SECURITIES PURCHASE AGREEMENT Dated as of October 14, 2008 between CHINA BIO ENERGY HOLDING GROUP CO., LTD. and THE PURCHASER LISTED ON EXHIBIT A
Dated
as of October 14, 2008
between
and
THE
PURCHASER LISTED ON EXHIBIT A
TABLE
OF CONTENTS
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PAGE
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ARTICLE
I
Purchase and Sale of the Debenture
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2
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Section
1.1
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Purchase
and Sale of the Debenture
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2
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Section
1.2
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Preferred
Shares and Common Conversion Shares
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2
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Section
1.3
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Purchase
Price and Closing
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2
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ARTICLE
II
Representations and Warranties of the Company
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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 Purchaser
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12
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ARTICLE
III
Covenants
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15
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Section
3.1
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Securities
Compliance
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15
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Section
3.2
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Registration
and Listing
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15
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Section
3.3
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Inspection
Rights
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16
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Section
3.4
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Compliance
with Laws
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16
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Section
3.5
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Keeping
of Records and Books of Account
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16
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Section
3.6
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Reporting
Requirements
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16
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Section
3.7
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Other
Agreements
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17
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Section
3.8
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Amendments
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17
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Section
3.9
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Other
Agreements
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17
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Section
3.10
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Distributions
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17
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Section
3.11
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Status
of Dividends
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18
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Section
3.12
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Use
of Proceeds
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18
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Section
3.13
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Disclosure
of Transaction
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18
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Section
3.14
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Disclosure
of Material Information
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19
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Section
3.15
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Pledge
of Securities
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19
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Section
3.16
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Form
S-1 Eligibility
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19
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Section
3.17
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▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act
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19
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Section
3.18
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No
Commissions in connection with Conversion of Debenture and Conversion
of
Preferred Shares
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19
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Section
3.19
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Post-Closing
Covenants
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19
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Section
3.20
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Subsequent
Financings
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20
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Section
3.21
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Reservation
of Shares
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21
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Section
3.22
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Transfer
Agent Instructions
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22
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Section
3.23
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Disposition
of Assets
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22
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Section
3.24
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Increase
in Authorized Shares of Preferred Stock
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22
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Section
3.25
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State
of Delaware Franchise TaxCertificate of Good Standing
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23
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Section
3.26
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Compliance
with PRC Labor and Employment Laws
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23
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Section
3.27
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Cap
on 2003 Equity Incentive Plan
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23
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ARTICLE
IV
Closing Conditions and Closing Deliveries
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23
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Section
4.1
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Conditions
Precedent to the Obligation of the Company to Sell the
Debenture
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23
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchaser to Purchase the
Debenture
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24
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ARTICLE
V
Stock Certificate Legend
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26
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|
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Section
5.1
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Legend
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26
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ARTICLE
VI
Indemnification
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27
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Section
6.1
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Indemnification
of Purchaser
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27
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Section
6.2
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Indemnification
of Company
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27
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Section
6.3
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Indemnification
Procedure
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28
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ARTICLE
VII
Miscellaneous
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29
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Section
7.1
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Fees
and Expenses
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29
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Section
7.2
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Specific
Enforcement, Consent to Jurisdiction
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29
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Section
7.3
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Entire
Agreement; Amendment
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29
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Section
7.4
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Notices
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30
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Section
7.5
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Waivers
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30
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Section
7.6
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Headings
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31
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Section
7.7
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Successors
and Assigns
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31
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Section
7.8
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No
Third Party Beneficiaries
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31
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Section
7.9
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Governing
Law
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31
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Section
7.10
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Survival
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31
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Section
7.11
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Counterparts
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31
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Section
7.12
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Publicity
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31
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Section
7.13
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Severability
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31
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Section
7.14
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Further
Assurances
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32
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ii
EXHIBITS
| A. |
Purchaser
and Amount
|
| B. |
Form
of Series B Certificate of
Designation
|
| C. |
Form
of Registration Rights Agreement
|
| D. |
Form
of Conversion Notice
|
| E. |
Form
of Share Escrow Agreement
|
| F. |
Form
of Management Escrow Agreement
|
| G. |
Form
of Opinion of Counsel
|
| H. |
Form
of Debenture
|
| I. |
Form
of Irrevocable Transfer Agent
Instructions
|
iii
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”)
is
dated as of October 14, 2008 by and between China Bio Energy Holding Group
Co.,
Ltd., a Delaware corporation (the “Company”), and the Purchaser set forth on
Exhibit
A
hereto
(the “Purchaser”).
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 Purchaser 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
Purchaser wishes to purchase from the Company, and the Company wishes to sell
and issue to the Purchaser, upon the terms and conditions stated in this
Agreement, a convertible debenture in the principal amount of $9,000,000 (the
“Debenture”),
convertible into an aggregate of 2,465,753 shares of Series B Convertible
Preferred Stock, par value $0.001 (equivalent to a purchase price of $3.65
per
share) (the “Preferred Shares”), which shall initially convert into an aggregate
of 2,465,753 shares of the Company’s Common Stock, subject to adjustment;
and
D. Contemporaneous
with the sale of the Debenture, 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, a Share Escrow Agreement, in the form
attached hereto as Exhibit
E
and a
Management Escrow Agreement, in the form attached hereto as Exhibit
F.
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 the Debenture
Section
1.1 Purchase
and Sale of the Debenture.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchaser and the Purchaser shall purchase from the Company a convertible
debenture in the principal amount of $9,000,000 (the “Debenture”), convertible
into 2,465,753 of shares of the Company’s Series B Convertible Preferred Stock,
par value $0.001 per share (the “Preferred
Shares”),
(equivalent to a purchase price of $3.65 per Preferred Share), which is
initially convertible into 2,465,753 shares of the Company’s common stock, par
value $0.0001 per share (the “Common
Stock”).
The
terms of the Debenture are set forth in the Debenture, a form of which is
attached hereto as Exhibit
H.
The
designation, rights, preferences and other terms and provisions of the Preferred
Shares are set forth in the Certificate of Designation of the Relative Rights
and Preferences of the Series B Convertible Preferred Stock attached hereto
as
Exhibit
B
(the
“Certificate
of Designation”).
The
Company and the Purchaser 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 Preferred
Shares and Common Conversion Shares.
Subject
to the filing and effectiveness of an amendment to increase the authorized
number of shares of preferred stock of the Company and the Certificate of
Designation, the Company will authorize and reserve, and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights
of
stockholders, a number of Preferred Shares equal to one hundred ten percent
(110%) of the number of Preferred Shares as shall from time to time be
sufficient to effect the conversion of the Debenture. 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. Any shares of Common Stock issuable upon
conversion of the Preferred Shares are herein referred to as the “Common
Conversion Shares”.
The
Preferred Shares and the Common Conversion Shares are sometimes collectively
referred to as the “Shares”.
The
Debenture and the Shares are sometimes collectively referred to as the
“Securities”.
Section
1.3 Purchase
Price and Closing.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser agrees to purchase the Debenture for an aggregate purchase price
of $9,000,000 (the “Purchase
Price”).
The
closing of the purchase and sale of the Debenture to be acquired by the
Purchaser from the Company under this Agreement shall take place at the offices
of Loeb & Loeb LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the “Closing”)
at
10:00 p.m., New York time (i) on or before ________________, 2008; 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 Purchaser and the Company
may
agree upon in writing signed by the Company and the Purchaser (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 the Purchaser (x) Debenture
in
the aggregate principal amount set forth opposite the name of such Purchaser
on
Exhibit
A
hereto,
(y) any other documents required to be delivered pursuant to Article IV
hereof.
2
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
the 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 2.1. 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 2.1. For purposes of this Section 2.1, 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.
Except
as set forth on Schedule 2.1(a), 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)
.
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Debenture, the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit
C
(the
“Registration
Rights Agreement”),
the
Share Escrow Agreement, substantially in the form attached hereto as
Exhibit
E
(the
“Share
Escrow Agreement”),
the
Management Escrow Agreement, substantially in the form attached hereto as
Exhibit
F
(the
“Management
Escrow Agreement”)
and
the Certificate of Designation (collectively, the “Transaction
Documents”)
and to
issue and sell the Debenture and, upon conversion, the Shares in accordance
with
the terms hereof, in the Debentures and in the Certificate of Designation.
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.
3
(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 and issued. 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. Except as
disclosed on Schedule
2.1(c),
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 Purchaser 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, 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.
(d) Issuance
of the Securities.
The
Debenture is duly authorized by all necessary corporate action, and when issued
and paid for in accordance with the terms of this Agreement, will be validly
issued and paid, fully paid and non-assessable. The Preferred Shares when issued
in accordance with the terms of the Debenture will be duly authorized by all
necessary corporate action, validly issued and outstanding, fully paid and
nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. The Common Conversion Shares, when issued in
accordance with the terms of the Certificate of Designation, 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.
4
(e) No
Conflicts.
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. To the Company’s knowledge, 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
Securities 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 Purchaser herein.
(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
October 23, 2007, and to the best of the Company’s knowledge all Commission
Documents prior to October 23, 2007 were so filed. True and complete copies
of
all of the Commission Documents are available to the Purchaser through the
Commission’s ▇▇▇▇▇ database on ▇▇▇.▇▇▇.▇▇▇. The Company has not provided to the
Purchaser 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-K for the year ended
December 31, 2007, including the accompanying financial statements (the
“Form
10-K”)
and
the Company’s Form 10-Q for the fiscal quarters ended March 31, 2008 and June
30, 2008 (the “Form
10-Qs”)
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-K, nor the
Form 10-Qs 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).
5
(g) Subsidiaries.
Set
forth on Schedule
2.1(g)
is a
list of the Company’s subsidiaries. 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, 2008, 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,
2008, 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.
6
(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.
(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 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 or local governmental laws, rules,
regulations and ordinances. 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.
7
(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 jurisdiction 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.
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.
(q) Disclosure.
Neither
this Agreement or the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchaser 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) Intellectual
Property.
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.
8
(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.
(u) Material
Agreements.
Except
as set forth on Schedule
2.1(u)
or with
respect to the transactions contemplated herein, 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.
(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.
9
(w) Securities
Act of 1933.
Based
in material part upon the representations herein of the Purchaser, 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 Securities 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 Securities 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 Securities.
(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 Debenture, 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, 2008, 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;
10
(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;
(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 Purchaser or its
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.
11
(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.
(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 the Purchaser, or any person or entity that owns a beneficial
interest in any of the Purchaser, 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) 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 Securities 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 Securities 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 Securities 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 the Company has not in the last
six (6) months publicly offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
Section
2.2 Representations,
Warranties and Covenants of the Purchaser.
The
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:
12
(a) Organization
and Standing of the Purchaser.
The
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.
The
Purchaser has the requisite power and authority to enter into and perform this
Agreement and to purchase the Debenture 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.
(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 Debenture 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.
13
(d) Acquisition
for Investment.
The
Purchaser is acquiring the Debenture 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. The Purchaser does not have a present intention to sell
the
Debenture, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Debenture to or through any person
or entity; provided,
however,
that by
making the representations herein and subject to Section 2.2(h) below, the
Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time
in
accordance with Federal and state securities laws applicable to such
disposition. The Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Debenture 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 Purchaser.
The
Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act. The Purchaser is not required to be registered as
a
broker-dealer under Section 15 of the Exchange Act and the Purchaser is not
a
broker-dealer.
(f) Opportunities
for Additional Information.
The
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.
The
Purchaser acknowledges that the Debenture 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.
The
Purchaser understands that the Securities must be held indefinitely unless
such
Securities 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 Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General.
The
Purchaser understands that the Securities 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
Securities.
14
(j) Trading
Activities.
The
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,
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.
(k) 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 Purchaser with respect to the transactions contemplated by this
Agreement.
ARTICLE
III
Covenants
The
Company covenants with each of the Purchaser as follows, which covenants are
for
the benefit of the Purchaser 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 Debenture, Preferred Shares and Common
Conversion 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 Securities.
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 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, (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 Purchaser, the Company shall deliver to the
Purchaser 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 Purchaser may reasonably request, all to the extent required from time
to
time, to enable the Purchaser to sell the Shares without registration under
the
Securities Act within the limitation of the exemptions provided by Rule
144.
15
Section
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, the Purchaser or any employees, agents or representatives
thereof, so long as the Purchaser shall beneficially own equity securities
of
the Company, in the aggregate, representing more than 5% of the total combined
voting power of all voting securities then outstanding, for purposes reasonably
related to the 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-Q 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;
(b) Annual
Reports filed with the Commission on Form 10-K 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
16
(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 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
3.8 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
3.9 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
3.10 Distributions.
So long
as any Debenture or 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 Debenture (on an as converted basis) or 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.
17
Section
3.11 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 Debenture, 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 Common 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 Common Conversion Shares,
constitute debt, the Company may file protective claims for refund.
Section
3.12 Use
of
Proceeds.
The net
proceeds from the sale of the Securities 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
3.13 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 form of Debenture, the
Registration Rights Agreement, the Certificate of Designation, the Share Escrow
Agreement, the Management 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 Purchaser.
“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.
18
Section
3.14 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 the Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
Section
3.15 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 Purchaser's
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
3.16 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
3.17 ▇▇▇▇▇▇▇▇-▇▇▇▇▇
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
3.18 No
Commissions in connection with Conversion of Debenture and Conversion of
Preferred Shares.
In
connection with the conversion of the Debenture into Preferred Shares and the
subsequent conversion of the Preferred Shares into Common Stock, 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 Debenture or Preferred Shares, as the case
may
be, 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
3.19 Post-Closing
Covenants.
The
Company shall use its best efforts to (i) hire a Chief Financial Officer, (ii)
hire an Investor Relations Officer and (iii) fulfill NASDAQ’s corporate
governance requirements including but not limited to appointing three persons
to
serve as “independent” directors (as such term is defined under the NASDAQ Stock
Market rules) on the Company’s Board of Directors and forming the Audit
Committee and the Compensation Committee of the Company’s Board of Directors.
The Company will perform its obligations within four months of the Closing
Date
with respect to clauses (i) and (ii) and within one month after the Closing
Date
with respect to clause (iii). Such persons referred to in clauses (i), (ii)
and
(iii) shall be approved by the Purchaser, which approval the Purchaser shall
not
unreasonably withhold. The Company will enter into the Management Escrow
Agreement, pursuant to which $750,000 of the Purchase Price shall be delivered
into an escrow account maintained by Loeb & Loeb LLP, which funds shall be
released in installments of $250,000 upon the appointment of (i) a Chief
Financial Officer, (ii) a Vice President of Investor Relations, and (iii) upon
the Company’s compliance with NASDAQ’s corporate governance requirements as set
forth in clause (iii) above.
19
Section
3.20 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
Purchaser 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 right to invest in 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.
(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.
20
(c) So
long
as any Debenture or Preferred Shares remain 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.
(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), 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
3.21 Reservation
of Shares.
So long
as any of the Debenture or the Preferred Shares remain outstanding, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, (i) no less than one hundred ten percent (110%)
of
the aggregate number of Preferred Stock needed to provide for the issuance
of
the Preferred Shares upon conversion of the Debenture and (ii) 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 Common Conversion Shares upon
conversion of the Preferred Shares.
21
Section
3.22 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
the
Purchaser or its respective nominee(s), for the Preferred
Shares and Conversion Shares, as applicable, in such amounts as specified from
time to time by the Purchaser to the Company upon conversion of the Debenture
or
the Preferred Shares, respectively, in the form of Exhibit
I
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Common Conversion 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 3.22 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
the
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 Securities may be made without registration under the Securities Act or
(ii)
such Securities 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
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by the Purchaser and without
any restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.22 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 3.22 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.22, that the Purchaser 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.
Section
3.23 Disposition
of Assets.
So long
as the Debenture or 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 Debenture (on an as converted basis) and the
Preferred Shares then outstanding.
Section
3.24 Increase
in Authorized Shares of Preferred Stock.
The
Company shall file immediately after the closing of the transactions
contemplated by this Agreement, an information statement on Schedule 14C with
the Commission disclosing the approval of its Board of Directors, holders of
a
majority of its Common Stock and holders of its Series A Preferred Stock to
file
an amendment to increase its number of authorized shares of Preferred Stock
to
10,000,000 shares.The Company acknowledges that it shall be liable for payment
of liquidated damages under the Debenture if the Company has not so increased
its authorized shares of Preferred Stock by December 10, 2008.
22
Section
3.25 Certificate
of Good Standing. The
Company covenants and agrees that if it is unable to deliver a certificate
of
good standing from the State of Delaware on the Closing Date, as provided in
Section 4.2 (p), the Company shall obtain such certificate of good standing
no
later than one (1) business day after the date of the Closing.
Section
3.26 Compliance
with PRC Labor and Employment Laws. No
later
than sixty (60) days after the Closing the Company shall be in compliance with
the Labor Contract Law of the PRC, which was effective on January 1, 2008.
The
Company agrees to engage JunZeJun Law Office to assist in such
compliance.
Section
3.27 Cap
on
2003 Equity Incentive Plan.
At any
time, and from time to time that the Company grants awards under its 2003 Equity
Incentive Plan, the maximum number of awards granted shall be no more than
10%
of the total number of shares of Common Stock issued and outstanding at such
time.
ARTICLE
IV
Closing
Conditions and Closing Deliveries
Section
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Debenture.
The
obligation hereunder of the Company to issue and sell the Debenture to the
Purchaser 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.
(a) Accuracy
of the Purchaser’s Representations and Warranties.
The
representations and warranties of the Purchaser shall be true and correct in
all
material respects as of the date when made and as of the Closing Date applicable
to the 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 Purchaser.
The
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 the 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.
(d) Purchase
Price.
The
Purchaser shall have delivered the Purchase Price by wire transfer of
immediately available funds to a bank account designed by the Company in
writing.
23
(e) Directors’
Certificate.
The
Purchaser shall have delivered to the Company a certificate of the Director
of
the Purchaser, dated as of the Closing Date, confirming the accuracy of the
Purchaser’s representations, warranties and covenants as of the Closing Date and
confirming the compliance by the Purchaser with the Purchaser with the
conditions precedent set forth in this Section 4.1 as of the Closing Date.
(f) Transaction
Documents.
The
Purchaser shall have executed each Transaction Documents to which it is a party.
Section
4.2 Conditions
Precedent to the Obligation of the Purchaser to Purchase the
Debenture.
The
obligation hereunder of the Purchaser to acquire and pay for the Debenture
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 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 the 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.
24
(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) 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.
(g) Certificates.
The
Company shall cause to be delivered to the Purchaser’s prime broker dealer, at
the address listed on Exhibit A, via overnight service, the original Debenture;
provided however that in no event shall the Debenture be delivered after the
first (1st)
business day following the Closing.
(h) Officer’s
Certificate. The
Company shall have delivered to the Purchaser 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.
(i) Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof (the “Resolutions”).
(j) Secretary’s
Certificate.
The
Company shall have delivered to such Purchaser a secretary’s certificate, dated
as of the Closing Date, certifying (i) the Resolutions, (ii) the Certificate,
(iii) the Bylaws, each as in effect at the Closing, and (iv) 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.
(k) Share
Escrow Agreement.
The
Company shall have executed and delivered the Share Escrow Agreement to the
Purchaser.
(l) Management
Escrow Agreement.
The
Company shall have executed and delivered the Management Escrow Agreement to
the
Purchaser.
(m) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to the Purchaser.
(n) Opinion
of Counsel, Etc.
At
the
Closing, the Purchaser 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 Purchaser or their respective
counsel shall reasonably require incident to the Closing.
25
(o) Increase
in Authorized Shares of Preferred Stock.
The
Company shall have taken the actions necessary to amend its Certificate of
Incorporation to increase its number of authorized shares of preferred stock
to
10,000,000 shares, including, without limitation, obtaining the required consent
of its Board of Directors, holders of a majority of its Common Stock and holders
of its Series A Preferred Stock.
(p) Delivery
of Good Standing Certificate.
The
Company shall have (i) filed its outstanding annual franchise tax reports for
the 2007 fiscal year and for the first two quarters of the 2008 fiscal year,
and
(ii) submitted payment in the amount of $31,978.93 for payment of delinquent
franchise taxes for those periods, and shall provide evidence of the same.
In
the event the Company is able to obtain a good standing certificate from the
Secretary of State of Delaware on the Closing Date, they Company shall deliver
such good standing certificate to the Purchaser.
ARTICLE
V
Stock
Certificate Legend
Section
5.1 Legend.
The
Debenture, the certificate representing the Preferred Shares, when issued,
and,
if appropriate, the Common Conversion Shares issued upon conversion 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.
26
The
Company agrees to reissue certificates representing any of the Common Conversion
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 Common Conversion 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 Common Conversion
Shares is required to be issued to a Purchaser without a legend, in lieu of
delivering physical certificates representing the Common Conversion Shares
(provided that a registration statement under the Securities Act providing
for
the resale of the Common Conversion Shares is then in effect), the Company
shall
cause its transfer agent to electronically transmit the Common Conversion 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).
ARTICLE
VI
Indemnification
Section
6.1 Indemnification
of Purchaser.
The
Company agrees to indemnify and hold harmless the Purchaser (and its 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 Purchaser as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein, and, in the event the
Company is not in compliance with the Labor Contract Law of the PRC.
.
Section
6.2 Indemnification
of Company.
The
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
the Purchaser shall not have any liability pursuant to this Section
6.2
in an
amount exceeding the aggregate purchase price paid to the Company by the
Purchaser in connection with this Agreement and the securities issued
hereunder.
27
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.
28
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. The Company shall pay all reasonable fees and expenses incurred
by the Purchaser 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 Purchaser is successful in any
litigation or arbitration relating to such enforcement.
Section
7.2 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchaser 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 Purchaser (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 Purchaser 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 the Purchaser 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 Debenture and/or Preferred
Shares 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.
29
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:
|
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 the Purchaser set forth on Exhibit
A
to
this Agreement
|
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.
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.
30
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 Purchaser 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 Purchaser without the consent of the Purchaser
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.
31
Section
7.14 Further
Assurances.
From
and after the date of this Agreement, upon the request of the Purchaser or
the
Company, each of the Company and the Purchaser 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 Registration Rights Agreement and the other
Transaction Documents.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
32
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.
|
By:
|
/s/ Gao Xincheng
|
||
|
Name:
▇▇.
▇▇▇ Xincheng
|
|||
|
Title:
Chief
Executive Officer
|
|||
|
VISION
OPPORTUNITY CHINA LP
|
|||
|
By:
|
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
|
||
|
Name:
▇▇▇▇ ▇▇▇▇▇▇▇▇
|
|||
|
Title:
Authorized Signatory
|
|||
[Signature
Page to Securities Purchase
Agreement]
EXHIBIT
A to the
|
Name
and Address
of
Purchaser and Purchaser’s Primer Broker
|
Number
of Preferred Shares Purchased
|
Dollar Amount
Of Investment
|
|||||
|
Vision
Opportunity China LP
▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇ ▇▇▇▇▇▇▇
Tel:
▇▇▇-▇▇▇-▇▇▇▇
Fax:
▇▇▇-▇▇▇-▇▇▇▇
Email:
▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
|
2,465,753 Shares of Preferred Stock |
$
|
9,000,000
|
||||
|
Prime
Broker:
▇▇▇▇▇▇▇▇
Prime Brokerage
Attn:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vision
Opportunity China LP
Account
430-00211
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
|
|||||||
A-1
EXHIBIT
B to the
FORM
OF CERTIFICATE OF DESIGNATION
(see
Tab No. 1)
B-1
EXHIBIT
C to the
FORM
OF REGISTRATION RIGHTS AGREEMENT
(See
Tab No. 2)
C-1
EXHIBIT
D to the
CONVERSION
NOTICE
Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series B Preferred Stock of CHINA
BIO ENERGY HOLDING GROUP CO., LTD. .
(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 B Preferred Stock, par value $0.001
per share (the “Preferred Shares”), of CHINA
BIO ENERGY HOLDING GROUP CO., LTD.,
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.
|
Date
of Conversion:
|
_____________________________________
|
|
Number
of Preferred Shares to be converted:
|
_____________
|
|
Stock
certificate no(s). of Preferred Shares to be
converted:
____________
|
|
|
The
Common Stock has been sold pursuant to the Registration Statement
(as
defined in the Registration Rights Agreement): YES
____ NO____
|
|
|
Please
confirm the following information:
|
|
|
Conversion
Price:
|
_____________________________________
|
|
Number
of shares of Common Stock
|
|
|
to
be issued:
|
_____________________________________
|
|
|
|
|
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:
|
|
|
Issue
to:
|
_____________________________________
|
|
_____________________________________
|
|
|
Facsimile
Number:
|
_____________________________________
|
|
Authorization:
|
_____________________________________
|
|
By:
_________________________________
|
|
|
Title:
_______________________________
|
|
|
Dated:
|
|
D-1
EXHIBIT
E to the
CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
FORM
OF SHARE ESCROW AGREEMENT
(see
Tab No. 3)
E-1
EXHIBIT
F to the
CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
FORM
OF MANAGEMENT ESCROW AGREEMENT
(see
Tab No.4)
F-1
EXHIBIT
G to the
SECURITIES
PURCHASE AGREEMENT FOR
CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
FORM
OF OPINION OF COUNSEL
1. The
Company is a corporation duly incorporated, validly existing and in good
standing as such under the General Corporation Law of the State of Delaware.
The
Company 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.
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
Debenture and, subject to filing the Amendment and the Certificate of
Designation, issue the Series B Preferred Stock upon conversion of the
Debenture, and the Common Stock issuable upon conversion of the Series B
Preferred Stock. 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, except for the
filing and mailing of the Information Statement. Each of the Transaction
Documents have been duly executed and delivered by the Company, and the
Debenture has been duly executed, issued and delivered by the Company. Each
of
the Transaction Documents constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms.
Neither the Series B Preferred Stock issuable upon conversion of the Debenture
when authorized will be, nor the Company’s Common Stock issuable upon conversion
of the Series B Preferred Stock is, subject to any preemptive rights under
the
Company’s Certificate of Incorporation, as amended, or the Company’s
By-Laws.
3. Upon
filing the Amendment and the Certificate of Designation, the shares of Series
B
Preferred Stock issuable upon conversion of the Debenture will be duly
authorized and reserved for issuance, and, when delivered upon conversion of
the
Debenture, as provided in the Debenture, will be validly issued, fully paid
and
nonassessable. The shares of Common Stock issuable upon conversion of the
Preferred Stock have been duly authorized and reserved for issuance, and, when
delivered upon conversion of the Series B Preferred Stock, as provided in the
Certificate of Designation, 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 Debenture does not, the
Preferred Stock issuable upon conversion of the Debenture and the Common Stock
issuable upon conversion of the Preferred Stock will not, as the case may be
(i)
violate any provision of the Company’s Certificate of Incorporation, as amended,
or 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.
G-1
5. To
our
knowledge, there is no action, suit, claim, investigation or proceeding pending
or threatened against the Company which questions the validity of the Purchase
Agreement or the transactions contemplated thereby or any action taken or to
be
taken pursuant 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.
6. Based
upon, and assuming the truth of, the representations and warranties and full
performance of the covenants, of the Purchaser in the Purchase Agreement, the
offer, issuance and sale of the Debenture are, and the issuance of the (a)
shares of Preferred Stock issuable upon conversion of the Debenture and (b)
shares of Common Stock issuable upon conversion of the Preferred Stock will
be
exempt from the registration requirements of Section 5 of the Securities
Act.
Very
truly yours,
G-2
EXHIBIT
H to the
SECURITIES
PURCHASE AGREEMENT FOR
CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
FORM
OF DEBENTURE
H-1
EXHIBIT
I to the
SECURITIES
PURCHASE AGREEMENT FOR
CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
as
of
____________, 2008
[Name
of
Transfer Agent]
[Address]
Telephone:
(
Facsimile:
Attn:
Ladies
and Gentlemen:
Reference
is made to that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated as of October __, 2008, between China Bio Energy Holding
Group Co., Ltd., a Delaware corporation (the “Company”), and the purchaser named
therein (the “Purchaser”) pursuant to which the Company is issuing to the
Purchaser a debenture convertible into shares of its Series B Convertible
Preferred Stock, par value $0.001 per share (the “Preferred Shares”), which
shall be convertible into 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 Preferred Shares upon
the
automatic conversion under the Debenture and shares of Common Stock upon
conversion of the Preferred Shares (the “Common Conversion Shares”) to or upon
the order of the Purchaser from time to time upon (i) surrender to you of a
properly completed and duly executed Conversion Notice, as the case may be,
in
the form attached hereto as Exhibit I, (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
each case, an indemnification undertaking with respect to such share
certificates 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 Common Conversion Shares 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 Common Conversion Shares were sold pursuant to the Registration Statement,
then certificates representing the Conversion Share shall not bear any legend
restricting transfer of the Conversion Shares 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 Preferred Shares and the Common Conversion Shares shall
bear the following legend:
I-1
“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.”
and,
provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Common Conversion Shares
in the event a registration statement covering the Common Conversion 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 Common Conversion Shares has been declared effective
by
the SEC under the 1933 Act is attached hereto as Exhibit II.
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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CHINA
BIO ENERGY HOLDING GROUP CO., LTD.
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By: _________________________________
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Name: _______________________________
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Title: ________________________________
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ACKNOWLEDGED
AND AGREED:
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[TRANSFER
AGENT]
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By:
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______________________________________
|
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Name:
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______________________________________
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Title:
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______________________________________
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Date:
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__________________
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I-2