SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of December 13, 2007, by and among General Steel Holdings, Inc., a Nevada
corporation, with headquarters located at Xxxx 0000, Kun Tai International
Mansion Building, Yi No 12, Xxxx Xxxx Men Xxx Ave., Xxxx Xxxx Xxxxxxxx, Xxxxxxx
000000, Xxxxxx'x Xxxxxxxx of China (the "Company"),
Zuo
Xxxxx Xx and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer"
and
collectively, the "Buyers").
WHEREAS:
A. The
Company and each Buyer are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B. The
Company has authorized a new series of senior convertible notes of the Company,
in the form attached hereto as Exhibit
A
(the
"Notes"),
which
Notes shall be convertible into the Company's common stock, par value $0.001
per
share (the "Common
Stock")
(as
converted, the "Conversion
Shares"),
in
accordance with the terms of the Notes.
C. Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of
the
Notes set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate principal amount of the Notes for all
Buyers shall be $40,000,000) and (ii) warrants, in substantially the form
attached hereto as Exhibit
B
(the
"Warrants"),
to
acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer's name in column (4) of the Schedule of Buyers (as
exercised, collectively, the "Warrant
Shares").
D. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
C
(the
"Registration
Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
E. The
Notes
bear interest, which at the option of the Company, subject to certain
conditions, may be paid in cash or shares of Common Stock (the "Interest
Shares").
F. The
Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant
Shares collectively are referred to herein as the "Securities".
G. The
Notes
will rank senior to all outstanding and future indebtedness of the Company,
secured by a first priority, perfected security interest in certain of the
shares of Common Stock of Zuo Xxxxx Xx, as evidenced by the pledge agreement
attached hereto as Exhibit
D
(the
"Pledge
Agreement").
NOW,
THEREFORE,
the
Company and each Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
(a) Purchase
of Notes and Warrants.
(i) Notes
and Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, shall purchase from the Company on the Closing Date (as defined
below), (x) a principal amount of Notes as is set forth opposite such Buyer's
name in column (3) on the Schedule of Buyers and (y) Warrants to acquire up
to
that number of Warrant Shares as is set forth opposite such Buyer's name in
column (4) on the Schedule of Buyers (the "Closing").
(ii) Closing.
The
date and time of the Closing (the "Closing
Date")
shall
be 10:00 a.m., New York City time, on the date hereof (or such other time and
date as is mutually agreed to by the Company and each Buyer) after notification
of satisfaction (or waiver) of the conditions to the Closing set forth in
Sections 6 and 7 below at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 or such other location as the parties mutually
agree.
(iii) Purchase
Price.
(1) The
aggregate purchase price for the Notes and the Warrants to be purchased by
each
such Buyer at the Closing (the "Purchase
Price")
shall
be the amount set forth opposite each Buyer's name in column (5) of the Schedule
of Buyers. Each Buyer shall pay $1,000 for each $1,000 of principal amount
of
Notes and related Warrants to be purchased by such Buyer at the
Closing.
(2) The
Buyers and the Company agree that the Notes and the Warrants constitute an
"investment unit" for purposes of Section 1273(c)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").
On or
prior to the Closing Date, the Buyers may notify the Company of their
determination of the allocation of the issue price of such investment unit
between the Notes and the Warrants in accordance with Section 1273(c)(2) of
the
Code and Treasury Regulation Section 1.1273-2(h), and neither the Buyers nor
the
Company shall take any position inconsistent with such allocation in any tax
return or in any judicial or administrative proceeding in respect of
taxes.
(b) Form
of Payment.
On the
Closing Date, (i) each Buyer shall pay its Purchase Price to the Company for
the
Notes and the Warrants to be issued and sold to such Buyer at the Closing,
by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions or certified check and (ii) the Company shall
deliver to each Buyer the Notes (allocated in the principal amounts as such
Buyer shall request) which such Buyer is then purchasing hereunder along with
the Warrants (allocated in the amounts as such Buyer shall request) which such
Buyer is purchasing, in each case duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.
-
2
-
2. BUYER'S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that:
(a) Organization,
Validity; Enforcement.
Each
Buyer, as applicable, is an entity duly organized, validly existing and in
good
standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by this Agreement and the Registration
Rights Agreements and otherwise to carry out its obligations hereunder and
thereunder. The execution, delivery and performance by each Buyer of the
transactions contemplated by this Agreement and the Registration Rights
Agreement have been duly authorized by all necessary corporate or similar action
on the part of such Buyer. This Agreement and the Registration Rights Agreement
has been duly executed by each Buyer, and when delivered by each Buyer in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Buyer, enforceable against it in accordance with its
terms,,
except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(b) No
Sale or Distribution.
Such
Buyer is acquiring the Notes and the Warrants, and will acquire the Conversion
Shares issuable upon conversion of the Notes, the Warrant Shares issuable upon
exercise of the Warrants, and the Interest Shares pursuant to the terms of
the
Notes for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and pursuant to the
applicable terms of the Transaction Documents (as defined in Section 3(b)).
Such
Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person (as defined below) to distribute any
of
the Securities.
(c) Accredited
Investor Status.
At the
time each Buyer was offered the Securities, such Buyer was, and at the date
hereof, it is, and on each date on which it exercises any Warrants, is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation
D.
(d) Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.
-
3
-
(e) Information.
Such
Buyer and its advisors and representatives, if any, have been furnished with
all
materials relating to the business, finances and operations of the Company
and
materials relating to the offer and sale of the Securities that have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor
any
other due diligence investigations conducted by such Buyer or its advisors,
if
any, or its representatives shall modify, amend or affect such Buyer's right
to
rely on the Company's representations and warranties contained herein. Such
Buyer understands that its investment in the Securities involves a high degree
of risk and is able to afford a complete loss of such investment. Such Buyer
has
sought such accounting, legal and tax advice as it has considered necessary
to
make an informed investment decision with respect to its acquisition of the
Securities.
(f) No
Governmental Review.
Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(g) Experience
of the Buyers.
Each
Buyers, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Securities, and has so evaluated the merits and risks of such investment. Each
Buyer is able to bear the economic risk of an investment in the Securities
and,
at the present time, is able to afford a complete loss of such
investment.
(h) Transfer
or Resale.
Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred
may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule
144
or Rule 144A promulgated under the 1933 Act, as amended (or a successor rule
thereto) (collectively, "Rule
144");
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made)
may
be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Securities may be pledged in connection with a bona
fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or
any
other Transaction Document, including, without limitation, this Section
2(f).
-
4
-
(i) Legends.
Such
Buyer understands that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the resale of the Conversion
Shares and the Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the "blue sky" laws of any state
and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE
BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of a law firm reasonably acceptable to the Company (with Xxxxxxx Xxxx
& Xxxxx LLP being deemed acceptable), in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or
(iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.
(j) General
Solicitation.
Each
Buyer is not purchasing the Securities as a result of any advertisement,
article
or notice regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or, to such Buyer's knowledge, any other general solicitation or general
advertisement.
-
5
-
(k) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, none of the Buyers has, directly
or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with any of the Buyers, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing from the
time that each Buyer first received a term sheet from the Company or any other
Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof. Notwithstanding the foregoing, in the case
that
any of the Buyers is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Buyer’s assets and the
portfolio managers have no direct knowledge of the investment decisions made
by
the portfolio managers managing other portions of such Buyer’s assets, the
representation set forth above shall only apply with respect to the portion
of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, each Buyer has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction), except that it may have disclosed
the
existence and the terms of this transaction to its officers, directors,
partners, attorneys and other advisors.
(l) No
Conflicts.
The
execution, delivery and performance by such Buyer of this Agreement and the
Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer or (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, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of
any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations
hereunder.
(m) Residency.
Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date:
(a) Organization
and Qualification.
The
Company and its "Subsidiaries"
(which
for purposes of this Agreement means any joint venture or any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds
an
equity or similar interest) are entities duly organized and validly existing
and
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and
to
carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in
good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except
to
the extent that the failure to be so qualified or be in good standing would
not
reasonably be expected to have a Material Adverse Effect. As used in this
Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby or in the other Transaction Documents or by
the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company
has
no Subsidiaries except as set forth on Schedule
3(a).
-
6
-
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Pledge Agreement, the Voting Agreement (as defined below), the Lock-Up
Agreements (as defined below), the Warrants and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes and the Warrants,
the
reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion of the Notes, the reservation for issuance and issuance of
Warrant Shares issuable upon exercise of the Warrants, and the reservation
for
issuance and issuance of Interest Shares pursuant to the terms of the Notes
have
been duly authorized by the Company's Board of Directors and (other than the
filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement) no further filing,
consent, or authorization is required by the Company, its Board of Directors
or
its shareholders. This Agreement and the other Transaction Documents have been
duly executed and delivered by the Company, and constitute the legal, valid
and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
(c) Issuance
of Securities.
The
issuance of the Notes and the Warrants are free from all taxes, liens and
charges with respect to the issue thereof. As of the Closing, a number of shares
of Common Stock shall have been duly authorized and reserved for issuance which
equals or exceeds 120% of the aggregate of the maximum number of shares of
Common Stock issuable (i) upon conversion of the Notes, (ii) upon exercise
of
the Warrants and (iii) as Interest Shares pursuant to the terms of the Notes.
Upon conversion or exercise in accordance with the Notes or the Warrants, as
the
case may be, the Conversion Shares, the Interest Shares and the Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free
from
all preemptive or similar rights, taxes, liens and charges with respect to
the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the accuracy of each of the representations
and
warranties set forth in Section 2 of this Agreement, the offer and issuance
by
the Company of the Securities is exempt from registration under the 1933
Act.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance of the Notes and Warrants
and reservation for issuance and issuance of the Conversion Shares, the Interest
Shares and the Warrant Shares) will not (i) result in a violation of any
certificate of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of its
Subsidiaries, any capital stock of the Company or any of its Subsidiaries or
bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any respect under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is
a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including foreign, federal and state securities laws and
regulations and the rules and regulations of the American Stock Exchange (the
"Principal
Market")
and
applicable laws of the People's Republic of China ("China"))
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected,
except,
in the case of clause (ii) and (iii) above, for such violations, conflicts,
breaches, defaults, losses, terminations of rights thereof, accelerations or
Lien creations which, in the aggregate, would not reasonably be expected to
have
a Material Adverse Effect.
-
7
-
(e) Consents.
Neither
the Company nor any of its Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, other
than such other consents, approvals, filings, declarations or registrations
that, if not obtained, made or given, would not reasonably be expected to have,
in the aggregate, a Material Adverse Effect, and except
for the following consents, authorizations, orders, filings and registrations
(none of which is required to be filed or obtained before the Closing): (i)
the
filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) the filing of a
listing application for the Conversion Shares, Interest Shares and Warrant
Shares with the Principal Market, which shall be done pursuant to the rules
of
the Principal Market and
(iii)
the consents and approvals set forth in Schedule
3(e).
The
Company and its Subsidiaries are unaware of any facts or circumstances that
might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence. The Company is not
in
violation of the listing requirements of the Principal Market and has no
knowledge of any facts that would reasonably lead to delisting or suspension
of
the Common Stock in the foreseeable future. The issuance by the Company of
the
Securities shall not have the effect of delisting or suspending the Common
Stock
from the Principal Market.
(f) Acknowledgment
Regarding Buyer's Purchase of Securities.
The
Company acknowledges and agrees,
partly
in reliance on the information provided by the Buyers,
that
each Buyer is acting solely in the capacity of an arm's length purchaser with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby and that no Buyer is (i) an officer or director of the Company,
(ii)
an "affiliate" of the Company or any of its Subsidiaries (as defined in Rule
144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than
10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the
Securities Exchange Act of 1934, as amended (the "1934
Act")).
The
Company further acknowledges that no Buyer is acting as a financial advisor
or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and
the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each
Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
-
8
-
(g) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its Subsidiaries or 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) in connection with the offer
or
sale of the Securities. The Company shall be responsible for the payment of
any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to
or
arising out of the transactions contemplated hereby, including, without
limitation, placement agent fees payable to Xxxxxxxx Curhan Ford & Co., as
placement agent (the "Agent")
in
connection with the sale of the Securities. The Company shall pay, and hold
each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. The Company acknowledges that it has engaged the Agent
in
connection with the sale of the Securities. Other than the Agent, neither the
Company nor any of its Subsidiaries has engaged any placement agent or other
agent in connection with the sale of the Securities.
(h) No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting
on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations
of
any exchange or automated quotation system on which any of the securities of
the
Company are listed or designated. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any
of
the Securities under the 1933 Act or cause the offering of the Securities to
be
integrated with other offerings.
(i) Dilutive
Effect.
The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Notes, the number of Interest Shares issuable
pursuant to the terms of the Notes and the Warrant Shares issuable upon exercise
of the Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion
of
the Notes in accordance with this Agreement and the Notes and
its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other shareholders of the Company.
(j) Application
of Takeover Protections; Rights Agreement.
Except
as set forth in Schedule
3(j),
the
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Articles of Incorporation
(as
defined in Section 3(r)) or the laws of the state of its incorporation which
is
or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and any Buyer's ownership of the Securities. The
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change
in
control of the Company.
-
9
-
(k) SEC
Documents; Financial Statements.
During
the two (2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and
financial statements, notes and schedules thereto and documents incorporated
by
reference therein being hereinafter referred to as the "SEC
Documents").
As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations
of
the SEC promulgated thereunder applicable to the SEC Documents, and none of
the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of
the SEC with respect thereto. Such financial statements have been prepared
in
accordance with generally accepted accounting principles, consistently applied,
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 exclude 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 its
operations and cash flows for the periods then ended (subject, in the case
of
unaudited statements, to normal year-end audit adjustments).
(l) Absence
of Certain Changes.
Since
December 31, 2006, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company
or
its Subsidiaries. Except as disclosed in Schedule
3(l),
since
December 31, 2006, the Company has not (i) declared or paid any dividends,
(ii)
sold any assets, individually or in the aggregate, in excess of $100,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000. Neither
the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead
a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect
to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), "Insolvent"
means,
with respect to any Person, (i) the present fair saleable value of such Person's
assets is less than the amount required to pay such Person's total Indebtedness
(as defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur
or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
-
10
-
(m) No
Undisclosed Events, Liabilities, Developments or Circumstances.
No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct
of Business; Regulatory Permits.
Neither
the Company nor any of its Subsidiaries is in violation of any term of or in
default under its Articles of Incorporation, any certificate of designations
of
any outstanding series of preferred stock of the Company or the Bylaws or their
organizational charter or bylaws, respectively. Neither the Company nor any
of
its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Without limiting the generality
of
the foregoing, the Company is not in violation of any of the rules, regulations
or requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. During the
two
(2) years prior to the date hereof, (i) the
Common Stock has been designated for quotation on the
Over-The-Counter
Bulletin Board before the Common Stock was listed on the Principal Market and
thereafter the
Principal Market, (ii) trading in the Common Stock has not been suspended by
the
SEC or the Principal Market
since
the listing on the Principal Market and
(iii)
the Company has received no communication, written or oral, from the SEC or
the
Principal Market regarding the suspension or delisting of the Common Stock
from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure
to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Foreign
Corrupt Practices.
Neither
the Company nor any of its Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
-
11
-
(p) Xxxxxxxx-Xxxxx
Act.
The
Company is in compliance with any and all applicable requirements of the
Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any
and
all applicable rules and regulations promulgated by the SEC thereunder that
are
effective as of the date hereof.
(q) Transactions
With Affiliates.
Except
as set forth on Schedule
3(q),
none of
the officers, directors or employees of the Company or any of its Subsidiaries
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers
or
directors), including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of
its
Subsidiaries, any corporation, partnership, trust or other entity in which
any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Equity
Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of
200,000,000 shares of Common Stock, of which as of the date hereof, 34,634,765
are issued and outstanding, no shares are reserved for issuance pursuant to
the
Company's stock option and purchase plans and 233,334 shares are reserved for
issuance pursuant to securities (other than the aforementioned options, the
Notes and the Warrants) exercisable or exchangeable for, or convertible into,
Common Stock. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed
in
Schedule
3(r):
(i)
none of the Company's capital stock is subject to preemptive rights or any
other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or
securities or rights convertible into, or exercisable or exchangeable for,
any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there
are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of
its
Subsidiaries is or may become bound to redeem a security of the Company or
any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's
or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company
has
furnished to the Buyers true, correct and complete copies of the Company's
Articles of Incorporation, as amended and as in effect on the date hereof (the
"Articles
of Incorporation"),
and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"),
and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof
in
respect thereto.
-
12
-
(s) Indebtedness
and Other Contracts.
Except
as disclosed in Schedule
3(s),
neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in
a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule
3(s)
provides
a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (including, without limitation, "capital leases" in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof, including in China.
-
13
-
(t) Absence
of Litigation.
There
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock
or
any of the Company's Subsidiaries or any of the Company's or its Subsidiaries'
officers or directors.
(u) Insurance.
The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any such Subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(v) Employee
Relations.
i)
Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries
believe that their relations with their employees are good. No executive officer
of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
0000
Xxx) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries is, or is now expected to
be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement,
or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
of
its Subsidiaries to any liability with respect to any of the foregoing
matters.
(ii) The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or
in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(w) Title.
The
Company and its Subsidiaries have good and marketable title as permitted under
China law with respect to all real property. The Company and its Subsidiaries
have good and marketable title to all personal property owned by them which
is
material to the business of the Company and its Subsidiaries, in each case
free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the
use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by
the
Company and its Subsidiaries.
-
14
-
(x) Intellectual
Property Rights.
The
Company and its Subsidiaries own or possess adequate rights or licenses to
use
all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship,
inventions, trade secrets and other intellectual property rights ("Intellectual
Property Rights")
necessary to conduct their respective businesses as now conducted. All of the
Company's Intellectual Property Rights and relevant applications therefor have
been duly registered by the China Patent and Trademark Office, or the equivalent
offices of non-US jurisdictions, and have been properly maintained in accordance
with applicable law in China and such other jurisdictions. None of the Company's
registered, or applied for, Intellectual Property Rights have expired or
terminated or have been abandoned, or are expected to expire or terminate or
expected to be abandoned, within three years from the date of this Agreement.
The Company does not have any knowledge of any infringement by the Company
or
its Subsidiaries of Intellectual Property Rights of others. There is no claim,
action or proceeding being made or brought, or to the knowledge of the Company,
being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights. Neither the Company nor any of its Subsidiaries
is
aware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and
its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property
Rights.
(y) Environmental
Laws.
The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each
of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental
Laws"
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into
the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
(z) Subsidiary
Rights.
The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Tax
Status.
The
Company and each of its Subsidiaries (i) has made or filed all China and other
foreign, U.S. federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
-
15
-
(bb) Internal
Accounting and Disclosure Controls.
The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities
at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 0000 Xxx) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated
to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. During the twelve months prior to
the
date hereof neither the Company nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries.
(cc) Ranking
of Notes.
Except
as set forth on Schedule
3(cc),
no
Indebtedness of the Company is senior to or ranks pari
passu
with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
(dd) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or
that
otherwise would be reasonably likely to have a Material Adverse
Effect.
(ee) Investment
Company Status.
The
Company is not, and upon consummation of the sale of the Securities will not
be,
an "investment company," a company controlled by an "investment company" or
an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act
of
1940, as amended.
-
16
-
(ff) Form
S-3 Eligibility.
The
Company is eligible to register the Conversion Shares, the Interest Shares
and
the Warrant Shares for resale by the Buyers using Form S-3 promulgated under
the
1933 Act (subject to cutbacks pursuant to Rule 415 promulgated under the 1933
Act, which are contemplated in the Registration Rights Agreement).
(gg) Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer
of
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes
will
be or will have been complied with.
(hh) Manipulation
of Price.
The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result, or
that could reasonably be expected to cause or result, in the stabilization
or
manipulation of the price of any security of the Company to facilitate the
sale
or resale of any of the Securities, (ii) other than the Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(ii) U.S.
Real Property Holding Corporation.
The
Company is not, has never been, and so long as any Notes remain outstanding,
shall not become a U.S. real property holding corporation within the meaning
of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer's request.
(jj) Disclosure.
The
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Buyers or their agents or counsel with any information
that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities
of
the Company. All disclosure provided to the Buyers regarding the Company or
any
of its Subsidiaries, their business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct in all material aspects and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each press release issued by the
Company or any of its Subsidiaries during the twelve (12) months preceding
the
date of this Agreement did not at the time of release 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 the
light of the circumstances under which they were made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, 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.
-
17
-
(kk) China
Subsidiaries.
(i) Schedule
3(kk)
sets
forth, for each Subsidiary that is incorporated in China, (i) the legal
classification of such entity under the applicable company laws and foreign
investment laws of China, including true and correct copies of the relevant
currently effective business license, registration documents and capital
verification report issued by the relevant China governmental approval authority
for the location in which the Subsidiary maintains an office or premises for
business operations; (ii) the total investment capital (i.e., debt and equity)
and equity (i.e., registered capital); (iii) the holders of record of the equity
(i.e., the registered capital); (iv) the authorized legal representative,
directors, officers, legal address and each business address, as well as the
original China approval authority and China governmental authority with current
jurisdiction over the entity; and (v) any agreements with respect to the
registered capital, including outstanding securities, contracts, commitments
or
arrangements granting any party the right to obtain any equity ownership of
the
Subsidiary.
(ii) For
each
Subsidiary, the holders of record of its registered capital have contributed
in
full its subscribed share of the entity's registered capital pursuant to the
relevant joint venture contract and articles of association, and all such
contributions have been verified and certified by a Chinese registered public
accountant according to applicable China law, approved by all relevant China
governmental authorities and fully paid, and verification certificates have
been
issued to each such holder of record or previous investor accordingly. All
previous transfers or assignments of registered capital have been approved
by
the relevant China governmental authorities and all necessary corporate action.
(iii) Each
Subsidiary incorporated in China is a limited liability company duly organized,
validly existing and in good standing under the applicable company laws and
foreign investment laws of China, has the status of a foreign investment
enterprise (where applicable), and is a legal person with all requisite
corporate power to own, lease and operate its properties and to carry on its
business as now being conducted in each place where its business is conducted.
The Subsidiary and its business operations are in compliance with the terms
and
conditions of its business license, joint venture contract (where applicable)
and articles of association. The construction of the Subsidiary's operating
facilities and operation of its business is and has been in full compliance
with
its relevant feasibility study and business license. Each Subsidiary has
received all authorizations, approvals, license, permits and other rights
(including but not limited to those pertaining to the manufacture, distribution
and sale of telephone equipment and all other products of the Company's
business) from China governmental authorities necessary and appropriate for
the
continued operation of the Company's business.
(iv) All
necessary approvals from China governmental authorities have been received
to
ensure that each Subsidiary will continue to enjoy, to the extent permitted
by
applicable China law, all of the tax clearances, concessions and other benefits
available to such Subsidiary prior to the Closing Date, or otherwise available
under applicable China law to foreign investment enterprises similarly
situated.
(v) Each
Subsidiary is and has been in compliance with applicable China laws relating
to
its relationship to its employees or suppliers or to any governmental taxing
or
customs authority, and relating to any other aspect of its business. Each
Subsidiary is in compliance with applicable China law relating to
anti-competitive practices, price fixing, and environmental matters,
respectively, and, to its knowledge, there are no proceedings pending or
threatened regarding any violation by it of applicable China law, including
work
safety, environmental and employment laws.
-
18
-
(vi) Each
Subsidiary has obtained all required China product registrations for the
products related to its business.
(ll) Bank
Holding Company Act.
Neither
the Company nor any of its affiliates is subject to the Bank Holding Company
Act
of 1956, as amended (the "BHCA")
and to
regulation by the Board of Governors of the Federal Reserve System (the
"Federal
Reserve").
Neither the Company nor any of its affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any class
of
voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal
Reserve. Neither the Company affiliates exercises a controlling influence over
the management or policies of a bank or any entity that is subject to the BHCA
and to regulation by the Federal Reserve.
(mm) Insignificant
Subsidiaries.
The
Company represents that none of General
Steel Investment Co., Ltd., Victory New Holdings Limited, Yangpu Shengtong
Investment Co., Ltd., Tianjin Qiugang Investment Co., Ltd., Shaanxi Yuteng
Commercial Trading Co., Ltd., Shaanxi Yuxin Commercial Trading Co., Ltd.,
Shaanxi Yuxing Commercial Trading Co., Ltd., Environmental Protection Industry
Development Co., Ltd. and Hualong Fire Retardant Materials Co., Ltd. are,
individually or in the aggregate, Significant Subsidiaries (as defined in Rule
1-02 of Regulation S-X) of the Company.
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the conditions to
be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action
as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyers on or
prior
to the Closing Date. The Company shall make all filings and reports relating
to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the Closing Date.
(c) Reporting
Status.
Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares, the Interest Shares and
Warrant Shares and
none
of the Notes or
Warrants is outstanding (the "Reporting
Period"),
the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would no longer require or otherwise permit such
termination, and the Company shall take all actions necessary to maintain its
eligibility to register the Conversion Shares, the Interest Shares and Warrant
Shares for resale by the Buyers on Form S-3 (subject to cutbacks pursuant to
Rule 415 promulgated under the 1933 Act, which are contemplated in the
Registration Rights Agreement).
-
19
-
(d) Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, and not for (A) except as set forth on Schedule
4(d),
the
repayment of any outstanding Indebtedness of the Company or any of its
Subsidiaries or (B) redemption or repurchase of any of its or its Subsidiaries'
equity securities.
(e) Financial
Information.
As long
as any Notes or Warrants are outstanding, the Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period (i) unless the following are filed with the SEC
through XXXXX and are available to the public through the XXXXX system, within
one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB or any
analogous report under the 1934 Act, any interim reports or any consolidated
balance sheets, income statements, shareholders' equity statements and/or cash
flow statements for any period other than annual, any Current Reports on Form
8-K and (ii) copies of any notices and other information made available or
given
to the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders. As used herein, "Business
Day"
means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are authorized or required by law to remain
closed.
(f) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock
are
then listed (subject to official notice of issuance) and shall maintain, in
accordance with the Notes and Warrants, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market.
The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) Fees.
Subject
to Section 8 below, at Closing, the Company shall pay an expense allowance
to
Capital Ventures International (a Buyer) or its designee(s) (in addition to
any
other expense amounts paid to any Buyer prior to the date of this Agreement)
for
all reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and implementation
of
the transactions contemplated by the Transaction Documents and due diligence
in
connection therewith), which amount may be withheld by such Buyer from its
Purchase Price at the Closing. The Company shall be responsible for the payment
of any placement agent's fees, financial advisory fees, or broker's commissions
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees payable to the Agent. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.
-
20
-
(h) Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with
a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to
be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(f) hereof in order to effect a sale,
transfer or assignment of Securities to such pledgee. The Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
(i) Disclosure
of Transactions and Other Material Information.
On or
before 8:30 a.m., New York City time, on the first Business Day following the
date of this Agreement, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of the Notes, the
form
of Warrant, the form of Pledge Agreement, the form of the Voting Agreement
and
the form of the Registration Rights Agreement) as exhibits to such filing
(including all attachments, the "8-K
Filing").
From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
any
of its Subsidiaries or any of their respective officers, directors, employees
or
agents, that is not disclosed in 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 Buyer 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 SEC without the express
prior written consent of such Buyer. If a Buyer has, or believes it has,
received any such material, nonpublic information regarding the Company or
any
of its Subsidiaries, it shall provide the Company with written notice thereof.
The Company shall, within five (5) Trading Days (as defined in the Notes) of
receipt of such notice, make public disclosure of such material, nonpublic
information. In the event of a breach of the foregoing covenant by the Company,
any of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in
the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company,
its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, shareholders
or agents for any such disclosure. Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer 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 any Buyer, 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) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent
of
any applicable Buyer, neither the Company nor any of its Subsidiaries or
affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise.
-
21
-
(j) Additional
Notes; Variable Securities; Dilutive Issuances.
So long
as any Buyer beneficially owns any Securities, the Company will not issue any
Notes other than to the Buyers as contemplated hereby and the Company shall
not
issue any other securities that would cause a breach or default under the Notes.
For so long as any Notes or Warrants remain outstanding, the Company shall
not,
in any manner, issue or sell any rights, warrants or options to subscribe for
or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s)
to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined
in
the Notes)with respect to the Common Stock into which any Note is convertible
or
the then applicable Exercise Price (as defined in the Warrants) with respect
to
the Common Stock into which any Warrant is exercisable. For so long as any
Notes
or Warrants remain outstanding, the Company shall not, in any manner, enter
into
or affect any Dilutive Issuances (as defined in the Notes) if the effect of
such
Dilutive Issuance is to cause, or but for the Securities Limitations (as defined
below) would cause, the Company to be required to issue upon conversion of
any
Note or exercise of any Warrant any shares of Common Stock in excess of that
number of shares of Common Stock which the Company may issue upon conversion
of
the Notes and exercise of the Warrants without breaching the Company's
obligations under the rules or regulations of the Principal Market, in each
case
without giving effect to (y) the limitations on exercise contained in the
Warrants, and (z) the application of any Exercise Floor Price (as defined in
the
Warrants) (the "Securities
Limitations").
For
so long as any Notes or Warrants are outstanding, unless or until the
Shareholder Approval (as defined below) has been obtained, the Company shall
not
take any action if the effect of such action would be to cause the Exercise
Price to be reduced below the Exercise Floor Price, in each case without giving
effect to any Securities Limitations.
(k) Corporate
Existence.
So long
as any Buyer beneficially owns any Securities, the Company shall not be party
to
any Fundamental Transaction (as defined in the Notes) unless the Company is
in
compliance with the applicable provisions governing Fundamental Transactions
set
forth in the Notes and the Warrants.
(l) Reservation
of Shares.
The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 120% of the sum of the number
of shares of Common Stock issuable (i) upon conversion of the Notes issued
at
the Closing, (ii) upon exercise of the Warrants issued at the Closing and (iii)
as
the
maximum number of Interest Shares issuable by the Company pursuant to the terms
of the Notes
(without
taking into account any limitations on the Conversion of the Notes or exercise
of the Warrants set forth in the Notes and Warrants, respectively).
(m) Conduct
of Business.
The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate,
in a
Material Adverse Effect.
-
22
-
(n) Additional
Issuances of Securities.
(i) For
purposes of this Section 4(n), the following definitions shall
apply.
(1) "Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common Stock.
(2) "Options"
means
any rights, warrants or options to subscribe for or purchase Common Stock or
Convertible Securities.
(3) "Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
(ii) From
the
date hereof until the date that is six months following the Effective Date
(as
defined in the Registration Rights Agreement) (the "Trigger
Date"),
the
Company will not, without the written consent of the Buyers or its designees,
directly or indirectly, file any registration statement with the SEC other
than
the Registration statement (as defined in the Registration Rights Agreement).
From the date hereof until the Trigger Date, the Company will not, without
the
written consent of the Buyers or its designees, directly or indirectly, enter
into a Subsequent Placement to the extent registration rights are granted in
such Subsequent Placements. As used herein "Subsequent
Placement"
means
any offer, sell, grant any option to purchase, or otherwise dispose of (or
announce any offer, sale, grant or any option to purchase or other disposition
of) any of its or its Subsidiaries' (other than privately held Subsidiaries,
unless such equity is convertible into, exchangeable for or exercisable for
Common Stock or Common Stock Equivalents) equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Common Stock Equivalents.
(iii) From
the
Closing Date until the date that is six months following the Trigger Date,
the
Company will not, directly or indirectly, effect any Subsequent Placement unless
the Company shall have first complied with this Section 4(n)(iii).
(1) The
Company shall deliver to each Buyer an irrevocable written notice
(the "Offer
Notice")
of any
proposed or intended issuance or sale or exchange (the "Offer")
of the
securities being offered (the "Offered
Securities")
in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers thirty percent (30%) of the Offered Securities,
allocated among such Buyers (a) based on such Buyer's pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the "Basic
Amount"),
and
(b) with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
Amount"),
which
process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
-
23
-
(2) To
accept
an Offer, in whole or in part, such Buyer must deliver a written notice to
the
Company prior to the end of the tenth (10th)
Business Day after the date of the delivery of the Offer Notice (the
"Offer
Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer elects
to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice
of Acceptance").
If
the Basic Amounts subscribed for by all Buyers are less than the total of all
of
the Basic Amounts, then each Buyer who has set forth an Undersubscription Amount
in its Notice of Acceptance shall be entitled to purchase, in addition to the
Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided,
however,
that if
the Undersubscription Amounts subscribed for exceed the difference between
the
total of all the Basic Amounts and the Basic Amounts subscribed for (the
"Available
Undersubscription Amount"),
each
Buyer who has subscribed for any Undersubscription Amount shall be entitled
to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary. Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions
of
the Offer prior to the expiration of the Offer Period, the Company may deliver
to the Buyers a new Offer Notice and the Offer Period shall expire on the third
(3rd)
Business Day after such Buyer's receipt of such new Offer Notice.
(3) The
Company shall have fifteen (15) Business Days from the expiration of the Offer
Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by
the
Buyers (the "Refused
Securities")
pursuant to a definitive agreement(s) (the "Subsequent
Placement Agreement"),
but
only to the offerees described in the Offer Notice (if so described therein)
and
only upon terms and conditions (including, without limitation, unit prices
and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of such Subsequent Placement
Agreement, and (b) either (x) the consummation of the transactions contemplated
by such Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report
on
Form 8-K (or other periodic reports as permitted under the SEC rules) with
such
Subsequent Placement Agreement and any documents contemplated therein filed
as
exhibits thereto.
-
24
-
(4) In
the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(n)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that shall be not less than the number
or
amount of the Offered Securities that such Buyer elected to purchase pursuant
to
Section 4(n)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(n)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of
the
Offered Securities. In the event that any Buyer so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(n)(iii)(1)
above.
(5) Upon
the
closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in
the
Notices of Acceptance, as reduced pursuant to Section 4(n)(iii)(3) above if
the
Buyers have so elected, upon the terms and conditions specified in the Offer.
Notwithstanding anything to the contrary contained in this Agreement, if the
Company does not consummate the closing of the issuance, sale or exchange of
all
or less than all of the Refused Securities, within five (5) Business Days of
the
expiration of the Offer Period, the Company shall issue to the Buyers, the
number or amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(n)(iii)(3) above if the Buyers have so elected,
upon the terms and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the preparation, execution
and delivery by the Company and the Buyers of a purchase agreement relating
to
such Offered Securities reasonably satisfactory in form and substance to the
Buyers and their respective counsel.
(6) Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(n)(iii)(3) above may not be issued, sold or exchanged until
they
are again offered to the Buyers under the procedures specified in this
Agreement.
(7) The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, (x) neither the Subsequent Placement Agreement with respect to such
Offer
nor any other transaction documents related thereto (collectively, the
"Subsequent
Placement Documents")
shall
include any term or provisions whereby any Buyer shall be required to agree
to
any restrictions in trading as to any securities of the Company owned by such
Buyer prior to such Subsequent Placement, and (y) any registration rights set
forth in such Subsequent Placement Documents shall be similar in all material
respects to the registration rights contained in the Registration Rights
Agreement.
-
25
-
(8) Notwithstanding
anything to the contrary in this Section 4(n) and unless otherwise agreed to
by
the Buyers, the Company shall either confirm in writing to the Buyers that
the
transaction with respect to the Subsequent Placement has been abandoned or
shall
publicly disclose its intention to issue the Offered Securities, in either
case
in such a manner such that the Buyers will not be in possession of material
non-public information, by the fifteen
(15th)
Business Day following delivery of the Offer Notice. If by the fifteenth
(15th)
Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received
by
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Buyer with another Offer Notice and each Buyer will again have
the
right of participation set forth in this Section 4(n)(iii). The Company shall
not be permitted to deliver more than one such Offer Notice to the Buyers in
any
60 day period.
(iv) The
restrictions contained in subsections (ii) and (iii) of this Section 4(n) shall
not apply in connection with the issuance of any Excluded Securities (as defined
in the Notes).
(o) Shareholder
Approval.
The
Company shall provide each shareholder entitled to vote at a special or annual
meeting of shareholders of the Company (the "Shareholder
Meeting"),
which
shall be called as promptly as practicable after the date hereof, but in no
event later than six (6) months from the Closing Date (the "Shareholder
Meeting Deadline"),
a
proxy statement, in a form reasonably acceptable to the Buyers after review
by
Xxxxxxx Xxxx & Xxxxx LLP at the expense of the Company, soliciting each such
shareholder's affirmative vote at the Shareholder Meeting for approval of
resolutions (the "Resolutions")
providing for the issuance of all of the Securities as described in the
Transaction Documents in accordance with applicable law and the rules and
regulations of the Principal Market (such
affirmative
approval being referred to herein as the "Shareholder
Approval"
and the
date such approval is obtained, the "Shareholder
Approval Date"),
and
the Company shall use its reasonable best efforts to solicit its shareholders'
approval of such Resolutions and to cause the Board of Directors of the Company
to recommend to the shareholders that they approve the Resolutions. The Company
shall be obligated to seek to obtain the Shareholder Approval by the Shareholder
Meeting Deadline. If, despite the Company's reasonable best efforts, the
Shareholder Approval is not obtained at the Shareholder Meeting, the Company
shall cause an additional Shareholder Meeting to be held each calendar quarter
thereafter until Shareholder Approval is obtained.
(p) Voting
Agreement.
The
Company shall use its reasonable best efforts to effectuate the transactions
contemplated by the Voting Agreement, substantially in the form attached hereto
as Exhibit
E
(the
"Voting
Agreement"),
executed by the Company and and the Shareholders set forth on Schedule
4(p)
(the
"Shareholders").
The
Company shall not amend or waive any provision of the Voting Agreement and
shall
enforce the provisions of the Voting Agreement in accordance with its terms.
If
the Shareholders breach any provisions of the Voting Agreement, the Company
shall promptly use its best efforts to seek specific performance of the terms
of
the Voting Agreement in accordance with Section 4.02 thereof. In addition,
if
the Company receives any notice from the Shareholders pursuant to the Voting
Agreement, the Company shall promptly, but in no event later than two (2)
Business Days, deliver a copy of such notice to each Buyer.
-
26
-
(q) Lock-Up.
The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
and shall enforce the provisions of each of the Lock-Up Agreements in accordance
with their terms. If any officer or director breaches any provisions of any
of
the Lock-Up Agreements, the Company shall promptly use its best efforts to
seek
specific performance of the terms of such Lock-Up Agreement.
(r) Trading
in Common Stock.
(i) For
so
long as such Buyer owns any Notes, such Buyer shall not maintain a Net Short
Position. For purposes hereof, a "Net
Short Position"
by a
person means a position whereby such person has executed one or more sales
of
Common Stock that is marked as a short sale and that is executed at a time
when
such Buyer has no equivalent offsetting long position in the Common Stock or
contract for the foregoing. For purposes of determining whether a Buyer has
an
equivalent offsetting long position in the Common Stock, all Common Stock (i)
that is owned by such Buyer, (ii) that may be issued as Interest Shares pursuant
to the terms of the Notes to the Buyer or (iii) that would be issuable upon
conversion or exercise in full of all Securities then held by such Buyer
(assuming that such Securities were then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any
conversion or exercise price adjustments that would take effect given only
the
passage of time) shall be deemed to be held long by such Buyer.
(ii) For
the
thirty (30) day period immediately preceding the Adjustment Date (as defined
in
the Notes), each Buyer, severally and not jointly with the other Buyers,
covenants that neither it nor any affiliate acting on its behalf or pursuant
to
any understanding with it will execute any sales of Common Stock, including
"short sales" as defined in Rule 200 of Regulation SHO under the 1934 Act.
Notwithstanding the foregoing, in the case of a Buyer that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of such Buyer's assets and the portfolio managers have no direct knowledge
of
the investment decisions made by the portfolio managers managing other portions
of such Buyer's assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made
the
investment decision to purchase the Securities covered by this
Agreement.
(iii) For
the
thirty (30) day period immediately preceding the Adjustment Date,
the
Company shall not,
nor
shall any affiliate of the Company or any Person acting on behalf of or pursuant
to any understanding with the Company, purchase, directly
or indirectly, any
shares
of Common Stock or any securities convertible, exercisable or exchangeable
for
shares of Common Stock.
(s) Restriction
on Redemption and Cash Dividends.
So long
as any Notes are outstanding, the Company shall not, directly or indirectly,
redeem or declare or pay any cash dividend or distribution on, the Common Stock
without the prior express written consent of the holders of Notes representing
not less than a majority of the aggregate principal amount of the
Notes.
-
27
-
(t) Collateral
Agent.
(i) Each
Buyer hereby (a) appoints Xxxxxx Bay Fund LP, as the collateral agent hereunder
and under the Pledge Agreement (in such capacity, the "Collateral
Agent"),
and
(b) authorizes the Collateral Agent (and its officers, directors, employees
and
agents) to take such action on such Buyer's behalf in accordance with the terms
hereof and thereof. The Collateral Agent shall not have, by reason hereof or
the
Pledge Agreement, a fiduciary relationship in respect of any Buyer. Neither
the
Collateral Agent nor any of its officers, directors, employees and agents shall
have any liability to any Buyer for any action taken or omitted to be taken
in
connection hereof or the Pledge Agreement except to the extent caused by its
own
gross negligence or willful misconduct, and each Buyer agrees to defend,
protect, indemnify and hold harmless the Collateral Agent and all of its
officers, directors, employees and agents (collectively, the "Collateral
Agent Indemnitees")
from
and against any losses, damages, liabilities, obligations, penalties, actions,
judgments, suits, fees, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses) incurred by such Collateral
Agent Indemnitee, whether direct, indirect or consequential, arising from or
in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The
Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by
it
in good faith to be genuine and correct and to have been signed, sent or made
by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Transaction Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.
(iii) The
Collateral Agent may resign from the performance of all its functions and duties
hereunder and under the Notes and the Pledge Agreement at any time by giving
at
least ten (10) Business Days prior written notice to the Company and each holder
of the Notes. Such resignation shall take effect upon the acceptance by a
successor Collateral Agent of appointment as provided below. Upon any such
notice of resignation, the holders of a majority of the outstanding principal
under the Notes shall appoint a successor Collateral Agent. Upon the acceptance
of the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations under this Agreement, the Notes
and
the Pledge Agreement. After any Collateral Agent's resignation hereunder, the
provisions of this Section 4(t) shall inure to its benefit. If a successor
Collateral Agent shall not have been so appointed within said ten (10) Business
Day period, the retiring Collateral Agent shall then appoint a successor
Collateral Agent who shall serve until such time, if any, as the holders of
a
majority of the outstanding principal under the Notes appoint a successor
Collateral Agent as provided above.
(u) Good
Standing Certificate of Victory New Holding Limited.
The
Company shall, within thirty (30) calendar days after the Closing Date (the
"Extended
Delivery Date"),
deliver to the Buyers a certificate evidencing the formation and good standing
of Victory New Holding, Limited., a Subsidiary of the Company organized under
the laws of the British Virgin Islands, in the British Virgin Islands issued
by
the Secretary of State (or comparable office) of such jurisdiction, as of a
date
within 10 days of the Extended Delivery Date.
-
28
-
(v) Successor
Collateral Agent.
The
Company and Zuo Xxxxx Xx each hereby covenant and agree to take all actions
as
promptly as practicable reasonably requested by the Collateral Agent to secure
a
successor Collateral Agent satisfactory to the Buyers, in their sole discretion,
including, without limitation, by paying all fees of such successor Collateral
Agent, by having the Company agree to indemnify any successor Collateral Agent
and by each of the Company and Zuo Xxxxx Xx executing a collateral agency
agreement or similar agreement and/or any amendment to the Pledge Agreement
reasonably requested or required by the successor Collateral Agent.
(w) Delivery
of Pledged Shares.
No
later than five (5) Business Days after the Closing Date, the Company shall
cause Zuo Xxxxx Xx, and Zuo Xxxxx Xx hereby covenants and agrees, to deliver
the
Pledged Shares (as defined in the Pledge Agreement) to the Collateral Agent
duly
manually endorsed for transfer on the back of the stock certificate or on a
stock power to be attached to such stock certificate, in each case duly executed
in the name that appears on the face of such certificate, including a Medallion
Guarantee stamp placed below the signature on the back of such certificate
or
below the signature on any accompanying stock power.
5. REGISTER;
TRANSFER AGENT INSTRUCTIONS.
(a) Register.
The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes
and the
Warrants have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
(b) Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares, the Interest Shares and the Warrant Shares issued at the
Closing or upon conversion of the Notes or exercise of the Warrants in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit
F
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions
to
give effect to Section 2(h) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment
or
transfer of the Securities in accordance with Section 2(h), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue
one
or more certificates or credit shares to the applicable balance accounts at
DTC
in such name and in such denominations as specified by such Buyer to effect
such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares, Interest Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that
a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.
-
29
-
6. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Notes and the related
Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(ii) Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Capital Ventures International the amounts withheld
pursuant to Section 4(g)) for the Notes and the related Warrants being purchased
by such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iii) The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all 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 speak
as of a specific date, which shall be true and correct as of such specified
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.
7. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Notes and
the
related Warrants at the Closing is subject to the satisfaction, at or before
the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer
at
any time in its sole discretion by providing the Company with prior written
notice thereof:
-
30
-
(i) The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents, (ii) the Notes (allocated in such principal amounts
as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the related Warrants (allocated in such amounts
as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.
(ii) Such
Buyer shall have received (a) the opinion of Xxxxxx Xxxxxxxxx, Esq., the
Company's outside Nevada counsel, dated as of the Closing Date, in substantially
the form of Exhibit G-1
attached
hereto, (b) the opinion of Xxxxx & XxXxxxxx, the Company's outside U.S.
counsel, dated as of the Closing Date, in substantially the form of Exhibit G-2
attached
hereto and (c) opinions of Tianjin Xxx Xx, the Subsidiaries' outside China
counsel, dated as of the Closing Date, in substantially the form of Exhibit G-3
attached
hereto;
(iii) The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit F
attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(iv) The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company in its jurisdiction of formation
issued by the Secretary of State (or comparable office) of such jurisdiction,
as
of a date within 10 days of the Closing Date.
(v) The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by
the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within 10 days of the Closing
Date.
(vi) The
Company shall have delivered to such Buyer a certified copy of the Articles
of
Incorporation as certified by the Secretary of State (or equivalent office)
of
Nevada within ten (10) days of the Closing Date.
(vii) The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to such Buyer, (ii) the Articles
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit H.
(viii) The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all 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 speak
as of a specific date, which shall be true and correct as of such specified
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit
I.
-
31
-
(ix) The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of Shares of Common Stock outstanding as of a date
within five days of the Closing Date.
(x) The
Voting Agreement shall have been executed and delivered to such Buyer by the
Company and each of the Shareholders.
(xi) Each
of
Zuo Xxxxx Xx, Xxxx Xxxxxx, Xxx Xx Xxxxx, Xxxx Hai Du, Xxxx Xxx, Xxxx Xxxx and
Wen Xxxx Xxx shall have entered into a Lock-Up Agreement in the form attached
hereto as Exhibit
J
(the
"Lock-Up
Agreements").
(xii) The
Pledge Agreement shall have been executed and delivered to such Buyer by Zuo
Xxxxx Xx and the Collateral Agent.
(xiii) The
shares of Common Stock (I) shall be designated for quotation or listed on the
Principal Market and (II) shall not have been suspended, as of the Closing
Date,
by the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened, as
of
the Closing Date, either (A) in writing by the SEC or the Principal Market
or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.
(xiv) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
(xv) The
Company shall have delivered to such Buyer such other documents relating to
the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.
8. TERMINATION.
In the
event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) Business Days from the date hereof due to the Company's or
such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided,
however,
that if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyers for the expenses
described in Section 4(g) above.
-
32
-
9. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. The
Company hereby appoints CT Corporation System , with offices at 000 Xxxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 as its agent for service of process
in New York
Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement is prohibited by law or otherwise determined to
be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does
not
substantially impair the respective expectations or reciprocal obligations
of
the parties or the practical realization of the benefits that would otherwise
be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).
-
33
-
(e) Entire
Agreement; Amendments.
This
Agreement and the other Transaction Documents supersede all other prior oral
or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement, the other Transaction Documents and the instruments referenced herein
and therein contain the entire understanding of the parties with respect to
the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the holders of at least a majority of the aggregate number
of
Registrable Securities issued and issuable hereunder and under the Notes and
Warrants, and any amendment to this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on all Buyers and holders
of
Securities as applicable; provided,
however,
any
amendment to this Agreement that adversely or disproportionately affects any
Buyer shall require the prior written consent of such Buyer. No provision hereof
may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. No such amendment shall be effective to the extent
that it applies to less than all of the holders of the applicable Securities
then outstanding. 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 also is offered to all
of
the parties to the Transaction Documents, holders of Notes or holders of the
Warrants, as the case may be. The Company has not, directly or indirectly,
made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth
in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment
or
promise or has any other obligation to provide any financing to the Company
or
otherwise.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
If
to the
Company:
General
Steel Holdings, Inc.
Room
2315, Kun Tai International Mansion Building
Yi
No
12
Xxxx
Xxxx
Men Xxx Ave.
Xxxx
Xxxx
Xxxxxxxx
Xxxxxxx
000000, Xxxxxx'x Xxxxxxxx of China
| Telephone: |
x00-00-0000000
|
| Facsimile: |
x00-00-00000000
|
| Attention: |
Xxxx
Xxxx
|
Copy
to:
Xxxxx
& XxXxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000, XX
| Telephone: |
000
000 0000
|
| Facsimile: |
000
000 0000
|
| Attention: |
Lan
Xxx, Esq.
|
-
34
-
If
to the
Transfer Agent:
Securities
Transfer Corporation
0000
Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx,
XX 00000
| Telephone: |
(000)
000-0000 Ext. 100
|
| Facsimile: |
(000)
000-0000
|
| Attention: |
Xxxxx
X. Xxxxxx Xx.
|
If
to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers,
with
a
copy (for informational purposes only) to:
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
| Telephone: |
(000)
000-0000
|
| Facsimile: |
(000)
000-0000
|
| Attention: |
Xxxxxxx
X. Xxxxx, Esq.
|
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.
Any
document shall be deemed to have been duly served if marked for the attention
of
the agent for service of process at its address (as set forth in Section 9(a))
or such other address in the United States as may be notified to the party
wishing to serve the document and delivered in accordance with the notice
provisions set forth in this Section 9(f).
If
the
Company's agent for service of process at any time ceases for any reason to
act
as such, the Company shall appoint a replacement agent having an address for
service in the United States and shall notify each Buyer in writing of the
name
and address of the replacement agent. Failing such appointment and notification,
each Buyer shall be entitled by notice to the Company to appoint a replacement
agent to act on the Company's behalf. The provisions of this Section 9(f)
applying to service on an agent for service of process apply equally to service
on a replacement agent.
-
35
-
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes
or the Warrants. The Company shall not assign this Agreement or any rights
or
obligations hereunder without the prior written consent of the holders of at
least a majority of the aggregate number of Registrable Securities issued and
issuable hereunder and under the Notes and Warrants, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants). A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be
a
Buyer hereunder with respect to such assigned rights.
(h) 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.
(i) Survival.
Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and covenants set forth in Sections 4, 5 and 9 shall survive the Closing and
the
delivery and exercise of Securities, as applicable. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
(j) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification.
In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of
the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder
of
the Securities and all of their shareholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees")
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or
any other certificate, instrument or document contemplated hereby or thereby
or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought
on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
of
such Buyer or holder of the Securities as an investor in the Company pursuant
to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable
law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as
those
set forth in Section 6 of the Registration Rights Agreement.
-
36
-
(l) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
(m) Remedies.
Each
Buyer and each holder of the Securities shall have all rights and remedies
set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract
and
all of the rights which such holders have under any law. Any Person having
any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all
of
its obligations under the Transaction Documents, any remedy at law may prove
to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any
such
case without the necessity of proving actual damages and without posting a
bond
or other security.
(n) Rescission
and
Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever any Buyer exercises
a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Buyer may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand
or
election in whole or in part without prejudice to its future actions and
rights.
(o) Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Buyers hereunder
or
pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any
law
(including, without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment
had
not been made or such enforcement or setoff had not occurred.
-
37
-
(p) Independent
Nature of Buyers' Obligations and Rights.
The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under
any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company will not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect
and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not
be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
(q) Currency.
Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars. All amounts owing under this Agreement or any Transaction
Document shall be paid in US dollars. All amounts denominated in other
currencies shall be converted in the US dollar equivalent amount in accordance
with the Exchange Rate on the date of calculation. "Exchange
Rate"
means,
in relation to any amount of currency to be converted into US dollars pursuant
to this Agreement, the US dollar exchange rate as published in the Wall Street
Journal on the relevant date of calculation.
(r) Judgment
Currency.
(i)
If
for
the purpose of obtaining or enforcing judgment against the Company in any court
in any jurisdiction it becomes necessary to convert into any other currency
(such other currency being hereinafter in this Section 9(r) referred to as
the
"Judgment
Currency")
an
amount due in US Dollars under this Agreement, the conversion shall be made
at
the Exchange Rate prevailing on the Business Day immediately
preceding:
(1) the
date
of actual payment of the amount due, in the case of any proceeding in the courts
of New York or in the courts of any other jurisdiction that will give effect
to
such conversion being made on such date: or
(2) the
date
on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section being hereinafter referred to as the "Judgment
Conversion Date").
-
38
-
(ii)
If
in the
case of any proceeding in the court of any jurisdiction referred to in Section
9(r)(i)(2) above, there is a change in the Exchange Rate prevailing between
the
Judgment Conversion Date and the date of actual payment of the amount due,
the
applicable party shall pay such adjusted amount as may be necessary to ensure
that the amount paid in the Judgment Currency, when converted at the Exchange
Rate prevailing on the date of payment, will produce the amount of US Dollars
which could have been purchased with the amount of Judgment Currency stipulated
in the judgment or judicial order at the Exchange Rate prevailing on the
Judgment Conversion Date.
(iii) Any
amount
due
from the Company under this provision shall be due as a separate debt and shall
not be affected by judgment being obtained for any other amounts due under
or in
respect of this Agreement.
[Signature
Page Follows]
-
39
-
IN
WITNESS WHEREOF,
each
Buyer, Zuo Xxxxx Xx and the Company have caused their respective signature
page
to this Securities Purchase Agreement to be duly executed as of the date first
written above.
|
COMPANY:
|
|
|
GENERAL
STEEL HOLDINGS, INC.
|
|
|
By:
|
/s/ Zuo Xxxxx Xx |
|
Name:
Zuo Xxxxx Xx
|
|
|
Title:
Chief Executive Officer
|
|
IN
WITNESS WHEREOF,
each
Buyer, Zuo Xxxxx Xx and the Company have caused their respective signature
page
to this Securities Purchase Agreement to be duly executed as of the date first
written above.
|
BUYERS:
|
|
|
CAPITAL
VENTURES INTERNATIONAL
|
|
|
By:
|
/s/ Xxxxxx Xxxxxxxx |
|
Name:
/s/
Xxxxxx Xxxxxxxx
|
|
|
Title:
|
|
IN
WITNESS WHEREOF,
each
Buyer, Zuo Xxxxx Xx and the Company have caused their respective signature
page
to this Securities Purchase Agreement to be duly executed as of the date first
written above.
|
XXXXXX
BAY FUND, LP
|
||
|
By:
|
/s/
Xxxx Xxxx
|
|
|
Name:
|
Xxxx
Xxxx
|
|
|
Title:
|
Principal
and Portfolio Manager
|
|
|
XXXXXX
BAY OVERSEAS FUND, LTD.
|
||
|
By:
|
/s/
Xxxx Xxxx
|
|
|
Name:
|
Xxxx
Xxxx
|
|
|
Title:
|
Principal
and Portfolio Manager
|
|
|
WHITEBOX
INTERMARKET
|
||
|
PARTNERS,
LP
|
||
|
By:
|
/s/
Xxxxxx Xxxxxxx
|
|
|
Name:
|
Xxxxxx
Xxxxxxx
|
|
|
Title:
|
Managing
Member of the General Partner
|
|
|
WHITEBOX
HIGH YIELD
|
||
|
PARNTERS,
LP
|
||
|
By:
|
/s/
Xxxxxx Xxxxxxx
|
|
|
Name:
|
Xxxxxx
Xxxxxxx
|
|
|
Title:
|
Managing
Member of the General Partner
|
|
|
WHITEBOX
CONVERTIBLE ARBITRAGE PARTNERS, LP
|
||
|
By:
|
/s/
Xxxxxx Xxxxxxx
|
|
|
Name:
|
Xxxxxx
Xxxxxxx
|
|
|
Title:
|
Managing
Member of the General Partner
|
|
IN
WITNESS WHEREOF,
each
Buyer, Zuo Xxxxx Xx and the Company have caused their respective signature
page
to this Securities Purchase Agreement to be duly executed as of the date first
written above.
|
SOLELY
WITH RESPECT TO SECTIONS 4(v) and 4(w)
|
| /s/ Zuo Xxxxx Xx |
|
Zuo
Xxxxx
Xx
|
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
||||||||||||
|
Buyer
|
Address
and
Facsimile Number
|
|
Aggregate
Principal
Amount
of
Notes
|
|
Number
of Warrant Shares
|
|
Purchase Price
|
|
Legal Representative's Address
and
Facsimile Number
|
|
|||||||
|
Capital
Ventures
International
|
c/o
Heights Capital Management, Inc.
000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxxxx, XX 00000
Attention:
Xxxxxx Xxxxxxxx
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
Residence:
Cayman Islands
|
$
|
15,000,000
|
433,109
|
$
|
15,000,000
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxxxxx Xxxxx, Esq.
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
|
||||||||||
|
Xxxxxx
Bay Fund, LP
|
000
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxx Xxxx
May
Xxx
Facsimile:
000-000-0000
Telephone:
000-000-00000
Residence:
United States
E-mail:
xxxxx@xxxxxxxxxxxxxxxx.xxx
xxxx@xxxxxxxxxxxxxxxx.xxx
|
$
|
4,300,000
|
124,158
|
$
|
4,300,000
|
|||||||||||
|
Xxxxxx
Bay Overseas
Fund,
Ltd.
|
000
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention:
Xxxx Xxxx
May
Xxx
Facsimile:
000-000-0000
Telephone:
000-000-00000
Residence:
Cayman Islands
E-mail:
xxxxx@xxxxxxxxxxxxxxxx.xxx
xxxx@xxxxxxxxxxxxxxxx.xxx
|
$
|
5,700,000
|
164,581
|
$
|
5,700,000
|
|||||||||||
|
Whitebox
Intermarket
Partners,
LP
|
c/o
Whitebox Advisors, LLC
00000
Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx,
XX 00000-0000
Attention:
Xxxx Xxxxxx
Xxx
Xx
Facsimile:
000-000-0000
Telephone:
000-000-0000
Residence:
Tortola, British Virgin Islands
|
$
|
4,000,000
|
115,496
|
$
|
4,000,000
|
|||||||||||
|
Whitebox
Hedged High
Yield
Partners, LP
|
c/o
Whitebox Advisors, LLC
00000
Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx,
XX 00000-0000
Attention:
Xxxx Xxxxxx
Xxx
Xx
Facsimile:
000-000-0000
Telephone:
000-000-0000
Residence:
Tortola, British Virgin Islands
|
$
|
6,000,000
|
173,244
|
$
|
6,000,000
|
|||||||||||
|
Whitebox
Convertible
Arbitrage
Partners, LP
|
c/o
Whitebox Advisors, LLC
00000
Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx,
XX 00000-0000
Attention:
Xxxx Xxxxxx
Xxx
Xx
Facsimile:
000-000-0000
Telephone:
000-000-0000
Residence:
Tortola, British Virgin Islands
|
$
|
5,000,000
|
144,370
|
$
|
5,000,000
|
|||||||||||
|
TOTAL:
|
$
|
40,000,000
|
1,154,958
|
$
|
40,000,000
|
||||||||||||
EXHIBITS
|
Exhibit
A
|
Form
of Notes
|
|
Exhibit
B
|
Form
of Warrants
|
|
Exhibit
C
|
Registration
Rights Agreement
|
|
Exhibit
D
|
Form
of Pledge Agreement
|
|
Exhibit
E
|
Form
of Voting Agreement
|
|
Exhibit
F
|
Irrevocable
Transfer Agent Instructions
|
|
Exhibit
G-1
|
Form
of Company's Outside Nevada Counsel Opinion
|
|
Exhibit
G-2
|
Form
of Company's Outside U.S. Counsel Opinion
|
|
Exhibit
G-3
|
Form
of Subsidiaries'' Outside China Counsel Opinion
|
|
Exhibit
H
|
Form
of Secretary's Certificate
|
|
Exhibit
I
|
Form
of Officer's Certificate
|
|
Exhibit
J
|
Form
of Lock-Up Agreement
|
SCHEDULES
|
Subsidiaries
|
|
|
Schedule
3(e)
|
Consents
|
|
Schedule
3(j)
|
Application
of Takeover Protections; Rights Agreement
|
|
Schedule
3(l)
|
Absence
of Certain Changes
|
|
Schedule
3(q)
|
Transactions
with Affiliates
|
|
Schedule
3(r)
|
Capitalization
|
|
Schedule
3(s)
|
Indebtedness
and Other Contracts
|
|
Schedule
3(cc)
|
Ranking
of Notes
|
|
Schedule
3(ll)
|
China
Subsidiaries
|
|
Use
of Proceeds
|
|
|
Schedule
4(p)
|
List
of Shareholders subject to Voting
Agreement
|
