SINO CLEAN ENERGY INC. SECURITIES PURCHASE AGREEMENT
Exhibit
99.1
Form
of Securities Purchase Agreement
This
Securities Purchase Agreement (this “Agreement”) is dated
as of September 16, 2008, among (i) Sino Clean Energy Inc., a Nevada corporation
(the “Company”), (ii)
Baowen Ren (the “Founder”), and (iii)
the purchasers identified on the signature pages hereto (each a “Purchaser” and
collectively the “Purchasers”).
WHEREAS,
the Company’s Common Shares (as defined below) are quoted on the Over-the
Counter Bulletin Board (ticker symbol: SCLX.OB) as of the date
hereof.
WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below), and Rule 506 and/or Rule
903 promulgated thereunder, the Company desires to issue and sell to the
Purchasers, and the Purchasers, severally and not jointly, desire to purchase
the Company’s Secured Convertible Debentures (as defined below) and the Warrants
(as defined below).
WHEREAS,
in order to induce the Purchasers to purchase the Company’s Secured Convertible
Debentures and the Warrants, Founder of the Company has agreed to deposit the
Escrow Shares (as defined below) subject pursuant to this Agreement and the
Escrow Agreement (as defined below).
NOW,
THEREFORE, in consideration of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.1:
“Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person as such terms are
used in and construed under Rule 144. For purposes of this
definition, “control” means the
power to direct the management and policies of such Person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
“Agreement” shall have
the meaning ascribed to such term in the Preamble.
“Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to
close.
“Closing” means each
closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing Date” means
the date of the Closing.
“Commission” means the
United States Securities and Exchange Commission.
“Common Shares” means
the common shares of the Company, $0.001 par value per share.
“Common Shares
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Shares,
including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that are at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Shares.
“Company” shall have
the meaning ascribed to such term in the Preamble.
“Company US Counsel”
means Xxxxxxxxxx & Xxxxx LLP, counsel to the Company.
“Disclosure Schedules”
means the Disclosure Schedules attached hereto.
“Effectiveness Period”
shall have the meaning ascribed to such term in Section
4.17(a)(iv).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Founder” shall have
the meaning ascribed to such term in the Preamble.
“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“PRC” means the
People’s Republic of China, not including Taiwan, Hong Kong and
Macau.
“Proceeding” means any
action, arbitration, audit, examination, investigation, hearing, litigation or
suit, proceeding (including, without limitation, a partial proceeding, such as a
deposition), (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, and whether public or private),
whether pending or threatened, commenced, brought, conducted or heard by or
before, or otherwise involving, any Person, including any Government
Entity.
“Purchaser” shall have
the meaning ascribed to such term in the Preamble.
“Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“Securities Act” means
the Securities Act of 1933, as amended.
“Subsidiary” or “Subsidiaries” means
any one of, or collectively, Hangson Limited, a British Virgins Island company,
Shaanxi Suoang Biological Science & Technology Co., Ltd., a PRC limited
liability company, and Shaanxi Suo’ang New Energy Enterprise Company Limited, a
PRC limited liability company.
“Trading Day” means
(i) a day on which the Common Shares are traded on a Trading Market, or (ii) if
the Common Shares are not listed on a Trading Market, a day on which the Common
Shares are traded on the over-the-counter market, as reported by the OTC
Bulletin Board, or (iii) if the Common Shares are not quoted on the OTC Bulletin
Board, a day on which the Common Shares are quoted in the over-the-counter
market as reported by the Pink Sheets LLC (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event that
the Common Shares are not listed or quoted as set forth in (i), (ii) and (iii)
hereof, then Trading Day shall mean a Business Day.
“Trading Market” means
the following markets or exchanges on which the Common Shares are listed or
quoted for trading on the date in question: the American Stock Exchange, the New
York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market,
the NASDAQ Capital Market or OTC Bulletin Board.
“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Guarantee, the Escrow Agreement, the Closing Escrow Agreement and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
ARTICLE
II.
PURCHASE
AND SALE
| 2.1 Purchase and Sale of the Debentures and Warrants. |
(i) Subject
to the terms and conditions of this Agreement and the other Transaction
Agreements, each undersigned Purchaser hereby agrees to loan to the Company the
principal amount set forth opposite such Purchaser’s name on Exhibit A attached
hereto (the “Purchase
Price”), out of the aggregate amount being loaned by all Purchasers of up
to $800,650 (the “Aggregate Purchase
Price”).
(ii) The
obligation to repay the loan from each undersigned Purchaser shall be evidenced
by the Company’s issuance of its 18% Secured Convertible Debenture (each a
“Debenture” and
collectively the “Debentures”) to such
Purchaser in the principal amount equal to such Purchaser’s Purchase
Price. Each Debenture (i) shall be convertible into a number of
Common Shares at a per share conversion price of $0.15 (subject to adjustment
pursuant to the terms of the Debentures), and (ii) shall have the terms and
conditions of, and be substantially in the form attached hereto as Exhibit B. The
Debentures shall be secured by a Guarantee from the Founder substantially in the
form attached hereto as Exhibit
D.
(iii) The
Company agrees to issue to each Purchaser a warrant in substantially the form
attached hereto as Exhibit C (the “Warrants”), to
purchase up to a number of Common Shares equal to 100% of the number of Common
Shares issuable upon conversion of such Purchaser’s Debenture (subject to
adjustment pursuant to the terms of the Warrants), at a per share exercise price
of $0.15 (subject to adjustment pursuant to the terms of the Warrants). The
number of Warrants each Purchaser shall be issued at Closing pursuant to this
Agreement and the Warrants is set forth such Purchaser’s name on Exhibit A hereto. The
Warrants shall be exercisable for such period of time as set forth in the
Warrants.
(iv) The
Common Shares issuable upon conversion of the Debentures and exercise of the
Warrants (and such shares when issued) are herein referred to as the “Conversion Shares”
and the “Warrant
Shares”, respectively, and sometimes collectively referred to as the
“Underlying
Shares”. The Debentures, the Warrants and the Underlying Shares are
sometimes collectively referred to as the “Securities”.
2.2 Escrow Shares. At
Closing Founder shall deliver or cause to be delivered to the Escrow Agent a
certificate or certificates with signed stock power or stock powers evidencing
in the aggregate [_____] Common Shares in accordance with the Escrow Agreement,
dated as of the Closing Date, by and among the Company, Founder, the Purchasers
and the Company US Counsel (the “Escrow Agent”)
substantially in the form attached hereto as Exhibit E-1 (the
“Escrow
Agreement”) which shall be maintained by the Escrow Agent for the benefit
of the Purchasers (such shares, the “Escrow Shares”). The
Escrow Shares shall be released as follows:
(a) Determination of Performance
Threshold. For purposes of this Section 2.2, (i) the “Fiscal Year 2008 Performance
Threshold” shall mean, for the fiscal year ended December 31, 2008, the
Company has achieved Net Income and Cash of $3.5 million and (ii) the “Fiscal Year 2009 Performance
Threshold” shall mean, for fiscal year ended December 31, 2009, the
Company has achieved Net Income and Cash of $6.0 million. For fiscal years ended
December 31, 2008 and 2009, “Net Income” shall
mean the sum of (A) the audited net income as reported on the Company’s annual
report on Form 10-K (the “Annual Report”) for
the applicable fiscal year, plus (B) any non-cash charges incurred by the
Company in the applicable fiscal year as a result of the transactions
contemplated under this Agreement and the Transaction Documents, including,
without limitation, any non-cash charges incurred as a result of the Securities
issued or issuable pursuant to this Agreement and the Transaction
Documents. For fiscal years ended December 31, 2008 and 2009, “Cash” shall mean the
audited net cash provided from operating activities as reported on the Company’s
Annual Report for the applicable fiscal year.
| (b) Release of Escrow Shares. |
(i) In the event that the Company’s Net Income or
Cash, calculated in accordance with GAAP and reported in the Annual Report for
fiscal year ended December 31, 2008, is less than the Fiscal Year 2008
Performance Threshold, then, within ten (10) Business Days after such Annual
Report is filed with the Commission, the Escrow Agent shall transfer to each
Purchaser that number of Escrow Shares equal to the product of one-half of the
Escrow Shares multiplied by the quotient of such Purchaser’s Purchase Price
divided by the Aggregate Purchase Price; and if the Net Income for fiscal year
2008 is greater than or equal to the Fiscal Year 2008 Performance Threshold,
then one-half of the Escrow Shares shall be returned to Founder;
and
|
(ii) In the event that the Company’s Net Income
or Cash, calculated in accordance with GAAP and reported in the Annual
Report for fiscal year ended December 31, 2009, is less than the Fiscal
Year 2009 Performance Threshold, then, within ten (10) Business Days after
such Annual Report is filed with the Commission, the Escrow Agent shall
transfer to each Purchaser that number of Escrow Shares equal to the
product of the Escrow Shares then in escrow multiplied by the quotient of
such Purchaser’s Purchase Price divided by the Aggregate Purchase Price;
and if the Net Income for fiscal year 2009 is greater than or equal to the
Fiscal Year 2009 Performance Threshold, then all Escrow Shares then in
escrow shall be returned to Founder.
(iii) In case the number of Escrow
Shares represented by the certificate or certificates surrendered by
Founder to the Escrow Agent pursuant to this Agreement and to be released
from time to time in accordance with this Section 2.2 exceeds the number
of shares so released under this Section 2.2, the Company shall, upon
surrender of such certificate or certificates, execute and deliver to the
Escrow Agent new certificates for the number of shares of Escrow Shares
that are to be released and that are not to be released,
respectively.
|
| 2.3 Closing. |
(a) Closing. Subject to
the terms and conditions set forth in this Agreement, at the Closing, the
Purchasers shall purchase and the Company shall issue and sell to the Purchasers
the Debentures and the Warrants for the Aggregate Purchase Price of up to
$800,650. The closing shall occur at 10 a.m. California time, on September 16,
2008 (unless otherwise extended in accordance with this Section 2.3(a)), the
Closing shall occur remotely by the exchange of signatures, certificates and
funds by mail or electronic transmission, or at such other time and place as the
Company and Purchasers shall mutually agree. At the Closing, each Purchaser
shall pay or cause to be paid to the Company the Purchase Price set forth
opposite such Purchaser’s name on Exhibit A pursuant to
the Closing Escrow Agreement, dated on or prior to the Closing Date, by and
among the Company, the Purchasers and Founder in the form attached hereto as
Exhibit E-2
(the “Closing
Escrow Agreement”).
(b) Closing
Deliveries.
(i) Company Deliverables.
At the Closing, the Company shall deliver or cause to be delivered to the
Purchasers pursuant to the Closing Escrow Agreement the following:
(A) this
Agreement duly executed by the Company;
(B) a
Debenture with a principal amount equal to each Purchaser’s Purchase Price,
registered in the name of such Purchaser as set forth opposite the name of such
Purchaser on Exhibit
B hereto;
(C) a
Warrant to purchase such number of Common Shares substantially in the form
attached hereto as Exhibit C issued to
and registered in the name of each Purchaser as set forth opposite the name of
such Purchaser on Exhibit A
hereto;
(D) the
Escrow Agreement duly executed by the Company substantially in the form set
forth in Exhibit
E-1;
(E) the
Closing Escrow Agreement duly executed by the Company substantially in the form
set forth in Exhibit
E-2; and
(F) a
certificate executed by the Company’s secretary or assistant secretary,
attaching its Company charter and by-laws, each as amended through the Closing
Date, any minutes of its board of directors and its stockholders related to the
execution of the Transaction Documents and the consummation of the transactions
contemplated thereby, and proof of the signatures of all officers of the Company
executing such agreements, substantially in the form attached hereto as Exhibit
F-1.
(ii) Founder Deliverables.
At the Closing, Founder shall deliver or cause to be delivered the following
pursuant to the Closing Escrow Agreement:
(A) this
Agreement duly executed by Founder;
(B) the
Escrow Agreement duly executed by Founder substantially in the form set forth in
Exhibit
E-1;
(C) the
Closing Escrow Agreement duly executed by Founder substantially in the form set
forth in Exhibit
E-2;
(D) the
Guarantee duly executed by Founder substantially in the form set forth in Exhibit D;
and
(E)
a stock certificate or certificates evidencing the Escrow Shares issued to
and registered in the name of Founder and stock power or stock powers executed
in the name of each of the Purchasers, which shall be delivered to the Escrow
Agent.
(iii) Purchaser
Deliverables. At the Closing each of the Purchasers shall deliver or
cause to be delivered to the Company the following pursuant to the Closing
Escrow Agreement:
(A) this
Agreement duly executed by such Purchaser;
(B)
such Purchaser’s Purchase Price by wire transfer in immediately available
funds to the account designated in writing by the Company;
(C)
the Escrow Agreement duly executed by such Purchaser substantially in the
form set forth in Exhibit
E-1;
(D)
the Closing Escrow Agreement signed by such Purchaser substantially in the form
set forth in Exhibit
E-2.
(c)
Closing
Escrow. Pending the Closing, all funds paid hereunder shall be deposited
by the Purchasers in a separate account maintained by the Company US Counsel
(the “Closing Escrow
Agent”) for the benefit of the Purchasers, and all other documents,
agreements and instruments required to be executed or delivered hereunder shall
be delivered to the Closing Escrow Agent pursuant to the Closing Escrow
Agreement.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1
Representations and
Warranties of the Company. Except as set forth in the SEC Reports or
under the corresponding section of the Disclosure Schedules delivered
concurrently herewith, the Company hereby makes the following representations
and warranties to the Purchasers:
(a) Organization and
Qualification. Each of the Company and each Subsidiary is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as described in the
Disclosure Materials (as defined below). Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified or licensed to
conduct its respective business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
would not have or reasonably be expected to result in (i) a material adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material adverse effect on the results of operations, assets, business or
financial condition of the Company and the Subsidiaries, taken as a whole, or
(iii) adversely impair the Company’s ability to perform in any material respect
on a timely basis its obligations under any Transaction Document (any of (i),
(ii) or (iii), a “Material Adverse
Effect”).
(b) Authorization;
Enforcement. The Company has the requisite corporate power and authority
to execute and deliver each of the Transaction Documents and to enter into and
to consummate the transactions contemplated by each of the Transaction Documents
(including the issuance and sale of the Debentures and the Warrants) and
otherwise to carry out its obligations thereunder. The execution and delivery of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company or its stockholders in connection therewith. Each Transaction Document
including this Agreement has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except where enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors’ rights or by the effect of general equitable
principles.
(c) No Conflicts. The
execution, delivery and performance of the Transaction Documents and the
consummation by the Company of the transactions contemplated thereby do not and
will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents; (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or, except as set forth in the Disclosure Materials, give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected; (iii)
to the Company’s knowledge, conflict with, or result in or constitute any
violation of, any award, decision, judgment, decree, injunction, writ, order,
subpoena, ruling, verdict or arbitration award (each an “Order”) entered,
issued, made or rendered by any federal, state, local or foreign government or
any other Governmental Entity (as defined below), or any Law (as defined below),
applicable to the Company or any of its Subsidiaries, or to any of their
respective properties or assets, or to any shares; (iv) result in the creation
or imposition of (or the obligation to create or impose) any Lien on any of the
properties or assets of the Company or any of the Subsidiaries, or on any of the
Debentures and Warrants; or (v) conflict with, or result in or constitute any
violation of, or result in the termination, suspension or revocation of, any
Authorization (as defined below) applicable to the Company or any of the
Subsidiaries, or to any of their respective properties or assets, or to any of
the Debentures and Warrants, or result in any other impairment of the rights of
the holder of any such Authorization; except in the case of each of clauses
(ii), (iii), (iv) and (v), such as would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse
Effect.
(d) Filings, Consents and
Approvals. Assuming the accuracy of the representations of the Purchasers
set forth in Section 3.3 hereof, no registration (including any registration
under the Securities Act) or filing with, or any notification to, or any
approval, permission, consent, ratification, waiver, authorization, order,
finding of suitability, permit, license, franchise, exemption, certification or
similar instrument or document (each, an “Authorization”) of or
from, any U.S. or PRC court, arbitral tribunal, arbitrator, administrative or
regulatory agency or commission or other governmental or regulatory authority,
agency or governing body, domestic or foreign, including without limitation any
Trading Market (each, a “Governmental
Entity”), or any other person, or under any statute, law, ordinance,
rule, regulation or agency requirement of any Governmental Entity, (each, a
“Law”), on the
part of the Company is required in connection with the execution or delivery by
the Company of the Transaction Documents or the performance by the Company of
its obligations under each of the Transaction Documents (including, the offer
and sale of the Debentures and Warrants by the Company to the Purchasers
thereunder) except (i) as would not have a Material Adverse Effect on the
Company or its performance of its obligations under the Transaction Documents,
(ii) Form D and blue sky filings, and (iii) the filings
contemplated by the Transaction Documents.
(e) Issuance of the Debentures
and Warrants. The Debentures and Warrants have been duly authorized and
when issued and paid for in accordance with this Agreement and the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, “Liens”), except for
such restrictions on transfer or ownership imposed by applicable federal or
state securities laws or set forth in this Agreement and shall be entitled to
the rights set forth in the Debentures and Warrants, as the case may be. When
the Conversion Shares and the Warrant Shares are issued in accordance with the
terms of the Debentures and the Warrants, respectively, such shares will be
validly issued and outstanding, fully paid and nonassessable, and the holders
shall be entitled to all rights
accorded to a holder of Common Shares. The Company has reserved from its duly
authorized capital stock the maximum number of Common Shares issuable pursuant
to this Agreement.
(f) Capitalization. As of
the date hereof, the authorized capital stock of the Company consists of
250,000,000 shares, 50,000,000 shares of which are Preferred Shares,
$0.001 par value per share and 200,000,000 shares of which are Common Shares,
$0.001 par value per share. As of the date hereof and immediately prior to the
transactions contemplated hereby, the number of shares and type of all issued
and outstanding capital stock of the Company, and all Common Shares reserved for
issuance under the Company’s various option and incentive plans, is specified in
Schedule 3.1(f)
of the Disclosure Schedules, and there are no shares of preferred stock issued
and outstanding. Other than as contemplated in this Agreement, the Company has
not issued any capital stock since September 15, 2008 other than pursuant to the
exercise of (i) stock options or restricted grants held by employees,
officers, directors, or consultants, whether or not pursuant to the Company’s
equity incentive plans or stock option plans, (ii) the issuance of Common
Shares to employees pursuant to the Company’s equity incentive plans, stock
option plans, stock option agreements, restricted stock agreements, stock
ownership plans or dividend reinvestment plans, and (iii) pursuant to the
conversion or exercise of outstanding Common Share Equivalents. Except as set
forth in the Disclosure Materials, no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as disclosed
in Schedule 3.1(f)
of the Disclosure Schedule, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any Preferred Shares or Common Shares, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional Preferred Shares or Common Shares, or securities or rights
convertible or exchangeable into Common Shares. Except as set forth in the
Disclosure Materials, the issue and sale of the Debentures and the Warrants will
not obligate the Company to issue Common Shares or other securities to any
Person (other than the Conversion Shares and the Warrant Shares) and will not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities.
(g) SEC Reports; Financial
Statements. The Company has filed all reports required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials, including the exhibits thereto (together
with any materials filed by the Company under the Exchange Act, whether or not
required), being collectively referred to herein as the “SEC Reports” and,
together with the Disclosure Schedules to this Agreement, the “Disclosure
Materials”) on a timely basis or has timely filed a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. The Company has informed the Purchasers prior to the date
hereof of any filing by the Company of any SEC Reports within the 10 days
preceding the date hereof. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or the
Debentures thereto and except that unaudited financial statements may not
contain all footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. All material agreements to which the
Company and its Subsidiaries are a party or to which any of their respective
property or assets are subject that are required to be filed as exhibits to the
SEC Reports on Form 10-KSB for the fiscal year ended December 31, 2007,
including the accompanying financial statements (the “Form 10-KSB”) and the
Company’s Form 10-Q for the fiscal quarters ended March 31 and June 30, 2008,
including the accompanying financial statements (collectively the “Form 10-Q”) are
included as a part of, or specifically identified in, the SEC
Reports.
(h) Material Changes.
Since the date of the latest audited financial statements included within the
SEC Reports, except as disclosed in the Disclosure Materials, (i) there has
been no event, occurrence or development that has had or that could reasonably
be expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities that would not be
required to be reflected in the Company’s financial statements pursuant to GAAP
or that would not be required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and
(v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company equity incentive
plans, stock option plans, stock option agreements, restricted stock agreements,
stock ownership plans or dividend reinvestment plans. The Company does not have
pending before the Commission any request for confidential treatment of
information.
(i) Litigation. Except as
disclosed in the Disclosure Materials, there are no actions, suits, inquiries,
notices of violation, proceedings or investigations pending or, to the knowledge
of the Company, threatened against or affecting the Company, any Subsidiary or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or (ii) would have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
(j) Taxes. Each of the
Company and the Subsidiaries has filed all necessary material federal, state and
foreign income and franchise tax returns and has paid or accrued all material
taxes shown as due thereon, and neither the Company nor any of its Subsidiaries
has knowledge of a tax deficiency which has been or might be asserted or
threatened against it which could reasonably be expected to result in a Material
Adverse Effect.
(k) Compliance. Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, could result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
to the Company’s knowledge, is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, kickbacks and false claims in healthcare programs, occupational
health and safety, product quality and safety and employment, labor matters,
except in each case as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. The Company is in
compliance with the applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002
and the rules and regulations thereunder promulgated by the Commission, except
where such noncompliance would not have or reasonably be expected to result in a
Material Adverse Effect.
(l) Regulatory Permits.
The Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits would not have or
reasonably be expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(m) Title to Assets. The
Company and the Subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to their respective businesses and
good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for (i) Liens described on Schedule 3.1(m)
of the Disclosure Schedules, (ii) Liens as do not materially affect the
value of such property, do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries,
(iii) Liens for taxes not yet due and payable, and (iv) Liens which would
not, individually or in the aggregate, reasonably be expected to have or result
in a Material Adverse Effect. To the Company’s knowledge, any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance except, in each case, as would not reasonably be
expected to result in a Material Adverse Effect.
(n) Solvency. Based
on the financial condition of the Company as of the date hereof, (i) the
Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company (A) as of the date hereof and (B) as of the Closing Date (in
which case together with the proceeds the Company would receive, assuming that
the Closing shall have occurred), were it to liquidate all of its assets, after
taking into account all anticipated uses of the cash, would be sufficient to pay
all amounts on or in respect of its debt when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt).
(o) Certain Fees. Except
as set forth in Schedule 3.1(o), no brokerage or finder’s fees or commissions
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement.
(p) Registration Rights.
Except as set forth in the Disclosure Materials and as provided for in Article 4
hereunder, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company.
(q) Investment Company.
The Company is not, and after giving effect to the sale of the Debentures and
Warrants and the application of the net proceeds therefrom, will not be, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
(r) Disclosure. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company are complete, true and
correct in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(s) No Additional
Agreements. The Company has no other agreement or
understanding with any Purchaser with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.
3.2 Representations and
Warranties of Founder. Founder hereby represents and warrants to the
Purchasers with respect to himself as follows:
(a) Authority;
Enforcement. Founder has the requisite power and authority to enter into
and to consummate the transactions contemplated by the applicable Transaction
Documents and otherwise to carry out its obligations thereunder. This Agreement
and the other Transaction Documents to which he is party have been duly executed
by Founder, and when delivered by Founder in accordance with terms hereof, will
constitute the valid and legally binding obligation of Founder, enforceable
against it in accordance with its terms.
(b) No Conflicts. The
execution, delivery and performance of this Agreement and the Transaction
Documents to which he is party and the consummation by Founder of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Founder debt or otherwise) or other understanding to which Founder
is a party or by which any property or asset of Founder is bound or affected;
(iii) to Founder’s knowledge, conflict with, or result in or constitute any
violation of, any Order, or any Law, applicable to Founder, or to any of his
properties or assets, or to the Escrow Shares; (iv) result in the creation or
imposition of (or the obligation to create or impose) any Lien on any of the
properties or assets of Founder, or on any of the Escrow Shares; or (v) conflict
with, or result in or constitute any violation of, or result in the termination,
suspension or revocation of, any Authorization applicable to Founder, or to any
of his properties or assets, or to any of the Escrow Shares, or result in any
other impairment of the rights of the holder of any such
Authorization.
(c) Litigation. There is
no Action pending or threatened in writing against Founder or any of his
Affiliates which has had or would reasonably be expected to have a material
adverse effect on the ability of Founder to perform his obligations under this
Agreement and the other Transaction Documents to which he is party or consummate
the transactions contemplated hereunder and thereunder.
(d) Escrow Shares.
Founder has (and will have on the Closing Date) good and marketable title to the
Escrow Shares delivered by him, and has full right, power and authority to
transfer and deliver to Escrow Agent such Escrow Shares, free and clear of all
Liens. Immediately following the Closing, Founder will be the record and
beneficial owner of such Escrow Shares, and have good and marketable title to
such Escrow Shares, free and clear of all Liens, other than any Liens arising as
a result of this Agreement.
(e) Certain Fees. No
brokerage or finder’s fees or commissions are or will be payable by Founder to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
3.3 Representations and
Warranties of the Purchasers. Each of the Purchasers hereby represents
and warrants to the Company with respect to himself, herself or itself as
follows:
(a) Organization;
Authority. Such Purchaser is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite limited liability company power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations thereunder. The execution, delivery
and performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or limited
liability company action on the part of such Purchaser. This Agreement and each
of the Transaction Documents to which it is party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with terms hereof,
will constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent.
Such Purchaser is acquiring the Debentures and Warrants as principal for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Debentures and Warrants or any part thereof, without
prejudice, however, to such Purchaser’s right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of
Debentures and Warrants pursuant to an effective registration statement under
the Securities Act or under an exemption from such registration and otherwise in
compliance with applicable federal and state securities Laws. Subject to the
immediately preceding sentence, nothing contained herein shall be deemed a
representation or warranty by such Purchaser to hold the Debentures and Warrants
for any period of time. Such Purchaser is acquiring the Debentures and Warrants
hereunder
in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Debentures and Warrants.
(c) Status of Purchaser.
Such Purchaser hereby makes the representations and warranties in either
Sub-section (i) or (ii) of this Section 3.3(c):
(i) Accredited Investor Under
Regulation D. Such Purchaser is an “Accredited Investor” as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act, and
such Purchaser is not acquiring the Debentures and Warrants as a result of any
advertisement, article, notice or other communication regarding the Debentures
and Warrants published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement; and such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act;
or
(ii) Non-U.S. Person Under
Regulation S. Such Purchaser:
(A) is
not a “U.S. person” as defined by Rule 902 of Regulation S promulgated under the
Securities Act, was not organized under the laws of any U.S. jurisdiction, and
was not formed for the purpose of investing in securities not registered under
the Securities Act;
(B) at
the time of Closing, such Purchaser was located outside the United
States;
(C) no
offer of the Debentures and Warrants was made to such Purchaser within the
United States;
(D) such
Purchaser is either (a) acquiring the Debentures and Warrants for its own
account for investment purposes and not with a view towards distribution, or (b)
acting as agent for a principal that has signed this Agreement or has delivered
representations and warranties substantially similar to this Section
3.4(b);
(E)
all subsequent offers and sales of the Debentures and Warrants by such Purchaser
will be made outside the United States in compliance with Rule 903 of Rule 904
of Regulation S, pursuant to registration of the Debentures and Warrants under
the Securities Act, or pursuant to an exemption from such registration; such
Purchaser understands the conditions of the exemption from registration afforded
by section 4(l) of the Securities Act and acknowledges that there can be no
assurance that it will be able to rely on such exemption.
(F)
such Purchaser will not resell the Debentures and Warrants to U.S. Persons or
within the United States until after the end of the six-month period commencing
on the date of Closing (the “Restricted Period”);
(G)
such Purchaser shall not and hereby agrees not to enter into any short
sales with respect to the Common Shares at any time after the execution of this
Agreement by such Purchaser and prior to the expiration of the Restricted
Period;
(H)
such Purchaser understands that the Debentures and Warrants are being offered
and sold to it in reliance on specific provisions of federal and state
securities laws and that the parties to this Agreement are relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understanding of such Purchaser set forth herein in order to
determine the applicability of such provisions. Accordingly, such Purchaser
agrees to notify the Company of any events which would cause the representations
and warranties of such Purchaser to be untrue or breached at any time after the
execution of this Agreement by such Purchaser and prior to the expiration of the
Restricted Period;
(I)
in the event of resale of the Debentures and Warrants to non-U.S. Persons
outside of the U.S. during the Restricted Period, such Purchaser shall provide a
written confirmation or other
written notice to any distributor, dealer, or person receiving a selling
concession, fee, or other remuneration in respect of the Shares stating that
such purchaser is subject to the same restrictions on offers and sales that
apply to the undersigned, and shall require that any such purchase shall provide
such written confirmation or other notice upon resale during the Restricted
Period;
(J)
such Purchaser has not engaged, nor is it aware that any party has engaged, and
it will not engage or cause any third party to engage in any “directed selling”
efforts (as such term is defined in Regulation S) in the United States with
respect to the Debentures and Warrants;
(K)
such Purchaser is not a “distributor” as such term is defined in
Regulation S, and it is not a “dealer” as such term is defined in the Securities
Act;
(L)
such Purchaser has not taken any action that would cause any of the parties to
this Agreement to be subject to any claim for commission or other or
remuneration by any broker, finder, or other person; and
(M) such
Purchaser hereby represents that it has satisfied fully observed of the laws of
the jurisdiction in which it is located or domiciled, in connection with the
acquisition of the Debentures and Warrants or with this Agreement, including (i)
the legal requirements of such Purchaser’s jurisdiction for the purchase and
acquisition of the Debentures and Warrants, (ii) any foreign exchange
restrictions applicable to such purchase and acquisition, (iii) any governmental
or other consents that may need to be obtained, and (iv) the income tax and
other tax consequences, if any, which may be relevant to the purchase, holding,
redemption, sale, or transfer of the Debentures or the Warrants; and further,
such Purchaser agrees to continue to comply with such laws as long as it shall
hold the Debentures or the Warrants.
(d) Restrictive Legends.
Such Purchaser acknowledges that the certificates representing such Purchaser’s
Debentures or Warrants shall each conspicuously set forth on the face or back
thereof a legend in substantially the following form, corresponding to the
stockholder’s status as set forth in Section 3.3(c):
REGULATION D
LEGEND:
“[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”
REGULATION S
LEGEND:
“[NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HASBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES
ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM REGISTRATION; HEDGING TRANSACTIONS INVOLVING THE SHARES
REPRESENTED HEREBY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.”
(e) Investment Risk. Such
Purchaser is able to bear the economic risk of acquiring the Debentures and
Warrants pursuant to the terms of this Agreement, including a complete loss of
such Purchaser’s investment in the Debentures and Warrants.
(f)
Experience of
the Purchaser. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Debentures and Warrants, and has so evaluated
the merits and risks of such investment. Such Purchaser is able to bear the
economic risk of an investment in the Debentures and Warrants and, at the
present time, is able to afford a complete loss of such investment. Such
Purchaser has requested, received, reviewed and considered all information it
deems relevant in making an informed decision to purchase the
Securities.
(g) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Debentures and Warrants and the merits and risks of investing in
the Debentures and Warrants; (ii) access to information about the Company and
the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Purchaser or its representatives
or counsel shall modify, amend or affect such Purchaser’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in this Agreement.
(h) Certain Fees. Except
for any fees that will be payable by the Company under Section 3.1(o), such
Purchaser has not entered into any agreement or arrangement that would entitle
any broker or finder to compensation by the Company in connection with the sale
of the Company of the Debentures and Warrants to the Purchaser.
(i)
No
Tax, Legal or Investment Advice. Such Purchaser understands that nothing
in the Transaction Documents or any other materials presented to such Purchaser
in connection with the purchase and sale of the Debentures and Warrants
constitutes tax, legal, or investment advice. Such Purchaser has consulted such
tax, legal, and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Debentures and
Warrants.
(j) Compliance with Securities
Laws. Such Purchaser represents and warrants that, in connection with its
purchase of the Debentures and Warrants, it has complied with all applicable
provisions of the Securities Act, including the rules and regulations
promulgated by the Commission thereunder, and applicable state securities
Laws.
(k) Reliance. Such
Purchaser understands and acknowledges that (i) the Debentures and Warrants are
being offered and sold to it without registration under the Securities Act in a
private placement that is exempt from the registration requirements of the
Securities Act and (ii) the availability of such exemption, depends in part on,
and the Company will rely upon the accuracy and truthfulness of, the foregoing
representations and warranties and the Purchaser hereby consents to such
reliance.
(l) Short Swing
Transactions. Other than the transactions contemplated hereunder, such
Purchaser has not directly or indirectly, nor has any person acting on behalf of
or pursuant to any understanding with such Purchaser, executed any transaction,
including short sales, in the securities of the Company during the period
commencing from the time that such Purchaser was first contacted by the Company
or any other person disclosing the material terms of the transactions
contemplated hereunder until the date hereof. Such Purchaser understands and
acknowledges that the Commission currently takes the position that entering into
a short sale of Common Shares “against the box” while holding unregistered
shares of the Common Shares, followed by coverage of the short sale with such
shares after the registration statement has been declared effective by the
Commission, is a violation of Section 5 of the Securities Act, as set forth in
Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
short sales or similar transactions in the future.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
| 4.1 Registration Required. Each of the Purchasers hereby covenants, severally and not jointly, with the Company not to, directly or indirectly, offer, sell, pledge, transfer, or otherwise dispose of (or solicit offers to buypurchase or otherwise acquire or take pledge of) any of the Securities without complying with the provisions hereof, the Securities Act and the applicable rules and regulations of the Commission thereunder, including without limitation, the prospectus delivery requirement under the Securities Act to be satisfied (unless such Purchaser is selling such Securities in a transaction not subject to the prospectus delivery requirement), and each Purchaser acknowledges that the certificates evidencing the Securities will be imprinted with a legend that prohibits their transfer except in accordance therewith. Notwithstanding anything to the contrary in this Agreement, this Agreement shall in no event be deemed to affect, or impose any additional requirements or restrictions on, transfer or ownership by any of the Purchasers of any Common Shares that are not the Underlying Shares and that are held or may be held by such Purchaser from time to time. |
4.2 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities Laws, including pursuant to an exemption therefrom. In connection
with any transfer of the Securities other than pursuant to an effective
registration statement, pursuant to Rule 144 as currently in effect promulgated
under the Securities Act, to the Company, to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.2(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement.
(b) Each
Purchaser agrees to the imprinting, so long as is required by this Article IV,
of a legend on any of the Securities in the applicable form set forth in
Sub-section 3.3(d) above.
The Company acknowledges and agrees that a Purchaser 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
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees 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 pledgee, secured
party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to Section 4.13 hereunder, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.
(c) Certificates
evidencing the Securities shall not contain any legend (including the legend set
forth in Section 3.3(d) hereof): (i) while a registration statement covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Securities pursuant to Rule 144, or (iii) if such Securities
are eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If
all or any portion of a Debenture or Warrant is converted or exercised (as
applicable) at a time when there is an effective registration statement to cover
the resale of the Underlying Shares, or if the Underlying Shares may be sold
under Rule 144(k), or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission), then such Underlying
Shares shall be issued free of all legends.
(d) Each
Purchaser agrees that the removal of the restrictive legend from certificates
representing such Purchaser’s Securities as set forth in Sub-section 3.3(d) is
predicated upon (i) the Company’s reliance that such Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, an exemption
therefrom, or termination of such restrictions and/or (ii) that in the context
of a sale under Rule 144, if requested by the Company’s transfer agent, such
Purchaser shall have delivered to the transfer agent seller and broker
representation letters relating to such Purchaser’s
Securities.
4.3 Furnishing of
Information. As long as any of the Purchasers own any Securities, and
until the Securities can be resold by non-Affiliate of the Company under Rule
144 without restrictions under Rule 144, the Company covenants to timely file
(or obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act.
4.4 Further Issuances;
Preemptive Rights.
(a) Except
as otherwise contemplated herein, the Company will not, during the period
commencing on the Closing Date and concluding on the first anniversary of such
date, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) (a “Qualifying Offering”)
any of its equity or equity equivalent securities, including without limitation
any debt, preferred stock or other instrument or security that is, at any time
during its life and under any circumstances, convertible into or exchangeable or
exercisable for Common Shares or Common Share Equivalents (“New Securities”),
without first offering to the Purchasers a preemptive right to purchase the
Purchaser Percentage (as defined in the following sentence) of such New
Securities; provided,
however, that a Qualifying Offering shall not include the following, and
the Company may, without complying with this Section 4.4, issue (i) Common
Shares pursuant to any equity incentive plan, stock option plan, stock option
agreement, restricted stock agreement, stock ownership plan or dividend
reinvestment plan of the Company that is currently in effect and is disclosed in
the SEC Reports or in Schedule 4.4 of the Disclosure Schedules or that is
subsequently approved by the Board of Directors; (ii) restricted stock or
options to purchase Common Shares pursuant to any equity incentive plan or stock
option plan that is currently in effect and is disclosed in the SEC Reports or
in Schedule 4.4 of the Disclosure Schedules or that is subsequently
approved by the Board of Directors; (iii) stock options or restricted
stock grants to employees, officers, directors or consultants, whether or not
pursuant to an equity incentive plan; (iv) Common Shares issuable upon the
conversion or the exercise of securities, options or warrants outstanding at the
Closing or Underlying Shares in connection with the offer and sale of the
Debentures and Warrants pursuant to this Agreement provided that the terms of
such securities, options or warrants are not amended, modified or changed on or
after the Closing Date; (v) Common Shares or any other security
convertible into or exercisable or exchangeable for the Common Shares in
connection with an acquisition transaction (including by way of a merger or
consolidation), the primary purpose of which is not to raise equity capital;
(vi) securities to customers, vendors, licensors or joint venture partners
or in connection with strategic alliances approved by the Company’s board of
directors, the primary purpose of which is not to raise equity capital;
(vii) securities in connection with an equipment lease financing
transaction or a credit financing transaction with a bank or institutional
lender approved by the Board of Directors, the primary purpose of which is not
to raise equity capital; or (viii) Common Shares issuable upon the
conversion or exercise of any convertible securities, options or warrants issued
and outstanding pursuant to sub-clauses (i) - (vii) of this Section 4.4(a) (each
such issuance being a “Non-qualifying Issuance”). The “Purchaser Percentage”
shall be equal to the proportion of the Underlying Shares (on a fully converted
or exercised basis) owned by a Purchaser bears to the total outstanding common
stock (on a fully diluted basis), expressed as a percentage.
(b) The
Company shall deliver to each of the Purchasers a written notice (the “Offer Notice”) of any
proposed or intended issuance or sale or exchange (the “Offer”) of New
Securities in a Qualifying Offering, which Offer Notice shall (w) identify and
describe the New Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of the New
Securities to be issued, sold or exchanged, (y) identify the persons or entities
(if known) to which or with which the New Securities are to be offered, issued,
sold or exchanged and (z) offer to issue and sell to or exchange with each of
the Purchasers not less than the respective Purchaser Percentage of the New
Securities. Purchasers agree and
acknowledge that until such Offer has been concluded either by (i) a public
announcement of the issuance or sale or exchange or (ii) a termination of the
Offer (of which termination Company shall promptly inform Purchasers), the
information in such Offer Notice is material, nonpublic information and that
Purchasers shall keep such information confidential.
(c) To
accept an Offer, in whole or in part, a Purchaser must deliver a written notice
to the Company prior to the end of the tenth (10th) Business Day after the
Purchaser’s receipt of the Offer Notice (the “Offer Period”),
setting forth the portion of the Purchaser Percentage that such Purchaser elects
to purchase (the “Notice of
Acceptance”).
(d) The
Company shall have sixty (60) days from the expiration of the Offer Period above
to offer, issue, sell or exchange all or any part of such New Securities as to
which a Notice of Acceptance has not been given by the Purchasers (the “Refused Securities”),
but only to the offerees described in the Offer Notice (if so described therein)
and only upon terms and conditions (including, without limitation, unit prices
and interest rates) that are not more favorable to the acquiring person or
persons or less favorable to the Company than those set forth in the Offer
Notice.
(e) Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, a Purchaser shall acquire from the Company, and the Company
shall issue to such Purchaser, the number or amount of New Securities specified
in the Notices of Acceptance, upon the terms and conditions specified in the
Offer. The purchase by a Purchaser of any New Securities is subject in all cases
to the preparation, execution and delivery by the Company and the Purchaser of a
purchase agreement relating to such New Securities reasonably satisfactory in
form and substance to the Company and the Purchaser and their respective
counsel.
(f) Any
New Securities not acquired by a Purchaser or other Persons in accordance with
this Section 4.4 may not be issued, sold or exchanged until they are again
offered to the Purchasers under the procedures specified in this
Agreement.
(g) Notwithstanding
anything to the contrary in this Section 4.4, the Company shall not be required
to offer New Securities to a Purchaser if such Purchaser is not an Accredited
Investor or a Non-U.S. Person at the time of the Qualifying Offering or is not
acquiring the New Securities for investment purposes. Each of the Purchasers
agrees to represent and warrant to the Company as to its Accredited Investor or
a Non-U.S. Person status and its investment intent as a condition to
participating in the Offer.
4.5 Securities Laws Disclosure.
The Company shall, within four Business Days of the Closing, file a
Current Report on Form 8-K disclosing the transactions contemplated hereby
including each of the Transaction Documents as exhibits, and make such other
filings and notices in the manner and time required by the
Commission.
4.6 Stockholders Rights
Plan. No claim will be made or enforced by the Company or any other
Person that any Purchaser is an “Acquiring Person” under any stockholders rights
plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving the Securities under the
Transaction Documents or under any other agreement between the Company and such
Purchaser.
4.7
Non-Public
Information. The Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide any Purchaser or its agents or
counsel with any information that the Company believes constitutes material
non-public information except as required by this Agreement, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in the securities of the Company.
4.8 Independent Board of
Directors. The Company covenants and agrees that no later than
90 calendar days from the Closing Date, the Board of Directors of the Company
shall be comprised of a minimum of five members, a majority of which shall be
“independent directors” as such term is defined in NASDAQ Marketplace Rule
4200(a)(15) or in American Stock Exchange Company Guide Section
803.
4.9 Chief Financial
Officer. No later than 90 calendar days from the Closing Date,
the Company will hire a chief financial officer who is a certified public
accountant or possesses experience such that he or she can reasonably serve as a
chief financial officer, fluent in English and an expert in (i) United States
GAAP and (ii) auditing procedures and compliance for United States public
companies.
4.10 Independent Public
Accountant. The Company covenants and agrees that no later
than 90 calendar days from the Closing Date, the Company shall hire and retain
one of the following auditing firms as its independent public accountant of
record for the fiscal year ended December 31, 2008: Xxxxx Xxxxxxxx
International, Xxxxxxx International, BDO Xxxxxxx, LLP, Xxxxxxxx & Company,
or other such auditor as may be agreed between the Company and a majority in
interest of the Purchasers.
4.11 Trading Market Migration and
Reverse Stock Split. The Company covenants and agrees that no
later than the first anniversary of the Closing Date, the Company shall apply to
list the Common Shares for trading on the American Stock Exchange or the NASDAQ
Global Select Market or the NASDAQ Global Market or the NASDAQ Capital Market or
the New York Stock Exchange, and in connection therewith, to effect a reverse
stock split of the Common Shares sufficient to qualify the per share price of
the Common Shares for such listing.
4.12 Put
Right. At any time until the first anniversary of the Closing
Date, if (i) any PRC Governmental Entity challenges or otherwise takes any
action that adversely affects the transactions contemplated by the Transaction
Documents, or takes any action that requires a Subsidiary to suspend its
business operations based on the Notice from the PRC’s National Development and
Reform Commission dated August 4, 2008, and the Company cannot undo such
governmental action or otherwise address the material adverse effect to the
reasonable satisfaction of the Purchasers within sixty (60) days of the
occurrence of such governmental action, or (ii) if the auditing firm retained
pursuant to Section 4.10 or Company US Counsel resigns due to a dispute with, or
will not/can not provide an appropriate satisfactory opinion(s) to, the Company,
then, at the option of, and upon written demand from, a Purchaser, the Company
shall promptly, and in any event within thirty (30) days from the date of such
written demand, pay to such Purchaser, as liquidated damages, an amount equal to
such Purchaser’s entire Purchase Price plus eighteen percent (18%) of such
Purchase Price. As a condition to the receipt of such payment, such Purchaser
shall return to the Company for cancellation the certificates evidencing the
Securities acquired by such Purchaser under the Agreement and the Transaction
Documents.
4.13 Payment of Due Diligence
Expenses. At Closing, the Closing Escrow Agent shall disperse to Ancora
Greater China Fund, LP the sum of $25,000.00 from the Aggregate Purchase Price
for its due diligence expenses.
4.14
Listing of
Common Shares. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing or quotation of the Common Shares on
a Trading Market. The Company will use commercially reasonable efforts to comply
in all material respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.15
Transfer
Taxes. On the Closing Date, all transfer or other taxes (other than
income or similar taxes) which are required to be paid in connection with the
sale and transfer of the Securities to be sold to the Purchasers under the
Transaction Documents shall be, or shall have been, fully paid or provided for
by the Company, and all Laws imposing such taxes will be or will have been
complied with.
4.16
Inspection. The Company shall permit
each Purchaser, at its own expense, to visit and inspect the Company’s
properties, to examine its books of account and records and to discuss the
Company’s affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Purchaser; provided, however, that
the Company shall not be obligated pursuant to this Section 4.16 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information or any information with respect to which the
Company may be legally bound to maintain confidentiality, including, without
limitation, material, nonpublic information under federal securities
laws.
4.17 Use of Proceeds. The
Company will use the net proceeds from the sale of the Securities, after payment
of legal fees and other closing costs, for working capital (including expenses
relating to the Company’s obligations under Sub-sections 4,8, 4.9, 4.10 and 4.11
hereof) and/or in connection with a registered underwritten public offering of
the Company’s Common Shares or Common Shares Equivalents.
4.18 Registration
Rights.
(a) “Piggy-Back”
Registration.
(i)
If at any time after the date hereof the Company shall file a registration
statement on Form S-1 or Form S-3 (or any similar or successor forms promulgated
by the Commission) pursuant to an offering of the Company’s Common
Shares or Common Shares Equivalents, the Company shall include the Underlying
Shares (the “Registrable Shares”)
in such registration statement (the “Registration
Statement”), provided that the amount of Registrable Shares shall be
limited to not less than 100% of the maximum amount (“Rule 415 Amount”) of
Common Shares which may be included in a single registration statement without
exceeding registration limitations imposed by the Commission pursuant to Rule
415 of the Securities Act;
(ii) the
Company will pay all expenses associated with the registration, including,
without limitation, filing and printing fees, and the Company’s counsel and
accounting fees and expenses, costs, if any, associated with clearing the
Registrable Securities for sale under applicable state securities
laws;
(iii) the
Company shall have the right to delay, including, without limitation, by
delaying the filing or effectiveness of the Registration Statement, the
disclosure of material, non-public information concerning the Company the
disclosure of which at the time is not, in the reasonable opinion of the Company
in the best interest of the Company and, as applicable, suspend sales of
Registrable Securities under an effective registration statement or suspend
trading of its securities on any exchange; and
(iv) the
Company will use commercially reasonable efforts to cause the Registration
Statement with respect to the Purchasers to remain continuously effective for a
period (the “Effectiveness
Period”) that will terminate, with respect to the Purchasers, upon the
earlier of (x) the date on which all the Registrable Securities covered by the
Registration Statement have been sold or (y) the date on which all the
Registrable Securities covered by the Registration Statement may be sold
immediately without registration under the Securities Act and without volume
restrictions pursuant to Rule 144(k), as determined by the Company US Counsel
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company’s transfer agent and the affected Purchasers, and will advise the
Purchasers when the Effectiveness Period has expired with respect to the
Purchasers.
(b)
Purchaser
Information. Each Purchaser shall (A) furnish to the Company such
information regarding itself, the Registrable Securities, other securities of
the Company held by it and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably requested by the Company to effect
and maintain the effectiveness of the Registration Statement, (B) execute such
documents in connection with the Registration Statement as the Company may
reasonably request and (C) immediately discontinue disposition of Registrable
Securities pursuant to any registration statement upon notice from the Company
of (x) the issuance of any stop order or other suspension of effectiveness of
the Registration Statement by the Commission, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
by the applicable regulatory authorities or (y) the happening of any event, as
promptly as practicable after becoming aware of such event, as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading or
(z) the failure of the prospectus included in the Registration Statement,
as then in effect, to comply with the requirements of the Securities Act until
the Purchaser’s receipt of a supplemented or amended prospectus or receipt of
notice that no supplement or amendment is required.
(c)
Indemnification.
(i) In
the event any Registrable Securities are included in the Registration Statement
under this Section 4.17, to the extent permitted by law, the Company will
indemnify and hold harmless the each of the Purchasers (including their
officers, directors, members and partners), any underwriter (as defined in the
Securities Act) for the Purchasers and each person, if any, who controls such
Purchaser or underwriter within the meaning of the Securities Act or the
Exchange Act (each a “Purchaser Indemnified
Person”), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law (“Claims”), insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a “Violation”):
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to the Purchaser Indemnified Person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any Claim; provided, however, that the
indemnity agreement contained in this Section 4.17(c)(i) shall not apply to
amounts paid in settlement of any such Claim if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld or delayed), nor shall the Company be liable to the Purchaser
Indemnified Person, for any such Claim to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Purchaser Indemnified Person. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Purchaser Indemnified Person and shall survive the transfer of the
Registrable Securities by the Purchasers.
(ii) In the event any Registrable
Securities are included in the Registration Statement under this Section 4.17,
to the extent permitted by law, each Purchaser shall, severally and not jointly,
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 4.17(c)(i), the Company, each of its directors, each
of its officers who signs the registration statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, a “Company
Indemnified Person”), against any Claim, insofar as such Claim arise out
of or are based upon any Violation, in each case to the extent, and only to the
extent, that such Violation occurs in reliance upon and in strict conformity
with written information furnished to the Company by such Purchaser expressly
for use in the Registration Statement; and, subject to Section 4.17(c)(iii),
such Purchaser will reimburse any legal or other expenses reasonably incurred by
any Company Indemnified Person in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 4.17(c)(ii) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the
indemnifying Purchaser, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Company Indemnified Person and shall
survive the transfer of the Registrable Securities by the
Purchasers.
(iii) Promptly after receipt by a Purchaser
Indemnified Person or Company Indemnified Person (each, an “Indemnified Person”)
under this Section 4.17 of notice of a Claim, such Indemnified Person shall, if
a Claim in respect thereof is to be made against any indemnifying party under
this Section 4.17, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall, by giving at written
notice to the Indemnified Party within fifteen days after the Indemnified Party
has given notice of the Claim, have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person;
provided, however, that an Indemnified Person shall have the right to retain its
own counsel with the fees and expenses of not more than one counsel for such
Indemnified Person to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the representation by
such counsel of the Purchaser Indemnified Person or Company Indemnified Person
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In the case of any Company
Indemnified Person, legal counsel referred to in the proviso of the immediately
preceding sentence shall be selected by the holders holding at least a majority
in interest of the Registrable Securities included in the registration statement
to which the Claim relates. The Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Person that
relates to such action or Claim. The indemnifying party shall keep the
Indemnified Person reasonably apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Person of a
full and general release from all liability in respect to such Claim or
litigation, and such settlement (a) shall provide for the payment by the
Indemnifying Party of money as sole relief for the claimant, (b) shall not
include any finding or admission as to fault on the part of the Indemnified
Person and (c) shall have no effect on any other claims that may be made against
the Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Person
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person under this Section 4.17, except to the extent that the
indemnifying party is materially prejudiced in its ability to defend such
action.
ARTICLE
V.
CONDITIONS
5.1 Conditions to the Closing of
the Purchasers. The Purchasers’ obligation to purchase the Debentures and
Warrants being issued at the Closing is subject to the satisfaction, or waiver
by the Purchasers, of the following conditions:
(a) Representations and
Warranties. The representations and warranties of the Company and Founder
set forth in this Agreement shall be true and correct in all material respects
(except for those qualified as to materiality or a Material Adverse Effect,
which shall be true and correct) as of the date of this Agreement and as of the
Closing Date (except to the extent that such representation or warranty speaks
of an earlier date, in which case such representation or warranty shall be true
and correct in all material respects (or if qualified as to materiality or a
Material Adverse Effect, true and correct) as of such date) as though made on
and as of the Closing Date.
(b) Performance of Obligations
of the Company and Founder. The Company and Founder shall have performed
in all material respects all agreements and covenants required to be performed
by each of them under this Agreement (including the deliveries required under
Section 2) on or prior to the Closing Date.
(c) No Injunction. No
Order has been enacted, entered, promulgated or endorsed by any court or
Government Entity of competent jurisdiction that prohibits the consummation of
any of the transactions contemplated by the Transaction Documents.
(d) No Adverse Changes.
Since the date of execution of this Agreement, no event or series of events
shall have occurred that resulted or would reasonably be expected to result in a
Material Adverse Effect.
(e) No Suspension of
Trading. As of the Closing Date, trading in the Common Shares shall not
have been suspended by the Commission, and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg Financial Markets
shall not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State Governmental Authorities.
(f) Certificate. The
Purchasers shall have received a certificate, dated the Closing Date, of the
Company executed by the Company’s director or officer duly authorized to execute
the Transaction Documents, certifying as to the matters set forth in this
Section 5.1(a) and delivered to the Purchasers, substantially in the form
attached hereto as Exhibit
F-2.
5.2
Conditions to the
Closing of the Company and Founder. The Company’s obligation to issue and
sell the Debentures and Warrants at the Closing and Founder’s obligations to
deliver the Escrow Shares at the Closing is subject to the satisfaction, or
waiver by the Company or Founder, as applicable, of the following
conditions:
(a) Representations and
Warranties. The representations and warranties of the Purchasers set
forth in this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date (except to the extent that
such representation or warranty speaks of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects as
of such date) as though made on and as of the Closing Date.
(b) Performance of Obligations
of the Purchasers. Each Purchaser shall have performed in all material
respects all agreements and covenants required to be performed by it under this
Agreement on or prior to the Closing Date.
(c) Regulatory Approvals.
The Purchasers shall have received all requisite approvals (including all
required findings of suitability).
ARTICLE
VI.
MISCELLANEOUS
6.1 Fees and
Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement; provided, the Company shall pay
Purchaser such due diligence expenses as described in Section
4.13. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any Securities
to the Purchasers.
6.2 Entire Agreement. The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
6.3 Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service and a delivery receipt is signed, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
6.4 Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and each of the
Purchasers (except for any amendment in Section 2, which shall also require
Founder’s approval) or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
6.5 Construction. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction
Documents.
6.6 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. Neither the Company nor any
of Founder may assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign any or all of its rights under this Agreement, provided such transferee
agrees in writing to be bound, with respect to the transferred Shares, by the
provisions hereof that apply to the “Purchasers”.
6.7 No Third-Party
Beneficiaries. This Agreement is intended for the benefit of the parties
hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person,
except as otherwise set forth in Section 4.13 and as otherwise necessary for a
Purchaser to enforce its rights hereunder.
6.8 Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, stockholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the County of New York, New York. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the County of New York, New York for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by Law. Each party
hereto (including its affiliates, agents, officers, directors and employees)
hereby irrevocably waives, to the fullest extent permitted by applicable Law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement and the Transaction Documents or the transactions
contemplated hereby or thereby. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
6.9 Survival. The
representations, warranties and covenants contained herein shall survive the
Closing and the delivery of this Agreement, and other Transaction Documents and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Purchasers, Founder or the
Company.
6.10 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
6.11 Severability. If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
6.12 Replacement of
Shares. If any certificate or instrument evidencing any Shares is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in
lieu of and substitution therefor, a new certificate or instrument, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and customary and reasonable indemnity, if requested. The
applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of such
replacement Shares.
6.13 Remedies. In addition
to being entitled to exercise all rights provided herein or granted by Law,
including recovery of damages, the Purchasers, Founder and the Company will be
entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be
adequate.
6.14 Payment Set Aside. To
the extent that the Company makes a payment or payments to a Purchaser pursuant
to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any Law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
[Signature
Pages Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this 18% Secured Convertible
Debenture and Warrant Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
COMPANY:
|
Address for
Notice:
|
|
|
By:
____________________
Name:
Baowen Ren
Title:
Chief Executive Officer
|
Sino
Clean Energy, Inc.
Xxxx
0000, Xxxxx X, Xxxxxxxx Xxxxxxxx
Xx.
0, Xxxxxx 1st Road
Gao
Xin District, Xi’an
Shaanxi
Province, PRC
Attn: Xx. Xxxxxx
Xxx
E-mail:
Tel:
Fax:
|
|
With
copy to (which shall not constitute notice):
Xxxxxxxxxx
& Xxxxx LLP
00000
Xxxxxxxx Xxxxxxxxx Xxxxx 000
Xxx
Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxx,
Esq.
E-mail:
xxxxxx@xxxxxxxxxxxxxxx.xxx
Tel:
(000) 000-0000
Fax:
(000) 000-0000
|
|
| FOUNDER: | Address for Notice: |
| Same as for the Company | |
|
_______________________
Baowen
Ren
|
[PURCHASER SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, the parties hereto have caused this 18% Secured Convertible
Debenture and Warrant Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
PURCHASERS:
|
_______________________
[Purchaser’s
Name]
|
Address
for Notice:
_____________________________
|
|
_______________________
[Signature]
_______________________
[Signatory’s
Name]
_______________________
[Signatory’s
Title]
|
_____________________________
Attn:
________________________
E-mail: ______________________
Tel:
_________________________
Fax:
_________________________
Delivery
Instructions (if different from above):
c/o:
___________________________
______________________________
______________________________
______________________________
Attn:
__________________________
Tel:
___________________________
|
