FUSHI INTERNATIONAL, INC. $40,000,000 Guaranteed Senior Secured Floating Rate Notes due 2012 and $20,000,000 3.0% Senior Secured Convertible Notes due 2012 NOTES PURCHASE AGREEMENT (THE “AGREEMENT”)
EXHIBIT
4.1
FUSHI
INTERNATIONAL, INC.
$40,000,000
Guaranteed Senior Secured Floating Rate Notes due 2012
and
$20,000,000
3.0% Senior Secured Convertible Notes due 2012
NOTES
PURCHASE AGREEMENT (THE “AGREEMENT”)
January 24, 2007
Citadel
Equity Fund Ltd.
c/o
Citadel Investment Group (Hong Kong) Limited
Chater
House, 18th Floor
▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇
Central,
Hong Kong
Ladies
and Gentlemen:
Fushi
International, Inc., a Nevada corporation (the “Company”),
the
other Group Companies (as defined below) and Mr. ▇▇ ▇▇ (the “Controlling
Shareholder”),
hereby agree with the Purchaser (as defined below) as follows:
1. Issuance
of Securities.
Subject
to the terms and conditions of this Agreement, the Company will, at the Closing
provided for in Section
3,
(i)
issue and sell to Citadel Equity Fund Ltd. (the “Purchaser”)
and
the Purchaser will purchase from the Company, (x) the Company’s 400 Guaranteed
Senior Secured Floating Rate Notes due 2012 (the “HY
Notes”)
of
$100,000 principal amount each, and (y) the Company’s 200 3.0% Senior Secured
Convertible Notes due 2012 (the “Convertible
Notes”,
and
together with the HY Notes, the “Notes”)
of
$100,000 principal amount each, convertible into shares of common stock of
the
Company, par value $.006 per share (the “Common
Stock”),
at an
initial conversion price of $7 per share, and (ii) cause the Guarantor to issue
the Guarantees (as hereinafter defined).
The
HY
Notes are to be issued pursuant to the provisions of an indenture (the
“HY
Note Indenture”),
to be
dated as of the Closing Date (as defined in Section
3),
by and
among the Company, the Guarantor and The Bank of New York, a New York banking
corporation, as trustee (the “Trustee”),
substantially in the form attached hereto as Exhibit
A-1,
and the
Convertible Notes are to be issued pursuant to the provisions of an indenture
(the “Convertible
Note Indenture”,
and
together with the HY Note Indenture, the “Indentures”),
to be
dated as of the Closing Date, by and among the Company, the Guarantor and the
Trustee, substantially in the form attached hereto as Exhibit
A-2.
As used
herein, the term “Securities”
shall
mean, collectively, the Notes, the Common Stock issuable upon the conversion
of
the Convertible Notes (the “Conversion
Shares”)
and
the Guarantees.
Capitalized
terms used but not defined herein shall have the meanings given to such terms
in
the Indentures.
The
Notes
and the Guarantees will be secured by (i) a perfected first-priority Lien on
all
of the equity interests of the Guarantors pursuant to a share pledge agreement
to be dated as of the Closing Date between The Bank of New York, a New York
banking corporation, as the collateral agent (in such capacity, the
“Offshore
Collateral Agent”),
the
Company and the Guarantor, substantially in the form attached hereto as
Exhibit
B
(the
“Offshore
Share Pledge Agreement”)
and
(ii) subject to the completion of the undertakings and conditions set forth
in
Section 5 (m), a perfected first-priority Lien on all of the equity interests
of
the WFOE (as defined below) pursuant to a share pledge agreement to be dated
as
of the Closing Date between the collateral agent (in such capacity, the
“Onshore
Collateral Agent”,
together with the Offshore Collateral Agent, the “Collateral
Agents”),
the
Company and the Guarantor (the “Onshore
Share Pledge Agreement”,
together with the Offshore Share Pledge Agreement and the Uniform Commercial
Code financing statement, the “Security
Documents”).
The
Notes
will be offered and sold to the Purchaser pursuant to Regulation S under the
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 and the Conversion
Shares shall bear the legends relating to the offer and the sale of the Notes
and the Conversion Shares as required by (i) Regulation S under the Act or
(ii)
any other applicable laws or regulations relating to the issuance of the
Notes.
2. Guarantees.
Pursuant to the Indentures, Fushi Holdings, Inc. (“FHI”),
a
wholly-owned subsidiary of the Company incorporated under the laws of the State
of Delaware and all of the Company’s other existing and future subsidiaries
domiciled in the United States of America (each, a “Guarantor”)
shall
irrevocably and unconditionally guarantee, on a senior secured 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”).
This
Agreement, the Indentures, the Notes, the Guarantees, the Security Documents,
the Investor Rights Agreement to be entered into by and among the Company,
the
Controlling Shareholder, the Senior Management and the Purchaser dated the
Closing Date in the form attached hereto as Exhibit
C-1,
the
escrow agreement to be entered into by and between the Company and The Bank
of
New York dated the Closing Date, the escrow agreement to be entered into by
and
among the Company, Guzov Ofsink, LLC, as escrow agent, and the Purchaser dated
the Closing Date in the form attached hereto as Exhibit
C-2
and the
escrow agreement to be entered into by and among the WFOE, Shenzhen Development
Bank and the Purchaser dated the Closing Date in the form attached hereto as
Exhibit
C-3
are,
collectively, referred to herein as the “Documents.”
3. Purchase,
Sale and Delivery.
The
issue and sale of the Notes to be purchased by the Purchaser shall occur at
the
Shanghai office of Weil, Gotshal & ▇▇▇▇▇▇ LLP, at 4:00 p.m., Shanghai time,
at a closing (the “Closing”)
on
January 25,
2007 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 “Closing
Date”).
At
the Closing, the Company shall deliver to the Purchaser one or more global
certificates representing each of the HY Notes and the Convertible Notes,
registered in such names and denominations as the Purchaser may request, against
payment by the Purchaser of the aggregate purchase price in the amount of $56.4
million for the HY Notes and the Convertible Notes by immediately available
Federal funds bank wire transfer to such bank account or accounts as the Company
shall have theretofore designated to the Purchaser. The HY Notes and the
Convertible Notes, each to be represented by one or more global certificates
in
book-entry form, will be deposited on the Closing Date, by or on behalf of
the
Company, with the Trustee 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 the Trustee. The Common
Stock is approved for quotation on the OTC Bulletin Board (the “Trading
Market”).
2
4. Representations
and Warranties of the Group Companies and the Controlling
Shareholder.
Each of
the Company, FHI, Fushi International (Dalian) Bimetallic Cable Co., Ltd.,
a
wholly-owned subsidiary of FHI, incorporated under the laws of the People’s
Republic of China (the “WFOE”),
and
Dalian Fushi Bimetallic Manufacturing Co., Ltd. (“Dalian
Fushi”,
and
together with the Company, FHI, the WFOE and any other Subsidiary (as defined
in
Section
4(b)(i)
below),
the “Group
Companies”),
a
limited liability company organized under the laws of the People’s Republic of
China (“PRC”)
and
the Controlling Shareholder, jointly and severally, represents and warrants
to
the Purchaser that, except as set forth in the Disclosure Schedule attached
hereto as Exhibit
D
which
exceptions shall be deemed to part of the representations and warranties made
hereunder, the following representations and warranties. The Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections contained in this Section
4.
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(a)
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SEC
Reports; Financial Statements.
The Company has filed all reports, schedules, forms, statements and
other
documents required to be filed by it under the Act and the Securities
and
Exchange Act of 1934, as amended (the “Exchange
Act”),
including pursuant to Section 13(a), 13(c) or 15(d) thereof (the
foregoing
materials, 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. Except as disclosed in
Schedule
4(a)
of
the Disclosure Schedule, the financial statements of the Company
included
in the SEC Reports 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. Such 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 such financial statements,
the
notes thereto or in Schedule
4(a)
of
the Disclosure Schedule, and except that unaudited financial statements
may not contain all footnotes required by GAAP, and 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,
immaterial, year-end audit
adjustments.
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(b)
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Ownership
of Shares of Subsidiaries; Affiliates.
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3
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(i)
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Schedule
4(b)(i)
of
the Disclosure Schedule contains (except as noted therein) 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 owns, directly or indirectly, a majority of
its
capital stock or similar equity interests (each, a “Subsidiary”
and collectively, the “Subsidiaries”),
showing, 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)(i)
of
the Disclosure Schedule as being owned by the Company and its Subsidiaries
have been validly issued, are fully paid and non-assessable and are
owned
by the Company or another Subsidiary free and clear of any
Lien.
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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)(iii)
of
the Disclosure Schedule, 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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As
of the date hereof, FHI is the sole
Guarantor.
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(v)
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Schedule
4(b)(v)
of
the Disclosure Schedule shows the correct name of ▇▇▇▇▇▇ ▇▇▇▇▇, the
jurisdiction of its organization, and the percentage of shares of
each
class of its capital stock or similar equity interests outstanding
owned
by its shareholders. All of the outstanding shares of capital stock
or
similar equity interests of Dalian Fushi shown in Schedule
4(b)(v)
of
the Disclosure Schedule as being owned by its shareholders have been
validly issued, are fully paid and non-assessable and are owned by
such
shareholders free and clear of any
Lien.
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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 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
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 the Group Companies to perform
their
respective obligations under any Document or (C) the validity 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) Capital
Stock.
The
authorized capital of the Company consists, immediately prior to the Closing,
of
(i) One Hundred Million (100,000,000) shares of Common Stock, of which
19,990,087 shares are issued and outstanding immediately prior to the Closing,
and (ii) Five Million (5,000,000) shares of preferred stock with no shares
of
preferred stock outstanding.
4
(ii) 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 Common Stock or securities which
may be exercised, converted or exchanged for Common Stock (collectively,
“Fully-Diluted”)
is
22,782,107. The Conversion Shares issuable upon conversion of the Convertible
Notes have been duly reserved for issuance, which will constitute 11.14% of
the
Company’s Common Stock on a Fully-Diluted basis. All of the issued and
outstanding shares of each of the Group Company’s shares 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.
(iii) Voting
and other Agreements.
Except
as set forth on Schedule
4(d)(iii)
of the
Disclosure Schedule, 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 by that certain voting agreement set forth 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.
(iv) 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 on Schedule
4(e),
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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5
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(f)
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Authorization.
Each of the Group Companies has all requisite corporate power and
authority to execute, deliver and perform its obligations under each
of
the Documents and each Restructuring Agreement (as defined below)
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 and the Controlling Shareholder. Each of the Documents
has
been duly authorized and when executed and delivered by the Group
Companies and the Controlling Shareholder (to the extent it is a
party
thereto) shall constitute a legal, valid and binding obligation of
each of
the Group Companies and the Controlling Shareholder (to the extent
it is a
party thereto) enforceable against each of the Group Companies and
the
Controlling Shareholder (to the extent it is a party thereto) in
accordance with its terms, and each Restructuring Agreement considered
individually and with all other Restructuring Agreements, has been duly
authorized, executed and delivered by the Group Companies and the
Controlling Shareholder (to the extent it is a party thereto) and
constitutes a legal, valid and binding obligation of each of the
Group
Companies and the Controlling Shareholder (to the extent it is a
party
thereto) enforceable against each of the Group Companies and the
Controlling Shareholder (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 may be limited by applicable federal or state securities
laws. For the purpose of this Agreement, the “Restructuring
Agreement”
or “Restructuring
Agreements”
shall refer to those agreements as disclosed by the Company in “Our
Company—Restructuring Agreements” of the Prospectus filed by the Company
with the SEC on August 2, 2006 pursuant to Rule 424B(3) under the
Act.
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(g)
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Valid
Issuance of Notes.
Each of the HY Notes and the Convertible 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 state and federal securities
laws. Assuming the accuracy of the Purchaser’s representations in
Section
6
below, the Notes will be issued in compliance with applicable state
and
federal securities laws. The HY Notes, when issued, will be in the
form
contemplated by the HY Note Indenture, and the Convertible Notes,
when
issued, will be in the form contemplated by the Convertible Note
Indenture. Each of the HY Notes and the Convertible 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 its respective 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 its respective 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.
The Guarantees have been duly authorized, and, when the Notes have
been
duly executed, authenticated and issued in accordance with the provisions
of its respective Indenture and delivered to and paid for by the
Purchaser
with the Guarantees endorsed thereon by the Guarantor, will constitute
the
legal, valid and binding obligations of the Guarantor entitled to
the
benefits of such Indenture.
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(h)
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Valid
Issuance of Conversion Shares.
The Conversion Shares have been duly and validly authorized for issuance
by the Company, and when issued pursuant to the terms of the Convertible
Note Indenture, 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
and
free of restrictions on transfer other than as expressly contemplated
by
the Documents.
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6
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(i)
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Compliance
with Instruments.
None of the Group Companies is in violation of its respective certificate
of incorporation, by-laws or other organizational documents (the
“Charter
Documents”).
None of the Group Companies is, nor does any condition 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 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 (a) disclosed in Schedule
4(i)
of
the Disclosure Schedule or (b) not material. Except as set forth
in
Schedule
4(i)
of
the Disclosure Schedule, 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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(j)
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No
Conflicts.
Neither the execution, delivery or performance of any of the Documents
nor
the consummation of any of the transactions contemplated 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) 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. After consummation of the transactions contemplated
in the
Documents, no Default or Event of Default will exist under either
Indenture.
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(k)
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Security
Interest.
When executed and delivered, the Offshore Share Pledge Agreement
will
create valid and enforceable first-priority security interests in
favor of
the Offshore Collateral Agent in all the “Pledged Collateral” (as defined
therein)), which security interests will secure the repayment of
the Notes
and the other obligations purported to be secured thereby and when
the
Offshore Share Pledge Agreement is filed with the Secretary of the
State
of the State of Nevada on a Uniform Commercial Code financing statement,
in the case of the pledge of shares in the Guarantor under the Offshore
Share Pledge Agreement, such security interests will be perfected.
When
executed and delivered and subject to the approval by relevant
Governmental Authority, the Onshore Share Pledge Agreement will create
valid and enforceable first-priority security interests in favor
of the
collateral agent appointed thereunder in all the equity interest
in the
WFOE which security interests will secure the repayment of the Notes
and
the other obligations purported to be secured
thereby.
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(l)
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Governmental
Consents.
No filing with, consent, approval, authorization or order of, any
Governmental Authority is required for the consummation of the
transactions contemplated by the Documents, except (i) as have been
obtained or will have been obtained on or before the Closing Date,
(ii) as
may be necessary to perfect security interests granted pursuant to
the
Security Documents, and (iii) as may be required under the Act or
state
securities laws or “Blue Sky” laws.
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7
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(m)
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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 seeks
to
restrain, enjoin, prevent the consummation of, or otherwise challenges
any
of the Documents, any Restructuring Agreement (considered alone or
with
other Restructuring Agreements) or any of the transactions contemplated
therein. Except as disclosed in the SEC Reports, none of the Group
Companies is subject to any judgment, order or decree of which the
Company
has knowledge.
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(n)
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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.
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(o)
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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. 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.
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(p)
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Insurance.
Each of the Group Companies maintains reasonable 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.
|
|
(q)
|
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.
|
8
|
(r)
|
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 trade secrets and other unpatented
and/or
unpatentable proprietary or confidential information, systems or
procedures), 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
would
not 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. To the Company’s knowledge, the use of such Intellectual
Property by any of the Group Companies will not infringe on the
Intellectual Property rights of any other person.
|
|
(ii)
|
Schedule
4(r)(ii)
of
the Disclosure Schedule sets forth a complete list of (i) the Registered
IP owned by or licensed to any of the Group Companies and (ii) all
other
material Intellectual Property licensed to any of the Group Companies.
“Registered
IP”
means Intellectual Property that is registered, filed, or issued
under the
authority of any Governmental Authority, including all patents, registered
copyrights, registered mask works, and registered trademarks and
all
applications for any of the foregoing. All Intellectual Properties
owned
by each of the Group Companies are valid and enforceable and are
in
compliance with formal legal
requirements.
|
|
(iii)
|
Each
of the Group Companies has taken reasonable steps and measures to
establish and preserve ownership of or right to use all Intellectual
Property material to the operation of its business. Each of the Group
Companies has taken reasonable steps to 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)
|
Each
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. No former or current employee, no former
or
current consultant, and no third-party joint developer of any of
the Group
Companies has any rights in any Intellectual Property made, developed,
conceived, created or written by the aforesaid employee or consultant
during the period of his or her retention by the Group Companies
which can
be asserted against any Group
Company.
|
9
|
(v)
|
No
Intellectual Property owned by any Group Company is the subject of
any
security interest, Lien, license or other contract granting rights
therein
to any other Person. 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.
|
|
(s)
|
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.
|
|
(t)
|
Financial
Statements.
|
|
(i)
|
Except
as disclosed in Schedule
4(t)(i)
of
the Disclosure Schedule, the audited consolidated financial statements
and
related notes of the Company contained in the Form 10-KSB for the
three
years ended December 31, 2005 and the unaudited consolidated financial
statements and related notes in the Form 10-QSB for the nine months
ended
September 30, 2006 (collectively, the “Financial
Statements”)
present fairly in all material respects the financial position, results
of
operations and cash flows of the Company and its consolidated
Subsidiaries, as of the respective dates and for the respective periods
to
which they apply and have been prepared in accordance with GAAP and
comply
as to form with the applicable requirements of Regulation S-X of
the Act.
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.
|
|
(ii)
|
Subsequent
to the date of the Company’s audited financial statements filed for the
year ended December 31, 2005, 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.
|
10
|
(u)
|
Indebtedness.
All Indebtedness represented by the Notes and the Guarantees 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 $75,000 (other than trade accounts payable incurred in
the
ordinary course of business), (b) all guaranties, 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 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 $75,000 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. 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.
|
|
(v)
|
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 Notes, 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 (other ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇
Far East Limited).
|
11
|
(w)
|
No
Sale to the U.S.
None of the Group Companies, their respective Affiliates, 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.
|
|
(x)
|
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 Company makes 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.
|
|
(y)
|
No
Registration.
Assuming the accuracy of the Purchaser’s representations and warranties
set forth in Section
6,
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.
|
|
(z)
|
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 against any of the Group Companies that
could, individually or in the aggregate, have a Material Adverse
Effect.
|
|
(aa)
|
Brokers
and Finders.
The Company has not engaged any broker, finder, commission agent
or other
similar person (other ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far East Limited) 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 (other than commissions or fees
to
▇▇▇▇▇▇▇ ▇▇▇▇▇ Far East Limited).
|
|
(bb)
|
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 reasonably be
expected
to 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.
|
12
In
the
ordinary course of its business, the Company periodically reviews the effect
of
Environmental Laws on the business, operations and properties of the Company
and
its Subsidiaries, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws, or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On
the
basis of such review, the Company has reasonably concluded that such associated
costs could not have a Material Adverse Effect.
|
(cc)
|
Encumbrances.
As of the Closing Date, there will be no encumbrances 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.
|
|
(dd)
|
Security
Interest/Security Documents.
As of the Closing Date:
|
|
(i)
|
The
Company will own the Pledged Collateral free and clear of all Liens
(except for Permitted Liens and Liens arising under the Offshore
Share
Pledge Agreement).
|
|
(ii)
|
The
representations and warranties contained in the Offshore Share Pledge
Agreement will be true and correct in all material
respects.
|
The
Liens
on the Notes will have been duly perfected as to all Pledged Collateral upon
the
completion of the filing of the financing statements pursuant to Section
5(l).
|
(ee)
|
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.
|
|
(ff)
|
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 Notes 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 in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended and the rules and regulations
thereunder (the “FCPA”).
|
|
(gg)
|
Related
Party Transactions.
Except otherwise disclosed in Schedule
4(gg)
of
the Disclosure Schedule, no material relationship, direct or indirect,
exists between or among any of the Group Company or its Subsidiaries
or
any Affiliate of the Group Companies or its subsidiaries, on the
one hand,
and any former or 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.
|
13
|
(hh)
|
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 U.S.
Investment Company Act of 1940, as amended, in connection with or
as a
result of the offer and sale of the
Securities.
|
| (ii) |
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 U.S. Internal Revenue Code.
|
|
(jj)
|
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.
|
|
(kk)
|
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.
|
|
(ll)
|
Other
Representations and Warranties Relating to ▇▇▇▇▇▇ ▇▇▇▇▇ and the
WFOE.
|
|
(i)
|
The
constitutional documents and certificates and related material contracts
of each of ▇▇▇▇▇▇ ▇▇▇▇▇ and the WFOE 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
Dalian Fushi and the WFOE 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 ▇▇▇▇▇▇ ▇▇▇▇▇ and the WFOE and its 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 ▇▇▇▇▇▇ ▇▇▇▇▇ and the WFOE 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 Subsidiary to sell any equity
interest in the WFOE, or by ▇▇▇▇▇▇ ▇▇▇▇▇’s shareholders to sell any equity
interest in ▇▇▇▇▇▇ ▇▇▇▇▇.
|
14
|
(v)
|
Neither
Dalian Fushi nor the WFOE is 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 Dalian Fushi
or the
WFOE.
|
|
(vi)
|
Each
of Dalian Fushi and the WFOE has conducted its business activities
within
the permitted scope of business or has otherwise operated its business,
including pursuant to the Restructuring Agreements, 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 either ▇▇▇▇▇▇ ▇▇▇▇▇’s or the WFOE’s
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 Dalian Fushi or
the WFOE
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.
|
|
(mm)
|
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, including the Disclosure
Schedule to this Agreement, with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties 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 and the Controlling Shareholder.
Each of
the Group Companies and the Controlling Shareholder, 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 state 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 state securities commission or other regulatory
authority, (ii) use its commercially reasonable efforts to prevent
the
issuance of any stop order or order suspending the qualification
or
exemption from qualification of the Securities under any state securities
or Blue Sky laws, and (iii) if at any time any 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 commercially reasonable efforts to obtain the
withdrawal or lifting of such order at the earliest possible
time.
|
15
|
(b)
|
So
long as any of the Securities are “restricted securities” within the
meaning of Rule 144(a)(3) or Rule 905 under the Act, to, during any
period
in which the Company is not subject to and in compliance with Section
13
or 15(d) of the Exchange Act, provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder
or
prospective purchaser, any information required to be provided by
Rule
144A(d)(4) under the Act.
|
|
(c)
|
Whether
or not any of the transactions contemplated under the Documents are
consummated or this Agreement is terminated, to pay (i) all 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 the counsel, accountants and any other experts
or
advisors retained by the Company, (iii) all expenses in connection
with
qualifying the Notes for settlement in the Clearing Facilities, (iv)
all
fees and expenses (including fees and expenses of counsel) of the
Company
in connection with approval of the Securities for “book-entry” transfer,
and (v) all fees and expenses (including reasonable fees and expenses
of
counsel) of the Trustee, the Calculation Agent, ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far
East, as
Placement Agent, and the Collateral
Agents.
|
|
(d)
|
To
do and perform all things required to be done and performed under
the
Documents prior to and after the Closing
Date.
|
|
(e)
|
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 by the
Purchaser or its counsel.
|
|
(f)
|
To
maintain the trading of the Common Stock in the Trading
Market.
|
|
(g)
|
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 to the Trustee
or to the
holders of its Securities and, as soon as 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.
|
|
(h)
|
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.
|
|
(i)
|
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 Notes or the sale thereof to the
Purchaser.
|
16
|
(j)
|
The
Company will use commercially 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.
|
|
(k)
|
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.
|
|
(l)
|
The
Company and the Controlling Shareholder shall use their best efforts
to
assist the Purchaser to timely file the financing statements under
Article
9 of the Uniform Commercial Code of Nevada with the Secretary of
the State
of the State of Nevada, which initial filing shall be completed or
cause
to be completed no later than one month from the date of the Closing.
|
|
(m)
|
The
Company shall, as soon as reasonably practicable, use its best efforts
to
(i) procure a collateral agent acceptable to the Purchaser to serve
as a
collateral agent under the Onshore Share Pledge Agreement, which
agreement
shall be in the form acceptable to the Purchaser, (ii) obtain approvals
from, and complete filing procedures with, relevant Governmental
Authorities in order to create a valid and enforceable first-priority
security interest over all of the equity interests issued by the
WFOE,
including the approval from the Dalian Foreign Trade & Economic
Cooperation Bureau and the registration with the Dalian Industrial
and
Commercial Administration Bureau.
|
|
(n)
|
The
Company will use the proceeds from the offer and sale of the Notes
for (i)
capital expenditures (in particular, installation of additional production
lines), and (ii) acquisition by the Company of equity interests in
or
assets of other entities, with the prior written consent of the Purchaser
which will not be unreasonably withheld. The balance of the proceeds
will
be used by the Company for working capital and general corporate
purposes.
|
|
(o)
|
The
Company shall at all times keep reserved for issuance and delivery
upon
conversion of the Convertible Notes such number of Conversion Shares
or
other shares of the Company as are from time to time issuable upon
conversion of any Convertible Note and will, from time to time, take
all
necessary steps to amend its articles of incorporation to provide
a
sufficient reserve of Conversion Shares for issuance upon conversion
of
the Convertible Notes.
|
|
(p)
|
In
connection with the conversion of the Convertible Notes into Conversion
Shares, neither the Company nor any Person acting on its behalf will
take
any action which would result in the Conversion Shares being exchanged
by
the Company other than with the then existing holders of the Convertible
Notes exclusively 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.
|
|
(q)
|
Each
of the Group Companies and the Controlling Shareholder undertakes
that (i)
they 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) they will conduct its business
in
compliance with the FCPA, and (iii) they will institute and maintain
policies and procedures designed to ensure, and which are reasonably
expected to continue to ensure, continued compliance
therewith.
|
17
|
(r)
|
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 Conversion 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 Conversion
Shares, furnish to the Purchaser) such information as is required
to sell
such Conversion Shares under Rule 144. The Company further covenants
that
it will take such further action as any holder of the Conversion
Shares
may reasonably request, to the extent required from time to time
to enable
such person to sell such Conversion Shares without registration under
the
Securities Act within the requirements of the exemption provided
by Rule
144.
|
|
(s)
|
The
Company shall, by 8:30 a.m. New York City time on the 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. Such current report on Form 8-K
shall be
filed after the Purchaser’s prior review of such report and consent
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 disclose the name of the Purchaser,
or
include the name of the Purchaser in any filing with the Commission
or any
regulatory agency or 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 prior notice of such disclosure
permitted
hereunder.
|
|
(t)
|
The
Controlling Shareholder shall, as soon as reasonably practicable,
use his
commercially reasonable efforts to (i) complete, or cause to complete,
the
registration formalities with the local office of the Administration
of
Industry and Commerce and other relevant PRC authorities to register
the
Controlling Shareholder, in his individual capacity, as the legal
shareholder of ▇▇▇▇▇▇ ▇▇▇▇▇ pursuant to the share transfer agreement,
dated December 12, 2006, between the Controlling Shareholder and
Dalian
Fushi Enterprise Group Co., Ltd. ("Fushi
Group")
and (ii) effect, or cause to effect, the pledge of Fushi Group's
shares in
▇▇▇▇▇▇ ▇▇▇▇▇ as contemplated in the Shares Pledge Agreement, dated
as of
December 13, 2005, among the WFOE, Fushi Group, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇.
|
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
Notes in any country or jurisdiction where action for that purpose
is
required. It is not acquiring the Notes 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.
|
18
|
(b)
|
It
is not acquiring the Notes 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
Notes 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 HY Notes) or one year (in the case
of the
Convertible Notes and the Conversion 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 Convertible Notes and the Conversion
Shares 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.
|
|
(f)
|
The
Notes 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 Notes.
|
7. Conditions
to Purchase Securities at Closing.
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 be
true and
correct as of the date hereof and at the Closing Date. On or prior
to the
Closing Date, the Group Companies, the Controlling Shareholder 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.
|
19
|
(b)
|
No
injunction, restraining order or order of any nature by a Governmental
Authority shall have been issued as of the Closing Date that could
prevent
or materially interfere with the consummation of the transactions
contemplated under the Documents or the Restructuring Agreements;
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 after due inquiry, be pending or threatened as of
the
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 Closing Date, reasonably
be expected to prevent the consummation of the transactions contemplated
under the Documents or the Restructuring Agreements. No Proceeding
shall
be pending or, to the knowledge of the Company after due inquiry,
threatened other than Proceedings that (A) are disclosed in the Disclosure
Schedule, (B) if adversely determined could not, individually or
in the
aggregate, adversely affect the issuance or marketability of the
Notes, or
(C) 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 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 agreements and satisfied all conditions on its
part to
be performed or satisfied hereunder at or prior to the Closing Date,
(c)
at the 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)
|
certificates
dated the Closing Date, executed by the Secretary or authorized officer
of
each of the Group Companies, certifying such matters as the Purchaser
may
reasonably request;
|
|
(iii)
|
certificates
dated the Closing Date, executed by officers of the Company and the
Controlling Shareholder, certifying such matters as the Purchaser
may
reasonably request;
|
20
|
(iv)
|
the
opinion of Guzov Ofsink, LLC, counsel to Fushi International, Inc.
and
Fushi Holdings, Inc. as to U.S. federal, New York State, Delaware
State
and Nevada State law, dated the Closing Date, in the form attached
hereto
as Exhibit
E-1;
|
|
(v)
|
the
opinion of Dacheng Law Firm, PRC counsel to ▇▇▇▇▇▇ ▇▇▇▇▇ and the
WFOE,
dated the Closing Date, in the form attached hereto as Exhibit
E-2;
and
|
|
(vi)
|
the
opinion of ▇▇▇▇ & ▇▇▇▇, PRC counsel to the Purchaser, dated the
Closing Date.
|
|
(f)
|
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.
|
|
(g)
|
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.
|
|
(h)
|
None
of the other parties to any of the Documents shall be in breach or
default
under their respective obligations
thereunder.
|
|
(i)
|
The
Offshore Collateral Agent shall have received on the Closing
Date:
|
|
(i)
|
the
certificate representing the Pledged Stock (as defined in the Offshore
Share Pledge Agreement), accompanied by undated stock powers duly
executed
in blank by the Pledgor pursuant to the Offshore Share Pledge
Agreement;
|
|
(ii)
|
any
appropriately
completed copies, which have been duly authorized for filing by the
appropriate Person, of Uniform Commercial Code financing statements
naming
the Company as a debtor and the Offshore Collateral Agent as the
secured
party, or other similar instruments or documents to be filed under
the UCC
of all jurisdictions as may be necessary or desirable to perfect
the
security interests of the Offshore Collateral Agent pursuant to the
Indentures;
|
|
(iii)
|
any
certified
copies of Uniform Commercial Code Requests for Information or Copies
(Form
UCC-11), or a similar search report certified by a party acceptable
to the
Offshore Collateral Agent, dated a date reasonably near to the Closing
Date, listing all effective financing statements which name the Company
or
the Guarantor (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
Indentures);
|
|
(iv)
|
such
other approvals, opinions, or documents as the Offshore Collateral
Agent
may reasonably request in form and substance reasonably satisfactory
to
the Offshore Collateral Agent; and
|
|
(v)
|
the
Offshore Collateral Agent and its counsel shall be satisfied
that
(i)
the Lien granted to the Offshore Collateral Agent, for the benefit
of the
“Secured Parties” (as defined in the Security Documents) in the collateral
described above is a first priority Lien in the case of previously
unencumbered property identified on Schedule
4(k);
and
(ii)
no
Lien exists on any of the collateral described above other than the
Lien
created in favor of the Offshore Collateral Agent, for the benefit
of the
Secured Parties, pursuant to the Indentures and the Offshore Share
Pledge
Agreement.
|
21
|
(j)
|
All
Uniform Commercial Code financing statements or other similar financing
statements required pursuant to Section
7(i)
(i), (ii) and (iii) above (collectively, the “Filing
Statements”)
shall have been delivered to CT Corporation System or another similar
filing service company acceptable to the Offshore Collateral Agent
(the
“Filing
Agent”).
The Filing Agent shall have acknowledged in a writing reasonably
satisfactory to the Offshore 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 Closing Date and (iii) that the Filing Agent
will
notify the Offshore Collateral Agent and its counsel of the results
of
such submissions within 30 days following the Closing
Date.
|
|
(k)
|
The
respective Boards of Directors 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 Conversion Shares issuable upon exercise of the
Convertible Notes), (iii) the consummation of the transactions
contemplated by the Documents, (iv) the pricing terms of the Notes
and (v)
all other actions necessary in connection with the transactions
contemplated by the Documents and the offering of the Notes, and
shall
have provided the Purchaser with a copy of such authorizations.
|
|
(l)
|
The
Purchaser shall have completed and be satisfied with the results
of all
business, legal and financial due diligence, and any items requiring
correction identified by the Purchaser shall have been corrected
to the
Purchaser’s satisfaction.
|
|
(m)
|
The
Purchaser shall have received all necessary internal approval for
the
transactions contemplated hereunder or under the
Documents.
|
|
(n)
|
The
Purchaser shall be satisfied with the fund flow chart in the form
attached
hereto as Exhibit
F
setting forth how the proceeds from the issue of the Notes will be
transferred to its direct or indirect PRC subsidiaries and how such
PRC
Subsidiaries will repatriate the funds to the Company for purposes
of the
performance of the Company’s obligations under the
Documents.
|
8. Indemnification.
|
(a)
|
Each
of the Group Companies and the Controlling Shareholder, 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:
|
|
(i)
|
actions
taken or omitted to be taken by any of the Group Companies or the
Controlling Shareholder, or their respective affiliates, officers,
directors, employees or agents;
|
22
|
(ii)
|
any
breach by any of the Group Companies or the Controlling Shareholder
of
their respective representations, warranties, covenants and agreements
set
forth in this Agreement or in any of the other
Documents;
|
|
(iii)
|
any
untrue statement or alleged untrue statement of a material fact,
or the
omission or alleged omission to state in (x) any SEC Report or any
amendment or supplement thereto or (y) the Disclosure Schedule, a
material
fact required to be stated therein, or necessary to make the statements
therein in light of the circumstances under which they were made,
not
misleading.
|
and,
subject to the provisions hereof, will reimburse the Indemnified Persons for
all
reasonable expenses (including, without limitation, 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, the Controlling Shareholder or their respective
officers or directors, the Group Companies and the Controlling Shareholder
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 and the Controlling Shareholder shall not be liable for
indemnification hereunder with regard to any negligent act or omission or
willful misconduct by the Purchaser or any other Indemnified Person which is
the
primary cause of, and results in, the unavailability to the Company (or any
of
its affiliates) or to the offering of the Notes of the exemption from the
registration requirements of the Act provided by Regulation S thereunder. This
indemnity will be in addition to any liability that any of the Group Companies
and the Controlling Shareholder may otherwise have to the Indemnified
Persons.
|
(b)
|
As
promptly as reasonably practical after receipt by an indemnified
party
under this Section
8
of
notice of the commencement of any action for which such indemnified
party
is entitled to indemnification under this Section
8,
such indemnified party 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 party other than the indemnification
obligation provided in paragraph (a) above. In case any such action
is
brought against any indemnified party, 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 party
(who
shall not, except with the consent of such indemnified party, be
counsel
to the indemnifying party) 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 party 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 party and the
indemnifying party, and the indemnified party shall have been advised
by
counsel that there may be one or more legal defenses available to
it
and/or any other indemnified party that are different from or additional
to those available to the indemnifying party, or (iii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified
party to represent the indemnified party 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 party or parties and such indemnified
party or parties shall have the right to select separate counsel
(including an additional local counsel) to defend such action on
behalf of
such indemnified party or parties at the expense of the indemnifying
party. After notice from the indemnifying party to such indemnified
party
of its election so to assume the defense thereof and approval by
such
indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under
this
Section
8
for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party
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 parties who are parties
to
such action or actions) or (ii) the indemnifying party has authorized
in
writing the employment of counsel for the indemnified party at the
expense
of the indemnifying party. After such notice from the indemnifying
party
to such indemnified party, the indemnifying party will not be liable
for
the costs and expenses of any settlement of such action effected
by such
indemnified party without the prior written consent of the indemnifying
party (which consent shall not be unreasonably
withheld).
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23
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(c)
|
No
indemnifying party shall, without the prior written consent of any
indemnified party, 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
party is or could have been a party, or indemnity could have been
sought
hereunder by any indemnified party (whether or not the indemnified
party
is an actual or potential party to such action or claim), unless
such
settlement (A) includes an unconditional express written release
of any
indemnified party in form and substance reasonably satisfactory to
such
indemnified party, 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 party. 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 party 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.
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(d)
|
The
indemnity and expense reimbursement obligations set forth herein
(i) shall
be in addition to any liability any of the Group Companies or the
Controlling Shareholder 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.
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(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 their obligations under this Agreement
by
another party reasonably satisfactory to the
Purchaser.
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24
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 offering
or
delivery of the Securities on the terms and in the manner contemplated
in
this Agreement and the Indentures, or (ii) materially impair the
investment quality of any of the
Securities;
|
|
(ii)
|
the
failure of any of the Group Companies to satisfy the conditions contained
in Section
7
hereof on or prior to February 2,
2007;
|
|
(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, 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 or Hong Kong could be expected
to make
it, in the Purchaser’s sole judgment, impracticable or inadvisable to
proceed with the consummation of the transactions on the terms and
in the
manner contemplated in this Agreement or the
Indentures;
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|
(iv)
|
trading
in the Company’ 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 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
Global Market;
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(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
|
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(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,
Hong
Kong or elsewhere.
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(b)
|
The
Company shall pay to the Purchaser a fee in the amount of $3 million
(the
“Company
Breakup Fee”)
if this Agreement is terminated by the Purchaser pursuant to Section
9(a)(ii)
above. The Company shall promptly (but in no event later than 7 days
following such termination by the Purchaser) pay the Company Breakup
Fee
to the Purchaser.
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(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, which has or is reasonably likely to have a material adverse
effect on the consummation of the transactions contemplated
herein.
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25
|
(d)
|
The
Purchaser shall pay to the Company a fee in the amount of $3 million
(the
“Purchaser
Breakup Fee”)
if this Agreement is terminated by the Company pursuant to Section
9(c)
above; provided,
however,
that notwithstanding the foregoing or anything to the contrary contained
herein, the Purchaser shall not be required to pay the Purchaser
Breakup
Fee based upon (i) the Purchaser’s discovery during its due diligence
investigation of any material information of the Company not previously
disclosed to the Purchaser by the Company prior to the date hereof,
(ii)
any reasonably material discrepancy found during the Purchaser’s due
diligence investigation, or (iii) any material misstatement or omission
by
the Company in its audited financial statements or SEC Reports, in
each
case as determined solely at the discretion of the Purchaser. Subject
to
the foregoing proviso, the Purchaser shall promptly (but in no event
later
than 7 days following such termination by the Company) pay the Purchaser
Breakup Fee to the Company.
|
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, the Controlling Shareholder 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, any of the Group Companies or the
Controlling Shareholder, and (ii) acceptance of the Notes, and payment for
them
hereunder.
11. Substitution
of Purchaser.
The
Purchaser shall have the right to substitute any one of its Affiliates as the
purchaser of the Notes, 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 Notes 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 Notes under this Agreement.
12. Miscellaneous.
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(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: Fushi
International, Inc., ▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇’▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ 116100, Fax: ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇, Attention: Mr. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, with a copy to Guzov Ofsink, LLC, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Fax: ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇,
Esq., and (ii) if to the Purchaser, to the addresses as indicated
in
Schedule
A,
with a copy to Simpson, Thacher and ▇▇▇▇▇▇▇▇ LLP, ICBC Tower - 7th
Floor,
▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, Fax: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Attention:
▇▇▇▇▇▇▇▇ ▇▇▇▇, Esq. in the case of the
Purchaser.
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|
(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 be relying on the foregoing
representations in effecting transactions contemplated
hereunder.
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26
|
(c)
|
This
Agreement has been and is made solely for the benefit of and shall
be
binding upon each of the Group Companies, the Controlling Shareholder
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 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; provided,
however,
that ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far East Limited may rely on the representations
and
warranties herein contained as an intended third-party beneficiary
thereof.
|
|
(d)
|
THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS
OF THE STATE OF NEW YORK.
|
|
(e)
|
Each
of the Group Companies and Controlling Shareholder agrees that any
suit,
action or proceeding against any of the Group Companies and Controlling
Shareholder arising out of or based upon this Agreement or the
transactions contemplated hereby may be instituted in any State or
U.S.
federal court in The City of New York and County of New York, and
waives
any objection which it may now or hereafter have to the laying of
venue of
any such proceeding, and irrevocably submits to the non-exclusive
jurisdiction of such courts in any suit, action or
proceeding.
|
|
(f)
|
The
parties hereto each hereby waive any right to trial by jury in any
action,
proceeding or counterclaim arising out of or relating to this
Agreement.
|
|
(g)
|
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.
|
|
(h)
|
This
Agreement may be signed in various counterparts which together shall
constitute one and the same
instrument.
|
|
(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.
|
27
Please
confirm that the foregoing correctly sets forth the agreement among the Group
Companies, the Controlling Shareholder and the Purchaser.
Very
truly yours,
GROUP
COMPANIES
FUSHI
INTERNATIONAL, INC.
By:_________________________________
Name:
Title:
FUSHI
HOLDINGS, INC.
By:_________________________________
Name:
Title:
FUSHI
INTERNATIONAL (DALIAN) BIMETALLIC CABLE CO., LTD.
By:_________________________________
Name:
Title:
DALIAN
FUSHI BIMETALLIC MANUFACTURING CO., LTD.
By:_________________________________
Name:
Title:
28
CONTROLLING
SHAREHOLDER
By:_________________________________
Mr.
▇▇
▇▇
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
29
Accepted
and Agreed to:
CITADEL
EQUITY FUND LTD.
By:
Citadel Limited Partnership, its Portfolio Manager
By:
Citadel Investment Group, L.L.C., its General Partner
By:_________________________________
Name:
Title:
Authorized Signatory
[SIGNATURE
PAGE TO PURCHASE AGREEMENT]
30