REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of September 1, 2004, by and among LJ International Inc., a
British Virgin Islands corporation (the "Company"), and the purchasers signatory
hereto (each such purchaser, a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the Registration
Statement required to be filed hereunder, the earlier of (a) the 90th
calendar day following the date of the Purchase Agreement (the 120th
calendar day in the case of a "full review" by the Commission), and (b)
the fifth Trading Day following the date on which the Company is
notified by the Commission that the Registration Statement will not be
reviewed or is no longer subject to further review and comments.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the Registration
Statement required to be filed hereunder, the 30th calendar day
following the date of the Purchase Agreement.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
1
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means all of the Shares and the
Warrant Shares, together with any shares of Common Stock issued or
issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.
"Registration Statement" means the registration statements
required to be filed hereunder, including (in each case) the
Prospectus, amendments and supplements to the registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in the registration statement.
"Rule 415" means Rule 415 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 purpose and effect as such
Rule.
"Rule 424" means Rule 424 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 purpose and effect as such
Rule.
2. Registration.
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission the Registration Statement covering the resale of all of
the Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement required
hereunder shall be on Form F-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form F-3,
in which case the Registration shall be on another appropriate form in
accordance herewith). The Registration Statement required hereunder
shall contain (except if otherwise directed by the Holders)
substantially the "Plan of Distribution" attached hereto as Annex A.
Subject to the terms of this Agreement, the Company shall use its best
efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing
thereof, but in any event not later than the Effectiveness Date, and
shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the date when all
2
Registrable Securities covered by the Registration Statement have been
sold or may be sold without volume restrictions pursuant to Rule 144(k)
as determined by the counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the
Company's transfer agent and the affected Holders (the "Effectiveness
Period").
(b) If: (i) a Registration Statement is not filed on or prior to the Filing
Date (if the Company files a Registration Statement without affording
the Holder the opportunity to review and comment on the same as
required by Section 3(a), the Company shall not be deemed to have
satisfied this clause (i)), or (ii) prior to the date when such
Registration Statement is first declared effective by the Commission,
the Company fails to file a pre-effective amendment and otherwise
respond in writing to comments made by the Commission in respect of
such Registration Statement within 15 calendar days after the receipt
of comments by or notice from the Commission that such amendment is
required in order for such Registration Statement to be declared
effective, or (iii) a Registration Statement filed or required to be
filed hereunder is not declared effective by the Commission on or
before the Effectiveness Date, or (iv) after a Registration Statement
is first declared effective by the Commission, it ceases for any reason
to remain continuously effective as to all Registrable Securities for
which it is required to be effective, or the Holders are not permitted
to utilize the Prospectus therein to resell such Registrable
Securities, for in any such case 10 consecutive calendar days but no
more than an aggregate of 15 calendar days during any 12 month period
(which need not be consecutive Trading Days)(any such failure or breach
being referred to as an "Event," and for purposes of clause (i) or
(iii) the date on which such Event occurs, or for purposes of clause
(ii) the date which such 15 calendar day period is exceeded, or for
purposes of clause (iv) the date on which such 10 or 15 calendar day
period, as applicable, is exceeded being referred to as "Event Date"),
then in addition to any other rights the Holders may have hereunder or
under applicable law, then, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the
Company shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to 2.0% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder. If the Company
fails to pay any partial liquidated damages pursuant to this Section in
full within seven days after the date payable, the Company will pay
interest thereon at a rate of 15% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full.
The partial liquidated damages pursuant to the terms hereof shall apply
on a daily pro-rata basis for any portion of a month prior to the cure
of an Event.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
3
(a) Not less than five Trading Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall, (i) furnish to the Holders copies of all
such documents proposed to be filed (including documents incorporated
or deemed incorporated by reference to the extent requested by such
Person) which documents will be subject to the review of such Holders,
and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to conduct a
reasonable investigation within the meaning of the Securities Act. The
Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities shall reasonably
object in good faith, provided that the Company is notified of such
objection in writing no later than 5 Trading Days after the Holders
have been so furnished copies of such documents. Each Holder agrees to
furnish to the Company a completed Questionnaire in the form attached
to this Agreement as Annex B (a "Selling Holder Questionnaire") not
less than two Trading Days prior to the Filing Date or by the end of
the fourth Trading Day following the date on which such Holder receives
draft materials in accordance with this Section.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond
as promptly as reasonably possible to any comments received from the
Commission with respect to the Registration Statement or any amendment
thereto and, as promptly as reasonably possible, upon request, provide
the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply
in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended
or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold as promptly as
reasonably possible and (if requested by any such Person) confirm such
notice in writing (where appropriate, public filing on XXXXX shall be
deemed sufficient notice hereunder with respect to filing which do not
effect the availability of the Prospectus for resales by the Holder)
promptly following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is
proposed to be filed; (B) when the Commission notifies the Company
whether there will be a "review" of the Registration Statement and
whenever the Commission comments in writing on the Registration
Statement (the Company shall upon request provide true and complete
copies thereof and all written responses thereto to each of the
Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of
4
any request by the Commission or any other Federal or state
governmental authority (or any comparable jurisdictional authority for
the British Virgin Islands) during the period of effectiveness of the
Registration Statement for amendments or supplements to the
Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission or any other federal or state
governmental authority (or any comparable jurisdictional authority for
the British Virgin Islands) of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for
such purpose; and (v) of the occurrence of any event or passage of time
that makes the financial statements included in the Registration
Statement ineligible for inclusion therein or any statement made in the
Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not contain
any untrue statement of a material fact or omit to state any 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.
(d) Use commercially reasonable efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement, or (ii) any suspension of
the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(e) Furnish to each Holder, without charge, at least one conformed copy of
the Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference to the extent requested
by such Person, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(f) Promptly deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request
in connection with resales by the Holder of Registrable Securities.
Subject to the terms of this Agreement, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by
each of the selling Holders in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment
or supplement thereto, except after the giving on any notice pursuant
to Section 3(c).
(g) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate
with the selling Holders in connection with the registration or
qualification (or exemption from the Registration or qualification) of
such Registrable Securities for the resale by the Holder under the
5
securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep the
Registration or qualification (or exemption therefrom) effective during
the Effectiveness Period and to do any and all other acts or things
reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement;
provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified,
subject the Company to any material tax in any such jurisdiction where
it is not then so subject or file a general consent to service of
process in any such jurisdiction.
(h) If requested by the Holders, cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to the
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may request.
(i) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or
a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other
required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
If the Company notifies the Holders in accordance with clauses (ii)
through (v) of Section 3(c) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the
Holders shall suspend use of such Prospectus. The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as
promptly as is practicable. The Company shall be entitled to exercise
its right under this Section 3(i) to suspend the availability of a
Registration Statement and Prospectus, subject to the payment of
liquidated damages pursuant to Section 2(b), for a period not to exceed
60 days (which need not be consecutive days) in any 12 month period.
(j) Comply with all applicable rules and regulations of the Commission.
(k) The Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission,
the person thereof that has voting and dispositive control over the
Shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the
Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's request, any
liquidated damages that are accruing at such time shall be tolled and
any Event that may otherwise occur solely because of such delay shall
be suspended, until such information is delivered to the Company.
6
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall
be borne by the Company whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to
be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state
securities or Blue Sky laws (or any comparable jurisdictional law for
the British Virgin Islands)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities and of printing prospectuses if the printing of prospectuses
is reasonably requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel
for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement. In addition, the
Company shall be responsible for all of its internal expenses incurred
in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities
on any securities exchange as required hereunder. In no event shall the
Company be responsible for any broker or similar commissions or, except
to the extent provided for in the Transaction Documents, any legal fees
or other costs of the Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder,
the officers, directors, agents and employees of each of them, each
Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus
or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the
extent, but only to the extent, that (i) such untrue statements or
omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder
or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for
this purpose) or (ii) in the case of an occurrence of an event of the
7
type specified in Section 3(c)(ii)-(v), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in
Section 6(d). The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this
Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees
of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, to the extent
arising out of or based solely upon: (x) such Holder's failure to
comply with the prospectus delivery requirements of the Securities Act
or (y) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading (i) to the
extent, but only to the extent, that such untrue statement or omission
is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in the Registration Statement
or such Prospectus or (ii) to the extent that (1) such untrue
statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information
relates to such Holder or such Holder's proposed method of distribution
of Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in the Registration Statement
(it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of
an event of the type specified in Section 3(c)(ii)-(v), the use by such
Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or
defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify
the Person from whom indemnity is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such
failure shall have prejudiced the Indemnifying Party.
8
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses;
(2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of
the Indemnifying Party, the Indemnifying Party shall not have the right
to assume the defense thereof and the reasonable fees and expenses of
one separate counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party,
effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees
and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with
this Section) shall be paid to the Indemnified Party, as incurred,
within ten Trading Days of written notice thereof to the Indemnifying
Party; provided, that the Indemnified Party shall promptly reimburse
the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the
relative faults of the parties.
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements
or omissions that resulted in such Losses as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and
9
opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in this
Agreement, any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to
the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined
by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the proceeds
actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
except in the case of fraud by such Holder.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties
may have to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise
all rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights
under this Agreement. The Company and each Holder agree that monetary
damages would not provide adequate compensation for any losses incurred
by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as set forth on Schedule 6(b)
attached hereto, neither the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include
securities of the Company in a Registration Statement other than the
Registrable Securities. Except as set forth on the Disclosure Schedules
attached to the Purchase Agreement, no Person has any right to cause
the Company to effect the registration under the Securities Act of any
securities of the Company. The Company shall not file any other
registration statement until after the Effective Date.
(c) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities
pursuant to the Registration Statement.
10
(d) Discontinued Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Section 3(c),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt
of the copies of the supplemented Prospectus and/or amended
Registration Statement or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated
by reference in such Prospectus or Registration Statement. The Company
will use its best efforts to ensure that the use of the Prospectus may
be resumed as promptly as it practicable. The Company agrees and
acknowledges that any periods during which the Holder is required to
discontinue the disposition of the Registrable Securities hereunder
shall be subject to the provisions of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of
the Registrable Securities and the Company shall determine to prepare
and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form F-4
or Form S-8 (each as promulgated under the Securities Act) or their
then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with the stock option or other
employee benefit plans, then the Company shall send to each Holder a
written notice of such determination and, if within fifteen days after
the date of such notice, any such Holder shall so request in writing,
the Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be
registered, subject to customary underwriter cutbacks applicable to all
holders of registration rights.
(f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed
by the Company and each Holder of the then outstanding Registrable
Securities.
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be made in
accordance with the provisions of the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. Each Holder may
assign their respective rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement.
(i) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed
to be an original and, all of which taken together shall constitute one
and the same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
11
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.
(j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined
with the provisions of the Purchase Agreement.
(k) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their commercially reasonable efforts
to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(n) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any
other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by
any Holder pursuant hereto or thereto, shall be deemed to constitute
the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in
any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be
entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not
be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
*************************
12
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
LJ INTERNATIONAL INC.
By:
-------------------------------------------
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
13
[PURCHASER'S SIGNATURE PAGE TO JADE RRA]
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
[SIGNATURE PAGES CONTINUE]
14
SCHEDULE 6(b)
PIGGYBACK REGISTRATION RIGHTS
The Company issued 80,000 warrants at $4.57 per share, exercisable through May
31, 2005, which have piggyback registration rights.
15
ANNEX A
Plan of Distribution
The Selling Stockholders (the "Selling Stockholders") of the common
stock ("Common Stock") of LJ International Inc., a British Virgin Islands
corporation (the "Company") and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
16
In connection with the sale of our common stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each Selling Stockholder has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws (or any comparable jurisdictional law for the
British Virgin Islands). In addition, in certain states, the resale shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to our common stock for a period
17
of two business days prior to the commencement of the distribution. In addition,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of our common stock
by the Selling Stockholders or any other person. We will make copies of this
prospectus available to the Selling Stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.
18
ANNEX B
LJ INTERNATIONAL INC.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.01 per
share (the "Common Stock"), of LJ International Inc, a British Virgin Islands
corporation (the "Company"), (the "Registrable Securities") understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the "Commission") a registration statement on Form F-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of
September 1, 2004 (the "Registration Rights Agreement"), among the Company and
the Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
19
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly you indirectly alone or with
others has power to vote or dispose of the securities covered
by the questionnaire):
--------------------------------------------------------------
2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Contact Person:
----------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
(a) Type and Principal Amount of Registrable Securities beneficially
owned:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
20
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes |_| No |_|
Note: If yes, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
(b) Are you an affiliate of a broker-dealer?
Yes |_| No |_|
(c) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of
business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings,
directly or indirectly, with any person to distribute the
Registrable Securities?
Yes |_| No |_|
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
-------------------------------------------------------------------
-------------------------------------------------------------------
21
6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus. The undersigned understands that such information will be relied
upon by the Company in connection with the preparation or amendment of the
Registration Statement and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
--------------------- -------------------------------
By:
--------------------------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
22
