EXCHANGE AND AMENDATORY AGREEMENT
Exhibit
99.7
This
Exchange And Amendatory Agreement (this “Agreement”), dated as
of April 13, 2010, is made by and among, China Networks International Holdings
Ltd., a British Virgin Islands corporation (the “Company”), China
Networks Media Ltd., a British Virgin Islands corporation and wholly-owned
subsidiary of the Company (“China Media”), the
individuals signatory hereto (each a “Holder”, and collectively, the “Holders”), and ▇▇▇▇▇
▇▇▇▇▇▇▇, an individual (“Propper”).
Background
On July
21, ▇▇▇▇, ▇▇▇▇▇ Media and the Holders entered into that certain Purchase
Agreement, as amended (the “Purchase Agreement”),
whereby China Media sold to the Holders, and the Holders purchased from China
Media, 10% senior secured notes in the aggregate principal amount of $27,990,200
(collectively, the “Notes”) and an
aggregate of 980,000 Class A Preferred Shares (the “Preferred Shares”) of
the Company. In connection with the Purchase Agreement, Propper and
MediaInv, Ltd. (collectively, the “Pledgors”) entered
into a Pledge Agreement, dated July 21, 2008, with the Holders whereby the
Pledgors pledged certain collateral to secure the obligations of China Media
under the Purchase Agreement (the “Pledge
Agreement”). To provide for the distribution of the collateral
pledged under the Pledge Agreement, the Pledgors, China Media and the Holders
also entered into a Collateral Agent Agreement with Collateral Agents, LLC,
dated July 21, 2008 (the “Collateral
Agreement”).
Pursuant
to an Agreement and Plan of Merger, dated August 13, 2008 (the “Merger Agreement”),
by and among Alyst Acquisition, Corp., a Delaware corporation, China Media, the
Pledgors (as defined therein) and the other persons signatory thereto, China
Media became a wholly-owned subsidiary of the Company, and all outstanding
ordinary shares and preferred shares of China Media were converted into Ordinary
Shares, par value $0.0001, of the Company (“Company Ordinary
Shares”) at the conversion rates set forth in the Merger
Agreement.
The
Company and the Holders desire to effect an exchange of all of the current
outstanding principal due under the Notes (the “Note Balance”) into
up to 23,000,000 Company Ordinary Shares and up to 16,000,000 Class A Preferred
Shares, par value $0.0001, of the Company (“Company Preferred
Shares”), in accordance with the provisions of this Agreement (the “Exchange”).
The
parties desire to amend the Purchase Agreement and the Notes and the
Company desires to consummate a private placement of up to $11,000,000 in
aggregate principal amount of senior secured debentures of the Company (the
“Private
Placement”).
All
capitalized terms used but not defined herein shall have the meanings assigned
to them in the Purchase Agreement, Notes, Pledge Agreement and Collateral
Agreement, as applicable.
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Agreement:
NOW,
THEREFORE, in
consideration of the mutual promises, representations, warranties, covenants and
conditions set forth in this Agreement, the parties mutually agree as
follows:
SECTION
1. AMENDMENTS
TO TRANSACTION DOCUMENTS.
1.1 Amendment to Purchase
Agreement. At the Effective Time (as defined below), and
pursuant to Section 8(a) of the Purchase Agreement, China Media and the Holders,
which represent a Majority in Interest (as defined in the Purchase Agreement),
hereby amend the Purchase Agreement to insert a new Section 8(q), which section
shall read as follows:
(q) Termination. This
Agreement shall automatically terminate upon the consummation of a private
placement of at least $8,500,000 in aggregate principal amount of senior secured
notes of China Networks International Holdings Ltd. that is consummated on or
before April 15, 2010.
1.2 Amendment to
Notes. At the Effective Time (as defined below), and pursuant
to Section 6 of the Notes, China Media and the Holders, which represent a
Majority in Interest (as defined in the Notes), hereby amend the Notes to insert
a new Section 15, which section shall read as follows:
15. Termination.
(a) This
Note shall automatically terminate, and all payment and other obligations of the
Company under this Note shall cease and be of no further force and
effect, upon (i) the consummation of a private placement of of at
least $8,500,000 in aggregate principal amount of senior secured notes of China
Networks International Holdings Ltd. (“China Holdings”) on
or before April 15, 2010 (the “Private Placement”)
and (ii) receipt by each Holder of its pro rata portion of ordinary and
preferred shares of China Holdings issued in exchange for the Notes as
contemplated by that certain Exchange and Amendatory Agreement entered into in
connection with the Private Placement.
(b) Upon
termination of this Note in accordance with Section 15(a) hereof,
and upon written notice from China Holdings to the Collateral Agent (as defined
in the Pledge Agreement and Collateral Agreement) (i) notifying the Collateral
Agent of the consummation of the Private Placement, and (ii)
evidencing the exchange of the Notes for securities of China Networks
International Holdings Ltd., the Collateral Agent shall (a) if any UCC-1
Financing Statements (or similar documents or instruments) were previously
filed, file and UCC-3 Termination Statements (or equivalent or similar document)
filed in connection with the Assignment (as defined in the Pledge Agreement),
and (b) to the extent it then has possession of any of the remaining Pledged
Collateral (as defined in the Pledge Agreement), will deliver such Pledged
Collateral to the Pledgors. The Holders acknowledge and agree that no
further notice from the Holders shall be necessary for the Collateral Agent to
be authorized to take the actions set forth in this Section 15.
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SECTION
2. EXCHANGE
OF NOTES; EFFECTIVE TIME.
2.1 Exchange of
Notes. At the Effective time, the Company shall issue to each
Holder in exchange for the Note Balance (i) the number of Company Ordinary
Shares determined by dividing the Note Balance for such Holder by $1.10830857244
(the “Exchange
Ordinary Shares”), and (ii) the number of Company Preferred Shares
determined by dividing the Note Balance for such holder by $1.59318959856 (the
“Exchange Preferred
Shares”, and, together with the Exchange Ordinary Shares and the Company
Ordinary Shares issuable upon conversion of the Exchange Preferred Shares, the
“Exchange
Shares”). Immediately upon the Exchange of the Note Balance,
all payment obligations of the Company under the Note shall cease and the Note
shall terminate and be of no further force and effect.
2.2 Amended and Restated Memorandum and
Articles. The Company shall adopt and file with the Registrar of
Companies on or before the Closing (as defined below) the Amended and Restated
Memorandum and Articles of Association in the form attached hereto as Exhibit A. At or
prior to the Closing, the rights, privileges and preferences of the Company
Preferred Shares shall be as stated in the Amended and Restated Memorandum and
Articles of Association.
2.3 Forgiveness of
Interest. In connection with the Exchange of the Note Balance,
and upon the Effective Time, the Holders agree to forgive, and jointly and
severally waive their rights to collect, any and all accrued and unpaid interest
then outstanding on the Notes.
2.4 Effectiveness. This
Agreement shall become effective simultaneously with the consummation of a
Private Placement which raises gross proceeds of at least $8,500,000 (the “Effective Time”).
SECTION
3. CLOSING;
DELIVERY.
3.1 Closing. The closing of the
Exchange (the “Closing”) shall take
place at the Effective Time at the offices of Pillsbury ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
LLP, ▇▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇, or at such other place as the
Company and the Holders may mutually agree.
3.2 Delivery. At the
Closing, the Holders shall deliver, or cause to be delivered, to the Company
their original Notes, respectively, marked paid in full, and the Company shall
deliver, or cause to be delivered, to the Holders certificates representing
their respective Exchange Shares; provided, however, that in the event that a
Holder is unable to deliver the original Note due to loss, theft or destruction
thereof, then, in lieu of delivery of the original Note, such Holder may deliver
to the Company an indemnity reasonably satisfactory to the Company with respect
to such loss, theft or destruction. The certificates representing the
Exchange Shares shall be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required under
applicable state securities laws):
THE
SECURITIES [AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF] REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
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All
deliveries pursuant to this Section 3.2 shall be in accordance with an Escrow
Agreement dated at or about the date of this Agreement, among the Company,
Holders and Collateral Agents, LLC in the form attached hereto as Exhibit
B.
3.3 Opinions on
Counsel. On or prior to the Closing Date, the Company shall
deliver or cause to be delivered to each Holder the following:
(a) a legal
opinion of the Company’s U.S. legal counsel, substantially in the form of Exhibit C attached
hereto; and
(b) a legal
opinion of the Company’s British Virgin Islands legal counsel, substantially in
the form of Exhibit
D attached hereto.
SECTION
4. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY AND CHINA MEDIA
The
Company and China Media hereby represent and warrant to the Holders that, at the
Effective Time:
4.1 Each of
Company and China Media is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor China Media is in violation nor
default of any of the provisions of its respective memorandum of association,
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and China Media is duly
qualified to conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in: (i) a material adverse
effect on the legality, validity or enforceability of this Agreement, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and China Media,
taken as a whole, or (iii) a material adverse effect on the Company’s ability to
perform in any material respect on a timely basis its obligations under this
Agreement (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
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4.2 Each of
the Company and China Media has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by this Agreement and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with
Section 4.4. This Agreement has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and 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) insofar as indemnification and
contribution provisions may be limited by applicable law.
4.3 At the
Effective Time, Exchange Ordinary Shares will be duly and validly authorized
and, when issued upon exchange and cancellation of the Notes pursuant to this
Agreement, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens other than restrictions on transfer provided for in this
Agreement. At the Effective Time, Exchange Preferred Shares will be
duly and validly authorized and, when issued upon exchange and cancellation of
the Notes pursuant to this Agreement, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens other than restrictions on
transfer provided for in this Agreement. The Company has reserved a
sufficient number of Company Ordinary Shares for issuance upon the conversion of
the Exchange Preferred Shares, free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in this Agreement or
imposed by applicable securities laws and except for those created by the
Holders.
4.4 Except as
described in Schedule
4.4, the Company and China Media are not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance of this Agreement, and the offer and issuance of the
Exchange Shares. Subject to the accuracy of the representations and warranties
of each Holder set forth in Section 5 hereof, the Company and China Media have
taken all action, as applicable, necessary to exempt the issuance of the
Exchange Shares, from the provisions of any stockholder rights plan or other
“poison pill” arrangement, any anti-takeover, business combination or control
share law or statute binding on the Company or to which the Company or any of
its assets and properties may be subject and any provision of the Company’s
Memorandum and Articles of Association that is or could reasonably be expected
to become applicable to the Holders as a result of the transactions contemplated
hereby, including without limitation, the issuance of the Exchange
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Shares
and the ownership, disposition or voting of the Exchange Shares by the Holders
or the exercise of any right granted to the Holders pursuant to this
Agreement. Under the Regulations on the Acquisitions by Foreign
Investors of Domestic Enterprises jointly promulgated by the PRC Ministry of
Commerce (“MOFCOM”), the China
Securities Regulatory Commission (“CSRC”), the State
Owned Assets Supervision and Management Commission, the General Administration
of Taxation and the State Administration of Foreign Exchange in effect on the
Closing Date, neither the Company nor any Subsidiary is required, as of the date
of this Agreement and as of the Closing, to obtain any approvals of the CSRC in
connection with the transactions contemplated by the Transaction Documents. No
further approval by, or registration or filing with State Administration of
Foreign Exchange (“SAFE”) other than
typical SAFE foreign exchange processing procedural registrations are expressly
required under the current effective and applicable governing regulations for
matters including but not limited to the payment by any Subsidiary of dividends
to the Company in foreign currency, such as U.S. Dollars. The Company has or
will have obtained or made all necessary consents, approvals, registrations and
filings with relevant governmental authorities in the PRC on or before the
Effective Time in accordance with the then effective and applicable PRC
regulations to complete the transactions contemplated in the Transaction
Documents, except as would not have a Material Adverse Effect. For
purposes of this agreement, “Person” means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
4.5 The
execution, delivery and performance by the Company and China Media of this
Agreement, and the issuance of the Exchange Shares do not and will not: (i)
conflict with or violate any provision of the Company’s or China Media’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien upon any of the properties or assets of the Company or
China Media, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or China Media debt or otherwise) or other understanding to which the Company or
China Media is a party or by which any property or asset of the Company or China
Media is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or China Media is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or China Media is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
4.6 Neither
the Company or China Media, nor any person acting on their behalf has offered or
sold any of the Exchange Shares by any form of general solicitation or general
advertising (as those terms are used in Regulation D).
4.7 Assuming
the accuracy of the Holders’ representations and warranties set forth in Section
5, neither the Company or China Media, nor any of their affiliates, nor any
person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this issuance of the Exchange Shares to be
integrated with prior offerings by the Company for purposes of (i) the
Securities Act which would require the registration of any such securities under
the Securities Act, or (ii) any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are listed or
designated.
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4.8 Assuming
the truth and accuracy of the representation and warranties set forth in Section
7, no registration under the Securities Act is required for the offer and
issuance of the Exchange Shares to the Holders as contemplated
hereby.
4.9 The
capitalization of the Company is as set forth on Schedule
4.9. The Holders are being issued 23,000,000 Company Ordinary
Shares in the aggregate. The aggregate Company Ordinary Shares issued hereunder
represent approximately 45.4% of the Company’s outstanding Company Ordinary
Shares assuming the conversion of Company Preferred Shares, on a fully-diluted
basis (not including out of the money warrants) calculated immediately prior to
the Private Placement. The Holders are being issued 16,000,000
Company Preferred Shares in the aggregate. The aggregate Company
Preferred Shares issued hereunder represent, on an as converted basis,
approximately 31.6% of the Company’s outstanding Company Ordinary Shares
assuming the conversion of Company Preferred Shares, on a fully-diluted basis
(not including out of the money warrants) calculated immediately prior to the
Private Placement
4.10 The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 12(g), 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (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. The Company has a class of Ordinary Shares registered
pursuant to Section 12(g) under the Act. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as applicable, and none of the SEC
Reports, when filed, 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 comply in all material respects with
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
position of the Company and China Media as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
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4.11 Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof and except in connection with this Agreement: (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the Exchange contemplated by this Agreement,
or as set forth on Schedule 4.11 no
event, liability, fact, circumstance, occurrence or development has occurred or
exists or is reasonably expected to occur or exist with respect to the Company
or China Media or their respective business, properties, operations, assets or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 3 Trading Days prior to the
date that this representation is made.
4.12 Except as
disclosed in the SEC Reports, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, China Media or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of this
Agreement or the Exchange Shares or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor China Media, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or China Media under the Exchange Act or the Securities
Act.
4.13 No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company or China Media, which could
reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or China Media’s employees is a member of a union that relates
to such employee’s relationship with the Company or China Media, and neither the
Company nor China Media is a party to a collective bargaining agreement, and the
Company and China Media believe that their relationships with their employees
are good. No executive officer of the Company or China Media, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or China Media to any liability with respect to any of the foregoing
matters. The Company and China Media are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and
hours, except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
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4.14 Neither
the Company nor China Media: (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or China Media under), nor has
the Company or China Media received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any judgment, decree or order of any court,
arbitrator or governmental body or (iii) is or has been in violation of any
statute, rule, ordinance or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.
4.15 The
Company and China Media possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
reasonably be expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor China Media has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
4.16 The
Company and China Media have good and marketable title in fee simple to all real
property owned by them and good and marketable title in all personal property
owned by them that is material to the business of the Company and China Media,
in each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and China Media and
Liens for the payment of federal, state, foreign or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and China Media are held
by them under valid, subsisting and enforceable leases with which the Company
and China Media are in compliance.
4.17 The
Company and China Media have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property
rights and similar rights as described in the SEC Reports as necessary or
material for use in connection with their respective businesses and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property
Rights”). All of the Company’s and China Media’s Intellectual
Property Rights are identified on Schedule
4.17. None of, and neither the Company nor China Media has
received a notice (written or otherwise) that any of, the Intellectual Property
Rights has expired, terminated or been abandoned, or is expected to expire or
terminate or be abandoned, within two (2) years from the date of this
Agreement. Neither the Company nor China Media has received, since
the date of the latest audited financial statements included within the SEC
Reports, a written notice of a claim or otherwise has any knowledge that the
Intellectual Property Rights violate or infringe upon the rights of any Person,
except as would not have a Material Adverse Effect. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and China Media have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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4.18 Except
as set forth in the SEC Reports and the compensation to be paid to Chardan
Capital Markets, LLC (“Chardan”) in
connection with the Private placement, and as described on Schedule 4.18, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or China Media (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for: (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company, (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company, and (iv) payment to ▇▇. ▇▇▇▇▇ ▇▇, or
any affiliates of ▇▇. ▇▇, for services provided to the Company, which payments
shall not exceed, in the aggregate, $200,000; provided, however, that each such
transaction described in clauses (i) – (iv) above shall be on consummated on
commercially reasonable terms not more favorable to the Affiliate (including ▇▇.
▇▇) than the terms and amounts that would be applicable to an arms-length
transaction with a non-affiliated third party.
4.19 Except as
set forth on Schedule
4.19 or in the SEC Reports, the Company is in compliance with any and all
applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of
the Closing Date. Except as set forth on Schedule 4.19 or in
the SEC Reports, the Company and China Media maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation
Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
10
4.20 Other
than as set out in Schedule 4.20 and any
fees payable to Chardan as set forth on Schedule 4.20, no
brokerage or finder’s fees or commissions or any other payments in cash or
otherwise, directly or indirectly arising from the occurrence of the Closing,
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person. The Holders shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
4.21 Other
than each of the Holders, and as set forth on Schedule 4.21, no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.
4.22 The
Ordinary Shares are registered pursuant to Section 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 Ordinary
Shares 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 any Trading Market on which the Ordinary Shares is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
4.23 Except
with respect to the material terms and conditions of the transactions
contemplated by this Agreement, the Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Holders or their
agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands
and confirms that the Holders will rely on the foregoing representation in
effecting transactions in securities of the Company. All of the
disclosure furnished by or on behalf of the Company to the Holders regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, is true and correct and does 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 press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made and when made, not misleading. The Company
acknowledges and agrees that no Holder makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 5 hereof.
4.24 Although
the Company has not made or filed United States federal and state income and
franchise tax returns, reports and declarations, the Company believes that no
taxes are due and owing to any federal, state or foreign taxing authority except
as set forth in the Reports.
4.25 Neither
the Company, China Media nor to the knowledge of the Company, any agent or other
person acting on behalf of the Company or China Media, 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 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.
11
4.26 The
Company’s accounting firm is set forth on Schedule
4.26. To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the year ending
December 31, 2010.
4.27 There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect the
Company’s ability to perform any of its obligations under this
Agreement.
4.28 Neither
the Company nor, to the Company's knowledge, any director, officer, agent,
employee or affiliate 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”).
4.29 Neither
the Company nor China Media or Affiliates is subject to the Bank Holding Company
Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). Neither the Company nor China Media or Affiliates
owns or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five percent or
more of the total equity of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve. Neither the Company nor China
Media or Affiliates exercises a controlling influence over the management or
policies of a bank or any entity that is subject to the BHCA and to regulation
by the Federal Reserve.
4.30 The
operations of the Company are and have been conducted at all times in compliance
with applicable financial record-keeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable
money laundering statutes and applicable rules and regulations thereunder
(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
with respect to the Money Laundering Laws is pending or, to the knowledge of the
Company, threatened.
4.31 Following
the consummation of a Private Placement resulting in gross proceeds of
$8,500,000 to the Company in accordance with Section 2.4 above, the Company will
have sufficient capital available to satisfy the obligations of Advertising
Networks Ltd., the Company’s wholly-owned subsidiary, to make certain capital
contributions to its joint venture, Kunming Taishi Information Cartoon Co.,
Ltd.
12
SECTION
5. REPRESENTATIONS
AND WARRANTIES OF THE HOLDERS
Each of
the Holders hereby severally, and not jointly, represents and warrants to the
Company that:
5.1 Except
for restrictions imposed by applicable federal and state securities laws, such
Holder is the sole beneficial and record holder of the Notes being exchanged
pursuant to this Agreement and owns such Notes free and clear of all
encumbrances, liens, claims and other restrictions.
5.2 Such
Holder is an individual or a validly existing corporation, limited partnership,
or limited liability company and has all requisite individual, corporate,
partnership or limited liability company power and authority to enter into this
Agreement.
5.3 Such
Holder has full power and authority and has taken all requisite action for the
authorization, execution and delivery of this Agreement and the authorization of
the performance of all of its obligations hereunder or
thereunder. The execution, delivery and performance by such Holder of
this Agreement has been duly authorized and will constitute the valid and
legally binding obligation of such Holder, enforceable against such Holder in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.
5.4 Except as
required by applicable federal and state securities laws, the execution,
delivery and performance by such Holder of this Agreement and, the exchange of
the Notes for the Exchange Shares does not require any consent of, action by or
in respect of, or filing with, any person, governmental body and/or
agency.
5.5 The
Exchange Shares to be received by such Holder hereunder will be acquired for
such Holder’s own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Act, and such
Holder has no present intention of selling, granting any participation in, or
otherwise distributing the same in violation of the Securities Act of 1933, as
amended (the “Securities Act”)
without prejudice, however, to such Holder’s right at all times to sell or
otherwise dispose of all or any part of such Exchange Shares in compliance with
applicable federal and state securities laws. Nothing contained
herein shall be deemed a representation or warranty by such Holder to hold the
Exchange Shares for any period of time. Such Holder is not a broker-dealer
registered with the SEC under the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”) or an entity engaged in a business that would require it to be so
registered.
5.6 Such
Holder has had an opportunity to receive all information related to the Company
and China Media requested by it and to ask questions of and receive answers from
the Company and China Media regarding the Company and China Media, their
respective businesses and the terms and conditions of the issuance of the
Exchange Shares. Neither such inquiries nor any other due diligence
investigation conducted by such Holder shall modify, amend or affect such
Holder’s right to rely on the Company’s representations and warranties contained
in this Agreement.
5.7 Such
Holder understands that the Exchange Shares are characterized as “restricted
securities” under the U.S. federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances.
13
5.8 Except
for the compensation to be paid to Chardan in connection with the Private
Placement, and as described by the Company on Schedule 4.18, no
Person will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company, China
Media, any subsidiary of the Company or a Holder for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of such Holder.
5.9 Such
Holder understands that the Exchange Shares are being issued to it in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company and China Media are
relying upon the truth and accuracy of, and such Holder’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Holder set forth herein in order to determine the availability of such
exemptions and the eligibility of such Holder to acquire the
Securities.
5.10 Holder’s
address set forth on Holder’s counterpart signature page is the Holder’s
principal business address and the other information set forth thereon with
respect to Holder is true and correct.
SECTION
6. REGISTRATION
OBLIGATION
6.1 From and
after the Closing, the Company, upon receipt of a written notice from the
Holders of a majority in interest of the Exchange Shares demanding registration
pursuant to this Section 6, shall file a registration statement as soon as
commercially reasonable on Form F-3 (if available), or such other form that is
appropriate, covering the resale of the Exchange Ordinary Shares and the Company
Ordinary Shares underlying the Exchange Preferred Shares (collectively, the
“Registrable
Securities”). The Company
will use commercially reasonable efforts to cause such registration statement to
become effective as soon as practicable following its initial
filing. As to any particular Registrable Securities, once issued,
such Registrable Securities shall cease to be Registrable Securities hereunder
when (i) they have been registered under the Securities Act, the registration
statement in connection therewith has been declared effective and they have been
disposed of pursuant to such effective registration statement, (ii) they are
eligible to be sold or distributed pursuant to Rule 144 without limitation as to
the volume of such sales, or (iii) they shall have ceased to be
outstanding.
6.2 If at any
time following the Closing, the Company or any shareholder of the Company
proposes to register any of its Company Ordinary Shares or any securities
convertible into Company Ordinary Shares under the Securities Act (other than
pursuant to an offering of securities in connection with an employee benefit,
share dividend, share ownership or dividend reinvestment plan or registration of
securities in connection with a business combination transaction) and the
registration form to be used may be used by the Company for the registration of
the Registrable Securities, the Company shall give prompt written notice to the
Holders if they then hold Registrable Securities of its intention to effect such
a registration (each a “Piggyback Notice”) and shall, if commercially
practicable, include in such registration statement all Registrable Securities
with respect to which the Company has received written request from the Holders
for inclusion therein within fifteen (15) days after the date of sending the
Piggyback Notice (the “Piggyback
Registration”) to
the Holders.
14
6.3 In
connection with any registration, the Company will:
(a) prepare
and file with the U.S. Securities and Exchange Commission (the “Commission”) a
registration statement in a commercially reasonable time with respect to such
securities and use its commercially reasonable efforts to cause such
registration statement to become and remain effective for a period of time
required for the disposition of such securities by the Holders;
(b) prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement until the such time as
all of such securities have been disposed of in a public offering;
(c) furnish
to the Holders such number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as the Holders may
reasonably request;
(d) register
or qualify the securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions within the United States
and Puerto Rico as the Holders shall reasonably request (provided, however, that
it shall not be obligated to qualify as a foreign corporation to do business
under the laws of any jurisdiction in which it is not then qualified or to file
any general consent to service or process);
(e) furnish,
at the request of the Holders, a legal opinion of the counsel representing the
company for the purposes of such registration, addressed to the Holders, in
customary form and covering matters of the type customarily covered in such
legal opinions;
(f) otherwise
use its best efforts to comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, but not later than eighteen (18) months after the effective date of
the registration statement, an earnings statement covering the period of at
least twelve (12) months beginning with the first full month after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(g) notify
the Holders, at any time when the offering documents include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and at the request of any Holder, prepare and
furnish to such person(s) such reasonable number of copies of any amendment or
supplement to the offering documents as may be necessary so that, as thereafter
delivered to such Holder, such offering documents shall not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and to deliver to Holders of any other
securities of the company included in the offering copies of such offering
documents as so amended or supplemented; and
15
(h) keep the
Holders informed of the Company’s best estimate of the earliest date on which
the offering documents will become effective, and promptly notify the Holders of
(A) the effectiveness of such offering documents, (B) a request by the
Commission for an amendment or supplement to such offering documents, (C) the
issuance by the Commission of an order suspending the effectiveness of the
offering documents, or of the threat of any proceeding for that purpose, and (D)
the suspension of the qualification of any securities to be included in the
offering documents for sale in any jurisdiction or the initiation or threat of
any proceeding for that purpose.
6.4 All
registrations (piggyback or otherwise) made by the Holders will be made solely
at the Company’s expense, other than (i) if an underwritten offering is
consented to by the Company, the underwriters’, broker-dealers’ and placement
agents’ selling discounts, commissions and fees relating to the sale of the
Holders’ securities, (ii) any costs and expenses of counsel, accountants or
other advisors retained by the Holders and (iii) all transfer, franchise,
capital stock and other taxes, if any, applicable to the Holders’ securities
(collectively, “Holders’ Expenses”)
which shall be paid by the Holders.
6.5 In the
event of any registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Company shall indemnify and hold harmless the
Holders, the Holders’ directors and officers, and each other person (including
each underwriter) who participated in the offering of such Registrable
Securities and each other person, if any, who controls the Holders or such
participating person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which any Holder or
any such director or officer or participating person or controlling person may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, (ii) any omission or any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any other
violation of any applicable securities laws, and in each of the foregoing
circumstances shall reimburse such Holder or such director, officer or
participating person or controlling person for any legal or any other expenses
reasonably incurred by a Holder or such director, officer or participating
person or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any actual or alleged
untrue statement or actual or alleged omission made in such registration
statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Holder specifically for use therein.
16
6.6 In the
event of any registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, each Holder, by acceptance hereof, agrees to
indemnify and hold harmless the Company, its directors and officers and each
other person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director or officer or any such person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue
statement or any alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or any alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in either case only to the extent that such untrue statement or
omission is (A) made in reliance on and in conformity with any information
furnished in writing by such Holder to the Company concerning such Holder
specifically for inclusion in the offering documents relating to such offering,
and (B) is not corrected by such Holder and distributed to such Holder within a
reasonable period of time. Notwithstanding the provisions of this
paragraph, no Holder shall be required to indemnify any person pursuant to this
paragraph or to contribute pursuant to Section 6.7 below in
an amount in excess of the amount of the aggregate net proceeds received by such
Holder in connection with any such registration under the Securities
Act.
6.7 If the
indemnification provided for in Section 6.6 above
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this paragraph were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
6.8 In order
to permit the Holders to sell the Registrable Securities, if so desired,
pursuant to any applicable resale exemption under applicable securities laws and
regulations, the Company shall:
(a) comply
with all rules and regulations of the Commission in connection with use of any
such resale exemption;
17
(b) make and
keep available adequate and current public information regarding the company;
and
(c) file with
the Commission in a timely manner, all reports and other documents required to
be filed under the Securities Act, the Exchange Act, or other applicable
securities laws and regulations.
6.9 All
rights of the Holders under this Section 6 are unique
to and limited to the Holders and may not be transferred or inure to the benefit
of the Holders’ successors and assigns or any other transferee who obtains
Registrable Securities.
SECTION
7. CANCELLATION
OF PROPPER’S ORDINARY SHARES
7.1 Cancellation of Subject
Shares. Propper has delivered to the Company for cancellation
stock certificates representing 2,000,000 Ordinary Shares (the “Subject Shares”)
along with duly executed medallion guaranteed stock powers covering the Subject
Shares (or such other documents acceptable to the Company’s transfer agent) and
hereby irrevocably instructs the Company and the Company’s transfer agent to
cancel the Subject Shares at the Effective Time such that the Subject Shares
will no longer be outstanding on the stock ledger of the Company and such that
Propper shall no longer have any interest in the Subject Shares
whatsoever. The Company shall immediately deliver to the Company’s
transfer agent irrevocable instructions providing for the cancellation of the
Subject Shares.
7.2 Representations and Warranties of
Propper. Subject to this Agreement becoming effective and the
pledge of the Subject Shares being released, Propper owns the Subject Shares, of
record and beneficially, free and clear of all liens, claims, charges, security
interests, and encumbrances of any kind whatsoever. Subject to the
aforesaid, Propper has sole control over the Subject Shares or sole
discretionary authority over any account in which they are
held. Except for this Agreement, no person has any option or right to
purchase or otherwise acquire the Subject Shares, whether by contract of sale or
otherwise, nor is there a “short position” as to the Subject
Shares. Propper has full right, power and authority to execute,
deliver and perform this Agreement and to carry out the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Propper and constitutes a valid, binding obligation of
Propper, enforceable against him in accordance with its terms (except as such
enforceability may be limited by laws affecting creditor's rights
generally).
7.3 Further
Assurances. Propper will use his best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including the execution and delivery of such other documents and agreements as
may be necessary to effectuate the cancellation of the Subject
Shares).
SECTION
8. OTHER
AGREEMENTS OF THE PARTIES
8.1 Furnishing of Information; Public
Information. Until the time that no Holder owns Exchange
Shares, the Company covenants to be and remain subject to the reporting
requirements of a foreign private issuer under Section 12(g) of the Exchange Act
and to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company as a
foreign private issuer after the date hereof pursuant to the Exchange Act even
if the Company is not then subject to the reporting requirements of the Exchange
Act. As long as any Holder owns Exchange Shares, if the Company is
not required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Holders and make publicly available in accordance with Rule
144(c) such information as is required for the Holders to sell the Exchange
Shares, including without limitation, under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Exchange Shares without registration under the
Securities Act, including without limitation, within the requirements of the
exemption provided by Rule 144.
18
8.2 Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement, the Company
covenants and agrees that neither it, nor any other Person acting on its behalf,
will provide any Holder or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Holder shall have consented in writing to receive such
information. The Company understands and confirms that each Holder
shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.
8.3 Reservation and Listing of
Securities.
(a) The
Company shall maintain a reserve from its duly authorized Ordinary Shares for
issuance pursuant to this Agreement in such amount as may then be required to
fulfill its obligations in full under the Agreement.
(b) If, on
any date, the number of authorized but unissued (and otherwise unreserved)
Ordinary Shares is less than the amount required for the Company to fulfill its
obligations under this Agreement on such date, then the Board of Directors shall
use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued
Ordinary Shares such that the Company is able to fulfill its obligations under
this Agreement, as soon as possible and in any event not later than the 45th day
after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required by the
principal market on which the Company’s securities are traded, prepare and file
with such trading market an additional shares listing application covering the
Exchange Ordinary Shares on the date of such application, (ii) take all steps
necessary to cause such Exchange Ordinary Shares to be approved for listing or
quotation on such trading market as soon as possible thereafter, (iii) provide
to the Holders evidence of such listing or quotation and (iv) maintain the
listing or quotation of such Exchange Ordinary Shares on such trading market or
another trading market.
8.4 Transfer
Restrictions.
(a) The
Exchange Shares may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of the Exchange
Shares other than pursuant to an effective registration statement or Rule 144,
to the Company or to an Affiliate of a Holder or in connection with a pledge as
contemplated in Section 8.4(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Exchange Shares under
the Securities Act. As a condition of transfer, any such transferee
shall agree in writing to be bound by the terms of this Agreement and shall have
the rights and obligations of a Holder under this Agreement.
19
(b) The
Company acknowledges and agrees that a Holder may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Exchange Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, such Holder may transfer
pledged or secured Exchange Shares to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith. Further,
no notice shall be required of such pledge. At the appropriate
Holder’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Exchange Shares may reasonably
request in connection with a pledge or transfer of the Securities.
(c) Certificates
evidencing the Exchange Ordinary Shares and the Company Ordinary Shares issuable
upon conversion of the Exchange Preferred Shares (the “Exchange Conversion
Shares”) shall not contain any legend (including the legend set forth in
Section 3.2 hereof): (i) while a registration statement covering the resale of
such security is effective under the Securities Act, (ii) following any sale of
such Exchange Ordinary Shares or Exchange Conversion Shares pursuant to Rule
144, (iii) if such Exchange Ordinary Shares or Exchange Conversion Shares are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such Exchange Ordinary Shares or Exchange Conversion Shares and without volume
or manner-of-sale restrictions or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Transfer Agent
promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a
Holder’s Exchange Preferred Shares are converted at a time when there is an
effective registration statement to cover the resale of the Exchange Conversion
Shares, or if such Exchange Conversion Shares may be sold under Rule 144 and the
Company is then in compliance with the current public information required under
Rule 144, or if such Exchange Conversion Shares may be sold under Rule 144
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Exchange Conversion Shares
and without volume or manner-of-sale restrictions or if such legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Exchange Conversion Shares shall be issued free of all
legends. The Company agrees that following the Effective Time or at
such time as such legend is no longer required under this Section 8.4(c), it
will, no later than five Trading Days following the delivery by a Holder to the
Company or the Transfer Agent (with same day written notice to the Company) of a
certificate representing Exchange Conversion Shares, as applicable, issued with
a restrictive legend (such fifth Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Holder a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Agreement. Certificates for Exchange Conversion Shares
subject to legend removal hereunder shall be transmitted by the Transfer Agent
to the Holder by crediting the account of the Holder’s prime broker with the
Depository Trust Company System as directed by such Holder. For
purposes of this agreement, “Transfer Agent” means Continental Stock Transfer
& Trust Company, the current transfer agent of the Company, with a mailing
address of ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, and a telephone number of
▇▇▇-▇▇▇-▇▇▇▇, and any successor transfer agent of the Company.
20
(d) In
addition to such Holder’s other available remedies, the Company shall pay to a
Holder, in cash or in Ordinary Shares at the Company’s sole option, as partial
liquidated damages and not as a penalty, for each $1,000 of Exchange Conversion
Shares (based on the VWAP of the Ordinary Shares on the date such Securities are
submitted to the Transfer Agent) delivered for removal of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day for each Trading Day after
the tenth (10th)
Trading Day after the Legend Removal Date until such certificate is delivered
without a legend. The Company may, at its election, pay such
liquidated damages in cash or with Ordinary Shares valued at the VWAP for each
day such liquidated damages accrue. Nothing herein shall limit such
Holder’s right to pursue actual damages for the Company’s failure to deliver
certificates representing any Exchange Conversion Shares as required by this
Agreement, and such Holder shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. If a Holder shall make a sale
or transfer of Exchange Conversion Shares and (1) the Company shall fail to
deliver or cause to be delivered to such Holder a certificate representing such
Exchange Conversion Shares that is free from all restrictive or other legends by
the Legend Removal Date and (2) following such Legend Removal Date and prior to
the time such Exchange Conversion Shares are received free from restrictive
legends, the Holder, or any third party on behalf of such Holder, purchases (in
an open market transaction or otherwise) Ordinary Shares to deliver in
satisfaction of a sale by the Holder of such Exchange Conversion Shares (a
"Buy-In"), then
the Company shall pay in cash to the Holder (for costs incurred either directly
by such Holder or on behalf of a third party) the amount by which the total
purchase price paid for the Ordinary Shares as a result of the Buy-In (including
brokerage commissions, if any) exceed the proceeds received by such Holder as a
result of the sale to which such Buy-In relates. The Holder shall
provide the Company written notice indicating the amounts payable to the Holder
in respect of the Buy In. Notwithstanding anything contained herein
to the contrary, if a Holder requires the Company to make payment in respect of
a Buy-In for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be required to
pay such Holder liquidated damages under this Section 8.4(d) in respect of the
certificates resulting in such Buy-In.
(e) Each
Holder, severally and not jointly with the other Holders, agrees with the
Company that such Holder will sell any Exchange Shares pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if any
Exchange Shares are sold pursuant to a registration statement, they will be sold
in compliance with the plan of distribution set forth therein, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 8.4 is predicated upon the Company’s
reliance upon this understanding.
21
8.5 As soon
as practicable following the consummation of a Private Placement resulting in
gross proceeds of $8,500,000 to the Company in accordance with Section 2.4
above, the Company will cause Advertising Networks Ltd., the Company’s
wholly-owned subsidiary, to satisfy its obligations to make certain capital
contributions to its joint venture, Kunming Taishi Information Cartoon Co.,
Ltd.
SECTION
9. MISCELLANEOUS
9.1 Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If any party shall commence an action or
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
9.2 Successors and
Assigns. The provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties hereto.
9.3 Entire
Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
22
9.4 Severability. In the event one
or more of the provisions of this Agreement should, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
9.5 Further Assurances. Following the Closing,
each of the Holder and the Company will execute and deliver to the other party
such documents and take such other actions as such other party may reasonably
request in order to fully consummate the transactions contemplated
hereby.
9.6 Release and
Waiver. As of the date hereof, each Holder hereby releases and
forever discharges the Company from any and all actions, agreements, amounts,
claims, damages, expenses, liabilities and obligations with respect to the Notes
and the Purchase Agreement except for any rights of the Holder under this
Agreement.
9.7 Amendment. This Agreement may be
amended, modified or terminated only upon the written consent of the Company and
the Holders of a majority of the then outstanding Exchange Shares (calculated on
an as converted basis).
9.8 Delays, Omissions or
Waivers. It is agreed that no delay or omission to exercise
any right, power, or remedy accruing to any party hereto, upon any breach,
default or noncompliance of the other party under this Agreement shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
any similar breach, default or noncompliance thereafter occurring. It
is further agreed that any waiver, permit, consent, or approval of any kind or
character on any party’s part of any breach, default or noncompliance under this
Agreement or any waiver of any provisions or conditions of this Agreement must
be in writing and shall be effective only to the extent specifically set forth
in such writing.
9.9 Attorneys’ Fees. In
the event that any suit or action is instituted to enforce any provision in this
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.
9.10 Titles and
Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
9.11 Counterparts. This
Agreement may be executed in any number of counterparts, including facsimile
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[SIGNATURE
PAGES FOLLOW]
23
In Witness
Whereof, the Company and China Media have executed this Exchange
and Amendatory Agreement as of the date first above written.
COMPANY
By:
Name:
Title:
CHINA
MEDIA
CHINA
NETWORKS MEDIA LTD.
By:
Name:
Title:
▇▇▇▇▇
▇▇▇▇▇▇▇
24
[HOLDER
SIGNATURE PAGES TO EXCHANGE
AND
AMENDATORY AGREEMENT]
In Witness
Whereof, the undersigned Holder has executed this Exchange
and Amendatory Agreement as of the date first above written.
Name of
Holder: ________________________________________________________
Signature of Authorized Signatory of
Holder: __________________________________
Name of
Authorized Signatory:
____________________________________________________
Title of
Authorized Signatory:
_____________________________________________________
Email
Address of Authorized Signatory:
_____________________________________________
Facsimile
Number of Authorized Signatory:
__________________________________________
Address
for Notice of Holder (include fax number):
__________________________________
______________________________________________________________________________
______________________________________________________________________________
Address
for Delivery of Exchange Shares to Holder (if not same as address for
notice):
______________________________________________________________________________
______________________________________________________________________________
Principal
Amount of Note being exchanged: $___________________
Number of
Exchange Ordinary Shares received in Exchange:
_____________________
Number of
Exchange Preferred Shares received in Exchange:
_____________________
EXHIBIT
A
Amended and Restated
Memorandum and Articles of Association
(See
Attached)
1
EXHIBIT
B
Escrow
Agreement
(See
Attached)
2
EXHIBIT
C
Opinion of U.S.
Counsel
(See
Attached)
3
EXHIBIT
D
Opinion of B.V.I.
Counsel
(See
Attached)
4