EXECUTION COPY
SECURITIES PURCHASE
AGREEMENT
DATED AS OF JANUARY 30, 2006
AMONG
STRONG TECHNICAL INC.
FALCON LINK INVESTMENT LIMITED
AND
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
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ARTICLE I Purchase and Sale of Preferred Stock and Warrants.............................................1
Section 1.1 Purchase and Sale of Preferred Stock and Warrants......................................1
Section 1.2 The Closing............................................................................1
Section 1.3 Conversion Shares and Warrant Shares...................................................2
ARTICLE II Representations and Warranties................................................................2
Section 2.1 Representations and Warranties Relating to the Company.................................2
Section 2.2 Representations and Warranties Relating to Falcon.....................................13
Section 2.3 Representations and Warranties of the Purchasers......................................20
ARTICLE III Covenants....................................................................................22
Section 3.1 Consummation of the Exchange..........................................................22
Section 3.2 Disclosure of Transactions and Other Material Information.............................22
Section 3.3 Registration under Exchange Act.......................................................23
Section 3.4 Inspection Rights.....................................................................23
Section 3.5 Compliance with Laws..................................................................23
Section 3.6 Keeping of Records and Books of Account...............................................24
Section 3.7 Other Agreements......................................................................24
Section 3.8 Reservation of Shares.................................................................24
Section 3.9 Non-public Information................................................................24
Section 3.10 Nasdaq or Exchange Listing............................................................24
Section 3.11 Subsequent Registrations..............................................................24
Section 3.12 Make Good Escrow Shares...............................................................24
Section 3.13 New York City Agency..................................................................24
ARTICLE IV Conditions...................................................................................25
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Shares and Warrants.............................................25
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Shares and Warrants.........................................25
ARTICLE V Certificate Legend...........................................................................28
Section 5.1 Legend................................................................................28
ARTICLE VI Termination..................................................................................29
Section 6.1 Termination of Obligations to Effect Closing..........................................29
Section 6.2 Effect of Termination.................................................................30
ARTICLE VII Indemnification..............................................................................30
Section 7.1 General Indemnity.....................................................................30
Section 7.2 Indemnification Procedure.............................................................30
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TABLE OF CONTENTS
(continued)
PAGE
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ARTICLE VIII Miscellaneous................................................................................31
Section 8.1 Fees and Expenses.....................................................................31
Section 8.2 Specific Enforcement; Consent to Jurisdiction.........................................32
Section 8.3 Entire Agreement; Amendment...........................................................32
Section 8.4 Notices...............................................................................33
Section 8.5 Waivers...............................................................................34
Section 8.6 Headings..............................................................................34
Section 8.7 Successors and Assigns................................................................34
Section 8.8 No Third Party Beneficiaries..........................................................34
Section 8.9 Governing Law.........................................................................34
Section 8.10 Survival..............................................................................34
Section 8.11 Counterparts..........................................................................35
Section 8.12 Publicity.............................................................................35
Section 8.13 Severability..........................................................................35
Section 8.14 Further Assurances....................................................................35
Section 8.15 Independent Nature of Purchaser's Obligations and Rights..............................35
Section 8.16 Consent to Jurisdiction and Service of Process........................................36
Section 8.17 Notification Under Certification of Designation.......................................37
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT this ("AGREEMENT"), dated as of
January 30, 2006, by and among Strong Technical Inc., a Delaware corporation
(the "COMPANY"), Falcon Link Investment Limited, a corporation formed under the
laws of the British Virgin Islands ("FALCON"), and the entities listed on
EXHIBIT A hereto (each a "PURCHASER" and collectively, the "PURCHASERS"), for
the purchase and sale to the Purchasers of shares of the Company's Series A
Convertible Preferred Stock, par value $.001 per share (the "PREFERRED STOCK"),
and warrants to purchase shares of the Company's common stock, par value $.001
per share (the "COMMON STOCK").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
Section 1.1 PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS. Upon the
following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall, severally and not jointly, purchase from
the Company, an aggregate of 6,900,000 shares of Preferred Stock (the "SHARES")
and warrants to purchase an aggregate of 121,954,050 shares of Common Stock, in
substantially the form attached hereto as EXHIBIT B (the "WARRANTS"). The Shares
and the Warrants shall be sold as units consisting of two shares of Preferred
Stock and one Warrant at a price per unit of $8.00, for an aggregate purchase
price of $27,600,000 (the "PURCHASE PRICE"). The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in reliance upon
the exemption from securities registration afforded by Section 4(2) of the U.S.
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "SECURITIES ACT"), including Regulation D ("REGULATION D"),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder. The Preferred Stock shall have such powers, preferences
and rights, and the qualifications, limitations or restrictions thereof, as set
forth in the Certificate of Designation of Rights and Preferences of Series A
Preferred Stock attached hereto as EXHIBIT D (the "CERTIFICATE OF
DESIGNATIONS"), subject to the applicable terms and conditions of this Agreement
and the Registration Rights Agreement (as defined below).
Section 1.2 THE CLOSING. The Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the number of
Shares and Warrants set forth opposite their respective names on EXHIBIT A. The
closing of the purchase and sale of the Shares and Warrants to be acquired by
the Purchasers from the Company under this Agreement (the "Closing") shall take
place (i) at the offices of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP located at 000
Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00 a.m., New York time, on or before
January 30, 2006, PROVIDED, that all of the conditions set forth in Article IV
hereof and applicable to the Closing shall have been fulfilled or waived in
accordance herewith, or (ii) at such other time and place or on such other date
as the Purchasers and the Company may agree (the "CLOSING DATE").
Section 1.3 CONVERSION SHARES AND WARRANT SHARES. The Company has
authorized and reserved and covenants to continue to reserve, free of preemptive
rights and other similar contractual rights of stockholders, out of its
authorized but unissued Common Stock or its Common Stock held in treasury, a
number of shares of Common Stock equal to the aggregate number of shares of
Common Stock necessary to effect the conversion of the Shares and the exercise
of the Warrants. The Company shall, from time to time, in accordance with the
Delaware General Corporation Law, increase the authorized amount of its Common
Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all Shares at the
time outstanding, subject, however, to stockholder approval. If any shares of
Common Stock required to be reserved for issuance upon conversion of the Shares
or exercise of the Warrants hereunder require registration with or approval of
any governmental authority under any federal or state law before the shares may
be issued, the Company will cause the shares to be so registered and approved.
All shares of Common Stock delivered upon conversion of the Shares or exercise
of the Warrants shall, upon delivery, be duly authorized and validly issued,
fully paid and nonassessable, free from all taxes, liens and charges with
respect to the issue thereof. Any shares of Common Stock issuable upon
conversion of the Shares (and such shares when issued) are herein referred to as
the "CONVERSION SHARES". Any shares of Common Stock issuable upon exercise of
the Warrants (and such shares when issued) are herein referred to as the
"WARRANT SHARES". The Shares, the Conversion Shares, the Warrants and the
Warrant Shares are sometimes collectively referred to herein as the
"SECURITIES".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY. In
order to induce the Purchasers to enter into this Agreement and to purchase the
Shares and the Warrants, the Company and Falcon hereby jointly and severally
make the following representations and warranties to the Purchasers:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, "MATERIAL ADVERSE EFFECT" means any adverse effect on the business,
operations, assets, prospects or financial condition of the
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Company or, following consummation of the Exchange (as defined in Section 3.1),
the Company and its Subsidiaries, taken as a whole, and which is material to
such entity or other entities controlling or controlled by such entity or the
Company or which is likely to materially hinder the performance by the Company,
Falcon or any Subsidiary of its obligations hereunder and under the other
Transaction Documents (as defined in Section 2.1(b) hereof) and the Exchange
Documents (as defined in Section 2.1(b) hereof).
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Warrants, and the other agreements and
documents contemplated hereby and thereby and executed by the Company or to
which the Company is a party (collectively, the "TRANSACTION DOCUMENTS"), and to
issue and sell the Shares and the Warrants in accordance with the terms hereof.
The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Share Exchange Agreement dated as of January
30, 2006 (the "EXCHANGE AGREEMENT") between the Company, Falcon and the
stockholders of Falcon and the other agreements and documents contemplated
thereby and executed by the Company or to which the Company is party
(collectively, the "EXCHANGE DOCUMENTS"). The execution, delivery and
performance of the Transaction Documents and the Exchange Documents by the
Company and the consummation by the Company of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required. This Agreement and the Exchange Agreement has been
duly executed and delivered by the Company. The other Transaction Documents and
Exchange Documents will have been duly executed and delivered by the Company at
the Closing. Each of the Transaction Documents and the Exchange Documents
constitutes, or shall constitute when executed and delivered, a 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, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by equitable principles or remedies of
general application.
(c) CAPITALIZATION. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of January 30, 2006,
after giving effect to the shares of capital stock to be issued in the Exchange,
are set forth on SCHEDULE 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and any other security of the Company have been duly and
validly authorized and, to the extent applicable, are validly issued, fully paid
and non-assessable. Except as set forth on SCHEDULE 2.1(c) hereto, no shares of
Common Stock or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth on SCHEDULE 2.1(c) hereto
or in any Commission Documents (as defined in Section 2.1(f) below) and except
for the Transaction Documents and the Exchange Documents, there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except as provided on SCHEDULE 2.1(c) hereto and except as
disclosed in any Commission Documents, the Company is not a party to or bound by
any agreement or understanding granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities. Except as set
forth on SCHEDULE 2.1(c) or in any Commission
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Documents, the Company is not a party to, and it has no knowledge of, any
agreement or understanding restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on SCHEDULE 2.1(c) hereto
or disclosed or in any Commission Documents, the offer and sale of all capital
stock, convertible securities, rights, warrants, or options of the Company
issued prior to the Closing complied with all applicable federal and state
securities laws, and to the best knowledge of the Company, no holder of such
securities has a right of rescission or has made or threatened to make a claim
for rescission or damages with respect thereto which could have a Material
Adverse Effect. The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof (the "CERTIFICATE"), and the Company's Bylaws as in
effect on the date hereof (the "BYLAWS").
(d) ISSUANCE OF SECURITIES. The Shares and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued and outstanding, fully paid and nonassessable and
free and clear of all liens, encumbrances and rights of first refusal of any
kind and the holders shall be entitled to all rights accorded to a holder of
Preferred Stock. The Shares have the relative rights, powers and privileges set
forth in the Certificate of Designations. When the Conversion Shares are issued
in accordance with the terms of the Preferred Stock, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable, free and clear of all liens, encumbrances and
rights of first refusal of any kind and the holders shall be entitled to all
rights accorded to a holder of Common Stock. When the Warrant Shares are issued
and paid for in accordance with the terms of the Warrants, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind and the holders shall be
entitled to all rights accorded to a holder of Common Stock.
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents and the Exchange Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) violate any provision of the Certificate or Bylaws or
any Subsidiary's comparable charter documents, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which the Company's properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property or asset of the Company or any of its
Subsidiaries under any agreement or any commitment to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or by
which any of their respective properties or assets are bound (in each case,
after giving effect to the Exchange), or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any Subsidiary or by which any property or asset of the
Company or any Subsidiary is bound or affected (in each case, after giving
effect to the Exchange), except, in the case of (i) above and in all cases other
than violations pursuant to clause (iv) (with respect to federal and
4
state securities laws) above, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations, which
singularly or in the aggregate, do not and will not have a Material Adverse
Effect. The Company is not required under federal, state, foreign or local law,
rule or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Exchange Documents
or the Transaction Documents or issue and sell the Shares, the Conversion
Shares, the Warrants or the Warrant Shares in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by the
Company with the Securities and Exchange Commission (the "COMMISSION") or state
securities administrators subsequent to the Closing, or any registration
statement which may be filed pursuant hereto or thereto).
(f) COMMISSION DOCUMENTS; COMMISSION FILINGS; FINANCIAL
STATEMENTS. The Common Stock is not currently registered pursuant to Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), but the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act, including, but not
limited to, current reports on Form 8-K (and all of the foregoing, including
filings incorporated by reference therein, filed prior to the date hereof being
referred to herein as the "COMMISSION DOCUMENTS"). At the time of its filing,
the Company's Form 10-QSB for the fiscal quarter ended December 31, 2005 (the
"FORM 10-Q") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and the Form 10-Q did not contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. At the time of its
filing, the Company's Form 10-KSB for the fiscal year ended June 30, 2005 (the
"FORM 10-K") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and the Form 10-K did not contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company as of 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 year-end audit adjustments).
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(g) SUBSIDIARIES. SCHEDULE 2.1(g) hereto sets forth each
Subsidiary of the Company after giving effect to the Exchange, showing the
jurisdiction of its incorporation or organization and showing the percentage of
each person's ownership of the outstanding stock or other interests of such
Subsidiary. For the purposes of this Agreement, "SUBSIDIARY" shall mean, with
respect to any corporation or other entity, any corporation or other entity of
which at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by such corporation or other entity and/or any of its other
Subsidiaries. All of the outstanding shares of capital stock of each such
Subsidiary have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any such
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any such Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any such Subsidiary or any convertible securities, rights,
warrants or options of the type described in the preceding sentence except as
set forth on SCHEDULE 2.1(g) hereto. Except as set forth on SCHEDULE 2.1(g)
hereto, neither the Company nor any Subsidiary is party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of any Subsidiary.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 2005, no
event or condition has occurred which has had or could reasonably be expected to
have a Material Adverse Effect.
(i) NO UNDISCLOSED LIABILITIES. The Company has no
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those set forth on the balance sheet included in the Form 10-Q or incurred in
the ordinary course of the Company's business since December 31, 2005, and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2005, except as disclosed in the Commission Documents, no event or circumstance
has occurred or exists with respect to the Company or its business, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) INDEBTEDNESS. Except as disclosed in the Commission
Documents, as of the date hereof, there is no outstanding secured and unsecured
Indebtedness of the Company, or Indebtedness for which the Company has
commitments. For the purposes of this Agreement, "INDEBTEDNESS" shall mean (i)
any liabilities for borrowed money in excess of $100,000 (other than trade
accounts payable incurred in the ordinary course of business), (ii) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others in excess of $100,000, whether or not the same are or
should be reflected in the Company's balance sheet (or
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the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (iii) the present value of any lease payments in excess of
$100,000 due under leases required to be capitalized in accordance with GAAP.
Except as disclosed in any Commission Documents, the Company is not in default
with respect to any Indebtedness.
(l) TITLE TO ASSETS. The Company has good and marketable title
to all of its real and personal property, if any, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances of
any nature whatsoever, except for those disclosed in any Commission Documents or
such that, individually or in the aggregate, do not have a Material Adverse
Effect.
(m) ACTIONS PENDING. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against the
Company which questions the validity of this Agreement or any of the other
Transaction Documents or any of the Exchange Documents or any of the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against or involving the Company
or any of its properties or assets, which individually or in the aggregate,
would have a Material Adverse Effect. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any officers or directors
of the Company in their capacities as such, which, individually or in the
aggregate, would have a Material Adverse Effect.
(n) COMPLIANCE WITH LAW. The business of the Company has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except as
set forth in the Commission Documents or such that, individually or in the
aggregate, the noncompliance therewith would not have a Material Adverse Effect.
The Company has all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) TAXES. The Company has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company for all current taxes and other charges
to which the Company is subject and which are not currently due and payable.
None of the federal income tax returns of the Company has been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company for
any period, nor of any basis for any such assessment, adjustment or contingency.
7
(p) CERTAIN FEES. The Company has not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(q) DISCLOSURE. To the best of the Company's knowledge,
neither this Agreement nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company in connection with
the transactions contemplated by this Agreement contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.
(r) INTELLECTUAL PROPERTY. SCHEDULE 2.1(r) contains a complete
and correct list of all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, and all rights with
respect to the foregoing held by the Company (collectively, the "PROPRIETARY
RIGHTS"). The Company owns or possesses all the Proprietary Rights which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others. As of the date of this Agreement, the Company has not
received any written notice that any Proprietary Rights have been declared
unenforceable or otherwise invalid by any court or governmental agency, and
there is, to the knowledge of the Company, no material existing infringement,
misuse or misappropriation of any Proprietary Rights by others that could have a
Material Adverse Effect. The Company has not received any written notice
alleging that the operation of the business of the Company infringes in any
material respect upon the intellectual property rights of others.
(s) ENVIRONMENTAL COMPLIANCE. Except as disclosed in the
Commission Documents, the Company has obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any U.S. Environmental Laws. The Company has no
permits, licenses and other authorizations issued under any U.S. Environmental
Laws. "U.S. ENVIRONMENTAL LAWS" shall mean all U.S. Federal or state laws
applicable to the Company relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company has
all necessary governmental approvals required under all U.S. Environmental Laws
and used in its business, except for such instances as would not individually or
in the aggregate have a Material Adverse Effect. The Company is also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental
8
Laws where non-compliance could have a Material Adverse Effect. Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect or as disclosed in the Commission Documents, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company that violate or may violate any
Environmental Law after the Closing or that may give rise to any Environmental
Liabilities, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any U.S. Environmental
Law, or (ii) based on or related to the manufacture, processing, distribution,
use, treatment, storage (including, without limitation, underground storage
tanks), disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "ENVIRONMENTAL LIABILITIES" means
all liabilities of a person (whether such liabilities are owed by such person to
governmental authorities, third parties or otherwise) currently in existence or
arising hereafter and which arise under or relate to any U.S. Environmental Law.
(t) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
books, records and documents of the Company accurately reflect in all material
respects the information relating to the business of the Company, the location
and collection of their assets, and the nature of all transactions giving rise
to the obligations or accounts receivable of the Company. The Company maintains
a system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any differences.
(u) MATERIAL AGREEMENTS. Except for the Transaction Documents,
the Exchange Documents or as disclosed in the Commission Documents, or those
that are included as exhibits to the Commission Documents, the Company is not a
party to any written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, a copy of which would be required to be filed
with the Commission if the Company were registering securities under the
Securities Act (collectively, "MATERIAL AGREEMENTS"). Except as set forth in the
Commission Documents, the Company has in all material respects performed all the
obligations required to be performed by the Company to date under the foregoing
agreements, has received no notice of default and, to the best of the Company's
knowledge, is not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement (other than the Certificate of Designation with
respect to the Preferred Stock, this Agreement or any other Transaction
Document(s)), commitment, obligation (other than any obligation imposed by state
law), plan or arrangement of the Company limits or shall limit the payment of
dividends on its Common Stock.
(v) TRANSACTIONS WITH AFFILIATES. There are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (i) the Company or any of its customers
or suppliers, on the one hand, and (ii) on the other hand, any officer,
employee, consultant or director of the Company, or any
9
person owning any capital stock of the Company or any member of the immediate
family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant,
director or stockholder.
(w) SECURITIES ACT OF 1933. Assuming the accuracy and
completeness of the representations, warranties and covenants of the Purchasers
contained herein, the Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the Shares, the Conversion Shares, the Warrants and the Warrant Shares
hereunder, and no registration under the Securities Act is required for the
offer and sale of the Securities by the Company to the Purchasers under this
Agreement. Neither the Company nor anyone acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy any of the
Securities, or similar securities to, or solicit offers with respect thereto
from, or enter into any preliminary conversations or negotiations relating
thereto with, any person, or has taken or will take any action so as to require
registration of the issuance and sale of any of the Securities under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities. The Company is
eligible to register the resale of its Common Stock for resale by the Purchasers
under Form S-1 promulgated under the Securities Act. Except as set forth on
SCHEDULE 2.1(w) hereto, the Company has not granted or agreed to grant to any
person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
(x) GOVERNMENTAL APPROVALS. Except for the filing of any
notice prior or subsequent to the Closing that may be required under applicable
state and/or federal securities laws (which if required, shall be filed on a
timely basis), no authorization, consent, approval, license, exemption of,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of this
Agreement and the other Transaction Documents or the Exchange Documents, the
issuance of the Shares and the Warrants, or, except as set forth in this
Agreement or any other Transaction Document, for the performance by the Company
of its obligations under the Transaction Documents or the Exchange Documents.
(y) EMPLOYEES. The Company has no employees.
(z) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in
the Commission Documents, since December 31, 2005, the Company has not:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's business;
10
(iii) discharged or satisfied any material lien or
encumbrance or paid a material amount of any obligation or liability
(absolute or contingent), other than current liabilities paid in the
ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course
of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, which sale, assignment or
transfer has had a Material Adverse Effect, or disclosed any
proprietary confidential information to any person except in the
ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of prospective
business;
(viii) made any changes in employee compensation except
in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $25,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material
transaction, whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess
of $25,000; (xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
11
(aa) USE OF PROCEEDS. Except as set forth on SCHEDULE 2.1(AA),
the proceeds from the sale of the Shares and the Warrants will be used by the
Company and its Subsidiaries for working capital purposes and, except as set
forth on SCHEDULE 2.1(AA), shall not be used to repay any outstanding
Indebtedness or any loans to any officer, director, affiliate or insider of the
Company or any Subsidiary (after giving effect to the Exchange).
(bb) PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY
ACT STATUS. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing and
after giving effect to the Exchange will not be, an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company which is
or would cause a Material Adverse Effect. The execution and delivery of this
Agreement and the issue and sale of the Shares and the Warrants will not involve
any transaction which is subject to the prohibitions of Section 406 of ERISA or
in connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"); provided that, if any
Purchaser, or any person or entity that owns a beneficial interest in any
Purchaser, is an "employee pension benefit plan" (within the meaning of Section
3(2) of ERISA) with respect to which the Company is a "party in interest"
(within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section
2.1(cc), the term "PLAN" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(dd) PRESS RELEASES. The press releases, if any, 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.
(ee) SOLVENCY. Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing and the consummation of
the Exchange shall have occurred), (i) the Company's fair saleable value of its
assets exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted, and as proposed to be conducted, including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof, and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or
12
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).
(ff) LISTING AND MAINTENANCE REQUIREMENTS. Except as specified
in the Commission Documents, the Company has not, in the two years preceding the
date hereof, received notice from any trading market to the effect that the
Company is not in compliance with the listing or maintenance requirements
thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
trading market on which the Common Stock is currently listed or quoted. The
issuance and sale of the Securities under this Agreement does not contravene the
rules and regulations of the trading market on which the Common Stock is
currently listed or quoted.
(gg) APPLICATION OF TAKEOVER PROTECTIONS. The Company has
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company's 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 this Agreement, including, without
limitation, the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
(hh) NO ADDITIONAL AGREEMENTS. The Company does not have any
agreement or understanding with any Purchaser with respect to the transactions
contemplated by this Agreement other than as specified in this Agreement.
Section 2.2 REPRESENTATIONS AND WARRANTIES RELATING TO FALCON. In order
to induce the Purchasers to enter into this Agreement and to purchase the Shares
and Warrants, the Company and Falcon hereby jointly and severally make the
following representations and warranties to the Purchasers:
(a) ORGANIZATION, GOOD STANDING AND POWER. Falcon is a
corporation duly incorporated, validly existing and in good standing under the
laws of the British Virgin Islands and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. Falcon and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect.
(b) AUTHORIZATION; ENFORCEMENT. Falcon has the requisite
corporate power and authority to enter into and perform this Agreement and the
Exchange Agreement. The execution, delivery and performance of this Agreement
and the Exchange Agreement by Falcon and the consummation by Falcon of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of Falcon or
13
its Board of Directors or stockholders is required. Each of this Agreement and
the Exchange Agreement has been duly executed and delivered by Falcon. Each of
this Agreement and the Exchange Agreement constitutes a valid and binding
obligation of Falcon enforceable against Falcon in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by equitable principles or remedies of general
application.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Exchange Agreement by Falcon and the consummation by
Falcon of the transactions contemplated hereby and thereby, including the
Exchange, do not and will not (i) violate any provision of the charter or bylaws
of Falcon or any Subsidiary's comparable charter documents, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which Falcon or any of its Subsidiaries is a party or by which Falcon or any
of its Subsidiaries' respective properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property or asset of Falcon or any of its Subsidiaries under any
agreement or any commitment to which Falcon or any of its Subsidiaries is a
party or by which Falcon or any of its Subsidiaries is bound or by which any of
their respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to Falcon or any of its Subsidiaries or by which any property or
asset of Falcon or any of its Subsidiaries is bound or affected, except, in all
cases other than violations pursuant to clause (iv) (with respect to federal and
state securities laws) above, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of Falcon and its Subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which, singularly or in the aggregate, do not and will not have a
Material Adverse Effect. Neither Falcon nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver, perform any of
its obligations under the this Agreement or the Exchange Agreement or consummate
the Exchange.
(d) FINANCIAL STATEMENTS. As of their respective dates, the
financial statements of Henan Zhongpin Food Share Co., Ltd. annexed hereto as
Exhibit G (the "FALCON FINANCIAL STATEMENTS") comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of Henan Zhongpin Food Share Co., Ltd. as of 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 year-end audit adjustments).
14
(e) SUBSIDIARIES. SCHEDULE 2.2(e) hereto sets forth each
Subsidiary of Falcon, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such Subsidiary. All of the outstanding
shares of capital stock of each Subsidiary have been duly authorized and validly
issued, and are fully paid and nonassessable. There are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon any Subsidiary for the purchase or acquisition of
any shares of capital stock of any Subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to subscribe for any
shares of such capital stock. Neither Falcon nor any Subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any Subsidiary or any convertible
securities, rights, warrants or options of the type described in the preceding
sentence. Neither Falcon nor any Subsidiary is party to, nor has any knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of any Subsidiary.
(f) NO MATERIAL ADVERSE CHANGE. Since September 30, 2005, no
event or condition has occurred with respect to Falcon and/or its Subsidiaries
which has had or could reasonably be expected to have a Material Adverse Effect,
except as disclosed on SCHEDULE 2.2(f) hereto.
(g) NO UNDISCLOSED LIABILITIES. Except as disclosed on
SCHEDULE 2.2(g) hereto, neither Falcon nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those set forth on the balance sheet as of September 30, 2005 included in the
Falcon Financial Statements or incurred in the ordinary course of Falcon's or
its Subsidiaries respective businesses since September 30, 2005, and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on Falcon or its Subsidiaries.
(h) INDEBTEDNESS. SCHEDULE 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of Falcon or any
Subsidiary of Falcon, or for which Falcon or any Subsidiary of Falcon has
commitments, which Indebtedness is not disclosed in the Falcon Financial
Statements. Neither Falcon nor any Subsidiary of Falcon is in default with
respect to any Indebtedness.
(i) TITLE TO ASSETS. Each of Falcon and its Subsidiaries has
and, after giving effect to the Exchange will continue to have, good and
marketable title to all of its real and personal property, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances of
any nature whatsoever, except for those indicated on SCHEDULE 2.2(i) hereto or
such that, individually or in the aggregate, do not have a Material Adverse
Effect. All material leases of Falcon and each of its Subsidiaries are valid and
subsisting and in full force and effect.
15
(j) ACTIONS PENDING. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of Falcon, threatened against Falcon or
any of its Subsidiaries which questions the validity of this Agreement or any of
the other Transaction Documents, any of the Exchange Documents or any of the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of Falcon, threatened against or involving Falcon, any
Subsidiary of Falcon or any of their respective properties or assets, which
individually or in the aggregate, would have a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against Falcon or any
Subsidiary of Falcon or any officers or directors of Falcon or any Subsidiary of
Falcon in their capacities as such, which individually, or in the aggregate,
would have a Material Adverse Effect.
(k) COMPLIANCE WITH LAW. The business of Falcon and its
Subsidiaries has been and is presently being conducted in accordance with all
applicable governmental laws, rules, regulations and ordinances, except as set
forth on SCHEDULE 2.2(k) hereto or such that, individually or in the aggregate,
the noncompliance therewith would not have a Material Adverse Effect. Falcon and
each of its Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(l) TAXES. Except as set forth on SCHEDULE 2.2(l) hereto,
Falcon and each of its Subsidiaries has accurately prepared and filed all
governmental and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of Falcon and its Subsidiaries for all current taxes
and other charges to which Falcon or any Subsidiary is subject and which are not
currently due and payable. Falcon has no knowledge of any additional
assessments, adjustments or contingent tax liability of any nature whatsoever,
whether pending or threatened against Falcon or any Subsidiary for any period,
nor of any basis for any such assessment, adjustment or contingency.
(m) CERTAIN FEES. Except as set forth on SCHEDULE 2.1(p)
hereto, Falcon has not employed any broker or finder or incurred any liability
for any brokerage or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(n) DISCLOSURE. To the best of Falcon's knowledge, neither
this Agreement nor any Exchange Document nor any other documents, certificates
or instruments furnished to the Purchasers by or on behalf of Falcon or any
Subsidiary in connection with the transactions contemplated by this Agreement or
the Exchange Agreement contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements made herein
or therein, in the light of the circumstances under which they were made herein
or therein, not misleading.
16
(o) INTELLECTUAL PROPERTY. SCHEDULE 2.1(r) contains a complete
and correct list of all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, and all rights with
respect to the foregoing held by Falcon or any of its Subsidiaries
(collectively, the "FALCON PROPRIETARY RIGHTS"). Falcon and each of its
Subsidiaries owns or possesses and, after giving effect to the Exchange will
continue to own or possess, all the Falcon Proprietary Rights which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others. Except as disclosed on SCHEDULE 2.2(o) hereto, (i) as
of the date of this Agreement, neither Falcon nor any of its Subsidiaries has
received any written notice that any Falcon Proprietary Rights have been
declared unenforceable or otherwise invalid by any court or governmental agency
or will become unenforceable or otherwise invalid as a result of the Exchange,
and (ii) as of the date of this Agreement, there is, to the knowledge of the
Company, no material existing infringement, misuse or misappropriation of any
Falcon Proprietary Rights by others that could have a Material Adverse Effect.
Neither Falcon nor any of its Subsidiaries has received any written notice
alleging that the operation of the business of Falcon or any of its Subsidiaries
infringes in any material respect upon the intellectual property rights of
others.
(p) ENVIRONMENTAL COMPLIANCE. Except as disclosed on SCHEDULE
2.2(p) hereto, Falcon and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Falcon Environmental Laws for the
operation of their respective businesses as currently conducted and for the
consummation of the Exchange. SCHEDULE 2.2(p) hereto sets forth all material
permits, licenses and other authorizations issued under any Falcon Environmental
Laws to Falcon or its Subsidiaries. "FALCON ENVIRONMENTAL LAWS" shall mean all
governmental laws applicable to Falcon or any of its Subsidiaries relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except as set forth on SCHEDULE 2.2(p) hereto, Falcon has,
and after giving effect to the Exchange will continue to have, all necessary
governmental approvals required under all Falcon Environmental Laws and used in
its business or in the business of any of its Subsidiaries, except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect. Falcon and each of its Subsidiaries are also in compliance with all
other limitations, restrictions, conditions, standards, requirements, schedules
and timetables required or imposed under all Falcon Environmental Laws where
non-compliance could have a Material Adverse Effect. Except for such instances
as would not individually or in the aggregate have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, incidents,
actions or omissions
17
relating to or in any way affecting Falcon or its Subsidiaries that violate or
may violate any Falcon Environmental Law after the Closing or that may give rise
to any Environmental Liabilities, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Falcon Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including, without
limitation, underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.
"FALCON ENVIRONMENTAL LIABILITIES" means all liabilities of a person (whether
such liabilities are owed by such person to governmental authorities, third
parties or otherwise) currently in existence or arising hereafter and which
arise under or relate to any Falcon Environmental Law.
(q) BOOKS AND RECORDS; INTERNAL ACCOUNTING CONTROLS. The
books, records and documents of Falcon and its Subsidiaries accurately reflect
in all material respects the information relating to the business of Falcon and
its Subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of Falcon
or its Subsidiary of Falcon. Falcon and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Falcon's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any differences.
(r) MATERIAL AGREEMENTS. Except for the Transaction Documents,
the Exchange Documents or as set forth on SCHEDULE 2.2(r) hereto, neither Falcon
nor any Subsidiary of Falcon is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission if Falcon or any
Subsidiary of Falcon were registering securities under the Securities Act
(collectively, "FALCON MATERIAL AGREEMENTS"). Except as set forth on SCHEDULE
2.2(r) hereto, Falcon and each Subsidiary of Falcon has in all material respects
performed all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best of
Falcon's and the Company's knowledge, are not now, and after giving effect to
the Exchange will not be, in default under any Falcon Material Agreement now in
effect, the result of which could cause a Material Adverse Effect.
(s) TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.2(s) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (i) Falcon, any Subsidiary of Falcon or any of their
respective its customers or suppliers, on the one hand, and (ii) on the other
hand, any officer, employee, consultant or director of Falcon, or any of its
Subsidiaries, or any person owning any capital stock of Falcon or any Subsidiary
of Falcon or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder.
18
(t) EMPLOYEES. Neither Falcon nor any Subsidiary of Falcon has
any collective bargaining arrangements or agreements covering any of its
employees. Neither Falcon nor any Subsidiary of Falcon has, and after giving
effect to the Exchange will not have, any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation
agreement, confidentiality agreement, or any other similar contract or
restrictive covenant, relating to the right of any officer, employee or
consultant to be employed or engaged by Falcon or such Subsidiary. Since
September 30, 2005, no officer, consultant or key employee of Falcon or any
Subsidiary of Falcon whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge of
Falcon, has any present intention of terminating his or her employment or
engagement with Falcon or any Subsidiary of Falcon.
(u) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on
SCHEDULE 2.2(u) hereto, since September 30, 2005, neither Falcon nor any
Subsidiary has:
(i) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to
any liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of Falcon's
or such Subsidiary's business;
(iii) discharged or satisfied any material lien or
encumbrance or paid a material amount of any obligation or liability
(absolute or contingent), other than current liabilities paid in the
ordinary course of business;
(iv) declared or made any payment or distribution of cash
or other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course
of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, which sale, assignment or
transfer has had a Material Adverse Effect, or disclosed any
proprietary confidential information to any person except in the
ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered any substantial losses or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of prospective
business;
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(viii) made any changes in employee compensation except
in the ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $25,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material
transaction, whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess
of $25,000;
(xii) suffered any material damage, destruction or
casualty loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment; or
(xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.
(v) PRESS RELEASES. The press releases, if any, disseminated
by Falcon 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.
(w) NO ADDITIONAL AGREEMENTS. Falcon does not have any
agreement or understanding with any Purchaser with respect to the transactions
contemplated by this Agreement other than as specified in this Agreement. Other
than the Exchange Documents, true and complete copies of which have been
provided to the Purchasers, Falcon does not have any agreement or understanding
with the Company or any other person or entity with respect to the Exchange or
the transactions contemplated thereby.
Section 2.3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of
the Purchasers hereby severally and not jointly makes the following
representations and warranties to the Company with respect solely to itself and
not with respect to any other Purchaser:
(a) ORGANIZATION AND STANDING OF THE PURCHASERS. If such
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) AUTHORIZATION AND POWER. Such Purchaser has the requisite
corporate, limited liability company or partnership power to enter into and
perform this Agreement, the Registration Rights Agreement and the other
agreements and documents contemplated hereby
20
and thereby and executed by the Purchaser or to which the Purchaser is party
(collectively, the "PURCHASER TRANSACTION DOCUMENTS") and to purchase the Shares
and Warrants being sold to it hereunder. The execution, delivery and performance
of the Purchaser Transaction Documents by such Purchaser and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate, limited liability company or partnership action, and no
further consent or authorization of such Purchaser or its Board of Directors,
stockholders, members, managers or partners, as the case may be, is required.
This Agreement has been duly authorized, executed and delivered by such
Purchaser. Each of the Purchaser Transaction Documents constitutes, or shall
constitute when executed and delivered, valid and binding obligations of such
Purchaser enforceable against it Purchaser in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by equitable principles or remedies of general
application.
(c) ACQUISITION FOR INVESTMENT. Such Purchaser is purchasing
the Shares and acquiring the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof. Such Purchaser does not have a present intention to sell
any of the Securities, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; PROVIDED, HOWEVER, that by making the
representations herein and subject to Section 2.2(e) below, such Purchaser does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of any of the Securities at any time in
accordance with federal and state securities laws applicable to such disposition
provided that the Company receives an opinion of its counsel to the effect that
such disposition complies with such laws. Such Purchaser acknowledges that it
(i) has such knowledge and experience in financial and business matters such
that such Purchaser is capable of evaluating the merits and risks of its
investment in the Company, (ii) is able to bear the financial risks associated
with an investment in the Securities, and (iii) has been given full access to
such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
(d) RULE 144. Such Purchaser understands that the Securities
must be held indefinitely unless such Securities are registered under the
Securities Act or an exemption from registration is available. Such Purchaser
acknowledges that it is familiar with Rule 144 of the rules and regulations of
the Commission, as amended, promulgated pursuant to the Securities Act ("RULE
144"), and that such Purchaser has been advised that Rule 144 permits resales
only under certain circumstances. Such Purchaser understands that to the extent
that Rule 144 is not available, such Purchaser will be unable to sell any
Securities without either registration under the Securities Act or the existence
of another exemption from such registration requirement, provided that the
Company receives an opinion of its counsel to the effect that such sale is
exempt from such registration requirement.
(e) GENERAL. Such Purchaser understands that the Securities
are being offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth, accuracy and completeness
21
of the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein and in the other Purchaser
Transaction Documents in order to determine the applicability of such exemptions
and the suitability of such Purchaser to acquire the Securities. Such Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement
with respect to any of the Securities.
(f) OPPORTUNITIES FOR ADDITIONAL INFORMATION. Such Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary by such Purchaser in light of such
Purchaser's personal knowledge of the Company's affairs, such Purchaser has
asked such questions and received answers to the full satisfaction of such
Purchaser, and such Purchaser desires to invest in the Company. No investigation
conducted by such Purchaser shall limit or otherwise affect its right to rely
upon the representations and warranties of the Company and Falcon contained
herein.
(g) NO GENERAL SOLICITATION. Such Purchaser acknowledges that
the Securities were not offered to such Purchaser by means of any form of
general or public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) ACCREDITED INVESTOR. Such Purchaser is an accredited
investor (as defined in Rule 501 of Regulation D), and such Purchaser has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Securities. Such Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk.
ARTICLE III
COVENANTS
The Company and Falcon, on the one hand, and each Purchaser, as to
itself only, hereby covenant with one another as follows, which covenants are
for the benefit of each respective covenantee and its respective permitted
assignees.
Section 3.1 CONSUMMATION OF THE EXCHANGE. Prior to the Closing, the
Company and Falcon shall take all required action to consummate the transactions
contemplated by the Exchange Agreement (the "EXCHANGE") in accordance with the
terms of the Exchange Agreement and the other Exchange Documents, and neither
the Company nor Falcon shall waive any of the covenants of the parties under the
Exchange Documents or any conditions to the consummation of the Exchange without
the prior written consent of the Purchasers.
Section 3.2 DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION.
On or before 9:00 a.m., New York City time, on the business day immediately
following the Closing Date,
22
the Company shall issue a press release, and on or before 5:30 p.m., New York
City time, on the business day immediately following the Closing Date, the
Company shall file a Current Report on Form 8-K with the Commission describing
the terms of the transactions contemplated by the Exchange Agreement and the
Transaction Documents and including as exhibits to such Current Report on Form
8-K, the Exchange Agreement, this Agreement, the Certification of Designations,
the Warrants and the Registration Rights Agreement, and the schedules hereto and
thereto in the form required by the Exchange Act (including all attachments, the
"8-K FILING"). The Company shall not, and shall cause each of its Subsidiaries
and its and each of their respective officers, directors, employees and agents
not to, provide any Purchaser with any material, nonpublic information regarding
the Company or any of its Subsidiaries from and after the filing of the 8-K
Filing with the Commission without the express prior written consent of such
Purchaser. Neither the Company nor any Purchaser shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; PROVIDED, HOWEVER, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith, and (ii) as is required by applicable
law and regulations (provided that in the case of clause (i) above, the
Purchasers shall be consulted by the Company (although the consent of the
Purchasers shall not be required) in connection with any such press release or
other public disclosure prior to its release).
Section 3.3 REGISTRATION UNDER EXCHANGE ACT. The Company will use its
commercially reasonable efforts to cause its Common Stock to be registered under
Section 12(b) or 12(g) of the Exchange Act, will comply in all respects with its
reporting and filing obligations under the Exchange Act, will comply with all
requirements related to any registration statement filed pursuant to this
Agreement, and will not take any action or file any document (whether or not
permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or the Securities Act, except as
permitted herein.
Section 3.4 INSPECTION RIGHTS. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, a Purchaser
and its representatives, so long as such Purchaser shall be obligated hereunder
to purchase the Shares or shall beneficially own the Shares or Conversion
Shares, or shall own Warrant Shares or the Warrants which, in the aggregate,
represent more than two percent (2%) of the total combined voting power of all
voting securities then outstanding, to examine and make reasonable copies of and
extracts from the records and books of account of, and visit and inspect, during
the term of the Warrants, the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the affairs, finances and accounts of
the Company and any Subsidiary with any of its officers, consultants, directors,
and key employees.
Section 3.5 COMPLIANCE WITH LAWS. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, the noncompliance with which could have a Material Adverse Effect.
23
Section 3.6 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied.
Section 3.7 OTHER AGREEMENTS. The Company shall not enter into any
agreement containing any provision that would violate the terms of, conflict
with, or cause a default under, any material term of any Transaction Document.
Section 3.8 RESERVATION OF SHARES. So long as the Shares or Warrants
remain outstanding, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, the maximum number of
shares of Common Stock to effect the conversion of the Shares and the exercise
of the Warrants.
Section 3.9 NON-PUBLIC INFORMATION. Neither the Company nor any of its
officers or agents shall disclose any material non-public information about the
Company to any Purchaser without the express prior written consent of such
Purchaser.
Section 3.10 NASDAQ OR EXCHANGE LISTING. The Company shall use its
commercially reasonable efforts to file an application for listing its Common
Stock on the Nasdaq National Market, the Nasdaq Capital Market or a national
securities exchange within 90 days of the Closing Date and to cause such
applications to be approved in a timely manner thereafter.
Section 3.11 SUBSEQUENT REGISTRATIONS. Other than pursuant to the
registration statement filed in connection with the transactions contemplated by
this Agreement, prior to the date that such registration statement is declared
effective by the Commission, the Company shall not file any registration
statement (other than on Form S-8) under the Securities Act with the Commission
with respect to any securities of the Company.
Section 3.12 MAKE GOOD ESCROW SHARES. On the Closing Date, the Company
shall cause certain stockholders of the Company to enter into an escrow
agreement in the form of EXHIBIT H hereto and to deposit with the escrow agent
thereunder the Escrow Deposit (as defined in such escrow agreement).
Section 3.13 NEW YORK CITY AGENCY. During the 30-day period immediately
following the Closing Date, the Company shall establish, and so long as any of
the Shares or the Warrants are outstanding, the Company shall maintain, an
office or agency (which shall be located in the Borough of Manhattan in The City
of New York) where (i) Shares may be presented for conversion into shares of
Common Stock, (ii) Warrants may be presented for exercise and (iii) notices and
demands to or upon the Company or Falcon in respect of the Securities, this
Agreement or any of the Transaction Documents may be served. The Company shall
promptly notify the Purchasers of the name and address of any such agent and of
the appointment of any additional or substitute agent.
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ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
CLOSE AND TO SELL THE SHARES AND WARRANTS. The obligation hereunder of the
Company to close and issue and sell the Shares and the Warrants to the
Purchasers on the Closing Date is subject to the satisfaction or waiver, at or
before the Closing, of the conditions set forth below. These conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion.
(a) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
WARRANTIES. The representations and warranties of each Purchaser contained in
the Purchaser Transaction Documents shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made at
that time, except for representations and warranties that are expressly made as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchasers at or prior to the Closing Date.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) DELIVERY OF PURCHASE PRICE. The Purchase Price for the
Shares and Warrants shall have been delivered to Law Debenture Trust Company of
New York, as escrow agent, and shall be subject to release to the Company at the
Closing pursuant to the terms and conditions of an escrow agreement in the form
of EXHIBIT H attached hereto.
(e) DELIVERY OF PURCHASER TRANSACTION DOCUMENTS. The Purchaser
Transaction Documents shall have been duly executed and delivered by the
Purchasers to the Company.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
CLOSE AND TO PURCHASE THE SHARES AND WARRANTS. The obligation hereunder of the
Purchasers to purchase the Shares and Warrants and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for the Purchasers' sole benefit and may be waived by any Purchaser, as to
itself only, at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S AND FALCON'S REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Company and Falcon
in this Agreement and in each of the Transaction Documents and Exchange
Documents shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material respects as of
such date.
25
(b) PERFORMANCE BY THE COMPANY AND FALCON. Each of the Company
and Falcon shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement or the
Exchange Agreement to be performed, satisfied or complied with by the Company or
Falcon, as the case may be, at or prior to the Closing Date.
(c) NO SUSPENSION, ETC. Trading in the Company's Common Stock
shall not have been suspended by the Commission (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("BLOOMBERG") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
nor shall a banking moratorium have been declared either by the United States or
New York State authorities, nor shall there have occurred any national or
international calamity or crisis of such magnitude in its effect on any
financial market which, in each case, in the reasonable judgment of any
Purchaser, makes it impracticable or inadvisable for it to purchase its Shares
and Warrants.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Exchange Documents, this Agreement or the other Transaction
Documents.
(e) NO PROCEEDINGS OR LITIGATION. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or Falcon or any Subsidiary, or any of the
officers, directors or affiliates of the Company or Falcon or any Subsidiary
thereof, seeking to restrain, prevent or change the Exchange or the transactions
contemplated by the Exchange Documents, this Agreement or the other Transaction
Documents, or seeking damages in connection with the Exchange or such
transactions.
(f) OPINION OF COUNSEL, ETC. The Purchasers shall have
received an opinion of U.S. counsel to the Company, dated the Closing Date,
substantially in the form of EXHIBIT C-1 hereto, an opinion of Chinese counsel
to the Company, dated the Closing Date, substantially in the form of EXHIBIT C-2
hereto and such other certificates and documents as the Purchasers or their
counsel shall reasonably require incident to the Closing.
(g) WARRANTS AND SHARES. The Company shall have delivered to
the Purchasers the originally executed Warrants (in such denominations as each
Purchaser may request but in no event in denominations of less than 100) and
shall have delivered certificates representing the Shares (in such denominations
as each Purchaser may request) being acquired by the Purchasers at the Closing.
26
(h) RESOLUTIONS. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to the Purchasers (the "RESOLUTIONS").
(i) CERTIFICATE OF DESIGNATIONS. As of the Closing Date, the
Company shall have filed with the Delaware Secretary of State the Certificate of
Designations authorizing the Preferred Stock in substantially the form of
EXHIBIT D attached hereto and such Certificate of Designations shall have become
effective.
(j) RESERVATION OF SHARES. As of the Closing Date, the Company
shall have reserved out of its authorized and unissued Preferred Stock, solely
for the purpose of effecting the issuance of the Shares, a number of shares of
Preferred Stock equal to the aggregate number of the Shares. As of the Closing
Date, the Company shall have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to the number
of Conversion Shares and the number of Warrant Shares issuable upon conversion
of the Preferred Stock and the exercise of the Warrants, respectively, assuming
the Warrants are exercised and the Shares are converted on the Closing Date
(assuming the Warrants are fully exercisable and the Shares fully convertible on
such date regardless of any limitation on the timing or amount of such exercise
or conversion).
(k) SECRETARY'S CERTIFICATE. The Company shall have delivered
to the Purchasers a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(l) OFFICER'S CERTIFICATE. On the Closing Date, the Company
shall have delivered to the Purchasers a certificate of an executive officer of
the Company, dated as of the Closing Date, confirming the accuracy of the
Company's representations, warranties and covenants contained herein and in each
of the other Transaction Documents as of the Closing Date and confirming the
compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Closing Date.
(m) FEES AND EXPENSES. As of the Closing Date, all fees and
expenses required to be paid by the Company in connection with the transactions
contemplated by this Agreement shall have been, or authorized to be, paid by the
Company.
(n) REGISTRATION RIGHTS AGREEMENT. As of the Closing Date, the
parties shall have entered into the Registration Rights Agreement in the form of
EXHIBIT E attached hereto.
(o) MAKE GOOD SHARE ESCROW AGREEMENT. As of the Closing Date,
the parties shall have entered into an escrow agreement in the form of EXHIBIT F
hereto and the escrow agent shall have acknowledged receipt of the Escrow
Deposit (as defined in such Escrow Agreement).
27
(p) CONSUMMATION OF EXCHANGE. As of the Closing Date, the
Company and Falcon shall have effected the Exchange in accordance with the terms
of the Exchange Agreement and shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Exchange Agreement to be performed, satisfied or complied with by the
Company or Falcon at or prior to the Closing Date.
(q) CONSENT TO JURISDICTION. The Purchasers shall have
received from each Subsidiary of the Company (following consummation of the
Exchange) other than Falcon a consent to jurisdiction in the form of EXHIBIT I
hereto.
(r) LOCK-UP AGREEMENTS. The Purchasers shall have received
from the Company and each of Xxxxxx Xxx, Baoke Ben, Chaoyang Liu, Xxxxxx Xxxx,
Shuichi Si and Xxxxxxxx Xxxx a letter agreement in the form of EXHIBIT J hereto.
(s) MATERIAL ADVERSE EFFECT. No event or condition shall have
occurred which has had or could reasonably be expected to have a Material
Adverse Effect.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 LEGEND. Each certificate representing the Shares, the
Conversion Shares, the Warrants and the Warrant Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
Each certificate representing any Shares shall also be stamped or
otherwise imprinted with a legend substantially in the following form:
THE COMPANY WILL FURNISH TO EACH HOLDER OF ITS SERIES A CONVERTIBLE
PREFERRED STOCK WHO SO REQUESTS WITHOUT CHARGE A COPY OF THE
CERTIFICATE OF DESIGNATION SETTING FORTH THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF SUCH STOCK AND ANY OTHER CLASS OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
28
Upon the earlier of (i) registration for resale pursuant to the
Registration Rights Agreement or (ii) Rule 144(k) becoming available the Company
shall (A) deliver to the transfer agent for the Common Stock (the "Transfer
Agent") irrevocable instructions that the Transfer Agent shall reissue a
certificate representing shares of Common Stock without legends upon receipt by
such Transfer Agent of the legended certificates for such shares, together with
either (1) a customary representation by the Purchaser that Rule 144(k) applies
to the shares of Common Stock represented thereby or (2) a statement by the
Purchaser that such Purchaser has sold the shares of Common Stock represented
thereby in accordance with the Plan of Distribution contained in the
Registration Statement, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the Securities Act. From and
after the earlier of such dates, upon any Purchaser's written request, the
Company shall promptly cause certificates evidencing the Purchaser's Securities
to be replaced with certificates which do not bear such restrictive legends, and
Warrant Shares subsequently issued upon due exercise of the Warrants shall not
bear such restrictive legends provided the provisions of either clause (i) or
clause (ii) above, as applicable, are satisfied with respect to such Warrant
Shares. When the Company is required to cause unlegended certificates to replace
previously issued legended certificates, if unlegended certificates are not
delivered to an Purchaser within three (3) Business Days of submission by that
Purchaser of legended certificate(s) to the Transfer Agent as provided above (or
to the Company, in the case of the Warrants), the Company shall be liable to the
Purchaser for liquidated damages in an amount equal to 1.5% of the aggregate
purchase price of the Securities evidenced by such certificate(s) for each
thirty (30) day period (or portion thereof) beyond such three (3) Business Day
that the unlegended certificates have not been so delivered.
ARTICLE VI
TERMINATION
Section 6.1 TERMINATION OF OBLIGATIONS TO EFFECT CLOSING.
(a) The obligations of the Company, on the one hand, and the
Purchasers, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and
the Purchasers;
(ii) By the Company if any of the conditions set forth in
Section 4.1 shall have become incapable of fulfillment, and shall not
have been waived by the Company;
(iii) By a Purchaser (with respect to itself only) if any
of the conditions set forth in Section 4.2. shall have become
incapable of fulfillment, and shall not have been waived by such
Purchaser; or
29
(iv) By either the Company or any Purchaser (with respect
to itself only) if the Closing has not occurred on or prior to
February 3, 2006;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
Section 6.2 EFFECT OF TERMINATION. In the event of termination by the
Company or any Purchaser, written notice thereof shall forthwith be given to the
other parties and the other Purchasers shall have the right to terminate their
obligations to effect the Closing upon written notice to the Company and the
other Purchasers. If this Agreement is terminated as provided in Section 6.1
herein, this Agreement shall become void and of no further force and effect,
except for Sections 8.1 and 8.2, and Article VII herein. Nothing in this Section
6.2 shall be deemed to release the Company, Falcon or any Purchaser from any
liability for any breach under this Agreement or the other Transaction
Documents, or to impair the rights of the Company or such Purchaser to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents.
ARTICLE VII
INDEMNIFICATION
Section 7.1 GENERAL INDEMNITY. The Company and Falcon jointly and
severally agree to indemnify and hold harmless each Purchaser (and its
respective directors, officers, employees, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by each Purchaser or any such person as a
result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company or Falcon herein. The Purchasers severally but not
jointly agree to indemnify and hold harmless the Company and its directors,
officers, employees, affiliates, agent, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company or any such person as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchasers herein.
Section 7.2 INDEMNIFICATION PROCEDURE. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; PROVIDED, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
30
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify such person in writing of the indemnifying party's election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, which
consent may not be unreasonably withheld, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. If
the indemnifying party fails or refuses to promptly assume the defense of any
such claim, proceeding or action, then the indemnification required by this
Article VII shall be made by periodic payments of the amount thereof during the
course of investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred, so long as the indemnified party
irrevocably agrees to refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (a) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (b) any liabilities the indemnifying party
may be subject to pursuant to applicable law.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 FEES AND EXPENSES. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. In addition,
the Company shall pay all reasonable fees and expenses incurred by each
Purchaser in connection with any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents or incurred in connection
with the enforcement of this Agreement and any of the other Transaction
Documents, including, without limitation, all reasonable attorneys' fees,
disbursements and expenses.
31
Section 8.2 SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company, Falcon and the Purchasers acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement or the other Transaction Documents were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or
the other Transaction Documents and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) The Company, Falcon and each Purchaser (i) hereby
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York and the courts of the State of New
York located in New York County, for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby, and
(ii) hereby waive, and agree not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
each such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. The Company, Falcon and each Purchaser consent to process being served
in any such suit, action or proceeding by mailing a copy thereof 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 in this Section 8.2 shall affect or limit any right to serve
process in any other manner permitted by law. The Company, Falcon and the
Purchasers hereby agree that the prevailing party in any suit, action or
proceeding arising out of or relating to the Shares, this Agreement, the
Registration Rights Agreement or the Warrants, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party. EACH OF
THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION
WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.
Section 8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the
Transaction Documents, the Exchange Documents and the Purchaser Transaction
Documents, including the schedules and Exhibits hereto and thereto, set forth
the entire understanding and agreement of the parties with respect to the
matters covered hereby and, except as specifically set forth herein or in any of
the Transaction Documents, the Exchange Documents or Purchaser Transaction
Documents, none of the Company, Falcon or any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
This Agreement, the Exchange Documents, the Transaction Documents, the Exchange
Documents and the Purchaser Transaction Documents supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the Company, Falcon and the Purchasers
and their permitted assigns owning of record at least a majority in interest of
the then-outstanding Securities issuable hereunder, and no provision hereof may
be waived other than by
32
a written instrument signed by the party against whom enforcement of any such
waiver is sought. No amendment to this Agreement shall be effective to the
extent that it applies to less than all of the holders of the Shares then
outstanding or violates any provision of the Delaware General Corporation Law.
No consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents or holders of Shares, as the case may be.
Section 8.4 NOTICES. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be deemed given and received (a) upon hand delivery or delivery by
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received), or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to Falcon or the
Company: Strong Technical Inc.
c/o Henan Zhongpin Food Share Co., Ltd.
00 Xxxxxxxx Xxxx
Xxxxxxx Xxxx, Xxxxx Province
The People's Republic of China
Attention: Chief Executive Officer
Telecopier: 000 (00) 0000-0000000
Telephone: 000 (00) 0000-0000000
with copies (which copies
shall not constitute notice
to Falcon or the Company)
to: XxXxxx Xxxx Xxxx, LLC
000 Xxxxxxxx, Xxxxx 00000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxx, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
33
and to: Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
If to any Purchaser:
At the address of such Purchaser set forth
on EXHIBIT A to this Agreement.
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party or parties hereto in accordance with the provisions of this Section
8.4.
Section 8.5 WAIVERS. No waiver by any party 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 other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 8.6 HEADINGS. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. After the Closing, the assignment by a party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement.
Section 8.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person (other than indemnified parties, as contemplated
by Article VII).
Section 8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 SURVIVAL. The representations and warranties of the
Company and Falcon contained in Sections 2.1(o), 2.1(s), 2.2(l) and 2.2(p) shall
survive until the expiration of the applicable statutes of limitations, and
those contained in Article II, with the exception of Sections 2.1(o), 2.1(s),
2.2(l) and 2.2(p), shall survive the execution and delivery hereof and the
Closing until the date two (2) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
34
Section 8.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 8.12 PUBLICITY. Each of the Company and Falcon agrees that it
will not disclose, and will not include in any public announcement, the names of
the Purchasers without the consent of the Purchasers in accordance with Section
8.3, which consent shall not be unreasonably withheld or delayed, or unless and
until such disclosure is required by law, rule or applicable regulation, and
then only to the extent of such requirement; provided, however, that nothing in
this Section 8.12 shall prohibit the inclusion of the name of any Purchaser in
the Registration Statement or in any exhibits to filings made with the
Commission in respect to the transactions contemplated by this Agreement in
accordance with the Company's periodic filing requirements under the Exchange
Act.
Section 8.13 SEVERABILITY. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 8.14 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of any party hereto, each other party hereto shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this and the other Transaction Documents.
Section 8.15 INDEPENDENT NATURE OF PURCHASER'S OBLIGATIONS AND RIGHTS.
The obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement. The decision of each Purchaser to purchase
Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, property, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Purchaser or by any agent or employee of any other Purchaser. Nothing
contained herein, and no action taken by any Purchaser pursuant thereto, shall
be deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Investors
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by this Agreement. Each Purchaser acknowledges
that no other Purchaser has acted as agent for such Purchaser in connection with
making its
35
investment hereunder and that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary for any
other Investor to be jointed as an additional party in any proceeding for such
purpose. The Company has elected to provide all Purchasers with the same terms
and form of this Agreement for the convenience of the Company.
Section 8.16 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. (a) Each
of the Company and Falcon consents to the non-exclusive jurisdiction of the
federal and state courts sitting in the Borough of Manhattan, The City of New
York, United States, and any appellate court from any thereof, and waives any
immunity from the jurisdiction of such courts over any suit, action or
proceeding that may be brought in connection with this Agreement or any of the
other Transaction Documents. Each of the Company and Falcon irrevocably waives,
to the fullest extent permitted by law, any objection to any suit, action, or
proceeding that may be brought in connection with this Agreement or any of the
other Transaction Documents in such courts whether on the grounds of venue,
residence or domicile or on the ground that any such suit, action or proceeding
has been brought in an inconvenient forum. Each of the Company and Falcon agrees
that the final judgment in any such suit, action or proceeding brought in such
court shall be conclusive and binding upon the Company or Falcon, as the case
may be, and may be enforced in any court to the jurisdiction of which the
Company or Falcon, as the case may be, is subject by a suit upon such judgment;
PROVIDED that service of process is effected upon the Company or Falcon, as the
case may be, in the manner provided by this Agreement. Notwithstanding the
foregoing, any suit, action or proceeding brought in connection with this
Agreement or any of the other Transaction Documents may be instituted in any
other court of competent jurisdiction.
(b) Each of the Company and Falcon agrees that service of all
writs, process and summonses in any suit, action or proceeding brought in
connection with this Agreement or any of the other Transaction Documents against
the Company or Falcon in any court of the State of New York or any United States
federal court sitting in the Borough of Xxxxxxxxx, Xxx Xxxx Xxxx, Xxx Xxxx,
Xxxxxx Xxxxxx, may be made upon XxXxxx Xxxx Xxxx LLC at 000 Xxxxxxxx, Xxxxx
00000, Xxx Xxxx, Xxx Xxxx 00000, whom each of the Company or Falcon irrevocably
appoints as its authorized agent for service of process. Each of the Company and
Falcon represents and warrants that XxXxxx Xxxx Chan LLC has agreed to act as
the Company's and Falcons' agent for service of process. Each of the Company and
Falcon agrees that such appointment shall be irrevocable so long as any of the
Securities remain outstanding or until the irrevocable appointment by the
Company and Falcon of a successor in The City of New York as its authorized
agent for such purpose and the acceptance of such appointment by such successor.
Each of the Company and Falcon further agrees to take any and all action,
including the filing of any and all documents and instructions, that may be
necessary to continue such appointment in full force and effect as aforesaid. If
XxXxxx Xxxx Xxxx LLC shall cease to act as the Company's or Falcon's agent for
service of process, the Company or Falcon, as the case may be, shall appoint
without delay another such agent and provide prompt written notice to the
Purchasers of such appointment. With respect to any such action in any court of
the State of
36
New York or any United States federal court in the Borough of Manhattan, New
York City, service of process upon XxXxxx Xxxx Chan LLC, as the authorized agent
of the Company or Falcon, as the case may be, for service of process, and
written notice of such service to the Company or Falcon, as the case may be,
shall be deemed, in every respect, effective service of process upon the Company
or Falcon, as the case may be.
(c) Nothing in this Section 8.16 shall affect the right of any
party to serve legal process in any other manner permitted by law or affect the
right of any party to bring any action or proceeding against any other party or
its property in the courts of other jurisdictions.
Section 8.17 NOTIFICATION UNDER CERTIFICATION OF DESIGNATION. Each of
Special Situations Private Equity Fund, L.P., Special Situations Fund II QP,
L.P. and Special Situations Fund III, L.P. hereby notifies the Company (and the
Secretary of the Company) that such person irrevocably elects not to have the
provisions of Subsection E.5(i) of the Certificate of Designations apply to any
Shares owned or acquired by such person hereunder, and the Company hereby
acknowledges receipt of such notification and confirms that such notification is
sufficient under such Subsection and that no additional action is required by
any of such persons to opt out of the restrictions set forth in such Subsection.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
STRONG TECHNICAL INC.
By: /s/ Xxxxxxx Xxxx
-------------------------------------
Name: Xxxxxxx Xxxx
Title: Authorized Representative
FALCON LINK INVESTMENT LIMITED
By: /s/ Xxxxxxx Xxxx
-------------------------------------
Name: Xxxxxxx Xxxx
Title: Authorized Representative
AMARANTH GLOBAL EQUITIES MASTER FUND LIMITED
By: Amaranth Advisors, L.L.C., its Trading
Advisor
By: /s/ Xxxx Xxxxxxx
-----------------------------
Name: Xxxx Xxxxxxx
Title: Authorized Signatory
37
ATLAS CAPITAL MASTER FUND LP
By: /s/ Xxxxxx Xxxxxx
-----------------------------
Name: Xxxxxx Xxxxxx
Title: Managing Director
ATLAS CAPITAL (Q.P.), LP
By: /s/ Xxxxxx Xxxxxx
-----------------------------
Name: Xxxxxx Xxxxxx
Title: Managing Director
ATLAS CAPITAL OFFSHORE EXEMPT FUND, LTD.
By: /s/ Xxxxxx Xxxxxx
-----------------------------
Name: Xxxxxx Xxxxxx
Title: Managing Director
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By: /s/ Xxxxxxx Xxxxxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President
Name: XXXX Capital Group, Inc.
Title: Investment Adviser
CRESTVIEW CAPITAL MASTER LLC
By: /s/ Xxxxxx Xxxx
-----------------------------
Name: Xxxxxx Xxxx
Title: Managing Partner
D.H. VERMOEGENSVERWALTUNG -
UND BETEILIGUNGSGESELLSCHAFT MBH
By: /s/ Xxxx Xxxxx
-----------------------------
Name: Xxxx Xxxxx
Title: Managing Director
38
JAYHAWK CHINA FUND (CAYMAN), LTD.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: Chief Financial Officer
PINNACLE CHINA FUND, L.P.
By: /s/ Xxxxx X. Xxxx
-----------------------------
Name: Xxxxx X. Xxxx
Title: Sole Member, Kitt China Management,
L.L.C., the Manager of Pinnacle
China Management, L.L.C., the
General Partner of Pinnacle China
Advisers, L.P., the General Partner
of Pinnacle China Fund, L.P.
RENAISSANCE US GROWTH INVESTMENT TRUST PLC
By: /s/ Xxxxxxx Xxxxxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: President
Name: XXXX Capital Group, Inc.
Title: Investment Manager
/s/ Xxxxxxx Xxxx
--------------------------------
XXXXXXX XXXX
SANDOR CAPITAL MATER FUND, LP
By: /s/ Xxxx X. Xxxxx
-----------------------------
Name: Xxxx X. Xxxxx
Title: General Partner
XXXXXXXXX PARTNERS, LP
By: /s/ Xxxxxx Xxxxxxx
-----------------------------
Name: Xxxxxx Xxxxxxx
Title: Managing Partner
39
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ Xxxxx Greenhouse
-----------------------------
Name: Xxxxx Greenhouse
Title: Managing Director
SPECIAL SITUATIONS FUND III QP, L.P.
By: /s/ Xxxxx Greenhouse
-----------------------------
Name: Xxxxx Greenhouse
Title: Managing Director
SPECIAL SITUATIONS FUND III, L.P.
By: /s/ Xxxxx Greenhouse
-----------------------------
Name: Xxxxx Greenhouse
Title: Managing Director
SRB GREENWAY OFFSHORE OPERATING FUND, L.P.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: Member
SRB GREENWAY CAPITAL, L.P.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: Member
SRB GREENWAY CAPITAL (QP), L.P.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: Member
40
VISION OPPORTUNITY MASTER FUND, LTD.
By: /s/ Xxxx Xxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxx
Title: Managing Partner
WS OPPORTUNITY FUND INTERNATIONAL, LTD.
By: WS Ventures Management, L.P.,
as agent and attorney-in-fact
By: WSV Management, L.L.C.,
General Partner
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxx
Title: Member
WS OPPORTUNITY FUND, L.P.
By: WS Ventures Management, L.P.,
as agent and attorney-in-fact
By: WSV Management, L.L.C.,
General Partner
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxx
Title: Member
WS OPPORTUNITY FUND (QP), L.P.
By: WS Ventures Management, L.P.,
as agent and attorney-in-fact
By: WSV Management, L.L.C.,
General Partner
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxx
Title: Member
41
EXHIBIT A
LIST OF PURCHASERS
NUMBER OF DOLLAR
NAMES AND ADDRESSES OF NUMBER OF SHARES WARRANTS AMOUNT
PURCHASERS PURCHASED PURCHASED OF INVESTMENT
---------- --------- --------- -------------
Pinnacle China Fund, L.P. 1,500,000 26,511,750 $6,000,000
0000 Xxxxxxx Xxxx Xxxx
Xxxxx 000
Xxxxx, XX 00000
Amaranth Global Equities Master Fund Limited 250,000 4,418,625 $1,000,000
c/o Dundee Leeds Management Services (Cayman) Ltd.
Waterfront Centre
28 N. Church St, 2nd Fl
Xxxxxx Town, Grand Cayman
Cayman Islands, British West Indies
Atlas Capital Master Fund LP 283,750 5,015,139 $1,135,000
c/o Admiral Administration
Admiral Financial Center, 0xx Xxxxx
00 Xxxx Xxxxxx
Box 32021
SMB
Grand Cayman, Cayman Islands
Atlas Capital (Q.P.), L.P. 172,000 3,040,014 $688,000
000 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Atlas Capital Offshore Exempt Fund, Ltd. 44,250 782,097 $177,000
c/o Admiral Administration
Admiral Financial Center, 0xx Xxxxx
00 Xxxx Xxxxxx
Box 32021
SMB
Grand Cayman, Cayman Islands
BFS US Special Opportunities Trust PLC 250,000 4,418,625 $1,000,000
Front National Bank
000 X. Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx T-8
Crestview Capital Master LLC 250,000 4,418,625 $1,000,000
00 Xxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxx XX 00000
A-1
NUMBER OF DOLLAR
NAMES AND ADDRESSES OF NUMBER OF SHARES WARRANTS AMOUNT
PURCHASERS PURCHASED PURCHASED OF INVESTMENT
---------- --------- --------- -------------
D.H. Vermoegensverwaltung - und 1,250,000 22,093,125 $5,000,000
Beteiligungsgesellschaft mbH
Xx xx Xxx 0
00000 Xxxxxxxx
Xxxxxxx
Jayhawk China Fund (Cayman), Ltd. 500,000 8,837,250 $2,000,000
c/o Genesis Fund Service Limited
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx Xxxxxxx, XX 00000
Renaissance US Growth Investment Trust PLC 250,000 4,418,625 $1,000,000
Front National Bank
000 X. Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx T-8
Xxxxxx, XX 00000
Xxxxxxx X. Xxxx 75,000 1,325,588 $300,000
000 Xxxxxxx Xxxx Xxxx, Xxx. 00-X0
Xxx Xxxx, Xxx Xxxx 00000
Sandor Capital Master Fund, LP 125,000 2,209,313 $500,000
0000 Xxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
Xxxxxxxxx Partners, LP 437,500 7,732,594 $1,750,000
0000 Xxxxx Xxxxx Xxxxxx
Xxxxxx, XX 00000
Special Situations Private Equity Fund, L.P. 214,500 3,791,180 $858,000
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Special Situations Fund III QP, L.P. 492,750 8,709,110 $1,971,000
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Special Situations Fund III, L.P. 42,750 755,585 $171,000
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
SRB Greenway Offshore Operating Fund, L.P. 6,674 117,960 $26,700
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
A-2
NUMBER OF DOLLAR
NAMES AND ADDRESSES OF NUMBER OF SHARES WARRANTS AMOUNT
PURCHASERS PURCHASED PURCHASED OF INVESTMENT
---------- --------- --------- -------------
SRB Greenway Capital, L.P. 13,326 235,530 $53,300
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
SRB Xxxxxxxx Capital (QP), L.P. 105,000 1,855,823 $420,000
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
Vision Opportunity Master Fund, Ltd. 450,000 7,953,525 $1,800,000
000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
WS Opportunity Fund International, Ltd. 95,000 1,679,078 $380,000
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
WS Opportunity Fund, L.P. 55,000 972,098 $220,000
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
WS Opportunity Fund (QP), L.P. 37,500 662,794 $150,000
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
A-3
EXHIBIT B
---------
FORM OF WARRANT
B-1
WARRANT
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS IN RELIANCE ON EXEMPTIONS FROM
REGISTRATION REQUIREMENTS UNDER SAID LAWS, AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
STRONG TECHNICAL INC.
WARRANT FOR THE PURCHASE OF UP TO ____ SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE
NO. [____] ____ SHARES
THIS CERTIFIES that, for value received, _____________________ with an
address at _____________________________________________________________________
(including any transferee, the "Holder"), is entitled to subscribe for and
purchase from Strong Technical Inc., a Delaware corporation (the "Company"),
upon the terms and conditions set forth herein, at any time or from time to time
before 5:00 P.M., New York time, on January 30, 2011 (the "Exercise Period"), up
to ___ (___) shares of Common Stock at an initial exercise price per share equal
to $0.1414467, subject to adjustment pursuant to the terms hereof (the "Exercise
Price"). As used herein, the term "this Warrant" shall mean and include this
Warrant and any Warrant or Warrants hereafter issued as a consequence of the
exercise or transfer of this Warrant in whole or in part. This Warrant is one of
a series of warrants of like tenor issued by the Company pursuant to a
Securities Purchase Agreement, dated as of January 30, 2006 (the "Securities
Purchase Agreement") among the Company, Falcon Link Investment Limited and the
purchasers named therein and initially covering an aggregate of ___ shares of
Common Stock (collectively, the "Company Warrants").
The number of shares of Common Stock issuable upon exercise of this
Warrant (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. (a) This Warrant may be exercised during the Exercise Period
as to all or a lesser number of whole Warrant Shares by the surrender of this
Warrant (with the Exercise Form attached hereto duly executed) to the Company at
its office c/o, Henan Zhongpin Food Share Co., Ltd., 00 Xxxxxxxx Xxxx, Xxxxxxx
Xxxx, Xxxxx Xxxxxxxx, The People's Republic of China, Attention: Secretary, or
at such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised.
(b) This Warrant may also be exercised by the Holder through
a cashless exercise, as described in this Section 1(b). This Warrant may be
exercised, in whole or in part, by (i) the delivery to the Company of a duly
executed Exercise Form specifying the number of Warrant Shares to be applied to
such exercise, and (ii) the surrender to a common carrier for overnight delivery
to the Company, or as soon as practicable following the date the Holder delivers
the Exercise Form to the Company, of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction). The number of shares of Common Stock to be issued upon exercise of
this Warrant pursuant to this Section 1(b) shall equal the value of this
Warrant (or the portion thereof being canceled) computed as of the date of
delivery of this Warrant to the Company using the following formula:
X = Y(A-B)
------
A
where:
X = the number of shares of Common Stock to be issued to the
Holder under this Section 1(b);
Y = the number of Warrant Shares identified in the Exercise Form
as being applied to the subject exercise;
A = the Current Market Price on such date; and
B = the Exercise Price on such date
For purposes of this Section 1(b), the "CURRENT MARKET PRICE" per share
of Common Stock on any day shall mean: (i) if the principal trading market for
such securities is a national or regional securities exchange, the closing price
on such exchange on such day; or (ii) if sales prices for shares of Common Stock
are reported by the NASDAQ National Market System or NASDAQ Capital Market (or a
similar system then in use), the last reported sales price (regular way) so
reported on such day; or (iii) if neither (i) nor (ii) above are applicable, and
if bid and ask prices for shares of Common Stock are reported in the
over-the-counter market by NASDAQ (or, if not so reported, by the National
Quotation Bureau), the average of the high bid and low ask prices so reported on
such day. Notwithstanding the foregoing, if there is no reported closing price,
last reported sales price, or bid and ask prices, as the case may be, for the
day in question, then the Current Market Price shall be determined as of the
latest date prior to such day for which such closing price, last reported sales
price, or bid and ask prices, as the case may be, are available, unless such
securities have not been traded on an exchange or in the over-the-counter market
for 30 or more days immediately prior to the
2
day in question, in which case the Current Market Price shall be determined in
good faith by, and reflected in a formal resolution of, the Board of Directors
of the Company.
The Company acknowledges and agrees that this Warrant was issued on
January 30, 2006 (the "Issuance Date"). Consequently, the Company acknowledges
and agrees that, if the Holder conducts a cashless exercise pursuant to this
Section 1(b), the period during which the Holder held this Warrant may, for
purposes of Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Act"), be "tacked" to the period during which the Holder holds the Warrant
Shares received upon such cashless exercise.
Notwithstanding the foregoing, the Holder may conduct a cashless
exercise pursuant to this Section 1(b) only after the first anniversary of the
Issuance Date, and then only in the event that a registration statement covering
the resale of the Warrant Shares is not then effective and available for resales
at the time that the Holder wishes to conduct such cashless exercise.
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
If by the third trading day following delivery of an Exercise
Form ("Delivery Date") the Company fails to deliver the required number of
Warrant Shares in the manner required pursuant to this Section 2, then the
Holder will have the right to rescind such exercise.
If by the Delivery Date the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to this
Section 2, and if after such date and prior to the receipt of such Warrant
Shares, shares of Common Stock are purchased by or for the account of the Holder
to deliver in satisfaction of a sale by the Holder of the Warrant Shares which
the Holder anticipated receiving upon such exercise (a "Buy-In"), then the
Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with such exercise by (B) the closing price of the Common Stock on
the date the Exercise Form was delivered and (2) at the option of the Holder,
either reinstate the number of Warrant Shares for which such exercise was not
honored or deliver to the Holder the number of shares of Common Stock that would
have been issued had the Company timely complied with its exercise and delivery
obligations hereunder. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
3
3. (a) Any Warrants issued upon the registration of transfer or
exercise in part of this Warrant shall be numbered and shall be registered in a
Warrant Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. The transfer of this Warrant may be registered on the books of the
Company upon delivery thereof duly endorsed by the Holder or by his duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, executor, administrator, guardian or other legal representative, due
authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company may require prior
to registering any transfer of a Warrant an opinion of counsel reasonably
satisfactory to the Company that such transfer complies with the provisions of
the Act, and the rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by the
Company that neither this Warrant nor the Warrant Shares have been registered
under the Act, that this Warrant is being or has been issued and the Warrant
Shares may be issued on the basis of the statutory exemption provided by Section
4(2) of the Act or Rule 506 of Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the Securities Purchase Agreement. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Act and the rules
and regulations thereunder on the transfer of securities. In particular, the
Holder agrees that no sale, assignment or transfer of this Warrant or the
Warrant Shares issuable upon exercise hereof shall be valid or effective, and
the Company shall not be required to give any effect to any such sale,
assignment or transfer, unless (i) the sale, assignment or transfer of this
Warrant or such Warrant Shares is registered under the Act, it being understood
that neither this Warrant nor such Warrant Shares are currently registered for
sale and that the Company has no obligation or intention to so register this
Warrant or such Warrant Shares except as specifically provided for in that
certain Registration Rights Agreement dated as of January 30, 2006 by and among
the Company, the Holder and certain other parties (the "Registration Rights
Agreement"), or (ii) this Warrant or such Warrant Shares are sold, assigned or
transferred in accordance with all the requirements and limitations of Rule 144
under the Act, it being understood that Rule 144 is not available at the time of
the original issuance of this Warrant for the sale of this Warrant or such
Warrant Shares and that there can be no assurance that Rule 144 sales will be
available at any subsequent time, or (iii) such sale, assignment or transfer is
otherwise exempt from registration under the Act in the opinion of counsel
reasonably acceptable to the Company.
4
4. The Company shall at all times reserve and keep available out
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase all Warrant Shares granted pursuant
to the Warrants, such number of shares of Common Stock as shall, from time to
time, be sufficient therefor. The Company covenants that all shares of Common
Stock issuable upon exercise of this Warrant, upon receipt by the Company of the
full Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation,
then, in each case, the Exercise Price and the number of Warrant Shares issuable
upon exercise of this Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, shall be proportionately adjusted so that the Holder after
such time shall be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for
the issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the then applicable Exercise Price per share on such
record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Exercise Price and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible or exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Exercise Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to warrants exercised after such expiration), to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of
such rights, options, or warrants been made upon the basis of delivery of only
the number of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a
5
form other than cash, the value of such consideration shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive.
(c) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the then
applicable Exercise Price at the record date for such distribution) or assets
(other than distributions and dividends payable in shares of Common Stock), or
rights, options or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 5(b) hereof), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the then applicable Exercise Price per share of Common Stock on such
record date, less the fair market value (as determined in good faith by, and
reflected in a formal resolution of, the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of the portion of
the evidences of indebtedness or assets so to be distributed, or of such rights,
options or warrants or convertible or exchangeable securities, or the amount of
such cash, applicable to one share, and the denominator of which shall be such
Exercise Price per share of Common Stock. Such adjustment shall become effective
at the close of business on such record date.
(d) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.01; provided, however, that any adjustments which
by reason of this Section 5(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 5 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(e) In any case in which this Section 5 shall require that
an adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due xxxx or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(f) Upon each adjustment of the Exercise Price as a result
of the calculations made in Sections 5(b) or 5(c) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by multiplying
(A) the number of shares purchasable upon exercise of this Warrant prior to such
adjustment by (B) a fraction, the numerator of which is the Exercise Price in
effect prior to such
6
adjustment and the denominator of which is the Exercise Price in effect
immediately after such adjustment.
(g) Whenever there shall be an adjustment as provided in
this Section 5, the Company shall promptly cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(h) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of this Warrant. If any fraction of a share would be issuable on the exercise of
this Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Exercise Price
of such share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation or combination with or
merger of the Company with or into another corporation or entity (other than a
merger, consolidation or combination in which the Company is the surviving or
continuing corporation), or in case of any sale, lease or conveyance to another
corporation, entity or person of the property and assets of any nature of the
Company as an entirety or substantially as an entirety, or any compulsory share
exchange, pursuant to which share exchange the Common Stock is converted into
other securities, cash or other property (collectively an "Extraordinary
Event"), then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions herein
specified and in lieu of the Warrant Shares immediately theretofore issuable
upon exercise of this Warrant, such shares of stock, securities or assets as
would have been issuable or payable with respect to or in exchange for a number
of Warrant Shares equal to the number of Warrant Shares immediately theretofore
issuable upon exercise of this Warrant, had such Extraordinary Event not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
(including, without limitation, provision for adjustment of the Exercise Price)
shall thereafter be applicable, as nearly equivalent as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such Extraordinary
Event unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
Extraordinary Event shall assume the obligation to deliver to the Holder, at the
last address of the Holder appearing on the books of the Company, such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to purchase, and the other obligations under this
Warrant. The provisions of this paragraph shall similarly apply to successive
Extraordinary Events.
7
(b) In case of any reclassification or change of the shares
of Common Stock issuable upon exercise of this Warrant (other than a change in
par value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation, combination
or merger of another corporation or entity into the Company in which the Company
is the continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Warrant solely the kind and amount of shares of stock and other securities,
property or cash, or any combination thereof receivable upon such
reclassification, change, consolidation, combination or merger by a holder of
the number of shares of Common Stock for which this Warrant might have been
exercised immediately prior to such reclassification, change, consolidation,
combination or merger. Thereafter, appropriate provision shall be made for
adjustments, which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, combinations, mergers, sales, leases or
conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) issue any rights, warrants or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants or other securities; or
(c) effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease or conveyance
of property or other Extraordinary Event; or
(d) effect any liquidation, dissolution or winding-up of the
Company; or
(e) take any other action which would cause an adjustment to
the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined, (ii) the date on which any
such reclassification, change of
8
outstanding shares of Common Stock, consolidation, merger, sale, lease,
conveyance of property, liquidation, dissolution or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up, or (iii) the date of such
action which would require an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the exercise
of this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. Unless registered pursuant to the Registration Rights Agreement,
the Warrant Shares issued upon exercise of this Warrant shall be subject to a
stop transfer order and the certificate or certificates evidencing such Warrant
Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH
SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS.
10. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor and denomination.
11. The holder of this Warrant shall not have solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
9
12. Any term of this Warrant may be amended or waived upon the
written consent of the Company and the holders of Company Warrants representing
at least 50% of the number of shares of Common Stock then subject to all
outstanding Company Warrants (the "Majority Holders"); provided, that (x) any
such amendment or waiver must apply to all Company Warrants; and (y) the number
of Warrant Shares subject to this Warrant, the Exercise Price and the Exercise
Period may not be amended, and the right to exercise this Warrant may not be
altered or waived, without the written consent of the Holder.
13. This Warrant has been negotiated and consummated in the State of
New York and shall be governed by, and construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles governing conflicts of law. The Company and,
by accepting this Warrant, the Holder, each irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Warrant and the transactions contemplated hereby. Service of process
in connection with any such suit, action or proceeding may be served on each
party hereto anywhere in the world by the same methods as are specified for the
giving of notices under the Securities Purchase Agreement. The Company and, by
accepting this Warrant, the Holder, each irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court. The Company and, by accepting this Warrant, the
Holder, each irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS
ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY
IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS
BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
[14. The Company shall not effect the exercise of this Warrant, and
no person who is a holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such person
(together with such person's affiliates) would beneficially own in excess of
9.999% of the shares of the Common Stock outstanding immediately after giving
effect to such exercise. For purposes of the foregoing sentence, the aggregate
number of shares of Common Stock beneficially owned by such person and its
affiliates shall include, without limitation, the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such person and its
affiliates (including, without limitation, shares of Preferred Stock, any
debentures, convertible notes or other convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act. For purposes of this Warrant, in determining
the number of outstanding
10
shares of Common Stock, a Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form 10-Q, Form 10-K
or other public filing with the Commission, as the case may be, (2) a more
recent public announcement by the Company, or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of the
Holder of this Warrant, the Company shall within five business days confirm
orally and in writing to the Holder of this Warrant the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company by the Holder of this Warrant and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. In effecting the exercise of this Warrant, the
Company shall be entitled to rely on a representation by the Holder of this
Warrant as to the number of shares that it beneficially owns for purposes of the
above 9.999% limitation calculation.]*
Dated: _______________, 200_
STRONG TECHNICAL INC.
By:__________________________________
Name:
Title:
----------
* Section 14 shall be deleted from any Warrant issued by the Company to Special
Situations Fund III QP, L.P. or its affiliates.
11
STRONG TECHNICAL INC.
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the attached Warrant.)
To: Strong Technical Inc.
00 Xxxxxxxx Xxxx
Xxxxxxx Xxxx, Xxxxx Province
The People's Republic of China
Attention: Secretary
FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and
transfers unto _______________________ that certain Warrant (Number
UW-_________) to purchase ______________ shares of Common Stock, par value
$0.001 per share, of Strong Technical Inc. (the "Company"), together with all
right, title, and interest therein, and does hereby irrevocably constitute and
appoint __________________________ attorney to transfer such Warrant on the
books of the Company, with full power of substitution.
Dated: ___________
Signature:______________________________
NOTICE:
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
STRONG TECHNICAL INC.
EXERCISE FORM
(To be completed and signed only upon exercise of the Warrants)
To: Strong Technical Inc.
00 Xxxxxxxx Xxxx
Xxxxxxx Xxxx, Xxxxx Province
The People's Republic of China
Attention: Secretary
The undersigned hereby exercises his or its rights to purchase
_________________ Warrant Shares covered by the within Warrant and tenders
payment herewith in the amount of $____________ by [tendering cash or delivering
a certified check or bank cashier's check, payable to the order of the Company]
[surrendering ________ shares of Common Stock received upon exercise of the
attached Warrant, which shares have a Current Market Price equal to such
payment] in accordance with the terms thereof, and requests that certificates
for such securities be issued in the name of, and delivered to:
________________________________________
________________________________________
________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: ____________, ______ Name: __________________________________
(Please Print)
Address: _______________________________
_______________________________
_______________________________
_______________________________
(Signature)
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under (i) the Transaction Documents and to
issue the Shares, the Conversion Shares, the Warrants and the Warrant Shares and
(ii) the Exchange Documents and to consummate the Exchange. The execution,
delivery and performance of each of the Transaction Documents and the Exchange
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors is required. Each of the Transaction Documents and the
Exchange Documents have been duly executed and delivered, and the Shares and the
Warrants have been duly executed, issued and delivered by the Company and each
of the Transaction Documents and the Exchange Documents constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its respective terms. The Shares, the Warrants, the Conversion
Shares and the Warrant Shares are not subject to any preemptive rights under the
Certificate or the Bylaws or any Material Agreement (as defined below).
3. The Shares have been duly authorized and, when delivered against
payment in full as provided in the Purchase Agreement, will be validly issued,
fully paid and nonassessable and will have the relative rights, powers and
preferences set forth in the Certificate of Designations. The Conversion Shares,
have been duly authorized and reserved for issuance, and, when delivered upon
conversion of the Shares, will be validly issued, fully paid and nonassessable.
The Warrant Shares, have been duly authorized and reserved for issuance, and,
when delivered upon exercise or against payment in full as provided in the
Warrants, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the Exchange Documents and the issuance
of the Shares, the Conversion Shares, the Warrants and the Warrant Shares and
the consummation of the Exchange do not (a) violate any provision of the
Certificate or Bylaws, (b) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any
Subsidiary is bound or to which any of the assets or properties of the Company
or any Subsidiary are subject (in each case after giving effect to the Exchange)
and identified as a material agreement in the officer's certificate attached
hereto (collectively, the "Material Agreements"), (c) create or impose a lien,
charge or encumbrance on any property of the
C-1
Company under any Material Agreement, or (d) result in a violation of any
Federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected (in each
case after giving effect to the Exchange), except, in all cases other than
violations pursuant to clauses (a) and (d) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority or any other Person on the part of the
Company is required under Federal, state or local law, rule or regulation or
under the terms of any Material Agreement in connection with the valid
execution, delivery and performance of the Transaction Documents or the Exchange
Documents, the consummation of the Exchange or the offer, sale or issuance of
the Shares, the Conversion Shares, the Warrants or the Warrant Shares other than
filings as may be required by applicable Federal and state securities laws and
regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company or any Subsidiary (after
giving effect to the Exchange) which questions the validity of any of the
Transaction Documents or the Exchange Documents or the transactions contemplated
thereby or any action taken or to be taken pursuant thereto. There is no action,
suit, claim, investigation or proceeding pending, or to our knowledge,
threatened, against or involving the Company or any Subsidiary (after giving
effect to the Exchange) or any of their respective properties or assets and
which, if adversely determined, is reasonably likely to result in a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the Company or any
Subsidiary (in each case after giving effect to the Exchange) in their
capacities as such.
7. The offer, issuance and sale of the Shares and the Warrants and the
offer, issuance and sale of the Conversion Shares and the Warrant Shares
pursuant to the Agreement and the Warrants, as applicable, are exempt from the
registration requirements of the Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing
and after giving effect to the Exchange will not be, an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
C-2
EXHIBIT D
---------
FORM OF CERTIFICATE OF DESIGNATIONS
D-1
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
STRONG TECHNICAL INC.
---------------------------------------------------------------
Pursuant to the provisions of Section 151
of the General Corporation Law of
the State of Delaware
---------------------------------------------------------------
Strong Technical Inc. (the "CORPORATION"), a corporation organized and
validly existing under the General Corporation Law of the State of Delaware,
hereby certifies that the following resolutions have been duly adopted by the
Corporation's Board of Directors at a duly held meeting on January 30, 2006
pursuant to authority conferred upon the Board of Directors by the Corporation's
Certificate of Incorporation:
WHEREAS, the Certificate of Incorporation of the
Corporation (the "CERTIFICATE"), authorizes a class of stock
designated as Preferred Stock (the "PREFERRED STOCK"),
comprising 20,000,000 shares, par value $.001 per share,
provides that such Preferred Stock may be issued from time to
time in one or more series, and vests authority in the Board of
Directors within the limitations and restrictions stated in the
Certificate, to fix or alter the voting powers, designations,
preferences and relative participating, optional or other
special rights, rights and terms of redemption, the redemption
price or prices and the liquidation preferences of any series of
Preferred Stock within the limitations set forth in the General
Corporation Law;
WHEREAS, it is the desire of the Board of Directors to
designate one new series of Preferred Stock and to fix the
voting powers, designations, preferences and rights, and the
qualifications, limitations or restrictions thereof, as provided
herein.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation
does hereby designate 7,631,250 shares of the authorized but
unissued Preferred Stock as Series A Convertible Preferred Stock
(the "SERIES A PREFERRED") and does hereby fix the powers,
preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions
of the Series A Preferred to be as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
A. DESIGNATION. 7,631,250 shares of the authorized, but
undesignated preferred stock, $.001 par value per share, of the Corporation are
hereby constituted as a series of the preferred stock designated as "Series A
Convertible Preferred Stock" ("SERIES A PREFERRED"). The original issue price of
the Series A Preferred shall be $4.00 per share (the "ORIGINAL ISSUE PRICE"), as
the same may be equitably adjusted after the date of issuance for any stock
splits, combinations, consolidations, recapitalizations, reorganizations,
reclassifications, stock distributions, stock dividends or other similar events
(such adjustments described herein, "AS ADJUSTED"). The date on which the
Corporation initially issues any share of Series A Preferred shall be deemed to
be its "DATE OF ISSUANCE" regardless of the number of times transfer of such
share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
share. The Series A Preferred shall have rights and preferences relative to all
other classes and series of the capital stock of the Corporation as set forth
herein.
B. DIVIDENDS. The holders of the Series A Preferred shall be
entitled to receive, when and as declared by the Board of Directors, dividends
in such amounts as may be determined by the Board of Directors from time to time
out of funds legally available therefor. No dividends (other than those payable
solely in Common Stock) shall be paid on the Common Stock or any class or series
of capital stock ranking junior, as to dividends, to the Series A Preferred
during any fiscal year of the Corporation until there shall have been paid or
declared and set apart during that fiscal year for the holders of the Series A
Preferred a dividend in an amount per share equal to (i) the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock times (ii)
the amount per share of the dividend to be paid on the Common Stock.
C. PREFERENCE ON LIQUIDATION.
1. Upon the occurrence of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary (a "LIQUIDATING
EVENT"), each holder of Series A Preferred then outstanding shall be entitled to
receive, out of the assets of the Corporation available for distribution to its
stockholders, before any payment shall be made in respect of the Common Stock,
or other series of preferred stock then in existence that is outstanding and
junior to the Series A Preferred upon liquidation, an amount per share of Series
A Preferred equal to the greater of: (i) the Original Issue Price, as adjusted,
with respect to such share (the "LIQUIDATION VALUE"); or (ii) the amount the
amount that would be receivable if the Series A Preferred had been converted
into Common Stock immediately prior to such liquidation distribution, plus, in
each case, accrued and unpaid dividends. For purposes of this Subsection C.1, a
merger or consolidation involving the Corporation or sale of all or
substantially all of the Corporation's assets shall not be deemed a Liquidating
Event.
2. Written notice of any such Liquidating Event stating a
payment date, the place where such payment shall be made and the amount of each
payment in liquidation shall be given by first class mail, postage prepaid, not
less than ten (10) days prior to the payment date stated therein, to each holder
of record of the Series A Preferred at such holder's address as shown in the
records of the Corporation. If upon the occurrence of a Liquidating Event, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of
2
the Series A Preferred and all other classes or series of stock ranking on a
parity with the Series A Preferred upon liquidation the full amount to which
they shall be entitled, the holders of the Series A Preferred shall share
ratably with any other such class or series in any distribution of assets
according to the amounts that would be payable in respect of the shares held by
each of them upon such distribution if all amounts payable on or with respect to
said shares were paid in full.
D. VOTING
1. Except as otherwise expressly provided in Subsection D.2
or Section G hereof or as required by law, the holders of shares of Series A
Preferred shall vote together with the holders of Common Stock as a single
class. The holder of each share of Series A Preferred (i) shall be entitled to
the number of votes with respect to such share equal to the number of shares of
Common Stock into which such share of Series A Preferred could be converted on
the record date for the subject vote or written consent (or, if there is no such
record date, then on the date that such vote is taken or consent is effective)
and (ii) shall be entitled to notice of any stockholders' meeting, in accordance
with the Bylaws of the Corporation. Fractional votes shall not be permitted, and
any fractional voting rights resulting from the above formula (after aggregating
all shares of Common Stock into which shares of Series A Preferred held by each
holder could be converted) shall be reduced to the nearest whole number.
2. So long as the number of shares of Common Stock issuable
upon conversion of the outstanding shares of Series A Preferred is greater than
10% of the number of outstanding shares of Common Stock on a fully diluted basis
(including the conversion of all outstanding securities that are convertible
into shares of Common Stock, whether or not the conditions to such conversion,
if any, have been satisfied, and the exercise of all options or warrants to
purchase shares of Common Stock, whether or not the conditions to exercise such
purchase rights, if any, have been satisfied), the holders of record of the
shares of Series A Preferred, exclusively and as a separate class, shall be
entitled to elect one (1) director of the Corporation (the "SERIES A DIRECTOR").
Any director elected as provided in the preceding sentence may be removed
without cause by, and only by, the affirmative vote of the holders of the shares
of Series A Preferred given either at a special meeting of such stockholders
duly called for that purpose or pursuant to a written consent of stockholders.
The holders of record of the shares of Common Stock and the holders of
record of the shares of Series A Preferred, voting together as a single class
shall be entitled to elect the balance of the total number of directors of the
Corporation. At any meeting held for the purpose of electing a director, the
presence in person or by proxy of the holders of a majority of the outstanding
shares of the class or series entitled to elect such director shall constitute a
quorum for the purpose of electing such director. A vacancy in any directorship
filled by the holders of any class or series shall be filled only by vote or
written consent in lieu of a meeting of the holders of such class or series or
by any remaining director or directors elected by the holders of such class or
series pursuant to this Subsection D.2.
E. Conversion Rights
1. INITIAL CONVERSION PRICE. The "CONVERSION PRICE" of the
Series A Preferred, before any adjustment is required pursuant to Section F,
shall be $0.113157.
3
2. RIGHT TO CONVERT. Each share of Series A Preferred and
all accrued and unpaid dividends thereon shall be convertible at the option of
the holder thereof, at any time after the issuance of such share, into fully
paid and nonassessable shares of Common Stock of the Corporation. The number of
shares of Common Stock into which each share of the Series A Preferred may be
converted shall be determined by dividing the sum of the Original Issue Price
and any accrued and unpaid dividends by the Conversion Price, as may be adjusted
pursuant to Section F, in effect at the time of the conversion.
3. AUTOMATIC CONVERSION. Each share of Series A Preferred
and all accrued and unpaid dividends thereon shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such Series A Preferred (i) upon consummation of an underwritten public offering
of the Common Stock yielding at least $30 million in net proceeds to the
Corporation at a price per share (as adjusted) of at least $0.1414467, (ii) if
(a) the closing price of the Common Stock equals or exceeds $0.2828934 (as
adjusted) for the twenty (20) consecutive-trading-day period ending within two
(2) days of the date on which the Corporation provides notice of such conversion
as hereinafter provided (such date being referred to herein as the "Notice
Date") and (b) either a registration statement registering for resale the shares
of Common Stock issuable upon conversion of the Series A Preferred has been
declared effective and remains effective and available for resales for the
twenty (20)-day period immediately following the Notice Date, or Rule 144(k)
promulgated under the Securities Act of 1933, as amended, is available for the
resale of such shares, or (iii) on a date specified by vote or written consent
of the holders of at least 67% of the then-outstanding shares of Series A
Preferred. All holders of record of shares of Series A Preferred will be given
at least ten (10) days' prior written notice of the date fixed for automatic
conversion thereof pursuant to clause (ii) or (iii) above and the event causing
the automatic conversion of the Series A Preferred into Common Stock. Notice of
automatic conversion of the Series A Preferred pursuant to clause (i) above
shall be given promptly following such conversion. Such notice shall be sent by
first class mail, postage prepaid, to each holder of record of Series A
Preferred at such holder's address as shown in the records of the Corporation.
Each holder of shares of the Series A Preferred shall surrender the certificate
or certificates for all such shares to the Corporation at the place designated
in such notice and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled.
4. MECHANICS OF CONVERSION.
(i) The holder of any shares of Series A Preferred
may exercise the conversion rights as to such shares or any part thereof
by delivering to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A
Preferred, or at the principal office of the Corporation or at such
other place as may be designated by the Corporation, the certificate or
certificates for the shares to be converted, duly endorsed for transfer
to the Corporation or accompanied by a written instrument or instruments
of transfer (if required by it), accompanied by written notice stating
that the holder elects to convert all or a number of such shares
represented by the certificate or certificates. Such notice shall also
state such holder's name or the names of the nominees in which such
holder wishes the certificate or certificates for shares of Common Stock
to be issued. Conversion shall be deemed to have been effected on the
date when such delivery is made, and such date is referred to herein as
the "CONVERSION DATE." As promptly
4
as practicable thereafter (but in any event within three (3) business
days thereafter), the Corporation shall issue and deliver to such
holder, at such office or other place designated by the Corporation, a
certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check for cash with respect
to any fractional interest in a share of Common Stock as provided in
Subsection E.4 (ii). The holder shall be deemed to have become a
stockholder of record on the applicable Conversion Date. Upon conversion
of only a portion of the number of shares of Series A Preferred
represented by a certificate surrendered for conversion, the Corporation
shall issue and deliver to the holder of the certificate so surrendered
for conversion, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred not so
converted.
(ii) No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of Series A Preferred. If more
than one share of Series A Preferred shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series A Preferred so surrendered.
Instead of any fractional shares of Common Stock that would otherwise be
issuable upon conversion of any shares of Series A Preferred, the
Corporation shall pay a cash adjustment in respect of such fractional
interest equal to the value of such fractional interest based upon the
Current Market Price of the Common Stock on the Conversion Date. For
purposes of this Subsection E.(ii), the "CURRENT MARKET PRICE" per share
of Common Stock on any day shall mean: (i) if the principal trading
market for such securities is a national or regional securities
exchange, the closing price on such exchange on such day; or (ii) if
sales prices for shares of Common Stock are reported by the NASDAQ
National Market System or NASDAQ Capital Market (or a similar system
then in use), the last reported sales price (regular way) so reported on
such day; or (iii) if neither (i) nor (ii) above are applicable, and if
bid and ask prices for shares of Common Stock are reported in the
over-the-counter market by NASDAQ (or, if not so reported, by the
National Quotation Bureau), the average of the high bid and low ask
prices so reported on such day. Notwithstanding the foregoing, if there
is no reported closing price, last reported sales price, or bid and ask
prices, as the case may be, for the day in question, then the Current
Market Price shall be determined as of the latest date prior to such day
for which such closing price, last reported sales price, or bid and ask
prices, as the case may be, are available, unless such securities have
not been traded on an exchange or in the over-the-counter market for 30
or more days immediately prior to the day in question, in which case the
Current Market Price shall be determined in good faith by, and reflected
in a formal resolution of, the Board of Directors of the Corporation.
(iii) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Preferred pursuant
hereto. The Corporation shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which
the Series A Preferred so converted was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue
has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
5
(iv) The Corporation shall at all times reserve and
keep available, out of its authorized but unissued Common Stock, solely
for the purpose of effecting the conversion of Series A Preferred, the
full number of shares of Common Stock deliverable upon the conversion of
all Series A Preferred from time to time outstanding. The Corporation
shall from time to time use its best efforts to obtain necessary
director and stockholder approvals, in accordance with the laws of the
State of Delaware, to increase the authorized amount of its Common Stock
if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all of the
shares of Series A Preferred at the time outstanding, and shall take all
such actions as are necessary to increase such authorized amount of
Common Stock upon obtaining such approvals.
(v) If any shares of Common Stock to be reserved for
the purpose of conversion of shares of Series A Preferred require
registration or listing with, or approval of, any governmental
authority, stock exchange or other regulatory body under any federal or
state law or regulation or otherwise, before such shares may be validly
issued or delivered upon conversion the Corporation will in good faith
and as expeditiously as possible endeavor to secure such registration,
listing or approval, as the case may be.
(vi) All shares of Common Stock that may be issued
upon conversion of the shares of Series A Preferred will upon issuance
by the Corporation be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance
thereof.
(viii) The Corporation will not, by amendment of the
Certificate or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section E and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series A Preferred
against impairment.
(ix) If by the third trading day after a Conversion
Date the Corporation fails to deliver the required number of shares of
Common Stock underlying the Series A Preferred in the manner required
pursuant to this Subsection E.4, then the applicable holder of Series A
Preferred will have the right to rescind such conversion.
(x) If by the third trading day after a Conversion
Date the Corporation fails to deliver the required number of shares of
Common Stock underlying the Series A Preferred in the manner required
pursuant to this Subsection E.4, and if after such third trading day and
prior to the receipt of such shares of Common Stock, shares of Common
Stock are purchased by or for the account of the applicable holder of
Series A Preferred (in an open market transaction or otherwise) to
deliver in satisfaction of a sale by such holder of the underlying
shares of Common Stock which such holder anticipated receiving upon such
conversion (a "BUY-IN") then the Corporation shall (1) pay in cash to
such holder the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the
6
amount obtained by multiplying (A) the number of underlying shares of
Common Stock that the Corporation was required to deliver to such holder
in connection with such conversion by (13) the closing price of the
Common Stock on the Conversion Date and (2) at the option of such
holder, either reinstate the number of shares of Series A Preferred for
which such conversion was not honored or deliver to such holder the
number of shares of Common Stock that would have been issued had the
Corporation timely complied with its conversion and delivery obligations
hereunder. Any such holder of Series A Preferred shall provide the
Corporation written notice indicating the amounts payable to such holder
in respect of the Buy-In.
5. LIMITATIONS ON CONVERSION.
(i) The Corporation shall not effect the conversion of any share of
Series A Preferred, and no person who is a holder of Series A Preferred
shall have the right to convert shares of Series A Preferred into shares
of Common Stock, to the extent that after giving effect to such
conversion, such person (together with such person's affiliates) would
beneficially own in excess of 9.999% of the shares of the Common Stock
outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the aggregate number of shares of
Common Stock beneficially owned by such person and its affiliates shall
include, without limitation, the number of shares of Common Stock
issuable upon conversion of Series A Preferred with respect to which the
determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the
remaining unconverted shares of Series A Preferred beneficially owned by
such person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Corporation beneficially owned by such person and its affiliates
(including, without limitation, shares of convertible stock, any
debentures, convertible notes or other convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this Certificate of
Designation, in determining the number of outstanding shares of Common
Stock, a holder of Series A Preferred may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Corporation's
most recent Form 10-Q, Form 10-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Corporation, or (3) any other notice
by the Corporation or its transfer agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of any holder of Series A Preferred, the
Corporation shall within five business days confirm orally and in
writing to such holder of Series A Preferred the number of shares of
Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Corporation by such holder
of Series A Preferred and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. In effecting
the conversion of shares of Series A Preferred, the Corporation shall be
entitled to rely on a representation by the holder of such shares of
Series A Preferred as to the number of shares that it beneficially owns
for purposes of the above 9.999% limitation calculation. Notwithstanding
the foregoing, the provisions of this
7
Subsection E.5(i) shall not be applicable to any person who notifies the
Secretary of the Corporation in writing prior to the purchase of any
share of Series A Preferred that such person irrevocably elected not to
have such provisions apply to any shares of Series A Preferred owned by
record by such person.
(ii) If and to the extent this Subsection E.5 would
restrict the ability of a holder of Series A Preferred to convert each
share of Series A Preferred in the event of a delivery of an automatic
conversion pursuant to Subsection E.3, then notwithstanding anything to
the contrary set forth in the notice delivered to such holder of Series
A Preferred pursuant to Subsection E.3, such notice shall be deemed
automatically amended to apply only to such shares of Series A Preferred
as may be converted by such holder in accordance with this Subsection
E.5. A holder of Series A Preferred will promptly notify the Corporation
in writing following receipt of a notice if this Subsection E.5. would
restrict its conversion of shares of Series A Preferred, specifying
therein the shares of Series A Preferred so restricted.
F. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price from time
to time in effect shall be subject to adjustment from time to time as follows:
1. STOCK SPLITS, DIVIDENDS AND COMBINATIONS. In case the
Corporation shall at any time subdivide the outstanding shares of Common Stock
or shall issue a dividend in Common Stock on its outstanding Common Stock
without a corresponding adjustment with respect to the Series A Preferred, the
Conversion Price in effect immediately prior to such subdivision or the issuance
of such dividend shall be proportionately decreased, and in case the Corporation
shall at any time combined the outstanding shares of Common Stock into a lesser
number of shares of Common Stock without a corresponding adjustment with respect
to the Series A Preferred, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased, concurrently with the
effectiveness of such subdivision, dividend or combination, as the case may be.
2. NONCASH DIVIDENDS, STOCK PURCHASE RIGHTS, CAPITAL
REORGANIZATIONS AND DISSOLUTIONS. In case:
(i) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or any other distribution, other than distributions
payable in cash, or subdivisions or combinations of the Corporation's
outstanding shares of Common Stock; or
(ii) the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any class or to receive
any other rights; or
(iii) of any capital reorganization of the
Corporation, reclassification of the capital stock of the Corporation
(other than a subdivision or combination of its outstanding shares of
Common Stock), consolidation or merger of the Corporation with or into
another corporation or other entity, or of the conveyance of all or
substantially all of the assets of the Corporation to another
corporation or other entity;
8
then, and in any such case, the Corporation shall cause to be mailed to the
holders of record of the outstanding Series A Preferred, at least ten (10) days
prior to the date hereinafter specified, a notice stating the date on which (i)
a record is to be taken for the purpose of such dividend, distribution or rights
or (ii) such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up is to take place and the
date, if any is to be fixed, as of which holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance dissolution, liquidation or winding up.
G. PROTECTIVE PROVISIONS. So long as at least 1,750,000 shares of
Series A Preferred are outstanding (subject to adjustment for stock splits,
combinations and the like), in addition to any other approvals required by
applicable law, the prior consent, approval or vote of the holders of a majority
of the outstanding Series A Preferred shall be required (in addition to any
consent or approval otherwise required by law) for the Corporation to take any
of the following actions:
(1) liquidate, dissolve or wind-up the business and affairs
of the Corporation effect any Liquidation Event, or consent to or agree
to any of the foregoing;
(2) amend, alter or repeal any provision of the Certificate
(whether by merger or otherwise) so as to affect the rights, preferences
or privileges of the Series A Preferred;
(3) authorize, create, designate, establish or issue
(whether by merger or otherwise) (i) an increased number of shares of
Series A Preferred, or (ii) any other class or series of capital stock
ranking senior to or on parity with the Series A Preferred as to
dividends or upon liquidation or reclassify any shares of Common Stock
into shares having any preference or priority as to dividends or upon
liquidation superior to or on parity with any such preference or
priority of Series A Preferred;
(4) purchase or redeem, or pay or declare any dividend or
make any distribution on, any securities junior in priority to the
Series A Preferred; or
(5) make any change in the size of the Board of Directors of
the Corporation, except as may be necessary to comply with applicable
law or regulation.
H. AMENDMENT; WAIVER. Any term of the Series A Preferred may be
amended or waived upon the written consent of the Corporation and the holders of
at least a majority of the Series A Preferred then outstanding, voting together
as a single class; provided, however that the number of Conversion Shares
issuable hereunder and the Conversion Price may not be amended, and the right to
convert the Series A Preferred may not be altered or waived, without the written
consent of the holders of all of the Series A Preferred then outstanding.
I. ACTION BY HOLDERS. Any action or consent to be taken or given by
the holders of the Series A Preferred may be given either at a meeting of the
holders of the Series A Preferred called and held for such purpose or by written
consent.
9
IN WITNESS WHEREOF, Strong Technical Inc. has caused this Certificate to
be signed by ________________________, its ________________________, this 30th
day of January, 2006.
STRONG TECHNICAL INC.
By:
------------------------------------
Name:
Title:
EXHIBIT E
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
E-1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of
January 30, 2006, by and between Strong Technical Inc., a Delaware corporation
(the "Company"), and those 9 persons whose names appear on Schedule A, as such
Schedule A is amended from time to time (collectively, the "Investors").
WITNESSETH:
-----------
WHEREAS, the Company has entered into a Securities Purchase Agreement,
dated January 30, 2006, with each of the Investors (the "Purchase Agreement"),
pursuant to which each Investor has agreed to purchase units, each unit
consisting of two shares of the Company's Series A Convertible Preferred Stock,
$.001 par value per share ("Series A Preferred Stock"), and a stock purchase
warrant (a "Warrant") to purchase one share of Common Stock (defined below), for
$0.1414467, subject to adjustment; and
WHEREAS, as a condition to the consummation of the transactions
contemplated by the Purchase Agreement, the Company has agreed to grant certain
registration rights to the Investors on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below:
1.1 "Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.2 "Common Stock" shall mean the common stock, par value
$.001 per share, of the Company, or any class of securities into which the
Common Stock may be reclassified hereafter.
1.3 "Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal statute enacted hereafter, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
1.4 "Form S-1" means such form under the Securities Act as
in effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
1.5 "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
1.6 "Register," "Registered" and "Registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement by the Commission
1.7 "Registrable Securities" means the shares of Common
Stock issuable upon the conversion of the Series A Preferred Stock and/or the
exercise of the Warrants purchased pursuant to the Purchase Agreement.
1.8 "Registration Expenses" means all expenses incurred by
the Company in compliance with Section 3 of this Agreement, including, without
limitation, all registration and filing fees, listing fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, blue sky fees
and expenses, the expenses of any special audits incident to or required by any
such registration and the expense of any "comfort letters" (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
1.9 "Required Investors" means the Investors holding a
majority of the Registrable Securities.
1.10 "Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
1.11 "Selling Expenses" means all selling commissions or
underwriter's discounts applicable to the sale of Registrable Securities.
2. REGISTRATION.
2.1 The Company will file, within 70 days of the date of
this Agreement (the "Filing Date"), a registration statement on Form S-1 (or
such other form as is appropriate) registering the offer and sale of the
Registrable Securities by the holders thereof and containing the "PLAN OF
DISTRIBUTION" attached hereto as SCHEDULE B. Except for those holders of the
Company's securities with registration rights listed on SCHEDULE 2.1(w) to the
Purchase Agreement, such registration statement shall not include any shares of
Common Stock or other securities for the account of any other holder without the
prior written consent of the holders of a majority of the Registrable
Securities.
2.2 Upon the written demand of any Investor and upon any
change in the Warrant Price (as defined in the Warrants) such that additional
shares of Common Stock become issuable upon the exercise of the Warrants, the
Company shall prepare and file with the SEC one or more registration statements
on Form S-1 or amend the registration statement filed pursuant to Section 2.1
above if such registration statement has not previously been declared effective
(or, if Form S-1 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of such additional shares of Common Stock (the "ADDITIONAL SHARES"), subject to
the Required Investors' consent) covering the resale of the Additional Shares,
but only to the extent the Additional Shares are not at the time covered by an
2
effective registration statement. Such registration statement also shall cover,
to the extent allowable under the Securities Act and the rules promulgated
thereunder (including Rule 416), such indeterminate number of additional shares
of Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Additional Shares.
2.3 Promptly following the date (the "QUALIFICATION DATE")
upon which the Company becomes eligible to use a registration statement on Form
S-3 to register the Registrable Securities or Additional Shares, as applicable,
for resale, but in no event more than thirty (30) days after the Qualification
Date (the "QUALIFICATION DEADLINE"), the Company shall file a registration
statement on Form S-3 covering the Registrable Securities or Additional Shares,
as applicable (or a post-effective amendment on Form S-3 to any registration
statement on Form S-1) (a "SHELF REGISTRATION STATEMENT") and shall use
commercially reasonable efforts to cause such Shelf Registration Statement to be
declared effective as promptly as practicable thereafter.
2.4 If (a) the registration statement required by Section
2.1 is not filed by the Filing Date or is not declared effective by the
Commission within 120 days of the date of this Agreement (unless such
registration statement is subject to a partial or full review by the Commission,
in which case such date by which the registration statement must be declared
effective by the Commission shall be extended to the earlier of (i) 60 days from
the date of the first comment letter received by the Company from the Commission
or (ii) 150 days from the date of this Agreement), (b) a registration statement
required by Section 2.2 is not filed within 20 days of the date of request by
any Investor or such registration statement is not declared effective within 120
days of the date of such request (unless such registration statement is subject
to a partial or full review by the Commission, in which case such date by which
the registration statement must be declared effective by the Commission shall be
extended to the earlier of (i) 60 days from the date of the first comment letter
received by the Company from the Commission or (ii) 150 days from the date of
such request), (c) a Shelf Registration covering the Registrable Securities is
not filed by the Commission on or prior to the Qualification Deadline or
declared effective within 120 days of the Qualification Deadline (unless such
registration statement is subject to a partial or full review by the Commission,
in which case such date by which the registration statement must be declared
effective by the Commission shall be extended to the earlier of (i) 60 days from
the date of the first comment letter received by the Company from the Commission
or (ii) 150 days from the Qualification Deadline), (d) a registration statement
filed pursuant to this Agreement is not declared effective by the Commission
within five days of the date the Company receives notice from the Commission
that such registration statement will not be reviewed or is no longer subject to
further review and comments, or (e) after a registration statement filed
pursuant to this Agreement has been declared effective by the Commission, sales
cannot be made pursuant to such registration statement for any reason (including
without limitation by reason of a stop order, or the Company's failure to update
the registration statement), but excluding the inability of any Investor to sell
the Registrable Securities covered thereby due to market conditions and except
as excused pursuant to Section 2.5 below (any such failure or breach being
referred to as an "Event" and the date on which such Event occurs being referred
to as "Event Date"), then, on the Event Date and on the date of every monthly
anniversary thereof until the Event is cured, the Company shall pay to each
Investor an amount in cash, as liquidated damages and not as a penalty, equal to
1.5% of the amount paid by such Investor pursuant to the Purchase Agreement for
the Registrable Securities purchased by such
3
Investor. If the Company fails to pay any liquidated damages pursuant to this
Section 2.4 in full within three days after the date payable, the Company will
pay to the Investor interest thereon at the rate of 12% per annum (or such
lesser maximum amount that is permitted to be paid by applicable law), accruing
daily from the date such liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full. The liquidated damages pursuant to the
terms hereof shall apply on a pro-rata basis for any portion of a month prior to
the cure of an Event.
2.5 For not more than twenty (20) consecutive days or for a
total of not more than forty (40) trading days in any twelve (12) month period,
the Company may delay the disclosure of material non-public information
concerning the Company, by suspending the use of any Prospectus included in any
registration statement contemplated by this Section 2 containing such
information, the disclosure of which at the time is not, in the good faith
opinion of the Company, in the best interests of the Company (an "ALLOWED
DELAY"); provided, that the Company shall promptly (a) notify the Investors in
writing of the existence of (but in no event, without the prior written consent
of an Investor, shall the Company disclose to such Investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay, (b) advise the Investors in writing to cease all sales under any
registration statement until the end of the Allowed Delay and (c) use
commercially reasonable efforts to terminate an Allowed Delay as promptly as
practicable.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement will be borne by the Company, and all Selling Expenses will be borne
by the Investors.
4. REGISTRATION PROCEDURES.
4.1 With respect to any registration effected by the Company
pursuant to this Agreement, the Company will confirm initiation of the
registration by giving written notice of initiation and completion thereof to
all of the Investors and will, at its expense:
(a) Keep the registration statement covering the
Registrable Securities continuously effective for a period that will terminate
upon the earlier of (i) the date on which all Registrable Securities covered by
such registration statement as amended from time to time, have been sold, and
(ii) the date on which all Registrable Securities covered by such registration
statement may be sold pursuant to Rule 144(k) (the "EFFECTIVENESS PERIOD") and
advise the Investors in writing when the Effectiveness Period has expired;
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) Notify each seller of the Registrable Securities
covered by the registration statement of the declaration by the Commission of
the effectiveness of such registration statement and of any stop order issued or
threatened by the Commission in collection therewith; therewith;
4
(d) Comply with Rule 172 and, if the Company is
unable to satisfy the conditions of Rule 172, so notify the Investors and
promptly furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as an
Investor from time to time may reasonably request;
(e) Notify each seller of Registrable Securities
covered by the registration statement of the happening of any event as a result
of which the prospectus included in the 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 or incomplete in the light of the circumstances then
existing, and at the request of any such seller, prepare and file with the
Commission pursuant to Rule 424(b) and, if requested by any seller, furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(f) List all such Registrable Securities registered
in the registration on each securities exchange or automated quotation system on
which the Common Stock of the Company is then listed;
(g) Provide a transfer agent and registrar for all
Registrable Securities and a CUSIP number for all such Registrable Securities,
not later than the effective date of the registration;
(h) Make available for inspection by any Investor
and any attorney or accountant retained by any such Investor, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company s officers and directors to supply all information reasonably
requested by any such Investor, attorney or accountant in connection with the
registration statement;
(i) Furnish to each selling Investor upon request a
copy of all documents filed with and all correspondence from or to the
Commission in connection with the offering;
(j) Use its commercially reasonable efforts to
register or qualify the Registrable Securities covered by the registration
statement under the securities or "blue sky" laws of such jurisdictions within
the United States as any seller of Registrable Securities covered by the
registration statement may reasonably request, provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction; and
(k) Make available to its stockholders, as soon as
reasonably practicable, an earnings statement covering the period of at least 12
months, but not more than 18
5
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11 (a) of the Securities Act.
4.2 It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement in respect of the
Registrable Securities of any Investor that such Investor shall furnish to the
Company such information regarding itself and the Registrable Securities held by
it as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
4.3 In connection with the preparation and filing of the
registration statement under this Agreement, the Company will give the Investors
on whose behalf such Registrable Securities are to be registered and their
respective counsel and accountants the opportunity to review and make comments
to the registration statement, each prospectus included therein or filed with
the Commission, and each amendment thereof or supplement thereto, and will give
each such Investor such access to the Company's books and records and such
opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified the Company's
financial statements, as shall be necessary, in the opinion of such Investors or
their counsel, in order to conduct a reasonable and diligent investigation
within the meaning of the Securities Act.
5. INDEMNIFICATION.
5.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Investor, each of its officers, directors and
partners, and each Person, if any, controlling such Investor, against all
losses, claims, damages and liabilities (or actions, proceedings or settlements
in respect thereof), joint or several, to which they may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions, proceedings or settlements in respect thereof) arise
out of or are based upon (i) any breach by the Company of its obligations
hereunder, (ii) any untrue statement or alleged untrue statement, or any
misstatement of a material fact or alleged misstatement of a material fact
contained in the registration statement, including any prospectus, "free writing
prospectus" as defined in Rule 163 under the Securities Act, offering circular
or other document, notification or the like, or any amendments or supplements
thereto, or arise out of or are based upon the omissions or 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 violation by the Company of
applicable state and federal securities laws or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with the registration, qualification or compliance;
and will reimburse each such Investor, each of its officers, directors and
partners, and each Person, if any, controlling such Investor, for any legal or
other expenses reasonably incurred and as incurred by them in connection with
investigating or defending or settling any such loss, claim, damage, liability,
or action; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case for any such loss claim, damage, liability, or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission or misstatement or alleged misstatement made in
reliance upon and based upon written information furnished to the Company
expressly for use in connection with such registration by any such Investor or
controlling Person.
6
5.2 To the extent permitted by law, each Investor severally
but not jointly will, if Registrable Securities held by such Investor are
included in the securities as to which the registration, qualification or
compliance is being effected, indemnify and hold harmless the Company, each of
its directors and officers who have signed the registration statement, and each
Person, if any, who controls the Company (other than such Investor), against all
losses, claims, damages and liabilities (or actions, proceedings or settlements
in respect thereof) to which the Company or any such director, officer,
controlling Person, agent or attorney may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions, proceedings or settlements in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement or misstatement of a
material fact or alleged misstatement of a material fact contained in the
registration statement, including any prospectus or any amendments or
supplements thereto, 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 each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission or misstatement or alleged
misstatement was made in such registration statement, prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information with respect to such Investor furnished by such Investor expressly
for use in connection with such registration; and each such Investor will
reimburse any legal or other expenses reasonably incurred by the Company, each
of its directors and officers, and each Person controlling the Company for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such loss, claim, damage, liability, or action, in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission is made in the registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Investor and stated to be
specifically for use therein. Notwithstanding anything to the contrary contained
herein, no Investor shall be liable under this Section 5.2 for any amount in
excess of the net proceeds to such Investor from the sale of Registrable
Securities giving rise to such liability.
5.3 Promptly after receipt by an indemnified party under
this paragraph of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly given notice to assume the defense
thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party, or if the interests
of the indemnified party may reasonably be deemed to conflict with the interests
of the indemnifying party the indemnified party shall have the right to select a
separate counsel and to assume such legal defense and otherwise to participate
in the defense of such action, with the expense and fees of such separate
counsel and other expenses relating to such participation to be reimbursed by
the indemnifying party as incurred. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to his ability
to defend such action, shall not relieve such indemnifying party of liability to
the indemnified party under this paragraph, but such liability shall be reduced
in accordance with the extent of such prejudice. No indemnifying
7
party will, except with the consent of the indemnified party, consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
5.4 If for any reason the indemnification provided for in
Sections 5.1 and 5.2 is unavailable to an indemnified party or insufficient to
hold it harmless, other than as expressly specified therein, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable
considerations. 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 not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder in connection with any claim relating to this Section 5 and
the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation.
6. OBLIGATIONS OF THE INVESTORS.
(a) Each Investor shall furnish in writing to the Company
such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) business days prior to
the first anticipated filing date of any registration statement, the Company
shall notify each Investor of the information the Company requires from such
Investor if such Investor elects to have any of the Registrable Securities
included in the registration statement. An Investor shall provide such
information to the Company at least two (2) business days prior to the first
anticipated filing date of such registration statement if such Investor elects
to have any of the Registrable Securities included in the registration
statement.
(b) Each Investor, by its acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of a registration
statement hereunder, unless such Investor has notified the Company in writing of
its election to exclude all of its Registrable Securities from such registration
statement.
(c) Each Investor agrees that, upon receipt of any notice
from the Company of either (i) the commencement of an Allowed Delay pursuant to
Section 2.5 or (ii) the happening of an event. pursuant to Section 4(e) hereof,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities,
until the Investor is advised by the Company that such dispositions may again be
made.
8
7. TRANSFER OR ASSIGNMENT. The rights to cause the Company to
register granted by the Company under this Agreement may be assigned or
otherwise transferred by any Investor or by any subsequent transferee of any
such rights without the written consent of the Company.
8. NO CONFLICT OF RIGHTS. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the Investors in this Agreement. Without limiting the
generality of the foregoing, the Company will not hereafter enter into any
agreement with respect to its securities which grants or modifies any existing
agreement with respect to its securities to grant to any holder of its
securities in connection with an incidental registration of such securities
equal or higher priority to the rights granted to the Investors in this
Agreement.
9. EXCHANGE ACT COMPLIANCE. So long as the Company remains subject
to the reporting requirements of the Exchange Act, the Company shall file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and will
take all actions reasonably necessary to enable holders of Registrable
Securities to sell such securities without registration under the Securities Act
within the limitation of the provisions of (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, (b) Rule 144A under the
Securities Act, as such Rule may be amended from time to time, if applicable or
(c) any similar rules or regulations hereunder adopted by the Commission. Upon
the request of any Investor holding Registrable Securities, the Company will
deliver to such Investor a written statement as to whether it has complied with
such requirements.
10. MISCELLANEOUS.
10.1 DIRECTLY OR INDIRECTLY. Where any provision in this
Agreement refers to action to be taken by any person, or which such person is
prohibited from taking, such provision will be applicable whether such action is
taken directly or indirectly by such person.
10.2 GOVERNING LAW. This Agreement will be deemed to have
been made and delivered in New York, New York and will be governed by, and
construed in accordance with, the internal laws of the State of New York. Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern. District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND
9
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
10.3 SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and may not be
deemed to constitute a part thereof.
10.4 NOTICES. All communications and notices under this
Agreement must be in writing and delivered by hand or mailed by overnight
courier that can provide receipt of delivery or by registered or certified mail,
postage prepaid:
If to the Company: Strong Technical Inc.
c/o Henan Zhongpin Food Share Co., Ltd.
00 Xxxxxxxx Xxxx
Xxxxxxx Xxxx, Xxxxx Province
The People's Republic of China
If to any Investor: To the address set forth in the Purchase Agreement
10.5 SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
10.6 ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understanding of the parties hereto relating to the
subject matter hereof and supersedes all prior agreements or understandings with
respect to the subject matter hereof among such parties.
10.7 COUNTERPARTS; FAX EXECUTION. This Agreement may be
executed in one or more counterparts, each of which will be deemed an original
and all of which together will be considered one and the same agreement. This
Agreement may be executed by fax delivery of a signed signature page to the
other parties and such fax execution will be effective for all purposes.
10.8 SEVERABILITY Any provision of this Agreement which is
determined to be illegal, prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such illegality,
prohibition or unenforceability without invalidating the remaining provisions
hereof which shall be severable and enforceable according to their terms. and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
10
EXECUTED:
STRONG TECHNICAL INC.
By:
------------------------------------
Name:
Title:
AMARANTH GLOBAL EQUITIES MASTER
FUND LIMITED
By:
------------------------------------
Name:
Title:
ATLAS CAPITAL MASTER FUND LP
By:
------------------------------------
Name:
Title:
ATLAS CAPITAL (Q.P.), LP
By:
------------------------------------
Name:
Title:
ATLAS CAPITAL OFFSHORE EXEMPT FUND, LTD.
By:
------------------------------------
Name:
Title:
11
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By:
------------------------------------
Name:
Title:
CRESTVIEW CAPITAL MASTER LLC
By:
------------------------------------
Name:
Title:
D.H. VERMOEGENSVERWALTUNG - und
BETEILIGUNGSGESELLSCHAFT mbH
By:
------------------------------------
Name:
Title:
JAYHAWK CHINA FUND (CAYMAN), LTD.
By:
------------------------------------
Name:
Title:
PINNACLE CHINA FUND LP
By:
------------------------------------
Name:
Title:
12
RENAISSANCE US GROWTH INVESTMENT
TRUST PLC
By:
------------------------------------
Name:
Title:
----------------------------------------
XXXXXXX XXXX
SANDOR CAPITAL MATER FUND, LP
By:
------------------------------------
Name:
Title:
XXXXXXXXX PARTNERS, LP
By:
------------------------------------
Name:
Title:
SPECIAL SITUATIONS PRIVATE EQUITY
FUND, L.P.
By:
------------------------------------
Name:
Title:
SPECIAL SITUATIONS FUND III QP, L.P.
By:
------------------------------------
Name:
Title:
13
SPECIAL SITUATIONS FUND III, L.P.
By:
------------------------------------
Name:
Title:
SRB GREEWAY OFFSHORE OPERATING FUND, L.P.
By:
------------------------------------
Name:
Title:
SRB GREENWAY CAPITAL, L.P.
By:
------------------------------------
Name:
Title:
SRB GREENWAY CAPITAL (OP), L.P.
By:
------------------------------------
Name:
Title:
VISION OPPORTUNITY MASTER FUND LTD.
By:
------------------------------------
Name:
Title:
14
WS OPPORTUNITY FUND INTERNATIONAL, LTD.
By:
------------------------------------
Name:
Title:
WS OPPORTUNITY FUND, L.P.
By:
------------------------------------
Name:
Title:
WS OPPORTUNITY FUND (QP), L.P.
By:
------------------------------------
Name:
Title:
15
SCHEDULE A
----------
LIST OF INVESTORS
Pinnacle China Fund LP
Amaranth Global Equities Master Fund Limited
Atlas Capital Master Fund LP
Atlas Capital (Q.P.), L.P.
Atlas Capital Offshore Exempt Fund, Ltd.
BFS US Special Opportunities Trust PLC
Crestview Capital Master LLC
D.H. Vermoegensverwaltung - und Beteiligungsgesellschaft mbH
Jayhawk China Fund (Cayman), Ltd.
Renaissance US Growth Investment Trust PLC
Xxxxxxx Xxxx
Xxxxxx Capital Master Fund, XX
Xxxxxxxxx Partners, LP
Special Situations Private Equity Fund, L.P.
Special Situations Fund III QP, L.P.
Special Situations Fund 111, L.P.
SRB Greenway Offshore Operating Fund, L.P.
SRB Greenway Capital, L.P.
SRB Greenway Capital (QP), L.P.
Vision Opportunity Master Fund, LTD.
WS Opportunity Fund International, Ltd.
WS Opportunity Fund, L.P.
WS Opportunity Fund (QP), L.P.
SCHEDULE B
----------
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. The shares of common stock may be sold in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market prices, at varying prices determined at the
time of sale, or at negotiated prices. These sales may be effected at various
times in one or more of the following transactions, or in other kinds of
transactions:
o transactions on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on which the
common stock may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in private transactions and transactions otherwise than on these
exchanges or systems or in the over-the-counter market;
o in connection with short sales of the shares entered into after the
effective date of the registration statement of which this prospectus
is a part;
o by pledge to secure or in payment of debt and other obligations;
o through the writing of options, whether the options are listed on an
options exchange or otherwise;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
o through a combination of any of the above transactions.
Each selling stockholder and its successors, including its transferees,
pledgees or donees or their successors, may sell the common stock directly to
the purchaser or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholder or the purchaser. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
B-1
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell shares of common stock from time
to time under this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such brokerdealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
Upon being notified in writing by a selling stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
common stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of common stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon being notified in writing by a selling stockholder that a donee or pledgee
intends to sell more than 500 shares of common stock, we will file a supplement
to this prospectus if then required in accordance with applicable securities
law.
The selling stockholders also may transfer shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of common stock will be paid by the selling stockholders and/or the
purchasers. Each selling stockholder has
B-2
represented and warranted to us that such selling stockholder acquired the
securities subject to this prospectus in the ordinary course of such selling
stockholder's business and, at the time of its purchase of such securities, such
selling stockholder had no agreements or understandings, directly or indirectly,
with any person to distribute any such securities.
We have advised each selling stockholder that it may not use shares to
be sold under this prospectus to cover short sales of common stock made prior to
the date on which the registration statement of which this prospectus forms a
part shall have been declared effective by the Commission. If a selling
stockholder uses this prospectus for any sale of common stock, it will be
subject to the prospectus delivery requirements of the Securities Act. The
selling stockholders will be responsible to comply with the applicable
provisions of the Securities Act P and the Exchange Act, and the rules and
regulations thereunder promulgated, including, without limitation, Regulation M,
as applicable to such selling stockholders in connection with resales of their
respective shares under this prospectus.
We entered into a registration rights agreement for the benefit of the
selling stockholders to register the common stock under applicable federal and
state securities laws. The registration rights agreement provides for
cross-indemifification of the selling stockholders and us and our respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the common stock, including liabilities
under the Securities Act. We will pay substantially all of the expenses incurred
by the selling stockholders incident to the registration of the offering and
sale of the common stock.
B-3
EXHIBIT F
FORM OF MAKE GOOD SHARE ESCROW AGREEMENT
F-1
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated as of January 30, 2006,
is entered into by and among Strong Technical Inc., a Delaware corporation (the
"Company"), each of the parties listed below that is a stockholder of the
Company (collectively, the "Stockholders"), and Law Debenture Trust Company of
New York, a New York banking corporation, as escrow agent (hereinafter referred
to as the "Escrow Agent").
WHEREAS, the Company has entered into a Securities Purchase Agreement
dated as of the date hereof (the "SPA") pursuant to which the Company is issuing
(the "Offering") an aggregate of 6,900,000 shares of Series A Preferred Stock
and Warrants to acquire 121,954,050 shares of Common Stock to a number of
institutional investors (the "Purchasers"). As an inducement to the Purchasers
to participate in the Offering, the Stockholders have agreed to place the
"Escrow Shares" (as hereinafter defined) into escrow for the benefit of the
Purchasers in the event the Company fails to satisfy certain performance
thresholds described in Section 4 hereof.
WHEREAS, pursuant to the requirements of the SPA, the Company and the
Stockholders have agreed to establish an escrow for the benefit of the
Purchasers on the terms and conditions set forth in this Agreement;
WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to
the terms and conditions of this Agreement; and
WHEREAS, all capitalized terms used but not defined herein shall have
the meanings assigned them in the SPA;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the terms and conditions hereof, the parties hereby agree as follows:
1. Appointment of Escrow Agent. The Stockholders and the Company
hereby appoint Law Debenture Trust Company of New York, as escrow agent to act
in accordance with the terms and subject to the conditions set forth in this
Agreement, and the Escrow Agent hereby accepts such appointment and agrees to
act in accordance with such terms and conditions.
2. Establishment of Escrow. Upon the execution of this Agreement,
(i) each of the Stockholders is delivering to the Escrow Agent two (2) stock
certificates, each evidencing a number of shares of the Company's common stock,
par value $.001 per share (the "Common Stock"), set forth opposite the name of
such Stockholder on Schedule A hereto (the "Escrow Shares"), together with two
(2) stock powers executed in blank (the "Escrow Powers") and (ii) the Company is
delivering to the Escrow Agent (A) written irrevocable instructions (the
"Transfer Instructions") to the transfer agent for the Common Stock (the
"Transfer Agent") instructing the Transfer Agent to issue new certificates
representing the Escrow Shares as directed by the Escrow Agent upon receipt by
the Transfer Agent of the certificates representing
the Escrow Shares and the Escrow Powers, and (B) an opinion of counsel addressed
to the Transfer Agent (the "Transfer Opinion") to the effect that the Transfer
Agent is authorized to transfer the Escrow Shares as directed by the Escrow
Agent and any such transfer is exempt from the registration requirements of the
Securities Act of 1933, as amended. The Escrow Shares, the Escrow Powers, the
Transfer Instructions and the Transfer Opinion are hereinafter referred to
collectively as the "Escrow Deposit." The Escrow Agent hereby acknowledges
receipt of the Escrow Deposit.
3. Representations of the Stockholders. Each of the Stockholders
hereby severally and not jointly represents and warrants as follows:
(i) Such Stockholder has the power and authority
to execute and deliver this Agreement and to deliver its Escrow Shares
and Escrow Powers as contemplated hereby. This Agreement constitutes a
valid and binding obligation of such Stockholder, enforceable against
such Stockholder in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(ii) No notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or
other person or entity is necessary for the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby by such Stockholder.
(iii) The Escrow Shares delivered by such
Stockholder are validly issued, fully paid and nonassessable shares of
the Common Stock of the Company. Such Stockholders owns the Escrow
Shares deposited hereunder by such Stockholder beneficially and of
record, free and clear of any liens, claims or encumbrances
(collectively, "Encumbrances"), other than those created pursuant to
the terms of this Agreement and those arising under applicable federal
and state securities laws. Except for this Agreement, there are no
agreements (i) granting to any person or entity any option, warrant or
right of first refusal with respect to the Escrow Shares deposited
hereunder by such Stockholder, (ii) restricting the right of such
Stockholder to transfer the Escrow Shares deposited hereunder by such
Stockholder as contemplated hereby, or (iii) restricting any other
right of such Stockholder with respect to the Escrow Shares deposited
hereunder by such Stockholder. Such Stockholder has the absolute and
unrestricted right, power and capacity to sell, assign and transfer the
Escrow Shares deposited hereunder by such Stockholder as contemplated
hereby free and clear of any Encumbrances (except for Encumbrances
created pursuant to applicable federal and state securities laws). Upon
delivery to the Purchasers of the Escrow Shares and the Escrow Powers
deposited hereunder by such Stockholder, the Purchasers will acquire
good, valid and marketable title to the Escrow Shares deposited
hereunder by such Stockholder, free and clear of any Encumbrances.
(iv) The performance by such Stockholder of this
Agreement and the compliance by such Stockholder with the provisions
hereof will not violate any provision
2
of any applicable law and will not conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon, the Escrow Shares deposited hereunder by
such Stockholder pursuant to the terms of any indenture, mortgage, deed
of trust or other agreement or instrument binding upon such
Stockholder.
4. Disbursement of Escrow Deposit.
(a) In the event the audited consolidated financial
statements of the Company for the fiscal year ending December 31, 2006 ("Fiscal
2006"), as filed by the Company with the U.S. Securities and Exchange Commission
(the "Commission") in the Company's Annual Report on Form 10-K for Fiscal 2006,
reflect a consolidated net loss for the Company for Fiscal 2006 or consolidated
net income of the Company for Fiscal 2006 of less than $7,927,000, the Escrow
Agent shall, upon receipt of the related Accountant's Certification (as defined
below) for Fiscal 2006, deliver to the Transfer Agent (i) the certificates
representing the number of Escrow Shares set forth opposite the name of each
Purchaser under the heading "Number of Escrow Shares Fiscal 2006" on Schedule B
hereto, (ii) the related Escrow Powers, (iii) the Transfer Instructions and (iv)
the Transfer Opinion. In the event the audited consolidated financial statements
of the Company for the fiscal year ending December 31, 2007 ("Fiscal 2007"), as
filed by the Company with the Commission in the Company's Annual Report on Form
10-K for Fiscal 2007, reflect a consolidated net loss of the Company for Fiscal
2007 or consolidated net income of the Company for Fiscal 2007 of less than
$15,000,000, the Escrow Agent shall, upon receipt of the related Accountant's
Certification for Fiscal 2007, deliver to the Transfer Agent (i) the
certificates representing the number of Escrow Shares set forth opposite the
name of each Purchaser under the heading "Number of Escrow Shares Fiscal 2007"
on Schedule B hereto, (ii) the related Escrow Powers, (iii) the Transfer
Instructions and (iv) the Transfer Opinion. The Company shall deliver to the
Escrow Agent a copy of its Annual Report on Form 10-K for each of Fiscal 2006
and Fiscal 2007 within two business days of the date such Annual Report is filed
with the Commission, together with a certification (an "Accountant's
Certification") from the Company's independent auditor for such fiscal year
certifying the amount of the Company' consolidated net income or consolidated
net loss, as the case may be, for such fiscal year. The Escrow Agent need only
rely on the Accountant's Certification of the Company's independent auditor in
determining the amount of the Company's consolidated net income or consolidated
net loss, as the case may be, for any fiscal year. If no Escrow Shares are to be
transferred to the Purchasers pursuant to this Section 4 for Fiscal 2006 or
Fiscal 2007, as the case may be, the Escrow Agent shall promptly deliver to each
Stockholder one of the stock certificates received by the Escrow Agent from such
Stockholder, together with one of the stock powers executed by such Stockholder
in blank.
(b) In the event the Company shall fail to deliver to the
Escrow Agent a copy of its Annual Report on Form 10-K for Fiscal 2006, together
with the related Accountant's Certification, on or before May 31, 2007, the
Escrow Agent shall deliver to the Transfer Agent (i) the certificates
representing the number of Escrow Shares set forth opposite the name of each
Purchaser under the heading "Number of Escrow Shares Fiscal 2006" on Schedule B
hereto, (ii) the relate Escrow Powers, (iii) the Transfer Instructions and (iv)
the Transfer Opinion. In the event the Company shall fail to deliver to the
Escrow Agent a copy of its Annual Report on Form
3
10-K for Fiscal 2007, together with the related Accountant's Certification, on
or before May 31, 2008, the Escrow Agent shall deliver to the Transfer Agent (i)
the certificates representing the number of Escrow Shares set forth opposite the
name of each Purchaser under the heading "Number of Escrow Shares Fiscal 2007"
on Schedule B hereto, (ii) the relate Escrow Powers, (iii) the Transfer
Instructions and (iv) the Transfer Opinion.
(c) At the time of delivery of each Accountant's
Certification, or promptly upon the written request of the Escrow Agent, the
Company shall furnish to the Escrow Agent in writing the name, address and
telephone number of the Company's then-existing Transfer Agent.
5. Voting, Dividends and Liquidation. So long as the Escrow Agent
holds any Escrow Shares:
(i) Such Escrow Shares shall have all voting
rights to which the shares of Common Stock are entitled, and the
Stockholders shall be entitled to vote such Escrow Shares at any
meeting of stockholders of the Company.
(ii) Any dividends paid on such Escrow Shares
shall be paid to the Escrow Agent by checks of the Company made payable
to the Escrow Agent with a notation of this Agreement thereon and any
such dividends shall be held pursuant to the terms of this Agreement.
The Escrow Agent shall treat such dividends as Escrow Deposit,
available for distribution under the terms of Paragraph 4 above. The
Escrow Agent shall place the dividends in a non-interest bearing escrow
account. In connection with the release of such Escrow Shares, the
dividends thereon will be disbursed from the escrow account to the
recipient of the related Escrow Shares pursuant to Section 4 above.
(iii) Stock dividends on, and shares resulting
from stock splits of, such Escrow Shares shall be delivered to the
Escrow Agent and shall be held pursuant to this Agreement and
distributed in connection with the release of the related Escrow Shares
to the recipient thereof pursuant to Section 4 hereof.
(iv) The Stockholders agree that in the event of
dissolution, liquidation, merger, consolidation, reorganization, sale
or exchange of the Company's assets or securities (including by way of
tender offer), or any transaction or proceeding with any third party
that results in the distribution of the assets or securities of the
Company, the Stockholders will share on a pro rata, per share basis in
the distribution, in proportion to the number of shares of equity
securities of the Company that they then own at the time of the
distribution, which shall include such Escrow Shares adjusted for stock
splits, stock dividends, recapitalizations and the like.
Notwithstanding the foregoing, the distribution of assets or securities
received by the Stockholder with respect to such Escrow Shares shall be
held pursuant to this Agreement in place of the Escrow Shares for which
such assets or securities were distributed.
6. Interpleader. Should any controversy arise among the parties
hereto with respect to this Agreement or with respect to the right to receive
the Escrow Shares, the Escrow Agent shall have the right to consult counsel
and/or to institute an appropriate interpleader action to
4
determine the rights of the parties. The Escrow Agent is also hereby authorized
to institute an appropriate interpleader action upon receipt of a written letter
of direction executed by the parties so directing the Escrow Agent. If the
Escrow Agent is directed to institute an appropriate interpleader action, it
shall institute such action not prior to thirty (30) days after receipt of such
letter of direction and not later than sixty (60) days after such date. Any
interpleader action instituted in accordance with this Section 6 shall be filed
in any court of competent jurisdiction in New York County, New York, and the
Escrow Deposit shall be deposited with the court and in such event the Escrow
Agent shall be relieved of and discharged from any and all obligations and
liabilities under and pursuant to this Agreement with respect to the Escrow
Deposit.
7. Exculpation and Indemnification of the Escrow Agent.
(a) The Escrow Agent is not a party to, and is not bound
by or charged with notice of any agreement out of which this escrow may arise.
The Escrow Agent acts under this Agreement as a depositary only and is not
responsible or liable in any manner whatsoever for the sufficiency, correctness,
genuineness or validity of the subject matter of the escrow, or any part
thereof, or for the form or execution of any notice given by any other party
hereunder, or for the identity or authority of any person executing any such
notice. The Escrow Agent will have no duties or responsibilities other than
those expressly set forth herein. The Escrow Agent will be under no liability to
anyone by reason of any failure on the part of any party hereto (other than the
Escrow Agent) or any maker, endorser or other signatory of any document to
perform such person's or entity's obligations hereunder or under any such
document. Except for this Agreement and instructions to the Escrow Agent
pursuant to the terms of this Agreement, the Escrow Agent will not be obligated
to recognize any agreement between or among any or all of the persons or
entities referred to herein, notwithstanding its knowledge thereof.
(b) The Escrow Agent will not be liable for any action
taken or omitted by it, or any action suffered by it to be taken or omitted, in
good faith and in the exercise of its own best judgment, and may rely
conclusively on, and will be protected in acting upon, any order, notice,
demand, certificate, or opinion or advice of counsel (including counsel chosen
by the Escrow Agent), statement, instrument, report or other paper or document
(not only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any information
therein contained) which is reasonably believed by the Escrow Agent to be
genuine and to be signed or presented by the proper person or persons. The
duties and responsibilities of the Escrow Agent hereunder shall be determined
solely by the express provisions of this Agreement and no other or further
duties or responsibilities shall be implied, including, but not limited to, any
obligation under or imposed by any laws of the State of New York upon
fiduciaries.
(c) The Escrow Agent will be indemnified and held
harmless by the Company from and against any expenses, including reasonable
attorneys' fees and disbursements, damages or losses suffered by the Escrow
Agent in connection with any claim or demand, which, in any way, directly or
indirectly, arises out of or relates to this Agreement or the services of the
Escrow Agent hereunder; except, that if the Escrow Agent is guilty of willful
misconduct, fraud or gross negligence under this Agreement, then the Escrow
Agent will bear all losses, damages and expenses arising as a result of such
willful misconduct, fraud or gross negligence. Promptly after
5
the receipt by the Escrow Agent of notice of any such demand or claim or the
commencement of any action, suit or proceeding relating to such demand or claim,
the Escrow Agent will notify the other parties hereto in writing. For the
purposes hereof, the terms "expense" and "loss" will include all amounts paid or
payable to satisfy any such claim or demand, of in settlement of any such claim,
demand, action, suit or proceeding settled with the express written consent of
the parties hereto., and all costs and expenses, including, but not limited to,
reasonable attorneys' fees and disbursements, paid or incurred in investigating
or defending against any such claim, demand, action, suit or proceeding. The
provisions of this Section 7 shall survive the termination of this Agreement.
8. Compensation of Escrow Agent. Upon execution and delivery of
the Agreement, the Company will pay the Escrow Agent $7,500 for all services
rendered by the Escrow Agent hereunder.
9. Resignation of Escrow Agent. At any time, upon thirty (30)
days' written notice to the Company, the Escrow Agent may resign as escrow agent
hereunder upon the appointment of a successor escrow agent reasonably
satisfactory to the Purchasers holding a majority of the shares of Series A
Preferred Stock then outstanding. Upon the appointment of a successor escrow
agent, the Escrow Agent will promptly deliver to such successor escrow agent the
Escrow Deposit, at which point the resigning Escrow Agent shall have no further
duties or obligations hereunder. If, by the end of the 30-day period following
the giving of notice of resignation by Escrow Agent, no successor escrow agent
has been appointed, the Escrow Agent may interplead the Escrow Deposit into the
registry of any court having jurisdiction.
10. Records. The Escrow Agent shall maintain accurate records of
all transactions hereunder. Promptly after the termination of this Agreement or
as may reasonably be requested by the parties hereto from time to time before
such termination, the Escrow Agent shall provide the parties hereto, as the case
may be, with a complete copy of such records, certified by the Escrow Agent to
be a complete and accurate account of all such transactions. The authorized
representatives of each of the parties hereto shall have access to such books
and records at all reasonable times during normal business hours upon reasonable
notice to the Escrow Agent.
11. Notice. All notices, communications and instructions required
or desired to be given under this Agreement must be in writing and shall be
deemed to be duly given if sent by registered or certified mail, return receipt
requested, or overnight courier.
12. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Assignment and Modification. This Agreement and the rights and
obligations hereunder of any of the parties hereto may not be assigned without
the prior written consent of the other parties hereto. Subject to the foregoing,
this Agreement will be binding upon and inure to the benefit of each of the
parties hereto and their respective successors and permitted assigns. No other
person will acquire or have any rights under, or by virtue of, this Agreement.
No portion of the Escrow Deposit shall be subject to interference or control by
any creditor of any
6
party hereto, or be subject to being taken or reached by any legal or equitable
process in satisfaction of any debt or other liability of any such party hereto
prior to the disbursement thereof to such party hereto in accordance with the
provisions of this Agreement. This Agreement may be changed or modified only
with the prior written consent of the Purchasers holding a majority of the
shares of Series A Preferred Stock then outstanding. Any such amendment or
modification shall be in writing signed by all of the parties hereto.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN. ANY LITIGATION CONCERNING THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE COURTS
OF NEW YORK COUNTY, NEW YORK, AND ALL PARTIES CONSENT TO THE EXCLUSIVE
JURISDICTION AND VENUE OF THOSE COURTS.
15. Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
16. Attorneys' Fees. If any action at law or in equity, including
an action for declaratory relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees from the other party (unless such other party is the
Escrow Agent), which fees may be set by the court in the trial of such action or
may be enforced in a separate action brought for that purpose, and which fees
shall be in addition to any other relief that may be awarded.
17. Duration. This Agreement shall terminate on the distribution
by the Escrow Agent of all of the Escrow Shares.
18. Third Party Beneficiary. Each Purchaser is a third-party
beneficiary to this Agreement and is entitled to the rights and benefits
hereunder and may enforce the provisions hereof as if it were a party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
STRONG TECHNICAL INC.
By:______________________________
Name:
Title:
7
LAW DEBENTURE TRUST COMPANY
OF NEW YORK, as Escrow Agent
By:___________________________
Name:
Title:
STOCKHOLDERS:
______________________________
ZHU, Xianfu
______________________________
BEN, Boake
______________________________
LIU, Chaoyang
______________________________
WANG, Qinghe
______________________________
SI, Shuichi
______________________________
WANG, Juanjuan
______________________________
LIN, Yousu
______________________________
XXXX, Xxxx
______________________________
WANG, Yunchun
8
SCHEDULE A
----------
NUMBER OF NUMBER OF
ESCROW SHARES ESCROW SHARES
NAME OF STOCKHOLDER ADDRESS FISCAL 2006 FISCAL 2007
------------------- ------- ----------- -----------
Zhu, Xianfu * 11,255,250 11,255,250
Ben, Baoke * 1,481,345 1,481,345
Liu, Chaoyang * 1,095,599 1,095,599
Wang, Qinghe * 1,081,681 1,081,681
Si, Shuichi * 1,049,867 1,049,867
Wang, Juanjuan * 938,517 938,517
Lin, Yousu * 994,192 994,192
Xxxx, Xxxx * 994,192 994,192
Wang, Yunchun * 994,192 994,192
----------------------
* c/o Henan Zhongpin Food Share Co., Ltd., 00 Xxxxxxxx Xxxx, Xxxxxxx Xxxx, Xxxxx
Xxxxxxxx, The People's Republic of China
A-1
SCHEDULE B
----------
NUMBER OF NUMBER OF
TAX I.D. ESCROW SHARES ESCROW SHARES
NAME OF PURCHASER ADDRESS NUMBER FISCAL 2006 FISCAL 2007
----------------- ------- ------ ----------- -----------
Pinnacle China Fund L.P. 0000 Xxxxxxx Xxxx Xxxx 00-0000000 4,322,573 4,322,573
Xxxxx 000
Xxxxx, XX 00000
Amaranth Global Equities c/o Dundee Leeds Management Services 00-0000000 720,429 720,429
Master Fund Limited (Cayman) Ltd.
Xxxxxxxxxx Xxxxxx
00 X. Xxxxxx Xx, 0xx Xx.
Xxxxxx Town, Grand Cayman
Cayman Islands, British West Indies
Atlas Capital Master Fund LP c/o Admiral Administration 817,687 817,687
Admiral Financial Center, 0xx Xxxxx
00 Xxxx Xxxxxx
Box 32021
SMB
Grand Cayman, Cayman Islands
Atlas Capital (Q.P.), LP 000 Xxxxxxx Xxxxx, Xxxxx 000 00-0000000 495,655 495,655
Xxxxxx, XX 00000
Atlas Capital Offshore Exempt c/o Admiral Administration 127,516 127,516
Fund, Ltd. Admiral Financial Center, 0xx Xxxxx
00 Xxxx Xxxxxx
Box 32021
SMB
Grand Cayman, Cayman Islands
B-1
NUMBER OF NUMBER OF
TAX I.D. ESCROW SHARES ESCROW SHARES
NAME OF PURCHASER ADDRESS NUMBER FISCAL 2006 FISCAL 2007
----------------- ------- ------ ----------- -----------
BFS US Special Opportunities Front National Bank 720,429 720,429
Trust PLC 000 X. Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx T-8
Crestview Capital Master LLC 00 Xxxxxx Xxxxx, Xxxxx X 00-0000000 720,429 720,429
Xxxxxxxxxx XX 00000
D.H. Vermoegensverwaltung - Op xx Xxx 7 3,602,144 3,602,144
und Beteiligungsgesellschaft 25337 Elmshorn
mbH Germany
Jayhawk China Fund (Cayman), c/o Genesis Fund Service Limited 00-0000000 1,440,858 1,440,858
Ltd. 0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx Xxxxxxx, XX 00000
Renaissance US Growth Front National Bank 720,429 720,429
Investment Trust PLC 000 X. Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx T-8
Dallas, TX [7206]
Xxxxxxx X. Xxxx 000 Xxxxxxx Xxxx Xxxx, Xxx. 00-X0 ###-##-#### 216,129 216,129
Xxx Xxxx, Xxx Xxxx 00000
Sandor Capital Master Fund, 0000 Xxxxx Xxxxxx, Xxxxx 000 00-0000000 360,214 360,214
L.P. Xxxxxx, XX 00000
Xxxxxxxxx Partners, L.P. 0000 Xxxxx Xxxxx Xxxxxx 00-0000000 1,260,750 1,260,750
Xxxxxx, XX 00000
B-2
NUMBER OF NUMBER OF
TAX I.D. ESCROW SHARES ESCROW SHARES
NAME OF PURCHASER ADDRESS NUMBER FISCAL 2006 FISCAL 2007
----------------- ------- ------ ----------- -----------
Special Situations Private 000 Xxxxxxx Xxxxxx, Xxxxx 0000 00-0000000 618,128 618,128
Equity Fund, L.P. Xxx Xxxx, XX 00000
Special Situations Fund III QP, 000 Xxxxxxx Xxxxxx, Xxxxx 0000 00-0000000 1,419,965 1,419,965
L.P. Xxx Xxxx, XX 00000
Special Situations Fund III, 000 Xxxxxxx Xxxxxx, Xxxxx 0000 00-0000000 123,193 123,193
L.P. Xxx Xxxx, XX 00000
SRB Greenway Offshore 000 Xxxxxxxx Xxxxx, Xxxxx 0000 19,235 19,235
Operating Fund, L.P. Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
SRB Xxxxxxxx Capital, L.P. 000 Xxxxxxxx Xxxxx, Xxxxx 0000 00-0000000 38,399 38,399
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
SRB Greenway Capital (QP), 000 Xxxxxxxx Xxxxx, Xxxxx 0000 00-0000000 302,580 302,580
L.P. Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
Vision Opportunity Master Fund, 000 Xxxxxxx Xxxxxx, Xxxxx 0000 00-0000000 1,296,772 1,296,772
LTD Xxx Xxxx, XX 00000
WS Opportunity Fund 000 Xxxxxxxx Xxxxx, Xxxxx 0000 273,763 276,763
International, Ltd. Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
WS Opportunity Fund, L.P. 000 Xxxxxxxx Xxxxx, Xxxxx 0000 00-0000000 158,494 158,494
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
B-3
NUMBER OF NUMBER OF
TAX I.D. ESCROW SHARES ESCROW SHARES
NAME OF PURCHASER ADDRESS NUMBER FISCAL 2006 FISCAL 2007
----------------- ------- ------ ----------- -----------
WS Opportunity Fund (QP), L.P. 000 Xxxxxxxx Xxxxx, Xxxxx 0000 00-0000000 108,064 108,064
Xxxxxx, XX 00000
Attn: Xxx Xxxxxxx
B-4
EXHIBIT G
---------
FINANCIAL STATEMENTS
G-1
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,2005
AND
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 2
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF EQUITY 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
1
CHILD, XXXXXXXX & COMPANY
A PROFESSIONAL CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS
0000 X. XXXXX XXXXXX XX., XXXXX X, XXXXXXXXX, XX 00000
PHONE: (000) 000-0000 FAX: (000) 000-0000
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
Henan Province, People's Republic of China
We have audited the accompanying consolidated balance sheets of HENAN ZHONGPIN
FOOD SHARE COMPANY LIMITED and subsidiaries as of March 31, 2005 and December
31, 2004 and 2003, and the related consolidated statements of operations,
equity, and cash flows for the three months ended March 31, 2005 and for the
years ended December 31, 2004 and 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of HENAN
ZHONGPIN FOOD SHARE COMPANY LIMITED and subsidiaries as of March 31, 2005 and
December 31, 2004 and 2003, and the consolidated results of its operations and
its cash flows for the three months ended March 31, 2005 and for the years ended
December 31, 2004 and 2003, in conformity with accounting principles generally
accepted in the United States of America.
Child, Xxxxxxxx & Company
Kaysville, Utah
August 8, 2005
2
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
March 31, December 31, December 31,
------------ ------------ ------------
ASSETS 2005 2004 2003
------------ ------------ ------------
Current assets
Cash and cash equivalents $ 9,032,855 $ 5,204,637 $ 6,140,527
Accounts receivable and other receivables 9,568,465 7,891,561 2,831,361
Purchase deposits 147,392 124,520 239,410
Prepaid expenses and deferred charges 196,775 92,163 19,327
Inventories 3,148,531 3,143,954 4,467,051
Tax refund receivable -- -- 203,532
------------ ------------ ------------
Total current assets 22,094,018 16,456,835 13,901,208
Property, plant and equipment (net) 10,267,617 10,072,205 5,804,959
Construction contracts 3,915,248 3,936,431 7,034,245
Intangible assets 1,691,772 1,701,135 787,843
------------ ------------ ------------
Total assets $ 37,968,655 $ 32,166,606 $ 27,528,255
============ ============ ============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables $ 5,496,678 $ 5,334,765 $ 4,132,946
Accrued liabilities 611,251 322,842 366,684
Short term loans payable 12,284,184 9,119,552 7,083,649
Taxes payable 896,918 716,861 --
Deposits from clients 972,990 714,597 1,798,935
Lone, term loans payable - current portion 3,308,877 3,308,877 1,044,150
------------ ------------ ------------
Total current liabilities 23,570,898 19,517,494 14,426,364
Long term loans payable 4,329,103 4,329,103 7,637,980
------------ ------------ ------------
Total liabilities 27,900,001 23,846,597 22,064,344
Minority interest 149,532 137,278 49,653
Equity
Registered capital 1,816,425 1,816,425 1,816,425
Additional paid in capital 182,319 182,319 182,319
Retained earnings 7,920,378 6,183,987 3,415,514
------------ ------------ ------------
Total equity 9,919,122 8,182,731 5,414,258
------------ ------------ ------------
Total liabilities and equity $ 37,968,655 32,166,606 27,528,255
============ ============ ============
The accompanying notes are an integral part
of the consolidated financial statements
3
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months
ended Year ended
March 31, December 31,
------------ ----------------------------
2005 2004 2003
---- ---- ----
Revenues
Sales revenues $ 14,405,129 $ 42,787,153 $ 29,593,493
Cost of sales 11,808,779 36,669,989 26,144,177
------------ ------------ ------------
Gross profit 2,596,350 6,117,164 3,449,316
Operating expenses
General and administrative expenses 223,649 1,214,365 431,576
Operating expenses 365,359 1,844,840 1,281,516
------------ ------------ ------------
Total operating expenses 589,008 3,059,205 1,713,092
------------ ------------ ------------
Income from operations 2,007,342 3,057,959 1,736,224
Other income (expense)
Interest income 48,905 85,854 237,673
Other income 14,674 31,807 283,228
Allowances income 38,647 928,302 149,158
Exchange loss (11,173) (22,554) (12,512)
Interest expense (349,750) (1,208,362) (803,308)
------------ ------------ ------------
Total other income (expense) (258,697) (184,953) (145,761)
------------ ------------ ------------
Net income before taxes 1,748,645 2,873,006 1,590,463
Provision for income taxes -- 84,541 57,097
------------ ------------ ------------
Net income after taxes 1,748,645 2,788,465 1,533,366
Minority interest 12,254 19,992 (2,906)
------------ ------------ ------------
Net income $ 1,736,391 $ 2,768,473 $ 1,536,272
============ ============ ============
The accompanying notes are an integral part
of the consolidated financial statements
4
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENTS OF EQUITY
Additional
Registered Paid In Retained
Capital Capital Earnings Total
------- ------- -------- -----
Balance at January 1, 2003 $ 1,816,425 $ 182,319 $ 1,935,634 $ 3,934,378
Net income for the year -- -- 1,536,272 1,536,272
Dividends paid -- -- (56,392) (56,392)
----------- ----------- ----------- ------------
Balance December 31, 2003 1,816,425 182,319 3,415,514 5,414,258
Net income for the year -- -- 2,768,473 2,768,473
----------- ----------- ----------- ------------
Balance December 31, 2004 1,816,425 182,319 6,183,987 8,182,731
Net income for the period -- -- 1,736,391 1,736,391
----------- ----------- ----------- ------------
Balance March 31, 2005 $ 1,816,425 $ 182,319 $ 7,920,378 $ 9,919,122
=========== =========== =========== ===========
The accompanying notes are an integral part
of the consolidated financial statements
5
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months
ended Year ended
March 31, December 31,
------------- -------------------------------
2005 2004 2003
------------- ------------- -------------
Cash flows from operating activities:
Net gain $ 1,736,391 $ 2,768,473 $ 1,536,272
Adjustments to reconcile net gain to
net cash provided by operations:
Minority interest 12,254 87,625 (2,906)
Depreciation 142,562 415,979 253,003
Amortization 9,363 38,144 5,209
Provision for allowance for bad debt -- 267,668 67,669
Changes in operating assets and liabilities:
Accounts receivable and other receivables (1,676,904) (5,327,868) (197,213)
Purchase deposits (22,872) 114,890 754,995
Prepaid expense and deferred charges (104,612) (72,836) (5,361)
Inventories (4,577) 1,323,097 (1,307,000)
Tax refunds receivable -- -- 41,978
Intangible assets -- (951,436) --
Accounts payable and accrued liabilities 161,913 1,201,819 1,703,038
Accrued liabilities 288,409 (43,842) 34,683
Taxes payable 180,057 920,393 (60,166)
Deposits from clients 258,393 (1,084,338) 1,642,985
------------- ------------- -------------
Net cash provided by (used in) operating activities 980,377 (342,232) 4,467,186
Cash flows from investing activities:
Construction contracts 21,183 3,097,814 (5,056,786)
Additions to fixed assets (337,974) (4,683,225) (1,263,830)
------------- ------------- -------------
Net cash used in investing activities (316,791) (1,585,411) (6,320,616)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from short term loans 3,164,632 2,035,903 2,005,833
Proceeds from long term loans -- (1,044,150) 2,544,449
Payments of dividends -- -- (56,392)
------------- ------------- -------------
Net cash provided by financing activities 3,164,632 991,753 4,493,890
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 3,828,218 (935,890) 2,640,460
Cash and cash equivalents, beginning of period 5,204,637 6,140,527 3,500,067
------------- ------------- -------------
Cash and cash equivalents, end of period $ 9,032,855 $ 5,204,637 $ 6,140,527
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 349,750 $ 1,208,362 $ 803,308
============= ============= =============
Cash paid for income taxes $ -- $ 84,541 $ 57,097
============= ============= =============
The accompanying notes are an integral part
of the consolidated financial statements
6
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Henan Zhongpin Food Share Company Limited (the Company) is incorporated in
the People's Republic of China (PRC). The Company is headquartered in Henan
Province and has its corporate office in Changge City. The Company is
principally engaged in the production of pork, pork products and vegetables,
and the retail sales of pork, processed pork products, vegetables and other
grocery items to customers throughout China and other export countries,
either directly or through its subsidiaries (collectively the "Company").
Details of its subsidiaries are as follows:
Domicile and Date Registered Percentage
Name of Incorporation Capital of Ownership
------------------------------------------------------------------------------------------------------
Henan Zhongpin Industrial Company Limited The PRC $ 5,000,000 88.00%
January 17, 2002
Henan Zhongpin Import and Export Trading Company The PRC $ 4,500,000 88.93%
August 11, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements for 2003 include the financial
statements of Henan Zhongpin Food Share Company Limited and Henan Zhongpin
Industrial Company Limited. The consolidated financial statements for 2005
and 2004 include the financial statements of Henan Zhongpin Import and Export
Trading Company, in addition to those previously listed. All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"). The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. U.S. GAAP differs from that used
in the statutory financial statements of the Company, which were prepared in
accordance with the relevant accounting principles and financial reporting
regulations as established by the Ministry of Finance of the PRC. Certain
accounting principles stipulated under U.S. GAAP are not applicable in the
PRC.
7
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION (Continued)
The Yuan (Renminbi) of the People's Republic of China has been determined to
be the functional currency of the Company. There were no material gains or
losses recognized as a result of translating foreign currencies to the U.S.
dollar due to the stability of the Yuan (Renminbi) currency through March 31,
2005. No assurance however, can be given as to the future valuation of the
foreign currencies and how further movements in the foreign currencies could
affect future earnings of the Company.
The balance sheets of the Company and its subsidiaries were translated at
year end exchange rates. Expenses were translated at exchange rates in effect
during the year, substantially the same as the year end rates. The consistent
exchange rate used has been 8.28 RMB per each US dollar.
MINORITY INTEREST IN SUBSIDIARIES
The Company records minority interest expense, which reflects the portion of
the earnings of Henan Zhongpin Industrial Company Limited at December 31,
2003 and Henan Zhongpin Industrial Company Limited and Henan Zhongpin Import
and Export Trading Company at December 31, 2004 and March 31, 2005.
RESTRICTIONS ON TRANSFER OF ASSETS OUT OF CHINA
Dividend payments by the Company, are limited by certain statutory
regulations in China. No dividends may be paid by the Company without first
receiving prior approval from the Foreign Currency Exchange Management
Bureau. Dividend payments are restricted to 85% of profits, after tax.
START-UP COSTS
The Company in accordance with the provisions of the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-up Activities", expenses all start-up and organizational
costs as they are incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
8
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SIGNIFICANT ESTIMATES
Several areas require significant management estimates relating to
uncertainties for which it is reasonably possible that there will be a
material change in the near term. The more significant areas requiring the
use of management estimates related to the valuation of equipment, accrued
liabilities and the useful lives for amortization and depreciation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is stated at cost, net of allowance for doubtful
accounts. Based on current practice in the PRC, management provides for an
allowance for doubtful accounts equivalent to those accounts that are not
collected within one year.
INVENTORIES
Inventories are stated at the lower of cost, determined on a weighted average
basis, and net realizable value. Work-in-progress and finished goods are
composed of direct material, direct labor and an attributable portion of
manufacturing overhead. Net realizable value is the estimated selling price,
in the ordinary course of business, less estimated costs to complete and
dispose.
LAND USE RIGHTS
The Company adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), effective January 1, 2002. Under SFAS 142,
goodwill and indefinite lived intangible assets are not amortized, but are
reviewed annually for impairment, or more frequently, if indications of
possible impairment exist. The Company has performed the requisite annual
transitional impairment tests on intangible assets and made the impairment
adjustments as necessary.
REVENUE RECOGNITION
The Company recognizes revenue as earned when the following four criteria are
met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the services have been rendered; (3) the seller's price to the
buyer is fixed or determinable; and (4) collectibility is reasonably assured.
9
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related
groups of assets, may not be recoverable. Under the provisions of SFAS No.
144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Company recognizes an "impairment charge" when
the expected net undiscounted future cash flows from an asset's use and
eventual disposition are less than the asset's carrying value and the asset's
carrying value exceeds its fair value. Measurement of fair value for an asset
or group of assets may be based on appraisal, market values of similar assets
or estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset or assets.
Expenditures for maintenance, repairs and betterments, which do not
materially extend the normal useful life of an asset, are charged to
operations as incurred. Upon sale or other disposition of assets, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Depreciation and amortization are provided for financial reporting purposes
primarily on the straight-line method over the estimated useful lives ranging
from 5 to 50 years.
OPERATING LEASES
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
INCOME TAXES
Income tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between assets and
liabilities that are recognized for financial reporting purposes and the
amounts that are recognized for income tax purposes. In accordance with
Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes," these deferred taxes are measured by applying currently
enacted tax laws.
The Company recorded income tax expenses of $0, $84,541 and $57,097 for 2005,
2004 and 2003, respectively.
The Company withholds and pays income taxes on its employees' wages, which
funds the Chinese government's sponsored health and retirement programs of
all Henan Zhongpin employees. For Henan Zhongpin employees, the Company was
obligated to make contributions to the social insurance bureau under the laws
of the PRC for pension and retirement benefits.
10
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REGISTERED CAPITAL
Companies in the PRC are not held by stock ownership as is the case in the
US. Those creating a company register and pay in a given amount of required
registered capital at formation of the company, as required by laws in the
PRC governing business entity formation.
3. BUSINESS ACQUISITIONS
The Company started Henan Zhongpin Import and Export Trading Company on
August 11, 2004 as a joint venture with Xx Xxx Wei, an individual, to
facilitate the exporting of the Company's goods. The Company owns 88.93% of
Henan Zhongpin Import and Export Trading Company.
4. ACCOUNTS RECEIVABLE
The Company accrued an allowance for bad debts related to its receivables.
The receivable and allowance balances at March 31, 2005 and December 31, 2004
and 2003 are as follows:
2005 2004 2003
---- ---- ----
Accounts receivable $ 8,349,059 $ 7,470,323 $ 1,683,940
Other receivables 1,691,222 893,054 1,308,079
Allowances receivable -- -- 43,490
Allowance for bad debts (471,816) (471,816) (204,148)
----------- ------------ ------------
$ 9,568,465 $ 7,891,561 $ 2,831,361
=========== ============ ============
5. INVENTORIES
Inventories consist of:
March 31, December 31, December 31,
2005 2004 2003
---- ---- ----
Raw materials $ 285,578 $ 247,041 $ 143,171
Low value consumables 109,556 104,846 66,659
Work-in-progress 190,364 434,667 1,042,155
Finished goods 2,583,338 2,377,705 3,215,066
Provision for loss of pricing (20,305) (20,305) --
------------ ------------ ------------
Net inventories $ 3,148,531 $ 3,143,954 $ 4,467,051
============ ============ ============
11
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT
Property and equipment at cost consists of:
March 31, December 31, December 31,
2005 2004 2003
---- ---- ----
Machinery and equipment $ 6,618,095 $ 6,311,417 $ 3,621,320
Furniture and office equipment 226,367 221,016 198,680
Motor vehicles 211,863 207,270 235,053
Buildings and land 4,944,581 4,923,229 2,924,654
Subtotal 12,000,906 11,662,932 6,979,707
Less: accumulated depreciation (1,733,289) (1,590,727) (1,174,748)
------------ ------------ ------------
Net property and equipment $ 10,267,617 $ 10,072,205 $ 5,804,959
============ ============ ============
Depreciation expense $ 142,562 $ 415,979 $ 253,003
============ ============ ============
7. LAND USE RIGHTS
Land use rights consisted of the following:
March 31, December 31, December 31,
2005 2004 2003
---- ---- ----
Land use rights $ 1,749,697 $ 1,749,697 $ 798,261
Accumulated amortization (57,925) (48,562) (10,418)
------------- ------------- ------------
1,691,772 1,701,135 787,843
------------- ------------- ------------
Accounting Software 36,068 36,068 --
Accumulated amortization (36,068) (36,068) --
------------- ------------- ------------
-- -- --
------------- ------------- ------------
$ 1,691,772 $ 1,701,135 $ 787,843
============= ============= ============
Amortization Expense $ 9,363 $ 38,144 $ 5,209
============= ============= ============
8. LOANS PAYABLE
SHORT TERM LOANS
Short term loans are due within one year. These loans are secured by the land
and plant of the Company, and guaranteed by a related company. These loans
bear interest at prevailing lending rates in the PRC ranging from 6.36% to
8.64% per annum.
LONG TERM LOANS
A long term loan is secured by the land and plant of the Company, and
guaranteed by Henan Zhongpin Industrial Company Limited and bears an interest
rate ranging from 4.8% to 7.2% per annum.
12
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LOANS PAYABLE (Continued)
The balance of loans payable were as follows:
March 31, December 31, December 31,
2005 2004 2003
---- ---- ----
Short Term Loans Payable $ 12,284,184 $ 9,119,552 $ 7,083,649
Long Term Loans Payable 7,637,980 7,637,980 8,682,130
------------ ------------ ------------
$ 19,922,164 $ 16,757,532 $ 15,765,779
============ ============ ============
Long Term Repayment Schedule
----------------------------------------------
Payments due in remainder of 2005 $ 3,308,877
Payments due in 2006 1,921,196
Payments due in 2007 145,833
Payments due in 2008 145,833
Payments due in 2009 145,833
Payments due thereafter 1,970,408
-----------
$ 7,637,980
===========
9. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION CONTRACTS
Construction contracts consisted of:
March 31, December 31, December 31,
Construction Contract Completed on 2005 2004 2003
--------------------- ------------ ---- ---- ----
Sewage Construction October 2004 $ -- $ -- $ 22,495
Industrial Plant Summer 2005 3,915,248 3,887,164 7,011,750
Frozen machinery and store room March 2005 -- 49,267 --
----------- ----------- -----------
$ 3,915,248 $ 3,936,431 $ 7,034,245
=========== =========== ===========
LEGAL PROCEEDINGS
From time to time, the Company has disputes that arise in the ordinary course
of its business. Currently, according to management, there are no material
legal proceedings to which the Company is party of or to which any of their
property is subject, that will have a material adverse effect on the Company's
financial condition.
13
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ALLOWANCES INCOME
"Allowances income" consists of grants from the government of the PRC for
the Company's participation in specific programs, such as research and
development, import and export, branding, and city maintenance and
construction. The Company received allowances income as follows:
Three months
ended Year ended Year ended
March 31, December 31, December 31,
2005 2004 2003
---- ---- ----
Allowances income $ 38,647 $ 928,302 $ 149,158
========== =========== ==========
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS 107") requires entities to disclose
the fair values of financial instruments except when it is not practicable
to do so. Under SFAS No. 107, it is not practicable to make this disclosure
when the costs of formulating the estimated values exceed the benefit when
considering how meaningful the information would be to financial statement
users.
As a result of the difficulties presented in the valuation of the loans
payable to related entities/parties because of their related party nature,
estimating the fair value of these financial instruments is not considered
practical. The fair values of all other assets and liabilities do not differ
materially from their carrying amounts. None of the financial instruments
held are derivative financial instruments and none were acquired or held for
trading purposes in 2005, 2004 and 2003.
12. NEW ACCOUNTING PRONOUNCEMENTS
In May 2004, the Emerging Issues Task Force of the FASB came to a consensus
regarding EITF 02-14 "Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock". The consensus of the
task force is that the equity method of accounting is to be used for
investments in common stock or in-substance common stock, effective for
reporting periods beginning after September 15, 2004. The Company currently
has no equity investments other than its consolidated subsidiaries. As such,
this standard has no application to the Company.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs". SFAS
No. 151 requires that items such as idle facility expense, excessive
spoilage double freight, and re-handling costs be recognized as current
period charges and that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The statement is effective for fiscal periods beginning after
June 15, 2005. The Company believes that the application of SFAS No. 151
will have no significant impact on the financial statements.
14
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2004, the FASB issued Statement No. 153, "Exchange of
Non-Monetary Assets". SFAS No. 153 confirms that exchanges of nonmonetary
assets are to be measured based on the fair value of the assets exchanged,
except for exchanges of nonmonetary assets that do not have commercial
substance. Those transactions are to be measured at entity specific values.
The Company believes that the application of SFAS No. 153 will have no
significant impact on the financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," which amends SFAS No. 123, "Accounting for Stock-Based
Compensation." XXXX No. 123, as revised, requires public entities to measure
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The cost will
be recognized over the period during which an employee is required to
provide service in exchange for the award. No compensation cost is
recognized for equity instruments for which employees do not render the
requisite service. The effective date for the Company is the first reporting
period beginning after December 15, 2005. Management expects that the
application of SFAS No. 123 (revised 2004) will have no significant impact
on the financial statements.
13. SUBSEQUENT EVENTS
In July 2005, an outbreak of a bacterial infection, termed the swine flu,
occurred in pigs as well as pork related products in Sichuan Province, PRC.
The bacterial infection led to the deaths of a number of humans in various
locales throughout the PRC as well as the culling of portions of the pig
herd in Sichuan Province. As of August 2005, the swine flu in China appeared
to be under control, up to which time the Company's operations had not been
adversely affected by the swine flu outbreak. The Company procures its pigs
from suppliers in Henan Province where no outbreak of swine flu had been
reported. The Company does not believe that there will be a negative effect
on its operating environment.
15
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 2
CONSOLIDATED BALANCE SHEET (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) 4
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED) 5
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS 7
1
Child, Xxx Xxxxxxx & Xxxxxxxx, PLLC
A PROFESSIONAL LIMITED LIABILITY COMPANY OF CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
0000 X. XXXXX XXXXXX XX., XXXXX X, XXXXXXXXX, XX 00000
PHONE: (000) 000-0000 FAX: (000) 000-0000
--------------------------------------------------------------------------------
0000 X. XXXXXXXX XX., XXXXX 000, XXXX XXXX XXXX, XX 00000
PHONE: (000) 000-0000 FAX: (000) 000-0000
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
Henan Province, People's Republic of China
We have reviewed the accompanying consolidated balance sheet of HENAN ZHONGPIN
FOOD SHARE COMPANY LIMITED as of June 30, 2005, and the related consolidated
statements of operations, equity, and cash flows for the six-month period ended
June 30, 2005. These interim financial statements are the responsibility of the
company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
Child, Xxx Xxxxxxx & Xxxxxxxx, PLLC
Kaysville, Utah
January 19, 2006
2
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30,
------------
ASSETS 2005
------------
Current assets
Cash and cash equivalents $ 13,452,284
Accounts receivable and other receivables, net of
allowance of $471,816 12,014,049
Purchase deposits 122,940
Prepaid expenses and deferred charges 220,209
Inventories, net of allowance of $20,305 4,203,502
Tax refund receivable 1,786
------------
Total current assets 30,014,770
Property, plant and equipment (net) 10,160,172
Construction contracts 4,186,780
Intangible assets 1,690,212
------------
Total assets $ 46,051,934
============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables $ 4,954,137
Accrued liabilities 412,051
Short-term loans payable 21,012,899
Taxes payable 670,668
Deposits from clients 854,231
Long-term loans payable - current portion 1,724,626
------------
Total current liabilities 29,628,612
Long-term loans payable 4,330,779
------------
Total liabilities 33,959,391
Minority interest 352,132
Equity
Registered capital 1,816,425
Additional paid in capital 182,319
Retained earnings 9,741,667
------------
Total equity 11,740,411
------------
Total liabilities and equity $ 46,051,934
============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
3
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months Six months
ended ended
June 30, June 30,
------------- ------------
2005 2005
---- ----
Revenues
Sales revenues $ 18,591,118 $ 32,996,247
Cost of sales 15,574,225 27,383,004
------------- ------------
Gross profit 3,016,893 5,613,243
Operating expenses
General and administrative expenses 276,520 500,169
Operating expenses 327,304 692,663
------------- ------------
Total operating expenses 603,824 1,192,832
------------- ------------
Income from operations 2,413,069 4,420,411
Other income (expense)
Interest income 40,364 89,269
Other expense (17,978) (3,304)
Allowances income 5,435 44,082
Exchange loss (31,103) (42,276)
Interest expense (458,908) (808,658)
------------- ------------
Total other income (expense) (462,190) (720,887)
------------- ------------
Net income before taxes 1,950,879 3,699,524
Provision for income taxes 122,789 122,789
------------- ------------
Net income after taxes 1,828,090 3,576,735
Minority interest in gain 6,801 19,055
------------- ------------
Net income $ 1,821,289 $ 3,557,680
============= ============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
4
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Accumulated
Additional Other
Registered Paid In Retained Comprehensive
Capital Capital Earnings Income Total
------- ------- -------- ------ -----
Balance December 31, 2004 $ 1,816,425 $ 182,319 $ 6,183,987 $ -- $ 8,182,731
Net income for the period -- -- 3,557,680 -- 3,557,680
----------- ----------- ------------- ---------- -----------
Balance June 30, 2005 $ 1,816,425 $ 182,319 $ 9,741,667 $ -- $11,740,411
=========== =========== ============= ========== ===========
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
5
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months
ended
June 30,
-------------
2005
-------------
Cash flows from operating activities:
Net gain $ 3,557,680
Adjustments to reconcile net gain to
net cash provided by operations:
Minority interest 214,854
Depreciation 290,522
Amortization 10,923
Changes in operating assets and liabilities:
Accounts receivable and other receivables (4,122,488)
Purchase deposits 1,580
Prepaid expense and deferred charges (128,046)
Inventories (1,059,548)
Tax refunds receivable (1,786)
Accounts payable and accrued liabilities (380,628)
Accrued liabilities 89,209
Taxes payable (46,193)
Deposits from clients 139,634
-------------
Net cash used in operating activities (1,434,287)
Cash flows from investing activities:
Construction contracts (250,349)
Additions to fixed assets (378,489)
-------------
Net cash used in investing activities (628,838)
-------------
Cash flows from financing activities:
Proceeds from short-term loans 11,893,347
Repayments on long-term loans (1,582,575)
-------------
Net cash provided by financing activities 10,310,772
-------------
Increase in cash and cash equivalents 8,247,647
Cash and cash equivalents, beginning of period 5,204,637
-------------
Cash and cash equivalents, end of period $ 13,452,284
=============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 808,658
=============
Cash paid for income taxes $ 36,232
=============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
6
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to
item 310 of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The operating results for the six months ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2005. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 2004.
1. ORGANIZATION AND NATURE OF OPERATIONS
Henan Zhongpin Food Share Company Limited (the Company) is incorporated in
the People's Republic of China (PRC). The Company is headquartered in Henan
Province and has its corporate office in Changge City. The Company is
principally engaged in the production of pork, pork products and vegetables,
and the retail sales of pork, processed pork products, vegetables and other
grocery items to customers throughout China and other export countries,
either directly or through its subsidiaries (collectively the "Company").
Details of its subsidiaries are as follows:
Domicile and Date Registered Percentage
Name of Incorporation Capital of Ownership
----------------------------------------------------------------------------------------------------------
Henan Zhongpin Industrial Company Limited The PRC 18,000,000 RMB 88.00%
January 17, 2002
Henan Zhongpin Import and Export Trading Company The PRC 5,060,000 RMB 88.93%
August 11, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Henan
Zhongpin Food Share Company Limited, Henan Zhongpin Industrial Company
Limited, and Henan Zhongpin Import and Export Trading Company. All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"). The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
7
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION (Continued)
U.S. GAAP differs from that used in the statutory financial statements of the
Company, which were prepared in accordance with the relevant accounting
principles and financial reporting regulations as established by the Ministry
of Finance of the PRC. Certain accounting principles stipulated under U.S.
GAAP are not applicable in the PRC.
The Yuan (Renminbi) of the People's Republic of China has been determined to
be the functional currency of the Company. There were no material gains or
losses recognized as a result of translating foreign currencies to the U.S.
dollar due to the stability of the Yuan (Renminbi) currency through June 30,
2005. No assurance however, can be given as to the future valuation of the
foreign currencies and how further movements in the foreign currencies could
affect future earnings of the Company.
The balance sheets of the Company and its subsidiaries were translated at
period end exchange rates. Revenues and expenses were translated at exchange
rates in effect during the period, substantially the same as the period end
rates. The consistent exchange rate used has been 8.28 RMB per each US
dollar.
MINORITY INTEREST IN SUBSIDIARIES
The Company records minority interest expense, which reflects the minority
shareholders' portion of the earnings of Henan Zhongpin Industrial Company
Limited and Henan Zhongpin Import and Export Trading Company.
RESTRICTIONS ON TRANSFER OF ASSETS OUT OF CHINA
Dividend payments by the Company are limited by certain statutory regulations
in China. No dividends may be paid by the Company without first receiving
prior approval from the Foreign Currency Exchange Management Bureau. Dividend
payments are restricted to 85% of profits, after tax.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
8
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SIGNIFICANT ESTIMATES
Several areas require significant management estimates relating to
uncertainties for which it is reasonably possible that there will be a
material change in the near term. The more significant areas requiring the
use of management estimates related to the valuation of equipment, accrued
liabilities and the useful lives for amortization and depreciation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is stated at cost, net of allowance for doubtful
accounts. Based on current practice in the PRC, management provides for an
allowance for doubtful accounts equivalent to those accounts that are not
collected within one year.
INVENTORIES
Inventories are stated at the lower of cost, determined on a weighted average
basis, and net realizable value. Work-in-progress and finished goods are
composed of direct material, direct labor and an attributable portion of
manufacturing overhead. Net realizable value is the estimated selling price,
in the ordinary course of business, less estimated costs to complete and
dispose.
LAND USE RIGHTS
The Company adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), effective January 1, 2002. Under SFAS 142
goodwill and indefinite lived intangible assets are not amortized, but are
reviewed annually for impairment, or more frequently, if indications of
possible impairment exist. The Company has performed the requisite annual
transitional impairment tests on intangible assets and made the impairment
adjustments as necessary.
REVENUE RECOGNITION
The Company recognizes revenue as earned when the following four criteria are
met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the services have been rendered; (3) the seller's price to the
buyer is fixed or determinable; and (4) collectibility is reasonably assured.
9
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related
groups of assets, may not be recoverable. Under the provisions of SFAS No.
144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Company recognizes an "impairment charge" when
the expected net undiscounted future cash flows from an asset's use and
eventual disposition are less than the asset's carrying value and the asset's
carrying value exceeds its fair value. Measurement of fair value for an asset
or group of assets may be based on appraisal, market values of similar assets
or estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset or assets.
Expenditures for maintenance, repairs and betterments, which do not
materially extend the normal useful life of an asset, are charged to
operations as incurred. Upon sale or other disposition of assets, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Depreciation and amortization are provided for financial reporting purposes
primarily on the straight-line method over the estimated useful lives ranging
from 5 to 50 years.
OPERATING LEASES
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
INCOME TAXES
Income tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between assets and
liabilities that are recognized for financial reporting purposes and the
amounts that are recognized for income tax purposes. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," these deferred taxes are measured by applying currently
enacted tax laws.
The Company withholds and pays income taxes on its employees' wages, which
funds the Chinese government's sponsored health and retirement programs of
all Henan Zhongpin employees. For Henan Zhongpin employees, the Company was
obligated to make contributions to the social insurance bureau under the laws
of the PRC for pension and retirement benefits.
10
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REGISTERED CAPITAL
Companies in the PRC are not held by stock ownership as is the case in the
US. Those creating a company register and pay in a given amount of required
registered capital at formation of the company, as required by laws in the
PRC governing business entity formation.
11
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 2
CONSOLIDATED BALANCE SHEET (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (UNAUDITED) 4
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED) 5
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS 7
1
Child, Xxx Xxxxxxx & Xxxxxxxx, PLLC
A PROFESSIONAL LIMITED LIABILITY COMPANY OF CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
0000 X. XXXXX XXXXXX XX., XXXXX X, XXXXXXXXX, XX 00000
PHONE: (000) 000-0000 FAX: (000) 000-0000
--------------------------------------------------------------------------------
0000 X. XXXXXXXX XX., XXXXX 000, XXXX XXXX XXXX, XX 00000
PHONE: (000) 000-0000 FAX: (000) 000-0000
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
Henan Province, People's Republic of China
We have reviewed the accompanying consolidated balance sheet of HENAN ZHONGPIN
FOOD SHARE COMPANY LIMITED as of September 30, 2005, and the related
consolidated statements of operations and comprehensive income, equity, and cash
flows for the nine-month period ended September 30, 2005. These interim
financial statements are the responsibility of the company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
Child, Xxx Xxxxxxx & Xxxxxxxx, PLLC
Kaysville, Utah
January 19, 2006
2
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30,
--------------
ASSETS 2005
--------------
Current assets
Cash and cash equivalents $ 17,377,991
Accounts receivable and other receivables, net of allowance of
$471,816 12,499,999
Purchase deposits 151,194
Prepaid expenses and deferred charges 238,763
Inventories, net of allowance of $20,305 5,906,100
Tax refund receivable 18,985
--------------
Total current assets 36,193,032
Property, plant and equipment (net) 10,276,255
Construction contracts 5,924,057
Intangible assets 1,754,423
--------------
Total assets $ 54,147,767
==============
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables $ 4,689,379
Accrued liabilities 3,187,523
Short-term loans payable 25,209,629
Taxes payable 820,391
Deposits from clients 1,010,132
Long-term loans payable - current portion 690,112
--------------
Total current liabilities 35,607,166
Long-term loans payable 4,427,018
--------------
Total liabilities 40,034,184
Minority interest 357,090
Equity
Registered capital 1,816,425
Additional paid in capital 182,319
Retained earnings 11,503,033
Accumulated other comprehensive income 254,716
--------------
Total equity 13,756,493
--------------
Total liabilities and equity $ 54,147,767
==============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
3
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
2005 2005
---- ----
Revenues
Sales revenues $ 18,188,425 $ 51,184,672
Cost of sales 15,300,514 42,683,518
------------ ------------
Gross profit 2,887,911 8,501,154
Operating expenses
General and administrative expenses 297,373 797,542
Operating expenses 401,293 1,093,956
------------ ------------
Total operating expenses 698,666 1,891,498
------------ ------------
Income from operations 2,189,245 6,609,656
Other income (expense)
Interest income 62,725 151,994
Other expense (46,852) (50,156)
Allowances income 2,438 46,520
Exchange loss -- (42,276)
Interest expense (386,734) (1,195,392)
------------ ------------
Total other income (expense) (368,423) (1,089,310)
------------ ------------
Net income before taxes 1,820,822 5,520,346
Provision for income taxes 54,498 177,287
------------ ------------
Net income after taxes 1,766,324 5,343,059
Minority interest in gain 4,958 24,013
------------ ------------
Net income $ 1,761,366 $ 5,319,046
============ ============
Foreign currency translation adjustment 254,716 254,716
------------ ------------
Comprehensive income $ 2,016,082 $ 5,573,762
============ ============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
4
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Accumulated
Additional Other
Registered Paid In Retained Comprehensive
Capital Capital Earnings Income Total
------- ------- -------- ------ -----
Balance December 31, 2004 $ 1,816,425 $ 182,319 $ 6,183,987 $ -- $ 8,182,731
Net income for the period -- -- 5,319,046 254,716 5,573,762
------------ ----------- ------------ ------------ ------------
Balance September 30, 2005 $ 1,816,425 $ 182,319 $ 11,503,033 $ 254,716 $ 13,756,493
============ =========== ============ ============ ============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
5
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine months
ended
September 30,
-------------
2005
-------------
Cash flows from operating activities:
Net gain $ 5,319,046
Adjustments to reconcile net gain to
net cash provided by operations:
Minority interest 219,812
Depreciation 453,933
Amortization 30,055
Changes in operating assets and liabilities:
Accounts receivable and other receivables (4,608,438)
Purchase deposits (26,674)
Prepaid expense and deferred charges (146,600)
Inventories (2,762,146)
Tax refunds receivable (18,985)
Accounts payable and accrued liabilities (645,386)
Accrued liabilities 2,864,681
Taxes payable 103,530
Deposits from clients 295,535
------------
Net cash provided by operating activities 1,078,363
Cash flows from investing activities:
Construction contracts (1,987,626)
Additions to fixed assets (741,326)
------------
Net cash used in investing activities (2,728,952)
------------
Cash flows from financing activities:
Proceeds from short-term loans 16,090,077
Repayments on long-term loans (2,520,850)
------------
Net cash provided by financing activities 13,569,227
------------
Increase in cash and cash equivalents 11,918,638
Effect of rate changes on cash 254,716
Cash and cash equivalents, beginning of period 5,204,637
------------
Cash and cash equivalents, end of period $ 17,377,991
============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,195,392
============
Cash paid for income taxes $ 85,689
============
The notes are an integral part of the unaudited consolidated
financial statements.
See Review Report of Independent Registered Public Accounting Firm.
6
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to
item 310 of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The operating results for the nine months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2005. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 2004.
1. ORGANIZATION AND NATURE OF OPERATIONS
Henan Zhongpin Food Share Company Limited (the Company) is incorporated in
the People's Republic of China (PRC). The Company is headquartered in Henan
Province and has its corporate office in Changge City. The Company is
principally engaged in the production of pork, pork products and vegetables,
and the retail sales of pork, processed pork products, vegetables and other
grocery items to customers throughout China and other export countries,
either directly or through its subsidiaries (collectively the "Company").
Details of its subsidiaries are as follows:
DOMICILE AND DATE REGISTERED PERCENTAGE
NAME OF INCORPORATION CAPITAL OF OWNERSHIP
----------------------------------------------------------------------------------------------------------
Henan Zhongpin Industrial Company Limited The PRC 18,000,000 RMB 88.00%
January 17, 2002
Henan Zhongpin Import and Export Trading Company The PRC 5,060,000 RMB 88.93%
August 11, 2004
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements include the accounts of Henan
Zhongpin Food Share Company Limited, Henan Zhongpin Industrial Company
Limited, and Henan Zhongpin Import and Export Trading Company. All material
intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"). The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
7
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION (Continued)
U.S. GAAP differs from that used in the statutory financial statements of the
Company, which were prepared in accordance with the relevant accounting
principles and financial reporting regulations as established by the Ministry
of Finance of the PRC. Certain accounting principles stipulated under U.S.
GAAP are not applicable in the PRC.
The accompanying consolidated financial statements are presented in United
States (US) dollars. The functional currency is the Yuan Renminbi (RMB) of
the People's Republic of China. The consolidated financial statements are
translated into US dollars from RMB at period-end exchange rates for assets
and liabilities, and weighted average exchange rates for revenues and
expenses. Capital accounts are translated at their historical exchange rates
when the capital transactions occurred.
RMB is not freely convertible into the currency of other nations. All such
exchange transactions must take place through authorized institutions. There
is no guarantee the RMB amounts could have been, or could be, converted into
US dollars at rates used in translation.
MINORITY INTEREST IN SUBSIDIARIES
The Company records minority interest expense, which reflects the minority
shareholders' portion of the earnings of Henan Zhongpin Industrial Company
Limited and Henan Zhongpin Import and Export Trading Company.
RESTRICTIONS ON TRANSFER OF ASSETS OUT OF CHINA
Dividend payments by the Company are limited by certain statutory regulations
in China. No dividends may be paid by the Company without first receiving
prior approval from the Foreign Currency Exchange Management Bureau. Dividend
payments are restricted to 85% of profits, after tax.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
8
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SIGNIFICANT ESTIMATES
Several areas require significant management estimates relating to
uncertainties for which it is reasonably possible that there will be a
material change in the near term. The more significant areas requiring the
use of management estimates related to the valuation of equipment, accrued
liabilities and the useful lives for amortization and depreciation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable is stated at cost, net of allowance for doubtful
accounts. Based on current practice in the PRC, management provides for an
allowance for doubtful accounts equivalent to those accounts that are not
collected within one year.
INVENTORIES
Inventories are stated at the lower of cost, determined on a weighted average
basis, and net realizable value. Work-in-progress and finished goods are
composed of direct material, direct labor and an attributable portion of
manufacturing overhead. Net realizable value is the estimated selling price,
in the ordinary course of business, less estimated costs to complete and
dispose.
LAND USE RIGHTS
The Company adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), effective January 1 2002. Under SFAS 142,
goodwill and indefinite lived intangible assets are not amortized, but are
reviewed annually for impairment, or more frequently, if indications of
possible impairment exist. The Company has performed the requisite annual
transitional impairment tests on intangible assets and made the impairment
adjustments as necessary.
REVENUE RECOGNITION
The Company recognizes revenue as earned when the following four criteria are
met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the services have been rendered; (3) the seller's price to the
buyer is fixed or determinable; and (4) collectibility is reasonably assured.
9
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related
groups of assets, may not be recoverable. Under the provisions of SFAS No.
144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Company recognizes an "impairment charge" when
the expected net undiscounted future cash flows from an asset's use and
eventual disposition are less than the asset's carrying value and the asset's
carrying value exceeds its fair value. Measurement of fair value for an asset
or group of assets may be based on appraisal, market values of similar assets
or estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset or assets.
Expenditures for maintenance, repairs and betterments, which do not
materially extend the normal useful life of an asset, are charged to
operations as incurred. Upon sale or other disposition of assets, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Depreciation and amortization are provided for financial reporting purposes
primarily on the straight-line method over the estimated useful lives ranging
from 5 to 50 years.
OPERATING LEASES
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
INCOME TAXES
Income tax expense is based on reported income before income taxes. Deferred
income taxes reflect the effect of temporary differences between assets and
liabilities that are recognized for financial reporting purposes and the
amounts that are recognized for income tax purposes. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," these deferred taxes are measured by applying currently
enacted tax laws.
The Company withholds and pays income taxes on its employees' wages, which
funds the Chinese government's sponsored health and retirement programs of
all Henan Zhongpin employees. For Henan Zhongpin employees, the Company was
obligated to make contributions to the social insurance bureau under the laws
of the PRC for pension and retirement benefits.
10
HENAN ZHONGPIN FOOD SHARE COMPANY LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REGISTERED CAPITAL
Companies in the PRC are not held by stock ownership as is the case in the
US. Those creating a company register and pay in a given amount of required
registered capital at formation of the company, as required by laws in the
PRC governing business entity formation.
EXHIBIT H
FORM OF PURCHASE PRICE ESCROW AGREEMENT
H-1
EXECUTION COPY
ESCROW AGREEMENT
AGREEMENT dated as of this 30th day of January, 2006, among, STRONG
TECHNICAL INC., a Delaware corporation, having an address c/o Henan Zhongpin
Food Share Co., Ltd., 00 Xxxxxxxx Xxxx, Xxxxxxx Xxxx, Xxxxx Xxxxxxxx, The
People's Republic of China (the "Company"), TN CAPITAL EQUITIES, LTD., a
Delaware corporation, having an address at 000 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000 (the "Placement Agent"), and LAW DEBENTURE TRUST COMPANY OF
NEW YORK, a New York banking corporation, having offices at 000 Xxxxx Xxxxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, as escrow agent (the "Escrow Agent").
WITNESSETH
----------
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement") among the Company, Falcon Link
Investment Limited and the purchasers named therein (the "Investors"), the
Company has agreed to sell to the Investors for an aggregate purchase price of
$27,600,000 its Series A Convertible Preferred Stock and warrants to purchase
its common stock, each in the amounts set forth therein;
WHEREAS, the Company desires to establish a non-interest bearing escrow
account with the Escrow Agent into which the purchase price for the securities
to be issued pursuant to the Purchase Agreement will be deposited by the
Investors to be held and distributed in accordance with the terms and conditions
set forth herein, and the Escrow Agent is willing to establish such an account
and to accept such funds in accordance with the terms hereinafter set forth;
WHEREAS, the Company represents and warrants to the Escrow Agent that it
has not stated to any individual or entity that the Escrow Agent's duties will
include anything other than those duties stated in this Agreement.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. DELIVERY OF ESCROW FUNDS
(a) The Escrow Agent shall receive money directly from the Investors
from time to time by means of check made payable to the order of "Law Debenture
Trust Company of New York, as Escrow Agent for Strong Technical Inc.", or wire
transfer. If by wire transfer, money shall be wired to Law Debenture Trust
Company of New York, 000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Citibank, N.A., ABA Number 000000000, Law Debenture Trust Company Collection
Account, Account No. 00000000, Reference: Strong Technical Inc. Escrow. All such
money shall be deposited into an account at Law Debenture Trust Company of New
York entitled "Strong Technical Inc. Escrow Account" (the "Escrow Account").
(b) The collected funds deposited into the Escrow Account are
hereinafter referred to as the "Escrow Funds".
(c) The Escrow Agent shall have no duty or responsibility to enforce
the collection or demand payment of any funds deposited into the Escrow Account.
If, for any reason, any check deposited into the Escrow Account shall be
returned unpaid to the Escrow Agent, the sole duty of the Escrow Agent shall be
to notify the Company and the Placement Agent.
(d) The Escrow Agent shall confirm in writing to the Company and the
Placement Agent each deposit received by it pursuant to this Section 1 and the
amount of each such deposit.
(e) The Escrow Agent shall invest the Escrow Funds in the Xxxxxxx
Xxxxx Financial Square Prime Obligations Fund, Service Class. Any income
received by the Escrow Agent on investment of the Escrow Funds will be
distributed in accordance with the written instructions signed by the Company
and the Placement Agent and delivered to the Escrow Agent. The Escrow Agent is
authorized to liquidate in accordance with its customary procedures any portion
of the Escrow Fund consisting of investments to provide for payments required to
be made under this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest. The Company and the Placement Agent acknowledge that the fund
investment advisor, custodian, distributor and other service providers as
described in the prospectus previously provided to them in connection with this
Agreement are not affiliates of the Escrow Agent, and investment in the fund
includes approval of the fund's fees and expenses as detailed in the
2
prospectus, including advisory and custodial fees and shareholder service
expenses (which may be so called 12b-1 shareholder service fees), which fees and
expenses are paid to the investment advisor or the Escrow Agent as the case may
be. The shares of the funds are not deposits or obligations of, or guaranteed
by, any bank or the Escrow Agent, or any of its affiliates, nor are they insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency. The investment in the fund involves investment risk, including
possible loss of principal.
(f) The Placement Agent hereby agrees to allow the Company to instruct
the Escrow Agent in matters pertaining to this Agreement, so long as such
instructions are made in writing, signed by an authorized person as designated
in Exhibit B, and contain the signature and/or acknowledgement of the Placement
Agent.
2. RELEASE OF ESCROW FUNDS. The Escrow Funds shall be paid by the Escrow
Agent in accordance with the following:
(a) Funds on deposit in the Escrow Account shall be withdrawn by the
Escrow Agent and transferred only in accordance with this Section 2.
(b) At any time following the deposit of at least $20 million into the
Escrow Account pursuant to Section 1 hereof, the Company and the Placement Agent
may jointly deliver to the Escrow Agent a written direction substantially in the
form of Exhibit A attached hereto, directing the Escrow Agent to release funds
from the Escrow Account. The Escrow Agent shall be entitled to rely,
exclusively, on any representation made by the Company and the Placement Agent
in relation to the release of funds from the Escrow Account, and shall release
funds from the Escrow Account from time to time as directed in any such joint
written direction from the Company and the Placement Agent.
(c) The Escrow Agent shall not be required to pay any uncollected
funds or any funds which are not available for withdrawal.
(d) Notwithstanding the provisions of Section 2(b) hereof, if at least
$20 million shall not have been deposited into the Escrow Account on or before
February 3, 2006, the Escrow Agent shall return to each Investor all funds
deposited into the Escrow Account by such Investor. All such funds shall be sent
by wire transfer to such accounts as the Placement Agent shall direct the Escrow
Agent in writing.
3
3. ACCEPTANCE B THE ESCROW AGENT. The Escrow Agent hereby accepts and
agrees to perform its obligations hereunder, provided that:
(a) The Escrow Agent may act in reliance upon any signature believed
by it to be genuine, and may assume that any person who has been designated by
the Company and the Placement Agent to give any written instructions, notice or
receipt, or make any statements in connection with the provisions hereof has
been duly authorized to do so. The Escrow Agent shall have no duty to make
inquiry as to the genuineness, accuracy or validity of any statements or
instructions or any signatures on statements or instructions. The names and true
signatures of each individual authorized to act on behalf of the Company and the
Placement Agent are stated in Exhibit B, which is attached hereto and made a
part hereof.
(b) The Escrow Agent may act relative hereto in reliance upon advice
of counsel in deference to any matter connected herewith. The Escrow Agent shall
not be liable for any mistake of fact or error of judgment or law, or for any
acts or omissions of any kind, unless caused by its willful misconduct or gross
negligence.
(c) The Company agrees to indemnify and hold the Escrow Agent
harmless from and against any and all claims, losses, costs, liabilities,
damages, suits, demands, judgments or actual out-of-pocket expenses (including
but not limited to reasonable attorney's fees) claimed against or incurred by
the Escrow Agent arising out of or related, directly or indirectly, to this
Agreement, unless caused by the Escrow Agent's willful misconduct or gross
negligence.
(d) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder, the Escrow Agent shall be entitled to refrain from
taking any action other than to keep safely the Escrow Funds until it shall be
directed otherwise by (i) a final non-appealable order of a court of competent
jurisdiction, or (ii) a written agreement executed by the other parties hereto
directing delivery of the Escrow Funds, in which event the Escrow Agent shall
disburse the Escrow Funds in accordance with such order or agreement.
(e) The Escrow Agent shall have no duty, responsibility or obligation
to interpret or enforce the terms of any agreement other than the Escrow Agent's
obligations hereunder, and the Escrow Agent shall not be required to make a
request that any monies be delivered to the Escrow Account, it being agreed that
the sole duties and responsibilities of the Escrow Agent shall be (i) to accept
checks and wire transfers delivered to the Escrow Agent for
4
the Escrow Account and deposit said checks and wire transfers into the Escrow
Account, (ii) to notify the Company and the Placement Agent of its receipt of
funds and of its receipt of checks returned unpaid, and (iii) to disburse or
refrain from disbursing the Escrow Funds in accordance with Section 2 hereof,
PROVIDED THAT the checks received by the Escrow Agent have been collected and
are available for withdrawal.
4. RESIGNATION AND TERMINATION OF THE ESCROW
(a) RESIGNATION. The Escrow Agent may resign at any time by giving 30
days' written notice of such resignation to the Company and the Placement Agent.
Upon providing such notice, the Escrow Agent shall have no further obligation
hereunder except to hold the Escrow Funds which it has received as of the date
on which it provided the notice of resignation as depositary. In such event, the
Escrow Agent shall not take any action until the Company and the Placement Agent
have designated a banking corporation, trust company, attorney or other person
as successor (the "Successor Escrow Agent"). Upon receipt of such written
instructions signed by the Company and the Placement Agent, the Escrow Agent
shall promptly deliver the Escrow Funds, net of any outstanding charges, to such
successor and shall thereafter have no further obligations hereunder. If such
instructions are not received within 30 days following the effective date of
such resignation, then the Escrow Agent may deposit the Escrow Funds and any
other amounts held by it pursuant to this Agreement with a clerk of a court of
competent jurisdiction pending the appointment of a Successor Escrow Agent. In
either case provided for in this Section 4, the Escrow Agent shall be relieved
of all further obligations and released from all liability thereafter arising
with respect to the Escrow Funds and all income earned thereon.
(b) TERMINATION. The Company may, with the written consent of the
Placement Agent, terminate the appointment of the Escrow Agent hereunder upon
written notice specifying the date upon which such termination shall take
effect. In the event of such termination, the Company and the Placement Agent
shall, within 30 days of such notice, appoint a Successor Escrow Agent and the
Escrow Agent shall, upon receipt of written instructions signed by the Company
and the Placement Agent turn over to such Successor Escrow Agent all of the
Escrow Funds; PROVIDED, HOWEVER, that if the Company and the Placement Agent
fail to appoint a Successor Escrow Agent within such 30-day period, such
termination notice shall be
5
null and void and the Escrow Agent shall continue to be bound by all of the
provisions hereof. Upon receipt of the Escrow Funds, the Successor Escrow Agent
shall become the Escrow Agent hereunder and shall be bound by all of the
provisions hereof and the original Escrow Agent shall be relieved of all further
obligations and released from all liability thereafter arising with respect to
the Escrow Funds.
5. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to be duly given when received by hand delivery, by facsimile (when
confirmed by return facsimile) followed by first-class mail, by nationally
recognized overnight courier service or by prepaid registered or certified
mail, return receipt requested to the addresses set forth below:
If to the Company:
Strong Technical Inc.
c/o Henan Zhongpin Food Share Co., Ltd.
00 Xxxxxxxx Xxxx
Xxxxxxx Xxxx, Xxxxx Province
The People's Republic of China
Attention: Chief Executive Officer
Telecopier: 000 (00) 0000-0000000
Telephone: 000 (00) 0000-0000000
If to the Placement Agent:
TN Capital Equities, Ltd.
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
If to the Escrow Agent:
Law Debenture Trust Company of New York
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Telecopy:(000) 000-0000
6
6. GENERAL
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be entirely performed within such State.
(b) This Agreement, together with the Annex and Exhibits annexed
hereto, sets forth the entire agreement and understanding of the parties in
respect to the matters contained herein and supersedes all prior agreements,
arrangements and understandings relating thereto.
(c) All of the terms and conditions of this Agreement shall be binding
upon, and inure to the benefits of and be enforceable by, the parties hereto.
(d) This Agreement may be amended, modified, superseded or canceled,
and any of the terms or conditions hereof may be waived, only by a written
instrument executed by each party hereto or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver of any party of any condition, or
of the breach of any term contained in this Agreement, whether by conduct or
otherwise, in any one or more instance shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement. No party
may assign any rights, duties or obligations hereunder unless all other parties
have given their prior written consent.
(e) If any provision included in this Agreement shall be determined by
a court of competent jurisdiction to be invalid or unenforceable, it shall not
affect the validity of the remaining provisions.
(f) This Agreement may be executed in several counterparts or by
separate instruments and all of such counter parts and instruments shall
constitute one agreement, binding on all of the parties hereto.
(g) Each Investor is a third-party beneficiary to this Agreement and
is entitled to the rights and benefits hereunder and may enforce the provisions
hereof as if it were a party hereto.
7
7. FEES. At the time the Escrow Account is opened, the Company shall pay
the Escrow Agent the fees stated in Exhibit C, attached hereto. The Company
agrees to pay the Escrow Agent any reasonable fees, expenses, and charges that
may occur in connection with the administration of the Escrow Account, including
the reasonable fees and expenses of the Escrow Agent's counsel or agents. If
said fees are not paid, the Escrow Agent may deduct monies from the Escrow
Account to pay said fees.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
8
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first set forth above.
STRONG TECHNICAL INC.
By:
------------------------------------
Name:
Title:
TN CAPITAL EQUITIES, LTD.
By:
-------------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chief Executive Officer
LAW DEBENTURE TRUST COMPANY OF
NEW YORK, AS ESCROW AGENT
By:
-------------------------------------
Name: Xxxx Xxxxxx
Title: Vice President
9
EXHIBIT A
_______________ ___, 2006
Law Debenture Trust Company of New York
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxx
Fax: 000-000-0000
To Whom It May Concern:
In accordance with the terms of Section 2 of that certain Escrow Agreement
dated as of January 30, 2006 (the "Escrow Agreement") among Strong Technical
Inc. (the "Company"), TN Capital Equities, Ltd. (the "Placement Agent") and Law
Debenture Trust Company of New York, as escrow agent (the "Escrow Agent"), the
Company and the Placement Agent hereby direct the Escrow Agent to release funds
in the amount of $____ to ____ by wire transfer in immediately available funds
to the following account: [Wire Transfer Instructions].
STRONG TECHNICAL INC.
By:
-------------------------------------
Name:
Title:
TN CAPITAL EQUITIES, LTD.
By:
-------------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chief Executive Officer
EXHIBIT B
In connection with the Escrow Agreement dated as of January 30, 2006
among Strong Technical Inc., TN Capital Equities, Ltd., as the Placement Agent,
and Law Debenture Trust Company of New York, as Escrow Agent, the Escrow Agent
is authorized to accept instructions signed or believed by the Escrow Agent to
be signed by the following authorized representatives on behalf of Strong
Technical Inc. and TN Capital Equities, Ltd.:
STRONG TECHNICAL INC.
------------------------------- ----------------------------------------
Name: True Signature
TN CAPITAL EQUITIES, LTD.
------------------------------- ----------------------------------------
Name: Xxxx X. Xxxxxxxxx True Signature
EXHIBIT C
Acceptance fee: ................................................... $0
Administration fee: ............................................... $2,500.00
Transaction fees: ................................................. Waived
Legal Fees: ....................................................... At cost, if
applicable
The acceptance and administration fees are due and payable upon execution
of the Agreement. The administration fee is due and payable upon each
anniversary of the date of the Agreement hereafter until termination of the
Agreement.
Any legal fees incurred with this Agreement are due upon receipt of our
counsel's invoice.
EXHIBIT I
FORM OF CONSENTS TO JURISDICTION
I-1
CONSENT TO JURISDICTION
The undersigned, Henan Zhongpin Food Co., Ltd., a corporation organized under
the laws of the People's Republic of China ("PRC"), as a condition to closing
for the sale of securities by Strong Technical Inc. (the "Company"), a Delaware
corporation and an affiliate of the undersigned, hereby consents to the
non-exclusive jurisdiction of the federal and state courts sitting in the
Borough of Manhattan, The City of New York, United States and any appellate
court from any thereof, and waives any immunity from the jurisdiction of such
courts over any suit, action or proceeding that may be brought in connection
with that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company, Falcon Link Investment Limited and the purchasers listed
therein (the "Purchase Agreement").
The undersigned irrevocably waives, to the fullest extent permitted by law, any
objection to any suit, action, or proceeding that may be brought in connection
with the Purchase Agreement or any of the other Transaction Documents in such
courts whether on the grounds of venue, residence or domicile or on the ground
that any such suit, action or proceeding has been brought in an inconvenient
forum. The undersigned agrees that the final judgment in any such suit, action
or proceeding brought in such court shall be conclusive and binding upon the
undersigned, to the extent it is subject thereto, and may be enforced in any
court to the jurisdiction of which the undersigned is subject by a suit upon
such judgment. Notwithstanding the foregoing, any suit, action or proceeding
brought in connection with the Purchase Agreement or any of the other
Transaction Documents may be instituted in any other court of competent
jurisdiction.
The undersigned further agrees to be subject to the provisions of Section 8.2 of
the Purchase Agreement with respect to any suit, action, or proceeding that may
be brought against it in connection with the Purchase Agreement or any of the
other Transaction Documents.
Dated: January 30, 2006
HENAN ZHONGPIN FOOD CO., LTD.
By:
----------------------
Name:
Title:
CONSENT TO JURISDICTION
The undersigned, Henan Zhongpin Food Share Co., Ltd., a corporation organized
under the laws of the People's Republic of China ("PRC"), as a condition to
closing for the sale of securities by Strong Technical Inc. (the "Company"), a
Delaware corporation and an affiliate of the undersigned, hereby consents to the
non-exclusive jurisdiction of the federal and state courts sitting in the
Borough of Manhattan, The City of New York, United States, and any appellate
court from any thereof, and waives any immunity from the jurisdiction of such
courts over any suit, action or proceeding that may be brought in connection
with that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company, Falcon Link Investment Limited and the purchasers listed
therein (the "Purchase Agreement").
The undersigned irrevocably waives, to the fullest extent permitted by law, any
objection to any suit, action, or proceeding that may be brought in connection
with the Purchase Agreement or any of the other Transaction Documents in such
courts whether on the grounds of venue, residence or domicile or on the ground
that any such suit, action or proceeding has been brought in an inconvenient
forum. The undersigned agrees that the final judgment in any such suit, action
or proceeding brought in such court shall be conclusive and binding upon the
undersigned, to the extent it is subject thereto, and may be enforced in any
court to the jurisdiction of which the undersigned is subject by a suit upon
such judgment. Notwithstanding the foregoing, any suit, action or proceeding
brought in connection with the Purchase Agreement or any of the other
Transaction Documents may be instituted in any other court of competent
jurisdiction.
The undersigned further agrees to be subject to the provisions of Section 8.2 of
the Purchase Agreement with respect to any suit, action, or proceeding that may
be brought against it in connection with the Purchase Agreement or any of the
other Transaction Documents.
Dated: January 30, 2006
HENAN ZHONGPIN FOOD SHARE CO., LTD.
By:
-----------------------
Name:
Title:
CONSENT TO JURISDICTION
The undersigned, Henan Zhongpin Industry Co., Ltd., a corporation organized
under the laws of the People's Republic of China ("PRC"), as a condition to
closing for the sale of securities by Strong Technical Inc. (the "Company"), a
Delaware corporation and an affiliate of the undersigned, hereby consents to the
non-exclusive jurisdiction of the federal and state courts sitting in the
Borough of Manhattan, The City of New York, United States, and any appellate
court from any thereof, and waives any immunity from the jurisdiction of such
courts over any suit, action or proceeding that may be brought in connection
with that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company, Falcon Link Investment Limited and the purchasers listed
therein (the "Purchase Agreement").
The undersigned irrevocably waives, to the fullest extent permitted by law, any
objection to any suit, action, or proceeding that may be brought in connection
with the Purchase Agreement or any of the other Transaction Documents in such
courts whether on the grounds of venue, residence or domicile or on the ground
that any such suit, action or proceeding has been brought in an inconvenient
forum. The undersigned agrees that the final judgment in any such suit, action
or proceeding brought in such court shall be conclusive and binding upon the
undersigned, to the extent it is subject thereto, and may be enforced in any
court to the jurisdiction of which the undersigned is subject by a suit upon
such judgment. Notwithstanding the foregoing, any suit, action or proceeding
brought in connection with the Purchase Agreement or any of the other
Transaction Documents may be instituted in any other court of competent
jurisdiction.
The undersigned further agrees to be subject to the provisions of Section 8.2 of
the Purchase Agreement with respect to any suit, action, or proceeding that may
be brought against it in connection with the Purchase Agreement or any of the
other Transaction Documents.
Dated: January 30, 2006
HENAN ZHONGPIN INDUSTRY CO., LTD.
By:
---------------
Name:
Title:
CONSENT TO JURISDICTION
The undersigned, Henan Zhongpin Imports and Exports Co., Ltd., a corporation
organized under the laws of the People's Republic of China ("PRC"), as a
condition to closing for the sale of securities by Strong Technical Inc. (the
"Company"), a Delaware corporation and an affiliate of the undersigned, hereby
consents to the non-exclusive jurisdiction of the federal and state courts
sitting in the Borough of Manhattan, The City of New York, United States, and
any appellate court from any thereof, and waives any immunity from the
jurisdiction of such courts over any suit, action or proceeding that may be
brought in connection with that certain Securities Purchase Agreement, dated as
of the date hereof, by and among the Company, Falcon Link Investment Limited and
the purchasers listed therein (the "Purchase Agreement").
The undersigned irrevocably waives, to the fullest extent permitted by law, any
objection to any suit, action, or proceeding that may be brought in connection
with the Purchase Agreement or any of the other Transaction Documents in such
courts whether on the grounds of venue, residence or domicile or on the ground
that any such suit, action or proceeding has been brought in an inconvenient
forum. The undersigned agrees that the final judgment in any such suit, action
or proceeding brought in such court shall be conclusive and binding upon the
undersigned, to the extent it is subject thereto, and may be enforced in any
court to the jurisdiction of which the undersigned is subject by a suit upon
such judgment. Notwithstanding the foregoing, any suit, action or proceeding
brought in connection with the Purchase Agreement or any of the other
Transaction Documents may be instituted in any other court of competent
jurisdiction.
The undersigned further agrees to be subject to the provisions of Section 8.2 of
the Purchase Agreement with respect to any suit, action, or proceeding that may
be brought against it in connection with the Purchase Agreement or any of the
other Transaction Documents.
Dated: January 30, 2006
HENAN ZHONGPIN IMPORTS AND EXPORTS TRADE CO., LTD.
By:
-----------------------
Name:
Title:
EXHIBIT J
FORM OF LOCK-UP AGREEMENT
J-1
January 30, 2006
To the Purchasers under
the Securities Purchase Agreement
referred to herein
Re: STRONG TECHNICAL INC.
Dear Sir and Madam:
Reference is made to the Securities Purchase Agreement dated as of January
30, 2006 (the "Purchase Agreement") among Strong Technical Inc. (the "Company"),
Falcon Link Investment Limited and the Purchasers named therein. Terms used
but not defined herein shall have the respective meanings set forth in the
Purchase Agreement. In order to induce the Purchasers to enter into the Purchase
Agreement and to purchase the Shares and Warrants as provided therein, the
undersigned hereby agrees with the Purchaser that:
1. Until twelve (12) months after the date the registration statement
referred to in Section 2.1 of the Registration Rights Agreement (the
"Registration Statement") is declared effective by the Commission (the
"Effective Date"), the undersigned securityholder will, without the prior
written consent of the holders of at least 50% of the outstanding Shares:
(i) offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly
(including by way of swap, pledge or other derivative transactions), or announce
the offering of, any shares of Common Stock of the Company owned by the
undersigned on the date hereof, pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Act"), or otherwise; provided, however,
that gifts or sales or other dispositions exempt from registration pursuant to
Section 4(2) of the Act of securities may be made upon the condition that the
transferees thereof agree with the Purchasers in writing to be bound by the
foregoing restriction with respect to the securities covered by such gifts or
sales or other dispositions in like manner as it applies to the undersigned; or
(ii) exercise any registration rights relating to any securities of
the Company; and
2. So long as the number of shares of Common Stock issuable upon conversion
of the outstanding Shares is greater than 10% of the Company's total issued and
outstanding shares of Common Stock on a fully diluted basis, the undersigned
securityholder will vote all of the of the
voting securities of the Company owned by the undersigned securityholder in
favor of the election of the designee, if any, of the holders of the Shares
(which designee may change from time to time) to the Company's Board of
Directors.
3. The undersigned securityholder hereby represents and warrants that the
undersigned securityholder does not beneficially own or otherwise have the right
to receive any shares of Common Stock, or any economic interest therein or
derivative therefrom, other than those shares of Common Stock specified on the
signature page to this Agreement.
4. The undersigned securityholder and the Company each acknowledges and
agrees that this Agreement is entered into for the benefit of and is enforceable
by the Purchasers and their successors and assigns. Accordingly, the parties
understand and agrees that any Purchaser shall have the right to seek any one or
more remedies for any act in contravention of this Agreement including obtaining
injunctive relief and monetary damages against any one or more of the parties
hereto.
5. Each party hereto shall notify the other and the Purchasers in writing
of any breach or purported breach of this Agreement known to such party.
Very truly yours,
SECURITYHOLDER:
--------------------------------------
Name:
Address: x/x Xxxxx Xxxxxxxx,
00 Xxxxxxxx Xxxx, Xxxxxxx.
Xxxxx Xxxxxxxx, X.X.X.
Telephone: 0 00 00 (000) 000-0000
NOTICES FOR SERVICE OF PROCESS
IN THE U.S.:
c/o of Xxxxxx Xxxx Xxxx, LLC Date: January 30, 2006
000 Xxxxxxxx Xxxxx, 0000
Xxx Xxxx, XX 00000
Telephone: 0(000) 000-0000 Number of shares of Common Stock
Attn: Xxxxxxx Xxxx beneficially owned:
------------------
STRONG TECHNICAL, INC.
By:
-----------------------------------
Name: Xxxxxx Xxx
Title: CEO/Chairman
2
