LEAKOUT AGREEMENT
Exhibit
10.11
This AGREEMENT (the “Agreement”) is
made as of the __ day of January 2010, by the undersigned (“Holder”), in
connection with his, her or its ownership of shares of China Yongxin
Pharmaceuticals, Inc., a Delaware corporation (the “Company”).
NOW, THEREFORE, for good and valuable
consideration, the sufficiency and receipt of which consideration are hereby
acknowledged, Holder agrees as follows:
1. Background.
a. Holder
is the beneficial owner of __________ shares of the Common Stock, $0.001 par
value, of the Company (“Common Stock”).
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acknowledges that the Company has entered into or will enter into an
equity-linked financing in a private placement with one of more accredited
investors under a subscription agreement dated on or around the date of this
Agreement, in order to raise capital for its operations (“Offering”) involving
the issuance of convertible notes (“Notes”).
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understands that, as a condition to proceeding with the Offering, the investors
in the Offering have required, and the Company has agreed to obtain on behalf of
the investors, an agreement from the Holder to limit certain sales of securities
of the Company for as long as the Notes are outstanding (“Restriction Period”)
except as described below.
2. Sale
Restriction.
a. Rule
144. Holder agrees to comply at all times with the
requirements of Rule 144 promulgated under the Securities Act of
1933.
b. Restriction on
Sale. In addition to the applicable restrictions under Rule
144 as described in Section 2(a) above, Holder hereby agrees that during the
Restriction Period:
(i) for
every share sold at a sale price of over $0.50 per share (as appropriately
adjusted for stock splits, recapitalizations and similar events), the Holder
will not be subject to any restrictions in addition to Section 2(a);
and
(ii) for
every share sold below a sale price of $0.50 per share (as appropriately
adjusted for stock splits, recapitalizations and similar events) during the
Restriction Period, notwithstanding the foregoing the Holder shall be subject to
an aggregate maximum limit on the sale of such shares of 1.00% of the total
number of shares of outstanding Common Stock of the Company during any
ninety-day period, calculated at the commencement of such ninety day period;
this paragraph 2(b)(ii) shall not apply in connection with an offer made to all
stockholders of the Company in connection with merger, consolidation or similar
transaction involving the Company.
At the
first closing of the Offering, the Company will advise the Holder of the number
of shares of Common Stock which it believes the Holder may sell under Rule 144
and under 2(a) above, at such time.
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At the
first closing of the Offering, the Company will advise the Holder of the number
of shares of Common Stock which it believes the Holder may sell pursuant to
Section 2(b)(ii) during the applicable ninety-day period. On each
occasion where the closing price for the Common Stock is below $0.50 per share,
upon written request the Company will advise the Holder of the number of shares
of Common Stock which it believes the Holder may sell pursuant to Section
2(b)(ii) during the applicable ninety-day period.
c. Notice of Lapse of
Restrictions. The Company agrees to provide prompt notice to
the Holder in the event that the Notes are repaid or otherwise
discharged.
d. Loan to
Holder. Provided that the Holder executes and delivers this
Agreement to the Company, and conditioned upon the first closing of the Offering
with minimum gross proceeds of $350,000, the Company agrees to loan the Holder
the amount of $25,000, which amount shall be advanced at the time of closing,
and evidenced by receipt by the Company of an executed promissory note in the
form attached as Exhibit
A.
e. Additional
Conditions. (i) Holder’s acceptance is subject to the Offering
closing on or before January 20, 2010 in the minimum gross amount of $350,000,
and (ii) the Company shall provide at its sole expense a legal opinion as to
what date Holder’s shares are no longer restricted under Rule 144.
f. Broker. In
connection with the sale of the Common Stock, the Holder agrees to (a) use and
maintain one (1) broker (“Broker”) for the sale of Common Stock during the
Restriction Period, (2) inform such Broker of the sale restrictions in this
Agreement, and (3) the Company at its sole expense shall provide up to one legal
opinion per ninety day period regarding the numbers of shares of Common Stock
that may be sold pursuant to this Agreement.
g. Sale
Information. Holder agrees to cause its Broker to provide a
copy of each sale ticket evidencing each sale of Common Stock made during the
Restriction Period to the Company and to the collateral agent appointed by the
investors, within five days of such sale, to the following
contacts:
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(1)
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Collateral
Agents, LLC
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▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attn:
General Counsel
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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(2)
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China
Yongxin Pharmaceuticals, Inc.
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▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attn:
▇▇▇▇▇▇▇ ▇▇▇, CEO
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Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
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Holder
hereby authorizes the Company and Collateral Agent to obtain such sales
information from the Holder’s Broker at any time or from time to time during the
Restriction Period, as well as any related information, and agrees to inform its
Broker of such consent, which may not be revoked during the Restriction
Period.
h. Stop
Orders. Holder further agrees that the Company is authorized
to and the Company agrees to place “stop orders” on its books to prevent any
transfer of shares of Common Stock or other securities of the Company, limited
to the following instances:
(1) the Holder proposes or
attempts to sell a number of shares of Common Stock in excess of the number of
shares permitted pursuant to Section 2(a) as indicated by the Company pursuant
to Section 2(b); or
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(2) the Holder proposes or attempts to
sell a number of shares of Common Stock in excess of the number of shares
permitted pursuant to Section 2(b)(ii) as indicated by the Company pursuant to
Section 2(b).
The
Company agrees not to allow to occur any transaction inconsistent with this
Agreement.
i. Subsequent
Issuances. Any subsequent issuance to and/or acquisition by
Holder of Common Stock or options or instruments convertible into Common Stock
will be subject to the provisions of this Agreement.
3. Miscellaneous.
a. At
any time, and from time to time, after the signing of this Agreement Holder will
execute such additional instruments and take such action as may be reasonably
requested by the Subscribers to carry out the intent and purposes of this
Agreement, subject to review and approval by Holder’s legal counsel
b. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California without regard to principles of conflicts of
laws. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in the
state courts of California or in the federal courts located in the state of
California. The prevailing party shall be entitled to recover from
the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
c. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: China Yongxin
Pharmaceuticals, Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇▇ ▇▇▇, CEO, facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy to: ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, LLP, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇
▇▇▇▇▇, Esq., facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, (ii) if to the Holder, to: the addresses
and fax numbers indicated on the signature page hereto.
d. The
restrictions on transfer described in this Agreement are in addition to and
cumulative with any other restrictions on transfer otherwise agreed to by the
Holder in writing or to which the Holder is subject to by applicable
law.
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e. This
Agreement shall be binding upon Holder, its legal representatives, successors
and assigns.
f. This
Agreement may be signed and delivered by facsimile, electronically and such
facsimile or electronically signed and delivered Agreement shall be
enforceable.
g. The
Company agrees not to take any action or allow any act to be taken which would
be inconsistent with this Agreement.
[Signature Page
Follows]
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IN WITNESS WHEREOF, and intending to be
legally bound hereby, Holder has executed this Agreement as of the day and year
first above written.
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HOLDER:
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(Print
Name of Holder)
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(Signature
of
Holder)
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Title:
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Address
for notices:
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Fax: (______)
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COMPANY:
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CHINA
YONGXIN PHARMACEUTICALS,
INC.
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By:
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▇▇▇▇▇▇▇
▇▇▇, CEO
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Exhibit
A
NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal
Amount:
$___________ Issue
Date: January ___, 2010
SECURED CONVERTIBLE
PROMISSORY NOTE
FOR VALUE
RECEIVED, CHINA YONGXIN PHARMACEUTICALS, INC., a Delaware corporation
(hereinafter called “Borrower”), hereby promises to
pay to the order of __________________________________,
________________________________________________ (the “Holder”), without demand, the
sum of ________________________________________________ Dollars ($_________)
(“Principal Amount”),
with interest accruing thereon, on January ___, 2011 (the “Maturity Date”), if not sooner
paid.
This Note
has been entered into pursuant to the terms of a subscription agreement among
the Borrower, the Holder and certain other holders (the “Other Holders”) of convertible
promissory notes (the “Other
Notes”), dated of even date herewith (the “Subscription
Agreement”). Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to
this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 Interest
Rate. Interest payable on this Note shall accrue at the
annual rate of ten percent (10%) and be payable on the Maturity Date,
accelerated or otherwise, when the principal and remaining accrued but unpaid
interest shall be due and payable, or sooner as described below.
1.2 Payment Grace
Period. The Borrower shall not have any grace period to pay
any monetary amounts due under this Note. After the Maturity Date and
during the pendency of an Event of Default (as described in Article IV), a
default interest rate of fifteen percent (15%) per annum shall be in
effect.
1.3 Conversion
Privileges. The Conversion Rights set forth in Article II shall
remain in full force and effect immediately from the date hereof and until the
Note is paid in full regardless of the occurrence of an Event of
Default. This Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof.
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1.4 Pari
Passu. All payments made on this Note and the Other
Notes and except as otherwise set forth herein all actions taken by the Borrower
with respect to this Note and the Other Notes, including but not limited to
optional redemption, shall be made and taken pari passu with respect to
this Note and the Other Notes.
1.5 Miscellaneous. Interest
on this Note shall be calculated on the basis of a 360-day year and the actual
number of days elapsed. Principal and interest on this Note and other
payments in connection with this Note shall be payable at the Holder’s offices
as designated above in lawful money of the United States of America in
immediately available funds without set-off, deduction or
counterclaim. Upon assignment of the interest of Holder in this Note,
Borrower shall instead make its payment pursuant to the assignee’s instructions
upon receipt of written notice thereof.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the principal and any interest due under
this Note into Shares of the Borrower's Common Stock, $0.001 par value per share
(“Common Stock”) as set
forth below.
2.1. Conversion into the
Borrower's Common Stock.
(a) The
Holder shall have the right from and after the date of the issuance of this Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid principal portion of this Note, and accrued interest, at the election
of the Holder (the date of giving of such notice of conversion being a “Conversion Date”) into fully
paid and non-assessable shares of Common Stock as such stock exists on the date
of issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b)
hereof, determined as provided herein. Upon delivery to the Borrower
of a completed Notice of Conversion, a form of which is annexed hereto as Exhibit A, Borrower
shall issue and deliver to the Holder within three (3) business days after the
Conversion Date (such third day being the “Delivery Date”) that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest, if any, to be converted, by the Conversion
Price.
(b) Subject
to adjustment as provided in Section 2.1(c)
hereof, the conversion price (“Conversion Price”) per share shall be
$0.20.
(c)
The Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to Section 2.1(a), shall
be subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:
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A. Merger, Sale of Assets,
etc. If (A) the Borrower effects any merger
or consolidation of the Borrower with or into another entity, (B) the
Borrower effects any sale of all or substantially all of its assets in one or a
series of related transactions, (C) any tender offer or exchange
offer (whether by the Borrower or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, (D) the Borrower consummates a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with one
or more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the ▇▇▇▇ ▇▇▇) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
Common Stock of the Borrower, or (F) the Borrower effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (other than a reverse merger) (in any such case, a
“Fundamental Transaction”), this
Note, as to the unpaid principal portion thereof and accrued interest thereon,
if any, shall thereafter be deemed to evidence the right to convert into such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior
to such Fundamental Transaction. The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser. Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such Fundamental
Transaction.
B. Reclassification,
etc. If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes that may be issued or outstanding, this Note,
as to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations
and Dividends. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
D. Share
Issuance. So long as this Note is outstanding, if the
Borrower shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete conversion or
payment of this Note, for a consideration per share that is less than the
Conversion Price that would be in effect at the time of such issue, then, and
thereafter successively upon each such issuance, the Conversion Price shall be
reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security or debt instrument of the Borrower
carrying the right to convert such security or debt instrument into Common Stock
or of any warrant, right or option to purchase Common Stock shall result in an
adjustment to the Conversion Price upon the issuance of the above-described
security, debt instrument, warrant, right, or option and again upon the issuance
of shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Conversion Price.
Common Stock issued or issuable by the Borrower for no consideration will be
deemed issuable or to have been issued for $0.001 per share of Common
Stock. The reduction of the Conversion Price described in this
paragraph is in addition to the other rights of the Holder described in the
Subscription Agreement.
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(d) When
ever the Conversion Price is adjusted pursuant to Section 2.1(c) above,
the Borrower shall promptly but not later than the third day after the
effectiveness of the adjustment, provide notice to the Holder setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment. Failure to provide the foregoing
notice is an Event of Default under this Note.
(e) During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than an amount of Common Stock
equal to 130% of the amount of shares of Common Stock issuable upon the full
conversion of this Note. Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and
non-assessable. Borrower agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.
2.2 Method of
Conversion. This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a) hereof
and the Subscription Agreement. Upon partial conversion of this Note,
a new Note containing the same date and provisions of this Note shall, at the
request of the Holder, be issued by the Borrower to the Holder for the principal
balance of this Note and interest which shall not have been converted or
paid.
2.3. Maximum
Conversion. The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion
Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited
to aggregate conversions of 4.99%. The Holder shall have the
authority and obligation to determine whether the restriction contained in this
Section 2.3
will limit any conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the Notes are convertible shall be the responsibility and
obligation of the Holder. The Holder may waive the conversion
limitation described in this Section 2.3, in whole
or in part, upon and effective after 61 days prior written notice to the
Borrower to increase such percentage to up to 9.99%.
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ARTICLE
III
OPTIONAL
REDEMPTION
3.1. Optional
Redemption. Except as described in this Section 3.1, at any
time, the Borrower will have the option of prepaying the entire outstanding
Principal Amount of this Note that has not been converted (“Optional Redemption”) by
paying to the Holder a sum of money equal to the Redemption Amount described
below. Borrower’s election to exercise its right to prepay must be by
notice in writing (“Notice of
Redemption”). The “Redemption Amount” shall equal
one hundred and ten percent (110%) of the entire outstanding Principal Amount
being redeemed in connection with such Optional Redemption, together with all
interest accrued on this Note, if any, and all other amounts then payable
hereunder or pursuant to the Subscription Agreement. The Notice of
Redemption shall specify the date for such Optional Redemption (the “Redemption Payment Date”),
which date shall be not less than ten business days after the date of the Notice
of Redemption. A Notice of Redemption shall not be effective with
respect to any portion of the principal amount under this Note for which the
Holder has a pending election to convert or for which a Conversion Notice is
properly given prior to the Redemption Payment Date. On the
Redemption Payment Date, the Redemption Amount, less any portion of the
Redemption Amount against which the Holder has previously exercised its rights
pursuant to Section 2.1, shall be paid in good funds to the Holder. In the event
the Borrower fails to timely pay the Redemption Amount on the Redemption Payment
Date as set forth herein, then (i) at the Holder’s election, such Notice of
Redemption will be null and void or Holder may enforce the Notice of Redemption,
(ii) Borrower will not have the right to deliver another Notice of Redemption,
and (iii) Borrower’s failure may be deemed by Holder to be a non-curable Event
of Default. A Notice of Redemption must be given to all other Holders
with respect to Other Notes contemporaneously with the giving of a Notice of
Redemption to the Holder.
3.2. Fundamental
Transaction. Upon the occurrence of a Fundamental Transaction,
then in addition to the Holder’s rights described in Section 2.1(c)(A) until
twenty (20) business days after the Borrower notifies the Holder of the
occurrence of the Fundamental Transaction, the Holder may elect to accelerate
the Maturity Date as of the date of the Fundamental Transaction and receive as
payment for the then outstanding Principal Amount, and any other amount owed to
the Holder pursuant to the Transaction Documents.
3.3. Redemption. This
Note may not be prepaid, redeemed or called without the consent of the Holder
except as described in this Note or the Subscription Agreement.
ARTICLE
IV
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall, at
the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment or grace period, all of which
hereby are expressly waived, except as set forth below:
4.1 Failure to Pay Principal or
Interest. The Borrower fails to pay any installment of
principal, interest or other sum due under this Note when due.
4.2 Breach of
Covenant. The Borrower or any Subsidiary breaches any material
covenant or other term or condition of the Subscription Agreement, Transaction
Documents or this Note in any material respect and such breach, if subject to
cure, continues for a period of ten (10) business days after written notice to
the Borrower from the Holder.
4.3 Breach of Representations
and Warranties. Any material representation or warranty of the
Borrower made herein, in the Subscription Agreement, Transaction Documents, or
in any agreement, statement or certificate given in writing pursuant hereto or
in connection therewith shall be false or misleading in any material respect as
of the date made and the Closing Date.
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4.4 Liquidation. Any
dissolution, liquidation or winding up of Borrower or any Subsidiary or any
substantial portion of its business.
4.5 Cessation of
Operations. Any cessation of operations by Borrower or
its Subsidiary as a whole.
4.6 Maintenance of
Assets. The failure by Borrower or any Subsidiary to
maintain any material intellectual property rights, personal, real property or
other assets which are necessary to conduct its business (whether now or in the
future) and such breach is not cured with fifteen (15) business days after
written notice to the Borrower from the Holder.
4.7 Receiver or
Trustee. The Borrower or any Subsidiary shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
4.8 Judgments. Any
money judgment, writ or similar final process shall be entered or made in a
non-appealable adjudication against Borrower or any Subsidiary or any of its
property or other assets for more than $200,000, unless stayed vacated or
satisfied within thirty (30) days.
4.9 Bankruptcy. Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any Subsidiary.
4.10 Delisting. Delisting
of the Common Stock from any Principal Market; failure to comply with the
requirements for continued listing on a Principal Market for a period of fifteen
(15) consecutive trading days; or notification from a Principal Market that the
Borrower is not in compliance with the conditions for such continued listing on
such Principal Market.
4.11 Non-Payment. A
default by the Borrower or any Subsidiary under any one or more obligations in
an aggregate monetary amount in excess of $200,000 for more than twenty days
after the due date, unless the Borrower or such Subsidiary is contesting the
validity of such obligation in good faith and has segregated cash funds equal to
not less than one-half of the contested amount.
4.12 Stop
Trade. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for ten (10) or more consecutive trading
days.
4.13 Failure to Deliver Common
Stock or Replacement Note. Borrower's failures to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note, Sections 7 and 11 of the Subscription Agreement, and the Warrant or, if
required, a replacement Note following a partial conversion.
4.14 Reservation
Default. Failure by the Borrower to have reserved for
issuance upon conversion of the Note or upon exercise of the Warrants issued in
connection with the Subscription Agreement, the number of shares of Common Stock
as required in the Subscription Agreement, this Note and the Warrants which is
not cured within 30 business days of such breach.
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4.15 Financial Statement
Restatement. The restatement after the date hereof of any
financial statements filed by the Borrower with the Securities and Exchange
Commission for any date or period from two years prior to the Issue Date of this
Note and until this Note is no longer outstanding, if the result of such
restatement would, by comparison to the unrestated financial statements, have
constituted a Material Adverse Effect.
4.16 Reverse
Splits. The Borrower effectuates a reverse split of its
Common Stock without twenty (20) days prior written notice to the
Holder.
4.17 Event Described in
Subscription Agreement. The occurrence of an Event of Default
as described in the Subscription Agreement or any other Transaction Document
that, if susceptible to cure, is not cured during any designated cure period or
longer period described in this Article IV.
4.18 Executive Officers Breach of
Duties. Any of Borrower’s named executive officers or
directors is convicted of a violation of securities laws, or a settlement in
excess of $250,000 is reached by any such officer or director relating to a
violation of securities laws, breach of fiduciary duties or
self-dealing.
4.19 Notification
Failure. A failure by Borrower to notify Holder of any
material event of which Borrower is obligated to notify Holder pursuant to the
terms of this Note or any other Transaction Document.
4.20 Cross
Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a event of default under any such
other agreement to which Borrower and Holder are parties which is not cured
after any required notice and/or cure period.
4.21 Other Note
Default. The occurrence of an Event of Default under any
Other Note.
ARTICLE
V
SECURITY
INTEREST
5. Security Interest/Waiver of
Automatic Stay. This Note is secured by a security
interest granted to the Holder pursuant to a Security Agreement, as delivered by
Borrower to Holder. The Borrower acknowledges and agrees that should
a proceeding under any bankruptcy or insolvency law be commenced by or against
the Borrower, or if any of the Collateral (as defined in the Security Agreement)
should become the subject of any bankruptcy or insolvency proceeding, then the
Holder should be entitled to, among other relief to which the Holder may be
entitled under the Transaction Documents and any other agreement to which the
Borrower and Holder are parties (collectively, "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby
consents to any motion for relief from stay that may be filed by the Holder in
any bankruptcy or insolvency proceeding initiated by or against the Borrower
and, further, agrees not to file any opposition to any motion for relief from
stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of the Loan
Documents, and that the Holder would not agree to the terms of the Loan
Documents if this waiver were not a part of this Note. The Borrower further
represents, acknowledges and agrees that this waiver is knowingly, intelligently
and voluntarily made, that neither the Holder nor any person acting on behalf of
the Holder has made any representations to induce this waiver, that the Borrower
has been represented (or has had the opportunity to he represented) in the
signing of this Note and the Loan Documents and in the making of this waiver by
independent legal counsel selected by the Borrower and that the Borrower has
discussed this waiver with counsel.
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ARTICLE
VI
MISCELLANEOUS
6.1 Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder hereof
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
6.2 Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be: (i) if to the Borrower to: China
Yongxin Pharmaceuticals, Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attn: ▇▇▇▇▇▇▇ ▇▇▇, CEO, facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, with a copy to: ▇▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇, LLP, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇ ▇▇▇▇, Esq., facsimile: (▇▇▇) ▇▇▇-▇▇▇▇, and (ii) if to the Holder, to the
name, address and facsimile number set forth on the front page of this Note,
with a copy by fax only to Grushko & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, facsimile: (▇▇▇) ▇▇▇-▇▇▇▇.
6.3 Amendment
Provision. The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.
6.4 Assignability. This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns. The Borrower may not assign its obligations under this
Note.
6.5 Cost of
Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys’ fees.
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6.6 Governing
Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located
in the State and county of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or unenforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Borrower in any other
jurisdiction to collect on the Borrower's obligations to Holder, to realize on
any collateral or any other security for such obligations, or to enforce a
judgment or other decision in favor of the Holder. This Note shall be deemed an
unconditional obligation of Borrower for the payment of money and, without
limitation to any other remedies of Holder, may be enforced against Borrower by
summary proceeding pursuant to New York Civil Procedure Law and Rules Section
3213 or any similar rule or statute in the jurisdiction where enforcement is
sought. For purposes of such rule or statute, any other document or
agreement to which Holder and Borrower are parties or which Borrower delivered
to Holder, which may be convenient or necessary to determine Holder’s rights
hereunder or Borrower’s obligations to Holder are deemed a part of this Note,
whether or not such other document or agreement was delivered together herewith
or was executed apart from this Note.
6.7 Maximum
Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law. In the event
that the rate of interest required to be paid or other charges hereunder exceed
the maximum rate permitted by applicable law, any payments in excess of such
maximum rate shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
6.8 Non-Business
Days. Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.
6.9 Shareholder
Status. The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this
Note. However, the Holder will have the rights of a shareholder of
the Borrower with respect to the Shares of Common Stock to be received after
delivery by the Holder of a Conversion Notice to the Borrower.
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IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
____ day of January, 2010.
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CHINA
YONGXIN PHARMACEUTICALS, INC.
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By:
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Name:
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Title:
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15
NOTICE OF
CONVERSION
(To be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by CHINA YONGXIN PHARMACEUTICALS, INC. on
January ___, 2010 into Shares of Common Stock of CHINA YONGXIN PHARMACEUTICALS,
INC. (the “Borrower”) according to the conditions set forth in such Note, as of
the date written below.
Date of
Conversion:____________________________________________________________________________________
Conversion
Price:______________________________________________________________________________________
Number of
Shares of Common Stock Beneficially Owned on the Conversion Date: Less than 5%
of the outstanding Common Stock of CHINA YONGXIN PHARMACEUTICALS,
INC.
Shares To
Be
Delivered:_________________________________________________________________________________
Signature:____________________________________________________________________________________________
Print
Name:__________________________________________________________________________________________
Address:_____________________________________________________________________________________________
____________________________________________________________________________________________
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