QKL STORES INC. Common Stock UNDERWRITING AGREEMENT
_________
Shares
Common
Stock
________,
2009
Xxxx
Capital Partners, LLC
00
Xxxxxxxxx Xxxxx
Xxxxxxx
Xxxxx, XX 00000
Ladies
and Gentlemen:
QKL Stores Inc., a Delaware
corporation (the “Company”), proposes,
subject to the terms and conditions stated herein, to issue and sell to Xxxx
Capital Partners, LLC (the “Underwriter”) an
aggregate of __________ authorized but unissued shares (the “Underwritten Shares”)
of Common Stock, par value $0.001 per share (the “Common Stock”), of
the Company, and to grant the Underwriter the option to purchase an aggregate of
up to ___________ additional shares of Common Stock (the “Additional Shares”)
as may be necessary to cover over-allotments made in connection with the
offering. The Underwritten Shares and Additional Shares are
collectively referred to as the “Shares.”
The
Company and the Underwriter hereby confirm their agreement as
follows:
1. Registration
Statement and Prospectus. The Company has prepared and filed
with the Securities and Exchange Commission (the “Commission”) a
registration statement on Form S-1 (File No. 333-___________) under the
Securities Act of 1933, as amended (the “Securities Act”) and
the rules and regulations (the “Rules and
Regulations”) of the Commission thereunder, and such amendments to such
registration statement (including post effective amendments) as may have been
required to the date of this Agreement. Such registration statement,
as amended (including any post effective amendments) has been declared effective
by the Commission. Such registration statement, including amendments
thereto (including post effective amendments thereto) at such time, the exhibits
and any schedules thereto at such time and the documents and information
otherwise deemed to be a part thereof or included therein by the Securities Act
or otherwise pursuant to the Rules and Regulations at such time, is herein
called the “Registration
Statement.” If the Company has filed or files an abbreviated
registration statement pursuant to Rule 462(b) under the Securities Act (the
“Rule 462 Registration
Statement”), then any reference herein to the term Registration Statement
shall include such Rule 462 Registration Statement.
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The
Company is filing with the Commission pursuant to Rule 424 under the Securities
Act a final prospectus supplement relating to the Shares to a form of prospectus
included in the Registration Statement. Such prospectus in the form
in which it appears in the Registration Statement is hereinafter called the
“Base
Prospectus,” and such final prospectus supplement as filed, along with
the Base Prospectus, is hereinafter called the “Final
Prospectus.” Such Final Prospectus and any preliminary
prospectus supplement or “red xxxxxxx,” in the form in which they shall be filed
with the Commission pursuant to Rule 424(b) under the Securities Act (including
the Base Prospectus as so supplemented) is hereinafter called a “Prospectus.”
For
purposes of this Agreement, all references to the Registration Statement, the
Rule 462 Registration Statement, the Base Prospectus, the Final Prospectus, the
Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Interactive
Data Electronic Applications system. All references in this Agreement
to amendments or supplements to the Registration Statement, the Rule 462
Registration Statement, the Base Prospectus, the Final Prospectus or the
Prospectus shall be deemed to mean and include the subsequent filing of any
document under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), that is deemed to be incorporated therein by reference
therein or otherwise deemed by the Rules and Regulations to be a part
thereof.
2.
Representations and Warranties of the Company Regarding the
Offering.
(a) The
Company represents and warrants to, and agrees with, the Underwriter, as of the
date hereof and as of the Closing Date (as defined in Section 5(c) below),
except as otherwise indicated, as follows:
(i) At
each time of effectiveness, at the date hereof and at the Closing Date, the
Registration Statement and any post-effective amendment thereto complied or will
comply in all material respects with the requirements of the Securities Act and
the Rules and Regulations and did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading. The Base Prospectus, the Prospectus most recently
filed with the Commission before the time of this Agreement, including any
preliminary prospectus supplement deemed to be a part thereof (the “Time of Sale Disclosure
Package”) as of the date hereof and at the Closing Date, and the Final
Prospectus, as amended or supplemented, at the time of filing pursuant to Rule
424(b) under the Securities Act and at the Closing Date, did not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two
immediately preceding sentences shall not apply to statements in or omissions
from the Registration Statement or any Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. The Registration
Statement contains all exhibits and schedules required to be filed by the
Securities Act or the Rules and Regulations. No order preventing or
suspending the effectiveness or use of the Registration Statement or any
Prospectus is in effect and no proceedings for such purpose have been instituted
or are pending, or, to the knowledge of the Company, are contemplated or
threatened by the Commission.
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(ii) The
Company has not distributed any prospectus or other offering material in
connection with the offering and sale of the Shares other than the Time of Sale
Disclosure Package or other materials permitted by the Act to be distributed by
the Company. The Company has not made and will not make any offer
relating to the Shares that would constitute an “issuer free writing
prospectus”, as defined in Rule 433 under the Act, or that would otherwise
constitute a “free writing prospectus”, as defined in Rule 405 under the Act,
required to be filed with the Commission.
(iii) The
financial statements of the Company, together with the related notes, included
or incorporated by reference in the Registration Statement, the Time of Sale
Disclosure Package and the Final Prospectus comply in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and
fairly present the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved; and the supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. No other financial statements, pro
forma financial information or schedules are required under the Securities Act
to be included or incorporated by reference in the Registration Statement, the
Time of Sale Disclosure Package or the Final Prospectus. To the
Company’s knowledge, (A) Xxxxxx Xxxx & Co., which has expressed its opinion
with respect to the annual financial statements and schedules filed as a part of
the Registration Statement and included in the Registration Statement, the Time
of Sale Disclosure Package and the Final Prospectus is an independent public
accounting firm with respect to the Company within the meaning of the Securities
Act and the Rules and Regulations, and (B) BDO Xxxxxxx LLP, the Company’s
current auditors, is an independent public accounting firm with respect to the
Company within the meaning of the Securities Act and the Rules and
Regulations.
(iv) The
Company had a reasonable basis for, and made in good faith, each
“forward-looking statement” (within the meaning of Section 27A of the Act or
Section 21E of the Exchange Act) contained or incorporated by reference in the
Registration Statement, the Time of Sale Disclosure Package or the Final
Prospectus.
(v) All
statistical or market-related data included or incorporated by reference in the
Registration Statement, the Time of Sale Disclosure Package or the Final
Prospectus are based on or derived from sources that the Company reasonably
believes to be reliable and accurate, and the Company has obtained the written
consent to the use of such data from such sources, to the extent
required.
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(vi) The
Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is
being submitted for listing on the NASDAQ Capital Market. There is no
action pending by the Company or, to the Company’s knowledge, the
NASDAQ Capital Market to withdraw or deny the application to list the
Common Stock on the NASDAQ Capital Market.
(vii) The
Company has not taken, directly or indirectly, any action that is designed to or
that has constituted or that would reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(viii)
The Company is not and, after giving effect to the offering and sale of the
Shares, will not be an “investment company,” as such term is defined in the
Investment Company Act of 1940, as amended.
(b) Any
certificate signed by any officer of the Company and delivered to the
Underwriter or to the Underwriter’s counsel shall be deemed a representation and
warranty by the Company to the Underwriter as to the matters covered
thereby.
3.
Representations and Warranties Regarding the Company.
(a) The
Company represents and warrants to, and agrees with, the Underwriter, as
follows:
(i) The
Company has been duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation. The Company has
the corporate power and authority to own or lease its properties and conduct its
business as currently being carried on and as described in the Registration
Statement, the Time of Sale Disclosure Package and the Prospectus.
(ii) The
Company has the power and authority to enter into this Agreement and to
authorize, issue and sell the Shares as contemplated by this
Agreement. This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as rights to
indemnity hereunder may be limited by federal or state securities laws and
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity.
(iii) The
execution, delivery and performance of this Agreement and the consummation of
the transactions herein contemplated will not (A) result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any law, rule or regulation to which the Company or any subsidiary is subject,
or by which any property or asset of the Company or any subsidiary is bound or
affected, (B) conflict with, result in any violation or breach of, 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 right of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, lease, credit facility, debt, note, bond, mortgage, indenture or
other instrument (the “Contracts”) or
obligation or other understanding to which the Company or any subsidiary is a
party of by which any property or asset of the Company or any subsidiary is
bound or affected, except to the extent that such conflict, default,
termination, amendment, acceleration or cancellation right is not reasonably
likely to result in a material adverse effect upon the business, prospects,
properties, operations, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries taken as a whole, or in its
ability to perform its obligations under this Agreement (“Material Adverse
Effect”), or (C) result in a breach or violation of any of the terms and
provisions of, or constitute a default under, the Company’s charter or
bylaws.
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(iv)
Neither the Company nor any of its subsidiaries is in violation, breach or
default under its certificate of incorporation, bylaws or other equivalent
organizational or governing documents, except where the violation, breach or
default in the case of a subsidiary of the Company is not reasonably likely to
result in a Material Adverse Effect.
(v) All
consents, approvals, orders, authorizations and filings required on the part of
the Company and its subsidiaries in connection with the execution, delivery or
performance of this Agreement have been obtained or made, other than such
consents, approvals, orders and authorizations the failure of which to make or
obtain is not reasonably likely to result in a Material Adverse
Effect.
(vi) All
of the issued and outstanding shares of capital stock of the Company are duly
authorized and validly issued, fully paid and non-assessable, and have been
issued in compliance with all applicable securities laws, and conform to the
description thereof in the Registration Statement, the Time of Sale Disclosure
Package and the Prospectus. Except for the issuances of options or
restricted stock in the ordinary course of business, since the respective dates
as of which information is provided in the Registration Statement, the Time of
Sale Disclosure Package or the Prospectus, the Company has not entered into or
granted any convertible or exchangeable securities, options, warrants,
agreements, contracts or other rights in existence to purchase or acquire from
the Company any shares of the capital stock of the Company. The
Shares, when issued, will be duly authorized and validly issued, fully paid
and non-assessable, will be issued in compliance with all applicable securities
laws, and will be free of preemptive, registration or similar rights other than
such rights as have been duly waived or satisfied.
(vii)
Each of the Company, Speedy Brilliant Group Limited (BVI), a British Virgin
Islands company (the “BVI Subsidiary”) and
the PRC Entities (as defined in Section 4(a)(i) below) has filed all foreign,
federal, state and local returns (as hereinafter defined) required to be filed
with taxing authorities prior to the date hereof or has duly obtained extensions
of time for the filing thereof. Each of the Company and its
subsidiaries has paid all taxes (as hereinafter defined) shown as due on such
returns that were filed and has paid all taxes imposed on or assessed against
the Company or such respective subsidiary. The provisions for taxes
payable, if any, shown on the financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid taxes, whether
or not disputed, and for all periods to and including the dates of such
consolidated financial statements. Except as disclosed in writing to
the Underwriter, (A) no issues have been raised (and are currently pending) by
any taxing authority in connection with any of the returns or taxes asserted as
due from the Company or its subsidiaries, and (B) no waivers of statutes of
limitation with respect to the returns or collection of taxes have been given by
or requested from the Company or its subsidiaries. The term “taxes” mean all
federal, state, local, foreign, and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments, or charges of any kind whatever, together with any
interest and any penalties, additions to tax, or additional amounts with respect
thereto. The term “returns” means all
returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.
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(viii)
Since the respective dates as of which information is given in the Registration
Statement, the Time of Sale Disclosure Package or the Prospectus, (A) neither
the Company nor the BVI Subsidiary nor any of the PRC Entities has incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business, (B) the
Company has not declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; (C) there has not been any change in the
capital stock of the Company or any of its subsidiaries (other than a change in
the number of outstanding shares of Common Stock due to the issuance of shares
upon the exercise of outstanding options or warrants or the issuance of restricted stock awards or
restricted stock units under the Company’s existing stock awards
plan, or any new grants thereof
in the ordinary course of business), (D) there has not been any material change
in the Company’s long-term or short-term debt, and (E) there has not been the
occurrence of any Material Adverse Effect.
(ix)
There is not pending or, to the knowledge of the Company, threatened, any
action, suit or proceeding to which the Company, the BVI Subsidiary or any of
the PRC Entities is a party or of which any property or assets of the Company,
the BVI Subsidiary or any of the PRC Entities is the subject before or by any
court or governmental agency, authority or body, or any arbitrator or mediator,
which is reasonably likely to result in a Material Adverse Effect.
(x) The
Company, the BVI Subsidiary and each of the PRC Entities holds, and is in
compliance with, all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders (“Permits”) of any
governmental or self-regulatory agency, authority or body required for the
conduct of its business, and all such Permits are in full force and effect, in
each case except where the failure to hold, or comply with, any of them is not
reasonably likely to result in a Material Adverse Effect.
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(xi) The
Company, the BVI Subsidiary and each of the PRC Entities have good and
marketable title to all property (whether real or personal) described in the
Registration Statement, the Time of Sale Disclosure Package and the Prospectus
as being owned by them that are material to the business of the Company, in each
case free and clear of all liens, claims, security interests, other encumbrances
or defects, except those that are not reasonably likely to result in a Material
Adverse Effect. The property described in the Registration Statement,
the time of Sale Disclosure Package and the Prospectus as held under lease by
the Company, the BVI Subsidiary or the PRC Entities is held by them under valid,
subsisting and enforceable leases with only such exceptions with respect to any
particular lease as do not interfere in any material respect with the conduct of
the business of the Company, the BVI Subsidiary or the PRC
Entities.
(xii) The
Company or the PRC Entities owns or possesses or has valid right to use all
patents, patent applications, trademarks, service marks, trade names, trademark
registrations, service xxxx registrations, copyrights, licenses, inventions,
trade secrets and similar rights (“Intellectual
Property”) necessary for the conduct of the business of the Company, the
BVI Subsidiary and each of the PRC Entities as currently carried on and as
described in the Registration Statement, the Time of Sale Disclosure Package and
the Prospectus. To the knowledge of the Company, no action or use by
the Company, the BVI Subsidiary or the PRC Entities will involve or give rise to
any infringement of, or license or similar fees for, any Intellectual Property
of others, except where such action, use, license or fee is not reasonably
likely to result in a Material Adverse Effect. Neither the Company
nor the BVI Subsidiary nor any of the PRC Entities has received any notice
alleging any such infringement or fee.
(xiii)
The Company, the BVI Subsidiary and each of the PRC Entities have complied with,
are not in violation of, and have not received any notice of violation relating
to any law, rule or regulation relating to the conduct of its business, or the
ownership or operation of its property and assets, including, without
limitation, (A) the Currency and Foreign Transactions Reporting Act of 1970, as
amended, or any money laundering laws, rules or regulations, (B) any laws, rules
or regulations related to health, safety or the environment, including those
relating to the regulation of hazardous substances, (C) the Xxxxxxxx-Xxxxx Act
and the rules and regulations of the Commission thereunder, and (D) the Foreign
Corrupt Practices Act of 1977 and the rules and regulations thereunder, in each
case except where the failure to be in compliance is not reasonably likely to
result in a Material Adverse Effect.
(xiv)
Neither the Company nor the BVI Subsidiary nor any of the PRC Entities nor, to
the knowledge of the Company, any director, officer, employee, representative,
agent or affiliate of the Company, the BVI Subsidiary or any of the PRC Entities
is currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”); and the
Company will not directly or indirectly use the proceeds of the offering of the
Shares contemplated hereby, or lend, contribute or otherwise make available such
proceeds to any person or entity, for the purpose of financing the activities of
any person currently subject to any U.S. sanctions administered by
OFAC.
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(xv) The
Company and each of the PRC Entities carry, or are covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in
similar businesses in similar industries in the People’s Republic of China (the
“PRC”).
(xvi) No
labor dispute with the employees of the Company or any of the PRC Entities
exists or, to the knowledge of the Company, is imminent that is reasonably
likely to result in a Material Adverse Effect.
(xvii)
Neither the Company, the BVI Subsidiary or any of the PRC Entities, nor to the
Company’s knowledge, any other party is in violation, breach or default of
any Contract that is reasonably likely to result in a Material Adverse
Effect.
(xviii) No
supplier, customer, distributor or sales agent of the PRC Entities
has notified the Company that it intends to discontinue
or decrease the rate of business done with the Company, except
where such decrease is not reasonably likely to result in a Material Adverse
Effect.
(xix)
There are no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder’s, consulting or origination fee with respect
to the introduction of the Company to the Underwriter or the sale of the Shares
hereunder or any other arrangements, agreements, understandings, payments or
issuances with respect to the Company that may affect the Underwriter’s
compensation, as determined by FINRA.
(xx)
Except as disclosed to the Underwriter in writing, the Company has not made any
direct or indirect payments (in cash, securities or otherwise) to (A) any
person, as a finder’s fee, investing fee or otherwise, in consideration of such
person raising capital for the Company or introducing to the Company persons who
provided capital to the Company, (B) any FINRA member, or (C) any person or
entity that has any direct or indirect affiliation or association with any FINRA
member within the 12-month period prior to the date on which the Registration
Statement was filed with the Commission (“Filing Date”) or
thereafter.
(xxi)
None of the net proceeds of the offering will be paid by the Company to any
participating FINRA member or any affiliate or associate of any participating
FINRA member, except as specifically authorized herein.
(xxii) To
the Company’s knowledge, no (A) officer or director of the Company or its
subsidiaries, (B) owner of 5% or more of the Company’s unregistered securities
or that of its subsidiaries or (C) owner of any amount of the Company’s
unregistered securities acquired within the 180-day period prior to the Filing
Date, has any direct or indirect affiliation or association with any FINRA
member. The Company will advise the Underwriter and its counsel if it
becomes aware that any officer, director or stockholder of the Company or its
subsidiaries is or becomes an affiliate or associated person of a FINRA member
participating in the offering.
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(xxiii)
Other than the Underwriter, no person has the right to act as an underwriter or
as a financial advisor to the Company in connection with the transactions
contemplated hereby.
4.
Representations and Warranties of the Company Regarding the PRC.
(a) The
Company represents and warrants to, and agrees with, the Underwriter, as of the
date hereof and as of the Closing Date, as follows:
(i) The
Company conducts substantially all of its operations and generates substantially
all of its revenue through (A) Speedy Brilliant (Daqing) Ltd., a wholly
foreign-owned enterprise formed under the laws of the PRC (“SB Daqing”),
(B) Daqing Qingkelong Chain Commerce & Trade Co., Ltd., a company
formed under the laws of the PRC (“Qingkelong Chain”),
which the Company controls, through contractual arrangements between SB Daqing
and Qingkelong Chain, as if and to the same extent as though Qingkelong Chain
were a wholly-owned subsidiary of the Company, and (C) Daqing Qinglongxin
Commerce & Trade Co., Ltd., a company formed under the laws of the PRC and a
wholly-owned subsidiary of Qingkelong Chain (“Qinglongxin
Commerce,” and together with Qingkelong Chain, the “PRC VIEs”) SB Daqing
and the PRC VIEs are collectively referred to hereinafter as the “PRC
Entities.”
(ii) Each
of the PRC Entities has been duly established, is validly existing as a company
under the laws of the PRC, has the corporate power and authority to own, lease
and operate its property and to conduct its business as described in the
Registration Statement, the Time of Sale Disclosure Package and the Prospectus,
and is duly qualified to conduct its business operation, enforce its agreements
and transact business in the PRC in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified, to
conduct its normal business operation or enforce its agreements would not,
singly or in the aggregate, have a Material Adverse Effect. Each PRC
Entity has applied for and obtained all requisite business licenses, clearance
and permits required under PRC law and regulations as necessary for the conduct
of its businesses, and each PRC Entity has complied in all material
respects with all PRC laws and regulations in connection with foreign exchange,
including without limitation, carrying out all relevant filings, registrations
and applications for relevant permits with the relevant branch of the PRC State
Administration of Foreign Exchange and any other
relevant authorities, and all such permits are validly
subsisting. The registered capital of each PRC Entity has been fully
paid up in accordance with the schedule of payment stipulated in its respective
articles of association, approval document, certificate of approval and legal
person business license (hereinafter referred to as the “Establishment
Documents”) and in compliance with PRC laws and regulations, and there is
no outstanding capital contribution commitment for any PRC
Entity. The Establishment Documents of the PRC Entities have been
duly approved in accordance with the laws of the PRC and are valid and
enforceable. The business scope specified in the Establishment
Documents of each PRC Entity complies with the requirements of all relevant PRC
laws and regulations. The outstanding equity interests of each PRC
Entity is owned of record by the respective entities or individuals identified
as the registered holders thereof in the Registration Statement, the Time of
Sale Disclosure Package and the Prospectus.
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(iii)
Except as disclosed in the Registration Statement, the Time of Sale Disclosure
Package and the Prospectus, no consents, approvals, authorizations, orders,
registrations, clearances, certificates, franchises, licenses, permits or
qualifications of or with any PRC governmental agency are required for SB
Daqing’s contractual arrangements and agreements with the PRC VIEs and their
registered equity holders (the “VIE Structure”) or
the execution, delivery and performance of such contractual arrangements and
agreements (the “VIE
Structuring Documents”). None of the VIE Structuring Documents
has been revoked and no such revocation is pending or
threatened. Each of the VIE Structuring Documents has been entered
into prior to the date thereof in compliance with all applicable laws and
regulations and constitutes a valid and legally binding agreement, enforceable
in accordance with its terms.
(iv) The
VIE Structure and the execution, delivery and performance of the VIE Structuring
Documents and the consummation of the transactions contemplated thereby did not
and do not (A) conflict with, or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which any PRC Entity is a party or by which any PRC Entity is bound or by which
any of the properties or assets of any PRC Entity is subject, (B) violate
or conflict with the Establishment Documents of any PRC Entity, or
(C) violate or conflict with any applicable laws, regulations, rules,
orders, decrees, guidelines, notices or other legislation of the
PRC.
(v) The
VIE Structure complies, and after the consummation of the offering and sale of
the Shares will comply, with all applicable laws, regulations, rules, orders,
decrees, guidelines, notices or other legislation of the PRC; the VIE Structure
has not been challenged by any PRC governmental agency and there are no legal,
arbitration, governmental or other proceedings (including, without limitation,
governmental investigations or inquiries) pending before or, to the Company’s
knowledge, threatened or contemplated by any PRC governmental agency in respect
of the VIE Structure; and the Company reasonably believes that after the
consummation of the offering and sale of the Shares, the VIE Structure could not
be successfully challenged by any PRC governmental agency.
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(vi) The
Company possesses, directly or indirectly, the power to direct, or cause the
direction of, the management and policies of the PRC VIEs.
(vii) SB
Daqing is not currently prohibited, directly or indirectly, from paying any
dividends to the Company (or the BVI Subsidiary), and no PRC VIE is currently
prohibited, directly or indirectly, from paying any of its obligations set forth
in the VIE Structuring Documents. No PRC Entity is prohibited,
directly or indirectly, from making any other distribution on such PRC Entity’s
equity capital, from repaying to the Company or any of its direct or indirect
subsidiaries any loans or advances to such PRC Entity from the Company or any of
the Company’s subsidiaries.
(viii)
The choice of the laws of the State of California as the governing law of this
Agreement does not contravene the laws of the PRC.
(ix) None
of the PRC Entities nor any of their properties, assets or revenues are entitled
to any right of immunity on the grounds of sovereignty from any legal action,
suit or proceeding, from set-off or counterclaim, from the jurisdiction of any
court, from services of process, from attachment prior to or in aid of execution
of judgment, or from any other legal process or proceeding for the giving of any
relief or for the enforcement of any judgment.
(x) It is
not necessary that this Agreement, the Registration Statement, the Time of Sale
Disclosure Package, the Prospectus or any other document be filed or recorded
with any governmental agency, court or other authority in the PRC.
(xi) No
transaction, stamp, capital or other issuance, registration, transaction,
transfer, income, capital gains, withholding or other taxes or duties are
payable by or on behalf of the Underwriter to the government of the PRC or to
any political subdivision or taxing authority thereof or therein in connection
with (A) the execution and delivery of this Agreement, (B) the issuance,
sale and delivery of the Shares by the Company and the delivery of the Shares to
or for the account of the Underwriter, (C) the purchase from the Company
and the initial sale and delivery by the Underwriter of the Shares to purchasers
thereof, or (D) the consummation of any other transaction contemplated in
this Agreement.
(xii) The
Company has taken all necessary steps to comply with, and to ensure compliance
by all of the Company’s direct or indirect shareholders and option holders who
are PRC residents with, any applicable rules and regulations of the PRC State
Administration of Foreign Exchange of the PRC (the “SAFE Rules and
Regulations”), including, without limitation, requiring each shareholder
and option holder that is, or is directly or indirectly owned or controlled by,
a PRC resident to complete any registration and other procedures required under
applicable SAFE Rules and Regulations.
(xiii)
The Company is aware of, and has been advised as to, the content of the Rules on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly
promulgated by the PRC Ministry of Commerce, the PRC State Assets Supervision
and Administration Commission, the PRC State Administration of Taxation, the PRC
State Administration of Industry and Commerce, the China Securities Regulatory
Commission (the “CSRC”) and the PRC
State Administration of Foreign Exchange of the PRC (the “M&A Rules”), in
particular the relevant provisions thereof that purport to require offshore
special purpose vehicles controlled directly or indirectly by PRC-incorporated
companies or PRC residents and established for the purpose of obtaining a stock
exchange listing outside of the PRC to obtain the approval of the CSRC prior to
the listing and trading of their securities on any stock exchange located
outside of the PRC. The Company has received legal advice
specifically with respect to the M&A Rules from its PRC counsel and the
Company understands such legal advice. In addition, the Company has
communicated such legal advice in full to each of its directors that signed the
Registration Statement and each such director has confirmed that he or she
understands such legal advice.
11
(xiv) The
issuance and sale of the Shares, the listing and trading of the Shares on the
Nasdaq Capital Market and the consummation of the transactions contemplated by
this Agreement, the Registration Statement, the Time of Sale Disclosure Package
and the Prospectus are not and will not be, as of the date hereof and on the
Closing Date, subject to the M&A Rules or any official clarifications,
guidance, interpretations or implementation rules in connection with or related
to the M&A Rules, including the guidance and notices issued by the CSRC on
September 8 and September 21, 2006 (together with the M&A Rules, the “M&A Rules and Related
Clarifications”).
(xv) The
Company has taken all necessary steps to ensure compliance by each of its
shareholders, option holders, directors, officers and employees that is, or is
directly or indirectly owned or controlled by, a PRC resident or citizen with
any applicable rules and regulations of the relevant PRC government agencies
(including but not limited to the PRC Ministry of Commerce, the PRC National
Development and Reform Commission and the PRC State Administration of Foreign
Exchange) relating to overseas investment by PRC residents and citizens (the
“PRC Overseas
Investment and Listing Regulations”), including, requesting each
shareholder, option holder, director, officer, employee and participant that is,
or is directly or indirectly owned or controlled by, a PRC resident or citizen
to complete any registration and other procedures required under applicable PRC
Overseas Investment and Listing Regulations.
(xvi) As
of the date hereof, the M&A Rules and Related Clarifications do not require
the Company to obtain the approval of the CSRC prior to the issuance and sale of
the Shares, the listing and trading of the Shares on the NASDAQ Capital Market,
or the consummation of the transactions contemplated by this Agreement, the
Registration Statement, the Time of Sale Disclosure Package or the
Prospectus.
(xvii)
Each of the PRC Entities is in compliance with all requirements under all
applicable PRC laws and regulations to qualify for their exemptions from
enterprise income tax or other income tax benefits (the “Tax Benefits”) as
described in the Registration Statement, the Time of Sale Disclosure Package and
the Prospectus, and the actual operations and business activities of each such
PRC Entity are sufficient to meet the qualifications for the Tax
Benefits. No submissions made to any PRC government authority in
connection with obtaining the Tax Benefits contained any misstatement or
omission that would have affected the granting of the Tax
Benefits. No PRC Entity has received notice of any deficiency in its
respective applications for the Tax Benefits, and the Company is not aware of
any reason why any such PRC Entity might not qualify for, or be in compliance
with the requirements for, the Tax Benefits.
(xviii)
All local and national PRC governmental tax holidays, exemptions, waivers,
financial subsidies, and other local and national PRC tax relief, concessions
and preferential treatment enjoyed by any PRC Entity as described in the
Registration Statement, the Time of Disclosure Package and the Prospectus are
valid, binding and enforceable and do not violate any laws, regulations, rules,
orders, decrees, guidelines, judicial interpretations, notices or other
legislation of the PRC.
12
(xix) The
entry into, and performance or enforcement of this Agreement in accordance with
its terms will not subject the Underwriter to any requirement to be licensed or
otherwise qualified to do business in the PRC, nor will the Underwriter be
deemed to be resident, domiciled, carrying on business or subject to taxation
through an establishment or place in the PRC or in breach of any laws or
regulations of the PRC by reason of its execution, delivery, performance or
enforcement of, or the consummation of any transaction contemplated by, this
Agreement, the Registration Statement, the Time of Sale Disclosure Package or
the Prospectus.
5.
Purchase, Sale and Delivery of Shares.
(a) On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Underwritten Shares to the Underwriter, and the Underwriter
agrees to purchase the Underwritten Shares. The purchase price for
each Underwritten Share shall be $_______ per share (the “Per Share
Price”).
(b) The
Company hereby grants to the Underwriter the option to purchase some or all of
the Additional Shares and, upon the basis of the warranties and
representations and subject to the terms and conditions herein set forth, the
Underwriter shall have the right to purchase all or any portion of the
Additional Shares at the Per Share Price as may be necessary to cover
over-allotments made in connection with the transactions contemplated
hereby. This option may be exercised by the Underwriter at any time
(but not more than once) on or before the thirtieth day following the date
hereof, by written notice to the Company (the “Option
Notice”). The Option Notice shall set forth the aggregate
number of Additional Shares as to which the option is being exercised, and the
date and time when the Additional Shares are to be delivered (such date and time
being herein referred to as the “Option Closing
Date”); provided, however, that the Option
Closing Date shall not be earlier than the Closing Date (as defined below) nor
earlier than the first business day after the date on which the option shall
have been exercised nor later than the fifth business day after the date on
which the option shall have been exercised unless the Company and the
Underwriter otherwise agree.
13
Payment
of the purchase price for and delivery of the Additional Shares shall be made at
the Option Closing Date in the same manner and at the same office as the payment
for the Underwritten Shares as set forth in
subparagraph (c) below. For the purpose of expediting the checking of
the certificate for the Additional Shares by the Underwriter, the Company agrees
to make a form of such certificate available to the Underwriter for such purpose
at least one full business day preceding the Option Closing Date.
(c) The
Underwritten Shares will be delivered by the Company to the Underwriter against
payment of the purchase price therefor by wire transfer of same day funds
payable to the order of the Company at the offices of Xxxx Capital Partners,
LLC, 00 Xxxxxxxxx Xxxxx, Xxxxxxx Xxxxx, XX 00000, or such other location as may
be mutually acceptable, at 6:00 a.m. PST, on the third (or if the Underwritten
Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act,
after 4:30 p.m. Eastern time, the fourth) full business day following the date
hereof, or at such other time and date as the Underwriter and the Company
determine pursuant to Rule 15c6-1(a) under the Exchange Act, or, in the case of
the Additional Shares, at such date and time set forth in the Option
Notice. The time and date of delivery of the Underwritten Shares or
the Additional Shares, as applicable, is referred to herein as the “Closing
Date.” If the Underwriter so elects, delivery of the
Underwritten Shares and Additional Shares may be made by credit through full
fast transfer to the account at The Depository Trust Company designated by the
Underwriter. Certificates representing the Shares, in definitive form
and in such denominations and registered in such names as the Underwriter may
request upon at least two business days’ prior notice to the Company, will be
made available for checking and packaging not later than 10:30 a.m. PDT on the
business day next preceding the Closing Date at the above addresses, or such
other location as may be mutually acceptable.
6.
Covenants.
(a) The
Company covenants and agrees with the Underwriter as follows:
(i)
During the period beginning on the date hereof and ending on the later of the
Closing Date or such date as determined by the Underwriter the Prospectus is no
longer required by law to be delivered in connection with sales by an
underwriter or dealer (the “Prospectus Delivery
Period”), prior to amending or supplementing the Registration Statement,
including any Rule 462 Registration Statement, the Time of Sale Disclosure
Package or the Prospectus, the Company shall furnish to the Underwriter for
review and comment a copy of each such proposed amendment or supplement, and the
Company shall not file any such proposed amendment or supplement to which the
Underwriter reasonably objects.
14
(ii) From
the date of this Agreement until the end of the Prospectus Delivery Period, the
Company shall promptly advise the Underwriter in writing (A) of the receipt of
any comments of, or requests for additional or supplemental information from,
the Commission, (B) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to the
Time of Sale Disclosure Package or the Prospectus, (C) of the time and date that
any post-effective amendment to the Registration Statement becomes effective and
(D) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending its use or the use of the Time of Sale Disclosure Package , or of any
proceedings to remove, suspend or terminate from listing or quotation the Common
Stock from any securities exchange upon which it is listed for trading or
included or designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter
any such stop order at any time during the Prospectus Delivery Period, the
Company will use its reasonable efforts to obtain the lifting of such order at
the earliest possible moment. Additionally, the Company agrees that
it shall comply with the provisions of Rules 424(b), 430A and 430B, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under Rule 424(b) or Rule 433 were
received in a timely manner by the Commission (without reliance on Rule
424(b)(8) or Rule 164(b) of the Securities Act).
(iii)
During the Prospectus Delivery Period, the Company will comply with all
requirements imposed upon it by the Securities Act, as now and hereafter
amended, and by the Rules and Regulations, as from time to time in force, and by
the Exchange Act, as now and hereafter amended, so far as necessary to permit
the continuance of sales of or dealings in the Shares as contemplated by the
provisions hereof, the Time of Sale Disclosure Package, the Registration
Statement and the Prospectus. If during such period any event occurs
the result of which the Prospectus (or if the Prospectus is not yet available to
prospective purchasers, the Time of Sale Disclosure Package ) would include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary or appropriate in the
opinion of the Company or its counsel or the Underwriter or its counsel to amend
the Registration Statement or supplement the Prospectus (or if the Prospectus is
not yet available to prospective purchasers, the Time of Sale Disclosure Package
) to comply with the Securities Act, the Company will promptly notify the
Underwriter and will amend the Registration Statement or supplement the
Prospectus (or if the Prospectus is not yet available to prospective purchasers,
the Time of Sale Disclosure Package) so as to correct such statement or omission
or effect such compliance.
(iv) The
Company shall take or cause to be taken all necessary action to cause the Shares
to be listed on the NASDAQ Capital Market and to qualify the Shares for sale
under the securities laws of such jurisdictions as the Underwriter reasonably
designates and to continue such qualifications in effect so long as required for
the distribution of the Shares, except that the Company shall not be required in
connection therewith to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified, to execute a
general consent to service of process in any state or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise subject.
15
(v) The
Company will furnish to the Underwriter and counsel for the Underwriter copies
of the Registration Statement and each Prospectus and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as the Underwriter may from time to time reasonably
request.
(vi) The
Company will make generally available to its security holders as soon as
practicable, but in any event not later than 15 months after the end of the
Company’s current fiscal quarter, an earnings statement (which need not be
audited) covering a 12-month period that shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Rules and
Regulations.
(vii) The
Company, whether or not the transactions contemplated hereunder are consummated
or this Agreement is terminated, will pay or cause to be paid (A) all
expenses (including transfer taxes allocated to the respective transferees)
incurred in connection with the delivery of the Shares to the Underwriter, (B)
all expenses and fees (including, without limitation, fees and expenses of the
Company’s counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto), the
Shares, the Time of Sale Disclosure Package, the Prospectus, and any amendment
thereof or supplement thereto, (C) all reasonable filing fees and reasonable
fees and disbursements of the Underwriter’s counsel incurred in connection with
the qualification of the Shares for offering and sale by the Underwriter or by
dealers under the securities or blue sky laws of the states and other
jurisdictions that the Underwriter shall designate, (D) the fees and expenses of
any transfer agent or registrar, (E) [the reasonable filing fees and fees of
counsel not to exceed $10,000 incident to any required review and approval by
FINRA, of the terms of the sale of the Shares], (F) NASDAQ Capital Market
listing fees, and (G) all other costs and expenses incident to the performance
of its obligations hereunder that are not otherwise specifically provided for
herein. In addition to the foregoing, the Company will pay the
Underwriter, on the Closing Date, an amount equal to 5% of the gross proceeds
received by the Company from the sale of the Underwritten Shares and the
Additional Shares, as applicable, as an underwriting discount. If
this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 7 or Section 10, the Company will reimburse the
Underwriter for all out-of-pocket disbursements (including, but not limited to,
reasonable fees and disbursements of counsel, travel expenses, postage,
facsimile and telephone charges) incurred by the Underwriter in connection with
its investigation, preparing to market and marketing the Shares or in
contemplation of performing its obligations hereunder.
(viii)
The Company will apply the net proceeds from the sale of the Shares to be sold
by it hereunder for the purposes set forth in the Time of Sale Disclosure
Package and in the Final Prospectus.
(ix) The
Company has not taken and will not take, directly or indirectly, during the
Prospectus Delivery Period, any action designed to or which might reasonably be
expected to cause or result in, or that has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares.
16
(x) The
Company represents and agrees that it has not made and will not make any offer
relating to the Shares that would constitute an “issuer free writing
prospectus”, as defined in Rule 433 under the Act, or that would otherwise
constitute a “free writing prospectus”, as defined in Rule 405 under the
Act.
(xi) The
Company hereby agrees that, without the prior written consent of the
Underwriter, it will not, during the period ending 180 days after the date
hereof (“Lock-Up
Period”), (A) offer, pledge, issue, sell, contract to sell, purchase,
contract to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock; or (B) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (A) or (B) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise; or (C) file any
registration statement with the Commission relating to the offering of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. The restrictions contained in the
preceding sentence shall not apply to (1) the Shares to be sold hereunder, (2)
the issuance of Common Stock upon the exercise of options or warrants
disclosed as outstanding in the Registration Statement (excluding exhibits
thereto) or the Prospectus, (3) the issuance of employee stock options not
exercisable during the Lock-Up Period and the grant of restricted stock awards
or restricted stock units pursuant to equity incentive plans described in the
Registration Statement (excluding exhibits thereto) and the Prospectus and (4)
the issuance of Common Stock upon the conversion of the Company’s Series A
Preferred stock. Notwithstanding the foregoing, if (x) the Company
issues an earnings release or material news, or a material event relating to the
Company occurs, during the last 17 days of the Lock-Up Period, or (y) prior to
the expiration of the Lock-Up Period, the Company announces that it will release
earnings results during the 16-day period beginning on the last day of the
Lock-Up Period, the restrictions imposed by this clause shall continue to apply
until the expiration of the 18-day period beginning on the issuance of the
earnings release or the occurrence of the material news or material event,
unless the Underwriter waives such extension in writing.
(b) The
Underwriter covenants and agrees with the Company as follows:
(i) The
Underwriter represents and agrees that it has not made and will not make any
offer relating to the Shares that would constitute an “issuer free writing
prospectus”, as defined in Rule 433 under the Act, or that would otherwise
constitute a “free writing prospectus”, as defined in Rule 405 under the
Act.
17
7. Conditions of
the Underwriter’s Obligations. The obligations of the
Underwriter hereunder to purchase the Shares are subject to the accuracy, as of
the date hereof and at the Closing Date (as if made at the Closing Date), of and
compliance with all representations, warranties and agreements of the
Company contained
herein, the performance by the Company of its obligations hereunder and the
following additional conditions:
(a) If
filing of the Prospectus, or any amendment or supplement thereto, is required
under the Securities Act or the Rules and Regulations, the Company shall have
filed the Prospectus (or such amendment or supplement) with the Commission in
the manner and within the time period so required (without reliance on Rule
424(b)(8) or Rule 164(b) under the Securities Act); the Registration Statement
shall remain effective; no stop order suspending the effectiveness of the
Registration Statement or any part thereof, any Rule 462 Registration Statement,
or any amendment thereof, nor suspending or preventing the use of the Time of
Sale Disclosure Package or the Prospectus shall have been issued; no proceedings
for the issuance of such an order shall have been initiated or threatened; any
request of the Commission or the Underwriter for additional information (to be
included in the Registration Statement, the Time of Sale Disclosure Package, the
Prospectus or otherwise) shall have been complied with to the Underwriter’s
satisfaction.
(b) FINRA
shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(c) The
Underwriter shall not have reasonably determined,
and advised the Company, that the Registration Statement, the Time of
Sale Disclosure Package or the Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact which, in the
Underwriter’s reasonable opinion, is material, or omits to state a fact which,
in the Underwriter’s reasonable opinion, is material and is required to be
stated therein or necessary to make the statements therein not
misleading.
(d) On or
after the date hereof (i) no downgrading shall have occurred in the rating
accorded any of the Company’s securities by any “nationally recognized
statistical organization,” as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Securities Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company’s
securities.
(e) On
the Closing Date, there shall have been furnished to the Underwriter the opinion
of Loeb & Loeb LLP, dated the Closing Date and addressed to the Underwriter,
in form and substance reasonably satisfactory to the Underwriter, to the effect
set forth in Schedule
I.
(f) On
the Closing Date, there shall have been furnished to the Underwriter the opinion
of the Company’s China counsel, dated the Closing Date and addressed to the
Underwriter, in form and substance reasonably satisfactory to the Underwriter,
to the effect set forth in Schedule II.
18
(g) On
the Closing Date, there shall have been furnished to the Underwriter the opinion
of the Company’s British Virgin Islands counsel, dated the Closing Date and
addressed to the Underwriter, in form and substance reasonably satisfactory to
the Underwriter, to the effect set forth in Schedule III.
(h) The
Underwriter shall have received a letter from each of Xxxxxx Xxxx & Co. and
BDO Xxxxxxx LLP, on the date hereof and on the Closing Date addressed to the
Underwriter, confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualifications of accountants under Rule 2-01 of
Regulation S-X of the Commission, and confirming, as of the date of each such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Time of Sale Disclosure Package, as of a date not prior to the date hereof or
more than five days prior to the date of such letter), the conclusions and
findings of said firm with respect to the financial information and other
matters required by the Underwriter.
(i) On or
before the date hereof, the Underwriter shall have received duly executed
“lock-up” agreements, in a form acceptable to the Underwriter, between the
Underwriter and those persons set forth on Schedule III.
(j) On
the Closing Date, there shall have been furnished to the Underwriter a
certificate, dated the Closing Date and addressed to the Underwriter, signed by
the chief executive officer and the chief financial officer of the Company, in
their capacity as officers of the Company, to the effect that:
(i) The
representations and warranties of the Company in this Agreement are true and
correct, in all material respects, as if made at and as of the Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) No
stop order or other order (A) suspending the effectiveness of the Registration
Statement or any part thereof or any amendment thereof, (B) suspending the
qualification of the Shares for offering or sale, or (C) suspending or
preventing the use of the Time of Sale Disclosure Package or the Prospectus, has
been issued, and no proceeding for that purpose has been instituted or, to their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
(iii)
There has been no occurrence of any event resulting or reasonably likely to
result in a Material Adverse Effect during the period from and after the date of
this Agreement and prior to the Closing Date.
(k) The
Company shall have furnished to the Underwriter and counsel for the Underwriter
such additional documents, certificates and evidence as the Underwriter or
counsel for the Underwriter may have reasonably requested.
19
If any
condition specified in this Section 7 shall not have been fulfilled when and as
required to be fulfilled, this Agreement may be terminated by the Underwriter by
notice to the Company at any time at or prior to the Closing Date and such
termination shall be without liability of any party to any other party, except
that Section 6(a)(vii), Section 8 and Section 9 shall survive any such
termination and remain in full force and effect.
8.
Indemnification and Contribution.
(a) The
Company agrees to indemnify, defend and hold harmless the Underwriter, its
affiliates, directors and officers and employees, and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any losses, claims,
damages or liabilities to which the Underwriter or such person may become
subject, under the Securities Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, including the information deemed to be a part of the Registration
Statement at the time of effectiveness and at any subsequent time pursuant to
Rules 430A and 430B of the Rules and Regulations, the Time of Sale Disclosure
Package, the Prospectus, or any amendment or supplement thereto (including any
documents filed under the Exchange Act and deemed to be incorporated by
reference into the Registration Statement or the Prospectus), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (ii) in
whole or in part, any inaccuracy in the representations and warranties of the
Company contained herein, or (iii) in whole or in part, any failure of the
Company to perform its obligations hereunder or under law, and will reimburse
the Underwriter for any legal or other expenses reasonably incurred by it in
connection with evaluating, investigating or defending against such loss, claim,
damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Time of Sale Disclosure Package, the Prospectus,
or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by the Underwriter specifically for
use in the preparation thereof.
(b) The
Underwriter will indemnify, defend and hold harmless the Company, its
affiliates, directors, officers and employees, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, from and against any losses, claims, damages
or liabilities to which the Company may become subject, under the Securities Act
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, the Time of Sale Disclosure
Package, the Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, the Time of Sale Disclosure Package, the
Prospectus, or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof, and will reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with defending against any such loss, claim, damage, liability or
action.
20
(c)
Promptly after receipt by an indemnified party under subsection (a) or (b) above
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the failure to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to any indemnified party
except to the extent such indemnifying party has been materially prejudiced by
such failure. In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of the indemnifying party’s election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof; provided,
however, that if (i)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(ii) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party), or (iii) the indemnifying
party has not in fact employed counsel reasonably satisfactory to the
indemnified party to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, the indemnified party
shall have the right to employ a single counsel to represent it in any claim in
respect of which indemnity may be sought under subsection (a) or (b) of this
Section 8, in which event the reasonable fees and expenses of such separate
counsel shall be borne by the indemnifying party or parties and reimbursed to
the indemnified party as incurred.
The
indemnifying party under this Section 8 shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is a party or could be named and indemnity was or would be
sought hereunder by such indemnified party, unless such settlement, compromise
or consent (a) includes an unconditional release of such indemnified party from
all liability for claims that are the subject matter of such action, suit or
proceeding and (b) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified
party.
21
(d) If
the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above, (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Underwriter, on the other hand, from the offering and sale
of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriter on the other in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter, in each case as set forth in the table
on the cover page of the Final Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter and the parties’ relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be
just and equitable if contributions pursuant to this subsection (d) were to be
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in the first
sentence of this subsection (d). The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending against any action or claim that is the subject
of this subsection (d). Notwithstanding the provisions of this
subsection (d), the
Underwriter shall not be required to contribute any amount in excess of the
amount of the Underwriter’s commissions referenced in Section 6(a) actually
received by the Underwriter pursuant to this Agreement. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(e) The
obligations of the Company under this Section 8 shall be in addition to any
liability that the Company may otherwise have and the benefits of such
obligations shall extend, upon the same terms and conditions, to each person, if
any, who controls the Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act; and the obligations of the
Underwriter under this Section 8 shall be in addition to any liability that the
Underwriter may otherwise have and the benefits of such obligations shall
extend, upon the same terms and conditions, to the Company, and officers,
directors and each person who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act.
22
(f) For
purposes of this Agreement, the Underwriter confirms, and the Company
acknowledges, that there is no information concerning the Underwriter furnished
in writing to the Company by the Underwriter specifically for preparation of or
inclusion in the Registration Statement, the Time of Sale Disclosure Package,
the Prospectus, other than the statements set forth in the last paragraph on the
cover page of the Prospectus and the statements set forth in the “Underwriting”
section of the Prospectus and Time of Sale Disclosure Package, only insofar as
such statements relate to the amount of selling concession and re-allowance or
to over-allotment and related activities that may be undertaken by the
Underwriter.
9.
Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, including, but not limited to, the
agreements of the Underwriter and the Company contained in Section 6(a)(vii) and
Section 8 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Underwriter or any controlling
person thereof, or the Company or any of its officers, directors, or controlling
persons, and shall survive delivery of, and payment for, the Shares to and by
the Underwriter hereunder.
10. Termination
of this Agreement.
(a) The
Underwriter shall have the right to terminate this Agreement by giving notice to
the Company as hereinafter specified at any time at or prior to the Closing
Date, if (i) trading in the Company’s Common Stock shall have been suspended by
the Commission or the NASDAQ Capital Market or trading in securities
generally on the NASDAQ Capital Market, New York Stock Exchange or NYSE
Amex shall have been suspended, (ii) minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required, on the NASDAQ Capital Market, New York Stock Exchange or NYSE Amex, by
such exchange or by order of the Commission or any other governmental authority
having jurisdiction, (iii) a banking moratorium shall have been declared by
federal, state or the PRC authorities, (iv) there shall have occurred any attack
on, outbreak or escalation of hostilities or act of terrorism involving the
United States or the PRC, any declaration by the United States or the PRC of a
national emergency or war, any change in financial markets, any substantial
change or development involving a prospective substantial change in United
States, the PRC or other international political,
financial or economic conditions or any other calamity or crisis, or (v) the
Company suffers any loss by strike, fire, flood, earthquake, accident or other
calamity, whether or not covered by insurance, the effect of which, in each case
described in this subsection (a), in the Underwriter’s reasonable judgment is
material and adverse and makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Shares. Any such
termination shall be without liability of any party to any other party except
that the provisions of Section 6(a)(vii) and Section 8 hereof shall at all times
be effective and shall survive such termination.
23
(b) If
the Underwriter elects to terminate this Agreement as provided in this Section,
the Company shall be notified promptly by the Underwriter by telephone,
confirmed by letter.
11.
Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing and, if to Xxxx, shall be mailed,
delivered or telecopied to Xxxx Capital Partners, LLC, 00 Xxxxxxxxx Xxxxx,
Xxxxxxx Xxxxx, XX 00000, telecopy number: (000) 000-0000,
Attention: Managing Director; and if to the Company, shall be mailed,
delivered or telecopied to it at Jing 7th Street, Dongfeng Xincun, Daqing City,
163311 China, telecopy number: 86-4594607830, Attention: Xxxx
Xxxx; or in each case to such other address as the person to be notified may
have requested in writing. Any party to this Agreement may change
such address for notices by sending to the parties to this Agreement written
notice of a new address for such purpose.
12. Persons
Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 8. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term “successors and assigns” as herein used
shall not include any purchaser, as such purchaser, of any of the Shares from
the Underwriter.
13. Absence of
Fiduciary Relationship. The Company acknowledges and agrees
that: (a) the Underwriter has been retained solely to act as underwriter in
connection with the sale of the Shares and that no fiduciary, advisory or agency
relationship between the Company and the Underwriter has been created in respect
of any of the transactions contemplated by this Agreement, irrespective of
whether the Underwriter has advised or is advising the Company on other matters;
(b) the price and other terms of the Shares set forth in this Agreement were
established by the Company following discussions and arms-length negotiations
with the Underwriter and the Company is capable of evaluating and understanding
and understands and accepts the terms, risks and conditions of the transactions
contemplated by this Agreement; (c) it has been advised that the Underwriter and
its affiliates are engaged in a broad range of transactions that may involve
interests that differ from those of the Company and that the Underwriter has no
obligation to disclose such interest and transactions to the Company by virtue
of any fiduciary, advisory or agency relationship; (d) it has been advised that
the Underwriter is acting, in respect of the transactions contemplated by this
Agreement, solely for the benefit of the Underwriter, and not on behalf of the
Company.
14. Amendments and
Waivers. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. The failure of a party to exercise any right or remedy shall
not be deemed or constitute a waiver of such right or remedy in the
future. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (regardless of
whether similar), nor shall any such waiver be deemed or constitute a continuing
waiver unless otherwise expressly provided.
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15. Partial
Unenforceability. The invalidity or unenforceability of any
section, paragraph, clause or provision of this Agreement shall not affect the
validity or enforceability of any other section, paragraph, clause or
provision.
16. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
17.
Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission or electronic mail attaching a portable
document file (.pdf)) in one or more counterparts and, if executed in more than
one counterpart, the executed counterparts shall each be deemed to be an
original and all such counterparts shall together constitute one and the same
instrument.
25
Please
sign and return to the Company the enclosed duplicates of this letter whereupon
this letter will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very
truly yours,
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By:
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Name: | |||
Title: | |||
Confirmed
as of the date first above-
mentioned
by the Underwriter.
XXXX
CAPITAL PARTNERS, LLC
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By:
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Name: | |||
Title: | |||
[Signature
page to Underwriting Agreement]