CHINA NATURAL GAS, INC. SECURITIES PURCHASE AGREEMENT (THE “AGREEMENT”)
EXHIBIT
99.1
SECURITIES
PURCHASE AGREEMENT (THE “AGREEMENT”)
December
30, 2007
Abax
Lotus Ltd.
▇/▇
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (▇▇▇▇ ▇▇▇▇) Limited
Suite
6708, 67/F Two International Finance Centre
▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇ SAR
Ladies
and Gentlemen:
China
Natural Gas, Inc. (the “Company”),
a
Delaware corporation, and the other Group Companies (as defined in Section
4
hereof)
hereby agree with the Purchaser (as defined below) as follows:
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1.
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Authorization
and Issuance of Securities.
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(a)
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The
Company has authorized (i) the issuance and sale of up to US$40,000,000
in
principal amount of its 5.0% Guaranteed Senior Notes due 2014 (the
“Initial
Notes”)
(ii) the grant by the Company to the Purchaser of the option to purchase
up to US$10,000,000 in principal amount of its 5.0% Guaranteed Senior
Notes due 2014 (the “Option
Notes,”
and together with the Initial Notes, the “Notes”)
and (iii) the issuance of warrants (each, a “Warrant”)
representing the right to purchase 2,900,000 shares of the Company’s
common stock, par value $.0001 (the “Common
Stock”)
pursuant to the Warrant Agreement (as defined below). For the purposes
of
this Agreement, the “Principal
Amount”
shall be the greater of (i) US$40,000,000 and (ii) the actual aggregate
principal amount of Notes issued on the date which is 30 calendar
days
following the Closing Date.
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(b)
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Subject
to the terms and conditions of this Agreement, the Company will,
at the
Closing provided for in Section
3,
issue and sell to Abax Lotus Ltd. (“Abax”,
the “Purchaser”)
and the Purchaser will purchase from the Company, Notes in the principal
amount specified opposite each Purchaser’s name in Schedule
I,
and the Company will issue to the Purchaser such number of Warrants
specified opposite the Purchaser’s name in Schedule
I,
for the consideration in the amount specified opposite the Purchaser's
name in
Schedule I.
Subject to the terms and conditions of this Agreement, the
option to purchase the Option Notes will expire 30 calendar days
after the
First Closing Date (as hereinafter defined)
and may be exercised in whole or in part from time to time on one
or more
occasions at the discretion of the Purchaser. Any such time and date
of
delivery of the Option Notes shall be determined by the Company,
but shall
not be later than seven (7) full business days after the exercise
of said
option, nor in any event prior to the First Closing Date (as
defined below).
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(c)
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The
Notes are to be issued pursuant to the provisions of an indenture
(the
“Indenture”),
to be dated as of the First Closing Date, by and among the Company
and
DB
Trustees (Hong Kong) Limited,
as trustee (the “Trustee”),
substantially in the form attached hereto as Exhibit
A.
The Warrants are to be issued pursuant to the provisions of a warrant
agreement (the “Warrant
Agreement”),
to be dated as of the First Closing Date (as defined below), by and
between the Company and Deutsche
Bank AG, Hong Kong Branch,
as the warrant agent, substantially in the form attached hereto as
Exhibit
B.
As used herein, the term “Securities”
shall mean, collectively, the Notes, the Warrants, the Common Stock
issuable upon the exercise of the Warrants (the “Warrant
Shares”)
and the Guarantees (as defined below).
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(d)
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Capitalized
terms used but not defined herein shall have the meanings given to
such
terms in the Indenture.
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2.
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Terms
of Offering.
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(a)
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Pursuant
to the Indenture, all future direct and indirect subsidiaries of
the
Company, shall irrevocably and unconditionally guarantee the Notes
on a
senior basis, but not including any direct and indirect subsidiaries
of
the Company organized in the People’s Republic of China (“PRC”)
unless a change in PRC law or interpretation in PRC law permits such
subsidiaries without governmental approval or registration, to irrevocably
and unconditionally guarantee, on a senior basis, to the Purchaser
and to
the Trustee the payment and performance of the Company’s obligations under
the Documents (as defined below) (collectively, the “Guarantees”).
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(b)
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The
Notes and the Guarantees will be secured by:
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(i)
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to
the fullest extent permitted by applicable laws, an account security
agreement in the form attached hereto as Exhibit
C,
granting a first priority lien over all cash and bank balances of
the
Company in the Deposit Account (as defined below);
and
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(ii)
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subject
to the approval of the requisite Governmental Authority, a perfected
Lien
on no more than 65% of the equity interests of Shaanxi Xilan Natural
Gas
Equipment Co., Ltd., a limited liability company formed under the
laws of
the PRC (the “WFOE”)
pursuant to an equity pledge agreement between the Collateral Agent
and
the Company, substantially in the form attached hereto as Exhibit
D
(the “Onshore
Equity Pledge Agreement,”)
and, to the fullest extent permitted by applicable laws, financing
statements (the “Financing
Statements”)
under the Uniform Commercial Code (“UCC”)
(collectively, the Account Pledge, Onshore Equity Pledge Agreement,
Financing Statements and related registrations being referred to
herein as
the “Security
Documents”).
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(c)
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The
Closing (as hereinafter defined) of the sale and purchase of the
Securities under this Agreement shall be deemed to take place
simultaneously with, and to be part of one integrated transaction
consisting of, the closing of the sale and purchase of the Notes
and
Warrants under this Agreement. The Securities will be offered and
sold to
the Purchaser pursuant to Regulation S under the U.S. Securities
Act of
1933, as amended (the “Act”).
Upon original issuance thereof, and until such time as the same is
no
longer required under the applicable requirements of the Act, the
Notes,
Warrants and the Warrant Shares shall bear the legends relating to
the
offer and the sale of the Notes, Warrants and the Warrant Shares
as
required by (i) Regulation S under the Act or (ii) any other applicable
laws or regulations relating to the issuance of the
Securities.
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(d)
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The
net proceeds from the sale and issuance of the Securities shall be
deposited into an account of the Company in New York state that is
subject
to co-signature authority by a representative of Abax (the “Deposit
Account”)
and shall be made available to the WFOE by way of [capital
contribution][shareholder’s loan] from the
Company.
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(e)
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The
Purchaser will be entitled to certain investor rights as set forth
in each
of the Investor Rights Agreement to be entered into by and among
the
Company, the Purchaser and Mr. Ji Qinan (the “Controlling
Shareholder”)
and the other parties thereto, dated the Closing Date, in the form
attached hereto as Exhibit
E
(the “Investor
Rights Agreement”),
the Conduct of Business and Information Rights Agreement in the form
of
Exhibit
F
and the Non Competition Agreement in the form of Exhibit
G.
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(f)
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The
Purchaser will be entitled to certain registration rights as set
forth in
the Equity Registration Rights Agreement to be entered into by and
among
the Company and the Purchaser, dated the Closing Date, in the form
attached hereto as Exhibit
H (the
“Registration
Rights Agreement”).
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(g)
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This
Agreement, the Indenture, the Notes, the Warrant Agreement, the Security
Documents, the Investor Rights Agreement, Conduct of Business and
Information Rights Agreement, the Non Competition Agreement and the
Registration Rights Agreement are, collectively, referred to herein
as the
“Documents.”
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3.
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Purchase,
Sale and Delivery.
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| (a) |
The
delivery of the Initial Notes and Warrants to be purchased by
the Purchaser shall occur at the Hong Kong office of Weil, Gotshal
&
▇▇▇▇▇▇ LLP, at 4:00 p.m., local time, at a closing on January
31, 2008 or on such other Business Day thereafter as may be agreed
upon in
writing by the Company and the Purchaser (such date referred to
herein as the “First Closing
Date”).
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(b)
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Subject
to the terms and conditions herein, within 30 days from and after
the
First Closing Date, the Purchaser shall have the option to require
the
Company to issues the Option Notes on any Business Day that may be
agreed
upon in writing by the Company and the Purchaser, but in any event
no
later than seven (7) full Business Days after the exercise of said
option,
nor in any event prior to the First Closing Date, (such date referred
to
herein as the “Second
Closing Date”
and along with the First Closing Date, each, as applicable, a
“Closing
Date”
and each such time, as applicable, a “Closing”).
The delivery of the Option Notes to be purchased shall occur at the
aforementioned office on such
date.
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(c)
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Subject
to the terms and conditions herein, at the First Closing (or the
Second
Closing in the case of the Option Notes), the Company shall deliver
to the
Purchaser one or more global certificates representing the Initial
Notes
(or Option Notes, as the case may be) and the Company shall deliver
to the
Purchaser one or more global certificates representing the Warrants,
in
each case registered in such names and denominations as the Purchaser
may
request (but not less than the minimum amount required by the Indenture),
against payment by the Purchaser of the aggregate purchase price
for the
Notes and the Warrants (as more specifically set forth in Schedule
I
hereto) by immediately available funds bank wire transfer to such
bank
account as the Company shall have theretofore designated to the Purchaser.
In addition, in the event that any or all of the Option Notes are
purchased by the Purchaser, payment of the purchase price for, and
delivery of notes for, such Option Notes shall be made at the
above-mentioned offices, or at such other place as shall be agreed
upon by
the Purchaser and the Company, on each Closing Date.
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(d)
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The
Notes and Warrants, as the case may be, each to be represented by
one or
more global certificates in book-entry form, will be deposited on
the
respective Closing Date, by or on behalf of the Company with Deutsche
Bank
AG, London Branch as common depositary for Clearstream
Banking, sociėtė anonyme (or any successor securities agency)
(“Clearstream”)
and Euroclear Bank, S.A./N.V. (or any successor securities clearing
agency) (“Euroclear”,
together with Clearstream, the “Clearing
Facilities”),
or its designated custodian, and registered in the name of BT
Globenet Nominees Limited for
further credit to Purchaser’s account. The Common Stock is approved for
quotation on the OTC Bulletin Board (the “Trading
Market”).
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3
4. Representations
and Warranties of the Group Companies.
Each of
the Company, Xi’an Xilan Natural Gas Co., Ltd., a limited liability company
incorporated under the laws of the PRC, Shaanxi Jingbian Liquified Natural
Gas
Co., Ltd., a limited liability company formed under the laws of the PRC, Shaanxi
Xilan Automobile Conversion Co., Ltd., a limited liability company formed under
the laws of the PRC, Shaanxi Xilan Natural Gas Equipment Co. Ltd., a limited
liability company formed under the laws of the PRC, and Henan Branh of Xi’an
Xilan Natural Gas Go. Ltd., a limited liability company formed under the laws
of
the PRC (collectively, the “Group
Companies”),
jointly and severally, represents and warrants to the Purchaser that, except
as
set forth in the SEC Reports (as defined below), the following representations
and warranties are true and correct and will on the Closing Date be true and
correct:
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(a)
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SEC
Reports.
The Company has filed all reports, schedules, forms, statements and
other
documents required to be filed by it under the Act and the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”)
since November 14, 2007, including pursuant to Section 13(a), 13(c)
or
15(d) thereof (the foregoing materials from and after November 14,
2007,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “SEC
Reports”)
on a timely basis or has received a valid extension of such time
of filing
and has filed any such SEC Reports prior to the expiration of any
such
extension. As of the date of filing, in the case of SEC Reports filed
pursuant to the Exchange Act (and to the extent such SEC Report was
amended, then as of the date of filing of such amendment), and as
of the
date of effectiveness in the case of SEC Reports filed pursuant to
the Act
(and to the extent such SEC Report was amended, then as of the date
of
effectiveness of such amendment), the SEC Reports complied in all
material
respects with the requirements of the Act and the Exchange Act and
the
rules and regulations of the Securities and Exchange Commission (the
“Commission”)
promulgated thereunder, as applicable, and none of the SEC Reports,
as of
the date of filing, in the case of SEC Reports filed pursuant to
the
Exchange Act (and to the extent such SEC Report was amended, then
as to
the date of filing of such amendment), and as of the date of effectiveness
in the case of SEC Reports filed pursuant to the Act (and to the
extent
such SEC Report was amended, then as of the date of effectiveness
of such
amendment), contained any untrue statement of a material fact or
omitted
to state a material fact required to be stated therein or necessary
in
order to make the statements therein, in the light of the circumstances
under which they were made, not
misleading.
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(b)
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Ownership
of Shares of Subsidiaries; Affiliates.
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(i)
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The
SEC Reports disclose complete and correct lists of each individual
partnership, limited liability company, joint venture, corporation,
association, trust or any other entity or organization (collectively,
a
“Person”)
in which the Company (i) owns, directly or indirectly, a majority
of its
capital stock or similar equity interests or (ii) otherwise maintains,
directly or indirectly, control over management, operations and
decision-making processes (each, a “Subsidiary”
and collectively, the “Subsidiaries”),
as to which Schedule
4(b)
shows, as to each Subsidiary, the correct name thereof, the jurisdiction
of its organization, and the percentage of shares of each class of
its
capital stock or similar equity interests outstanding owned by the
Company
and each other Subsidiary.
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(ii)
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All
of the outstanding shares of capital stock or similar equity interests
of
each Subsidiary shown in Schedule
4(b)
as
being owned by the Company and its Subsidiaries have been validly
issued,
are fully paid and non-assessable and are owned, directly or indirectly,
by the Company or another Subsidiary free and clear of any Lien (other
than Liens arising by operation of
law).
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(iii)
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No
Subsidiary is a party to, or otherwise subject to any legal or regulatory
restriction or any agreement (other than this Agreement, the restrictions
disclosed in Schedule
4(b),
and limitations imposed by corporate law statutes) restricting the
ability
of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Company or any of its Subsidiaries
that owns outstanding shares of capital stock or similar equity interests
of such Subsidiary.
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(iv)
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Schedule
4(b)
shows the correct names of the Group Companies, the jurisdictions
of their
respective organization, and the percentage of shares of each class
of
their respective capital stock or similar equity interests outstanding
owned by their respective shareholders. All of the outstanding shares
of
capital stock or similar equity interests of the Group Companies
shown in
Schedule
4(b)
as
being owned by their respective shareholders have been validly issued,
are
fully paid and non-assessable and are owned by such shareholders
free and
clear of any Lien (other than Liens arising by operation of law and
Liens
arising under the Security Documents).
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(v)
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Except
pursuant to the Controlling Shareholder’s ownership interests in the
Company or as otherwise set forth in Schedule
4(b),
none of the directors or executive officers of the Group Companies
holds,
directly or indirectly, any beneficial ownership interest in any
of the
Subsidiaries.
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(vi)
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Except
as set forth in Schedule
4(b),
the Company does not, directly or indirectly, beneficially own or
control
a minority interest in any other company, partnership or other entity
and
has not entered into any joint venture or strategic alliances.
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(vii)
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As
of the date hereof, there are no Subsidiaries of the Company that
are not
organized in the PRC.
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(c)
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Organization.
Each of the Group Companies (i) has been duly organized, is validly
existing and is in good standing (if applicable) under the laws of
its
jurisdiction of organization, (ii) has all requisite power and authority
to carry on its business and to own, lease and operate its properties
and
assets, and (iii) is duly qualified or licensed to do business and
is in
good standing (if applicable) as a foreign corporation or limited
liability company, as the case may be, authorized to do business
in each
jurisdiction in which the nature of such business or the ownership
or
leasing of such properties requires such qualification, except where
the
failure to be so qualified would not, individually or in the aggregate,
have a material adverse effect on (A) the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial
or
otherwise) of the Group Companies, taken as a whole, (B) the ability
of
any of the Group Companies to perform their respective obligations
under
any Document or (C) the validity or enforceability of any of the
Documents
or the consummation of any of the transactions contemplated therein
(each,
a “Material
Adverse Effect”).
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(d)
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Capitalization
and Voting Rights.
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(i)
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Capital
Stock.
The authorized capital of the Company consists of (i) 45,000,000
shares of
Common Stock, of which 29,200,304 shares of Common Stock are issued
and
outstanding, and (ii) 5,000,000 shares of Preferred Stock, of which
no
shares are issued and outstanding.
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(ii)
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Issued
Shares.
As at the date hereof and immediately prior to the Closing, the aggregate
number of shares of Common Stock issued and which are issuable pursuant
to
any exercise, conversion, exchange, subscription or otherwise in
connection with any warrants, options (including pursuant to the
Company’s
stock option plan), convertible securities or any agreement to sell
or
issue shares of Common Stock or securities which may be exercised,
converted or exchanged for shares of Common Stock (collectively,
“Fully-Diluted”)
is 30,244,965. The Warrant Shares issuable upon exercise of the Warrants
have been duly reserved for issuance and will constitute 8.75% of
the
Company’s Common Stock on a Fully-Diluted basis. All of the issued and
outstanding shares of each of the Group Companies as of the Closing
are
duly authorized, validly issued, fully paid and non-assessable, were
issued in accordance with the registration or qualification provisions
of
the Act and any relevant blue sky laws of the United States of America
or
pursuant to valid exemptions therefrom and were issued in compliance
with
other applicable laws (including, without limitation, applicable
PRC laws,
rules and regulations) and are not subject to any rescission right
or put
right on the part of the holder thereof nor does any holder thereof
have
the right to require the Company to repurchase such share
capital.
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(iii)
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Voting
and Other Agreements.
Except as set forth in Schedule
4(d)(iii),
there are no outstanding (A) options, warrants or other rights to
purchase
from any Group Company, (B) agreements, contracts, arrangements or
other
obligations of any Group Company to issue, or (C) other rights to
convert
any obligation into or exchange any securities for, in the case of
each of
clauses (A) through (C), shares of capital stock of, or other ownership
or
equity interests in, any Group Company. Except as otherwise contemplated
in the Investor Rights Agreement, the Company is not a party or subject
to
any agreement or understanding, and, to the Company’s knowledge after due
inquiry, there is no agreement or understanding with any Person that
affects or relates to (i) the voting or giving of written consents
with
respect to any security of the Company (including, without limitation,
any
voting agreements, voting trust agreements, shareholder agreements
or
similar agreements) or the voting by a director of the Company or
(ii) the
sale, transfer or other disposition with respect to any security
of the
Company.
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(iv)
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The
Common Stock is registered pursuant to 12(g) of the Exchange Act,
and the
Company has taken no action designed to, or which to its knowledge
is
likely to have the effect of, terminating the registration of the
Common
Stock under the Exchange Act, nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the
date
hereof, received notice from the Trading Market to the effect that
the
Company is not in compliance with the requirements of the Trading
Market.
The Company is, and expects to be, in compliance with all of the
listing
requirements of the Trading Market in the foreseeable
future.
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(e)
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No
Registration Rights.
Except as set forth in Schedule
4(e)
and for the registration rights to be granted by the Company under
the
Registration Rights Agreement, no holder of securities of any of
the Group
Companies is or will be entitled to have any registration rights
with
respect to such securities.
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(f)
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Authorization
and Execution.
Each of the Group Companies has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of
the Documents to which it is a party and to consummate the transactions
contemplated thereby. This Agreement has been duly authorized, executed
and delivered by the Group Companies. Each of the Documents has been
duly
authorized and when executed and delivered by the Group Companies
(to the
extent it is a party thereto) shall constitute a legal, valid and
binding
obligation of each of the Group Companies (to the extent it is a
party
thereto) enforceable against each of the Group Companies (to the
extent it
is a party thereto) in accordance with its terms, except (i) as limited
by
applicable bankruptcy, insolvency, reorganization, moratorium and
other
laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies,
and
(iii) to the extent the indemnification provisions contained in
Section
8
of
this Agreement or in the Registration Rights Agreement may be limited
by
applicable federal or state securities
laws.
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(g)
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Valid
Issuance of the Notes.
Each of the Notes, when issued, sold and delivered in accordance
with the
terms thereof and for the consideration set forth herein, will be
free of
restrictions on transfer, other than restrictions on transfer under
applicable securities laws. Assuming the accuracy of the Purchaser’s
representations in Section
6
below, the Notes will be issued in compliance with applicable federal
and
state securities laws. The Notes, when issued, will be in the form
contemplated by the Indenture. Each of the Notes has been duly authorized
by the Company and, when executed and delivered by the Company,
authenticated by the Trustee and delivered to the Purchaser in accordance
with the terms of this Agreement and the Indenture, such Notes will
have
been duly executed, issued and delivered by the Company and will
constitute legal, valid and binding obligations of the Company, entitled
to the benefits of the Indenture and enforceable against the Company
in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally.
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(h)
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Valid
Issuance of Warrants.
The Warrants, when issued in accordance with the terms thereof, will
be
free of restrictions on transfer, other than restrictions on transfer
under applicable securities laws. The Warrants, when issued, will
be in
the form contemplated by the Warrant Agreement. The Warrants have
been
duly and validly authorized for issuance by the Company, and, when
executed and delivered by the Company, countersigned by the Warrant
Agent
and delivered to the Purchaser, in accordance with the terms of this
Agreement and the Warrant Agreement, the Warrants will have been
duly
executed, issued and delivered by the Company and will constitute
legal,
valid and binding obligations of the Company, entitled to the benefits
of
the Warrant Agreement and enforceable against the Company in accordance
with their terms.
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(i)
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Valid
Authorization and Reservation of Warrant Shares.
The Warrant Shares have been duly and validly authorized and reserved
for
issuance by the Company, and when issued pursuant to the terms of
the
Warrants and the Warrant Agreement, will be validly issued, fully
paid and
non-assessable, not subject to any preemptive or similar rights,
free from
all taxes, Liens, charges and security interests with respect to
the
issuance thereof, free of restrictions on transfer (other than as
expressly contemplated by the Documents) and entitled to the benefits
of
the Registration Rights Agreement.
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(j)
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Compliance
with Instruments.
None of the Group Companies is in violation of its respective certificate
of incorporation, articles of association, by-laws or other organizational
documents (the “Charter
Documents”).
None of the Group Companies is, nor does any condition exist (nor
will
exist with the passage of time or otherwise) that could reasonably
be
expected to cause any of the Group Companies to be, (i) in violation
of
any statute, rule, regulation, law or ordinance, or any judgment,
decree
or order applicable to any of the Group Companies or any of their
properties (collectively, “Applicable
Law”)
of any federal, state, PRC national, provincial, local or other
governmental authority, governmental or regulatory agency or body,
court,
arbitrator or self-regulatory organization of applicable jurisdictions,
domestic or foreign (each, a “Governmental
Authority”),
or (ii) in breach of or in default (or subject to acceleration any
Debt)
under any bond, debenture, note or other evidence of indebtedness,
indenture, mortgage, deed of trust, lease or any other agreement
or
instrument to which any of them is a party or by which any of them
or
their respective property is bound (collectively, “Applicable
Agreements”),
other than in each of clause (i) and (ii) such violations, breaches
or
defaults that are not material. All Applicable Agreements are in
full
force and effect with respect to the Group Companies and to the Company’s
knowledge, with respect to the other parties, are the legal, valid
and
binding obligations of the parties
thereto.
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(k)
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No
Conflicts.
Neither the execution, delivery or performance of any of the Documents,
the issuance of any of the Securities nor the consummation of any
of the
transactions contemplated herein or therein will conflict with, violate,
constitute a breach of or a default (with the passage of time or
otherwise) under, require the consent of any person or a Governmental
Authority (other than consents already obtained which are in full
force
and effect) or result in the imposition of a Lien (other than a Lien
arising under the Security Documents and the transactions contemplated
by
this Agreement) on any assets of any of the Group Companies under
or
pursuant to (i) the Charter Documents, (ii) any Applicable Agreement,
or
(iii) any Applicable Law, other than in each of clause (ii) and (iii)
such
violations, breaches or defaults that would not, individually or
in
aggregate, have a Material Adverse Effect (or such as have been,
or at the
Closing will have been, cured). After consummation of the transactions
contemplated in the Documents, no Default or Event of Default will
exist
under the Indenture.
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(l)
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Security
Interest/Security Documents.
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|
(i)
|
When
executed and delivered, the Security Documents will create valid
and
enforceable security interests in favor of the Collateral Agent in
the
collateral (as described therein), which security interests will
secure
the repayment of the Notes and the other obligations purported to
be
secured thereby; when the UCC Financing Statement in respect of the
Company’s Onshore Equity Pledge Agreement over the WFOE is filed with the
Secretary of State of the State of Delaware, such security interest
will
be perfected on a first-priority basis; such security interest will
be
perfected on a first-priority basis; as of the Closing Date, the
pledgor
under the Onshore Equity Pledge Agreement will own the pledged collateral
described therein free and clear of all Liens (except for Liens arising
by
operation of law and Liens arising under the Onshore Equity Pledge
Agreement).
|
|
(ii)
|
When
executed and delivered, and subject to the approval by relevant
Governmental Authority as contemplated under Section
5(m)
hereof, the Onshore Equity Pledge Agreement will create a valid and
enforceable security interest in favor of the Collateral Agent in
all the
equity interests in the WFOE, which security interest will secure
the
repayment of the Notes and the other obligations purported to be
secured
thereby. When the Onshore Equity Pledge Agreement is filed with,
and
approved by, the relevant Governmental Authority pursuant to Section
5(m)
hereof, the security interests represented thereby will be
perfected.
|
8
|
(m)
|
Governmental
Consents.
No filing with, consent, approval, authorization or order of, any
Governmental Authority is required for (i) the valid execution, delivery
and performance by any of the Group Companies of the Documents, (ii)
the
offer, sale, issuance or delivery of the Notes, the Warrants or the
Warrant Shares, or (iii) the consummation of the transactions contemplated
by the Documents, except (x) as have been obtained or will have been
obtained on or before the Closing Date, or (y) as are described herein
to
perfect security interests granted pursuant to the Security Documents,
and
(z) as may be required under the Act or applicable state securities
or
“Blue Sky” laws.
|
|
(n)
|
Proceedings.
There is no action, claim, suit, demand, hearing, notice of violation
or
deficiency, or proceeding, domestic or foreign (collectively,
“Proceedings”),
pending or, to the knowledge of the Company, threatened, that (i)
seeks to
restrain, enjoin, prevent the consummation of, or otherwise challenges
any
of the Documents or any of the transactions contemplated therein
or (ii)
would otherwise have or could reasonably be expected to have a Material
Adverse Effect. None of the Group Companies is subject to any judgment,
order or decree of which the Company has knowledge and which would
have a
Material Adverse Effect.
|
|
(o)
|
Permits.
Each of the Group Companies possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has
made
all declarations and filings with, all Governmental Authorities,
presently
required or necessary to own or lease, as the case may be, and to
operate
their respective properties and to carry on their respective businesses
as
now conducted (“Permits”).
All of the Permits are valid and in full force and effect. Each of
the
Group Companies has fulfilled and performed all of its respective
obligations with respect to such Permits and no event has occurred
which
allows, or after notice or lapse of time could allow, revocation
or
termination thereof or result in any other material impairment of
the
rights of the holder of any such Permit. None of the Group Companies
has
received actual notice of any Proceeding relating to revocation or
modification of any such Permit.
|
|
(p)
|
Title
to Property.
Each of the Group Companies has good and marketable title to all
real
property and personal property owned by it, in each case free and
clear of
any Liens as of the Closing Date, except such Liens as permitted
under the
Documents or such as would not have a Material Adverse Effect. For
the
real property not owned by any of the Group Companies and currently
used
or planned to be used for the business operations of the Group Companies,
each of such Group Companies has good and marketable title to all
leasehold estates in real and personal property being leased by it
and, in
each case free and clear of all Liens as of the Closing Date.
|
|
(q)
|
Insurance.
Each of the Group Companies maintains reasonably adequate insurance
covering its material properties, operations, personnel and business,
and
is insured by insurers of recognized financial responsibility against
such
losses and risks and in such amounts as are prudent and customary
in the
businesses in which it is engaged. All policies of insurance insuring
the
Group Companies and their respective businesses, assets, employees,
officers and directors are in full force and effect. Each of the
Group
Companies is in compliance with the terms of such policies and instruments
in all material respects, and there are no claims by any of the Group
Companies under any such policy or instrument as to which any insurance
company is denying liability or defending under a reservation of
rights
clause. None of the Group Companies has been refused any insurance
coverage sought or applied for, and none of the Group Companies has
any
reason to believe that it will not be able to renew its existing
insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business
at a
cost that could not, individually or in the aggregate, have a Material
Adverse Effect.
|
9
|
(r)
|
Taxes.
All Tax returns required to be filed by each of the Group Companies
have
been filed, and all such returns are true, complete and correct in
all
material respects. All material Taxes that are due from each of the
Group
Companies have been paid other than those (i) currently payable without
penalty or interest or (ii) being diligently contested in good faith
and
by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP. To the knowledge of the Company
after
due inquiry, there are no proposed Tax assessments against any of
the
Group Companies. The accruals and reserves on the books and records
of
each of the Group Companies in respect of any Tax liability for any
Taxable period not finally determined are adequate to meet any assessments
of Tax for any such period. For purposes of this Agreement, the term
“Tax”
and “Taxes”
shall mean all federal, state, PRC national, provincial, local and
foreign
taxes and other assessments of a similar nature (whether imposed
directly
or through withholding), including any interest, additions to tax
or
penalties applicable thereto.
|
|
(s)
|
Intellectual
Property.
|
|
(i)
|
Each
of the Group Companies owns, or is validly licensed under, or has
the
right to use, all patents, patent rights, licenses, inventions,
copyrights, know-how, (including any discoveries, concepts, ideas,
research and development, know-how, formulas, inventions, compositions,
manufacturing and production processes and techniques, technical
data,
procedures, designs, drawings, specifications, databases, and other
proprietary or confidential information, including customer lists,
supplier lists, pricing and cost information, and business and marketing
plans and proposals of the Group Companies), trademarks, service
marks and
trade names (collectively, “Intellectual
Property”)
necessary for the conduct of its businesses and which as of the Closing
Date, will be free and clear of all Liens, except where the failure
to
own, possess, or have the right to use such Intellectual Property
could
not reasonably be expected to have a Material Adverse Effect. To
the
Company’s knowledge, no claims or notices of any potential claim have been
asserted by any person challenging the use of any such Intellectual
Property by any of the Group Companies or questioning the validity
or
effectiveness of the Intellectual Property or any license or agreement
related thereto, and, to the Company’s knowledge, there are no facts which
would form a valid basis for any such claim. The use of such Intellectual
Property by any of the Group Companies does not and will not infringe
on,
violate, misappropriate or otherwise interfere or conflict with any
the
Intellectual Property rights of any other person.
|
|
(ii)
|
The
SEC Reports describe all material Intellectual Property licensed
to any of
the Group Companies. All material Intellectual Properties owned by
each of
the Group Companies are valid and enforceable and are in compliance
with
formal legal requirements.
|
10
|
(iii)
|
Each
of the Group Companies has taken reasonable steps to establish, register,
protect, maintain, and safeguard the Intellectual Property material
to its
business, including any Intellectual Property that is jointly developed
with any third-parties, or any Intellectual Property for which improper
or
unauthorized disclosure would impair its value or validity, and has
had
executed appropriate nondisclosure and confidentiality agreements
and made
all appropriate filings, registrations and payments of fees in connection
with the foregoing. There is no infringement or misappropriation
by any
other Person of any Intellectual Property of any of the Group Companies.
No proceedings or claims in which any of the Group Companies alleges
that
any Person is infringing upon, or otherwise violating, any Intellectual
Property of any of the Group Companies are pending, and none has
been
served, instituted or asserted by any of the Group
Companies.
|
|
(iv)
|
One
or more of the Group Companies owns all rights in and to any and
all
Intellectual Property used or planned to be used by the Group Companies,
or covering or embodied in any past, current or planned activity
or
service of the Group Companies, which Intellectual Property was made,
developed, conceived, created or written by any consultant retained,
or
any employee employed, by the Group Companies.
|
|
(v)
|
Each
of the Group Companies has not (a) transferred or assigned, (b) granted
an
exclusive license to or (c) provided or licensed, any Intellectual
Property owned by the Group Companies to any Person who is the subject
of
any security interest, Lien, license or other contract granting rights
therein to any other Person.
|
|
(t)
|
Internal
Controls.
Each of the Group Companies maintains a system of internal accounting
controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general
or specific authorization, (ii) transactions are recorded as necessary
to
permit preparation of financial statements in conformity with GAAP
and to
maintain asset accountability, (iii) access to assets is permitted
only in
accordance with management’s general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing
assets at quarterly intervals and appropriate action is taken with
respect
to any material differences.
|
|
(u)
|
Financial
Statements.
|
|
(i)
|
The
audited consolidated financial statements and related notes of the
Company
contained in the Form 10-KSB for the year ended December 31, 2006
and the
unaudited consolidated financial statements and related notes in
the Form
10-QSB for the nine months ended September 30, 2007 (collectively,
the
“Financial
Statements”)
have been prepared in accordance with the applicable accounting
requirements and the rules and regulations of the Commission with
respect
thereto as in effect at the time of filing; the Financial Statements
have
been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved (“GAAP”),
except as may be otherwise specified in the Financial Statements,
and
except that unaudited Financial Statements may not contain all footnotes
required by GAAP; the Financial Statements fairly present in all
material
respects the financial condition, results of operations and cash
flows of
the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods
then
ended, subject, in the case of unaudited statements, to normal year-end
audit adjustments; all other financial, statistical, and market and
industry-related data included in the SEC Reports are based on or
derived
from sources that the Company reasonably believes to be reliable
and
accurate.
|
11
|
(ii)
|
Subsequent
to the date of the Company’s audited financial statements filed for the
year ended December 31, 2006, except as disclosed therein or in any
subsequent SEC Report, (i) none of the Group Companies has incurred
any
liabilities, direct or contingent, that are material, individually
or in
the aggregate, to the Company, or has entered into any material
transactions not in the ordinary course of business, (ii) there has
not
been any material decrease in the capital stock or any material increase
in long-term indebtedness or any material increase in short-term
indebtedness of the Group Companies, or any payment of or declaration
to
pay any dividends or any other distribution with respect to the Group
Companies, and (iii) there has not been any material adverse change
in the
properties, business, prospects, operations, earnings, assets, liabilities
or condition (financial or otherwise) of the Group Companies taken
as a
whole; excluding any changes caused by (x) the condition of the industry
of the Company that do not disproportionately affect the Company,
(y) the
failure of the Company to meet its financial projections or (z) the
execution and delivery of this Agreement and consummation of the
transactions contemplated hereby (each of clauses (i), (ii) and (iii),
a
“Material
Adverse Change”).
To the knowledge of the Company, there is no event that is reasonably
likely to occur in the foreseeable future, which if it were to occur,
could, individually or in the aggregate, have a Material Adverse
Change.
|
|
(v)
|
Solvency
and Adequate Capital.
All Indebtedness represented by the Notes is being incurred for proper
purposes and in good faith. Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt
by the
Company of the proceeds from the sale of the Securities hereunder,
(i) the
fair saleable value of the Group Companies’ assets exceeds the amount that
will be required to be paid on or in respect of the Group Companies’
existing debts and other liabilities (including contingent liabilities)
as
they mature; (ii) the present fair saleable value of the assets of
the
Group Companies is greater than the amount that will be required
to pay
the probable liabilities of the Group Companies on their respective
debt
as they become absolute and mature, and (iii) the Group Companies
are able
to realize upon their assets and pay their debt and other liabilities
(including contingent obligations) as they mature; (iv) the Group
Companies’ assets do not constitute unreasonably small capital to carry on
their respective businesses as now conducted and as proposed to be
conducted including their respective capital needs taking into account
the
particular capital requirements of the business conducted by the
Group
Companies, and projected capital requirements and capital availability
thereof; and (v) the current cash flow of each of the Group Companies,
together with the proceeds the Company would receive, were it to
liquidate
all of its assets, after taking into account all anticipated uses
of the
cash, would be sufficient to pay all amounts on or in respect of
its
liabilities when such amounts are required to be paid. None of the
Group
Companies intends to incur debts beyond its ability to pay such debts
as
they mature (taking into account the timing and amounts of cash to
be
payable on or in respect of its debt). The Company has no knowledge
of any
facts or circumstances which lead it to believe that it or any other
Group
Companies will file for reorganization or liquidation under the bankruptcy
or reorganization laws of any jurisdiction within one year from the
Closing Date. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed
in
excess of US$50,000 (other than trade accounts payable incurred in
the
ordinary course of business), (b) all guaranties (including liens
granted
over the property of any Group Company as security for Indebtedness
of any
Person that is not a Group Company), endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not
the same
are or should be reflected in the Company’s consolidated balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the
ordinary course of business; and (c) the present value of any lease
payments in excess of US$50,000 due under leases required to be
capitalized in accordance with GAAP. None of the Group Companies
is, or is
reasonably likely to be, in default with respect to any Indebtedness
and
no waiver of default is currently in effect. None of the Group Companies
has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether
now
owned or hereafter acquired, to be subject to a Lien (other than
pursuant
to the Security Documents). None of the Group Companies is a party
to, or
otherwise subject to any provision contained in, any instrument evidencing
Indebtedness of any of the Group Companies, any agreement relating
thereto
or any other agreement (including, but not limited to, its Charter
Document) which limits the amount of, or otherwise imposes restrictions
on
the incurring of, Indebtedness of the Company on a consolidated
basis.
|
12
|
(w)
|
No
Stabilization.
None of the Group Companies has and, to each of its knowledge after
due
inquiry, no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in, or that
has
constituted or which might reasonably be expected to constitute,
the
stabilization or manipulation of the price of any security of any
of the
Group Companies to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of, the Securities, or (iii) paid or agreed
to pay to
any person any compensation for soliciting another to purchase any
other
securities of the Company or its
Subsidiaries.
|
|
(x)
|
No
Sale to the U.S.
None of the Group Companies, or any person that directly, or indirectly
through one or more intermediaries, controls or is controlled by,
or is
under common control with, any Group Company (each such person, an
“Affiliate”),
or any person acting on its or their behalf has, directly or indirectly,
made offers or sales of any security, or solicited offers to buy,
sell or
offer to sell or otherwise negotiate in respect of, in the United
States
or to any United States citizen or resident, any security which is
or
would be integrated with the sale of the Securities in a manner or
under
circumstances that would require the registration of the Securities
under
the Act.
|
|
(y)
|
No
Directed Selling Efforts.
None of the Group Companies, their respective Affiliates, or any
person
acting on its or their behalf (other than the Purchaser, its Affiliates
or
persons acting on its behalf, as to whom the Group Companies make
no
representation) has engaged in any directed selling efforts (within
the
meaning of Regulation S) with respect to the Securities; and each
of the
Company, its Subsidiaries, their respective Affiliates and each person
acting on its or their behalf has complied with the offering restrictions
requirement of Regulation S.
|
|
(z)
|
No
Registration.
Assuming the accuracy of the Purchaser’s representations and warranties
set forth in Section
6
hereof, no registration under the Act of the Securities is required
for
the offer, sale and delivery of the Securities in the manner contemplated
herein or to qualify any Indenture under the Trust Indenture Act
of
1939.
|
|
(aa)
|
Labor
Matters.
None of the Group
Companies
is
bound by or subject to (and none of its assets or properties is bound
by
or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union
has
requested or, to the knowledge of the Company, has sought to represent
any
of the employees, representatives or agents of the Group
Companies.
There is no strike or other labor dispute involving any of the
Group
Companies
pending or threatened, which could have a Material Adverse Effect.
There
is no employment related charge, complaint, grievance, investigation,
unfair labor practice claim or inquiry of any kind, pending or threatened
against any of the Group
Companies
that could, individually or in the aggregate, have a Material Adverse
Effect.
|
13
|
(bb)
|
Brokers
and Finders.
The Company has not engaged any broker, finder, commission agent
or other
similar person in connection with the transactions contemplated under
the
Documents, and the Company is not under any obligation to pay any
broker’s
fee or commission in connection with such
transactions.
|
|
(cc)
|
Environmental
Matters.
Each of the Group Companies (i) is in compliance with any and all
applicable foreign, federal, state, PRC national, provincial, and
local
laws and regulations relating to the protection of the environment
or
hazardous or toxic substances or wastes, pollutants or contaminants
(“Environmental
Laws”),
(ii) has received and is in compliance with all permits, licenses or
other approvals required of it under applicable Environmental Laws
to
conduct its business, (iii) has not received actual notice of any
actual
or potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes, pollutants
or contaminants, (iv) has no knowledge of any facts which would give
rise
to any claim, public or private, of violation of Environmental Laws
emanating from, occurring on or in any way related to real properties
now
or formerly owned, leased or operated by any of them or to other
assets or
their use, except, in each case, such as would not result in a Material
Adverse Effect; and (v) has stored no hazardous materials on real
properties now or formerly owned, leased or operated by any of them
and
has not disposed of any hazardous materials in a manner contrary
to any
Environmental Laws; except where such non-compliance with Environmental
Laws, failure to receive required permits, licenses or other approvals,
or
liability would not, individually or in the aggregate, have a Material
Adverse Effect.
|
|
(dd)
|
Encumbrances.
Except as set forth in Schedule
4(dd),
as of the Closing Date, there will be no encumbrances,
foreign
exchange restrictions or contractual restrictions on the ability
of any of
the Group Companies (x) to pay dividends or make other distributions
on
such parties’ capital stock or to make loans or advances or pay any
indebtedness to, or investments in, any of the Group Companies or
(y) to
transfer any of its property or assets to any of the Group Companies,
except for such restrictions set forth in the Documents or limitations
imposed by corporate law statutes.
|
|
(ee)
|
Winding
up; Dissolution.
None of the Group Companies has taken any action nor, to the Company’s
knowledge have any steps been taken by any third party or legal,
legislative or administrative proceedings been started or, to the
Company’s knowledge threatened to (i) wind up, dissolve, make dormant, or
eliminate any of the Group Companies or (ii) to withdraw, revoke
or cancel
any material approvals to conduct the business of any of the Group
Companies, if applicable.
|
|
(ff)
|
Sovereign
Immunity.
Under the laws of their respective jurisdiction of incorporation
and the
PRC, none of the Group Companies 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 service of
process,
from attachment prior to or in aid of execution of judgment, or from
other
legal process or proceeding for the giving of any relief or for the
enforcement of any judgment.
|
14
|
(gg)
|
Purchaser
Liability.
No holders of any of the Notes or Warrants or Warrant Shares will
be
subject to liability in respect of any liability of the Company by
virtue
only of the holding of any such
Securities.
|
|
(hh)
|
Certificate.
Each certificate signed by any officer of any of the Group Companies
and
delivered to the Purchaser shall be deemed a representation and warranty
by such company (and not individually by such officer) to the Purchaser
with respect to the matters covered
thereby.
|
|
(ii)
|
Foreign
Corrupt Practices Act.
None of the Group Companies, nor to the knowledge of the Company,
any
agent or other person acting on behalf of any of the Group Companies,
directly or indirectly, (i) has used any funds or will use such funds
or
any proceeds from the sale of the Securities for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign
or
domestic political activity, (ii) made any unlawful payment to foreign
or
domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds, (iii) failed
to
disclose fully any contribution made by the Group Companies (or made
by
any person acting on its behalf of which the Company is aware) which
is in
violation of law, or (iv) violated or taken any action which violates
or
would result in a violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended and the rules and regulations thereunder
(the “FCPA”).
|
|
(jj)
|
Related
Party Transactions.
No material transactions or relationships, direct or indirect, exist
between or among any of the Group Companies or its Subsidiaries or
any
Affiliate of the Group Companies or its subsidiaries, on the one
hand, and
any current director, officer, stockholder, customer or supplier
of any of
them (including his or her spouse, child, sibling, any company or
undertaking in which he or she holds any equity interest, or any
person
related by marriage or consanguinity), on the other
hand.
|
|
(kk)
|
Investment
Company.
None of the Group Companies is, and as a result of the offer and
sale of
the Securities contemplated herein will not be, required to register
as an
“investment company” under, and as such term is defined in, the Investment
Company Act of 1940, as amended, in connection with or as a result
of the
offer and sale of the Securities.
|
|
(ll)
|
PFIC.
None of the Group Companies is or intends to become a “passive foreign
investment company” (a “PFIC”)
within the meaning of Section 1297 of the Internal Revenue
Code.
|
|
(mm)
|
OFAC.
Neither the Company nor, to the knowledge of the Company, any director,
officer, agent, employee, Affiliate or Person acting on behalf of
the
Company 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, or lend, contribute or otherwise make available such proceeds
to
any Subsidiary, joint venture partner or other Person or entity,
for the
purpose of financing the activities of any person currently subject
to any
U.S. sanctions administered by OFAC. None of the Group Companies
does any
business with governments, entities or persons subject to any U.S.
sanctions administered by the OFAC or any enabling legislation or
executive order relating thereto, or, to the best of the knowledge
of the
Company, any person or entity in those countries or with those persons,
or
perform contracts in support of projects in or for the benefit of
those
countries or those persons.
|
15
|
(nn)
|
Money
Laundering Laws.
The operations of each of the Group Companies are and have been conducted
at all times in compliance with the money laundering statutes of
applicable jurisdictions, the rules and regulations thereunder and
any
related or similar rules, regulations or guidelines, issued, administered
or enforced by any applicable governmental agency (collectively,
the
“Money
Laundering Laws”)
and no action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving any of the
Group
Companies with respect to the Money Laundering Laws is pending or,
to the
best knowledge of the Company,
threatened.
|
|
(oo)
|
Margin
Rules.
Neither the issuance, sale and delivery of the Securities nor the
application of the proceeds thereof by the Company will violate Regulation
T, U or X of the Board of Governors of the U.S. Federal Reserve System
or
any other regulation of such Board of
Governors.
|
|
(pp)
|
Other
Representations and Warranties Relating to the PRC Group
Companies.
|
|
(i)
|
The
constitutional documents and certificates and related material contracts
of the WFOE and any other Group Companies (excluding the Company)
(collectively, the WFOE and such other Group Companies established
under
the laws of the PRC are referred to herein as the “PRC
Group Companies”)
are valid and have been duly approved or registered (as applicable)
by
competent PRC Governmental
Authorities.
|
|
(ii)
|
All
material consents, approvals, authorizations or licenses requisite
under
PRC law for the due and proper establishment and operation of each
of the
PRC Group Companies have been duly obtained from the relevant PRC
Governmental Authorities and are in full force and
effect.
|
|
(iii)
|
All
filings and registrations with the PRC Governmental Authorities required
in respect of each of the PRC Group Companies and their respective
operations including, without limitation, the registrations with
the
Ministry of Commerce, the State Administration of Industry and Commerce,
the State Administration for Foreign Exchange, tax bureau and customs
authorities have been duly completed in accordance with the relevant
PRC
rules and regulations.
|
|
(iv)
|
Each
of the PRC Group Companies has complied with all relevant PRC laws
and
regulations regarding the contribution and payment of its registered
share
capital, the payment schedule of which has been approved by the relevant
PRC Government Authorities. There are no outstanding rights of, or
commitments made by, the Company or any Group Company to sell any
equity
interest in any of the PRC Group Companies, or by any of the other
PRC
Group Companies’ shareholders to sell any equity interest in such other
PRC Group Companies.
|
|
(v)
|
The
PRC Group Companies are not in receipt of any letter or notice from
any
relevant PRC Governmental Authority notifying it of revocation of
any
licenses or qualifications issued to it or any subsidy granted to
it by
any PRC Governmental Authority for non-compliance with the terms
thereof
or with applicable PRC laws, or the need for compliance or remedial
actions in respect of the activities carried out by the PRC Group
Companies.
|
16
|
(vi)
|
Each
of the PRC Group Companies has conducted its business activities
within
the permitted scope of business or has otherwise operated its business
in
compliance with all relevant legal requirements and with all requisite
licenses and approvals granted by competent PRC Governmental
Authorities.
|
|
(vii)
|
As
to licenses, approvals and government grants and concessions requisite
or
useful for the conduct of any part of the PRC Group Companies’ business
which are subject to periodic renewal, the Company has no knowledge
of any
grounds on which such requisite renewals will not be granted by the
relevant PRC Governmental
Authorities.
|
|
(viii)
|
With
regard to employment and staff or labor, each of the PRC Group Companies
has complied with all applicable PRC laws and regulations in all
material
respects, including without limitation, laws and regulations pertaining
to
welfare funds, social benefits, medical benefits, insurance, retirement
benefits, pensions or the like.
|
|
(qq)
|
Full
Disclosure.
All disclosure furnished by or on behalf of the Company to the Purchaser
regarding any of the Group Companies, their respective businesses
and the
transactions contemplated under the Documents, with respect to the
representations and warranties made herein, are true and correct
and do
not contain any untrue statement of a material fact or omit to state
any
material fact necessary in order to make the statements made therein,
in
light of the circumstances under which they were made, not misleading.
The
Company acknowledges and agrees that the Purchaser does not make
any
representations or warranties with respect to the transactions
contemplated hereby, other than those specifically set forth in
Section
6
hereof.
|
5. Covenants
of the Group Companies.
Each of
the Group Companies, jointly and severally, hereby agrees:
|
(a)
|
To
(i) advise the Purchaser promptly after obtaining knowledge (and,
if
requested by the Purchaser, confirm such advice in writing) of the
issuance by any applicable securities commission of any stop order
suspending the qualification or exemption from qualification of the
Securities for offer or sale in any jurisdiction, or the initiation
of any
proceeding for such purpose by any applicable state securities commission
or other regulatory authority, (ii) use its best efforts to prevent
the
issuance of any stop order or order suspending the qualification
or
exemption from qualification of the Securities under any applicable
state
securities or Blue Sky laws, and (iii) if at any time any applicable
state
securities commission or other regulatory authority shall issue an
order
suspending the qualification or exemption from qualification of the
Securities under any such laws, use its reasonable best efforts to
obtain
the withdrawal or lifting of such order at the earliest possible
time.
|
|
(b)
|
Whether
or not any of the transactions contemplated under the Documents are
consummated or this Agreement is terminated, to pay (i) all reasonable
costs, expenses, fees and taxes incident to and in connection with:
(A)
the printing, processing and distribution (including, without limitation,
word processing and duplication costs) and delivery of, each of the
Documents, and (B) the preparation, issuance and delivery of the
Securities, (ii) all fees and expenses of counsel, accountants and
any
other experts or advisors retained by the Group Companies, (iii)
all
expenses in connection with qualifying the Securities for settlement
in
the Clearing Facilities, (iv) all fees and expenses (including reasonable
fees and expenses of counsel) of the Company in connection with approval
of the Securities for “book-entry” transfer, (v) all fees and expenses
(including any filing, regulatory and registration fees) relating
to the
perfection of Liens, and (vi) all fees and expenses (including fees
and
expenses of counsel) of the Trustee, the Warrant Agent and the Collateral
Agent; provided,
however,
that the Company shall only be responsible for such fees and expenses
up
to an amount equal to 0.75% of the Principal Amount (“Expense
Cap”)
and any amounts that exceed the Expense Cap shall be borne, pro-rata,
by
each of the Purchaser. In addition, on the First Closing Date, the
Company
will pay to Abax an arrangement fee of $1,600,000 in connection with
the
sale and the issuance of the Initial
Notes.
|
17
|
(c)
|
To
do and perform all things and comply with all covenants and agreements
required to be done and performed or complied with under the Documents
prior to and after the Closing
Date.
|
|
(d)
|
Prior
to making any public disclosure or filings as may be required by
applicable law with respect to this Agreement and the transactions
contemplated hereby, to provide the Purchaser and its counsel with
the
reasonable opportunity to review and comment on such public disclosure
documents and consider in good faith any comments received from the
Purchaser or its counsel.
|
|
(e)
|
Use
reasonable efforts to maintain the trading of the Common Stock in
the
Trading Market.
|
|
(f)
|
Subject
to the requirements of applicable laws and regulations and for so
long as
the Purchaser owns any of the Securities, the Company will furnish
to the
Purchaser copies of all reports and other communications (financial
or
otherwise) furnished by the Company (A) to the Trustee under the
Indenture
or (B) to the Warrant Agent under the Warrant Agreement, and as soon
as
reasonably available, copies of any reports or financial statements
furnished to or filed by the Company with the Commission or any national
securities exchange on which any class of securities of the Company
may be
listed; provided,
however,
that any such report or financial statements filed on the Commission’s
▇▇▇▇▇ database need not be separately
furnished.
|
|
(g)
|
During
the two-year period after the Closing Date (or such shorter period
as may
be provided for in Rule 144(k) under the Act, as the same may be
in effect
from time to time), not to, and not to permit any current or future
Subsidiaries of the Company or any other affiliates (as defined in
Rule
144(a) under the Act) controlled by the Company to, resell any of
the
Securities which constitute “restricted securities” under Rule 144 that
have been reacquired by the Company, any current or future Subsidiaries
of
the Company or any other affiliates (as defined in Rule 144(a) under
the
Act) controlled by the Company, except pursuant to an effective
registration statement under the
Act.
|
|
(h)
|
To
pay all stamp, documentary and transfer taxes and other duties, if
any,
which may be imposed by any Governmental Authorities or any political
subdivision thereof or taxing authority thereof or therein with respect
to
the issuance of the Securities or the sale thereof to the
Purchaser.
|
|
(i)
|
The
Company will use its reasonable efforts not to become, and cause
its
Subsidiaries not to become, a PFIC. If the Company determines that
it or
any of its Subsidiaries has become a PFIC, the Company will promptly
notify the Purchaser and provide all information requested by the
Purchaser that is necessary for the Purchaser to make a qualified
electing
fund (QEF) election under Section 1295 of the Internal Revenue Code.
|
18
|
(j)
|
No
Group Company shall, directly or indirectly, use the proceeds of
the sale
of the Notes, or lend, contribute or otherwise make available such
proceeds to any Subsidiary, joint venture or other Person for the
purposes
of financing the activities of any Person currently subject to any
U.S.
sanctions administered by OFAC.
|
|
(k)
|
Each
of the Group Companies shall conduct its operations at all times
in
compliance with the Money Laundering Laws of applicable jurisdictions,
the
rules and regulations thereunder and any related or similar rules,
regulations or guidelines, issued administered or enforced by any
applicable Governmental
Authorities.
|
|
(l)
|
The
Company agrees that it will not register any transfer of the Securities
that is not (i) made in accordance with the provisions of Regulation
S
under the Act, (ii) made pursuant to registration under the Act,
or (iii)
made pursuant to an available exemption under the Act.
|
|
(m)
|
The
Company shall, as soon as reasonably practicable, use its reasonable
best
efforts to (i) obtain approvals from, and complete filing procedures
with,
relevant Governmental Authorities in order to create valid and enforceable
security interests over all of the equity interests of the WFOE pursuant
to the Onshore Equity Pledge Agreements, and (ii) procure a Person
who is
reasonably acceptable to Purchaser as sponsor to act on behalf of
the
Company in making the foregoing filings and completing such procedures
which sponsor shall act at the instruction of the Collateral Agent.
If
the PRC Governmental Authorities require any amendments, modifications
or
changes to the Onshore Equity Pledge Agreements as a condition to
their
approval of such agreements, then the Company shall use its best
efforts
to effect such amendments, modifications or changes to such agreements,
as
the case may be, to obtain such approvals from the relevant Governmental
Authorities.
|
|
(n)
|
The
Company shall use its best efforts to assist the Purchaser to timely
file
the UCC Financing Statement under Article 9 of the UCC of Delaware
with
the Secretary of the State of the State of Delaware with respect
to the
pledge of equity interests in the WFOE, which initial filing shall
be
completed no later than one month from the date of the
Closing.
|
|
(o)
|
To
the extent that any Controlling Shareholder or Group Company is subject
to
or under the jurisdiction of Circular 75 issued by the PRC State
Administration of Foreign Exchange on October 21, 2005, including
any
amendment, implementing rules, or official interpretation thereof
or any
replacement, successor or alternative legislation having the same
subject
matter thereof (collectively “Circular
75”),
each Group Company and the Controlling Shareholder hereby covenants
to the
Purchaser and the Company that it shall fully comply, and shall procure
that the Controlling Shareholder and/or Group Company to comply,
in all
respects with Circular 75 and any related requirement of law, including
without limitation, the completion of any applicable foreign exchange
registration, settlement or remittance requirement therein by January
31, 2008.
|
|
(p)
|
Subject
to the written consent of the Purchaser, the Company will use the
proceeds
from the offer and sale of the Securities (the “Proceeds”)
solely for (i) set-up and general working capital expenditures in
connection with the construction and operation of the liquefied natural
gas processing and distribution plant to be constructed in Jinbiang,
Shaanxi Province in the PRC and its related operations, (ii) strategic
equity or asset acquisitions, (iii) fees and expenses payable with
respect
to the issuance of the Securities, and (iv) other general working
capital
purposes, including the construction and acquisition of CNG filling
stations (collectively, the “Permitted
Use of Proceeds”).
|
19
|
(q)
|
The
proceeds from the offer and sale of the Securities will, prior to
contribution to the WFOE, be retained in the Deposit Account until
such
proceeds are to be used for the Permitted Use of Proceeds.
|
|
(r)
|
The
Company (i) shall at all times keep reserved for issuance and delivery
such number of Warrant Shares issuable upon exercise of any Warrant
and
(ii) shall, from time to time, take all necessary steps to amend
its
certificate or articles of incorporation to provide a sufficient
reserve
of Warrant Shares for issuance upon exercise of the
Warrants.
|
|
(s)
|
In
connection with the exercise of the Warrants, neither the Company
nor any
Person acting on its behalf will take any action which would result
in the
Warrant Shares being issued by the Company other than to the then
existing
holders of the Warrants exclusively, in each case where no commission
or
other remuneration is paid or given directly or indirectly for soliciting
the exchange in compliance with Section 3(a)(9) of the
Act.
|
|
(t)
|
Each
of the Group Companies undertakes that (i) it will comply with the
FCPA,
including, without limitation, not making use of the mails or any
means or
instrumentality of interstate commerce corruptly in furtherance of
an
offer, payment, promise to pay or authorization of the payment of
any
money, or other property, gift, promise to give, or authorization
of the
giving of value to any “foreign official” (as the term is defined in the
FCPA) or any foreign political party or official thereof or any candidate
for foreign political office, in contravention of the FCPA, (ii)
it will
conduct its business in compliance with the FCPA, and (iii) it will
institute and maintain policies and procedures designed to ensure,
and
which are reasonably expected to continue to ensure, continued compliance
therewith.
|
|
(u)
|
The
Company covenants to timely file (or obtain extensions in respect
thereof
and file within the applicable grace period) all reports required
to be
filed by the Company after the date hereof pursuant to the Exchange
Act.
As long as the
Warrant Shares are “restricted securities” as defined in Rule
144(a)(3),
if the Company is not required to file reports pursuant to the Exchange
Act, it will prepare and make publicly available in accordance with
Rule
144(c) (and, if the Purchaser owns any Warrant Shares, furnish to
the
Purchaser) such information as is required to sell such Warrant Shares
under Rule 144. The Company further covenants that it will take such
further action as any holder of the Warrant
Shares
may reasonably request, to the extent required from time to time
to enable
such person to sell such Warrant Shares, as applicable, without
registration under the Act within the requirements of the exemption
provided by Rule 144.
|
|
(v)
|
The
Company shall, by 8:30 a.m. New York City time on the second trading
day
immediately following the date hereof, issue a Current Report on
Form 8-K,
disclosing the material terms of the transactions contemplated hereby,
and
shall attach the Documents that are required by the Commission’s rules and
regulations to be filed thereto. The Company and the Purchaser shall
consult with each other in issuing any other press releases with
respect
to the transactions contemplated hereby, and neither the Company
nor the
Purchaser shall issue any such press release or otherwise make any
such
public statement (i) without the prior consent of the Company, with
respect to any press release of the Purchaser, or (ii) without the
prior
consent of the Purchaser, with respect to any press release of the
Company, in either case of (i) and (ii), which consent shall not
unreasonably be withheld or delayed, except if such disclosure is
required
by law, in which case the disclosing party shall promptly provide
the
other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly or
otherwise
disclose the name of the Purchaser, or include the name of the Purchaser
in any filing with the Commission or any regulatory agency or any
securities exchange or the Trading Market, without the prior written
consent of the Purchaser, except (x) as required by federal securities
law
in connection with the filing of the Documents (including signature
pages
thereto) with the Commission and (y) to the extent such disclosure
is
required by law or Trading Market regulations, in which case the
Company
shall provide the Purchaser with reasonable prior notice of such
disclosure permitted hereunder.
|
20
6. Purchaser’s
Representations, Warranties and Agreements.
The
Purchaser represents and warrants to the Company that:
|
(a)
|
It
is not a “U.S. Person” (as defined in Rule 902 of Regulation S under the
Act) and it understands that no action has been or will be taken
in any
jurisdiction by the Company that would permit a public offering of
the
Securities in any country or jurisdiction where action for that purpose
is
required. It is not acquiring the Securities for the account or benefit
of
any U.S. persons except in accordance with exemption from registration
requirements of the Act below or in a transaction not subject
thereto.
|
|
(b)
|
It
is not acquiring the Securities with a view to any distribution thereof
that would violate the Act or the securities laws of any state of
the
United States or any other applicable
jurisdiction.
|
|
(c)
|
It
(A) agrees that it will not offer, sell or otherwise transfer any
of the
Securities nor, unless in compliance with the Act, engage in hedging
transactions involving such securities, on or prior to (x) the date
which
is 40 days (in the case of the Notes) or one year (in the case of
the
Warrants and the Warrant Shares) after the later of the date of the
commencement of the offering and the date of original issuance (or
of any
predecessor of any Security proposed to be transferred by the Purchaser)
and (y) such later date, if any, as may be required by applicable
law,
except (a) to the Company, (b) pursuant to a registration statement
that
has been declared effective under the Act, (c) for so long as any
Security
is eligible for resale pursuant to Rule 144A under the Act, to a
person it
reasonably believes is a “qualified institutional buyer” as defined in
Rule 144A that purchases for its own account or for the account of
another
qualified institutional buyer to whom notice is given that the transfer
is
being made in reliance on Rule 144A, (d) pursuant to offers and sales
to
Persons who are not “U.S. Persons” (within the meaning of Regulation S)
that occur outside the United States within the meaning of Regulation
S or
(e) pursuant to any other available exemption from the registration
requirements of the Act, and (B) agrees that it will give to each
person
to whom such Security is transferred a notice substantially to the
effect
of this paragraph.
|
|
(d)
|
The
Purchaser acknowledges that the Securities are “restricted securities” as
defined in Rule 144 under the Act and subject to resale restrictions
during the period set forth in Rule
144.
|
|
(e)
|
No
form of “directed selling efforts” (as defined in Rule 902 of Regulation S
under the Act), general solicitation or general advertising in violation
of the Act has been or will be used nor will any offers by means
of any
directed selling efforts in the United States be made by the Purchaser
or
any of its representatives in connection with the offer and sale
of any of
the Notes.
|
21
|
(f)
|
The
Securities to be acquired by the Purchaser will be acquired for investment
for the Purchaser’s own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and the Purchaser
has no present intention of selling, granting any participation in,
or
otherwise distributing the same. The Purchaser does not presently
have any
contract, undertaking, agreement or arrangement with any Person,
directly
or indirectly, to sell, transfer, distribute or grant participations
to
such Person or to any third Person, with respect to any of the Securities.
|
|
(g)
|
The
execution, delivery and performance by it of this Agreement and the
consummation by it of the transactions contemplated by the Documents,
including, without limitation, the purchase of the Securities: (a)
is
within its power and authority and has been duly authorized by all
necessary action; (b) does not contravene the terms of its Charter
Documents or any amendment thereof; and (c) shall not violate, constitute
a breach of or a default (with the passage of time or otherwise)
under, or
require the consent of any person or a Governmental Authority (other
than
consents already obtained which are in full force and effect) under
or
pursuant to (i) any bond, debenture, note or other evidence of
indebtedness, indenture, mortgage, deed of trust, lease or any other
agreement or instrument to which the Purchaser is a party or by which
the
Purchaser or its property is bound, or (ii) any statute, rule, regulation,
law or ordinance, or any judgment, decree or order applicable to
the
Purchaser or any of its properties, other than in each of clause
(i) and
(ii) such violations, breaches or defaults that would not, individually
or
in aggregate, have a material adverse effect on the ability of the
Purchaser to perform its obligations
hereunder.
|
|
(h)
|
This
Agreement and the other Documents to which it is a party have been
duly
executed and delivered by it and assuming that it is binding on and
enforceable against the Company, this Agreement constitutes the
Purchaser’s legal, valid and binding obligation enforceable against the
Purchaser in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
other
laws of general application affecting enforcement of creditors’ rights
generally and (ii) as limited by laws relating to the availability
of
specific performance, injunctive relief or other equitable
remedies.
|
|
(i)
|
The
Purchaser has not engaged any broker, finder, commission agent or
other
similar person in connection with the transactions contemplated under
the
Documents, and the Purchaser is not under any obligation to pay any
broker’s fee or commission in connection with such
transactions.
|
7. Conditions
to Purchase Securities at Closing.
(i) The
Purchaser’s obligation to purchase the Securities under this Agreement is
subject to the satisfaction or waiver of each of the following
conditions:
|
(a)
|
All
the representations and warranties of each of the Group Companies
contained in this Agreement and in each of the Documents shall have
been
true and correct (disregarding all qualification and exceptions contained
therein relating to materiality or Material Adverse Effect) in all
material respects as of the date hereof and shall be true and correct
in
all material respects at the respective Closing Date. On or prior
to the
Closing Date, the Group Companies and each other party to the Documents
(other than the Purchaser) shall have performed or complied with
all of
the agreements and satisfied all conditions on their respective parts
to
be performed, complied with or satisfied pursuant to the Documents
to the
satisfaction of the Purchaser.
|
22
|
(b)
|
No
injunction, restraining order or order of any nature by a Governmental
Authority shall have been issued as of the respective Closing Date
that
could prevent or materially interfere with the consummation of the
transactions contemplated under the Documents; and no stop order
suspending the qualification or exemption from qualification of any
of the
Securities in any jurisdiction shall have been issued and no Proceeding
for that purpose shall have been commenced or, to the knowledge of
the
Company be pending or threatened as of the respective Closing
Date.
|
|
(c)
|
No
action shall have been taken and no Applicable Law shall have been
enacted, adopted or issued that could, as of the respective Closing
Date,
reasonably be expected to prevent the consummation of the transactions
contemplated under the Documents. No Proceeding shall be pending
or, to
the knowledge of the Company, threatened other than Proceedings that
if
adversely determined could not, individually or in the aggregate,
adversely affect the issuance or marketability of the Securities,
or could
not, individually or in the aggregate, have a Material Adverse
Effect.
|
|
(d)
|
The
Company shall have obtained any and all approvals, consents and waivers
necessary for consummation of the transactions contemplated by this
Agreement, including, but not limited to, all Permits, authorizations,
approvals or consents of any Governmental
Authority.
|
|
(e)
|
The
Purchaser shall have received on the respective Closing
Date:
|
|
(i)
|
certificates
dated the Closing Date, signed by (1) the Chief Executive Officer
and (2)
the principal financial or accounting officer(s) of each of the Group
Companies, on behalf of each of such Group Companies, respectively,
to the
effect that (a) the representations and warranties set forth in
Section
4
hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Date, (b) such Group Company
has
complied with all Documents in all material respects and satisfied
all
conditions set forth in such Documents on its part to be performed
or
satisfied hereunder (to the extent it is a party to such Documents)
at or
prior to the respective Closing Date unless otherwise waived pursuant
to
the terms hereof, (c) at the respective Closing Date, since the date
hereof or since the date of the most recent financial statements
in the
SEC Reports (exclusive of any amendment or supplement thereto after
the
date thereof), no event or events have occurred, no information has become
known nor does any condition exist that could, individually or in
the
aggregate, have a Material Adverse Effect, (d) since the date of
the most
recent financial statements in the SEC Reports (exclusive of any
amendment
or supplement thereto after the date thereof), none of the Group
Companies
has incurred any liabilities or obligations, direct or contingent,
not in
the ordinary course of business, that are material to the Group Companies,
taken as a whole, or entered into any transactions not in the ordinary
course of business that are material to the business, condition (financial
or otherwise), results of operations, prospects or regulatory status
of
the Group Companies, taken as a whole, and there has not been any
change
in the capital stock or long-term indebtedness of any of the Group
Companies that is material to the business, condition (financial
or
otherwise) or results of operations, prospects or regulatory status
of the
Group Companies, taken as a whole, and (e) the sale of any of the
Securities has not been enjoined (temporarily or
permanently);
|
|
(ii)
|
(on
the First Closing Date) certificates dated the First Closing Date,
executed by the Secretary or authorized officer of each of the Group
Companies, certifying such matters as the Purchaser may reasonably
request;
|
23
|
(iii)
|
(on
the First Closing Date) certificates dated the First Closing Date,
executed by officers of the Company certifying such matters as the
Purchaser may reasonably request;
|
|
(iv)
|
the
opinions of ▇▇▇▇▇ Rozynko LLP, special U.S. counsel to the Company,
and
Ellennoff ▇▇▇▇▇▇▇▇ & Schole LLP, special New York Counsel to the
Company, dated the respective Closing Date, in the form attached
hereto as
Exhibit
H;
|
|
(v)
|
the
opinion of Shaanxi JiaRui Law Firm, as to matters of PRC law, dated
the
respective Closing Date, in the form attached hereto as Exhibit
J;
|
|
(vi)
|
(on
the First Closing Date) evidence from the Company in a form reasonably
acceptable to the Purchaser that the following have occurred: (i)
the WFOE
has expanded its “scope of activities allowed” with the local authority
(including expansion of its business license) to include the distribution
and sale (directly or indirectly) of compressed natural gas and liquefied
natural gas as a vehicular fuel, the operation of a liquefied natural
gas
processing plant as well as operation of natural gas filling stations,
and
the provision of technical and management expertise to the natural
gas
sector; (ii) Xi'an Xilan Natural Gas Co, Ltd. has amended its Memorandum
and Articles of Association so that shareholders may pledge their
shareholdings to the WFOE, and that all shareholders of Xi'an Xilan
Natural Gas Co, Ltd. have executed equity pledges of such shareholdings
in
a form that is reasonably acceptable to the Purchaser and (iii) that
the
WFOE and Xi'an Xilan Natural Gas Co, Ltd. have amended their contractual
relationship in a form reasonably acceptable to the Purchaser;
and
|
|
(vii)
|
evidence
reasonably satisfactory to Abax that the Deposit Account has been
set up
with Citibank and is subject to co-signature authority by
Abax.
|
|
(viii)
|
Each
of the Documents shall have been executed and delivered by all parties
thereto to the satisfaction of the Purchaser, and the Purchaser shall
have
received a fully executed original (or clearly legible facsimile
copy) of
each Document.
|
|
(ix)
|
The
Purchaser shall have received copies of all opinions, certificates,
letters and other documents delivered under or in connection with
the
transactions contemplated in the Documents that are required to be
delivered at or prior to the Closing
Date.
|
|
(f)
|
None
of the other parties to any of the Documents shall be in breach or
default
under their respective obligations
thereunder.
|
|
(g)
|
The
Collateral Agent shall have received on the First Closing
Date:
|
|
(i)
|
any
certified copies of UCC Requests for Information or Copies (Form
UCC-11),
or a similar search report certified by a party acceptable to the
Collateral Agent, dated a date reasonably near to the First Closing
Date,
listing all effective financing statements which name the Company
(under
its present name and any previous names) as the debtor, together
with
copies of such financing statements (none of which shall cover any
collateral described in the
Indenture);
|
|
(ii)
|
such
other approvals, opinions, or documents as the Collateral Agent may
reasonably
request in form and substance reasonably satisfactory to the Collateral
Agent; and
|
24
|
(iii)
|
the
Collateral Agent and its counsel shall be satisfied that no
Lien exists on any of
the
collateral described above other than the Lien created in favor of
the
Collateral Agent, for the benefit of the Secured Parties, pursuant
to the
Indenture and the Onshore Equity Pledge
Agreement.
|
|
(h)
|
All
UCC Financing Statements or other similar financing statements or
filings
required pursuant to Section
7(g)
(collectively, the “Filing
Statements”)
shall have been delivered to CT Corporation System or another similar
filing service company acceptable to the Collateral Agent (the
“Filing
Agent”).
The Filing Agent shall have acknowledged in a writing reasonably
satisfactory to the Collateral Agent and its counsel (i) the Filing
Agent’s receipt of all Filing Statements, (ii) that the Filing Statements
have either been submitted for filing in the appropriate filing offices
or
will be submitted for filing in the appropriate offices within ten
days
following the approval by PRC Governmental Authorities of the Onshore
Equity Pledge Agreement and (iii) that the Filing Agent will notify
the
Collateral Agent and its counsel of the results of such submissions
within
10 days following approval by PRC Governmental Authorities of the
Onshore
Equity Pledge Agreement.
|
|
(i)
|
The
respective Boards of Directors and, to the extent legally required,
the
respective shareholders of the Group Companies shall have approved
and
authorized by all necessary corporate action (i) the execution and
delivery of the Documents, (ii) all actions to be performed or satisfied
under the Documents (including, without limitation, the reserve for
issuance of the Warrant Shares issuable upon exercise of the Warrants),
(iii) the consummation of the transactions contemplated by the Documents,
(iv) the pricing terms of the Securities and (v) all other actions
necessary in connection with the transactions contemplated by the
Documents and the offering of the Securities and shall have provided
the
Purchaser with a copy of such
authorizations.
|
|
(j)
|
The
Purchaser shall have completed and be satisfied with the results
of all
business, legal and financial due diligence in its sole discretion
and
absolute satisfaction, and any items requiring correction identified
by
the Purchaser shall have been corrected to the Purchaser’s
satisfaction.
|
|
(k)
|
The
Notes with aggregate of principal amount of up to US$40,000,000 and
Warrants to purchase an aggregate of 2,900,000 Warrant Shares shall
be
sold to the Purchaser pursuant to this Agreement at the First
Closing.
|
|
(l)
|
Conditions
to Purchase of Option Notes
In
the event that the Purchaser exercise their option to purchase all
or any
portion of the Option Notes after the Closing Date, the Purchaser
shall
receive, dated as of the relevant Second Closing Date, the items
referred
here in under Section 7(e), dated as of the Second Closing Date,
and true
and correct as of such date.
|
8. Indemnification.
|
(a)
|
Each
of the Group Companies, jointly and severally, agrees to indemnify
and
hold harmless the Purchaser, each of its affiliates (including any
person
who controls the Purchaser within the meaning of Section 15 of the
Act or
Section 20 of the Exchange Act) and their respective officers, directors,
partners, shareholders, counsel, employees and agents (the Purchaser
and
each such other person being referred to as an “Indemnified
Person”),
to the fullest extent lawful, from and against any losses, claims,
damages, liabilities and reasonable expenses (or actions in respect
thereof), as incurred, related to or arising out of or in connection
with:
|
25
|
(i)
|
actions
taken or omitted to be taken by any of the Group Companies or their
respective affiliates, officers, directors, employees or agents in
breach
or violation of their respective representations, warranties, covenants
and agreements set forth in this Agreement or any of the other
Documents;
|
|
(ii)
|
any
breach by any of the Group Companies of their respective representations,
warranties, covenants and agreements set forth in this Agreement
or in any
of the other Documents; and
|
|
(iii)
|
and,
subject to the provisions hereof, will reimburse the Indemnified
Persons
for all reasonable expenses (including, without limitation, reasonable
fees and expenses of counsel) as they are incurred in connection
with
investigating, preparing, defending or settling any such action or
claim,
whether or not in connection with litigation in which any Indemnified
Person is a named party. If any of the Indemnified Persons’ personnel
appears as witnesses, are deposed or are otherwise involved in the
defense
of any action against an Indemnified Person, any of the Group Companies,
or their respective officers or directors, the Group Companies will
reimburse the Purchaser for all reasonable expenses incurred by the
Purchaser by reason of any of the Indemnified Persons being involved
in
any such action; provided,
however,
any of the Group Companies shall not be liable for indemnification
hereunder with regard to any
grossly negligent act or omission or willful misconduct by the Purchaser
or any other Indemnified Person.
This indemnity will be in addition to any liability that any of the
Group
Companies may otherwise have to the Indemnified Persons.
|
|
(b)
|
As
promptly as reasonably practical after receipt by an Indemnified
Person
under this Section
8
of
notice of the commencement of any action for which such Indemnified
Person
is entitled to indemnification under this Section
8,
such Indemnified Person will, if a claim in respect thereof is to
be made
against the indemnifying party under this Section
8,
notify the indemnifying party of the commencement thereof in writing;
but
the omission to so notify the indemnifying party (i) will not relieve
such indemnifying party from any liability under paragraph (a) above
unless and only to the extent it is materially prejudiced as a result
thereof and (ii) will not, in any event, relieve the indemnifying
party
from any obligations to any Indemnified Person other than the
indemnification obligation provided in paragraph (a) above. In case
any
such action is brought against any Indemnified Person, and it notifies
the
indemnifying party of the commencement thereof, the indemnifying
party
will be entitled to participate therein and, to the extent that it
may
determine, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such
Indemnified Person (who shall not, except with the written consent
of such
Indemnified Person, be counsel to the indemnifying party, which written
consent shall not be unreasonably withheld) at the expense of the
indemnifying party; provided,
however,
that if (i) the use of counsel chosen by the indemnifying party to
represent the Indemnified Person would present such counsel with
a
conflict of interest, (ii) the actual or potential defendants in,
or are
targets of, any such action include both the Indemnified Person and
the
indemnifying party, and the Indemnified Person shall have been advised
by
counsel that there may be one or more legal defenses available to
it
and/or any other Indemnified Person that are different from or additional
to those available to the indemnifying party, or (iii) the indemnifying
party shall not have employed counsel reasonably satisfactory to
the
Indemnified Person to represent the Indemnified Person within a reasonable
time after notice of the institution of such action, then, in each
such
case, the indemnifying party shall not have the right to direct the
defense of such action on behalf of such Indemnified Person or Persons
and
such Indemnified Person or Persons shall have the right to select
separate
counsel (including an additional local counsel) to defend such action
on
behalf of such Indemnified Person or Persons at the reasonable expense
of
the indemnifying party. After notice from the indemnifying party
to such
Indemnified Person of its election so to assume the defense thereof
and
approval by such Indemnified Person of counsel appointed to defend
such
action, the indemnifying party will not be liable to such Indemnified
Person under this Section
8
for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such Indemnified Person in
connection with the defense thereof, unless (i) the Indemnified Person
shall have employed separate counsel in accordance with the proviso
to the
immediately preceding sentence (it being understood, however, that
in
connection with such action the indemnifying party shall not be liable
for
the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar
actions
in the same jurisdiction arising out of the same general allegations
or
circumstances, representing the Indemnified Persons who are parties
to
such action or actions) or (ii) the indemnifying party has authorized
in
writing the employment of counsel for the Indemnified Person at the
expense of the indemnifying party. After such notice from the indemnifying
party to such Indemnified Person, the indemnifying party will not
be
liable for the costs and expenses of any settlement of such action
effected by such Indemnified Person without the prior written consent
of
the indemnifying party (which consent shall not be unreasonably withheld
or delayed).
|
26
|
(c)
|
No
indemnifying party shall, without the prior written consent of any
Indemnified Person, effect any settlement or compromise of, or consent
to
the entry of any judgment with respect to, any pending or threatened
action, claim, suit or proceeding in respect of which the Indemnified
Person is or could have been a party, or indemnity could have been
sought
hereunder by any Indemnified Person (whether or not the Indemnified
Person
is an actual or potential party to such action or claim), unless
such
settlement (A) includes an unconditional express written release
of any
Indemnified Person in form and substance reasonably satisfactory
to such
Indemnified Person, from all losses, claims, damages or liabilities
arising out of such action, claim, suit or proceeding and (B) does
not
include any statement as to an admission of fault, culpability or
failure
to act by or on behalf of such Indemnified Person. If a claim or
action is
settled, or if there be a final judgment for the plaintiff with respect
to
any such claim or action, each indemnifying party jointly and severally
agrees, subject to the exceptions and limitations set forth above,
to
indemnify and hold harmless each Indemnified Person from and against
any
and all losses, claims, damages or liabilities (and legal and other
expenses as set forth above) incurred by reason of such settlement
or
judgment.
|
|
(d)
|
The
indemnity and expense reimbursement obligations set forth herein
(i) shall
be in addition to any liability any of the Group Companies may have
to any
Indemnified Person at common law or otherwise, (ii) shall remain
operative
and in full force and effect regardless of any investigation made
by or on
behalf of the Purchaser or any other Indemnified Person and (iii)
shall be
binding on any successor or assignee of any of the Group Companies
and
successors or assignees of any of the Group Companies’ business and
assets.
|
|
(e)
|
If
any of the Group Companies enters into any agreement or arrangement
with
respect to, or effects, any proposed sale, exchange, dividend or
other
distribution or liquidation of all or a significant portion of its
assets
in one or a series of transactions or any significant recapitalization
or
reclassification of its outstanding securities, such Group Company
shall
provide for the assumption of its obligations under this Agreement
by
another party reasonably satisfactory to the
Purchaser.
|
27
9. Termination.
|
(a)
|
The
Purchaser may terminate this Agreement at any time prior to the Closing
Date by written notice to the Company if any of the following has
occurred:
|
|
(i)
|
since
the date hereof, any Material Adverse Effect or development involving
or
reasonably expected to result in a prospective Material Adverse Effect
that could, in the Purchaser’s reasonable judgment, be expected to (i)
make it impracticable or inadvisable to proceed with the purchase
of the
Securities on the terms and in the manner contemplated in this Agreement
and the Indenture, or (ii) materially impair the investment quality
of any
of the Securities;
|
|
(ii)
|
the
failure of any of the Group Companies to satisfy any of the conditions
contained in Section
7(i)
hereof on or prior to the First Closing
Date
|
|
(iii)
|
any
outbreak or escalation of hostilities or other national or international
calamity or crisis, including acts of terrorism, or material adverse
change or disruption in economic conditions in, or in the financial
markets of, the United States, the European Union, the PRC or Hong
Kong
(it being understood that any such change or disruption shall be
relative
to such conditions and markets as in effect on the date hereof),
if the
effect of such outbreak, escalation, calamity, crisis, act or material
adverse change in the economic conditions in, or in the financial
markets
of, the United States, the European Union, the PRC or Hong Kong could
be
expected to make it, in the Purchaser’s reasonable judgment, impracticable
to proceed with the consummation of the transactions on the terms
and in
the manner contemplated in this Agreement or the
Indenture;
|
|
(iv)
|
trading
in the Company’s Common Stock shall have been suspended by the Trading
Market or the suspension or limitation of trading generally in securities
on the New York Stock Exchange, the American Stock Exchange, the
London
Stock Exchange, the Hong Kong Stock Exchange, the NASDAQ Small Cap
Market,
the NASDAQ Capital Market or the NASDAQ Global Market or any setting
of
limitations on prices for securities on any such exchange or the
NASDAQ
Capital Market or the NASDAQ Small Cap Market, the NASDAQ Global
Market;
|
|
(v)
|
the
enactment, publication, decree or other promulgation after the date
hereof
of any Applicable Law that could be reasonably expected to have a
Material
Adverse Effect; or
|
|
(vi)
|
the
declaration of a banking moratorium by any federal or New York state
Governmental Authority; or the taking of any action by any Governmental
Authority after the date hereof in respect of its monetary or fiscal
affairs that could reasonably be expected to have a material adverse
effect on the financial markets in the United States, European Union,
the
PRC, Hong Kong or elsewhere.
|
|
(b)
|
The
Company shall pay to the Purchaser a US$2,000,000 termination fee
(the
“Company
Breakup Fee”)
if the Company breaches any of its representations, warranties, covenants
and obligations under this Agreement prior to the First Closing Date
and
the parties fail to consummate the transactions contemplated herein.
In
the event of such breach and failure, the Purchaser may terminate
this
Agreement by written notice to the Company and the Company shall
promptly
(but in no event later than 7 days following the termination of this
Agreement) pay the Company Breakup Fee to the
Purchaser.
|
28
|
(c)
|
The
Company may terminate this Agreement at any time prior to the Closing
Date
by written notice to the Purchaser based upon the Purchaser’s breach of
its representations, warranties, covenants and obligations under
this
Agreement.
|
10. Survival
of Representations and Indemnities.
The
representations and warranties, covenants, indemnities and contribution and
expense reimbursement provisions and other agreements of any of the Group
Companies and the Purchaser set forth in this Agreement shall remain operative
and in full force and effect, and will survive, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf
of
the Purchaser or any of the Group Companies and (ii) acceptance of the
Securities, and payment for them hereunder.
11. Substitution
of Purchaser.
Prior to
the Closing, the Purchaser shall have the right to substitute any one of its
Affiliates as the purchaser of the respective Securities, by written notice
to
the Company, which notice shall be signed by the Purchaser and such Affiliate,
shall contain such Affiliate’s agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it
of
the representations set forth in Section
6.
Upon
receipt of such notice, wherever the word “Purchaser” is used in this Agreement
(other than in this Section
11),
such
word shall be deemed to refer to such Affiliate in lieu of the original
purchaser. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to the original purchaser
all
of the Securities then held by such Affiliate, upon receipt by the Company
of
notice of such transfer, wherever the word “Purchaser” is used in this Agreement
(other than in this Section
11),
such
word shall no longer be deemed to refer to such Affiliate, but shall refer
to
the original purchaser, and the original purchaser shall have all the rights
of
an original holder of the Securities under this Agreement.
12. Miscellaneous.
|
(a)
|
Notices
given pursuant to any provision of this Agreement shall be addressed
as
follows:
|
|
(i)
|
if
to the Company and/or the other Group Companies, to:
|
▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇.
▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇
Xi’an
710065
P.R.
China
Attention:
Chief Financial Officer
Facsimile
No.: ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇
▇▇▇▇
▇▇▇ ▇▇▇▇▇# ▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
Taylor Zhang
Fax:
+ ▇
▇▇▇ ▇▇▇ ▇▇▇▇
29
with
a
copy to:
▇▇▇▇▇
Rozynko LLP
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
U.S.A.
Attention:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile
No.: ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇
|
(ii)
|
if
to the Purchaser, to the addresses as indicated in Schedule
I.
|
|
(b)
|
Except
with respect to the material terms and conditions of the transactions
contemplated by the Documents, the Company covenants and agrees that
neither it nor any other person acting on its behalf will provide
the
Purchaser or its agents or counsel with any information that the
Company
believes constitutes material non-public information, unless prior
thereto
the Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands
and
confirms that the Purchaser shall rely on the foregoing representations
in
effecting transactions contemplated
hereunder.
|
|
(c)
|
This
Agreement has been and is made solely for the benefit of and shall
be
binding upon each of the Group Companies and the Purchaser and, to
the
extent provided in Section
8
hereof, the controlling persons and their respective agents, employees,
officers, directors, partners, counsel, and shareholders expressly
referred to in Section
8,
and their respective heirs, executors, administrators, successors
and
assigns, all as and to the extent provided in this Agreement, and
no other
person shall acquire or have any right under or by virtue of this
Agreement.
|
|
(d)
|
THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS
OF THE STATE OF NEW YORK.
|
|
(e)
|
All
disputes arising out of or in connection with this Agreement shall
be
finally settled under the Rules of Arbitration of the International
Chamber of Commerce by three arbitrators appointed as follows: one
arbitrator shall be appointed by the Purchaser, one arbitrator shall
be
appointed by the Company, and the third arbitrator shall be appointed
jointly by the two arbitrators appointed by the parties. The place
of
arbitration shall be in Hong Kong. The arbitration shall be conducted
in
English. The arbitration awards shall be final and binding upon the
parties.
|
|
(f)
|
No
failure to exercise, and no course of dealing with respect to, and
no
delay in exercising, any right, power or remedy hereunder shall operate
as
a waiver thereof; nor shall any single or partial exercise of any
right,
power or remedy hereunder preclude any other or further exercise
thereof
or the exercise of any other right, power or
remedy.
|
|
(g)
|
To
the extent that any of the Group Companies have or hereafter may
acquire
any immunity from jurisdiction of any court or from any legal process
(whether through service of notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself
or its
property, the Company hereby irrevocably waives such immunity in
respect
of its obligations under this Agreement, the Indenture, the Notes
or any
other documents related to the transactions contemplated hereby,
to the
extent permitted by law.
|
|
(h)
|
This
Agreement may be signed in various counterparts which together shall
constitute one and the same
instrument.
|
30
|
(i)
|
The
headings in this Agreement are for convenience of reference only
and shall
not limit or otherwise affect the meaning of any provision of this
Agreement.
|
|
(j)
|
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, in each case,
to the
extent permitted by applicable law, and the parties hereto shall
use their
best 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, to the extent permitted by applicable
law.
|
|
(k)
|
This
Agreement may be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may be given;
provided
that the same are in writing and signed by all of the signatories
hereto.
|
[THE
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
Please
confirm that the foregoing correctly sets forth the agreement among the Group
Companies and the Purchaser.
|
Very
truly yours,
|
|
|
GROUP
COMPANIES
|
|
|
CHINA
NATURAL GAS INC.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chief Executive Officer
|
|
|
SHAANXI
XILAN NATURAL GAS EQUIPMENT CO., LTD.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chairman
|
|
|
XI’AN
XILAN NATURAL GAS CO., LTD.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chairman
|
|
|
SHAANXI
JINGBIAN LIQUIFIED NATURAL GAS CO., LTD.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chairman
|
|
|
SHAANXI
XILAN AUTOMOBILE CONVERSION CO., LTD.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chairman
|
|
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
|
HENAN
BRANCH OF XI’AN XILAN NATURAL GAS CO. LTD.
|
|
|
By:
|
/s/
Qinan Ji
|
|
Name:
Qinan Ji
|
|
|
Title:
Chairman
|
|
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
Accepted
and Agreed to:
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
SCHEDULE
I
Schedule
of Purchaser
I. Closing
of the Sale and Issuance of Notes and Warrants
First
Closing Date: January
31, 2008
|
Name and Address
|
Principal Amount of Notes
|
Number of
Warrants
|
|||||
|
Abax
Lotus Ltd.
▇/▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(▇▇▇▇
▇▇▇▇) Limited
Suite
6708, 67/F Two
International
Finance Centre
▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇ SAR
Fax:
▇▇▇▇ ▇▇▇▇▇▇▇▇
|
RMB300,000,000
|
29,000,000
|
|||||
Second
Closing Date:
|
Name and Address
|
Principal Amount of Notes
|
Number of
Warrants
|
|||||
|
Abax
Lotus Ltd.
▇/▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(▇▇▇▇
▇▇▇▇) Limited
Suite
6708, 67/F Two
International
Finance Centre
▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇ SAR
Fax:
▇▇▇▇ ▇▇▇▇▇▇▇▇
|
RMB75,000,000
|
None
|
|||||
Exhibit
List
Exhibit
A. Form of Indenture
Exhibit
B. Form of Warrant Agreement
Exhibit
C. Form of Account Security Agreement
Exhibit
D. Form of Onshore Equity Pledge Agreement
Exhibit
E. Form of Investor Rights Agreement
Exhibit
F. Form of Conduct of Business and Information Rights Agreement
Exhibit
G. Form of Non-Competition Agreement
Exhibit
H. Form of Registration Rights Agreement
Exhibit
I. Forms of U.S. Legal Opinions
Exhibit
J. Form of PRC Legal Opinion