SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Dated as of October 23, 2007 among INTERNATIONAL IMAGING SYSTEMS, INC. and THE PURCHASERS LISTED ON EXHIBIT A
Exhibit
10.1
SERIES
A
CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated
as of October 23, 2007
among
INTERNATIONAL
IMAGING SYSTEMS, INC.
and
THE
PURCHASERS LISTED ON EXHIBIT A
TABLE
OF CONTENTS
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PAGE
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ARTICLE
I Purchase and Sale of Preferred Stock
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2
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Section
1.1
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Purchase
and Sale of Stock
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2
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Section
1.2
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Warrants
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2
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Section
1.3
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Conversion
Shares
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2
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Section
1.4
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Purchase
Price and Closings
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3
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ARTICLE
II Representations and Warranties
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3
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Section
2.1
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Representations
and Warranties of the Company
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3
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Section
2.2
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Representations,
Warranties and Covenants of the Purchasers
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14
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ARTICLE
III Covenants
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17
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Section
3.1
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Securities
Compliance
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17
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Section
3.2
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Registration
and Listing
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17
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Section
3.3
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Inspection
Rights
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18
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Section
3.4
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Compliance
with Laws
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18
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Section
3.5
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Keeping
of Records and Books of Account
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18
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Section
3.6
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Reporting
Requirements
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18
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Section
3.7
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Amendments
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19
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Section
3.8
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Other
Agreements
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19
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Section
3.9
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Distributions
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19
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Section
3.10
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Status
of Dividends
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19
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Section
3.11
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Use
of Proceeds
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20
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Section
3.12
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Reservation
of Shares
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20
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Section
3.13
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Transfer
Agent Instructions
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20
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Section
3.14
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Disposition
of Assets
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21
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Section
3.15
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Reporting
Status
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21
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Section
3.16
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Disclosure
of Transaction
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21
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Section
3.17
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Disclosure
of Material Information
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22
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Section
3.18
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Pledge
of Securities
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22
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Section
3.19
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Form
SB-2 Eligibility
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22
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Section
3.20
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Lock-Up
Agreement
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22
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Section
3.21
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DTC
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22
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Section
3.22
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No
variable conversion price securities
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22
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Section
3.23
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▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act
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24
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Section
3.24
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No
Commissions in connection with Conversion of Preferred
Shares
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24
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ARTICLE
IV Conditions
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25
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Section
4.1
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Conditions
Precedent to the Obligation of the Company to Sell the
Shares
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25
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares
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27
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ARTICLE
V Stock Certificate Legend
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30 | |
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Section
5.1
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Legend
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30
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ARTICLE
VI Indemnification
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31
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Section
6.1
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Indemnification
of Purchasers
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31
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Section
6.2
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Indemnification
of Company
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31
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Section
6.3
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Indemnification
Procedure
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31
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ARTICLE
VII Miscellaneous
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32
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Section
7.1
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Fees
and Expenses
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32
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Section
7.2
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Specific
Enforcement, Consent to Jurisdiction.
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33
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Section
7.3
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Entire
Agreement; Amendment
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33
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Section
7.4
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Notices
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34
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Section
7.5
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Waivers
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35
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Section
7.6
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Headings
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35
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Section
7.7
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Successors
and Assigns
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35
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Section
7.8
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No
Third Party Beneficiaries
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35
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Section
7.9
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Governing
Law
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35
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Section
7.10
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Survival
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35
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Section
7.11
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Counterparts
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35
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Section
7.12
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Publicity
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35
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Section
7.13
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Severability
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35
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Further
Assurances
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36
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Section
7.15
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Termination
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36
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EXHIBITS
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A.
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Purchasers
and Amounts
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B-1.
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Form
of Series ▇-▇ ▇▇▇▇▇▇▇
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▇-▇.
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Form
of Series A-2 Warrant
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C.
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Form
of Certificate of Designation
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D.
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Form
of Registration Rights Agreement
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E.
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Form
of Lock-Up Agreement
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F.
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Form
of Irrevocable Transfer Agent Instructions
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G.
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Form
of Share Escrow Agreement
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Investor
and Public Relations Agreement
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I.
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Form
of Opinion of Counsel
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ii
This
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”)
is
dated as of October 23, 2007 by and among International Imaging Systems, Inc.,
a
Delaware corporation(the “Company”), and each of the Purchasers of shares of
Series A Convertible Preferred Stock of the Company whose names are set forth
on
Exhibit
A
hereto
(individually, a “Purchaser”
and
collectively, the “Purchasers”).
RECITALS
A.
The
common stock of the Company is a currently traded publicly on the
Over-the-Counter Bulletin Board;
B. The
Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “Securities Act”); and
C. The
Purchasers wish to purchase from the Company, and the Company wishes to sell
and
issue to the Purchasers, upon the terms and conditions stated in this Agreement,
(i) an aggregate of One Million (1,000,000) shares of Series A Convertible
Preferred Stock, par value $0.001 at a purchase price of $10.00 per share (the
“Preferred Shares”), which shall initially convert into Four Million Five
Hundred Forty Five Thousand Four Hundred Fifty Five (4,545,455)
shares
of the Company’s Common Stock, subject to adjustment, (ii) Series A-1 warrants
to purchase an aggregate of Three Million Four Hundred Nine Thousand Ninety
One
(3,409,091) shares of Common Stock at an exercise price of $3.00 per share
in
the form attached hereto as Exhibit
B-1
(the
“Series A-1 Warrants”), and (iii) Series A-2 warrants to purchase an aggregate
of Two Million Two Hundred Seventy Two Thousand Seven Hundred Twenty Eight
(2,272,728) shares of Common Stock at an exercise price of $4.40 per share
in
the form attached hereto as Exhibit
B-1
(collectively, the “Series A-2 Warrants” and together with the Series A-1
Warrants, the “Warrants”), for an aggregate purchase price of $10,000,000 (the
“Purchase Price”); and
D. Contemporaneous
with the sale of the Preferred Shares and the Warrants, the parties hereto
will
execute and deliver a Registration Rights Agreement, in the form attached hereto
as Exhibit
C
(the
“Registration Rights Agreement”), pursuant to which the Company will agree to
provide certain registration rights under the Securities Act, and the rules
and
regulations promulgated thereunder, and applicable state securities laws;
and
E. Contemporaneous
with the sale of the Preferred Shares and the Warrants, the Company, Baorun
China Group Limited and the other parties named in the Share Exchange Agreement
dated on even date herewith between such parties (the “Share Exchange”) shall
have consummated the transactions contemplated thereby. Accordingly,
all
references to the Company and any securities issued pursuant hereto, refer
to
the Company after the Share Exchange.
Now,
therefore, in consideration of the mutual representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE
I
Purchase
and Sale of Preferred Stock
Section
1.1 Purchase
and Sale of Stock.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers and each of the Purchasers shall purchase from the Company the number
of preferred shares of the Company’s Series A Convertible Preferred Stock, par
value $0.001 per share (the “Preferred
Shares”),
at a
purchase price of $10.00 per
Preferred Share, convertible into shares of the Company’s common stock, par
value $0.0001 per share (the “Common
Stock”),
set
forth opposite such Purchaser’s name on Exhibit
A
hereto.
The designation, rights, preferences and other terms and provisions of the
Series A Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock attached hereto as Exhibit
C
(the
“Certificate
of Designation”).
The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D (“Regulation
D”),
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”),
under
the Securities Act of 1933, as amended (the “Securities
Act”),
or
Section 4(2) of the Securities Act.
Section
1.2 Warrants.
Upon
the following terms and conditions and for no additional consideration, each
of
the Purchasers shall be issued (i) a Series A-1 Warrant, in substantially the
form attached hereto as Exhibit
B-1
(the
“Series
A-1 Warrants”),
to
purchase the number of shares of Common Stock equal to seventy five percent
(75%) of the number of Conversion Shares (as defined in Section 1.3 hereof)
initially issuable upon conversion of the Preferred Shares acquired by such
Purchaser pursuant to the terms of this Agreement, as set forth opposite such
Purchaser’s name on Exhibit
A hereto,
and (ii) a Series A-2 Warrant, in substantially the form attached hereto as
Exhibit
B-2
(the
“Series
A-2 Warrant”
and,
together with the Series A-1 Warrant, the “Warrants”)
to
purchase the number of shares of Common Stock equal to fifty percent (50%)
of
the number of Conversion Shares initially issuable upon conversion of the
Preferred Shares acquired by such Purchaser pursuant to the terms of this
Agreement. The Warrants shall expire five (5) years following the Closing Date.
Each of the Warrants shall have an exercise price per share equal to its
respective Warrant Price (as defined in the applicable Warrant).
Section
1.3 Conversion
Shares.
The
Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights
of
stockholders, a number of shares of Common Stock equal to one hundred
ten
percent (110%) of the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares
and
the exercise of all of the Warrants then outstanding. Any shares of Common
Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the “Conversion
Shares”
and
the
“Warrant
Shares”,
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the “Shares”.
2
Section
1.4 Purchase
Price and Closings.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Preferred
Shares and the Warrants for an aggregate purchase price of $10,000,000 (the
“Purchase
Price”).
The
closing of the purchase and sale of the Preferred Shares and the Warrants to
be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Leser, Hunter, Taubman & Taubman, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the “Closing”)
at
10:00 a.m., New York time (i) on or before October 31, 2007; provided,
that
all of the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith, or (ii)
at
such other time and place or on such date as the Purchasers and the Company
may
agree upon in writing signed by the Company and the Purchasers (the
"Closing
Date").
Subject to the terms and conditions of this Agreement, at the Closing the
Company shall deliver or cause to be delivered to each Purchaser (x) a
certificate for the number of Preferred Shares set forth opposite the name
of
such Purchaser on Exhibit
A
hereto,
(y) Warrants to purchase such number of shares of Common Stock as is set forth
opposite the name of such Purchaser on Exhibit
A
attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. As
of the
date hereof, the Purchase Price has been deposited into an escrow account with
Leser, Hunter, Taubman & Taubman, pursuant to the Escrow Agreement, dated
September 17, 2007, by and among Xi’an Baorun Industrial Development Co., Ltd.,
Vision Opportunity Master Funds, LP and Leser, Hunter, Taubman & Taubman, as
escrow agent. On the Closing Date, the parties to the Escrow Agreement shall
issue instructions to the Escrow Agent Shall to disburse such funds to the
Company.
ARTICLE
II
Representations
and Warranties
of the Company
Section
2.1 Representations
and Warranties of the Company.
For
purposes of this Section 2.1 only, the Company hereby represents and warrants
to
each Purchaser, as of the date hereof (except as set forth on the Disclosure
Schedules attached hereto as Schedules
2.1
(the
“Company Disclosure Schedules”), which are divided into sections that correspond
to the sections of this Section II. The Company Disclosure Schedule comprises
a
list of all exceptions to the truth and accuracy of, and of all disclosures
or
descriptions required by, the representations and warranties set forth in the
remaining sections of this Section II. For purposes of this Section II, any
statement, facts, representations, or admissions contained in the public filings
made by the Company with the United States Securities and Exchange Commissions,
are deemed to be included in the Company Disclosure Schedules and all such
information is deemed to be fully disclosed to the Purchaser), as
follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has the requisite
corporate power to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted. Except as set forth on
Schedule
2.1(a),
the
Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect (as defined in Section
2.1(c)
hereof)
.
3
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
D
(the
“Registration
Rights Agreement”),
the
Lock-Up Agreement (as defined in Section
3.20
hereof),
substantially in the form attached hereto as Exhibit
E,
the
Irrevocable Transfer Agent Instructions (as defined in Section
3.13),
substantially in the form of Exhibit
F,
the
Share Escrow Agreement, substantially in the form attached hereto as
Exhibit
G
(the
“Share
Escrow Agreement”),
the
Investor and Public Relations Escrow Agreement, substantially in the form
attached hereto as Exhibit
H
(the “PR
Escrow Agreement”), the Certificate of Designation, and the Warrants
(collectively, the “Transaction
Documents”)
and to
issue and sell the Shares and the Warrants in accordance with the terms hereof.
The execution, delivery and performance of the Transaction Documents by the
Company, and the consummation by it of the transactions contemplated hereby
and
thereby, have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board
of
Directors or stockholders is required. This Agreement and each of the
Transaction Documents, when executed and delivered at the Closing will have
been
duly executed and delivered and shall constitute a valid and binding obligation
of the Company enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.
(c) Capitalization.
The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding, are set forth on Schedule
2.1(c)
hereto.
All of the outstanding shares of the Common Stock have been duly and validly
authorized. Except as set forth on Schedule
2.1(c) hereto
and as contemplated by this Agreement and the Transaction Documents, no shares
of Common Stock are entitled to preemptive rights or registration rights and
there are no outstanding options, warrants, scrip, rights to subscribe to,
call
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Except as set forth on Schedule
2.1(c)
hereto
and as contemplated by the Transaction Documents, there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company
or
options, securities or rights convertible into shares of capital stock of the
Company. Except as set forth on Schedule
2.1(c)
hereto
and as contemplated by this Agreement and the Transaction Documents, the Company
is not a party to any agreement granting registration or anti-dilution rights
to
any person with respect to any of its equity or debt securities. The Company
is
not a party to, and it has no knowledge of, any agreement restricting the voting
or transfer of any shares of the capital stock of the Company. To the Company’s
knowledge, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable Federal and state securities laws and no stockholder has
a
right of rescission or claim for damages with respect thereto which would have
a
Material Adverse Effect (as defined below). The Company has furnished or made
available to the Purchasers true and correct copies of the Company’s Certificate
of Incorporation as in effect on the date hereof (the “Certificate”),
and
the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).
For
the purposes of this Agreement, “Material
Adverse Effect”
means
any material adverse effect on (i) the business, operations, properties,
prospects, or financial condition of the Company and its subsidiaries, taken
as
a whole, or (ii) the ability of the Company to perform any of its obligations
under the Transaction Documents.
4
(d) Issuance
of Shares.
The
Preferred Shares and the Warrants to be issued at the Closing have been duly
authorized by all necessary corporate action and the Preferred Shares, when
paid
for and issued in accordance with the terms hereof, shall be validly issued
and
outstanding, fully paid and nonassessable and entitled to the rights and
preferences set forth in the Certificate of Designation. The Conversion Shares
when issued in accordance with the terms of the Certificate of Designation,
and
the Warrant Shares, when fully paid and issued in accordance with the Warrants,
will be duly authorized by all necessary corporate action and validly issued
and
outstanding, fully paid and nonassessable, and the holders shall be entitled
to
all rights accorded to a holder of Common Stock.
(e) No
Conflicts.
Neither, the execution, delivery and performance of the Transaction Documents
by
the Company, the performance by the Company of its obligations hereunder and
thereunder and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company’s Certificate or Bylaws, (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is
a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of
its
respective properties or assets are bound, or (iv) to the Company’s knowledge,
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries
or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses
(i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the
aggregate, have a Material Adverse Effect. To the Company’s knowledge, the
business of the Company and its subsidiaries is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under Federal,
state
or local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents, or issue and sell the Preferred Shares, the Warrants,
the
Conversion Shares and the Warrant Shares in accordance with the terms hereof
or
thereof (other than (x) any consent, authorization or order that has been
obtained as of the date hereof, (y) any filing or registration that has been
made as of the date hereof or (z) any filings which may be required to be made
by the Company with the Commission or state securities administrators subsequent
to the Closing, any registration statement which may be filed pursuant hereto,
and the Certificate of Designation); provided
that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
5
(f) Commission
Documents, Financial Statements.
Except
as indicated on Schedule
2.1(f),
the
Company has timely filed, or filed within the applicable extension period,
all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),
including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “Commission
Documents”)
since
September 19, 2006, and to the best of the Company’s knowledge all Commission
Documents prior to September 19, 2006 were so filed. True and complete copies
of
all of the Commission Documents are available to the Purchasers through the
Commission’s ▇▇▇▇▇ database on ▇▇▇.▇▇▇.▇▇▇. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Company’s Form 10-KSB for the year ended
December 31, 2006, including the accompanying financial statements (the
“Form
10-KSB”)
and
the Company’s Form 10-QSB for the fiscal quarters ended March 31, 2007 and June
30, 2007 (the “Form
10-QSBs”)
complied in all material respects with the requirements of the Exchange Act
and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of their respective dates, neither the Form 10-KSB, nor
the
Form 10-QSBs 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 light of the circumstances under which they
were
made, not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may
be
otherwise indicated in such financial statements or the notes thereto or (ii)
in
the case of unaudited interim statements, to the extent they may not include
footnotes), and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
6
(g) Subsidiaries.
Prior
to the date hereof, the Company did not have any subsidiaries. Set forth on
Schedule
2.1(g)
is a
list of the Company’s subsidiaries as a result of the Share Exchange. For the
purposes of this Agreement, “subsidiary”
shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries.
(h) No
Material Adverse Change.
Except
as set forth on Schedule
2.1(h),
since
June 30, 2007, the Company has not experienced or suffered any Material Adverse
Effect.
(i) No
Undisclosed Liabilities.
Neither
the Company nor any of its subsidiaries has any liabilities, obligations, claims
or losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) other than those incurred in the ordinary
course of the Company’s or its subsidiaries respective businesses since June 30,
2007, and which, individually or in the aggregate, do not or would not have
a
Material Adverse Effect on the Company or its subsidiaries.
(j) No
Undisclosed Events or Circumstances.
No
event or circumstance has occurred or exists with respect to the Company or
its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not
been
so publicly announced or disclosed since June 30, 2007.
(k) Indebtedness.
Schedule
2.1(k)
hereto
sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or
any
subsidiary has commitments, in each case that have not previously been set
forth
in the Commission Documents. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$100,000 (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 $25,000 due under leases required
to be
capitalized in accordance with GAAP. Except as set forth on Schedule
2.1(k),
neither
the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title
to Assets.
Except
as set forth on Schedule
2.1(l),
each of
the Company and the subsidiaries has good and marketable title to all of its
real and personal property, free and clear of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for those disclosed
in
the Financial Statements and the Commission Documents or such that, individually
or in the aggregate, do not cause a Material Adverse Effect. Solely with respect
to the Company, all of its real and personal property is reflected in the
Financial Statements and the Commission Documents. Except as set forth on
Schedule
2.1(l),
all
leases of the Company and each of its subsidiaries are valid and subsisting
and
in full force and effect.
7
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or
the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
There are no outstanding orders, judgments, injunctions, awards or decrees
of
any court, arbitrator or governmental or regulatory body against the Company
or
any subsidiary or any officers or directors of the Company or subsidiary in
their capacities as such.
(n) Compliance
with Law.
The
business of the Company since June 30, 2007, and the business of the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except for such noncompliance that, individually or in the
aggregate, would not cause a Material Adverse Effect. Neither the Company,
nor
the subsidiaries has received notice of any violation of applicable federal,
state and local governmental laws, rules, regulations and ordinances for any
periods prior to June 30, 2007. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, could not reasonably be expected
to
have a Material Adverse Effect.
(o) Taxes.
The
Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company have been audited by the Internal Revenue Service, or with
respect to the subsidiaries, none of their respective tax returns have been
audited by any governmental entity in the jursidiction in which each such
subsidiary may be subject to taxation. Neither the Company, nor any subsidiary,
has any knowledge of any additional assessments, adjustments or contingent
tax
liability (whether federal,state or foreign) of any nature whatsoever, whether
pending or threatened against the Company or any subsidiary for any period,
nor
of any basis for any such assessment, adjustment or contingency.
(p) Certain
Fees.
Except
as set forth on Schedule
2.1(p)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Company or any subsidiary with respect to the transactions contemplated
by
this Agreement.
8
(q) Disclosure.
Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation
of Business.
The
Company and each of the subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing, which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(s) Environmental
Compliance.
The
Company and each of its subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. Except as set forth
on
Schedule
2.1(s),
the
Company and its subsidiaries are
in
material compliance with applicable environmental requirements in the operation
of their respective business, except to the extent that any non compliance,
individually or in the aggregate, does not cause a Material Adverse
Effect.
“Environmental
Laws”
shall
mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company
has
all necessary governmental approvals required under all Environmental Laws
and
used in its business or in the business of any of its subsidiaries. The Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances
as
would not individually or in the aggregate have a Material Adverse Effect,
there
are no past or present events, conditions, circumstances, incidents, actions
or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or
that
may give rise to any environmental liability, or otherwise form the basis of
any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(t) Books
and Record Internal Accounting Controls.
The
books and records of the Company and its subsidiaries accurately reflect in
all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of
all transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain
a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed
in
accordance with management’s general or specific authorizations, (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 reasonable intervals and appropriate action
is taken with respect to any differences.
9
(u) Material
Agreements.
Except
as set forth on Schedule
2.1(u)
or with
respect to the transactions contemplated herein or in the Share Exchange
Agreement, neither the Company nor any subsidiary is a party to any written
or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or other applicable form
(collectively, “Material
Agreements”)
if the
Company or any subsidiary were registering securities under the Securities
Act.
Except as set forth on Schedule
2.1(u),
the
Company and each of its subsidiaries has in all material respects performed
all
the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and are not in default under
any
Material Agreement now in effect, the result of which could cause a Material
Adverse Effect. Except as set forth on Schedule
2.1(u),
no
written or oral contract, instrument, agreement, commitment, obligation, plan
or
arrangement of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company’s Preferred Shares, other preferred stock,
if any, or its Common Stock.
(v) Transactions
with Affiliates.
Except
as set forth in the Financial Statements, the Commission Documents or
Schedule
2.1(v),
there
are no loans, leases, agreements, contracts, royalty agreements, management
contracts or arrangements or other continuing transactions between (a) the
Company or any subsidiary on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or affiliate or any corporation or other entity controlled
by such officer, employee, consultant, director or affiliate, or a member of
the
immediate family of such officer, employee, consultant, director or
affiliate.
(w) Securities
Act of 1933.
Based
in material part upon the representations herein of the Purchasers, the Company
has complied and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the Shares and the
Warrants hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to
buy
any of the Shares, the Warrants or similar securities to, or solicit offers
with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action, so as to bring the issuance and sale of any of the Shares and the
Warrants under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.
10
(x) Governmental
Approvals.
Except
for the filing of any notice prior or subsequent to the Closing Date that may
be
required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis), including the filing of a Form
D
and a registration statement or statements pursuant to the Registration Rights
Agreement, and the filing of the Certificate of Designation with the Secretary
of State for the State of Delaware, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or
foreign, is or will be necessary for, or in connection with, the execution
or
delivery of the Preferred Shares and the Warrants, or for the performance by
the
Company of its obligations under the Transaction Documents.
(y) Employees.
Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees. Except as set forth on Schedule
2.1(y),
neither
the Company nor any subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. No officer, consultant
or
key employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, could have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.
(z) Absence
of Certain Developments.
Except
as set forth on Schedule
2.1(z) or
in the
Commission Documents, since June 30, 2007, neither the Company nor any
subsidiary has:
(i) issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of
its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company’s or such subsidiary’s business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
11
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;
(vii) suffered
any substantial losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;
(xi) made
charitable contributions or pledges in excess of $25,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or
(xv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa) Public
Utility Holding Company Act and Investment Company Act Status.
The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
12
(bb) ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries.
The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of the Employee Retirement Income Security Act
of
1974, as amended (“ERISA”),
or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended (the “Code”),
provided that, if any of the Purchasers, or any person or entity that owns
a
beneficial interest in any of the Purchasers, is an “employee pension benefit
plan” (within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a “party in interest” (within the meaning of Section 3(14) of ERISA),
the requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable,
are
met. As used in this Section 2.1(bb), the term “Plan”
shall
mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which
is or has been established or maintained, or to which contributions are or
have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the
Code.
(cc) Dilutive
Effect.
The
Company understands and acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement
and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of
other
stockholders of the Company.
(dd) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Shares pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Shares to be so
integrated with other offerings.
The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review and since March
31,
2007, the Company has not publicly offered or sold any of its equity securities
or debt securities convertible into shares of Common Stock.
(ee) Independent
Nature of Purchasers.
The
Company acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the Transaction
Documents. The Company acknowledges that the decision of each Purchaser to
purchase securities pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from
any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce
its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for
any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because
it
was required or requested to do so by the Purchasers.
13
(ff) Transfer
Agent.
The
name, address, telephone number, fax number, contact person and email address
of
the Company’s current transfer agent is set forth on Schedule
2.1(ff)
hereto.
Section
2.2 Representations,
Warranties and Covenants of the Purchasers.
Each
Purchaser hereby makes the following representations, warranties and covenants
to the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization
and Standing of the Purchasers.
If the
Purchaser is an entity, such Purchaser is a corporation, partnership or limited
liability company duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization
and Power.
Each
Purchaser has the requisite power and authority to enter into and perform this
Agreement and to purchase the Preferred Shares and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by such Purchaser and the consummation by it
of
the transactions contemplated hereby and thereby have been duly authorized
by
all necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
members, managers or partners, as the case may be, is required. Each of this
Agreement and the Registration Rights Agreement has been duly authorized,
executed and delivered by such Purchaser and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with the terms thereof, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general
application.
14
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by such Purchaser and the consummation by such Purchaser of
the
transactions contemplated hereby and thereby or relating hereto do not and
will
not (i) result in a violation of such Purchaser’s charter documents or bylaws or
other organizational documents or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or
cancellation of any agreement, indenture or instrument or obligation to which
such Purchaser is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to such Purchaser or
its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Purchaser’s ability to perform its obligations hereunder). Such Purchaser is not
required to obtain any consent, authorization or order of, or make any filing
or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire
the
Warrants in accordance with the terms hereof, provided that for purposes of
the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition
for Investment.
Each
Purchaser is acquiring the Preferred Shares and the Warrants solely for its
own
account for the purpose of investment and not as a nominee or with a view to
or
for sale in connection with distribution. Each Purchaser does not have a present
intention to sell the Preferred Shares or the Warrants, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Preferred Shares or the Warrants to or through any person
or
entity; provided,
however,
that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum
or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able
to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of
the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company’s stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.
(e) Status
of Purchasers.
Each
Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act. No Purchaser is required to be registered as a
broker-dealer under Section 15 of the Exchange Act and no such Purchaser is
a
broker-dealer.
15
(f) Opportunities
for Additional Information.
Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other affairs
of the Company, and to the extent deemed necessary in light of such Purchaser’s
personal knowledge of the Company’s affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser,
and
such Purchaser desires to invest in the Company.
(g) No
General Solicitation.
Each
Purchaser acknowledges that the Preferred Shares and the Warrants were not
offered to such Purchaser by means of any form of general or public solicitation
or general advertising, or publicly disseminated advertisements or sales
literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such
Purchaser was invited by any of the foregoing means of
communications.
(h) Rule
144.
Such
Purchaser understands that the Shares must be held indefinitely unless such
Shares are registered under the Securities Act or an exemption from registration
is available. Such Purchaser acknowledges that such Purchaser is familiar with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act (“Rule
144”),
and
that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General.
Such
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional exemption from the registration requirement of Federal and
state
securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the applicability of
such
exemptions and the suitability of such Purchaser to acquire the
Shares.
(j) Independent
Investment.
Except
as may be disclosed in any filings with the Commission by the Purchasers under
Section 13 and/or Section 16 of the Exchange Act, no Purchaser has agreed to
act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect to
its
investment in the Shares.
(k) Trading
Activities.
Each
Purchaser agrees that it shall not, directly or indirectly, in its own capacity
or through an agent, engage in any short sales (as defined in Rule 200 of
Regulation SHO under the Exchange Act) with respect to the Conversion Shares
and
Warrant Shares, or any hedging transaction or securitization, including
obtaining shares of Common Stock to borrow, which establishes any short position
with respect to the Common Stock, whether on a U.S. domestic exchange or any
foreign exchange. Other
than consummating the transactions contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any purchases or sales,
including short sales, of the securities of the Company during the period
commencing from
the time
that such Purchaser first received from the Company or any other person (i)
a
term sheet (written or oral) or (ii) a draft of any Transaction Document, in
each case setting forth the material terms of the transactions contemplated
hereunder, until the date hereof.
16
(l) Certain
Fees.
Except
as set forth on Schedule
2.2(l)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Purchasers with respect to the transactions contemplated by this
Agreement.
ARTICLE
III
Covenants
The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees
hereunder.
Section
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with its rules and regulations
of the transactions contemplated by any of the Transaction Documents, including
filing a Form D with respect to the Preferred Shares, Warrants, Conversion
Shares and Warrant Shares as required under Regulation D and applicable “blue
sky” laws, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and
valid issuance of the Preferred Shares, the Warrants, the Conversion Shares
and
the Warrant Shares to the Purchasers or subsequent holders.
Section
3.2 Registration
and Listing.
The
Company shall (a) either (i) cause its Common Stock to continue to be registered
under Section 12(b) or 12(g) of the Exchange Act, or (ii) continue to
voluntarily file all reports required to be filed as if the Company were so
registered, and in any event shall comply in all respects with its reporting
and
filing obligations under the Exchange Act, (b) comply with all requirements
related to any registration statement filed pursuant to this Agreement, and
(c)
not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend
such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein. The
Company will take all action necessary to continue the listing or trading of
its
Common Stock on the OTC Bulletin Board or other exchange or market on which
the
Common Stock is trading or may be traded in the future. Upon the request of
the
Purchasers, the Company shall deliver to the Purchasers a written certification
of a duly authorized officer as to whether it has complied with such
requirements. Subject to the terms of the Transaction Documents, the Company
further covenants that it will take such further action as the Purchasers may
reasonably request, all to the extent required from time to time, to enable
the
Purchasers to sell the Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144. The Company will
take all action necessary to list its Common Stock on the NASDAQ or higher
exchange as soon as possible after the date hereof and the Company agrees to
issue an aggregate of 1,000,000 shares of its Common Stock to the Purchasers,
to
be divided pro rata among the Purchasers based upon the number of Preferred
Shares initially acquired by each Purchaser pursuant to this Agreement, if
its
Common Stock is not so listed by June 30, 2009 (the “Listing Shares”), or such
later date as both the Purchasers and the Company agree to in writing. The
Listing Shares, if issued, shall have the same demand registration rights as
the
Warrant Shares and the same piggy back registration rights as set forth in
the
Registration Rights Agreement. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action
as the Purchasers may reasonably request, all to the extent required from time
to time to enable the Purchasers to sell the Listing Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act. Upon the request of the
Purchasers, the Company shall deliver to the Purchasers a written certification
of a duly authorized officer as to whether it has complied with such
requirements.
17
Section
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Preferred Shares or shall beneficially own any Preferred Shares,
or shall own Conversion Shares which, in the aggregate, represent more than
5%
of the total combined voting power of all voting securities then outstanding,
for purposes reasonably related to such Purchaser’s interests as a stockholder,
to examine and make reasonable copies of and extracts from the records and
books
of account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees, except for any such information
that
shall be considered material non-public information by the Company.
Section
3.4 Compliance
with Laws.
The
Company shall comply, and cause each subsidiary to comply, with all applicable
laws, rules, regulations and orders, noncompliance with which could have a
Material Adverse Effect.
Section
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section
3.6 Reporting
Requirements.
If the
Commission ceases making periodic reports filed under the Exchange Act available
via the Internet, then at a Purchaser’s request the Company shall furnish the
following to such Purchaser so long as such Purchaser shall beneficially own
any
Shares:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;
18
(b) Annual
Reports filed with the Commission on Form 10-KSB as soon as practical after
the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission; and
(c) Copies
of
all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices
or
information to such holders of Common Stock.
Section
3.7 Amendments.
The
Company shall not amend or waive any provision of the Certificate or Bylaws
of
the Company in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of
the
Preferred Shares; provided,
however,
that
any creation and issuance of another series of Junior Stock (as defined in
the
Certificate of Designation) shall not be deemed to materially and adversely
affect such rights, preferences or privileges.
Section
3.8 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability of the Company or any subsidiary
to perform under any Transaction Document.
Section
3.9 Distributions.
So long
as any Preferred Shares remain outstanding, the Company agrees that it shall
not
(i) declare or pay any dividends or make any distributions to any holder(s)
of
Common Stock without prior written consent from a majority of the holders of
the
Preferred Shares at such time, or (ii) purchase or otherwise acquire for value,
directly or indirectly, any Common Stock or other equity security of the
Company, other than pursuant to a repurchase plan approved by the Company’s
board of directors.
Section
3.10 Status
of Dividends.
The
Company covenants and agrees that (i) no Federal income tax return or claim
for
refund of Federal income tax or other submission to the Internal Revenue Service
(the “Service”)
will
adversely affect the Preferred Shares, any other series of its Preferred Stock,
or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report
to
shareholders or to any governmental body having jurisdiction over the Company
or
otherwise will it treat the Preferred Shares other than as equity capital or
the
dividends paid thereon other than as dividends paid on equity capital unless
required to do so by a governmental body having jurisdiction over the accounts
of the Company or by a change in generally accepted accounting principles
required as a result of action by an authoritative accounting standards setting
body, and (iii) it will take no action which would result in the dividends
paid
by the Company on the Preferred Shares out of the Company’s current or
accumulated earnings and profits being ineligible for the dividends received
deduction provided by Section 243(a)(1) of the Code. The preceding sentence
shall not be deemed to prevent the Company from designating the Preferred Stock
as “Convertible Preferred Stock” in its annual and quarterly financial
statements in accordance with its prior practice concerning other series of
preferred stock of the Company. In the event that the Purchasers have reasonable
cause to believe that dividends paid by the Company on the Preferred Shares
out
of the Company’s current or accumulated earnings and profits will not be treated
as eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Preferred Shares, join
with
the Purchasers in the submission to the Service of a request for a ruling that
dividends paid on the Shares will be so eligible for Federal income tax
purposes, at the Purchasers expense. In addition, the Company will reasonably
cooperate with the Purchasers (at Purchasers’ expense) in any litigation, appeal
or other proceeding challenging or contesting any ruling, technical advice,
finding or determination that earnings and profits are not eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or
any
successor provision to the extent that the position to be taken in any such
litigation, appeal, or other proceeding is not contrary to any provision of
the
Code. Notwithstanding the foregoing, nothing herein contained shall be deemed
to
preclude the Company from claiming a deduction with respect to such dividends
if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of
the
dividends on the Shares is allowable for Federal income tax purposes, or (ii)
in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the Service shall issue
a published ruling or advise that dividends on the Shares should not be treated
as dividends for Federal income tax purposes. If the Service specifically
determines that the Preferred Shares or Conversion Shares constitute debt,
the
Company may file protective claims for refund.
19
Section
3.11 Use
of
Proceeds.
The net
proceeds from the sale of the Shares hereunder shall be used by the Company
for
working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock
or to settle any outstanding litigation.
Section
3.12 Reservation
of Shares.
So long
as any of the Preferred Shares or Warrants remain outstanding, the Company
shall
take all action necessary to at all times have authorized, and reserved for
the
purpose of issuance, no less than one
hundred ten
percent (110%) of the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section
3.13 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
each
Purchaser or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Purchaser
to the Company upon conversion of the Preferred Shares or exercise of the
Warrants in the form of Exhibit
F
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to
in this Section 3.13 will be given by the Company to its transfer agent and
that
the Shares shall otherwise be freely transferable on the books and records
of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that (i) a public sale,
assignment or transfer of the Shares may be made without registration under
the
Securities Act or (ii) such Shares can be sold pursuant to Rule 144 without
any
restriction as to the number of securities acquired as of a particular date
that
can then be immediately sold, the Company shall permit the transfer, and, in
the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.13 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section
3.13, that the Purchasers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss
and without any bond or other security being required.
20
Section
3.14 Disposition
of Assets.
So long
as any Preferred Shares remain outstanding, neither the Company nor any
Subsidiary shall sell, transfer or otherwise dispose of any of its properties,
assets and rights including, without limitation, its software and intellectual
property, to any person except for licenses or sales to customers in the
ordinary course of business or with the prior written consent of the holders
of
a majority of the Preferred Shares then outstanding.
Section
3.15 Reporting
Status. So
long
as a Purchaser beneficially owns any of the Shares, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not cease filing reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
Section
3.16 Disclosure
of Transaction.
The
Company shall issue a press release describing the material terms of the
transactions contemplated hereby (the “Press
Release”)
as
soon as practicable after the Closing but in no event later than 9:00 A.M.
Eastern Time on the first Trading Day following the Closing. The Company shall
also file with the Commission a Current Report on Form 8-K (the “Form
8-K”)
describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Registration Rights Agreement,
the Certificate of Designation, the Lock-Up Agreement, the form of each series
of Warrant, the Share Escrow Agreement and the Press Release) as soon as
practicable following the Closing Date but in no event more than four (4)
Trading Days following the Closing Date, which Press Release and Form 8-K shall
be subject to prior review and comment by counsel for the Purchasers.
“Trading
Day”
means
any day during which the OTC Bulletin Board (or other quotation venue or
principal exchange on which the Common Stock is traded) shall be open for
trading.
21
Section
3.17 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
Section
3.18 Pledge
of Securities.
The
Company acknowledges and agrees that the Shares may be pledged by a Purchaser
in
connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
of
Common Stock shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document; provided that a Purchaser and its pledgee shall
be
required to comply with the provisions of Article V hereof in order to effect
a
sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers'
expense, the Company hereby agrees to execute and deliver such documentation
as
a pledgee of the Common Stock may reasonably request in connection with a pledge
of the Common Stock to such pledgee by a Purchaser.
Section
3.19 Form
S-1 Eligibility.
The
Company currently meets the “registrant eligibility” and transaction
requirements set forth in the general instructions to Form S-1 applicable to
“resale” registrations on Form S-1.
Section
3.20 Lock-Up
Agreement.
The
persons listed on Schedule
3.20 attached
hereto shall be subject to the terms and provisions of a lock-up agreement
in
substantially the form as Exhibit
E
hereto
(the “Lock-Up
Agreement”),
which
shall provide the manner in which such persons will sell, transfer or dispose
of
their shares of Common Stock.
Section
3.21 DTC.
Not
later than the effective date of the Registration Statement (as defined in
the
Registration Rights Agreement), the Company shall cause its Common Stock to
be
eligible for transfer with its transfer agent pursuant to the Depository Trust
Company Fast Automated Securities Transfer Program.
Section
3.22 Subsequent
Financings
(a)
For
a
period of twenty-four (24) months following the Closing Date,
subject
to Section 3.22(e), the Company covenants and agrees to promptly notify (in
no
event later than five (5) days after making or receiving an applicable offer)
in
writing (a "Rights
Notice")
the
Purchasers of all of the terms and conditions of any proposed offer or sale
to,
or exchange with (or other type of distribution to) any third party (a
“Subsequent
Financing”),
of
Common Stock or any debt or equity securities convertible, exercisable or
exchangeable into Common Stock. The
Purchaser shall have the right, for a period of twenty (20) calendar days
following receipt of the Rights Notice (the “Option Period”), to accept or
reject the Subsequent Financing (“First Refusal Right”) by written notice to the
Company. If the Purchaser elects to exercise its First Refusal Rights, it shall
deliver a notice of same to the Company within the Option Period and then the
Company shall be obligated to pursue the Subsequent Financing with the Purchaser
on the same terms and conditions as set forth in the Rights Notice. If, and
only
if, the Company receives written notice from the Purchaser that it will not
exercise its First Refusal Rights, then and only then, may the Company pursue
the Subsequent Financing with a third party; provided that, such third party
Subsequent Financing shall: (i) not commence until after the expiration of
the
Option Period; (ii) close within thirty (30) days of the expiration of the
Option Period (“Third Party Closing Date”); and (iii) be carried out on the same
terms and conditions as set forth in the Rights Notice. Delivery of any Rights
Notice constitutes a representation and warranty by the Company that there
are
no other material terms and conditions, arrangements, agreements or otherwise
except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in
the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date
of a
Subsequent Financing. If the closing of the third party Subsequent Financing
does not occur on the Third Party Closing Date, any closing of the third party
Subsequent Financing or any other Subsequent Financing shall be subject to
all
of the provisions of this Section 3.22(a), including, without limitation, the
delivery of a new Rights Notice. The provisions of this Section 3.22(a) shall
not apply to issuances of securities in a Permitted Financing.
22
(b) For
purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall
not be considered a Subsequent Financing. A "Permitted
Financing"
shall
mean (i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding
on or
prior to the date of this Agreement or issued pursuant to this Agreement (so
long as the conversion or exercise price in such securities are not amended
to
lower such price and/or adversely affect the Purchasers), (iii) securities
issued in connection with bona fide strategic license agreements or other
partnering arrangements so long as such issuances are not for the purpose of
raising capital, (iv) Common Stock issued or the issuance or grants of options
to purchase Common Stock pursuant to the Company’s stock option plans and
employee stock purchase plans outstanding as they exist on the date of this
Agreement, (v) the payment of dividends on the Preferred Shares in shares of
Common Stock, and, (vi) any warrants issued to the placement agent and its
designees for the transactions contemplated by this Agreement.
(c) Issuance
of Variable Securities. So
long
as any Preferred Stock remains outstanding, the Company agrees that it shall
not
issue any “Variable
Rate Securities” for a period of two (2) years from the Closing
Date. “Variable
Rate Securities”
shall
mean any debt or equity securities that are convertible into, exchangeable
or
exercisable for, or include the right to receive additional shares of, Common
Stock either (A) at a conversion, exercise or exchange rate or other price
that
is based upon, or varies with, the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt
or
equity securities or (B) with a conversion, exercise or exchange price that
is
subject to being reset at some future date after the initial issuance of such
debt or equity security based solely upon the occurrence of specified or
contingent events directly or indirectly related to the operations of the
Company or the market for the Common Stock.
23
(d) For
the
period commencing on the Closing Date and ending on the date that is one hundred
eighty (180) days following the effective date of the Registration Statement
(as
defined in the Registration Rights Agreement), with the exception of the Insider
Registration Statement and any additional registration statements thereunder,
the Company shall not file any registration statement under the Securities
Act
without the prior written consent of the Purchasers.
(e) Disclosure
of Material Information.
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 Company shall have given three (3) business days notice that
it intends to disclose such information to the Purchaser (“Inside Information
Notice”) and such Purchaser shall have agreed in writing that it is willing to
accept such information, subject to a non-disclosure agreement to be executed
by
the Purchaser. If the Purchaser does not agree to accept such information,
it
will be deemed to have waived its rights pursuant to Section 3.22 (a) in
connection with the Subsequent Financing contemplated in the related Inside
Information Notice, but not for any additional Subsequent Financings for which
it may be entitled to receive notice hereunder. The Company understands and
confirms that the Purchaser will rely on the foregoing representations in
effecting transactions in securities of the Company.
Section
3.23 ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act.
The
Company shall use its best efforts to be in compliance with the applicable
provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, and the rules and regulations
promulgated thereunder, as required under such Act.
Section
3.24 No
Commissions in connection with Conversion of Preferred Shares.
In
connection with the conversion of the Preferred Shares into Conversion Shares,
neither the Company nor any Person acting on its behalf will take any action
that would result in the Conversion Shares being exchanged by the Company other
than with the then existing holders of the Preferred Shares 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 Securities
Act.
Section
3.25 Break-Up
Fee.
If the
Company (i) fails to comply with the Closing Conditions as set forth in Section
4.2 and such failure precludes the Closing; or (ii) willfully fails to adhere
to
the Closing Date, the Company agrees to remit $400,000 to the Purchasers on
the
date that such failure becomes known to the Purchasers.
24
Section
3.26 Post-Closing
Covenants. The
Company shall use its best efforts to comply with the post-closing covenants
as
soon as is reasonably practicable, if not performed on the Closing
Date:
(a) No
later
than July 1, 2008, the Company shall increase its registered capital to no
less
than RMB 30MM, or other such required amount, as required by Measures
for the Administration of the Refined Oil Market,
issued
by the Ministry of Commerce on December 4, 2006 and effective as of January
1,
2007.
(b) The
oil
storage contract between the Company and 68103
Army, dated March 1, 2007, must adopt the template and obtain the approvals
required by the
Notice
regarding Further Administration on Lease of Available Military Real
Estate
jointly
issued by the Ministry of Construction, the State Administration of Industry
and
Commerce, the State Taxation Administration and the General Logistics Department
of People’s Liberation Army in 2004.
(c) The
Company must provide evidence indicating that it has paid Beijing
Qingda Digital Technology Co., Ltd. under their Technology Cooperation Agreement
with the Company dated September 4, 2006.
(d) The
execution and delivery of employment contracts, salary offer letters and
confidentiality and non-compete agreements between WFOE and each of ▇▇.
▇▇▇▇
Shenglu, Mr. Fu Wenjie and ▇▇. ▇▇▇ ▇▇▇▇▇▇▇.
(e) No
later
than December 31, 2007, the Company must have received the stock certificate(s)
representing 10,000 shares of Baorun China Group Limited, as originally
transferred from Redsky Group Limited and Princeton Capital Group (“Baorun
Certificates”). If the Baorun Certificates are not received by December 31,
2007, or such later date as pre-approved in writing by the Purchaser, the
Company shall remit one percent (1%) of the shares held in escrow pursuant
to
the Share Escrow Agreement to the Purchaser on such date and for each calendar
month thereafter that the Baorun Certificate is not so received.
ARTICLE
IV
Conditions
Section
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Shares.
The
obligation hereunder of the Company to issue and sell the Preferred Shares
and
the Warrants to the Purchasers is subject to the satisfaction or waiver, at
or
before the Closing, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion.
25
(a) Accuracy
of Each Purchaser’s Representations and Warranties.
The
representations and warranties of each Purchaser shall be true and correct
in
all material respects as of the date when made and as of the Closing Date
applicable to such Purchaser as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such
date.
(b) Performance
by the Purchasers.
Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by such Purchaser at or prior to the
Closing.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
26
(d) Delivery
of Purchase Price.
The
Purchase Price for the Preferred Shares and Warrants has been delivered to
the
Company.
(e) Delivery
of Transaction Documents.
The
Transaction Documents have been duly executed and delivered by the Purchasers
to
the Company.
Section
4.2 Conditions
Precedent to the Obligation of the Purchasers to Purchase the
Shares.
The
obligation hereunder of each Purchaser to acquire and pay for the Preferred
Shares and the Warrants is subject to the satisfaction or waiver, at or before
the Closing, of each of the conditions set forth below. These conditions are
for
each Purchaser’s sole benefit and may be waived by such Purchaser at any time in
its sole discretion.
(a) Accuracy
of the Company’s Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as
of
the date when made and shall be true and correct in all material respects as
of
the Closing Date applicable to such Purchaser as though made at that time
(except for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material respects as
of
such date).
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing.
(c) No
Suspension, Etc.
Trading
in the Company’s Common Stock shall not have been suspended by the Commission or
the OTC Bulletin Board (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
applicable Closing), and, at any time prior to the Closing Date applicable
to
such Purchaser, trading in securities generally as reported by Bloomberg
Financial Markets (“Bloomberg”)
shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares.
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or any of
the
officers, directors or affiliates of the Company or any subsidiary seeking
to
restrain, prevent or change the transactions contemplated by this Agreement,
or
seeking damages in connection with such transactions.
(f) Certificate
of Designation of Rights and Preferences.
Prior
to the Closing, the Certificate of Designation in the form of Exhibit
B
attached
hereto shall have been filed with the Secretary of State of Delaware and proof
of such filing shall be delivered to the Purchasers.
(g) Opinion
of Counsel, Etc.
At the
Closing, the Purchasers shall have received an opinion of counsel to the
Company, dated the date of the Closing, in substantially the form of
Exhibit
G
hereto,
and such other certificates and documents as the Purchasers or their respective
counsel shall reasonably require incident to the Closing.
(h) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to such Purchaser.
(i) Certificates.
The
Company shall have executed the certificates for the Preferred Shares and the
Warrants being acquired by the Purchaser and shall cause to be delivered to
the
Purchaser’s prime broker dealer, at the address listed on Exhibit A, via
overnight service, the original Preferred Share certificate and Warrants, with
proof of such mailing, which shall include a copy of the items mailed, to be
delivered via email or facsimile to the Purchaser simultaneously therewith
at
the Closing; provided however that in no event shall the Preferred Share
certificates and Warrants be delivered after the first (1st)
business day following the Closing.
(j) Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof (the “Resolutions”).
27
(k) Reservation
of Shares.
As of
the Closing Date, the Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the
Preferred Shares and the exercise of the Warrants, a number of shares of Common
Stock equal to one hundred ten percent (110%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares issued or
to
be issued pursuant to this Agreement and the number of Warrant Shares issuable
upon exercise of the number of Warrants issued or to be issued pursuant to
this
Agreement.
(l) Transfer
Agent Instructions.
As of
the Closing Date, the Irrevocable Transfer Agent Instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer
agent.
(m) Lock-Up
Agreement.
As of
the Closing Date, the persons listed on Schedule
3.20
hereto
shall have delivered to the Purchasers a fully executed Lock-Up Agreement.
(n) Secretary’s
Certificate.
The
Company shall have delivered to such Purchaser a secretary’s certificate, dated
as of the Closing Date, as to (i) the Resolutions, (ii) the Certificate, (iii)
the Bylaws, (iv) the Certificate of Designation, each as in effect at the
Closing, and (v) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(o) Officer’s
Certificate.
The
Company shall have delivered to the Purchasers a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the accuracy
of
the Company’s representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent
set
forth in this Section 4.2 as of the Closing Date.
(p) Escrow
Agreements.
At the
Closing, the Company shall have executed and delivered the Share Escrow
Agreement to such Purchaser.
(q) Material
Adverse Effect.
There
have been no events or occurrences on or before the Closing Date which,
individually or in the aggregate, have had or could reasonably be expected
to
have a Material Adverse Effect.
(r) Outstanding
Common Stock.
The
Company’s issued and outstanding shares of Common Stock before the Closing (as
set forth in Schedule 2.1(c)), shall be supported by a statement from the
Company’s transfer agent demonstrating the number of issued and outstanding
shares of Common Stock after the Share Exchange and the Company shall provide
confirmation to the Purchasers that assuming full conversion of the Preferred
Shares issued to the Purchasers pursuant to this Agreement, without any and
no
such adjustment to the number of shares issuable upon such conversion, that
the
number of issued and outstanding shares of Common Stock post-Closing will be
30,000,000.
28
(s) Additional
Escrow.
The
Company will maintain an escrow account with Loeb & Loeb LLP, as escrow
agent, to receive $200,000 of the Purchase Price (the “Additional Escrow Funds”)
at the Closing, which such Additional Escrow Funds shall only be used for
investor and public relations purposes, pursuant to the terms of that certain
Public Relations Escrow Agreement, dated as of even date herewith.
(t) Escrow
Shares.
The
Company shall have deposited into a separately designated escrow account
established pursuant to the Share Escrow Agreement, that number of shares of
its
Common Stock equal to one hundred percent (100%) of the number of shares of
Common Stock into which the Preferred Shares are initially convertible at the
time of Closing, which shares of Common Stock would have been issued to Redsky
Group Limited, a British Virgin Islands company in connection with the Share
Exchange.
(u) Share
Exchange.
The
Company shall have submitted a copy of the executed Share Exchange Agreement,
along with the related Insider Registration Rights Agreement to the Purchasers.
(v) Outstanding
Preferred Stock.
The
Company shall have provided written confirmation that all previously issued
shares of preferred stock, including but not limited to the 225,000 shares
of
series a preferred stock issued on October 31, 2006, have been converted and
the
holders thereof no longer have any rights or privileges as a preferred
stockholder, with respect to the preferred stock or other than registration
rights of the common stock underlying such preferred stock, concerning the
Company; the same shall be supported by a statement from the Company’s transfer
agent demonstrating that the Company does not have any shares of any class
of
preferred stock issued and outstanding as of the Closing.
(w)
Employment Contracts. The Company shall have delivered executed employment
contracts, salary offer letters and confidentiality agreements between the
WFOE
and each of ▇▇.
▇▇▇
Xincheng, Mr. He Nengde, ▇▇. ▇▇ Gaihong, Mr. ▇▇▇▇ ▇▇▇
29
ARTICLE
V
Stock
Certificate Legend
Section
5.1 Legend.
Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion and exercise thereof, shall
be
stamped or otherwise imprinted with a legend substantially in the following
form
(in addition to any legend required by applicable state securities or “blue sky”
laws):
THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company
has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has
become effective under the Securities Act and (b) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that registration or qualification under the securities or “blue sky”
laws of any state is not required in connection with such proposed disposition,
or (ii) compliance with applicable state securities or “blue sky” laws has been
effected or a valid exemption exists with respect thereto. The Company will
respond to any such notice from a holder within five (5) business days. In
the
case of any proposed transfer under this Section 5.1, the Company will use
reasonable efforts to comply with any such applicable state securities or “blue
sky” laws, but shall in no event be required, (x) to qualify to do business in
any state where it is not then qualified, (y) to take any action that would
subject it to tax or to the general service of process in any state where it
is
not then subject, or (z) to comply with state securities or “blue sky” laws of
any state for which registration by coordination is unavailable to the Company.
The restrictions on transfer contained in this Section 5.1 shall be in addition
to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of this Agreement. Whenever
a
certificate representing the Conversion Shares or Warrant Shares is required
to
be issued to a Purchaser without a legend, in lieu of delivering physical
certificates representing the Conversion Shares or Warrant Shares (provided
that a registration statement under the Securities Act providing for the resale
of the Warrant Shares and Conversion Shares is then in effect),
the
Company shall cause its transfer agent to electronically transmit the Conversion
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser or such Purchaser's Prime Broker with the Depository Trust Company
(“DTC”)
through its Deposit Withdrawal Agent Commission (“DWAC”)
system
(to the extent not inconsistent with any provisions of this
Agreement).
30
ARTICLE
VI
Indemnification
Section
6.1 Indemnification
of Purchasers.
The
Company agrees to indemnify and hold harmless the Purchasers (and their
respective directors, officers, managers, partners, members, shareholders,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein.
Section
6.2 Indemnification
of Company.
Each
Purchaser agrees, severally and not jointly, to indemnify and hold harmless
the
Company (and its directors, officers, managers, partners, members, shareholders,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Company as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by such Purchaser herein; provided,
however,
that no
Purchaser shall have any liability pursuant to this Section
6.2
in an
amount exceeding the aggregate purchase price paid to the Company by such
Purchaser in connection with this Agreement and the securities issued
hereunder.
Section
6.3 Indemnification
Procedure.
Any
party entitled to indemnification under this Article VI (an “indemnified party”)
will give prompt written notice to the party required to provide indemnification
under this Article VI (the “indemnifying party”) of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled
to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give prompt notice. In case any action, proceeding or claim is brought against
an indemnified party in respect of which indemnification is sought hereunder,
the indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between
it
and the indemnifying party may exist with respect of such action, proceeding
or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle
or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then
the
indemnified party may, at its option, defend, settle or otherwise compromise
or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and
shall furnish to the indemnifying party all information reasonably available
to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.
If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not
be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of
any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
31
ARTICLE
VII
Miscellaneous
Section
7.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement and the other Transaction Documents,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of
this Agreement, provided
that the
Company shall pay all reasonable and itemized attorneys’ fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery
of
this Agreement and the other Transaction Documents and the transactions
contemplated thereunder, which payment shall be made at the Closing and shall
not exceed $40,000, (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement and (iii) any amendments, modifications
or waivers of this Agreement or any of the other Transaction Documents. The
Company shall also pay to Vision
Opportunity Master Fund, Ltd.
at the
Closing in connection with reasonably documented due diligence expenses incurred
by Vision Opportunity Master Fund, Ltd. an amount up to $80,000, of which
$10,000 has already been paid to Vision (to the extent not already paid). The
Company shall pay all reasonable fees and expenses incurred by the Purchasers
in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses but only if the Purchasers are successful in any litigation
or
arbitration relating to such enforcement.
32
Section
7.2 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific
terms
or were otherwise breached. It is accordingly agreed that the parties shall
be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the Registration Rights Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
(b) Each
of
the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New
York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is
not
personally subject to the jurisdiction of such court, that the suit, action
or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to
it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.
Section
7.3 Entire
Agreement; Amendment.
This
Agreement and the Transaction Documents collectively contain the entire
understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the Transaction
Documents, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters
and they supersede all prior understandings and agreements with respect to
said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the Purchaser (provided that the Purchaser holds Preferred Shares
or
Warrants at such time), and no provision hereof may be waived other than by
an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all
of
the parties to the Transaction Documents or holders of Preferred Shares, as
the
case may be.
33
Section
7.4 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy or facsimile
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
|
If
to the Company:
|
International
Imaging Systems, Inc.
c/oXi'an
Baorun Industrial Development Co. Ltd.
Dongxin
Century Square, 7th Floor
Xi'an
East ▇▇▇▇ ▇▇▇▇-tech Industrial Development Park
Shannxi
Province, P.R. China
Attn:
▇▇. ▇▇▇ Xincheng
Tel:
▇▇ ▇▇ ▇▇▇▇▇▇▇▇
Fax:
▇▇ ▇▇ ▇▇▇▇▇▇▇▇
|
|
|
with
copies to (which
shall not constitute
notice):
|
Loeb
& Loeb
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇
Attn:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Tel:
▇▇▇.▇▇▇.▇▇▇▇
Fax:
212.407-4990
|
|
|
If
to any Purchaser:
|
At
the address of such Purchaser set forth on Exhibit
A
to
this Agreement
|
|
|
with
copies to (which
shall not constitute
notice):
|
Lesser,
Hunter, Taubman & Taubman
▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel:
212.732-7184
Fax:
212.202-6380
|
Any
party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
34
Section
7.5 Waivers.
No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver
in
the future or a waiver of any other provisions, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder
in
any manner impair the exercise of any such right accruing to it
thereafter.
Section
7.6 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
Section
7.8 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person (other than the indemnified
parties under Article VI).
Section
7.9 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
Section
7.10 Survival.
The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closings hereunder for a period of
two
years following the Closing Date.
Section
7.11 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and all of which taken together
shall
constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In
the
event that any signature is delivered as a pdf document via email, such
signature shall create a valid binding obligation of the party executing (or
on
whose behalf such signature is executed) the same with the same force and effect
as if such pdf signature were the original thereof.
Section
7.12 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.13 Severability.
The
provisions of this Agreement and the Transaction Documents are severable and,
in
the event that any court of competent jurisdiction shall determine that any
one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or
part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
35
Section
7.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of any Purchaser or
the
Company, each of the Company and the Purchasers shall execute and deliver such
instrument, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Preferred Shares, the Conversion Shares, the
Warrants, the Warrant Shares, the Certificate of Designation, the Registration
Rights Agreement and the other Transaction Documents.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
36
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
|
INTERNATIONAL
IMAGING SYSTEMS, INC.
|
|
|
By:
/s/ GAO XINCHENG
Name:
▇▇. ▇▇▇ Xincheng
Title:
CEO
|
|
PURCHASER
|
|
|
By:
Name:
Title:
|
[Signature
Page to Series A Stock Purchase Agreement]
EXHIBIT
A to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
|
Names
and Addresses
of
Purchasers, Purchasers’ Counsel and Purchasers’ Primer
Broker
|
Number
of Preferred Shares Purchased
|
Dollar
Amount
Of
Investment
|
||
|
|
|
|
A-1
EXHIBIT
B to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF CERTIFICATE OF DESIGNATION
B-1
EXHIBIT
C-1 to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF SERIES A-1 WARRANT
EXHIBIT
C-2 to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF SERIES A-2 WARRANT
EXHIBIT
D to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF REGISTRATION RIGHTS AGREEMENT
D-1
EXHIBIT
E to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF LOCK-UP AGREEMENT
E-1
EXHIBIT
F to the
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
as
of
____________, 2007
Computershare
Trust Co., Inc.
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Telephone:
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Facsimile:
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Attn:
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Ladies
and Gentlemen:
Reference
is made to that certain Series A Convertible Preferred Stock Purchase Agreement
(the “Purchase Agreement”), dated as of October __, 2007, by and among
International Imaging Systems, Inc., a Delaware corporation (the “Company”), and
the purchasers named therein (collectively, the “Purchasers”) pursuant to which
the Company is issuing to the Purchasers shares of its Series A Convertible
Preferred Stock, par value $0.001 per share (the “Preferred Shares”), and
warrants (the “Warrants”) to purchase shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”). This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock
upon
conversion of the Preferred Shares (the “Conversion Shares”) and exercise of the
Warrants (the “Warrant Shares”) to or upon the order of a Purchaser from time to
time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice or Exercise Notice, as the case may be, in the form attached
hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
conversion of Preferred Shares, a copy of the certificates (with the original
certificates delivered to the Company) representing Preferred Shares being
converted or, in the case of Warrants being exercised, a copy of the Warrants
(with the original Warrants delivered to the Company) being exercised (or,
in
each case, an indemnification undertaking with respect to such share
certificates or the warrants in the case of their loss, theft or destruction),
and (iii) delivery of a treasury order or other appropriate order duly executed
by a duly authorized officer of the Company. So long as you have previously
received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended
(the “1933 Act”), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant
to the Registration Statement, then certificates representing the Conversion
Shares and the Warrant Shares, as the case may be, shall not bear any legend
restricting transfer of the Conversion Shares and the Warrant Shares, as the
case may be, thereby and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received those items and
representations listed above, then the certificates for the Conversion Shares
and the Warrant Shares shall bear the following legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
XI’AN BAORUN INDUSTRIAL DEVELOPMENT CO., LTD. SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.”
F-1
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares and
the
Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then
current.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchasers are relying upon this letter as an inducement to
enter into the Purchase Agreement and, accordingly, each Purchaser is a third
party beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
| Very truly yours, | ||
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INTERNATIONAL
IMAGING SYSTEMS,
INC.
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Name:
Title: |
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ACKNOWLEDGED
AND AGREED:
COMPUTERSHARE
TRUST CO., INC.
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Name:
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Title:
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Date:
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EXHIBIT
I
INTERNATIONAL
IMAGING SYSTEMS, INC.
CONVERSION
NOTICE
Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series A Preferred Stock of INTERNATIONAL
IMAGING SYSTEMS, INC. .
(the
“Certificate of Designation”). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $0.001
per share (the “Preferred Shares”), of INTERNATIONAL
IMAGING SYSTEMS, INC.,.
a
Delaware corporation (the “Company”), indicated below into shares of Common
Stock, par value $0.0001 per share (the “Common Stock”), of the Company, by
tendering the stock certificate(s) representing the share(s) of Preferred Shares
specified below as of the date specified below.
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Date
of Conversion:
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Number
of Preferred Shares to be converted:
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Stock
certificate no(s). of Preferred Shares to be converted:
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The
Common Stock has been sold pursuant to the Registration Statement
(as
defined in the Registration Rights Agreement): YES ____ NO____
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Please
confirm the following information:
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Conversion
Price:
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Number
of shares of Common Stock to be issued:
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Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________
Please
issue the Common Stock into which the Preferred Shares are being converted
and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
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Issue
to:
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Facsimile
Number:
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Authorization:
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By:
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Dated:
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EXHIBIT
II
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
INTERNATIONAL
IMAGING SYSTEMS, INC.
The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of INTERNATIONAL
IMAGING SYSTEMS, INC.,
.
covered
by the within Warrant.
| Dated: _________________ |
Signature ___________________________
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Address _____________________
_____________________
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Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and
does
irrevocably constitute and appoint _____________, attorney, to transfer the
said
Warrant on the books of the within named corporation.
| Dated: _________________ |
Signature ___________________________
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Address _____________________
_____________________
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PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
| Dated: _________________ |
Signature ___________________________
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Address _____________________
_____________________
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FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in
the name of _______________.
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
Computershare
Trust Co., Inc.
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Telephone:
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Facsimile:
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Attn:
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Re: INTERNATIONAL
IMAGING SYSTEMS, INC.
Ladies
and Gentlemen:
We
are
counsel to INTERNATIONAL
IMAGING SYSTEMS, INC..,
a
Delaware corporation (the “Company”), and have represented the Company in
connection with that certain Series A Convertible Preferred Stock Purchase
Agreement (the “Purchase Agreement”), dated as of October __, 2007, by and among
the Company and the purchasers named therein (collectively, the “Purchasers”)
pursuant to which the Company issued to the Purchasers shares of its Series
A
Convertible Preferred Stock, par value $0.001 per share, (the “Preferred
Shares”) and warrants (the “Warrants”) to purchase shares of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”). Pursuant to the
Purchase Agreement, the Company has also entered into a Registration Rights
Agreement with the Purchasers (the “Registration Rights Agreement”), dated as of
October __, 2007, pursuant to which the Company agreed, among other things,
to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the
Preferred Shares, under the Securities Act of 1933, as amended (the “1933 Act”).
In connection with the Company’s obligations under the Registration Rights
Agreement, on ________________, 2007, the Company filed a Registration Statement
on Form SB-2 (File No. 333-________) (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”) relating to the resale of the
Registrable Securities which names each of the present Purchasers as a selling
stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and
accordingly, the Registrable Securities are available for resale under the
1933
Act pursuant to the Registration Statement.
| Very truly yours, | ||
| LOEB & LOEB LLP | ||
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| By: | ||
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cc: [LIST
NAMES OF PURCHASERS]
EXHIBIT
G to the
SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL
IMAGING SYSTEMS, INC.
FORM
OF OPINION OF COUNSEL
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on
its
business as to our knowledge it is presently conducting such business.
With
respect to our opinion regarding due incorporation, valid existence and good
standing in Delaware, we have relied solely upon written representations made
to
us in the Company Fact Certificate and upon the Delaware
Certificate.
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
and
validly authorized by all necessary corporate action and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock certificates and the Warrants have been
duly
executed, issued and delivered by the Company. Each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
is
not subject to any preemptive rights under the Company’s Amended and Restated
Certificate of Incorporation or the Amended and Restated By-Laws.
3. The
Preferred Stock and the Warrants have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Stock or exercise of the Warrants have been duly
authorized and reserved for issuance, and, when delivered upon exercise or
conversion as provided in the Warrants or Certificate of Designation, as
applicable, will be validly issued, fully paid and nonassessable.
4. The
Company’s execution, delivery and performance of, and compliance with the terms
of, the Transaction Documents and the issuance of the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants do not (i) violate any provision of the Company’s
Amended and Restated Certificate of Incorporation or Amended and Restated
By-Laws, or (ii) result in a material violation of any federal or state statute,
rule or regulation known to us to be customarily applicable to transactions
of
the nature contemplated by the Transaction Documents or (iii) conflict with
or
violate any order, judgment, injunction or decree known to us to be applicable
to the Company, except, with respect to clauses (i) and (iii) above, for such
violations or conflicts as would not, individually or in the aggregate, have
a
Material Adverse Effect.
5. To
our
knowledge, there is no action, suit, claim, investigation or proceeding pending
or threatened against the Company which questions the validity of this Agreement
or the transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. To our knowledge, there is no action, suit, claim,
investigation or proceeding pending or threatened against or involving the
Company or any of its properties or assets and which, if adversely determined,
is reasonably likely to result in a Material Adverse Effect. To our knowledge,
there are no outstanding orders, judgments, injunctions, awards or decrees
of
any court, arbitrator or governmental or regulatory body against the
Company.
G-1
6. Based
upon, and assuming the truth of, the representations and warranties, and full
performance of the covenants, of the Purchasers in the Agreement, the offer,
issuance and sale of the Preferred Stock and the Warrants and the offer,
issuance and sale of the shares of Common Stock issuable upon conversion of
the
Preferred Stock and exercise of the Warrants pursuant to the Agreement, the
Certificate of Designation and the Warrants, as applicable, are exempt from
the
registration requirements of Section 5 of the Securities Act.
Very
truly yours,
G-2