EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of November
23, 2004, by and among American Oriental Bioengineering Inc., a Nevada
corporation (the "COMPANY"), and the subscribers identified on the signature
page hereto (each a "SUBSCRIBER" and collectively "SUBSCRIBERS")
WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("REGULATION D") as promulgated by the United States Securities and Exchange
Commission (the "COMMISSION") under the Securities Act of 1933, as amended (the
"1933 ACT").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, up to $4,000,000.00 (the "PURCHASE PRICE") of the Company's common
stock, $.001 par value (the "COMMON STOCK" or "SHARES"), and share purchase
warrants in the form attached hereto as EXHIBITS A1 AND A2 (the "WARRANTS"), to
purchase shares of Common Stock (the "WARRANTS SHARES"). The per Share Price
shall be $1.00, subject to adjustment as described in this Agreement. The
Purchase Price shall be payable to the Company on the date hereof (the "CLOSING
DATE"). The Common Stock, the Warrants and the Warrant Shares are collectively
referred to herein as the "SECURITIES"; and
WHEREAS, the aggregate proceeds of the sale of the Common Stock and the
Warrants contemplated hereby may be held in escrow pursuant to the terms of a
Funds Escrow Agreement which may be executed by the parties substantially in the
form attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement, the Company and the Subscribers hereby
agree as follows:
1. PURCHASE AND SALE OF SHARES AND WARRANTS. Subject to the
satisfaction (or waiver) of the conditions to Closing set forth in this
Agreement and the Escrow Agreement, each Subscriber shall purchase the Shares
and Warrants for the portion of the Purchase Price indicated on the signature
page hereto, and the Company shall sell such Shares and Warrants to the
Subscriber. The Purchase Price for the Shares and Warrants shall be paid in
cash. The entire Purchase Price shall be allocated to the Shares.
2. ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by the
parties and pursuant to the terms of the Escrow Agreement, each Subscriber
agrees to make the deliveries required of such Subscriber as set forth in the
Escrow Agreement and the Company agrees to make the deliveries required of the
Company as set forth in the Escrow Agreement.
3. WARRANTS. On the Closing Date the Company will issue Warrants to the
Subscribers. Ten (10) Class A Warrants, and five (5) Class B Warrants will be
issued for each ten (10) Shares issued on the Closing Date. The per Warrant
Share exercise price to acquire a Warrant Share upon exercise of a Class A
Warrant shall be $0.85. The per Warrant Share exercise price to acquire a
Warrant Share upon exercise of a Class B Warrant shall be $1.60. Collectively,
the Class A Warrants and Class B Warrants are referred to herein as Warrants.
The Class A and Class B Warrants shall be exercisable until three (3) years
after the actual effective date of the registration statement described in
Section 11.1(iv) of this Agreement ("ACTUAL EFFECTIVE DATE").
4. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
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(A) INFORMATION ON COMPANY. The Subscriber has been furnished
with or has had access at the XXXXX Website of the Commission to the Company's
Form 10KSB for the year ended December 31, 2003 as filed with the Commission,
together with all subsequently filed Forms 10QSB, 8-K, and filings made with the
Commission available at the XXXXX website (hereinafter referred to collectively
as the "REPORTS"). In addition, the Subscriber has received in writing from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing (such other
information is collectively, the "OTHER WRITTEN INFORMATION"), and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities. The Subscriber has had full opportunity to conduct,
and has conducted, a complete and thorough due diligence investigation of the
Company, and such opportunity has been made available to the Subscriber's
professional representative(s) to ask questions of and receive answers from
representatives of the Company concerning the Company and its financial
condition and prospects, as well as request additional information necessary to
verify the accuracy of the Reports and Other Written Information provided to
Subscriber.
(B) INFORMATION ON SUBSCRIBER. The Subscriber is organized and
validly existing under the laws of its formation. The Subscriber is, and will be
at the time of the issuance of the Common Stock and exercise of any of the
Warrants, an "ACCREDITED INVESTOR", as such term is defined in Regulation D
promulgated by the Commission under the 1933 Act, is experienced in investments
and business matters, has made investments of a speculative nature and has
purchased securities of United States publicly-owned companies in private
placements in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.
(C) PURCHASE OF COMMON STOCK AND WARRANTS. On the Closing
Date, the Subscriber will purchase the Common Stock and Warrants as principal
for its own account and not with a view to any distribution thereof.
(D) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.
(E) SHARES LEGEND. The Shares and the Warrant Shares shall
bear the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE SECURITIES
LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AMERICAN ORIENTAL BIOENGINEERING INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
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(F) WARRANTS LEGEND. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO AMERICAN ORIENTAL BIOENGINEERING INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(G) STOP TRANSFER ORDER. The Securities, when issued prior to
the effectiveness of the "REGISTRATION STATEMENT" (as defined in Section 10 of
this Agreement), will be restricted securities. Subscriber agrees that, in order
to ensure compliance with the restrictions referenced at Section 4(e) & (f)
herein, the Company may issue "stop transfer" instructions to its transfer agent
consistent with the legends. However, under no circumstances may any other
instructions be given to the transfer agent inconsistent with this Section 4(g)
or Section 10.1(a) of this Agreement.
(H) COMMUNICATION OF OFFER. The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicates offer.
(I) AUTHORITY; ENFORCEABILITY. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements _isa_fore_e in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.
(J) RESTRICTED SECURITIES. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless (i) pursuant to an effective registration statement
under the 1933 Act, (ii) such Subscriber provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company, to the effect that a
sale, assignment, pledge or transfer of the Securities may be made without
registration under the 1933 Act, or (iii) Subscriber provides the Company with
reasonable assurances (in the form of seller and broker representation letters)
that the Shares or the Warrant Shares, as the case may be, can be sold pursuant
to (A) Rule 144 pomulgated under the 1933 Act, or (B) Rule 144(k) promulgated
under the 1933 Act, in each case following the applicable holding period set
forth therein. Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an "accredited investor" under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. Any assignee of Subscriber agrees to be bound by the terms of
the Subscription Agreement and shall have all rights of the Subscriber herein.
For the purposes of this Agreement, an "AFFILIATE" of any specified
Subscriber means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such specified
Subscriber. For purposes of this definition, "CONTROL" means the power to direct
the management and policies of ach person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
(K) NO GOVERNMENTAL REVIEW. Each Subscriber understands that
no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.
(L) CORRECTNESS OF REPRESENTATIONS. Each Subscriber represents
as to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to the Closing Date (as hereinafter defined), shall be true
and correct as of the Closing Date.
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(M) PLEDGE. The Company acknowledges and agrees that a
Subscriber may from time to time pledge pursuant to a bona fide margin agreement
with a registered broker dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Act and who agrees to be bound by the
provisions of the Subscription Agreement and, if required under the terms of
such arrangement, such Subscriber may transfer pledged or secured Securities to
the _isa_fo or secured parties. Such a pledge or transfer would not be subject
to approval of the Company and no legal opinion of legal counsel of the _isa_f,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Subscriber's
expense, the Company will execute and deliver such reasonable documentation as a
_isa_f or secured party of Securities my reasonably request in connection with a
pledge or transfer of the Securities, including but not limited to the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Act or other applicable provision of the Act to
appropriately amend the list of selling stockholders thereunder.
(N) SURVIVAL. The foregoing representations and warranties
shall survive the Closing Date for a period of five years.
5. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with each Subscriber that:
(A) DUE INCORPORATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect. For purposes of this Agreement, a "material adverse effect"
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole.
(B) OUTSTANDING STOCK. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable.
(C) AUTHORITY, ENFORCEABILITY. This Agreement, the Common
Stock, the Warrants, the Escrow Agreement and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"TRANSACTION DOCUMENTS") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.
(D) ADDITIONAL ISSUANCES. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding right warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on SCHEDULE 5(D) hereto.
(E) CONSENTS. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the American Stock Exchange, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the Bulletin
Board nor the Company's shareholders is required for the execution by the
Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities.
(F) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under the Transaction Documents by the Company will:
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(I) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, orderlaw, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliate or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lockup" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a material
adverse effect on the Company; or
(II) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company, its subsidiaries or any of its affiliates; or
(III) except as disclosed on Schedule 5(d), result in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any other creditor or equity holder of the Company,
nor result in the acceleration of the due date of any obligation of the Company;
or
(IV) except as disclosed on SCHEDULE 10.1, result in
the activation of any piggy-back registration rights of any person or entity
holding securities of the Company or having the right to receive securities of
the Company.
(G) THE SECURITIES. The Securities upon issuance:
(I) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(II) have been, or will be, duly and validly
authorized and on the date of issuance of the Shares and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable (and if registered pursuant to the 1933 .Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted, provided that each Subscriber complies with the prospectus
delivery requirements of the 1933 Act);
(III) will not have been issued or sold in violation
of any preemptive or other similar rights of the holders of any securities of
the Company; and
(IV) will not subject the holders thereof to personal
liability by reason of being such holders.
(H) LITIGATION. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates which litigation
if adversely determined would have a material adverse effect on the Company.
(I) REPORTING COMPANY. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
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(J) NO MARKET MANIPULATION. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
(K) INFORMATION CONCERNING COMPANY. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(L) DEFAULTS. The Company is not in violation of its articles
of incorporation or bylaws. The Company is (i) not in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default or
violation would have a material adverse effect on the Company, (ii) not in
default with respect to any order of any court, arbitrator or governmental body
or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
material adverse effect on the Company.
(M) NO INTEGRATED OFFERING. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board which if so integrated would eliminate the exemption as
described in Section 6 of this Agreement for the Offering (as defined in Section
7(b) of this Agreement). The Company will not conduct any offering other than
the transactions contemplated hereby that will be integrated with the offer or
issuance of the Securities which if so integrated would impair the exemption for
the Offering.
(N) NO GENERAL SOLICITATION. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of the Securities.
(O) LISTING. The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies and as of the Closing
Date, the Company will satisfy all the requirements for the continued quotation
of its common stock on the Bulletin Board.
(P) NO UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2003 and which, individually or in the aggregate, would reasonably be expected
to have a material adverse effect on the Company's financial condition.
(Q) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31,
2003, no material event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, operations or financial condition,
that, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
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(R) CAPITALIZATION. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date is
set forth on SCHEDULE 5(S) hereto. There are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company except as set forth on Schedule 5(s). All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable.
(S) DILUTION. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities may have a dilutive effect on the equity holdings of
other holders of the Company's equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good faith
business judgment, that the issuance of the Securities is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties entitled to
receive equity of the Company.
(T) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no material disagreements of any kind which require public disclosure or filing
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by
the Company, including but not limited to disputes or conflicts over payment
owed to such accountants and lawyers.
(U) INVESTMENT COMPANY. The Company is not an Affiliate of an
"INVESTMENT COMPANY" within the meaning of the Investment Company Act of 1940,
as amended.
(V) CORRECTNESS OF REPRESENTATIONS. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to the Closing Date, shall be true and correct in all
material respects as of the Closing Date.
(W) SURVIVAL. The foregoing representations and warranties
shall survive the Closing Date for a period of two years.
6. REGULATION D OFFERING. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as EXHIBIT C. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the resale of the Common Stock and exercise of the Warrants and
resale of the Warrant Shares.
7. DUE DILIGENCE FEE/LEGAL FEES. A combined total of $62,000 will be paid
to (i) the parties identified on Schedule 7(a) in the amounts therein described,
as compensation for due diligence services rendered in connection with the
Offering, and (ii) Grushko & Xxxxxxx, P.C., a fee of $32,000 ("LEGAL FEES") as
reimbursement for legal services rendered to the Subscribers in connection with
this Agreement and the purchase and sale of the Shares and Warrant (the
"Offering") and acting as Escrow Agent for the Offering. Payment for legal
services will be payable on the Closing Date out of funds held pursuant to the
Escrow Agreement.
8.
8.1 COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Subscribers as follows:
(A) STOP ORDERS. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
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(B) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Shares or Warrants are outstanding. The Company will
maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the PRINCIPAL MARKET")) or other market
with the reasonable consent of Subscribers holding a majority of the Shares and
Warrant Shares, and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market,
as applicable. The Company will provide the Subscribers copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is and will be the Principal Market.
(C) MARKET REGULATIONS. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(D) REPORTING REQUIREMENTS. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause it Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all respects with its reporting and filing obligations under the 1934
Act, (y) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file my document (whether or not permitted by the 1933 Act or
the 1934 Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said acts
until two (2) years after the Closing Date. Until the earlier of the resale of
the Common Stock and the Warrant Shares by each Subscriber or at least two (2)
years after the Warrants have been exercised, the Company will use its best
efforts to continue the listing or quotation of the Common Stock on the
Principal Market or other market or exchange identified in Section 5(e) above,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
(E) USE OF PROCEEDS. The Company undertakes to use the
proceeds of the Subscribers' funds for the purposes set forth on SCHEDULE 8(E)
hereto. Except as set forth on SCHEDULE 8(E), the Purchase Price may not and
will not be used for accrued and unpaid officer and director salaries, payment
of financing related debt, redemption of outstanding notes of equity instruments
of the Company nor non-trade obligations outstanding on the Closing Date.
(F) RESERVATION. Prior to the Closing Date, the Company
undertakes to reserve, PRO RATA, on behalf of each Subscriber and holder of a
Warrant, from its authorized but unissued common stock, a number of common
shares equal to the amount of Warrant Shares issuable upon exercise of the
Warrants.
(G) TAXES. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
8
(H) INSURANCE. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep its assets which are of insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
(I) BOOKS AND RECORDS. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(J) GOVERNMENTAL AUTHORITIES. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(K) INTELLECTUAL PROPERTY. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
(L) PROPERTIES. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement (as defined in Section 10.1(iv) hereof)
or pursuant to Rule 144, without regard to volume limitations, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
(M) CONFIDENTIAL/PUBLIC ANNOUNCEMENT. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or the Registration Statement, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon five days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to file a Form 8K or make a public
announcement describing the Offering not later than the first business day after
the Closing Date. In the Form 8-K or public announcement, the Company will
specifically disclose the amount of common stock outstanding immediately after
each Closing.
9
(N) FURTHER REGISTRATION STATEMENTS. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 10 of this
Agreement or in connection with the securities identified on SCHEDULE 10.1
hereto, the Company will not file any registration statements, including but not
limited to Form S-8, with the Commission or withstate regulatory authorities,
without the consent of the Subscribers holding 85% of the outstanding Shares and
Warrant Shares, until one hundred and eighty (180) days after the Actual
Effective Date during which such Registration Statement shall have been current
and available for use in connection with the public resale of the Shares and
Warrant Shares ("EXCLUSION PERIOD"). Nor will the Company allow any registration
statement except for the Registration Statement to be declared effective by the
Commission prior to the end of the Exclusion Period.
(O) BLACKOUT. The Company undertakes and covenants that until
the first to occur of (i) the end of the Exclusion Period, or (ii) until all the
Shares and Warrant Shares have been resold pursuant to a registration statement
or Rule 144, the Company will not enter into any acquisition, merger, exchange
or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current for a
period of fifteen (15) or more days.
(P) NON-PUBLIC INFORMATION. The Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide any
Subscriber or its agents or counsel with any information that the Company
believes constitutes material nor public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(Q) NOTICE OF INTENT TO SELL OR MERGE COMPANY. The Company
will give Subscriber 90 days notice before entering into a transaction to merge
or sell a controlling interest in the Company.
(R) SALE OR MERGER OF COMPANY. In the event of a sale of
substantially all of the assets of the Company or a merger by the Company with
another entity, the 9.99% restriction described in Section 10 of the Warrants,
shall no longer apply and the Subscriber will have the right to exercise the
Warrants concurrently with the sale of the Shares.
(S) INDEPENDENT DIRECTORS. The Company will cause the
appointment of at least two independent directors within sixty (60) days hereof.
If no such Directors are appointed, the Company shall pay to the Investors, pro
rata, as liquidated damages and not as a penalty, an amount equal to twenty four
percent (24%) of the Purchase Price per annum, payable monthly. The parties
agree that the liquidated damages described in this Section 8(s) shall
constitute the entire monetary amount of damages payable in connection with a
violation of the provisions of this Section 8(s). Nothing shall preclude the
Investor from pursuing or obtaining specific performance or other equitable
relief with respect to this Agreement. The parties hereto agree that the
liquidated damages provided for in this Section 8(s) constitute a reasonable
estimate of the damages that may be incurred by the Subscriber by reason of the
failure of the Company to appoint at least two independent directors in
accordance with the provision hereof.
(T) INDEPENDENT DIRECTORS BECOME MAJORITY OF AUDIT AND
COMPENSATION COMMITTEES. The Company will cause the appointment of a majority of
outside independent directors to the audit and compensation committees of the
board of directors within (90) days hereof. If no such Directors are appointed,
the Company shall pay to the Investors, pro rata, as liquidated damages and not
as a penalty, an amount equal to twenty four percent (24%) of the Purchase Price
per annum, payable monthly. The parties agree that the liquidated damages
described in this Section 8(t) shall constitute the entire monetary amount of
damages payable in connection with a violation of the provisions of this Section
8(t). Nothing shall preclude the Subscriber from pursuing or obtaining specific
performance or other equitable relief with respect to this Agreement. The
parties hereto agree that the liquidated damages provided for in this Section
8(t) constitute a reasonable estimate of the damages that may be incurred by the
Subscriber by reason of the failure of the Company to appoint at least two
independent directors in accordance with the provision hereof.
(U) CONVERTIBLE DEBT. For a period of three years from the
Closing Date, the Company will not issue any convertible debt.
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(V) FUTURE EQUITY DEALS. For a period of two years from the
Closing Date, the Company will not enter into any transactions that have any
____ features that could result In additional shares being issued.
8.2 COVENANTS OF SUBSCRIBER. The Subscriber covenants and promises to
(i) the timely provision of any Subscriber information required hereunder or
reasonably requested by the Company in connection with the filing and
declaration of effectiveness of the Registration Statement (as defined hereafter
in Section 10.1(iv)); (ii) the timely execution of any and all documents
required hereunder or reasonably requested by the Company in connection with the
filing and declaration of effectiveness of the Registration Statement; and (iii)
any other timely action as required hereunder or reasonably requested by the
Company in connection with the filing and declaration of effectiveness of the
Registration Statement.
9. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(A) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in any of the
Transaction Documents; or (ii) after any applicable notice and/or cure periods,
any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company under any Transaction Documents other
than its obligations under Section 10 of this Agreement.
(B) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.
(C) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
(D) The procedures set forth in Section 10.6 shall apply to
the indemnifications set forth in Sections 9(a) and 9(b) above.
10.
10.1 REGISTRATION RIGHTS. The Company hereby grants the following
registration rights to holders of the Securities.
(I) On one occasion, for a period commencing one
hundred and twenty one (121) days after the Closing Date, but not later than two
(2) years after the Closing Date ("REQUEST DATE"), upon a written request
_isa_fore from any record holder or holders of more than 50% of the Share issued
and Warrant Shares actually issued upon exercise of the Warrants, the Company
shall prepare and file with the Commission a registration statement under the
1933 Act registering the Shares and Warrant Shares issuable upon exercise of the
Class A Warrants and Class B Warrants (collectively "REGISTRABLE SECURITIES")
which are the subject of such request for unrestricted public resale by the
holder thereof. Registrable Securities shall not include and a holder may not
exercise holder's rights pursuant this Section 10.1(i) or Section 10.1(ii) in
connection with (A) Securities which are already registered for resale in an
effective registration statement, (B) included for registration in a pending
registration statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act.
Upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 10.1(i).
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(II) If the Company at any time proposes to register
any of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms X-0, X-0 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will, subject to
the terms of this Agreement, cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "SELLER" or "SELLERS"). In the event that any registration
pursuant to this Section 10.1(ii) shall be, in whole or in part, an underwritten
public offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be reduced by
the managing underwriter if and to the extent that the Company and the
underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring any
liability to the Seller.
(III) If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 10.1(ii) rather
than Section 10.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 10.1(ii).
(IV) The Company shall file with the Commission not
later than thirty (30) days after the Closing Date (the "FILING DATE"), and
cause to be declared effective within one hundred and twenty (120) days after
the Closing Date (the "EFFECTIVE DATE"), a registration statement on Form SB2
(or such other form that it is eligible to use) in order to register the
Registrable Securities for resale and distribution under the 1933 Act (the
"REGISTRATION STATEMENT"). The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to the Shares and all of the Warrant Shares issuable upon exercise of the
Warrants. The Registrable Securities shall be reserved and set aside exclusively
for the benefit of each Subscriber and Warrant holder, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber and Warrant
holder. The Registration Statement will immediately be amended or additional
registration statements will be immediately filed by the Company as necessary to
register additional shares of Common Stock to allow the public resale of all
Common Stock included in and issuable by virtue of the Registrable Securities.
Without the written consent of the Subscriber, no securities of the Company
other than the Registrable Securities will be included in the Registration
Statement except as disclosed on SCHEDULE 10.1. It shall be deemed a
Non-Registration Event (as defined in Section 10.4 of this Agreement) if at any
time after the Actual Effective Date, the Company has registered for
unrestricted resale on behalf of each Subscriber fewer than all the Shares and
Warrant Shares issuable upon exercise of the Warrants.
10.2 REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Section 10.1 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:
12
(A) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 10, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers and Grushko & Xxxxxxx, P.C.
(by telecopier and by email to Xxxxxxxxx@xxx.xxx) within four (4) hours of (i)
notice that the Commission has no comments or no further comments on the
Registration Statement, and (ii) the declaration of effectiveness of the
registration statement, (failure to timely provide notice as required by this
Section 10.2(a) shall be a material breach of the Company's obligation hereunder
and a Non-Registration Event as defined in Section 10.4 of his Agreement;
(B) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;
(C) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(D) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(E) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(F) immediately notify the Sellers when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(G) provided same would not be in violation of the provision
of Regulation FD under the 1934 Act, make available for inspection by the
Sellers, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
10.3 PROVISION OF DOCUMENTS. In connection with each registration
described in this Section 10, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
13
10.4 NON-REGISTRATION EVENTS. The Company and the Subscribers agree
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 10.1(i) or 10.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement is not filed on or before the Filing Date, (ii)
is not declared effective on or before the sooner of the Effective Date, or
within three (3) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (iii) if the
registration statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (iv) any registration statement
described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded
within fifteen (15) business days by an effective replacement or amended
registration statement) for a period of time which shall exceed 30 days in the
aggregate per year (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) or more than 20 consecutive days
(each such event referred to in clauses (i), (ii), (iii) and (iv) of this
Section 10.4 is referred to ____ as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as liquidated
damages, an amount equal to two percent (2%) pro rated on a daily basis for each
thirty days or part thereof of the pendency of such Non-Registration Event of
the Purchase Price of the Shares owned of record by such holder which are
subject to such Non-Registration Event in connection with a Non Registration
Event described in Section 10.4(i) and 10.4(iv) above. Liquidated damages
payable in connection with an Effective Date related Non Registration Event
described in Section 10.4(ii) and 10.4(iii) above will accrue at the rate of one
and one half percent (1.5%) pro rated on a daily basis for the first sixty (60)
days of such Non-Registration Event and thereafter for each thirty days at the
rate of two percent (2%) pro rated on a daily basis. Liquidated damages that may
accrue pursuant to Section 10.4(i) shall cease to accrue pursuant to Section
10.4(i) from the earliest date upon which liquidated damages begin to accrue as
a result of any other Non-Registration Event. The Company must pay the
liquidated damages in cash within ten (10) days after the end of each thirty
(30) day period or shorter part thereof for which liquidated damages are
payable. Liquidated damages will not be payable to a Subscriber in connection
with the Non-Registration Event caused exclusively and solely by the failure of
such Subscriber to timely provide the information required by Section 8.2.
Subscribers who timely provide the information required pursuant to Section 8.2
hereof shall be entitled to liquidated damages regardless of a default by any
other Subscriber or Subscribers. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written comments received from the Commission relating to the
Registration Statement must be responded to within fifteen (15) business days.
Failure to timely respond is a Non-Registration Event for which liquidated
damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Subscriber under this Section 10.4 for any
events or delays occurring as a consequence of the acts or omissions of the
Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement.
10.5 EXPENSES. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, and costs of insurance for all
Sellers are called "REGISTRATION EXPENSES" All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any additional counsel to the Seller, are called
"SELLING EXPENSES". The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. Selling Expenses in connection
with each registration statement under Section 10 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6 INDEMNIFICATION AND CONTRIBUTION.
(A) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 10, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
14
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 10.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(B) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 10, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending an, such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(C) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6I and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6I, except and only if and to the extent the indemnifying party
is prejudiced by such omission. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6I for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
15
(D) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 10.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims., damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by the pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
10.7 DELIVERY OF UNLEGENDED SHARES.
(A) Within three (3) business days (such third (3rd) business
day being the "UNLEGENDED SHARES DELIVERY DATE") after the business day on which
the Company has received (i) a written notice that Registrable Securities have
been sold pursuant to Rule 144 under the 1933 Act, and the requirements of Rule
144 have been satisfied, or at any time when the Registrable Securities are
included for public resale in an effective registration statement, (ii) the
original share certificates representing the shares of Common Stock that have
been sold under Rule 144 or included in the effective registration statement,
and (iii) in the case of sales under Rule 144, customary representation letters
of the Subscriber and/or Subscriber's broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver, to its transfer
agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including the legend set forth in Section 4 above, issuable pursuant to any
effective and current Registration Statement described in Section 10 of this
Agreement or pursuant to Rule 144 under the 1933 Act (the "UNLEGENDED SHARES");
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
unsold shares of Common Stock, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Unlegended Shares Delivery Date. Transfer fees shall
be the responsibility of the Seller. Each Subscriber, severally and not jointly
with the other Subscribers, agrees that the removal of the restrictive legend
from certificates representing the Shares is predicated upon the Company's
reliance that the `Subscriber will sell the Shares pursuant to either the
registration requirements of the 1933 Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.
(B) In lieu of delivering physical certificates representing
the Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefore do not bear
a legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(C) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 10 hereof later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. Such liquidated damages will
increase to $200 per day for each $10,000 of purchase price of the Unlegended
Shares five days after the Delivery Date. If during any 360 day period, the
Company fails to deliver Unlegended Shares as required by this Section 10.7 for
an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
16
default at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares ("UNLEGENDED REDEMPTION AMOUNT"). The amount of the
aforedescribed liquidated damages that have accrued or been paid for the twenty
day period prior to the receipt by the Subscriber of the Unlegended Redemption
Amount shall be credited against the Unlegended Redemption Amount. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand.
(D) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled
to receive from the Company (a "BUY-IN"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $10,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
(E) In the event a Subscriber shall request in writing
delivery of Unlegended Shares as described in Section 10.7(e) and the Company is
required to deliver such Unlegended Shares pursuant to Section 10.7(e), the
Company may not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, the Company
files for an injunction or temporary restraining order from a court, on notice,
restraining and or enjoining delivery of such Unlegended Shares or exercise of
all or part of said Warrant shall have been sought and obtained and the Company
has posted a surety bond for the benefit of such Subscriber in the amount of
110% of the amount of the aggregate purchase price of the Common Stock and
Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber's
favor.
(F) Nothing contained herein shall limit a Subscriber's right
to pursue actual damages for the Company's failure to deliver Unlegended Shares
and Subscriber shall have the right to pursue all available remedies at law or
equity including, Without limitation, a decree of specific performance and/or
injunctive relief.
11.
(A) RIGHT OF FIRST REFUSAL. Until the end of the Exclusion
Period, the Subscribers shall be given not less than five (5) business days
prior written notice of any proposed ____ by the Company of its common stock or
other securities or debt obligations, except in connection with (i) employee
stock options or compensation plans, (ii) as full or partial consideration in
connection with any merger, consolidation or purchase of substantially all of
the securities or assets of any corporation or other entity, or (iii) as has
been described in the Reports or Other Written Information filed with the
Commission or delivered to the Subscribers prior to the Closing Date
(collectively the foregoing are "EXCEPTED ISSUANCES"). The Subscribers who
exercise their rights pursuant to this Section 11(a) shall have the right during
the five (5) business days following receipt of the notice to purchase such
offered common stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale in the same proportion to each other
as their purchase of Shares in the Offering. In the event such terms and
conditions are modified during the notice period, the Subscribers shall be given
prompt notice of such modification and shall have the right during the five (5)
business days following the notice of modification, whichever is longer, to
exercise such right.
(B) FAVORED NATIONS PROVISION. Other than the Excepted
Issuances, for a period of three years after the Effective Date, if the Company
shall offer, issue or agree to issue any common stock or securities convertible
into or exercisable for shares of common stock (or modify any of the foregoing
which may be outstanding at any time prior to the Closing Date) to any person or
entity at a price per common share or conversion or exercise price per share
which shall be less than the per Share Purchase Price, without the consent of
each Subscriber holding such Shares, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each Subscriber so that the
17
average per Share Purchase Price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock still owned by the Subscriber) is equal to
such other lower price per share. The delivery to the Subscriber of the
additional shares of Common Stock shall be not later than the closing date of
the transaction giving rise to the requirement to issue such additional shares
of Common Stock. The Subscriber is granted the registration rights described in
Section 10 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date _isa-vis such additional common shares
shall be, respectively, the sixtieth (60th) and one hundred and twentieth
(120th) date after the closing date giving rise to the requirement to issue the
additional shares of Common Stock. For purposes of the issuance and adjustment
described in this paragraph, the issuance of any security of the Company
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the issuance of such
convertible security, warrant, right or option and again upon any subsequent
issuances of shares of Common Stock upon exercise of such conversion or purchase
rights at any time if such issuance is at a price lower than the per Share
Purchase Price. The rights of the Subscriber set forth in this Section 12 are in
addition to any other rights the Subscriber has pursuant to this Agreement and
any other agreement referred to or entered into in connection herewith.
(C) MAXIMUM EXERCISE OF RIGHTS. In the event the exercise of
the rights described in Sections 11(a) and 11(b) would result in the issuance of
an amount of common stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
10 of the Warrant, then the issuance of such additional shares of common stock
of the Company to such Subscriber will be deferred in whole or in part until
such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 10 of the Class A Warrant. The determination of when such
common stock may be issued shall be made by each Subscriber as to only such
Subscriber.
12. MISCELLANEOUS.
(A) NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: American Oriental
Bioengineering Inc., No. 308 Xuefu Road, Nangang District, Harbin, China,
150086, Attn: Xxxx Xxx, telecopier number: 01186-451-8666-661) 1, with a copy by
telecopier only to: Xxxxx & XxXxxxxx, Attn: Xxxxxx X. Xxxxx, telecopier:
212759-9133, and (ii) if to the Subscribers, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier: (000) 0000000.
(B) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Xxxxxxx, P.C., 000 Xxxxx
XxxxxxXxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement.
(C) ENTIRE AGREEMENT ASSIGNMENT. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. Except as set forth in this
Agreement, no right or obligation of any party hereto shall be assigned by that
party without prior notice to and the written consent of the other party.
(D) COUNTERPARTS/EXECUTION. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
18
(E) LAW GOVERNING HIS AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. THE PARTIES AND THE INDIVIDUALS
EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(F) SPECIFIC ENFORCEMENT CONSENT TO JURISDICTION. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or in to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically -the terms and provisions hereof, this being in addition to any
other remedy to which any of them may be entitled by law or equity. Subject to
Section 12(e) hereof, each of the Company, Subscriber and any signator hereto in
his personal capacity hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction in New York of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right
to serve process in any other manner permitted by law.
(G) INDEPENDENT NATURE OF SUBSCRIBERS. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent o employee of any other Subscriber, and no Subscriber
or any of its agents or employees shall have any liability to any Subscriber (or
any other person) relating to or arising from any such information, materials,
statements or opinions. The Company acknowledges that nothing contained in any
Transaction Document, and no action taken by any Subscriber pursuant hereto or
thereto (including, but not limited to, the (i) inclusion of a Subscriber in the
Registration Statement and (ii) review by, and consent to, such Registration
Statement by a Subscriber) shall be deemed to constitute the Subscribers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Subscribers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Subscriber shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of the Transaction Documents, and it shall
not be necessary for any other Subscriber to be joined as an additional party in
any proceeding for such purpose. The Company acknowledges that it has elected to
provide all Subscribers with the same terms and Transaction Documents for the
convenience of the Company and not because Company was required or requested to
do so by the Subscribers. The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a presumption that the
Subscribers are in any way acting in concert or as a group with respect to the
Transaction Documents or the transactions contemplated thereby.
(H) EQUITABLE ADJUSTMENT. The Securities and the purchase
prices of Securities shall be equitably adjusted to offset the effect of stock
splits, stock dividends PRO RATA distributions of property or equity interests
of the Company to its shareholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
AMERICAN ORIENTAL BIOENGINEERING INC.:
a Nevada corporation
By: /s/ Xxxx Xxx
----------------------------------
Name: Xxxx Xxx
Title: Chief Executive Officer and Chairman
Dated: as of November 23, 2004
PURCHASE CLASS A CLASS B
SUBSCRIBER PRICE SHARES WARRANTS WARRANTS
------------------------ ----------- --------- ----------- ----------
------------------------
(Signature)
------------------------
Print Name and Title
1
LIST OF EXHIBITS AND SCHEDULES
Exhibit A1 Form of Class A Warrant
Exhibit A2 Form of Class B Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Schedule 5(d) Disclosure Schedule
Schedule 5(s) Capitalization
Schedule 7(a) Due Diligence Fee Schedule
Schedule 8(e) Use of Proceeds
Schedule 10.1 Other Securities to be Registered
2
EXHIBIT A1
FORM OF CLASS A WARRANT
3
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO AMERICAN ORIENTAL BIOENGINEERING INC. THAT SUCH
REGISTRATION IS NOT REQUIRED
Right to Purchase _____ shares of Common Stock of
American Oriental Bioengineering Inc. (subject to
adjustment as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT
No. 2004-A-001 Issue Date: November 23, 2004
AMERICAN ORIENTAL BIOENGINEERING INC., a corporation organized under
the laws of the State of Nevada (the "Company"), hereby certifies that, for
value received, _______, or its assigns (the "Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company at any time after the
Issue Date until 5:00 p.m., E.S.T on the third anniversary after the Actual
Effective Date (as defined in the Subscription Agreement) (the "Expiration
Date"), up to__________ fully paid and nonassessable shares of the common stock
of the Company (the "Common Stock"), $.001 par value per share at a per share
purchase price of $0.85 IN LAWFUL MONEY OF THE UNITED STATES. The aforedescribed
purchase price per share, as adjusted from time to time as herein provided, is
referred to herein as the "Purchase Price." The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein. The Company may reduce the Purchase Price without the consent
of the Holder. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Subscription Agreement (the
"SUBSCRIPTION AGREEMENT"), dated November 23, 2004, entered into by the Company
and the Holder.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
The term "Company" shall include American Oriental Bioengineering Inc. and any
corporation which shall succeed or assume the obligations of American Oriental
Bioengineering Inc. hereunder.
The term "Common Stock" includes (a) the Company's Common Stock, $.001 par value
per share, as authorized on the date of the Subscription Agreement, and (b) any
other securities into which or for which any of the securities described in (a)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale (F assets or otherwise.
The term "Other Securities" refers to any stock (other than Common Stock) and
other securities of the Company or any other person (corporate or otherwise)
which the holder of the Warrant at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the Issue Date through
and including the Expiration Date, the Holder hereof shall be entitled to
receive, upon exercise of this Warrant in whole in accordance with the terms of
subsectionl.2 or upon exercise of this Warrant in part in accordance with
subsection 1.3, shares of Common Stock of the Company, subject to adjustment
pursuant to Section 4.
4
FULL EXERCISE. This Warrant may be exercised in ful by the Holder hereof by
delivery of an original or facsimile copy of the form of subscription attached
as Exhibit A, hereto (the "Subscription Form") duly executed by such Holder and
surrender of the original Warrant within seven (7) days of exercise, to the
Company at its principal office or at the office of its Warrant Agent (as
provided hereinafter), accompanied by payment, in cash, wire transfer or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares, of Common Stock for which
this Warrant is then exercisable by the Purchase Price then in effect.
PARTIAL EXERCISE. This Warrant may be exercised in part (but not for a
fractional share) by surrender of this Warrant in the manner and at the place
provided in subsectiori1.2 except that the amount payable by the Holder on such
partial exercise shall be the amount obtained by multiplying (a) the number of
whole shares of Common Stock designated by the Holder in the Subscription Form
by (b) the Purchase Price then in effect. On any such partial exercise, the
Company, at its expense, will forthwith issue and deliver to or upon the order
of the Holder hereof a new Warrant of like tenor, in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may request, the whole number of shares of Common Stock for which such
Warrant may still be exercised.
FAIR MARKET VALUE. Fair Market Value of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
If the Company's Common Stock is traded on an exchange or is quoted on the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ"),
National Market System, the NASDAQ SmallCap Market or the American Stock
Exchange, LLC, then the closing or last sale price, respectively, reported for
the last business day immediately preceding the Determination Date;
If the Company's Common Stock is not traded on an exchange or on the NASDAQ
National Market System, the NASDAQ SmallCap Market or the American Stock
Exchange, Inc., but is traded in the over-the-counter market, then the average
of the closing bid and ask prices reported for the last business day immediately
preceding the Determination Date;
Except as provided in clause (d) below, if the Company's Common Stock is not
publicly traded, then as the Holder and the Company agree, or in the absence of
such an agreement, by arbitration in accordance with the rules then standing of
the American Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass on the
matter to be decided; or
If the Determination Date is the date of a liquidation, dissolution or winding
up, or any event deemed to be a liquidation, dissolution or winding up pursuant
to the Company's charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then issuable
upon exercise of all of the Warrants are outstanding at the Determination Date.
COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of the
Warrant, upon the request of the Holder hereof acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights.
TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company shall
have been appointed as trustee for the Holder of the Warrants pursuant to
Subsection 3.2, such bank or trust company shall have all the powers and duties
of a warrant agent (as hereinafter described) and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may bean exercise of this Warrant pursuant to this Section 1.
5
DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered
and payment made for such shares as aforesaid. As soon as practicable after the
exercise of this Warrant in full or in part, and in any event within five (5)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder hereof, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct in compliance with applicable securities
laws, a certificate or certificates for the number of duly and validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such Holder stall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then Fair Market Value of one full share of
Common Stock, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
COMMON STOCK LEGEND. The Holder acknowledges and agrees that the shares of
Common Stock of the Company, and, until such time as the Common Stock has been
registered under the 1933 Act and sold in accordance with an effective
Registration Statement, or exemption from registration, certificates and other
instruments representing any of the Common Stole shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES
LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AMERICAN
ORIENTAL BIOENGINEERING INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
2. CASHLESS EXERCISE:
If a Registration Statement as defined in the Subscription Agreement
("Registration Statement") is effective and the Holder may sell its shares of
Common Stock upon exercise hereof, this Warrant may be exercisable in whole or
in part for cash only as set forth in Section 1 above. If no such Registration
Statement is available, then commencing one year after the Closing Date, payment
upon exercise may be made at the option of the Holder either in (cash, wire
transfer or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price, (ii) by delivery of
Common Stock issuable upon exercise of the Warrants in accordance with Section
(b) below ("Cashless Exercise") or (iii) by a combination of any of the
foregoing methods, for the number of Common Stock specified in such form (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the holder per the terms of this
Warrant) and the holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock (or Other Securities) determined as provided herein.
If the Fair Market Value of one share of Common Stock is greater than the
Purchase Price (at the date of calculation as set forth below) and no
Registration Statement rating to the shares of Common Stock underlying this
Warrant is effective, in lieu of exercising this Warrant for cash, the holder
may elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed
Subscription Form in which event the Company shall issue to the holder a number
of shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being exercised (at the date of such
calculation)
A= the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
6
The Holder may employ the cashless exercise feature described above only during
the pendency of a Non-Registration Event as described in Section 10 of the
Subscription Agreement.
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Commission currently has
interpreted Rule 144 to mean that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Subscription
Agreement.
3. ADJUSTMENT FOR REORGANIZATION CONSOLIDATION, MERGER, ETC.
REORGANIZATION CONSOLIDATION, MERGER, ETC. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or
merge into any other person or (c) transfer all or substantially all of its
properties or assets to any other person under arty plan or arrangement
contemplating the dissolution of the Company, then, in each such case, as a
condition to the consummation of such a transaction, proper and adequate
provision shall be made by the Company whereby the Holder of this Warrant, on
the exercise hereof as provided in Section, at any time after the consummation
of such reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4.
CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the Other Securities and property receivable on
the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
SHARE ISSUANCE. Until the Expiration Date, if the Company shall issue any Common
Stock except for the Excepted Issuances (as defined in the Subscription
Agreement), prior to the complete exercise of this Warrant for a consideration
less than the Purchase Price that would be in effect at the time of such issue,
then, and there after successively upon each such issue, the Purchase Price
shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security or debt instrument of the Company
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Purchase Price upon the issuance of the abovedescribed
security, debt instrument, warrant, right, or option and again upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights at any time if such issuance is at a price lower than the
Purchase Price. The reduction of the Purchase Price described in this Section
3.3 is in addition to the other rights of the Holder described in the
Subscription Agreement.
7
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company
shall (a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding shares
of Common Stock, or (c) combine its outstanding shares of the Common Stock into
a smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common Stock that the Holder of this Warrant shall thereafter, on
the exercise hereof as provided in Section 1, be entitled to receive shall be
adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b)the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c)the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. RESERVATION OF STOCK ETC. ISSUABLE ON EXERCISE OF WARRANT FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor"). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
an opinion of counsel reasonably satisfactory to the Company that the transfer
of this Warrant will be in compliance with applicable securities laws, the
Company at its expense, once only, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to
the company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction of this Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, n the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
8
9. REGISTRATION RIGHTS. The Holder of this Warrant has been ganted certain
registration rights for the shares underlying this Warrant by the Company. These
registration rights are set forth in the Subscription Agreement. The terms of
the Subscription Agreement are incorporated herein by this reference.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant
on an exercise date nor may the Company exercise its right to give a Call Notice
(as defined in Section 11) in connection with that number of Common Stock which
would be in excess of the sum of (i) the number of Common Stock beneficially
owned by the Holder and its affiliates on an exercise date or Call Date, and
(ii) the number of Common Stock issuable upon the exercise of this Warrant with
respect to which the determination of this limitation is being made on an
exercise date or Call Date, which would result in beneficial ownership by the
Holder and its affiliates of more than 9.99% of the outstanding, Common Stock on
such date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 there under. Subject to
the foregoing, the Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder may allocate which of the equity of the
Company deemed beneficially owned by the Subscriber shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
11. CALL. The Company shall have the option to "call" the Warrants (the
"Warrant Call"), one or more times, in accordance with and governed by the
following:
The Company shall exercise the Warrant Call by giving to the Warrant Holder a
written notice of call (the "Call Notice") during the period in which the
Warrant Call may be exercised. The effective date of each Call Notice (the "Call
Date") is the date on which notice is effective under the notice provision of
Section 14 of this Warrant.
The Company's right to exercise the Warrant Call shall commence thirty trading
days after the actual effective date of a registration statement described in
Section 11.1(iv) of the Subscription Agreement and end thirty trading days prior
to the Expiration Date.
The number of shares of Common Stock to be issued upon exercise of the Warrant
which are subject to a Call Notice must be registered in a registration
statement effective from twenty-two trading days prior to the Call Date and
through the Delivery Date.
A Call Notice may be given not sooner than fifteen trading days after the prior
Call date.
A Call Notice may be given by the Company only within five trading days after
the Common Stock has had a closing price as reported for the Principal Market
(as defined in the Subscription Agreement) of $2.55 or above for fifteen (15)
consecutive trading days ("Lookback Period").
The Common Stock must be listed on the Principal Market for the Lookback Period
and through the Delivery Date.
The Company shall not have received a notice from the Principal Market during
the ninety calendar days prior to the Call Date that the Company or the Common
Stock does not meet the requirements for continued quotation, listing or trading
on the Principal Market.
The Company and the Common Stock shall meet the requirements for continued
quotation, listing or trading on the PrincipalMarket for the Lookback Period and
through the Delivery Date.
Unless otherwise agreed to by the Holder of this Warrant, a Call Notice must be
given to all Warrant Holders who receive Warrants similar to this Warrant (in
terms of exercise price and other principal terms) issued on or about the same
Issue Date as this Warrant, in proportion to the amounts of Common Stock which
may be purchased by the respective Warrant Holders in accordance with the
respective Warrants held by each.
9
The Warrant Holder shall exercise his Warrant rights and purchase the Called
Common Stock and pay for same within fourteen trading days after the Call Date.
If the Warrant Holder fails to timely pay the amount required by the Warrant
Call, the Company's sole remedy shall be to cancel a corresponding amount of
this Warrant.
(The Company may not exercise the right to Call this Warrant after the
occurrence of a default by the Company of a material term of this Warrant or the
Subscription Agreement.
12. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
l, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section8, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such Warrant Agent.
13. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. NOTICES. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company to: American Oriental
Bioengineering Inc., No. 308 Xuefu Road, Nangang District, Harbin, China,
150086, Attn: Xxxx Xxx, telecopier number: 011-86-451-8666-6601, with a copy by
telecopier only to: Xxxxx & XxXxxxxx, Attn: Xxxxxx X. Xxxxx, Esq., telecopier:
000-000-0000, and (ii) if to the Holder, to the address or telecopier number
listed on the first paragraph of this Warrant, with an additional copy by
telecopier only to: Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 000, Xxx
Xxxx, Xxx Xxxx 00000, telecopier: (000) 000-0000.
10
15. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The leadings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
AMERICAN ORIENTAL BIOENGINEERING INC.:
By: ____________________________________________
Name: Xxxx Xxx
Tile: Chief Executive Officer and Chairman
Witness:___________________________
11
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: AMERICAN ORIENTAL BIOENGINEERING INC.
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ____), hereby irrevocably elects to purchase (check applicable
box):
___ _______ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is $. Such
payment takes the form of (check applicable box or boxes):
___ $ ________ in lawful money of the United States (which sum reflects the
concession amount described in Section 14 of the Warrant; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of shares of Common Stock (using a Fair Market Value of $ ______ per
share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _________________________________________ whose
address is ________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated: _____________________________ ________________________________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
________________________________________
________________________________________
(Address)
12
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of AMERICAN ORIENTAL BIOENGINEERING INC. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of AMERICAN ORIENTAL BIOENGINEERING INC. with full power of substitution in the
premises.
TRANSFEREES PERCENTAGE TRANSFERRED NUMBER TRANSFERRED
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
Dated: _____________, ____________ ________________________________________
(Signature must conform to name of the
holder as specified on the face of the
warrant)
Signed in the presence of:
___________________________________ ________________________________________
(Name) ________________________________________
(address)
ACCEPTED AND AGREED: ________________________________________
[TRANSFEREE]
________________________________________
(address)
___________________________________
(Name)
1
EXHIBIT A2
FORM OF CLASS B WARRANT
2
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AMERICAN ORIENTAL BIOENGINEERING INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Right to Purchase ______ shares of Common Stock of
American Oriental Bioengineering Inc. (subject to
adjustment as provided herein)
CLASS B COMMON STOCK PURCHASE WARRANT
No. 2004-B-001 Issue Date: November 23, 2004
AMERICAN ORIENTAL BIOENGINEERING INC., a corporation organized under
the laws of the State of Nevada (the "Company"), hereby certifies that, for
value received, ______, or its assigns (the "Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company at any time after the
Issue Date until 5:00 p.m., E.S.T on the third anniversary after the Actual
Effective Date (as defined in the Subscription Agreement) (the "Expiration
Date"), up to _______ fully paid and nonassessable shares of the common stock of
the Company (the "Common Stock"), $.001 par value per share at a per share
purchase price of $1.60 IN LAWFUL MONEY OF THE UNITED STATES. The aforedescribed
purchase price per share, as adjusted from time to time as herein provided, is
referred to herein as the "Purchase Price." The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein. The Company may reduce the Purchase Price without the consent
of the Holder. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Subscription Agreement (the
"Subscription Agreement"), dated November 23, 2004, entered into by the Company
and the Holder.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
The term "Company" shall include American Oriental Bioengineering Inc. and any
corporation which shall succeed or assume the obligations of American Oriental
Bioengineering Inc. hereunder.
The term "Common Stock" includes (a) the Company's Common Stock, $.001 par value
per share, as authorized on the date of the Subscription Agreement, and (b) any
other securities into which or for which any of the securities described in
(a)may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
The term "Other Securities" refers to any stock (other than Common Stock) and
other securities of the Company or any other person (corporate or otherwise)
which the holder of the Warrant at any time shall be entitled to receive, or
shall have received, on the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities
pursuant to Sectior4 or otherwise.
1. EXERCISE OF WARRANT.
1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the Issue
Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
3
1.2 FULL EXERCISE. This Warrant may be exercised in fill by the Holder
hereof by delivery of an original or facsimile copy of the form of subscription
attached as Exhibit hereto (the "Subscription Form") duly executed by such
Holder and surrender of the original Warrant within seven (7) days of exercise,
to the Company at its principal office or at the office of its Warrant Agent (as
provided hereinafter), accompanied by payment, in cash, wire transfer or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price then in effect.
1.3 PARTIAL EXERCISE. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsectionl.2 except that the amount payable by the Holder on
such partial exercise shall be the amount obtained by multiplying (a) the number
of whole shares of Common Stock designated by the Holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise, the
Company, at its expense, will forthwith issue and deliver to or upon the order
of the Holder hereof a new Warrant of like tenor, in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may request, the whole number of shares of Common Stock for which such
Warrant may still be exercised.
1.4 FAIR MARKET VALUE. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean:
(A) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ"), National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, LLC, then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination Date;
(B) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determinhaon Date;
(C) Except as provided in clause (d) below, if the Company',
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
(D) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection3.2, such bank or trust company shall have all the powers
aid duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may peon exercise of this Warrant pursuant to this
Section 1.
4
1.7 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such Holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share of Common Stock, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
1.8 COMMON STOCK LEGEND. The Holder acknowledges and agrees that the
shares of Common Stock of the Company, and, until such time as the Common Stock
has been registered under the 1933 Act and sold in accordance with an effective
Registration Statement, or exemption from registration, certificates and other
instruments representing any of the Common Stock shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE SECURITIES
LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AMERICAN ORIENTAL BIOENGINEERING INC. THAT SUCH REGISTRATION IS
NOT REQUIRED."
2. CASHLESS EXERCISE.
(A) If a Registration Statement as defined in the Subscription
Agreement ("Registration Statement") is effective and the Holder may sell its
shares of Common Stock upon exercise hereof, this Warrant may be exercisable in
whole or in part for cash only as set forth in Section 1 above. If no such
Registration Statement is available, then commencing one year after the Closing
Date, payment upon exercise may be made at the option of the Holder either in
(cash, wire transfer or by certified or official bank check payable to the order
of the Company equal to the applicable aggregate Purchase Price, (ii) by
delivery of Common Stock issuable upon exercise of the Warrants in accordance
with Section (b) below ("Cashless Exercise") or (iii) by a combination of any of
the foregoing methods, for the number of Common Stock specified in such form (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the holder per the terms of this
Warrant) and the holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock (or Other Securities) determined as provided herein.
5
(B) If the Fair Market Value of one share of Common Stock is
greater than the Purchase Price (at the date of calculation as set forth below)
and no Registration Statement relating to the shares of Common Stock underlying
this Warrant is effective, in lieu of exercising this Warrant for cash, the
holder may elect to receive shares equal to the value (as determined below) of
this Warrant (or the portion thereof being cancelled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Subscription Form in which event the Company shall issue to the holder
a number of shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being exercised (at the date of such
calculation)
A= the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
(C) The Holder may employ the cashless exercise feature
described above only during the pendency of a Non-Registration Event as
described in Section 10 of the Subscription Agreement.
For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Commission currently has
interpreted Rule 144 to mean that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this, Warrant was originally issued pursuant to the Subscription
Agreement.
3. ADJUSTMENT FOR REORGANIZATION CONSOLIDATION MERGER, ETC.
3.1 REORGANIZATION, CONSOLIDATION MERGER, ETC. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2 CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.3 SHARE ISSUANCE. Until the Expiration Date, if the Company shall
issue any Common Stock except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Purchase Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Purchase Price shall be reduced to such other lower issue price. For purposes of
this adjustment, the issuance of any security or debt instrument of the Company
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Purchase Price upon the issuance of the abovedescribed
6
security, debt instrument, warrant, right, or option and again upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights at any time if such issuance is at a price lower than the
Purchase Price. The reduction of the Purchase Price described in this Section
3.3 is in addition to the other rights of the Holder described in the
Subscription Agreement.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section l, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provision; of this
Section4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT, FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT, EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor"). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
an opinion of counsel reasonably satisfactory to the Company that the transfer
of this Warrant will be in compliance with applicable securities laws, the
Company at its expense, once only, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of any such loss, theft or destruction of this Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
7
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain
registration rights for the shares underlying this Warrant by the Company. These
registration rights are set forth in the Subscription Agreement. The terms of
the Subscription Agreement are incorporated herein by this reference.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date nor may the Company exercise its right to give a
Call Notice (as defined in Section 11) in connection with that number of Common
Stock which would be in excess tithe sum of (b the number of Common Stock
beneficially owned by the Holder and its affiliates on an exercise date or Call
Date, and (ii) the number of Common Stock issuable upon the exercise of this
Warrant with respect: to which the determination of this limitation is being
made on an exercise date or Call Date, which would result in beneficial
ownership by the Holder and its affiliates of more than 9.99% of the outstanding
Common Stock on such date. For the purposes of the immediately preceding
sentence-beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 9.99%. The
restriction described in this paragraph maybe revoked upon sixty-one (61) days
prior notice from the Holder to the Company. The Holder may allocate which of
the equity of the Company deemed beneficially owned by the Subscriber shall be
included in the 9.99% amount described above and which shall be allocated to the
excess above 9.99%.
11. CALL. The Company shall have the option to "call" the Warrants (the
"Warrant Call"), one or more times, in accordance with and governed by the
following:
(A) The Company shall exercise the Warrant Call by giving to
the Warrant Holder a written notice of call (the "Call Notice") during the
period in which the Warrant Call may be exercised. The effective date of each
Call Notice (the "Call Date") is the date on which notice is effective under the
notice provision of Section 14 of this Warrant.
(B) The Company's right to exercise the Warrant Call shall
commence thirty trading days after the actual effective date of a registration
statement described in Section 11.1(iv) of the Subscription Agreement and end
thirty trading days prior to the Expiration Date.
(C) The number of shares of Common Stock to be issued upon
exercise of the Warrant which are subject to a Call Notice must be registered in
a registration statement effective from twenty-two trading days prior to the
Call Date and through the Delivery Date.
(D) A Call Notice may be given not sooner than fifteen trading
days after the prior Call Date.
(E) A Call Notice may be given by the Company only within five
trading days after the Common Stock has had a closing price as reported for the
Principal Market (as defined in the Subscription Agreement) of $4.00 or above
for fifteen (15) consecutive trading days ("Lookback Period").
(F) The Common Stock must be listed on the Principal Market
for the Lookback Period and through the Delivery Date.
(G) The Company shall not have received a notice from the
Principal. Market during the ninety calendar days prior to the Call Date that
the Company or the Common Stock does not meet the requirements for continued
quotation, listing or trading on the Principal Market.
(H) The Company and the Common Stock shall meet the
requirements for continued quotation, listing or trading on the Principal Market
for the Lookback Period and through the Delivery Date.
(I) Unless otherwise agreed to by the Holder of this Warrant,
a Call Notice must be given to all Warrant Holders who receive Warrants similar
to this Warrant (in terms of exercise price and other principal terms) issued on
or about the same Issue Date as this Warrant, in proportion to the amounts of
Common Stock which may be purchased by the respective Warrant Holders in
accordance with the respective Warrants held by each.
8
(J) The Warrant Holder shall exercise his Warrant rights and
purchase the Called Common Stock and pay for same within fourteen trading days
after the Call Date. If the Warrant Holder fails to timely pay the amount
required by the Warrant Call, the Company's sole remedy shall be to cancel a
corresponding amount of this Warrant.
(K) The Company may not exercise the right to Call this
Warrant after the occurrence of a default by the Company of a material term of
this Warrant or the Subscription Agreement.
12. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
7, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section8, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such Warrant Agent.
13. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. NOTICES. All notices, demands, requests, consent, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notices to be received) or
(b) on the second business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such communications
shall be: (i) if to the Company to: American Oriental Bioengineering Inc., No.
308 Xuefu Road, Nangang District, Harbin, China, 150086, Attn: Xxxx Xxx,
telecopier number: 011-86-451-8666-6601, with a copy by telecopier only to:
Xxxxx & XxXxxxxx, Attn: Xxxxxx X. Xxxxx, Esq., telecopier: 000-000-0000, and
(ii) if to the Holder, to the address or telecopier number listed on the first
paragraph of this Warrant, with an additional copy by telecopier only to:
Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000,
telecopier: (000) 000-0000.
15. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. Theheadings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
9
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
AMERICAN ORIENTAL BIOENGINEERING INC.:
By: _____________________________________________
Name: Xxxx Xxx
Title: Chief Executive Officer and Chairman
Witness:
________________________
10
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: AMERICAN ORIENTAL BIOENGINEERING INC.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No._____), hereby irrevocably elects to purchase (check applicable box):
___ Shares of the Common Stock covered by such Warrant; or
___ The maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Sectior2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is $ . Such
payment takes the form of (check applicable box or boxes):
___ $________ in lawful money of the United States (which sum reflects the
concession amount described in Section 14 of the Warrant; and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________ whose address
is ____________________________________________________________________________
___________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated: _____________________________ ________________________________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
________________________________________
________________________________________
(Address)
11
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of AMERICAN ORIENTAL BIOENGINEERING INC. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of AMERICAN ORIENTAL BIOENGINEERING INC. with full power of substitution in the
premises.
TRANSFEREES PERCENTAGE TRANSFERRED NUMBER TRANSFERRED
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
------------------ --------------------------- -------------------------
Dated: _________________________ ________________________________________
(Signature must conform to name of the
holder as specified on the face of the
Signed in the presence of: warrant)
___________________________________ ________________________________________
(Name)
________________________________________
(Address)
ACCEPTED AND AGREED: ________________________________________
[TRANSFEREE]
________________________________________
(Address)
___________________________________
(Name)
EXHIBIT B
ESCROW AGREEMENT
OMITTED
EXHIBIT C
FORM OF LEGAL OPINION
OMITTED
SCHEDULE 5(D)
DISCLOSURE SCHEDULE
24,000 warrants to purchase shares of the Company's common stock.
19,393 shares granted under employee stock option arrangements with Xxxxxx Xxx,
Xxxxxxx Xx, Jun Min, and Xxxxxxxx Xx, and any additional stock options
that may have accrued during the employment period.
Investment Agreement, dated July 18, 2003, between the Company and BH Capital
Investments, LP and Excalibur Limited Partnership (including the
Registration Rights Agreement attached as an exhibit thereto).
Amendment No. 1, dated as of December 5, 2003, to the Investment Agreement by
and among the Company and BH Capital Investments, LP and Excalibur Limited
Partnership.
Amendment No. 2, dated as of June 3, 2004, to the Investment Agreement by and
among the Company and BH Capital Investments, LP and Excalibur Limited
Partnership.
SCHEDULE 5(S)
CAPITALIZATION
The authorized capital stock of the Company consists of 60 million
shares of Common Stock, $0.001 par value, of which 33,631,827 shares are issued
and outstanding and 2 million Shares of Preferred Stock, $0.01 par value, of
which one million shares are issued and outstanding.
SCHEDULE 7(A)
DUE DILIGENCE FEE SCHEDULE
OMITTED
SCHEDULE 8(E)
USE OF PROCEEDS
Proceeds from the execution of this Subscription Agreement will be used
to fund the acquisition of Chinese Medicine Plant No. 4 and other general
corporate purposes.
SCHEDULE 10.1
OTHER SECURITIES TO BE REGISTERED
None.
