliates engage in any "short sale" of Common Stock as such term
is defined in Rule 200(a) of Regulation SHO promulgated under the Exchange Act
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(a "Short Sale"), except on those days (each a "Permitted Day") on which the
aggregate short position with respect to the Common Stock of such Investor prior
to giving effect to any Short Sales by such Investor on such Permitted Day does
not exceed such Investor's Permitted Share Position (as defined below) on such
Permitted Day; PROVIDED, however, that an Investor will only be entitled to
engage in transactions that constitute Short Sales on a Permitted Day to the
extent that following such transaction, the aggregate short position with
respect to the Common Stock of such Investor does not exceed such Investor's
Permitted Share Position. For purposes of this paragraph, an Investor's
"Permitted Share Position" means, with respect to any date of determination, the
number of shares of Common Stock beneficially owned by such Investor plus the
maximum number of Warrant Shares then issuable (including as to portions of
Warrants not yet exercised and without regard to any exercise caps or other
exercise restrictions applicable to the Warrants) to such Investor.
The Company acknowledges and agrees that no Investor has made or makes
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE 4
OTHER AGREEMENTS OF THE PARTIES
4.1. COMPLIANCE WITH SECURITIES LAWS.
(a) The 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,
Regulation S, pursuant to Rule 144, or to the Company or an Affiliate of an
Investor, 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. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register on the books of the Company and with its
transfer agent, without any such legal opinion, any transfer of Securities by an
Investor to an Affiliate of such Investor, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and provided that such Affiliate does not
request any removal of any existing legends on any certificate evidencing the
Securities.
(b) Certificates evidencing the Securities 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
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ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.
(c) Certificates evidencing the Underlying Shares shall not contain any
legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to
Rule 144, or (iii) if such Underlying Shares are eligible for sale
under Rule 144 or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations
and pronouncements issued by the staff of the Commission). The Company
shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to
effect the removal of the legend hereunder. If all or any portion of a
Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Underlying Shares, or if such
Underlying Shares may be sold under Rule 144 or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission) then such Underlying Shares shall be issued
free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Investor to the Company or the Transfer Agent of a
certificate representing Underlying Shares, as applicable, issued with
a restrictive legend (such third Trading Day, the "LEGEND REMOVAL
DATE"), deliver or cause to be delivered to such Investor a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on
transfer set forth in this Section. Certificates for Underlying Shares
subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Investor by crediting the account of the
Investor's prime broker with the Depository Trust Company System as
directed by such Investor.
In addition to such Investor's other available remedies, the Company
shall pay to a Investor, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common
Stock on the date such Securities are submitted to the Transfer Agent) delivered
for removal of the restrictive legend, $5.00 per Trading Day (increasing to
$10.00 per Trading Day 45 Trading Days after such damages have begun to accrue)
for each Trading Day after the Legend Removal Date until such certificate is
delivered without a legend. Nothing herein shall limit such Investor's right to
pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such
Investor shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.
Each Investor, severally and not jointly with the other Investors, agrees that
such Investor will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein, and acknowledges that the removal of the
restrictive legend from certificates representing Securities as set forth in
this Section 4.1 is predicated upon the Company's reliance upon this
understanding
4.2. REGISTRATION OBLIGATION.
(a) For so long as Investors hold any Registrable Securities
(as defined below), if the Company or any stockholder of the Company proposes to
register any of its common stock or any securities convertible into common stock
under the Securities Act (other than pursuant to an offering of securities on
Form S-8 in connection with an employee benefit, share dividend, share ownership
or dividend reinvestment plan or registration of securities on Form S-4 in
connection with a business combination transaction), the Company shall give
prompt written notice to the Investors of its intention to effect such a
registration and shall, if commercially practicable, include in such
registration statement all securities issued or issuable upon conversion or
exercise of the Promissory Note and Warrant (the "REGISTRABLE SECURITIES")
(subject to required cut-backs or limitations pursuant to the Commission's
interpretations of Rule 415 promulgated under the Securities Act) with respect
to which the Company has received written request from the Investors for
inclusion therein within ten (10) business days after the date of sending of
such written notices to the Investors to the Investors.
(b) All registrations made by the Investors will be made
solely at the Company's expense, other than (i) if an underwritten offering is
consented to by the Company, the underwriters', broker-dealers' and placement
agents' selling discounts, commissions and fees relating to the sale of the
Investors' securities, (ii) any costs and expenses of counsel, accountants or
other advisors retained by the Investors and (iii) all transfer, franchise,
capital stock and other taxes, if any, applicable to the Investors' securities
which shall be paid by the Investors.
(c) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Company
shall indemnify and hold harmless each Investor holding such Registrable
Securities, such Investor's directors and officers, and each other person
(including each underwriter) who participated in the offering of such
Registrable Securities and each other person, if any, who controls such Investor
or such participating person within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which such
Investor or any such director or officer or participating person or controlling
person may become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, (ii) any
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omission or any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any other violation of any applicable securities laws, and in each of the
foregoing circumstances shall reimburse such Investor or such director, officer
or participating person or controlling person for any legal or any other
expenses reasonably incurred by such Investor or such director, officer or
participating person or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any actual
or alleged untrue statement or actual or alleged omission made in such
registration statement, preliminary prospectus, prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Investor specifically for use therein.
(d) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, each Investor
holding Registrable Securities agrees to indemnify and hold harmless the
Company, its directors and officers and each other person, if any, who controls
the Company within the meaning of the Securities Act and any other Investor
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director or officer or any such person may become
subject under the Securities Act or any other statute or at common law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or any alleged untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in either case
only to the extent that such untrue statement or omission is (A) made in
reliance on and in conformity with any information furnished in writing by such
Investor to the Company concerning such Investor specifically for inclusion in
the offering documents relating to such offering, and (B) is not corrected by
such Investor and distributed to the Company within a reasonable period of time.
Notwithstanding the provisions of this Section 4.2(d), no Investor shall be
required to indemnify any person pursuant to Section 4.2(d) or to contribute
pursuant to Section 4.2(e) below in an amount in excess of the amount of the
aggregate net proceeds received by such Investor in connection with any such
registration under the Securities Act.
(e) If the indemnification provided for above from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
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indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4.2(e) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(f) All rights of the Investors under this Section 4.2 are
unique to and limited to the Investors and may not be transferred or inure to
the benefit of the Investors' successors and assigns or any other transferee who
obtains Registrable Securities.
4.3. PUBLICITY. The Company may issue press releases disclosing the
transactions contemplated hereby and may make all disclosures to the extent
required by the Exchange Act.
4.4. USE OF PROCEEDS; EXPENSE REIMBURSEMENT. The Company will use the
net proceeds from the sale of the securities hereunder for working capital
purposes, acquisitions and/or capital expenditures; The parties hereto agree
that the Company shall reimburse the Lead Investor an aggregate of $15,000 from
the proceeds of the sale of the Securities for the Lead Investors' expenses
related to, due diligence and investment documentation (including legal
expenses).
4.5. RIGHT OF FIRST REFUSAL.
(a) From the date hereof until the one year anniversary of the
date hereof (the "TRIGGER DATE"), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its equity or equity equivalent securities, including without limitation any
debt, preferred stock or other instrument or security that is, at any time
during its life and under any circumstances, convertible into or exchangeable or
exercisable for shares of common stock or common stock equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT") unless the Company shall have first complied with this
Section 4.5.
(b) The Company shall deliver to each Investor hereunder a
written notice (the "OFFER NOTICE") of any proposed or intended issuance or sale
or exchange (the "OFFER") of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Investors all of the Offered Securities, allocated among such
Investors (a) based on such Investor's pro rata portion of the total Investment
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Amount hereunder (the "BASIC AMOUNT"), and (b) with respect to each Investor
that elects to purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Investors as such Investor
shall indicate it will purchase or acquire should the other Investors subscribe
for less than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT"), which
process shall be repeated until the Investors shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
(c) To accept an Offer, in whole or in part, such Investor
must deliver a written notice to the Company prior to the end of the fifth (5th)
Business Day after such Investor's receipt of the Offer Notice related to an
unsolicited offer or the 10th Business Day after such Investor's receipt of the
Offer Notice related to a Company negotiated offer (the "OFFER PERIOD"), setting
forth the portion of such Investor's Basic Amount that such Investor elects to
purchase and, if such Investor shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the "NOTICE OF Acceptance"). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
Investor who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; PROVIDED,
HOWEVER, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Investor who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
such Investor bears to the total Basic Amounts of all Investors that have
subscribed for Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary.
(d) The Company shall have forty-five (45) Business Days from
the expiration of the Offer Period above to (i) offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Investors (the "REFUSED SECURITIES"), but only to the
offerees described in the Offer Notice (if so described therein) and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer Notice and (ii) to
publicly announce (a) the execution of such Subsequent Placement Agreement (as
defined below), and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination of
such Subsequent Placement Agreement.
(e) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on the terms
specified in this Section 4.5), then each Investor may, at its sole option and
in its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Investor elected to
purchase pursuant to Section 4.5(c) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Investors pursuant to Section 4.5(c) above
prior to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Investor so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Investors in accordance with Section 4.5(b) above.
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(f) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Investors shall acquire from the
Company, and the Company shall issue to the Investors, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 4.5(e) above if the Investors have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Investors of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Investors of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Investors and
their respective counsel (such agreement, the "SUBSEQUENT PLACEMENT AGREEMENT").
(g) Any Offered Securities not acquired by the Investors or
other persons in accordance with Section 4.5(f) above may not be issued, sold or
exchanged until they are again offered to the Investors under the procedures
specified in this Agreement.
(h) In exchange for the Company's willingness to agree to
these procedures, each Investor hereby irrevocably agrees that it will hold in
strict confidence any and all Offer Notices, the information contained therein,
and the fact that the Company is contemplating a Subsequent Placement, until
such time as the Company is obligated to make the disclosures required by
Section 4.5(d), or unless it notifies the Company in writing that it no longer
desires to receive Offer Notices.
(i) Notwithstanding the foregoing, this Section 4.14 shall not
apply in respect of an Exempt Issuance.
4.6. INDMENIFICATION. The Company will indemnify and hold each Investor
and its directors, officers, shareholders, members, partners, employees and
agents , each Person who controls such Investor (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, shareholders, agents, members, partners or employees (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
person (each, a "Purchaser 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 that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
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to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel. The
Company will not be liable to any Purchaser Party under this Agreement (i) for
any settlement by a Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party's breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.
4.7. RESERVATION OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations in full
under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the required
minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or articles
of incorporation to increase the number of authorized but unissued shares of
Common Stock, as soon as possible and in any event not later than the 75th day
after such date.
4.8 ESCROW SHARES. Upon the closing of the transactions contemplated
hereby, the Company shall (or shall cause shareholders of the Company to)
deposit shares of Common Stock into escrow (the "Escrow Shares") with a value
equal to at least 150% of the Investment Amount based upon the VWAP of the
Common Stock for the prior 20 trading days. In the event that subsequent to the
closing, the value of the Escrow Shares is less than 150% of the Investment
Amount for 10 consecutive trading days, then the Investor shall have the right
to give the Company notice (the "Investor Notice") to deposit or cause to be
deposited additional Escrow Shares such that the value of the Escrow Shares
based upon the VWAP for the 20 trading days preceding the date of the Investor
Notice, is equal to 150% of the Investment Amount. The Company shall deposit or
cause to be deposited such additional Escrow Shares within 30 days of the date
of the Investor Notice. Any Escrow Shares deposited into escrow under this
section shall remain in escrow in accordance with the terms of the Escrow
Agreement. To the extent the Escrow Shares are not sufficient to meet the
threshold of 150% of the Investment Amount within 30 days after the Investor
Notice, the Company shall grant to Investors a security interest on the
Company's tangible assets to the extent permitted under applicable law.
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4.9 . EXCHANGE ACT REPORTS.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, the Company agrees
to (i) make and keep public information available, as those terms are understood
and defined in Rule 144 and (ii) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Exchange Act so long as the Company remains subject to such requirements and the
filing of such reports and other documents is required for the applicable
provisions of Rule 144.
ARTICLE 5
MISCELLANEOUS
5.1. FEES AND EXPENSES. Except as set forth in Section 4.4 above, 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 hereof.
5.2. ENTIRE AGREEMENT. This Agreement, together with the Promissory
Notes and Warrants, 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.
5.3. 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 5:30 p.m. (New York City
time) on a Business Day, (b) the next Business 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 Business Day
or later than 5:30 p.m. (New York City time) on any Business Day, (c) the
Business 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: Hankersen International Corp
3rd Floor
A Tower of Xxxxxx Xxx
Xx. 00 Xxxxxx Xxxx Xxxx
Xx Xxxx Xxxx, Xx'xx
Xxxxx
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With a copy to: Xxxxxx Xxxxxxxx, Esq.
XxXxxxxxxx Xxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
If to an Investor: To the address set forth under such
Investor's name on the signature
pages hereof;
With respect to Investor Ancora Greater China Fund, L.P., with a copy to
(which shall not constitute notice):
Xxxxx Rozynko LLP
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
5.4. 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 at least a majority in interest of the
outstanding aggregate principal amount of the Promissory Notes. 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.
5.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
5.6. 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.
5.7. GOVERNING LAW. This Agreement shall be governed by and be
construed in accordance with the laws of the State of New York without regard to
the conflicts of law rules of such state. Each of the Company and the Investors
hereby irrevocably and unconditionally submits, for itself and its property, to
the jurisdiction of the Supreme Court of the State of New York sitting in New
York County and of the United States District Court for the Southern District of
New York, and any appellate court from any thereof, in respect of actions
brought against it as a defendant, in any action, suit or proceeding arising out
of or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action, suit or proceeding may be
heard and determined in such courts. Each of the parties hereto agrees that a
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final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. The Company and the Investors hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any action, suit or proceeding arising out of or relating to this Agreement, or
in any court referred to above. Each of the parties hereby irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action, suit proceeding in any such court and waives any
other right to which it may be entitled on account of its place of residence or
domicile.
5.8. 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.
5.9. 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.
5.10. INDEPENDENT NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS. The
obligations of each Investor hereunder 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 hereunder. The
decision of each Investor to purchase Securities pursuant hereto has been made
by such Investor independently of any other Investor.
[Signature Page Follows]
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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.
HANKERSEN INTERNATIONAL CORP.
By: ________________________________
Name: Xxxxxxxxx Xxxx
Title: President
[Remainder of Page Intentionally Left Blank;
Signature Page for Investors Follows]
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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:
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:
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EXHIBIT A
FORM OF PROMISSORY NOTE
EXHIBIT B
FORM OF WARRANT
