EXHIBIT 4.1
$50,000,000
HARBIN ELECTRIC, INC.
38,000 Units Consisting of
Guaranteed Senior Secured Floating Rate Notes due 2012 of Harbin Electric, Inc.
and Warrants to Purchase 2,718,138 Shares of Common Stock of
Harbin Electric, Inc.
and
12,000 Units Consisting of
Guaranteed Senior Secured Floating Rate Notes due 2010 of Harbin Electric, Inc.
and Warrants to Purchase 769,230 Shares of Common Stock of
Harbin Electric, Inc.
PURCHASE AGREEMENT (THE "AGREEMENT")
August 29, 2006
Citadel Equity Fund Ltd.
c/o Citadel Investment Group (Hong Kong) Limited
Chater House, 18th Floor
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▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
and
▇▇▇▇▇▇▇ ▇▇▇▇▇ International
17/F ICBC Tower
▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇
Ladies and Gentlemen:
Harbin Electric, Inc., a Nevada corporation (the "Company") and the
Subsidiary Guarantor (as defined below), hereby agree with each Purchaser (as
defined below) as follows:
1. Issuance of Units.
Subject to the terms and conditions of this Agreement, the Company
will (i) issue and sell to Citadel Equity Fund Ltd. ("Citadel") and Citadel will
purchase from the Company, at the Closing provided for in Section 3, an
aggregate of 38,000 units (the "2012 Units"), at a purchase price of $1,000 per
2012 Unit, with each 2012 Unit consisting of (x) $1,000 in principal amount of
the Company's Guaranteed Senior Secured Floating Rate Notes due 2012 (the "2012
Notes"), (y) a proportionate share of the six-year warrants to purchase an
aggregate of 2,192,308 shares of common stock of the Company, par value $.00001
per share (the "Common Stock"), at an exercise price of $7.80 per share (the
"First Tranche Warrants") and (z) a proportionate share of the six-year warrants
to purchase an aggregate of 525,830 shares of Common Stock at an exercise price
of $10.84 per share (the "Second Tranche Warrants", and together with the First
Tranche Warrants, the "Citadel Warrants"), as more specifically set forth on
Schedule A, and (ii) cause the Subsidiary Guarantor to issue the Guarantee (as
hereinafter defined).
Subject to the terms and conditions of this Agreement, the Company
will (i) issue and sell to ▇▇▇▇▇▇▇ ▇▇▇▇▇ International ("▇▇▇▇▇▇▇ ▇▇▇▇▇" and
together with Citadel, the "Purchasers") and ▇▇▇▇▇▇▇ ▇▇▇▇▇ will purchase from
the Company, at the Closing provided for in Section 3, an aggregate of 12,000
units (the "2010 Units" and together with the 2012 Units, the "Units"), at a
purchase price of $1,000 per 2010 Unit, with each 2010 Unit consisting of (x)
$1,000 in principal amount of the Company's Guaranteed Senior Secured Floating
Rate Notes due 2010 (the "2010 Notes" and together with the 2012 Notes, the
"Notes"), and (y) a proportionate share of the three-year warrants to purchase
an aggregate of 769,230 shares of Common Stock at an exercise price of $7.80 per
share (the "ML Warrants" and together with the Citadel Warrants, the
"Warrants"), as more specifically set forth on Schedule A, and (ii) cause the
Subsidiary Guarantor to issue the Guarantee.
Each Purchaser's obligation hereunder is several and not a joint
obligation and each Purchaser shall have no obligation and no liability to any
Person for the performance or non-performance by the other Purchaser hereunder.
The Notes are to be issued pursuant to the provisions of an
indenture (the "Indenture"), to be dated as of the Closing Date (as hereinafter
defined), by and among the Company, the Subsidiary Guarantor and The Bank of New
York, a New York banking corporation, as trustee (the "Trustee"), substantially
in the form attached hereto as Exhibit A. The Warrants are to be issued pursuant
to the provisions of a warrant agreement (the "Warrant Agreement"), to be dated
as of the Closing Date, by and between the Company and The Bank of New York, a
New York banking corporation, as warrant agent (in such capacity, the "Warrant
Agent"), substantially in the form attached hereto as Exhibit B. As used herein,
the term "Warrant Shares" shall mean, collectively, the shares of Common Stock
issuable upon exercise of the Warrants. As used herein, the term "Securities"
shall mean, collectively, the Units, the Notes, the Warrants, the Warrant Shares
and the Guarantee.
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Indenture or the Warrant Agreement, as the
case may be.
The Notes and the Guarantee will be secured by a perfected
first-priority Lien on all of the equity interests of the Subsidiary Guarantors,
each pursuant to the pledge agreement, to be dated as of the Closing Date,
between The Bank of New York, a New York banking corporation, as the collateral
agent (in such capacity, the "Collateral Agent"), the Company, and the
Subsidiary Guarantors (the "Share Pledge Agreement"), substantially in the form
attached hereto as Exhibit C.
The Units will be offered and sold to the Purchasers pursuant to
Regulation S or other exemption from the registration requirements under the
Securities Act of 1933, as amended (the "Act"). Upon original issuance thereof,
and until such time as the same is no longer required under the applicable
requirements of the Act, the Notes and the Warrants shall bear the legends
relating to the offer and the sale of the Units as required by (i) Regulation S
under the Act or (ii) any other applicable laws or regulations relating to the
issuance of the Units.
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2. Terms of Offering. Pursuant to the Indenture, Advanced Electric
Motors, Inc., a wholly-owned subsidiary of the Company incorporated under the
laws of the State of Delaware, and all of the Company's other existing and
future subsidiaries (other than subsidiaries domiciled in the People's Republic
of China, or "PRC") (each, a "Subsidiary Guarantor") shall irrevocably and
unconditionally guarantee, on a senior secured basis, to the Purchasers and to
the Trustee the payment and performance of the Company's obligations under the
Documents (as defined below) (collectively, the "Guarantee").
Holders of the Warrants (including subsequent transferees) will have
the registration rights set forth in the equity registration rights agreement
(the "Registration Rights Agreement"), to be dated the Closing Date,
substantially in the form attached hereto as Exhibit D.
Pursuant to the Registration Rights Agreement, the Company will, as
soon as reasonably practicable after the Closing Date, file a shelf registration
statement (the "Registration Statement") covering the resale of the Warrant
Shares by the holder thereof and will use its reasonable best efforts to cause
such Registration Statement to be declared effective, subject to certain
exceptions, and to remain effective for the period specified in the Registration
Rights Agreement.
This Agreement, the Indenture, the Registration Rights Agreement,
the Voting Agreement (as defined below), the Notes, the Guarantee, the Share
Pledge Agreement, the Warrant Agreement, the Warrants, the Warrant Shares, the
Units and the Calculation Agency Agreement to be entered into by the Company and
The Bank of New York, a New York banking corporation, in connection with the
Indenture are, collectively, referred to herein as the "Documents."
3. Purchase, Sale and Delivery. The sale and purchase of the Units
to be purchased by the Purchasers shall occur at the Shanghai office of Weil,
Gotshal & ▇▇▇▇▇▇, at 5:00 p.m., Shanghai time, at a closing (the "Closing") on
August 30, 2006 or on such other Business Day thereafter as may be agreed upon
in writing by the Company and the Purchasers. At the Closing, the Company shall
deliver to each Purchaser one or more certificates representing the Notes and
the Warrants in definitive form, registered in such names and denominations as
such Purchaser may request, against payment by such Purchaser of the purchase
price therefor by immediately available Federal funds bank wire transfer to such
bank account or accounts as the Company shall have theretofore designated to the
Purchasers. The Notes and the Warrants to be represented by one or more
definitive global securities in book-entry form will be deposited on the Closing
Date, by or on behalf of the Company, with The Bank of New York, a New York
banking corporation, as common depositary for Clearstream Banking, societe
anonyme (or any successor securities agency) ("Clearstream") and Euroclear Bank,
S.A./N.V., as operator of the Euroclear System (or any successor securities
clearing agency) ("Euroclear", together with Clearstream, the "Trading Market"),
or its designated custodian, and registered in the name of The Bank of New York,
a New York banking corporation.
4. Representations and Warranties of the Company and the Subsidiary
Guarantor. Each of the Company and the Subsidiary Guarantor, jointly and
severally, represent and warrant to the Purchasers that, except as set forth in
the Disclosure Schedule attached hereto as Exhibit E which exceptions shall be
deemed to part of the representations and warranties made hereunder, the
following representations and warranties. The Disclosure Schedule shall be
arranged in sections corresponding to the numbered and lettered sections
contained in this Section 4.
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(a) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by
it under the Securities Act and the Securities and Exchange Act (the
"Exchange Act"), including pursuant to Section 13(a), 13(c) or 15(d)
thereof, since January 24, 2005 (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the "SEC Reports") on a timely basis or
has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of the
date of filing, in the case of SEC Reports filed pursuant to the Exchange
Act (and to the extent such SEC Report was amended, then as of the date of
filing of such amendment), and as of the date of effectiveness in the case
of SEC Reports filed pursuant to the Securities Act (and to the extent
such SEC Report was amended, then as of the date of effectiveness of such
amendment), the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder, as applicable, and none of the SEC Reports, as of
the date of filing, in the case of SEC Reports filed pursuant to the
Exchange Act (and to the extent such SEC Report was amended, then as to
the date of filing of such amendment), and as of the date of effectiveness
in the case of SEC Reports filed pursuant to the Securities Act (and to
the extent such SEC Report was amended, then as of the date of
effectiveness of such amendment), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports have been
prepared in accordance with the applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial condition, results of operations and cash flows of the
Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(b) Ownership of Shares of Subsidiaries; Affiliates.
(i) Schedule 4(b)(i) of the Disclosure Schedule contains (except as
noted therein) complete and correct lists of each individual
partnership, limited liability company, joint venture, corporation,
association trust or any other entity or organization (collectively,
a "Person") in which the company owns, directly or indirectly, any
capital stock or similar equity interests (each, a "Subsidiary" and
collectively, the "Subsidiaries"), showing, as to each Subsidiary,
the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or
similar equity interests outstanding owned by the Company and each
other Subsidiary.
(ii) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 4(b)(i) of the
Disclosure Schedule as being owned by the Company and its
Subsidiaries have been validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary
free and clear of any Lien.
(iii) No Subsidiary is a party to, or otherwise subject to any legal or
regulatory restriction or any agreement (other than this Agreement,
the restrictions disclosed in Schedule 4(b)(iii) of the Disclosure
Schedule, and limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
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(iv) As of the date hereof, Advanced Electric Motors, Inc. is the sole
Subsidiary Guarantor.
(c) Organization. Each of the Company and the Subsidiaries (i) has been duly
organized, is validly existing and is in good standing under the laws of
its jurisdiction of organization, (ii) has all requisite power and
authority to carry on its business and to own, lease and operate its
properties and assets, and (iii) is duly qualified or licensed to do
business and is in good standing as a foreign corporation or limited
liability company, as the case may be, authorized to do business in each
jurisdiction in which the nature of such business or the ownership or
leasing of such properties requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate,
have a material adverse effect on (A) the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, (B) the
ability of the Company and the Subsidiary Guarantor to perform their
respective obligations under any Document or (C) the validity of any of
the Documents or the consummation of any of the transactions contemplated
therein (each, a "Material Adverse Effect").
(d) Capitalization and Voting Rights.
(i) Capital Stock. The authorized capital of the Company
consists, immediately prior to the Closing, of (i) One Hundred
Million (100,000,000) shares of Common Stock, of which Sixteen
Million Six Hundred Thousand and Four Hundred and Fifty-One
(16,600,451) shares are issued and outstanding immediately prior to
the Closing, and (ii) no shares of preferred stock.
(ii) Issued Shares. As at the date hereof and immediately
prior to the Closing, the aggregate number of Common Stock issued
and which are issuable pursuant to any exercise, conversion,
exchange, subscription or otherwise in connection with any warrants,
options (including pursuant to the Company's stock option plan),
convertible securities or any agreement to sell or issue Common
Stock or securities which may be exercised, converted or exchanged
for Common Stock (collectively, "Fully-Diluted") is 17,980,451. The
Warrant Shares issuable upon exercise of the Warrants have been duly
reserved for issuance. All of the issued and outstanding shares of
the Company's Common Stock as of the Closing are duly authorized,
validly issued, fully paid and non-assessable, were issued in
accordance with the registration or qualification provisions of the
Securities Act and any relevant blue sky laws of the United States
of America or pursuant to valid exemptions therefrom and were issued
in compliance with other applicable laws (including, without
limitation, applicable PRC laws, rules and regulations) of and are
not subject to any rescission right or put right on the part of the
holder thereof nor does any holder thereof have the right to require
the Company to repurchase such share capital.
(iii) Voting and other Agreements. Except as set forth on
Schedule 4(d)(iii) of the Disclosure Schedule, there are no
outstanding (A) options, warrants or other rights to purchase from
the Company or any of the Subsidiaries, (B) agreements, contracts,
arrangements or other obligations of the Company or any of its
Subsidiaries to issue, or (C) other rights to convert any obligation
into or exchange any securities for, in the case of each of clauses
(A) through (C), shares of capital stock of, or other ownership or
equity interests in, the Company or any of its Subsidiaries. Except
as otherwise contemplated by that certain voting agreement between
the Company, ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ and Citadel, to be dated the Closing
Date (the "Voting Agreement"), the Company is not a party or subject
to any agreement or understanding, and, to the Company's knowledge
after due inquiry, there is no agreement or understanding with any
Person that affects or relates to (i) the voting or giving of
written consents with respect to any security of the Company
(including, without limitation, any voting agreements, voting trust
agreements, shareholder agreements or similar agreements) or the
voting by a director of the Company or (ii) the sale, transfer or
other disposition with respect to any security of the Company.
5
(iv) The Common Stock is registered pursuant to 12(g) of the
Exchange Act, and the Company has taken no action designed to, or
which to its knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act, nor has
the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in
the 12 months preceding the date hereof, received notice from the
Over-The-Counter ("OTC") Bulletin Board on which the Common Stock
has been traded to the effect that the Company is not in compliance
with the OTC requirements. The Company is, and expects to be, in
compliance with all of the OTC listing requirements in the
foreseeable future.
(e) No Registration Rights. Except as set forth on Schedule 4(e), no holder of
securities of the Company or any of its Subsidiaries is or will be
entitled to have any registration rights with respect to such securities
except as set forth in the Registration Rights Agreement.
(f) Authorization. The Company and the Subsidiary Guarantor have all requisite
corporate power and authority to execute, deliver and perform their
obligations under each of the Documents to which they are a party and to
consummate the transactions contemplated thereby. This Agreement has been
duly authorized, executed and delivered by the Company and the Subsidiary
Guarantor. Each of the Documents, when executed and delivered by the
Company and the Subsidiary Guarantor (to the extent a party thereto),
shall constitute a legal, valid and binding obligation of the Company and
the Subsidiary Guarantor, as the case may be, enforceable against each of
the Company and the Subsidiary Guarantor, as the case may be, in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in Section 8 of this Agreement or the
Registration Rights Agreement may be limited by applicable federal or
state securities laws.
(g) Valid Issuance of Units and Notes. The Units, when issued, sold and
delivered in accordance with the terms and for the consideration set forth
herein, will be free of restrictions on transfer, other than restrictions
on transfer under applicable state and federal securities laws. Assuming
the accuracy of the Purchasers' representations in Section 6 below, the
Units will be issued in compliance with applicable state and federal
securities laws. The Notes, when issued, will be in the form contemplated
by the Indenture. The Notes have each been duly authorized by the Company
and, when executed and delivered by the Company, delivered to each
Purchaser and authenticated by the Trustee, in accordance with the terms
of this Agreement and the Indenture, the Notes will have been duly
executed, issued and delivered by the Company and will constitute legal,
valid and binding obligations of the Company, entitled to the benefits of
the Indenture, and enforceable against the Company in accordance with
their terms. The Guarantee has been duly authorized, and, when the Notes
have been duly executed, authenticated and issued in accordance with the
provisions of the Indenture and delivered to and paid for by the
Purchasers with the Guarantee endorsed thereon by the Subsidiary
Guarantor, will constitute the legal, valid and binding obligations of the
Subsidiary Guarantor entitled to the benefits of the Indenture.
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(h) Valid Issuance of Warrants and Warrant Shares. The Warrants, when issued
on the Closing Date, will provide for the right to purchase approximately
16.24463% of the Fully-Diluted Common Stock of the Company as of the
Closing Date (as calculated immediately following the Closing and assuming
exercise of all such Warrants issued hereunder), determined in accordance
with GAAP. The Warrants, when issued, will be in the form contemplated by
the Warrant Agreement. The Warrants have been duly authorized by the
Company and when executed and delivered by the Company, delivered to and
paid for by the warrant holder and authenticated by the Warrant Agent, in
accordance with the terms of this Agreement and the Warrant Agreement, the
Warrants will have been duly executed, issued and delivered by the Company
and will constitute legal, valid and binding obligations of the Company,
entitled to the benefit of the Warrant Agreement and the Registration
Rights Agreement. The Warrant Shares have been duly and validly authorized
for issuance by the Company, and when issued pursuant to the terms of the
Warrants and the Warrant Agreement, will be validly issued, fully paid and
non-assessable, not subject to any preemptive or similar rights, free from
all taxes, Liens, charges and security interests with respect to the
issuance thereof and free of restrictions on transfer other than as
expressly contemplated by the Documents.
(i) Compliance with Instruments. Except as set forth in Schedule 4(i) of the
Disclosure Schedule, neither the Company nor any of the Subsidiaries is in
violation of its respective certificate of incorporation, by-laws or other
organizational documents (the "Charter Documents"). Neither the Company
nor any of the Subsidiaries is, nor does any condition exist (with the
passage of time or otherwise) that could reasonably be expected to cause
the Company or any of the Subsidiaries to be, (i) in violation of any
statute, rule, regulation, law or ordinance, or any judgment, decree or
order applicable to the Company, any of the Subsidiaries or any of their
properties (collectively, "Applicable Law") of any federal, state, PRC
national, provincial, local or other governmental authority, governmental
or regulatory agency or body, court, arbitrator or self-regulatory
organization, domestic or foreign (each, a "Governmental Authority"), or
(ii) in breach of or in default under any bond, debenture, note or other
evidence of indebtedness, indenture, mortgage, deed of trust, lease or any
other agreement or instrument to which any of them is a party or by which
any of them or their respective property is bound (collectively,
"Applicable Agreements"), other than in each of clause (i) and (ii) such
violations, breaches or defaults that are (a) disclosed in Schedule 4(i)
of the Disclosure Schedule or (b) not material. Except as set forth in
Schedule 4(i) of the Disclosure Schedule, all Applicable Agreements are in
full force and effect and with respect to the Company or any of the
Subsidiaries and to the Company's knowledge, with respect to the other
parties, are the legal, valid and binding obligations of the parties
thereto.
(j) No Conflicts. Neither the execution, delivery or performance of any of the
Documents nor the consummation of any of the transactions contemplated
therein will conflict with, violate, constitute a breach of or a default
(with the passage of time or otherwise) under, require the consent of any
person or a Governmental Authority (other than consents already obtained)
or result in the imposition of a Lien (other than a Lien arising under the
Share Pledge Agreement and the transactions contemplated by this
Agreement) on any assets of the Company or any of the Subsidiaries under
or pursuant to (i) the Charter Documents, (ii) any Applicable Agreement,
or (iii) any Applicable Law, other than in each of clause (ii) and (iii)
such violations, breaches or defaults that are not material. After
consummation of the transactions contemplated in the Documents, no Default
or Event of Default will exist under the Indenture.
7
(k) Security Interest. When executed and delivered, the Share Pledge Agreement
will create valid and enforceable first priority, perfected security
interests in favor of the Collateral Agent in all "Pledged Collateral" (as
defined in the Share Pledge Agreement) which security interests will
secure the repayment of the Notes and the other obligations purported to
be secured thereby.
(l) Governmental Consents. No filing with, consent, approval, authorization or
order of, any Governmental Authority is required for the consummation of
the transactions contemplated by the Documents, except (i) as have been
obtained or will have been obtained on or before the Closing Date, (ii) as
may be necessary to perfect security interests granted pursuant to the
Share Pledge Agreement, and (iii) as may be required under the Act or
state securities laws or "Blue Sky" laws.
(m) Proceedings. Except as disclosed in the SEC Reports, there is no action,
claim, suit, demand, hearing, notice of violation or deficiency, or
proceeding, domestic or foreign (collectively, "Proceedings"), pending or,
to the knowledge of the Company, threatened, that seeks to restrain,
enjoin, prevent the consummation of, or otherwise challenges any of the
Documents or any of the transactions contemplated therein. Except as
disclosed in the SEC Reports, neither the Company nor any of the
Subsidiaries is subject to any judgment, order or decree of which the
Company has knowledge.
(n) Permits. Each of the Company and the Subsidiaries possesses all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
Governmental Authorities, presently required or necessary to own or lease,
as the case may be, and to operate their respective properties and to
carry on their respective businesses as now conducted ("Permits"), except
as disclosed in the SEC Reports. All of the Permits are valid and in full
force and effect. The Company and its Subsidiaries have fulfilled and
performed all of their respective obligations with respect to such Permits
and no event has occurred which allows, or after notice or lapse of time
could allow, revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such Permit. None
of the Company or the Subsidiaries has received actual notice of any
proceeding relating to revocation or modification of any such Permit,
except as disclosed in the SEC Reports.
(o) Title to Property. Each of the Company and the Subsidiaries has good and
marketable title to all real property and personal property owned by it,
in each case free and clear of any Liens as of the Closing Date, except
such Liens as would not be reasonably expected to have a Material Adverse
Effect. For the real property not owned by the Company or its Subsidiaries
and currently used or planned to be used for the business operations of
the Company or its Subsidiaries, each of the Company and its Subsidiary
has good and marketable title to all leasehold estates in real and
personal property being leased by it and, in each case free and clear of
all Liens as of the Closing Date.
(p) Insurance. Each of the Company and the Subsidiaries maintains reasonable
adequate insurance covering its material properties, operations, personnel
and business, and is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged. All
policies of insurance insuring the Company and any of the Subsidiaries and
their respective businesses, assets, employees, officers and directors are
in full force and effect. Each of the Company and the Subsidiaries is in
compliance with the terms of such policies and instruments in all material
respects, and, except as disclosed in the SEC Reports, there are no claims
by the Company or any of the Subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause. Neither the Company nor
any Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that could
not, individually or in the aggregate, have a Material Adverse Effect.
8
(q) Taxes. All Tax returns required to be filed by the Company or any of the
Subsidiaries have been filed, and all such returns are true, complete and
correct in all material respects. All material Taxes that are due from the
Company or any of the Subsidiaries have been paid other than those (i)
currently payable without penalty or interest or (ii) being diligently
contested in good faith and by appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP. To the
knowledge of the Company after due inquiry, there are no proposed Tax
assessments against the Company or any of the Subsidiaries. The accruals
and reserves on the books and records of the Company and the Subsidiaries
in respect of any Tax liability for any Taxable period not finally
determined are adequate to meet any assessments of Tax for any such
period. For purposes of this Agreement, the term "Tax" and "Taxes" shall
mean all Federal, state, PRC national, provincial, local and foreign
taxes, and other assessments of a similar nature (whether imposed directly
or through withholding), including any interest, additions to tax, or
penalties applicable thereto.
(r) Intellectual Property.
(i) Each of the Company and the Subsidiaries owns, or is validly
licensed under, or has the right to use, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names (collectively, "Intellectual Property") necessary for
the conduct of its businesses and which as of the Closing Date, will
be free and clear of all Liens, except where the failure to own,
possess, or have the right to use such Intellectual Property would
not have a Material Adverse Effect. To the Company's knowledge, no
claims or notices of any potential claim have been asserted by any
person challenging the use of any such Intellectual Property by the
Company or any of the Subsidiaries or questioning the validity or
effectiveness of the Intellectual Property or any license or
agreement related thereto, and, to the Company's knowledge, there
are no facts which would form a valid basis for any such claim. To
the Company's knowledge, the use of such Intellectual Property by
the Company or any of the Subsidiaries will not infringe on the
Intellectual Property rights of any other person.
(ii) Schedule 4(r)(ii) of the Disclosure Schedule sets forth a complete
list of (i) the Registered IP owned by or licensed to the Company or
any of its Subsidiaries and (ii) all other material Intellectual
Property licensed to the Company or any of its Subsidiaries.
"Registered IP" means Intellectual Property that is registered,
filed, or issued under the authority of any governmental authority,
including all patents, registered copyrights, registered mask works,
and registered trademarks and all applications for any of the
foregoing. All Intellectual Properties owned by the Company and its
Subsidiaries are valid and enforceable and are in compliance with
formal legal requirements.
9
(iii) Each of the Company and its Subsidiaries has taken reasonable steps
and measures to establish and preserve ownership of or right to use
all Intellectual Property material to the operation of its business.
Each of the Company and its Subsidiaries has taken reasonable steps
to register, protect, maintain, and safeguard the Intellectual
Property material to its business, including any Intellectual
Property that is jointly developed with any third-parties, or any
Intellectual Property for which improper or unauthorized disclosure
would impair its value or validity, and has had executed appropriate
nondisclosure and confidentiality agreements and made all
appropriate filings, registrations and payments of fees in
connection with the foregoing. There is no infringement or
misappropriation by any other Person of any Intellectual Property of
the Company or its Subsidiaries. No proceedings or claims in which
the Company or any of its Subsidiaries alleges that any Person is
infringing upon, or otherwise violating, any Intellectual Property
of the Company or its Subsidiaries are pending, and none has been
served, instituted or asserted by the Company or its Subsidiaries.
(iv) Each of the Company and its Subsidiaries owns all rights in and to
any and all Intellectual Property used or planned to be used by the
Company or its Subsidiaries, or covering or embodied in any past,
current or planned activity or service of the Company and its
Subsidiaries, which Intellectual Property was made, developed,
conceived, created or written by any consultant retained, or any
employee employed, by the Company and its Subsidiaries. No former or
current employee, no former or current consultant, and no
third-party joint developer of the Company or its Subsidiaries has
any rights in any Intellectual Property made, developed, conceived,
created or written by the aforesaid employee or consultant during
the period of his or her retention by the Company and its
Subsidiaries which can be asserted against the Company and its
Subsidiaries.
(v) Except as set forth on Schedule 4(r)(v) of the Disclosure Schedule
or an SEC Report, no Intellectual Property owned by the Company or
its Subsidiaries is the subject of any security interest, Lien,
license or other contract granting rights therein to any other
Person. Each of the Company and its Subsidiaries has not (a)
transferred or assigned, (b) granted an exclusive license to or (c)
provided or licensed, any Intellectual Property owned by the Company
or its Subsidiaries to any Person who is the subject of any security
interest, Lien, license or other contract granting rights therein to
any other Person. Each of the Company and its Subsidiaries has not
(a) transferred or assigned, (b) granted an exclusive license to or
(c) provided or licensed, any Intellectual Property owned by the
Company or its Subsidiaries to any Person.
(s) Internal Controls. The Company and each of its Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any material differences.
(t) Financial Statements.
(i) The audited consolidated financial statements and related notes of
the Company contained in the Form 10-KSB/A for the two years ended
December 31, 2005 and the unaudited consolidated financial
statements and related notes in the Form 10-QSB for the six months
ended June 30, 2006 (collectively, the "Financial Statements")
present fairly in all material respects the financial position,
results of operations and cash flows of the Company and its
consolidated Subsidiaries, as of the respective dates and for the
respective periods to which they apply and have been prepared in
accordance with GAAP and comply as to form with the applicable
requirements of Regulation S-X of the Act. All other financial,
statistical, and market and industry-related data included in the
SEC Reports are based on or derived from sources that the Company
reasonably believes to be reliable and accurate.
10
(ii) Subsequent to the date of the Company's audited financial statements
filed for the year ended December 31, 2005, except as disclosed
therein or in any subsequent SEC Report, (i) neither the Company nor
any of the Subsidiaries has incurred any liabilities, direct or
contingent, that are material, individually or in the aggregate, to
the Company, or has entered into any material transactions not in
the ordinary course of business, (ii) there has not been any
material decrease in the capital stock or any material increase in
long-term indebtedness or any material increase in short-term
indebtedness of the Company or any Subsidiary, or any payment of or
declaration to pay any dividends or any other distribution with
respect to the Company or any of the Subsidiaries, and (iii) there
has not been any material adverse change in the properties,
business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Company and the
Subsidiaries taken as a whole; excluding any changes caused by (x)
the condition of the industry of the Company that do not
disproportionately affect the Company, (y) the failure of the
Company to meet its financial projections or (z) the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby (each of clauses (i), (ii) and (iii), a
"Material Adverse Change"). To the knowledge of the Company, there
is no event that is reasonably likely to occur in the foreseeable
future, which if it were to occur, could, individually or in the
aggregate, have a Material Adverse Change.
(u) Indebtedness. All Indebtedness represented by the Notes and the Guarantee
is being incurred for proper purposes and in good faith. Based on the
financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the fair saleable value of the Company's and its
Subsidiaries' assets exceeds the amount that will be required to be paid
on or in respect of the Company's and its Subsidiaries' existing debts and
other liabilities (including contingent liabilities) as they mature; (ii)
the present fair saleable value of the assets of the Company and its
Subsidiaries is greater than the amount that will be required to pay the
probable liabilities of the Company and its Subsidiaries on their
respective debt as they become absolute and mature, and (iii) the Company
and its Subsidiaries are able to realize upon their assets and pay their
debt and other liabilities (including contingent obligations) as they
mature; (iv) the Company's and its Subsidiaries' assets do not constitute
unreasonably small capital to carry on their respective businesses as now
conducted and as proposed to be conducted including their respective
capital needs taking into account the particular capital requirements of
the business conducted by the Company or its Subsidiaries, and projected
capital requirements and capital availability thereof; and (v) the current
cash flow of each of the Company and its Subsidiaries, together with the
proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its liabilities when
such amounts are required to be paid. Neither the Company nor any of its
Subsidiaries intends to incur debts beyond its ability to pay such debts
as they mature (taking into account the timing and amounts of cash to be
payable on or in respect of its debt). The Company has no knowledge of any
facts or circumstances which lead it to believe that it or any of its
Subsidiaries will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. For the purposes of this Agreement, "Indebtedness" shall
mean (a) any liabilities for borrowed money or amounts owed in excess of
$50,000 (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
$50,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is, or is reasonably likely
to be, in default with respect to any Indebtedness and no waiver of
default is currently in effect. Neither the Company nor any of its
Subsidiaries has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien. Neither
the Company nor any of its Subsidiaries is a party to, or otherwise
subject to any provision contained in, any instrument evidencing
Indebtedness of the Company or such Subsidiary, any agreement relating
thereto or any other agreement (including, but not limited to, its charter
or other organizational document) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Indebtedness of the Company.
11
(v) None of the Company or the Subsidiaries has and, to each of its knowledge
after due inquiry, no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of either the
Company or its Subsidiaries to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid anyone any compensation
for soliciting purchases of, the Units, or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any other
securities of the Company or its Subsidiaries (other ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
Far East Limited).
(w) None of the Company, its Subsidiaries, their respective Affiliates, or any
person acting on its or their behalf has, directly or indirectly, made
offers or sales of any security, or solicited offers to buy, sell or offer
to sell or otherwise negotiate in respect of, in the United States or to
any United States citizen or resident, any security which is or would be
integrated with the sale of the Securities in a manner or under
circumstances that would require the registration of the Securities under
the Act.
(x) None of the Company, its Subsidiaries, their respective Affiliates, or any
person acting on its or their behalf (other than Citadel, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far East Limited, their Affiliates or persons acting on
their behalf, as to whom the Company makes no representation) has engaged
in any directed selling efforts (within the meaning of Regulation S) with
respect to the Securities; and each of the Company, its Subsidiaries,
their respective Affiliates and each person acting on its or their behalf
has complied with the offering restrictions requirement of Regulation S.
(y) The Securities satisfy the eligibility requirements of Rule 144A(d)(3)
under the Act.
12
(z) Assuming the accuracy of the Purchasers' representations and warranties
set forth in Section 6, no registration under the Act of the Securities is
required for the offer and sale of the Securities to or by the Purchasers
in the manner contemplated herein or to qualify the Indenture under the
TIA.
(aa) Labor Matters. Neither the Company nor any Subsidiary is bound by or
subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to
the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company or any Subsidiary.
There is no strike or other labor dispute involving the Company or any
Subsidiary pending or threatened, which could have a Material Adverse
Effect. There is no employment related charge, complaint, grievance,
investigation, unfair labor practice claim or inquiry of any kind, pending
against the Company or any Subsidiary that could, individually or in the
aggregate, have a Material Adverse Effect.
(bb) Brokers and Finders. The Company has not engaged any broker, finder,
commission agent or other similar person (other ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far
East Limited) in connection with the transactions contemplated under the
Documents, and the Company is not under any obligation to pay any broker's
fee or commission in connection with such transactions (other than
commissions or fees to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Far East Limited).
(cc) Environmental Matters. Each of the Company and the Subsidiaries (i) is in
compliance with any and all applicable foreign, federal, state, PRC
national, provincial, and local laws and regulations relating to the
protection of the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) has received and
is in compliance with all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business, (iii) has
not received actual notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, (iv) neither the
Company nor any of its Subsidiaries has knowledge of any facts which would
give rise to any claim, public or private, of violation of Environmental
Laws emanating from, occurring on or in any way related to real properties
now or formerly owned, leased or operated by any of them or to other
assets or their use, except, in each case, such as would not reasonably be
expected to result in a Material Adverse Effect; and (v) neither the
Company nor any of its Subsidiaries has stored any hazardous materials on
real properties now or formerly owned, leased or operated by any of them
and has not disposed of any hazardous materials in a manner contrary to
any Environmental Laws; except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals, or liability would not, individually or in the aggregate, have
a Material Adverse Effect.
In the ordinary course of its business, the Company periodically reviews
the effect of Environmental Laws on the business, operations and
properties of the Company and its Subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis
of such review, the Company has reasonably concluded that such associated
costs could not have a Material Adverse Effect.
(dd) Encumbrances. As of the Closing Date, except as set forth in Schedule
4(dd) of the Disclosure Schedule, there will be no encumbrances or
contractual restrictions on the ability of the Company or any Subsidiary
(x) to pay dividends or make other distributions on such parties' capital
stock or to make loans or advances or pay any indebtedness to, or
investments in, the Company or any Subsidiary, or (y) to transfer any of
its property or assets to the Company or any Subsidiary, except for such
restrictions set forth in the Documents, restrictions imposed by a
Governmental Authority, or limitations imposed by corporate law statutes.
13
(ee) Security Interest/Share Pledge Agreement. As of the Closing Date:
(i) The Company will own the Pledged Collateral free and clear of all
Liens (except for Liens arising under the Share Pledge Agreement).
(ii) The representations and warranties contained in the Share Pledge
Agreement will be true and correct in all material respects.
(iii) The Liens on the Notes will have been duly perfected as to all
Pledged Collateral.
(ff) Certificate. Each certificate signed by any officer of the Company or the
Subsidiary Guarantor and delivered to the Purchasers shall be deemed a
representation and warranty by the Company or the Subsidiary Guarantor
(and not individually by such officer) to the Purchasers with respect to
the matters covered thereby.
(gg) Foreign Corrupt Practices Act. Neither the Company or its Subsidiaries,
nor to the knowledge of the Company, any agent or other person acting on
behalf of the Company or its Subsidiaries, has (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution made
by the Company or its Subsidiaries (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(hh) Ranking of Obligations. The payment obligations of the Company and the
Subsidiary Guarantors under this Agreement will rank at least pari passu,
without preference or priority, with all other unsecured and
unsubordinated Indebtedness of the Company and the Subsidiary Guarantor,
as the case may be. The Notes are secured obligations of the Company and
are secured in the manner set out in the Indenture. The Guarantee is a
secured obligation of the Subsidiary Guarantor and is secured in the
manner set out in the Indenture.
(ii) Related Party Transactions. Other than as set forth in an SEC Report or in
Schedule 4(ii) of the Disclosure Schedule, no material relationship,
direct or indirect, exists between or among any of the Company or its
Subsidiaries or any Affiliate of the Company or its subsidiaries, on the
one hand, and any former or current director, officer, stockholder,
customer or supplier of any of them (including any member of their
immediate family), on the other hand.
(jj) Investment Company. The Company and its Subsidiaries are not, and as a
result of the offer and sale of the Securities contemplated herein will
not be, required to register as an "investment company" under, and as such
term is defined in, the U.S. Investment Company Act of 1940, as amended
(the "Investment Company Act") in connection with or as a result of the
offer and sale of the Securities.
14
(kk) Section 3(a)(9) Compliance. In connection with the conversion of the
Warrants into Warrant Shares, neither the Company nor any Person acting on
its behalf will take any action which would result in the Warrant Shares
being exchanged by the Company other than with the then existing holders
of the Warrants exclusively where no commission or other remuneration is
paid or given directly or indirectly for soliciting the exchange.
(ll) PFIC. Neither the Company nor any of its Subsidiaries is or intends to
become a "passive foreign investment company" (a "PFIC") within the
meaning of Section 1297 of the Code. The Company will use commercially
reasonable efforts not to become, and cause its Subsidiaries not to
become, a PFIC. If the Company determines that either it or any of its
Subsidiaries has become a PFIC, it will promptly notify each Purchaser and
provide all information requested by each Purchaser that is necessary for
such Purchaser to make a qualified electing fund (QEF) election.
(mm) OFAC. Neither the Company nor, to the knowledge of the Company, any
director, officer, agent, employee, Affiliate or Person acting on behalf
of the Company is currently subject to any U.S. sanctions administered by
the Office of Foreign Assets Control of the U.S. Treasury Department
("OFAC"); and the Company will not directly or indirectly use the proceeds
of the offering, or lend, contribute or otherwise make available such
proceeds to any Subsidiary, joint venture partner or other Person or
entity, for the purpose of financing the activities of any person
currently subject to any U.S. sanctions administered by OFAC.
(nn) Money Laundering Laws. The operations of the Company and its Subsidiaries
are and have been conducted at all times in compliance with the money
laundering statutes of applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines,
issued, administered or enforced by any applicable governmental agency
(collectively, the "Money Laundering Laws") and no action, suit or
proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or any of its Subsidiaries
with respect to the Money Laundering Laws is pending or, to the best
knowledge of the Company, threatened.
(oo) Other Representations and Warranties Relating to Harbin Tech. Full
Electric Co., Ltd. ("WFOE").
(i) The constitutional documents and certificates and related material
contracts of WFOE are valid and have been duly approved or
registered (as applicable) by competent PRC Governmental
Authorities.
(ii) Except as set forth in the Disclosure Schedule, all material
consents, approvals, authorizations or licenses requisite under PRC
law for the due and proper establishment and operation of WFOE have
been duly obtained from the relevant PRC Governmental Authorities
and are in full force and effect.
(iii) Except as set forth in the Disclosure Schedule, all filings and
registrations with the PRC Governmental Authorities required in
respect of WFOE and its operations including, without limitation,
the registrations with Ministry of Commerce, State Administration of
Industry and Commerce, State Administration for Foreign Exchange,
tax bureau and customs authorities have been duly completed in
accordance with the relevant PRC rules and regulations.
15
(iv) The WFOE has complied with all relevant PRC laws and regulations
regarding the contribution and payment of its registered share
capital, the payment schedule of which has been approved by the
relevant PRC Government Authorities. There are no outstanding rights
of, or commitments made by the Company or any Subsidiary to sell any
equity interest in the WFOE.
(v) The WFOE is not in receipt of any letter or notice from any relevant
PRC Governmental Authority notifying it of revocation of any
licenses issued to it for non-compliance or the need for compliance
or remedial actions in respect of the activities carried out by the
WFOE.
(vi) The WFOE has conducted its business activities within the permitted
scope of business or has otherwise operated its business in material
compliance with all relevant legal requirements and with all
requisite licenses and approvals granted by competent PRC
Governmental Authorities.
(vii) Except as set forth in the Disclosure Schedule, as to licenses and
approvals requisite for the conduct of any part of WFOE's business
which are subject to periodic renewal, the Company has no knowledge
of any grounds on which such requisite renewals will not be granted
by the relevant PRC Governmental Authorities.
(viii) With regard to employment and staff or labor, the WFOE has complied
with all applicable PRC laws and regulations in all material
respects, including without limitation, laws and regulations
pertaining to welfare funds, social benefits, medical benefits,
insurance, retirement benefits, pensions or the like.
(pp) Full Disclosure. All disclosure furnished by or on behalf of the Company
to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated under the
Documents, including the Disclosure Schedule to this Agreement, with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that the Purchasers do not make any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 6
hereof.
5. Covenants of the Company and the Subsidiary Guarantor. The
Company and the Subsidiary Guarantor, jointly and severally, hereby agree:
(a) To (i) advise each Purchaser promptly after obtaining knowledge (and, if
requested by such Purchaser, confirm such advice in writing) of the
issuance by any state securities commission of any stop order suspending
the qualification or exemption from qualification of the Securities for
offer or sale in any jurisdiction, or the initiation of any proceeding for
such purpose by any state securities commission or other regulatory
authority, (ii) use its commercially reasonable efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption from qualification of the Securities under any state securities
or Blue Sky laws, and (iii) if at any time any state securities commission
or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Securities under any
such laws, use its commercially reasonable efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
16
(b) So long as any of the Securities are "restricted securities" within the
meaning of Rule 144(a)(3) or Rule 905 under the Act, to, during any period
in which the Company is not subject to and in compliance with Section 13
or 15(d) of the Exchange Act, provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder or
prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Act.
(c) Whether or not any of the transactions contemplated under the Documents
are consummated or this Agreement is terminated, to pay (i) all costs,
expenses, fees and taxes incident to and in connection with: (A) the
printing, processing and distribution (including, without limitation, word
processing and duplication costs) and delivery of, each of the Documents,
and (B) the preparation, issuance and delivery of the Securities, (ii) all
fees and expenses of the counsel, accountants and any other experts or
advisors retained by the Company, (iii) all expenses in connection with
qualifying the Notes and Warrants for trading on the Trading Market, (iv)
all fees and expenses (including fees and expenses of counsel) of the
Company in connection with approval of the Securities for "book-entry"
transfer, and (v) all fees and expenses (including reasonable fees and
expenses of counsel) of the Trustee, the Warrant Agent, the Calculation
Agent and the Collateral Agent.
(d) To do and perform all things required to be done and performed under the
Documents prior to and after the Closing Date.
(e) Prior to making any public disclosure or filings as may be required by
applicable law with respect to this Agreement and the transactions
contemplated hereby, to provide each Purchaser and its counsel with the
reasonable opportunity to review and comment on such public disclosure
documents and consider in good faith any comments received by such
Purchaser or its counsel.
(f) To use their commercially reasonable efforts to effect the inclusion of
the Notes and Warrants in the Trading Market.
(g) For so long as a Purchaser owns any of the Securities, the Company will
furnish to such Purchaser copies of all reports and other communications
(financial or otherwise) furnished by the Company to the Trustee or to the
holders of its Securities and, as soon as available, copies of any reports
or financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed; provided, however, that any such
report or financial statements filed on the Commission's ▇▇▇▇▇ database
need not be separately furnished.
(h) During the two year period after the Closing Date (or such shorter period
as may be provided for in Rule 144(k) under the Act, as the same may be in
effect from time to time), not to, and not to permit any current or future
Subsidiaries of the Company or any other affiliates (as defined in Rule
144A under the Act) controlled by the Company to, resell any of the
Securities which constitute "restricted securities" under Rule 144 that
have been reacquired by the Company, any current or future Subsidiaries of
the Company or any other affiliates (as defined in Rule 144A under the
Act) controlled by the Company, except pursuant to an effective
registration statement under the Act.
(i) To pay all stamp, documentary and transfer taxes and other duties, if any,
which may be imposed by any Governmental Authorities or any political
subdivision thereof or taxing authority thereof or therein with respect to
the issuance of the Units or the sale thereof to the Purchasers.
17
(j) The Company will use commercially reasonable efforts not to become, and
cause its Subsidiaries not to become, a PFIC. If the Company determines
that it or any of its Subsidiaries has become a PFIC, the Company will
promptly notify each Purchaser and provide all information requested by
such Purchaser that is necessary for such Purchaser to make a qualified
electing fund (QEF) election.
(k) The Company agrees that it will not register any transfer of the
Securities that is not (i) made in accordance with the provisions of
Regulation S under the Securities Act, (ii) made pursuant to registration
under the Securities Act, or (iii) made pursuant to an available exemption
under the Securities Act.
(l) Prior to the Closing, the Company shall not, without the express prior
written consent of the Purchasers (which consent shall be at the
Purchasers' sole discretion), pursue or discuss any capital raising
transaction or transactions in excess of $2 million ("Outside Financing")
with any Person other than the Purchasers or their Affiliates.
(m) If the Closing is not consummated for any reason, then prior to February
2, 2007, the Company shall not be entitled to consummate any Outside
Financing without the express prior written consent of the Purchasers
(which consent shall be at the Purchasers' sole discretion).
Notwithstanding anything to the contrary contained herein (including
Section 9 hereof), the Company's obligation pursuant to this Section 5(m)
shall survive any termination of this Agreement.
(n) Subject to the prior written consent of Citadel (which consent shall not
be unreasonably withheld), on or before the 120th day following the
Closing Date, the Company shall appoint a senior financial officer on a
full-time basis with the Company, which officer shall be knowledgeable
with respect to the capital markets in the United States and shall be
proficient in the English language. Citadel agrees to use its reasonable
best efforts to facilitate the Company's timely appointment of a senior
financial officer pursuant to this Section 5(n).
5A. Right to Future Stock Issuances.
(a) Right of First Offer. Subject to the terms and conditions of this Section
5A(a) and applicable securities laws, if, following the Closing, the
Company proposes to offer or sell any New Securities (as defined below)
that are not Exempted Securities (as defined below), the Company shall
first offer such New Securities to the Purchasers. A Purchaser (or its
assignees) shall be entitled to apportion the right of first offer hereby
granted to it among itself and its Affiliates in such proportions as it
deems appropriate.
(i) The Company shall give notice (the "Offer Notice") to each
Purchaser, stating (a) its bona fide intention to offer such New
Securities, (b) the number or amount of such New Securities to be
offered, and (c) the price and terms upon which it proposes to offer
such New Securities.
(ii) By notification to the Company within twenty (20) days after the
Offer Notice is given, each Purchaser may elect to purchase or
otherwise acquire, at the price and on the terms specified in the
Offer Notice, up to that portion of such New Securities which equals
the proportion that the Notes then held by such Purchaser bears to
the total amount of Notes then outstanding. The closing of any sale
pursuant to this Section 5A(a)(ii) shall occur within sixty (60)
days of the date that the Offer Notice is given.
18
(iii) If all New Securities referred to in the Offer Notice are not
elected to be purchased or acquired as provided in Section
5A(a)(ii), the Company may, during the sixty (60) day period
following the expiration of the period provided in Section
5A(a)(ii), offer and sell the remaining unsubscribed portion of such
New Securities to any Person or Persons at a price not less than,
and upon terms no more favorable to the offeree than, those
specified in the Offer Notice. If the Company does not enter into an
agreement for the sale of the New Securities within such period, or
if such agreement is not consummated within thirty (30) days of the
execution thereof, the right provided hereunder shall be deemed to
be revived and such New Securities shall not be offered unless first
reoffered to the Purchaser in accordance with this Section 5A(a).
(b) Termination. The covenants set forth in Section 5A(a) shall terminate and
be of no further force or effect upon the repayment of all of the
outstanding Notes.
(c) Waiver. The right of first offer set forth herein may be waived on behalf
of all Purchasers (and their assignees) by the affirmative written consent
or vote of Purchasers (or their assignees) holding at least 80% of the
Notes then outstanding.
(d) Certain Definitions. For purposes of this Section 5A:
(i) "Exempted Securities" means (a) shares of Common Stock (or option to
purchase shares of Common Stock) issued to employees, officers or
directors of the Company or its subsidiaries under bona fide
employee benefit plans adopted by the Board of Directors and
approved by the holders of Common Stock when required by law and (b)
shares of Common Stock (or option to purchase shares of Common
stock) issued to shareholders of Harbin Taifu Auto Co. Ltd. (GRAPHIC
OMITTED) ("Taifu") upon its merger into the Company or share
acquisition, share exchange or any other business combination deemed
desirable by the Company, or with a subsidiary of the Company, in
proportion to their stock holdings of Taifu immediately prior to
such merger, upon such merger.
(ii) "New Securities" means, collectively, equity securities of the
Company, whether or not currently authorized, as well as rights,
options, or warrants to purchase such equity securities, or
securities of any type whatsoever (including, without limitation,
debt securities) that are, or may become, convertible or
exchangeable into or exercisable for such equity securities.
6. Purchaser's Representations, Warranties and Agreements.
Each Purchaser, severally and not jointly, represents and warrants to the
Company and the Subsidiary Guarantor that:
(a) Such Purchaser is not a "U.S. Person" (as defined in Rule 902 of
Regulation S under the Securities Act) and it understands that no action
has been or will be taken in any jurisdiction by the Company that would
permit a public offering of the Securities in any country or jurisdiction
where action for that purpose is required. Such Purchaser is not acquiring
the Securities for the account or benefit of any U.S. persons except in
accordance with exemption from registration requirements of the Act below
or in a transaction not subject thereto.
19
(b) Such Purchaser is not acquiring the Units with a view to any distribution
thereof that would violate the Securities Act or the securities laws of
any state of the United States or any other applicable jurisdiction.
(c) Such Purchaser (A) agrees that it will not offer, sell or otherwise
transfer any of the Securities prior to (x) the date which is 40 days (in
the case of the Notes) or one year (in the case of the Warrants) after the
later of the date of the commencement of the offering and the date of
original issuance (or of any predecessor of any Security proposed to be
transferred by such Purchaser) and (y) such later date, if any, as may be
required by applicable law (the "Resale Restriction Termination Date"),
except (a) to the Company, (b) pursuant to a registration statement that
has been declared effective under the Securities Act, (c) for so long as
any Security is eligible for resale pursuant to Rule 144A under the
Securities Act, to a person it reasonably believes is a "qualified
institutional buyer" as defined in Rule 144A that purchases for its own
account or for the account of another qualified institutional buyer to
whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales to Persons who are not "U.S.
Persons" (within the meaning of Regulation S) that occur outside the
United States within the meaning of Regulation S or (e) pursuant to any
other available exemption from the registration requirements of the
Securities Act, and (B) agrees that it will give to each person to whom
such Security is transferred a notice substantially to the effect of this
paragraph; provided that the Company, the Trustee, the registrar and the
transfer agent with respect to such Security shall have the right prior to
any such offer, sale or transfer pursuant to clause (d) prior to the end
of the 40-day distribution compliance period (in the case of the Notes) or
one-year distribution compliance period (in the case of Warrants), in each
case within the meaning of Regulation S, or pursuant to clause (e) prior
to the Resale Restriction Termination Date to require that an opinion of
counsel, certifications and/or other information reasonably satisfactory
to the Company, the Trustee, the registrar and the transfer agent with
respect to such Security is completed and delivered by the transferor.
(d) No form of "directed selling efforts" (as defined in Rule 902 of
Regulation S under the Securities Act), general solicitation or general
advertising in violation of the Securities Act has been or will be used
nor will any offers by means of any directed selling efforts in the United
States be made by such Purchaser or any of its representatives in
connection with the offer and sale of any of the Units.
(e) The Units to be acquired by such Purchaser will be acquired, in the
ordinary course of business, for investment for such Purchaser's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Purchaser has no present
intention of selling, granting any participation in, or otherwise
distributing the same. Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any Person, directly or
indirectly, to sell, transfer, distribute or grant participations to such
Person or to any third Person, with respect to any of the Units.
7. Conditions to Purchase Securities at Closing. Each Purchaser's
obligation to purchase the Securities under this Agreement are subject to the
satisfaction or waiver of each of the following conditions:
(a) All the representations and warranties of the Company and the Subsidiary
Guarantor contained in this Agreement and in each of the Documents shall
be true and correct as of the date hereof and at the Closing Date. On or
prior to the Closing Date, the Company and the Subsidiary Guarantor and
each other party to the Documents (other than such Purchaser) shall have
performed or complied with all of the agreements and satisfied all
conditions on their respective parts to be performed, complied with or
satisfied pursuant to the Documents.
20
(b) No injunction, restraining order or order of any nature by a Governmental
Authority shall have been issued as of the Closing Date that could prevent
or materially interfere with the consummation of the transactions
contemplated under the Documents; and no stop order suspending the
qualification or exemption from qualification of any of the Securities in
any jurisdiction shall have been issued and no Proceeding for that purpose
shall have been commenced or, to the knowledge of the Company after due
inquiry, be pending or threatened as of the Closing Date.
(c) No action shall have been taken and no Applicable Law shall have been
enacted, adopted or issued that could, as of the Closing Date, reasonably
be expected to prevent the consummation of the transactions contemplated
under the Documents. No Proceeding shall be pending or, to the knowledge
of the Company after due inquiry, threatened other than Proceedings that
(A) are disclosed in the Disclosure Schedule, (B) if adversely determined
could not, individually or in the aggregate, adversely affect the issuance
or marketability of the Units, or (C) could not, individually or in the
aggregate, have a Material Adverse Effect.
(d) Each Purchaser shall have received on the Closing Date:
(i) certificates dated the Closing Date, signed by (1) the Chief
Executive Officer and (2) the principal financial or accounting
officer(s) of the Company and the Subsidiary Guarantor, on behalf of
the Company and the Subsidiary Guarantor, respectively, to the
effect that (a) the representations and warranties set forth in
Section 4 hereof are true and correct with the same force and effect
as though expressly made at and as of the Closing Date, (b) the
Company and the Subsidiary Guarantor have complied with all
agreements and satisfied all conditions on its part to be performed
or satisfied hereunder at or prior to the Closing Date, (c) at the
Closing Date, since the date hereof or since the date of the most
recent financial statements in the SEC Reports (exclusive of any
amendment or supplement thereto after the date thereof), no event or
events have occurred, no information has become known nor does any
condition exist that could, individually or in the aggregate, have a
Material Adverse Effect, (d) since the date of the most recent
financial statements in the SEC Reports (exclusive of any amendment
or supplement thereto after the date thereof), neither the Company
nor any Subsidiary has incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, that
are material to the Company and the Subsidiaries, taken as a whole,
or entered into any transactions not in the ordinary course of
business that are material to the business, condition (financial or
otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole, and there has not been any change in
the capital stock or long-term indebtedness of the Company or any
Subsidiary that is material to the business, condition (financial or
otherwise) or results of operations or prospects of the Company and
the Subsidiaries, taken as a whole, and (e) the sale of any of the
Securities has not been enjoined (temporarily or permanently);
(ii) certificates dated the Closing Date, executed by the Secretary of
each of the Company and the Subsidiary Guarantor, certifying such
matters as the Purchasers may reasonably request;
21
(iii) the opinions of ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Nevada counsel to the
Company, dated the Closing Date, in the forms attached hereto as
Exhibit F-1;
(iv) the opinions of ▇▇▇▇ ▇▇▇▇▇ LLP, U.S. counsel to the Company and the
Subsidiary Guarantor, dated the Closing Date, in the forms attached
hereto as Exhibit F-2;
(v) the opinions of ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, PRC counsel to the WOFE,
dated the Closing Date, in the forms attached hereto as Exhibit F-3;
(e) Each of the Documents shall have been executed and delivered by all
parties thereto, and Purchasers shall have received a fully executed
original (or clearly legible facsimile copy) of each Document.
(f) Purchasers shall have received copies of all opinions, certificates,
letters and other documents delivered under or in connection with the
transactions contemplated in the Documents that are required to be
delivered at or prior to the Closing Date.
(g) None of the other parties to any of the Documents shall be in breach or
default under their respective obligations thereunder.
(h) The Collateral Agent shall have received on the Closing Date:
(i) appropriately completed copies, which have been duly authorized for
filing by the appropriate Person, of Uniform Commercial Code
financing statements naming the Company and the Subsidiary Guarantor
as a debtor and the Collateral Agent as the secured party, or other
similar instruments or documents to be filed under the UCC of all
jurisdictions as may be necessary or desirable to perfect the
security interests of the Collateral Agent pursuant to the
Indenture;
(ii) certified copies of Uniform Commercial Code Requests for Information
or Copies (Form UCC-11), or a similar search report certified by a
party acceptable to the Collateral Agent, dated a date reasonably
near to the Closing Date, listing all effective financing statements
which name the Company or the Subsidiary Guarantor (under its
present name and any previous names) as the debtor, together with
copies of such financing statements (none of which shall cover any
collateral described in the Indenture);
(iii) such other approvals, opinions, or documents as the Collateral Agent
may reasonably request in form and substance reasonably satisfactory
to the Collateral Agent; and
(iv) the Collateral Agent and its counsel shall be satisfied that (i) the
Lien granted to the Collateral Agent, for the benefit of the
"Secured Parties" (as defined in the Share Pledge Agreement) in the
collateral described above is a first priority Lien; and (ii) no
Lien exists on any of the collateral described above other than the
Lien created in favor of the Collateral Agent, for the benefit of
the Secured Parties, pursuant to the Indenture and the Security
Documents.
(i) All Uniform Commercial Code financing statements or other similar
financing statements required pursuant to clause (h)(i) and (ii) above
(collectively, the "Filing Statements") shall have been delivered to CT
Corporation System or another similar filing service company acceptable to
the Collateral Agent (the "Filing Agent"). The Filing Agent shall have
acknowledged in a writing reasonably satisfactory to the Collateral Agent
and its counsel (i) the Filing Agent's receipt of all Filing Statements,
(ii) that the Filing Statements have either been submitted for filing in
the appropriate filing offices or will be submitted for filing in the
appropriate offices within ten days following the Closing Date and (iii)
that the Filing Agent will notify the Collateral Agent and its counsel of
the results of such submissions within 30 days following the Closing Date.
22
(j) The respective Boards of Directors of the Company and the Subsidiary
Guarantor shall have approved and authorized by all necessary corporate
action (i) the execution and delivery of the Documents, (ii) all actions
to be performed or satisfied under the Documents, (iii) the consummation
of the transactions contemplated by the Documents, (iv) the pricing terms
of the Notes, Warrants and Units, and (v) all other actions necessary in
connection with the transactions contemplated by the Documents and the
offering of the Notes, Warrants and Units, and shall have provided
Purchasers with a copy of such authorizations.
(k) Contemporaneously with the Closing the Company shall sell to the other
Purchaser and the other Purchaser shall purchase the securities to be
purchased by it at the Closing under this Agreement.
(l) Purchasers shall have completed and be satisfied with the results of all
business, legal and financial due diligence, and any items requiring
correction identified by Purchasers shall have been corrected to
Purchasers' satisfaction.
(m) Purchasers shall have received all necessary internal approval for the
transactions contemplated hereunder or under the Documents.
(n) ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ and Purchasers shall have entered into the Non-competition
Agreement in the form attached hereto as Exhibit G; and
(o) The Company, ▇▇. ▇▇▇▇ ▇▇▇▇▇▇ and Citadel shall have entered into the
Voting Agreement in the form attached hereto as Exhibit H.
8. Indemnification.
(a) Each of the Company and the Subsidiary Guarantor, jointly and severally,
agree to indemnify and hold harmless each Purchaser, each of its
affiliates (including any person who controls such Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) and
their respective officers, directors, partners, shareholders, counsel,
employees and agents (each Purchaser and each such other person being
referred to as an "Indemnified Person"), to the fullest extent lawful,
from and against any losses, claims, damages, liabilities and reasonable
expenses (or actions in respect thereof), as incurred, related to or
arising out of or in connection with:
(i) actions taken or omitted to be taken by the Company, the Subsidiary
Guarantor, or their respective affiliates, officers, directors,
employees or agents (including, without limitation, the failure to
take any required actions pursuant to Circular No. 75 of the PRC's
State Administration of Foreign Exchange, by any of the Company's
executive officers or directors) or by ▇▇. ▇▇▇▇ ▇▇▇▇▇▇;
23
(ii) any breach by the Company or the Subsidiary Guarantor of their
respective representations, warranties, covenants and agreements set
forth in this Agreement or in any of the other Documents;
(iii) any untrue statement or alleged untrue statement of a material fact
or the omission or alleged omission to state in any SEC Report or
any amendment or supplement thereto, or the Disclosure Schedule, a
material fact required to be stated therein, or necessary to make
the statements therein in light of the circumstances under which
they were made, not misleading.
and, subject to the provisions hereof, will reimburse the Indemnified
Persons for all reasonable expenses (including, without limitation, fees
and expenses of counsel) as they are incurred in connection with
investigating, preparing, defending or settling any such action or claim,
whether or not in connection with litigation in which any Indemnified
Person is a named party. If any of the Indemnified Persons' personnel
appears as witnesses, are deposed or are otherwise involved in the defense
of any action against an Indemnified Person, the Company, the Subsidiary
Guarantor or their respective officers or directors, the Company and the
Subsidiary Guarantor will reimburse each Purchaser for all reasonable
expenses incurred by such Purchaser by reason of any of the Indemnified
Persons being involved in any such action; provided, however, the Company
and the Subsidiary Guarantor shall not be liable for indemnification
hereunder with regard to any negligent act or omission or willful
misconduct by such Purchaser or any other Indemnified Person which is the
primary cause of, and results in, the unavailability to the Company (or
any of its affiliates) or to the offering of the Units of the exemption
from the registration requirements of the Securities Act provided by
Regulation S thereunder. This indemnity will be in addition to any
liability that the Company and the Subsidiary Guarantor may otherwise have
to the Indemnified Persons.
(b) As promptly as reasonably practical after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action for which
such indemnified party is entitled to indemnification under this Section
8, such indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party under this Section 8, notify the
indemnifying party of the commencement thereof in writing; but the
omission to so notify the indemnifying party (i) will not relieve such
indemnifying party from any liability under paragraph (a) above unless and
only to the extent it is materially prejudiced as a result thereof and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) above. In case any such action is
brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may determine, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to it and/or other indemnified party
that are different from or additional to those available to the
indemnifying party, or (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt by
the indemnifying party of notice of the institution of such action, then,
in each such case, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or
parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such
indemnified party or parties at the expense of the indemnifying party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that in connection with
such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
representing the indemnified party who are parties to such action or
actions) or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such indemnified
party without the prior written consent of the indemnifying party (which
consent shall not be unreasonably withheld).
24
(c) The Company or the Subsidiary Guarantor shall not, without the prior
written consent of any Indemnified Person, effect any settlement or
compromise of any pending or threatened action, claim, suit or proceeding
in respect of which the Indemnified Person is or could have been a party,
or indemnity could have been sought hereunder by any Indemnified Person,
unless such settlement (A) includes an unconditional express written
release of any Indemnified Person in from and substance reasonably
satisfactory to any Indemnified Party, from all losses, claims, damages or
liabilities arising out of such action, claim, suit or proceeding and (B)
does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of any Indemnified Person. If a claim or
action is settled, or if there be a final judgment for the plaintiff with
respect to any such claim or action, each indemnifying party jointly and
severally agrees, subject to the exceptions and limitations set forth
above, to indemnify and hold harmless each Indemnified Person from and
against any and all losses, claims, damages or liabilities (and legal and
other expenses as set forth above) incurred by reason of such settlement
or judgment.
(d) The indemnity and expense reimbursement obligations set forth herein (i)
shall be in addition to any liability the Company or the Subsidiary
Guarantor may have to any Indemnified Person at common law or otherwise,
(ii) shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Purchaser or any other
Indemnified Person and (iii) shall be binding on any successor or assign
of the Company or the Subsidiary Guarantor and successors or assigns to
the Company's and the Subsidiary Guarantor's business and assets.
(e) If the Company or the Subsidiary Guarantor enter into any agreement or
arrangement with respect to, or effects, any proposed sale, exchange,
dividend or other distribution or liquidation of all or a significant
portion of its assets in one or a series of transactions or any
significant recapitalization or reclassification of its outstanding
securities, the Company or the Subsidiary Guarantor shall provide for the
assumption of their obligations under this Agreement by another party
reasonably satisfactory to the Purchasers.
25
9. Termination.
(a) Purchasers may terminate this Agreement at any time prior to the Closing
Date by written notice to the Company if any of the following has
occurred:
(i) since the date hereof, any Material Adverse Effect or development
involving or reasonably expected to result in a prospective Material
Adverse Effect that could, in the Purchasers' reasonable judgment,
be expected to (i) make it impracticable or inadvisable to proceed
with the offering or delivery of the Securities on the terms and in
the manner contemplated in this Agreement and the Indenture, or (ii)
materially impair the investment quality of any of the Securities;
(ii) the failure of the Company or the Subsidiary Guarantor to satisfy
the conditions contained in Section 7(a) hereof on or prior to the
Closing Date;
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crisis, including acts of terrorism, or
material adverse change or disruption in economic conditions in, or
in the financial markets of, the United States, the European Union,
or Hong Kong (it being understood that any such change or disruption
shall be relative to such conditions and markets as in effect on the
date hereof), if the effect of such outbreak, escalation, calamity,
crisis, act or material adverse change in the economic conditions
in, or in the financial markets of, the United States, the European
Union or Hong Kong could be reasonably expected to make it, in the
Purchasers' sole judgment, impracticable or inadvisable to proceed
with the offering or delivery of the Securities on the terms and in
the manner contemplated in this Agreement or the Indenture;
(iv) trading in the Company' Common Stock shall have been suspended by
the OTC market or the suspension or limitation of trading generally
in securities on the New York Stock Exchange, the American Stock
Exchange, the London Stock Exchange, the Hong Kong Stock Exchange,
the NASDAQ Capital Market or the NASDAQ Global Market or any setting
of limitations on prices for securities on any such exchange or the
NASDAQ Capital Market or the NASDAQ Global Market;
(v) the enactment, publication, decree or other promulgation after the
date hereof of any Applicable Law that could be reasonably expected
to have a Material Adverse Effect; or
(vi) the declaration of a banking moratorium by any federal or New York
state Governmental Authority; or the taking of any action by any
Governmental Authority after the date hereof in respect of its
monetary or fiscal affairs that could reasonably be expected to have
a material adverse effect on the financial markets in the United
States, European Union, Hong Kong or elsewhere.
(b) The Company shall pay to each Purchaser a fee equal to 7.5% of the
aggregate Purchase Price payable by such Purchaser for the Units proposed
to be purchased hereunder (the "Company Breakup Fee") if (i) this
Agreement is terminated by the Purchasers pursuant to Section 9(a)(ii)
above and (ii) such termination is based upon the Company's or the
Subsidiary Guarantor's intentional breach of its representations,
warranties, covenants and obligations under this Agreement. The Company
shall promptly (but in no event later than 7 days following such
termination by the Purchaser) pay the Company Breakup Fee to the
Purchasers.
26
(c) The Company may terminate this Agreement at any time prior to the Closing
Date by written notice to the Purchasers based upon the Purchasers'
intentional breach of its representations, warranties, covenants and
obligations under this Agreement.
(d) Each Purchaser shall pay to the Company a fee equal to 7.5% of the
aggregate Purchase Price payable by such Purchaser for the Units proposed
to be purchased hereunder (the "Purchaser Breakup Fee") if this Agreement
is terminated by the Company pursuant to Section 9(c) above; provided,
however, that notwithstanding the foregoing or anything to the contrary
contained herein, the Purchasers shall not be required to pay the
Purchaser Break Fee based upon (i) such Purchaser's discovery during its
due diligence investigation of any material information of the Company not
previously disclosed to the Purchasers by the Company prior to the date
hereof, (ii) any reasonably material discrepancy found during the
Purchasers' due diligence investigation, or (iii) any material
misstatement or omission by the Company in its audited financial
statements or SEC Reports. Subject to the foregoing proviso, the
Purchasers shall promptly (but in no event later than 7 days following
such termination by the Company) pay the Purchaser Breakup Fee to the
Company.
10. Survival of Representations and Indemnities. The representations
and warranties, covenants, indemnities and contribution and expense
reimbursement provisions and other agreements of the Company, the Subsidiary
Guarantor and Purchasers set forth in this Agreement shall remain operative and
in full force and effect, and will survive, regardless of (i) any investigation,
or statement as to the results thereof, made by or on behalf of any Purchaser,
the Company or the Subsidiary Guarantor, and (ii) acceptance of the Securities,
and payment for them hereunder.
11. Substitution Of Purchaser. Each Purchaser shall have the right
to substitute any one of its Affiliates as the purchaser of the Units that such
Purchaser has agreed to purchase hereunder, by written notice to the Company,
which notice shall be signed by both such Purchaser and such Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Section 6. Upon receipt of such notice,
wherever the word "Purchaser" is used in this Agreement (other than in this
Section 11), such word shall be deemed to refer to such Affiliate in lieu of the
original Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to the original
Purchaser all of the Securities then held by such Affiliate, upon receipt by the
Company of notice of such transfer, wherever the word "Purchaser" is used in
this Agreement (other than in this Section 11), such word shall no longer be
deemed to refer to such Affiliate, but shall refer to the original Purchaser,
and the original Purchaser shall have all the rights of an original holder of
the Securities under this Agreement.
12. Miscellaneous.
(a) Notices given pursuant to any provision of this Agreement shall be
addressed as follows: (i) if to the Company and/or the Subsidiary
Guarantor, to: ▇▇. ▇ ▇▇ ▇▇▇▇ ▇▇ ▇▇, ▇▇ ▇▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇
▇▇, ▇▇▇▇▇▇ 150060 China, Fax: ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇,
with a copy to ▇▇▇▇ ▇▇▇▇▇ LLP, Two Embarcadero Center, Suite 2000, San
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, Fax: ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq., and (ii) if to any of the Purchasers, to
the addresses as indicated in Schedule A, with a copy to Simpson, Thacher
and ▇▇▇▇▇▇▇▇ LLP, ICBC Tower - 7th Floor, ▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇, Fax: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq. in the
case of Citadel.
27
(b) This Agreement has been and is made solely for the benefit of and shall be
binding upon the Company, the Subsidiary Guarantor and the Purchasers and,
to the extent provided in Section 8 hereof, the controlling persons and
their respective agents, employees, officers, directors, partners,
counsel, and shareholders referred to in Section 8, and their respective
heirs, executors, administrators, successors and assigns, all as and to
the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement.
(c) THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND
CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(d) The Company and the Subsidiary Guarantor agrees that any suit, action or
proceeding against the Company or the Subsidiary Guarantor arising out of
or based upon this Agreement or the transactions contemplated hereby may
be instituted in any State or U.S. federal court in The City of New York
and County of New York, and waives any objection which it may now or
hereafter have to the laying of venue of any such proceeding, and
irrevocably submits to the non-exclusive jurisdiction of such courts in
any suit, action or proceeding.
(e) The parties hereto each hereby waive any right to trial by jury in any
action, proceeding or counterclaim arising out of or relating to this
Agreement.
(f) No failure to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right,
power or remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(g) This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
(h) The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
(i) If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(j) This Agreement may be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may be given; provided
that the same are in writing and signed by all of the signatories hereto.
28
Please confirm that the foregoing correctly sets forth the
agreement among the Company, or the Subsidiary Guarantor and each of the
Purchasers.
Very truly yours,
HARBIN ELECTRIC, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
ADVANCED ELECTRIC MOTORS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
------------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: President and Chief Executive Officer
Accepted and Agreed to:
CITADEL EQUITY FUND LTD.
By: Citadel Limited Partnership, Portfolio Manager
By: Citadel Investment Group, L.L.C., its General Partner
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------------
Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Authorized Signatory
▇▇▇▇▇▇▇ ▇▇▇▇▇ International
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Director
[SIGNATURE PAGE TO PURCHASE AGREEMENT]