CALL OPTION AGREEMENT
BETWEEN
XXXX XXXX
AND
LI SHAOQING
Date: June 9, 2008
THIS OPTION AGREEMENT (this "Agreement") is made on June 9, 2008 by and
among Li Shaoqing (the "Transferor") and Xxxx Xxxx (the "Transferee").
The Transferor and the Transferee are collectively referred to as the
"Parties" and each of them as a "Party".
Whereas, the Transferor is the majority shareholder of Long Sunny Limited
(the "Company"), a British Virgin Islands Company, which is one of the
registered shareholders of Shen Kun International Limited, a British Virgin
Islands Company, which intends to complete a reverse merger with Southern Sauce
Company, Inc., a public shell company, traded on the Over the Counter Bulletin
Board (the "Listed Company"), holding 30,000 shares of Ordinary Shares in the
Company as of the date of this Agreement.
Whereas, the Transferee is to have a substantial role in the growth of
business of Southern Sauce Company, Inc., its subsidiaries, Shengkai (Tianjin)
Ceramic Valves Co., Ltd. ("WFOE") and Tianjin Shengkai Industrial Technology
Development Co., Ltd. ("Shengkai") (collectively with the Company and Shengkai
as the "Group"). In consideration of the Transferee's anticipated contributions
to the Group, the Transferor has agreed to grant to the Transferee, and the
Transferee has agreed to accept from the Transferor, an option (the "Option") to
purchase all of the ordinary shares of the Company currently held by the
Transferor (the "Option Shares") on the terms and subject to the conditions set
out in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
1. DEFINITIONS
1.1. Defined Terms : In this Agreement (including the Recitals, Exhibits and
Schedules), unless the context otherwise requires, the following words and
expressions shall have the following meanings:
"Alternate Exercise Price" means an exercise price of $0.01 per share to
be paid by the Transferee or his nominee to the Transferor in respect of
the Option Shares issued to the Transferee or his nominee in the event
that the Performance Targets (as defined herein) have not been met by the
Group;
"Business Day" means a day (other than Saturdays, Sundays and public
holidays) on which banks are generally open for business in China;
"China" or "PRC" means the People's Republic of China;
"Completion" means the completion of the sale to and purchase by the
Transferee of the Option Shares under this Agreement;
"Completion Date" means the date falling seven (7) Business Days after the
service of the Exercise Notice by the Transferee to the Transferor;
"Distributions" means any cash proceeds arising from or in respect of, or
in exchange for, or accruing to or in consequence of the Option Shares
from the Effective Date to the Completion Date, including without
limitation, the Dividends.
"Dividends" means the dividends declared by the Company and accrued in
respect of the Option Shares (whether or not such dividends shall have
been paid and received by the Transferee or his nominee);
"Effective Date" means the date of this Agreement;
"Exercise" means the exercise by the Transferee or his Nominee of the
Option pursuant to the terms of this Agreement;
"Exercise Notice" means the notice substantially in the form set out in
Schedule A;
"Exercise Price" means an exercise price of $0.001 per share of the Option
Shares to be paid by the Transferee to the Transferor in respect of the
Option Shares issued to such Transferee if the Group achieves the
Performance Targets;
"Nominee" means such person nominated by the Transferee in the Transfer
Notice to be the transferee of the Option or Option Shares;
"Option Effective Dates" has the meaning set forth in Clause 2.3;
"Performance Targets" has the meaning set forth in Clause 3;
"Performance Period" has the meaning set forth in Exhibit A to the
Agreement;
"Reverse Merger" means the transaction wherein the Listed Company will
acquire 100% equity interest of Shen Kun International Limited and its
subsidiaries and affiliates;
"RMB" means the lawful currency of China;
"Transfer Notice" means the notice substantially in the form set out in
Schedule B;
"US$" or "United States Dollar" means the lawful currency of the United
States of America.
1.2. Interpretation: Except to the extent that the context requires otherwise:
1.2.1 words denoting the singular shall include the plural and vice versa;
words denoting any gender shall include all genders; words denoting
persons shall include firms and corporations and vice versa;
1.2.2 any reference to a statutory provision shall include such provision
and any regulations made in pursuance thereof as from time to time
modified or re-enacted whether before or after the date of this
Agreement and (so far as liability thereunder may exist or can
arise) shall include also any past statutory provisions or
regulations (as from time to time modified or re-enacted) which such
provisions or regulations have directly or indirectly replaced;
1.2.3 the words "written" and "in writing" include any means of visible
reproduction;
1.2.4 any reference to "Clauses", "Recitals" and "Schedules" are to be
construed as references to clauses and recitals of, and schedules
to, this Agreement; and
1.2.5 any reference to a time of day is a reference to China time unless
provided otherwise.
1.3. Headings: The headings in this Agreement are inserted for convenience only
and shall be ignored in construing this Agreement.
2. OPTION
2.1. Option: In consideration of the contributions which the Transferee has
made to the Group and his continuing commitment to the Group, the
Transferor hereby irrevocably and unconditionally grants to the Transferee
the Option for such Transferee to acquire from the Transferor, at the
Exercise Price or the Alternative Exercise Price, at any time during the
Exercise Period (defined below) any or all of the Option Shares, free from
all claims, liens, charges, pledges, mortgages, trust, equities and other
encumbrances, and with all rights attaching thereto on the Completion
Date.
2.2. Vesting Schedule: Subject to the terms and conditions hereto, the Option
may be exercised, in whole or in part, in accordance with the following
schedule:
The Option Shares subject to the Option shall vest at the rate of
one-seventh (1/7) per Performance Period.
2.3. Exercise Period: Once the Reverse Merger has been completed or abandoned
pursuant to the terms of the definitive agreement regarding the Reverse
Merger, the Option shall be exercisable in accordance with and on the
dates set forth in Exhibit A (the "Option Effective Dates"). Subject to
the vesting schedule set forth in Section 2.2 of this Agreement, the
Option may be exercised by any Transferee or his Nominee at any time
following the Option Effective Date ("Exercise Period").
2.4. Nominees: The Transferee may, at any time during the Exercise Period, at
his sole discretion, nominate one or more person(s) (each a "Nominee") to
be the transferee(s) of whole or part of his/her Option, who shall hold
and/or exercise the transferred Option on behalf of the Transferee.
2.5. Exercise Notice: The Option may be exercised by the Transferee or his
Nominee, in whole or in part, at any time during the Exercise Period, by
serving an Exercise Notice on the Transferor.
2.6. Exercise: The Transferor agrees that he shall, upon receipt of the
Exercise Notice and payment of either the Exercise Price or the
Alternative Exercise Price, depending on whether the Performance Targets
have been met, take all necessary steps to cause the issuance of any and
all of the Option Shares specified in the Exercise Notice to the
Transferee or his Nominee, free from all claims, liens, charges, pledges,
mortgages, trust, equities and other encumbrances, and with all rights now
or hereafter attaching thereto. Notwithstanding the foregoing, the
Exercise of the Option shall be further subject to PRC laws and
regulations and the Transferee or his Nominee shall complete any and all
approval or registration procedures (the "Approvals") regarding the
exercise of his Option at PRC competent authorities in accordance with
applicable PRC laws and regulations (if any). Furthermore, the Transferor
agrees that in the event that the Transferee or his Nominee is unable to
obtain the Approval due to reasons attributable to the then PRC laws,
rules and/or policy, the Transferor shall coordinate with the Transferee
or his Nominee and take viable alternatives for the best interests of the
Transferee or his Nominee.
2.7. Transfer Notice: In case that any Transferee transfers any or all of his
Option to one or more Nominees in accordance with Clause 2.4 above, the
Transferee shall serve a Transfer Notice on the Transferor.
2.8. Transfer to Nominees: The Transferor agrees that he shall, upon receipt of
the Transfer Notice, take all actions necessary to allow the Nominee to be
entitled to any or all of the Options specified in the Transfer Notice.
Upon exercise by any Nominee of the transferred Option on behalf of the
Transferee, the Transferee shall serve the Exercise Notice on the
Transferor in his own name for the exercising Nominee. Upon receipt of
such Exercise Option, the Transferor shall take necessary steps to cause
the issuance of any and all of the relevant Option Shares specified in the
Exercise Notice to such Nominee in the same manner as specified in Clause
2.6.
2.9. Payment of Exercise Price: Upon Exercise of the Option in whole or in
part, the Transferee or his Nominee shall pay the Exercise Price to the
Transferor; or may elect a cashless exercise as set forth below.
2.10. Cashless Exercise: In lieu of delivery of the Exercise Price in cash, the
Transferee or his Nominee shall have the right, at his option, from time
to time or times during the Exercise Period, satisfy his obligation to pay
the Exercise Price through a "cashless exercise," in which the Transferee
or his Nominee shall be entitled to have the Transferor's shares as
determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Transferor's shares to be
transferred to the Transferee
Y = the number of Transferor's shares with respect
to which the Option is being exercised.
A = the arithmetic average of the closing Prices
for the five trading days immediately prior to
(but not including) the exercise date.
B = the Exercise Price.
2.11. The Transferor's Obligation upon Exercise: The Transferor agrees that upon
the Exercise of any Option by the Transferee (or his Nominee), he shall
cause and procure the number of Option Shares provided in the Exercise
Notice to be transferred to such exercising Transferee or his Nominee
within seven (7) Business Days after the date of the Exercise Notice.
3. PERFORMANCE TARGET AND CONDITION PRECEDENT
3.1. The obligation of the Transferor to effect the Option and the transfer of
the Option Shares at the Exercise Price to the Transferee or his Nominee
upon his Exercise of the Option shall be subject to the fulfilment of the
conditions (the "Performance Targets") set forth in Exhibit A hereto. In
the event that the Group does not achieve the Performance Targets
specified in Exhibit A, then the Transferee may exercise the Option at the
Alternative Exercise Price on the date at which the Option would have
otherwise been exercisable had the Performance Targets been met.
4. INFORMATION, DISTRIBUTIONS AND ADJUSTMENTS
4.1. Information: The Transferee shall be entitled to request from the
Transferor at any time before the Completion, a copy of any information
received from the Group which may be in the possession of the Transferor
and, upon such request, the Transferor shall provide such information to
the Transferee.
4.2. Distributions: The Transferor agrees that the Transferee or his Nominee
shall be entitled to all the Distributions in respect of his/her Option
Shares. In the event that any such Distributions have been received by the
Transferor for any reason, the Transferor shall, at the request of the
relevant Transferee, pay an amount equivalent to the Distributions
received by him/her to the Transferee or his Nominee at the time of the
Option Exercise by the Transferee or his Nominee.
4.3. Adjustments: If, prior to the Completion, the Company shall effect any
adjustment in its share capital (such as share split, share dividend,
share combination or other similar acts), then the number of Option Shares
to be issued to the Transferee upon Exercise shall be adjusted
accordingly.
5. COMPLETION
5.1. Time and Venue: Completion of the sale and purchase of the Option Shares
pursuant to the Exercise shall take place at such place decided by the
Transferee or his Nominee on the Completion Date.
5.2. Business at Completion: At Completion of each Exercise, all (but not part)
of the following shall be transacted:
5.2.1 the Transferee or his Nominee shall pay the Exercise Price to the
Transferor in considerations set forth in the Exercise Notice ;
5.2.2 the Transferor shall cause the Company to within seven (7) Business
Days after the date of Exercise Notice, deliver to the Transferee or
his Nominee the following documents and cause the Company to take
all corporate actions necessary to give effect to such delivery:
(a) a share certificate or share certificates in respect of the
number of the Option Shares exercised by the Transferee or his
Nominee;
(b) a certified true copy of the register of members of the
Company updated to show the entry of the Transferee or his
Nominee as the holder of the Option Shares so exercised; and
(c) any other documents as the Transferee or his Nominee may
reasonably believe necessary to give effect to the issuance of
the exercised Option Shares.
6. CONFIDENTIALITY
The transaction contemplated hereunder and any information exchanged
between the Parties pursuant to this Agreement will be held in complete
and strict confidence by the concerned Parties and their respective
advisors, and will not be disclosed to any person except: (i) to the
Parties' respective officers, directors, employees, agents,
representatives, advisors, counsel and consultants that reasonably require
such information and who agree to comply with the obligation of
non-disclosure pursuant to this Agreement; (ii) with the express prior
written consent of the other Party; or (iii) as may be required to comply
with any applicable law, order, regulation or ruling, or an order, request
or direction of a government agency; provided, however, that the foregoing
shall not apply to information that: (1) was known to the receiving Party
prior to its first receipt from the other Party; (2) becomes a matter of
public knowledge without the fault of the receiving Party; or (3) is
lawfully received by the Party from a third person with no restrictions on
its further dissemination.
7. TRANSFEROR'S UNDERTAKINGS
7.1. Without the prior written consent of the Transferee, the Transferor shall
vote his shares in the Company such that the Company shall not, (i) issue
or create any new shares, equity, registered capital, ownership interest,
or equity-linked securities, or any options or warrants that are directly
convertible into, or exercisable or exchangeable for, shares, equity,
registered capital, ownership interest, or equity-linked securities of the
Company, or other similar equivalent arrangements, (ii) alter the
shareholding structure of the Company, (iii) cancel or otherwise alter the
Option Shares, (iv) amend the register of members or the memorandum and
articles of association of the Company, (v) liquidate or wind up the
Company, (vi) sell, transfer, assign, hypothecate or otherwise reduce the
value of any assets held by the Company, including but without limitation,
any and all shares in the Listed Company or (vi) act or omit to act in
such a way that would be detrimental to the interest of the Transferee in
the Option Shares. The Transferor shall cause the Company to disclose to
the Transferee true copies of all the financial, legal and commercial
documents of the Company and the resolutions of the shareholders and the
board of directors.
7.2. Without the prior written consent of the Transferee, the Transferor shall
not transfer, assign, pledge, hypothecate or vest any option on his
share(s) in the Company to any third party.
8. MISCELLANEOUS
8.1. Indulgence, Waiver Etc: No failure on the part of any Party to exercise
and no delay on the part of such Party in exercising any right hereunder
will operate as a release or waiver thereof, nor will any single or
partial exercise of any right under this Agreement preclude any other or
further exercise of it or any other right or remedy.
8.2. Effective Date and Continuing Effect of Agreement: This Agreement shall
take effect from the Effective Date. All provisions of this Agreement
shall not, so far as they have not been performed at Completion, be in any
respect extinguished or affected by Completion or by any other event or
matter whatsoever and shall continue in full force and effect so far as
they are capable of being performed or observed, except in respect of
those matters then already performed.
8.3. Successors and Assigns: This Agreement shall be binding on and shall
ensure for the benefit of each of the Parties' successors and permitted
assigns. Any reference in this Agreement to any of the Parties shall be
construed accordingly.
8.4. Further Assurance: At any time after the date of this Agreement, each of
the Parties shall, and shall use its best endeavors to procure that any
necessary third party shall, execute such documents and do such acts and
things as any other Party may reasonably require for the purpose of giving
to such other Party the full benefit of all the provisions of this
Agreement.
8.5. Remedies: No remedy conferred by any of the provisions of this Agreement
is intended to be exclusive of any other remedy which is otherwise
available at law, in equity, by statute or otherwise, and each and every
other remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. The election of any one or more of such remedies by
any Party shall not constitute a waiver by such Party of the right to
pursue any other available remedies.
8.6. Severability of Provisions: If any provision of this Agreement is held to
be illegal, invalid or unenforceable in whole or in part in any
jurisdiction, this Agreement shall, as to such jurisdiction, continue to
be valid as to its other provisions and the remainder of the affected
provision; and the legality, validity and enforceability of such provision
in any other jurisdiction shall be unaffected.
8.7. Governing Law: This Agreement shall be governed by, and construed in
accordance with, the laws of the British Virgin Islands, without reference
to any conflict of laws principle that would cause the application of the
laws of any jurisdiction other than the British Virgin Islands.
8.8. Dispute Resolution: In the event of any dispute, claim or difference (the
"Dispute") between any Parties arising out of or in connection with this
Agreement, the Dispute shall be resolved in accordance with the following:
(a) Negotiation between Parties; Mediations. The Parties agree to
negotiate in good faith to resolve any Dispute. If the negotiations
do not resolve the Dispute to the reasonable satisfaction of all
parties within thirty (30) days, subsection (b) below shall apply.
(b) Arbitration. In the event the Parties are unable to settle a Dispute
in accordance with subsection (a) above, such Dispute shall be
referred to and finally settled by arbitration at Hong Kong
International Arbitration Centre in accordance with the UNCITRAL
Arbitration Rules (the "UNCITRAL Rules") in effect, which rules are
deemed to be incorporated by reference into this subsection (b). The
arbitration tribunal shall consist of three arbitrators to be
appointed according to the UNCITRAL Rules. The language of the
arbitration shall be English.
8.9. Counterparts: This Agreement may be signed in any number of counterparts,
all of which taken together shall constitute one and the same instrument.
Any Party hereto may enter into this Agreement by signing any such
counterpart.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF the Parties hereto have executed this Agreement on the date
first above written.
The Transferor
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By: /s/ Li Shaoqing
-----------------------
Li Shaoqing
The Transferee
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By: /s/ Xxxx Xxxx
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Xxxx Xxxx
[SIGNATURE PAGE TO CALL OPTION AGREEMENT]
EXHIBIT A
PERFORMANCE TARGETS
A. The Group shall have generated a gross revenue of at least RMB
1,500,000 per month during the period commencing June 1, 2008 through December
31, 2008 (each monthly period constituting a "Performance Period and
collectively, the "Performance Periods").
B. The Option Effective Date for each Performance Period shall be that
date that is forty five (45) days following the last day of each such
Performance Period.
