FORM OF SENIOR INDENTURE by and between SHENGKAI INNOVATIONS, INC. as Issuer, and as Trustee Dated as of ______________

 

ARTICLE VI

 

DEFAULTS AND REMEDIES

 

     SECTION 6.01 Events of Default.

 

     An “ Event of Default ” with respect to each series of the Securities occurs when any of the following occurs:

 

     (i) the Company defaults in the payment of the principal, premium, or sinking fund payment, if any,   of any Security of such series when it becomes due and payable at maturity, upon acceleration, repurchase, redemption or otherwise, unless the time for payment is extended;

 

     (ii) the Company defaults in the payment of interest on any Security of such series when it becomes due and payable and such Default continues for a period of ninety (90) days, unless the time for payment is extended;

 

     (iii) the Company fails to comply in any material respect with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the Company and such Default continues for a period of ninety (90) days after the Company receives written notice of such Default from the Trustee, or the Company the Trustee receive written notice of such Default from the Holders of at least 51% in aggregate principal amount of the outstanding Securities of such series;

 

     (iv) the Company or a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

 

     (a) commences a voluntary case or proceeding;

 

     (b) consents to the entry of an order for relief against it in an involuntary case or proceeding;

 

     (c) consents to the appointment of a Custodian of it or for any substantial part of its property; or

 

     (d) makes a general assignment for the benefit of its creditors; or

 

     (v) a court of competent jurisdiction enters an order or decree under any applicable Bankruptcy Law that:

 

     (a) is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding against the Company or any Significant Subsidiary;

 

     (b) appoints a Custodian for the Company or any Significant Subsidiary or for any substantial part of its property; or

 

     (c) orders the winding up or liquidation of the Company or any Significant Subsidiary,

 

and any such order or decree under this clause (v) remains unstayed and in effect for ninety (90) days.

 

     Any notice of default under clause (iii) of this Section 6.01 must specify the Default, demand that it be remedied and state that the notice is a “Notice of Default.”

 

     Each of the occurrences described in clauses (i) through (v) of this Section 6.01 will constitute an Event of Default whatever the reason for the occurrence and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

 

     A Default under clause (i), (ii) or (iii) of this Section 6.01 with regard to Securities of a particular series will not constitute a Default with regard to Securities of any other series except to the extent, if any, provided in the supplemental indenture relating to the other series.

 

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     SECTION 6.02 Acceleration.

 

     If an Event of Default with respect to any series of outstanding Securities (other than an Event of Default specified in clause (iv) or (v) of Section 6.01 hereof) occurs and is continuing, the Trustee or the Holders of at least 51% in aggregate principal amount of the outstanding Securities of the applicable series, by written notice to the Company, and to the Trustee if notice is given by such Holders, may declare due and payable the unpaid principal amount of all Securities of such series plus any unpaid premium or accrued and unpaid interest, if any, to the date of payment. Upon a declaration of acceleration, such principal, premium and accrued and unpaid interest to the date of payment shall be due and payable.

 

     If an Event of Default specified in clause (iv) or (v) of Section 6.01 hereof occurs, all unpaid principal, premium and accrued interest on the Securities shall become and be immediately due and payable without any notice, declaration or other action on the part of the Trustee or any Holder.

 

     The Holders of a majority in aggregate principal amount of any outstanding series of Securities by written notice to the Trustee may rescind and annul an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of principal, premium or interest on the Securities which have become due solely because of the acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. Such rescission or annulment will not extend to any subsequent or other Default or impair any consequent right.

 

     SECTION 6.03 Other Remedies.

 

     If an Event of Default with respect to any series of outstanding Securities occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on such series of Securities or to enforce the performance of any provision of such series of Securities or this Indenture.

 

     The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon the Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All remedies are cumulative to the extent permitted by law.

 

     SECTION 6.04 Waiver of Past Defaults.

 

     Subject to Sections 6.07 and 9.02 hereof, the Holders of at least a majority in aggregate principal amount of any series of outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default except a Default or Event of Default in the payment of the principal of or interest on such series of Securities ( provided, however, that, subject to Section 6.07, the Holders of a majority in aggregate principal amount of the then outstanding Securities may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). When a Default or Event of Default is waived, it is deemed cured and ceases, but no waiver will extend to any subsequent or other Default or impair any consequent right.

 

     SECTION 6.05 Control by Majority.

 

     The Holders of at least a majority in aggregate principal amount of any outstanding series of Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that (i) conflicts with law or this Indenture, (ii) the Trustee determines may be unduly prejudicial to the rights of other Holders of Securities of such series or (iii) may involve the Trustee in personal liability. The Trustee may take any other action that it deems proper which is not inconsistent with any such direction.

 

     SECTION 6.06 Limitation on Suits.

 

     Subject to the provisions of Section 6.07 hereof, no Holder of Securities of any series may pursue any remedy with respect to this Indenture or the Securities of such series unless :

 

     (i) the Holder gives to the Trustee written notice stating that an Event of Default is continuing;

 

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     (ii) the Holders of at least 25% in aggregate principal amount of such series of Securities make a written request to the Trustee to pursue the remedy;

 

     (iii) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability, cost or expense;

 

     (iv) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer of indemnity; and

 

     (v) during such 60-day period, the Holders of at least a majority in aggregate principal amount of such series of Securities do not give the Trustee a direction inconsistent with the request.

 

     A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.

 

     SECTION 6.07 Rights of Holders To Receive Payment and to Demand Conversion.

 

     Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of, premium, if any, or interest, if any, on the Security (and interest on overdue principal and interest on overdue installments of interest, if any, as provided in Section 4.01) on or after the respective due dates expressed or provided for in the Security, or in the case of redemption, on or after the Redemption Date, or in the case of conversion or exchange, to receive the security issuable upon conversion or exchange, or to bring suit for the enforcement of any such payment, conversion or exchange on or after such respective dates, shall not be impaired or affected without the consent of the Holder.

 

     SECTION 6.08 Collection Suit by Trustee.

 

     If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs and is continuing with respect to the Securities, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company (and any other obligor on the Securities) for the whole amount of principal, premium, if any, and accrued interest, if any, remaining unpaid on the outstanding Securities, together with (to the extent lawful) interest on overdue principal and interest, and such further amount as shall be sufficient to cover the costs and, to the extent lawful, expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 7.08 hereof.

 

     SECTION 6.09 Trustee May File Proofs of Claim.

 

     The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders allowed in any judicial proceeding relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.08 hereof. Nothing contained in this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

 

     SECTION 6.10 Priorities.

 

     If the Trustee collects any amount of money with respect to the Securities pursuant to this Article VI, subject to Article XI, it shall pay out the money in the following order:

 

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      (First) to the Trustee, its agents and attorneys for amounts due under Section 7.08 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made by the Trustee and the costs and expenses of collection;

 

      (Second) to Holders for amounts due and unpaid on the Securities for principal and interest, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and

 

      (Third) to the Company, or to such party as a court of competent jurisdiction may direct.

 

     The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. The Trustee shall notify the Company in writing reasonably in advance of any such record date and payment date.

 

     SECTION 6.11 Undertaking for Costs.

 

     In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06 hereof, a suit by Holders of more than 10% in aggregate principal amount of any outstanding series of Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Security held by that Holder on or after the due date provided in the Security or to any suit for the enforcement of the right to convert or exchange any Security in accordance with the provisions of a supplemental indenture applicable to that Security.

 

     SECTION 6.12 Stay, Extension and Usury Laws.

 

     The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim and will resist any and all efforts to be compelled to take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, and/or interest on any of the Securities as contemplated in this Indenture or a supplemental indenture, or which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.

 

     SECTION 6.13 Restoration of Positions .

 

     If a judicial proceeding by the Trustee or a Holder to enforce any right or remedy under this Indenture or any supplemental indenture has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, except as otherwise provided in the judicial proceeding, the Company, the Trustee and the Holders will be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

 

  SECTION 6.14 Liability of Stockholders, Officers, Directors and Incorporators .

 

     No stockholder, officer, director or incorporator, as such, past, present or future, of the Company, or any of its successor corporations, will have any personal liability in respect of the Company's obligations under this Indenture or any Securities by reason of his or its status as such stockholder, officer, director or incorporator; provided , however , that nothing in this Indenture or in the Securities will prevent recourse to and enforcement of the liability of any holder or subscriber to common stock of the Company which has not been fully paid up.

 

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ARTICLE VII

 

TRUSTEE

 

     SECTION 7.01 Duties of Trustee.

 

     (a) If an Event of Default with respect to the Securities has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

 

     (b) Except during the continuance of an Event of Default:

 

     (1) the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

 

     (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, however, that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not, on their face, they conform to the requirements of this Indenture (but need not investigate or confirm the accuracy of mathematical calculations or other facts stated therein).

 

     (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct except that:

 

     (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;

 

     (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer or other officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

 

     (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.

 

     (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01 and to the provisions of the TIA.

 

     (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any financial liability in the performance of any of its duties under this Indenture or in the exercise of any of its right or power. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability, cost or expense (including, without limitation, reasonable fees of counsel).

 

     (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

 

     (g) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.

 

     SECTION 7.02 Rights of Trustee.

 

     Subject to Section 315(a) through (d) of the TIA:

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     (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

 

     (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers’ Certificate or Opinion of Counsel.

 

     (c) The Trustee may act through attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care.

 

     (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture, unless the Trustee’s conduct constitutes willful misconduct, negligence or bad faith.

 

     (e) The Trustee may consult with counsel of its selection and the advice of such counsel as to matters of law shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

 

     (f) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company.

 

     (g) The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.

 

     (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

 

     (i) In no event shall the Trustee be responsible or liable for special or indirect loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

 

     (j) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.

 

     SECTION 7.03 Individual Rights of Trustee.

 

     The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as such term is defined in Section 3.10(b) of the TIA), it must eliminate such conflict within ninety (90) days, apply to the SEC for permission to continue as trustee (to the extent permitted under Section 310(b) of the TIA) or resign. Any agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.

 

     SECTION 7.04 Money Held in Trust.

 

     Money or U.S. Government Obligations held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.

 

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     SECTION 7.05 Trustee’s Disclaimer.

 

     The Trustee (i) is not responsible for and makes no representation as to the validity or adequacy of this Indenture, any supplemental indenture or the Securities, (ii) will not be accountable for the Company’s use of the proceeds from the Securities, (iii) will not be responsible for any statement in the Securities, this Indenture or any supplemental indenture, other than its certificate of authentication, and (iv) will not be responsible for any statement in any prospectus used in the sales of the Securities, other than statements, if any, provided in writing by the Trustee for use in such a prospectus.

 

     SECTION 7.06 Notice of Defaults.

 

     If a Default or Event of Default with respect to the Securities occurs and is continuing, and if it is actually known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within ninety (90) days after the occurrence thereof. Except in the case of a Default or Event of Default in payment of any such Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of the Holders.

 

     SECTION 7.07 Reports by Trustee to Holders.

 

     The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required by Section 313 of the TIA at the times and in the manner provided by the TIA, which initially shall be not less than every twelve (12) months, which report may be dated as of a date up to 75 days prior to such transmission.

 

     A copy of each report at the time of its mailing to Holders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities become listed on any stock exchange.

 

     SECTION 7.08 Compensation and Indemnity.

 

     The Company shall pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for its services hereunder. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it, including in particular, but without limitation, those incurred in connection with the enforcement of any remedies hereunder. Such expenses may include the reasonable fees and out-of-pocket expenses of the Trustee’s agents and counsel.

 

     Except as set forth in the next paragraph, the Company shall indemnify and hold harmless the Trustee and any predecessor trustee against any and all loss, liability, damage, claim or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred by it arising out of or in connection with the acceptance or administration of the trust under this Indenture. The Trustee shall notify the Company promptly of any claim of which it has received written notice for which it may seek indemnity. The Company shall defend such claim and the Trustee shall cooperate in such defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and out-of-pocket expenses of such counsel.

 

     The Company need not pay for any settlement made without its consent. The Company need not reimburse any expense or indemnify against any loss, liability, cost or expense incurred by the Trustee through its own negligence, willful misconduct or bad faith.

 

     To secure the Company’s payment obligations in this Section 7.08, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal of and interest on particular Securities. The Trustee’s right to receive payment of any amounts due under this Section 7.08 will not be subordinate to any other liability or indebtedness of the Company.

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     The Company’s payment obligations pursuant to this Section 7.08 shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in clause (iv) or (v) of Section 6.01 hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.

 

     For the purpose of this Section 7.08, “Trustee” will include any predecessor Trustee, but the negligence, willful misconduct or bad faith of any Trustee will not affect the rights of any other Trustee under this Section 7.08, except for a successor Trustee pursuant to Section 7.10 .

 

     SECTION 7.09 Replacement of Trustee.

 

     A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.09.

 

     The Trustee may resign and be discharged from the trust hereby created with respect to the Securities by so notifying the Company in writing. The Holders of a majority in aggregate principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company must remove the Trustee if:

 

     (i) the Trustee fails to comply with Section 7.10 hereof or Section 310 of the TIA;

 

     (ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;

 

     (iii) a Custodian, receiver or other public officer takes charge of the Trustee or its property; or

 

     (iv) the Trustee becomes incapable of acting.

 

     If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee for the Securities. The Trustee shall be entitled to payment of its fees and reimbursement of its expenses while acting as Trustee. Within one (1) year after the successor Trustee takes office, the Holders of at least a majority in aggregate principal amount of then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company.

 

     Any Holder of Securities may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee if the Trustee fails to comply with Section 7.10 hereof.

 

     If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation or removal, the resigning or removed Trustee, as the case may be, may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities.

 

     A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall mail a notice of the successor Trustee’s succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.08 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.09, the Company’s obligations under Section 7.08 hereof shall continue for the benefit of the retiring Trustee with respect to expenses, losses and liabilities incurred by it prior to such replacement.

 

     SECTION 7.10 Successor Trustee by Merger, Etc.

 

     Subject to Section 7.09 hereof, if the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the successor entity without any further act shall be the successor Trustee.

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     If at the time a successor by merger, conversion or consolidation to the Trustee succeeds to the trusts created by this Indenture any of the Securities have been authenticated but not delivered, the successor to the Trustee may adopt the certificate of authentication of the predecessor Trustee, and deliver the Securities which were authenticated by the predecessor Trustee; and if at that time any of the Securities have not been authenticated, the successor to the Trustee may authenticate those Securities either in the name of the predecessor or in its own name as the successor to the Trustee; and in either case the certificates of authentication will have the full force provided in this Indenture for certificates of authentication.

 

     SECTION 7.11 Eligibility; Disqualification.

 

     The Trustee shall at all times satisfy the requirements of Section 310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition, which will be deemed for this paragraph to be its combined capital and surplus. The Trustee is subject to Section 310(b) of the TIA, including the optional provision permitted by the second sentence of Section 310(b)(9) of the TIA.

 

     SECTION 7.12 Preferential Collection of Claims Against the Company.

 

     The Trustee is subject to Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated therein.

 

ARTICLE VIII

 

DISCHARGE OF INDENTURE

 

     SECTION 8.01 Satisfaction and Discharge of Indenture.

 

     This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when:

 

     (i) either:

 

     (a) all Securities previously authenticated and delivered (other than Securities which have been destroyed, lost or stolen and which have been replaced or paid) have been delivered to the Trustee for cancellation; or

 

     (b) all such Securities not previously delivered to the Trustee for cancellation have become due and payable (whether at stated maturity, early redemption or otherwise);

 

and, in the case of clause (b) above, the Company has deposited, or caused to be deposited, irrevocably with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for and dedicated solely to the benefit of the Holders of Securities, cash in U.S. dollars and/or U.S. Government Obligations which through the payment of interest and principal in respect thereof, in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay principal of and interest on all the Securities on the dates such payments of principal or interest are due to maturity or redemption;

 

     (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities; and

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(iii) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities have been complied with.

 

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.08 hereof shall survive, and, if money will have been deposited with the Trustee pursuant to subclause (b) of clause (i) of this Section, the obligations of the Trustee under Sections 8.02 and 8.05 hereof shall survive.

 

SECTION 8.02 Application of Trust Funds; Indemnification.

 

(a) Subject to the provisions of Section 8.05 hereof, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 8.01, 8.03 or 8.04 hereof and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Sections 8.01, 8.03 or 8.04 hereof, shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the persons entitled thereto, of the principal and interest for whose payment such money has been deposited with or received by the Trustee.

 

(b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations deposited pursuant to Sections 8.01, 8.03 or 8.04 hereof or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.

 

(c) The Trustee shall deliver or pay to the Company from time to time upon the request of the Company any U.S. Government Obligations or money held by it as provided in Sections 8.01, 8.03 or 8.04 hereof which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations or money were deposited or received. This provision shall not authorize the sale by the Trustee of any U.S. Government Obligations held under this Indenture.

 

SECTION 8.03 Legal Defeasance .

 

(a) The Company shall be deemed to have been discharged from its obligations with respect to all of the outstanding Securities of any series on the 91st day after the date of the deposit referred to in subparagraph (a) hereof, and the provisions of this Indenture, as it relates to such series of outstanding Securities, shall no longer be in effect (and the Trustee, at the expense of the Company, shall, upon the request of the Company, execute proper instruments acknowledging the same), except as to:

 

     (i) the rights of Holders of Securities of such series to receive, solely from the trust funds described in subparagraph (a) hereof, payments of the principal of or interest on the outstanding Securities of such series on the date such payments are due;

 

     (ii) the Company’s obligations with respect to the Securities of such series under Sections 2.04, 2.05, 2.07, 2.08 and 2.09 hereof; and

 

     (iii) the rights, powers, trust and immunities of the Trustee hereunder and the duties of the Trustee under Section 8.02 hereof and the duty of the Trustee to authenticate Securities of such series issued on registration of transfer of exchange;

 

provided that the following conditions shall have been satisfied:

 

     (a) the Company shall have deposited, or caused to be deposited, irrevocably with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for and dedicated solely to the benefit of the Holders of such series of Securities, cash in U.S. dollars and/or U.S. Government Obligations which through the payment of interest and principal in respect thereof, in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay principal of and interest on all the Securities of such series on the dates such payments of principal or interest are due to maturity or redemption;

 

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     (b) such deposit will not result in a breach or violation of, or constitute a Default under, this Indenture;

 

     (c) no Default or Event of Default with respect to such series of Securities shall have occurred and be continuing on the date of such deposit and 91 days shall have passed after the deposit has been made, and, during such 91 day period, no Default specified in Section 6.01(iv) or (v) hereof with respect to the Company occurs which is continuing at the end of such period;

 

     (d) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel to the effect that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (B) since the date of execution of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of such series of Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred;

 

     (e) the Company shall have delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such series of Securities over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company;

 

     (f) such deposit shall not result in the trust arising from such deposit constituting an “investment company” (as defined in the Investment Company Act of 1940, as amended), or such trust shall be qualified under such Act or exempt from regulation thereunder; and

 

     (g) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance contemplated by this Section 8.03 have been complied with.

 

     SECTION 8.04 Covenant Defeasance.

 

     On and after the 91st day after the date of the deposit referred to in subparagraph (a) hereof, the Company may omit to comply with any term, provision or condition set forth under Sections 4.03(a), 4.04, and 4.05 hereof as well as any additional covenants contained in a supplemental indenture hereto (and the failure to comply with any such provisions shall not constitute a Default or Event of Default under Section 6.01 hereof) and the occurrence of any event described in clause (iii) of Section 6.01 hereof shall not constitute a Default or Event of Default hereunder, with respect to any series of Securities, provided that the following conditions shall have been satisfied:

 

     (i) with reference to this Section 8.04, the Company has deposited, or caused to be deposited, irrevocably (except as provided in Section 8.05 hereof) with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such series of Securities, cash in U.S. dollars and/or U.S. Government Obligations which through the payment of principal and interest in respect thereof, in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay principal and interest on all the Securities of such series on the dates such payments of principal and interest are due to maturity or redemption;

 

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     (ii) such deposit will not result in a breach or violation of, or constitute a Default under, this Indenture;

 

     (iii) no Default or Event of Default with respect to such series of Securities shall have occurred and be continuing on the date of such deposit and 91 days shall have passed after the deposit has been made, and, during such 91 day period, no Default specified in Section 6.01(iv) or (v) hereof with respect to the Company occurs which is continuing at the end of such period;

 

     (iv) the Company shall have delivered to the Trustee an Opinion of Counsel confirming that Holders of such series of Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred;

 

     (v) the Company shall have delivered to the Trustee an Officers’ Certificate stating the deposit was not made by the Company with the intent of preferring the Holders of such series of Securities over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company;

 

     (vi) such deposit shall not result in the trust arising from such deposit constituting an “investment company” (as defined in the Investment Company Act of 1940, as amended), or such trust shall be qualified under such Act or exempt from regulation thereunder; and

 

     (vii) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated by this Section 8.04 have been complied with.

 

     SECTION 8.05 Repayment to Company.

 

     The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two (2) years after the date upon which such payment shall have become due. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person.

 

     SECTION 8.06 Reinstatement.

 

     If the Trustee or the Paying Agent is unable to apply any money deposited with respect to Securities of any series in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under this Indenture with respect to the Securities of such series and under the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or the Paying Agent is permitted to apply all such money in accordance with Section 8.01; provided , however , that if the Company has made any payment of principal of, premium, if any, or interest with respect to any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent.

 

ARTICLE IX

 

AMENDMENTS, SUPPLEMENTS AND WAIVERS

 

     SECTION 9.01 Without Consent of Holders.

 

     Without the consent of any Holder, the Company and the Trustee may, at any time, amend this Indenture and the Securities to:

 

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     (i) cure any ambiguity, defect or inconsistency, provided that such change does not adversely affect the rights hereunder of any Holder in any material respect;

 

     (ii) provide for uncertificated Securities in addition to or in place of certificated Securities or to alter the provisions of Article II hereof (including the related definitions) in a manner that does not materially adversely affect any Holder;

 

     (iii) provide for the assumption of the Company’s obligations to the Holders of Securities in the case of a merger, consolidation or sale or other disposition of assets pursuant to Article V hereof;

 

     (iv) comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA, provided that such change does not adversely affect the rights hereunder of any Holder in any material respect;

 

     (v) add to the covenants of the Company and any other restrictions, conditions or provisions for the benefit of the Holders, to make the occurrence, or the occurrence and the continuance, of a Default under any such additional covenants, restrictions, conditions or provisions an Event of Default under this Indenture, or to surrender any right or power herein conferred upon the Company;

 

     (vi) add to, delete from or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, or authentication and delivery of Securities, provided that such change does not adversely affect the rights hereunder of any Holder in any material respect;

 

     (vii) secure the Securities of any series;

 

     (viii) make appropriate provision in connection with the appointment of any successor Trustee; or

 

     (ix) make any other change that does not adversely affect in any material respect the rights hereunder of any Holder.

 

     Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.

 

     SECTION 9.02 With Consent of Holders.

 

     Except as provided below in this Section 9.02, this Indenture, the Securities may be amended or supplemented, and noncompliance in any particular instance with any provision of this Indenture or the Securities may be waived, in each case with the written consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Securities affected thereby; provided, however , that any amendment to or supplement of this Indenture or the Securities that by its terms affects the rights of Holders of any series of then outstanding Securities but not the others series may be effected, and any default or compliance with any provision of this Indenture affecting the Holders of any series of then outstanding Securities but not the other series may be waived, with the consent of at least a majority in aggregate principal amount of the Securities of the affected series.

 

     Without the consent of each Holder of Securities that is affected thereby, an amendment or waiver under this Section 9.02 may not:

 

     (i) reduce the aggregate principal amount of Securities of any series the Holders of which must consent to an amendment, supplement modification or waiver of any provision of this Indenture;

 

     (ii) reduce the rate of or extend the time for payment of interest on any series of Securities;

 

     (iii) reduce the principal of or change the stated maturity of any series of Securities;

 

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     (iv) change the date on which any Security of any of series may be subject to redemption, or reduce the premium payable upon the redemption or repurchase thereof;

 

     (v) make any Security of any series payable in currency other than that stated in the Security;

 

     (vi) modify or change any provision of this Indenture affecting the ranking of the Securities of any series in a manner which adversely affects the Holders thereof;

 

     (vii) impair the right of any Holder of Securities to institute suit for the enforcement of any payment in or with respect to any such series of Securities; or

 

     (viii) make any change in the foregoing amendment and waiver provisions which require each Holder’s consent.

 

     It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.

 

     After an amendment or waiver under this Section 9.02 becomes effective, the Company shall mail to Holders affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver.

 

     SECTION 9.03 Compliance with Trust Indenture Act.

 

     Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect.

 

     SECTION 9.04 Revocation and Effect of Consents.

 

     Until an amendment, supplement modification or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security; provided, however, that unless a record date shall have been established pursuant to Section 2.16 hereof, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment, supplement, modification or waiver becomes effective. An amendment, supplement modification or waiver becomes effective on receipt by the Trustee of consents from the Holders of the requisite percentage principal amount of the outstanding Securities, and thereafter shall bind every Holder of Securities; provided, however, if the amendment, supplement modification or waiver makes a change described in any of the clauses (i) through (viii) of Section 9.02 hereof, the amendment, supplement, modification or waiver shall bind only each Holder of a Security which has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same indebtedness as the consenting Holder’s Security.

 

     SECTION 9.05 Notation on or Exchange of Securities.

 

     If an amendment, supplement, modification or waiver changes the terms of a Security:

 

     (a) the Trustee may require the Holder of a Security to deliver such Security to the Trustee, the Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Security thereafter authenticated; or

 

     (b) if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

 

     Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver.

 

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     SECTION 9.06 Trustee to Sign Amendment, etc.

 

     The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing or refusing to sign such amendment, the Trustee shall be provided with and shall be fully protected in relying upon an Officers’ Certificate and an Opinion of Counsel as conclusive evidence that such amendment is authorized or permitted by this Indenture.

 

ARTICLE X

 

CONVERSION OR EXCHANGE OF SECURITIES

 

     SECTION 10.01 Provisions Relating to Conversion or Exchange of Securities.

 

     Any rights which Holders of Securities of a series will have to convert those Securities into other securities of the Company or to exchange those Securities for securities of other Persons or other assets, including but not limited to the terms of the conversion or exchange and the circumstances, if any, under which those terms will be adjusted to prevent dilution or otherwise, will be set forth in an Indenture supplemental hereto relating to the series of Securities. In the absence of provisions in a supplemental Indenture relating to a series of Securities setting forth rights to convert or exchange the Securities of that series into or for other securities or assets, Holders of the Securities of that series will not have any such rights.

 

ARTICLE XI

 

SINKING OR PURCHASE FUNDS

 

     SECTION 11.01 Provisions Relating to Sinking or Purchase Funds.

 

     Any requirements that the Company make, or rights of the Company to make at its option, payments prior to maturity of the Securities of a series which will be used as a fund with which to redeem or to purchase Securities of that series, including but not limited to provisions regarding the amount of the payments, when the Company will be required, or will have the option, to make the payments and when the payments will be applied, will be set forth in an Indenture supplemental hereto relating to the series of Securities. In the absence of provisions in a supplemental Indenture relating to a series of Securities setting forth requirements that the Company make, or rights of the Company to make at its option, payments to be used as a fund with which to redeem or purchase Securities of the series, the Company will not be subject to any such requirements and will not have any such rights. However, unless otherwise specifically provided in a supplemental Indenture relating to a series of Securities, the Company will at all times have the right to purchase Securities from Holders in market transactions or otherwise.

 

ARTICLE XII

 

MISCELLANEOUS

 

     SECTION 12.01 Trust Indenture Act Controls.

 

     This Indenture is subject to the provisions of the TIA which are required to be part of this Indenture, and shall, to the extent applicable, be governed by such provisions.

 

     SECTION 12.02 Notices.

 

     Any notice or communication to the Company or the Trustee is duly given if in writing and delivered in person or mailed by first-class mail to the address set forth below:

 

     If to the Company:

 

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     with a copy to:

 

     If to the Trustee:

 

__________________

__________________

 

Attention: _________

 

The Company or the Trustee, by notice to the other, may designate additional or different addresses for subsequent notices or communications.

 

     Any notice or communication to a Holder shall be mailed by first-class mail to his address shown on the Register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in such notice or communication shall not affect its sufficiency with respect to other Holders.

 

     If a notice or communication is mailed or sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it, except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee.

 

     If by reason of the suspension of regular mail service, or by reason of any other cause, it is impossible to mail any notice as required by this Indenture or any supplemental indenture, then any method of notification which is approved by the Trustee will constitute a sufficient mailing of the notice.

 

     If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.

 

     SECTION 12.03 Communication by Holders with Other Holders.

 

     Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under the Securities or this Indenture. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the TIA.

 

     SECTION 12.04 Certificate and Opinion as to Conditions Precedent.

 

     Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee:

 

     (i) an Officers’ Certificate (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with;

 

     (ii) an Opinion of Counsel (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with; and

 

     (ii) such other opinions and certificates as may be required by applicable provisions of this Indenture or an applicable supplemental indenture.

 

     SECTION 12.05 Statements Required in Certificate or Opinion.

 

     Each certificate (other than certificates provided pursuant to Section 4.04 hereof) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

 

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     (i) a statement that each individual signing such certificate or opinion has read such covenant or condition;

 

     (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

 

     (iii) a statement that, in the opinion of each such person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

     (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers’ Certificate or certificate of public officials.

 

     SECTION 12.06 Rules by Trustee and Agents.

 

     The Trustee may make reasonable rules for action by or for a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.

 

     SECTION 12.07 Legal Holidays.

 

     SECTION 12.14 Submission to Jurisdiction.

 

 

      IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written.  

 

	SHENGKAI INNOVATIONS, INC.
	By:
	Name:
	Title:
	By:
	Name:
	Title:

 

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