CALL OPTION AGREEMENT
BETWEEN
XXXX XXXX
AND
LI SHAOQING
Date: June 9, 2008
THIS OPTION AGREEMENT (this "Agreement") is made on June 9, 2008 by and
among Li Shaoqing (the "Transferor") and Xxxx Xxxx (the "Transferee").
The Transferor and the Transferee are collectively referred to as the
"Parties" and each of them as a "Party".
Whereas, the Transferor is the majority shareholder of Long Sunny
Limited (the "Company"), a British Virgin Islands Company, which is one of the
registered shareholders of Shen Kun International Limited, a British Virgin
Islands Company, which intends to complete a reverse merger with Southern Sauce
Company, Inc., a public shell company, traded on the Over the Counter Bulletin
Board (the "Listed Company"), holding 30,000 shares of Ordinary Shares in the
Company as of the date of this Agreement.
Whereas, the Transferee is to have a substantial role in the growth of
business of Southern Sauce Company, Inc., its subsidiaries, Shengkai (Tianjin)
Ceramic Valves Co., Ltd. ("WFOE") and Tianjin Shengkai Industrial Technology
Development Co., Ltd. ("Shengkai") (collectively with the Company and Shengkai
as the "Group"). In consideration of the Transferee's anticipated contributions
to the Group, the Transferor has agreed to grant to the Transferee, and the
Transferee has agreed to accept from the Transferor, an option (the "Option") to
purchase all of the ordinary shares of the Company currently held by the
Transferor (the "Option Shares") on the terms and subject to the conditions set
out in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
1. DEFINITIONS
1.1. Defined Terms : In this Agreement (including the Recitals, Exhibits and
Schedules), unless the context otherwise requires, the following words
and expressions shall have the following meanings:
"Alternate Exercise Price" means an exercise price of $0.01 per share
to be paid by the Transferee or his nominee to the Transferor in
respect of the Option Shares issued to the Transferee or his nominee in
the event that the Performance Targets (as defined herein) have not
been met by the Group;
"Business Day" means a day (other than Saturdays, Sundays and public
holidays) on which banks are generally open for business in China;
"China" or "PRC" means the People's Republic of China;
"Completion" means the completion of the sale to and purchase by the
Transferee of the Option Shares under this Agreement;
"Completion Date" means the date falling seven (7) Business Days after
the service of the Exercise Notice by the Transferee to the Transferor;
"Distributions" means any cash proceeds arising from or in respect of,
or in exchange for, or accruing to or in consequence of the Option
Shares from the Effective Date to the Completion Date, including
without limitation, the Dividends.
"Dividends" means the dividends declared by the Company and accrued in
respect of the Option Shares (whether or not such dividends shall have
been paid and received by the Transferee or his nominee);
"Effective Date" means the date of this Agreement;
"Exercise" means the exercise by the Transferee or his Nominee of the
Option pursuant to the terms of this Agreement;
"Exercise Notice" means the notice substantially in the form set out in
Schedule A;
"Exercise Price" means an exercise price of $0.001 per share of the
Option Shares to be paid by the Transferee to the Transferor in respect
of the Option Shares issued to such Transferee if the Group achieves
the Performance Targets;
"Nominee" means such person nominated by the Transferee in the Transfer
Notice to be the transferee of the Option or Option Shares;
"Option Effective Dates" has the meaning set forth in Clause 2.3;
"Performance Targets" has the meaning set forth in Clause 3;
"Performance Period" has the meaning set forth in Exhibit A to the
Agreement;
"Reverse Merger" means the transaction wherein the Listed Company will
acquire 100% equity interest of Shen Kun International Limited and its
subsidiaries and affiliates;
"RMB" means the lawful currency of China;
"Transfer Notice" means the notice substantially in the form set out in
Schedule B;
"US$" or "United States Dollar" means the lawful currency of the United
States of America.
1.2. Interpretation: Except to the extent that the context requires
otherwise:
1.2.1 words denoting the singular shall include the plural and vice
versa; words denoting any gender shall include all genders;
words denoting persons shall include firms and corporations
and vice versa;
1.2.2 any reference to a statutory provision shall include such
provision and any regulations made in pursuance thereof as
from time to time modified or re-enacted whether before or
after the date of this Agreement and (so far as liability
thereunder may exist or can arise) shall include also any past
statutory provisions or regulations (as from time to time
modified or re-enacted) which such provisions or regulations
have directly or indirectly replaced;
1.2.3 the words "written" and "in writing" include any means of
visible reproduction;
1.2.4 any reference to "Clauses", "Recitals" and "Schedules" are to
be construed as references to clauses and recitals of, and
schedules to, this Agreement; and
1.2.5 any reference to a time of day is a reference to China time
unless provided otherwise.
1.3. Headings: The headings in this Agreement are inserted for convenience
only and shall be ignored in construing this Agreement.
2. OPTION
2.1. Option: In consideration of the contributions which the Transferee has
made to the Group and his continuing commitment to the Group, the
Transferor hereby irrevocably and unconditionally grants to the
Transferee the Option for such Transferee to acquire from the
Transferor, at the Exercise Price or the Alternative Exercise Price, at
any time during the Exercise Period (defined below) any or all of the
Option Shares, free from all claims, liens, charges, pledges,
mortgages, trust, equities and other encumbrances, and with all rights
attaching thereto on the Completion Date.
2.2. Vesting Schedule: Subject to the terms and conditions hereto, the
Option may be exercised, in whole or in part, in accordance with the
following schedule:
The Option Shares subject to the Option shall vest at the rate of
one-seventh (1/7) per Performance Period.
2.3. Exercise Period: Once the Reverse Merger has been completed or
abandoned pursuant to the terms of the definitive agreement regarding
the Reverse Merger, the Option shall be exercisable in accordance with
and on the dates set forth in Exhibit A (the "Option Effective Dates").
Subject to the vesting schedule set forth in Section 2.2 of this
Agreement, the Option may be exercised by any Transferee or his Nominee
at any time following the Option Effective Date ("Exercise Period").
2.4. Nominees: The Transferee may, at any time during the Exercise Period,
at his sole discretion, nominate one or more person(s) (each a
"Nominee") to be the transferee(s) of whole or part of his/her Option,
who shall hold and/or exercise the transferred Option on behalf of the
Transferee.
2.5. Exercise Notice: The Option may be exercised by the Transferee or his
Nominee, in whole or in part, at any time during the Exercise Period,
by serving an Exercise Notice on the Transferor.
2.6. Exercise: The Transferor agrees that he shall, upon receipt of the
Exercise Notice and payment of either the Exercise Price or the
Alternative Exercise Price, depending on whether the Performance
Targets have been met, take all necessary steps to cause the issuance
of any and all of the Option Shares specified in the Exercise Notice to
the Transferee or his Nominee, free from all claims, liens, charges,
pledges, mortgages, trust, equities and other encumbrances, and with
all rights now or hereafter attaching thereto. Notwithstanding the
foregoing, the Exercise of the Option shall be further subject to PRC
laws and regulations and the Transferee or his Nominee shall complete
any and all approval or registration procedures (the "Approvals")
regarding the exercise of his Option at PRC competent authorities in
accordance with applicable PRC laws and regulations (if any).
Furthermore, the Transferor agrees that in the event that the
Transferee or his Nominee is unable to obtain the Approval due to
reasons attributable to the then PRC laws, rules and/or policy, the
Transferor shall coordinate with the Transferee or his Nominee and take
viable alternatives for the best interests of the Transferee or his
Nominee.
2.7. Transfer Notice: In case that any Transferee transfers any or all of
his Option to one or more Nominees in accordance with Clause 2.4 above,
the Transferee shall serve a Transfer Notice on the Transferor.
2.8. Transfer to Nominees: The Transferor agrees that he shall, upon receipt
of the Transfer Notice, take all actions necessary to allow the Nominee
to be entitled to any or all of the Options specified in the Transfer
Notice.
Upon exercise by any Nominee of the transferred Option on behalf of the
Transferee, the Transferee shall serve the Exercise Notice on the
Transferor in his own name for the exercising Nominee. Upon receipt of
such Exercise Option, the Transferor shall take necessary steps to
cause the issuance of any and all of the relevant Option Shares
specified in the Exercise Notice to such Nominee in the same manner as
specified in Clause 2.6.
2.9. Payment of Exercise Price: Upon Exercise of the Option in whole or in
part, the Transferee or his Nominee shall pay the Exercise Price to the
Transferor; or may elect a cashless exercise as set forth below.
2.10. Cashless Exercise: In lieu of delivery of the Exercise Price in cash,
the Transferee or his Nominee shall have the right, at his option, from
time to time or times during the Exercise Period, satisfy his
obligation to pay the Exercise Price through a "cashless exercise," in
which the Transferee or his Nominee shall be entitled to have the
Transferor's shares as determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Transferor's shares to be
transferred to the Transferee
Y = the number of Transferor's shares with
respect to which the Option is being
exercised.
A = the arithmetic average of the closing
Prices for the five trading days immediately
prior to (but not including) the exercise
date.
B = the Exercise Price.
2.11. The Transferor's Obligation upon Exercise: The Transferor agrees that
upon the Exercise of any Option by the Transferee (or his Nominee), he
shall cause and procure the number of Option Shares provided in the
Exercise Notice to be transferred to such exercising Transferee or his
Nominee within seven (7) Business Days after the date of the Exercise
Notice.
3. PERFORMANCE TARGET AND CONDITION PRECEDENT
3.1. The obligation of the Transferor to effect the Option and the transfer
of the Option Shares at the Exercise Price to the Transferee or his
Nominee upon his Exercise of the Option shall be subject to the
fulfilment of the conditions (the "Performance Targets") set forth in
Exhibit A hereto. In the event that the Group does not achieve the
Performance Targets specified in Exhibit A, then the Transferee may
exercise the Option at the Alternative Exercise Price on the date at
which the Option would have otherwise been exercisable had the
Performance Targets been met.
4. INFORMATION, DISTRIBUTIONS AND ADJUSTMENTS
4.1. Information: The Transferee shall be entitled to request from the
Transferor at any time before the Completion, a copy of any information
received from the Group which may be in the possession of the
Transferor and, upon such request, the Transferor shall provide such
information to the Transferee.
4.2. Distributions: The Transferor agrees that the Transferee or his Nominee
shall be entitled to all the Distributions in respect of his/her Option
Shares. In the event that any such Distributions have been received by
the Transferor for any reason, the Transferor shall, at the request of
the relevant Transferee, pay an amount equivalent to the Distributions
received by him/her to the Transferee or his Nominee at the time of the
Option Exercise by the Transferee or his Nominee.
4.3. Adjustments: If, prior to the Completion, the Company shall effect any
adjustment in its share capital (such as share split, share dividend,
share combination or other similar acts), then the number of Option
Shares to be issued to the Transferee upon Exercise shall be adjusted
accordingly.
5. COMPLETION
5.1. Time and Venue: Completion of the sale and purchase of the Option
Shares pursuant to the Exercise shall take place at such place decided
by the Transferee or his Nominee on the Completion Date.
5.2. Business at Completion: At Completion of each Exercise, all (but not
part) of the following shall be transacted:
5.2.1 the Transferee or his Nominee shall pay the Exercise Price to
the Transferor in considerations set forth in the Exercise
Notice ;
5.2.2 the Transferor shall cause the Company to within seven (7)
Business Days after the date of Exercise Notice, deliver to
the Transferee or his Nominee the following documents and
cause the Company to take all corporate actions necessary to
give effect to such delivery:
(a) a share certificate or share certificates in respect
of the number of the Option Shares exercised by the
Transferee or his Nominee;
(b) a certified true copy of the register of members of
the Company updated to show the entry of the
Transferee or his Nominee as the holder of the Option
Shares so exercised; and
(c) any other documents as the Transferee or his Nominee
may reasonably believe necessary to give effect to
the issuance of the exercised Option Shares.
6. CONFIDENTIALITY
The transaction contemplated hereunder and any information exchanged
between the Parties pursuant to this Agreement will be held in complete
and strict confidence by the concerned Parties and their respective
advisors, and will not be disclosed to any person except: (i) to the
Parties' respective officers, directors, employees, agents,
representatives, advisors, counsel and consultants that reasonably
require such information and who agree to comply with the obligation of
non-disclosure pursuant to this Agreement; (ii) with the express prior
written consent of the other Party; or (iii) as may be required to
comply with any applicable law, order, regulation or ruling, or an
order, request or direction of a government agency; provided, however,
that the foregoing shall not apply to information that: (1) was known
to the receiving Party prior to its first receipt from the other Party;
(2) becomes a matter of public knowledge without the fault of the
receiving Party; or (3) is lawfully received by the Party from a third
person with no restrictions on its further dissemination.
7. TRANSFEROR'S UNDERTAKINGS
7.1. Without the prior written consent of the Transferee, the Transferor
shall vote his shares in the Company such that the Company shall not,
(i) issue or create any new shares, equity, registered capital,
ownership interest, or equity-linked securities, or any options or
warrants that are directly convertible into, or exercisable or
exchangeable for, shares, equity, registered capital, ownership
interest, or equity-linked securities of the Company, or other similar
equivalent arrangements, (ii) alter the shareholding structure of the
Company, (iii) cancel or otherwise alter the Option Shares, (iv) amend
the register of members or the memorandum and articles of association
of the Company, (v) liquidate or wind up the Company, (vi) sell,
transfer, assign, hypothecate or otherwise reduce the value of any
assets held by the Company, including but without limitation, any and
all shares in the Listed Company or (vi) act or omit to act in such a
way that would be detrimental to the interest of the Transferee in the
Option Shares. The Transferor shall cause the Company to disclose to
the Transferee true copies of all the financial, legal and commercial
documents of the Company and the resolutions of the shareholders and
the board of directors.
7.2. Without the prior written consent of the Transferee, the Transferor
shall not transfer, assign, pledge, hypothecate or vest any option on
his share(s) in the Company to any third party.
8. MISCELLANEOUS
8.1. Indulgence, Waiver Etc: No failure on the part of any Party to exercise
and no delay on the part of such Party in exercising any right
hereunder will operate as a release or waiver thereof, nor will any
single or partial exercise of any right under this Agreement preclude
any other or further exercise of it or any other right or remedy.
8.2. Effective Date and Continuing Effect of Agreement: This Agreement shall
take effect from the Effective Date. All provisions of this Agreement
shall not, so far as they have not been performed at Completion, be in
any respect extinguished or affected by Completion or by any other
event or matter whatsoever and shall continue in full force and effect
so far as they are capable of being performed or observed, except in
respect of those matters then already performed.
8.3. Successors and Assigns: This Agreement shall be binding on and shall
ensure for the benefit of each of the Parties' successors and permitted
assigns. Any reference in this Agreement to any of the Parties shall be
construed accordingly.
8.4. Further Assurance: At any time after the date of this Agreement, each
of the Parties shall, and shall use its best endeavors to procure that
any necessary third party shall, execute such documents and do such
acts and things as any other Party may reasonably require for the
purpose of giving to such other Party the full benefit of all the
provisions of this Agreement.
8.5. Remedies: No remedy conferred by any of the provisions of this
Agreement is intended to be exclusive of any other remedy which is
otherwise available at law, in equity, by statute or otherwise, and
each and every other remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter
existing at law, in equity, by statute or otherwise. The election of
any one or more of such remedies by any Party shall not constitute a
waiver by such Party of the right to pursue any other available
remedies.
8.6. Severability of Provisions: If any provision of this Agreement is held
to be illegal, invalid or unenforceable in whole or in part in any
jurisdiction, this Agreement shall, as to such jurisdiction, continue
to be valid as to its other provisions and the remainder of the
affected provision; and the legality, validity and enforceability of
such provision in any other jurisdiction shall be unaffected.
8.7. Governing Law: This Agreement shall be governed by, and construed in
accordance with, the laws of the British Virgin Islands, without
reference to any conflict of laws principle that would cause the
application of the laws of any jurisdiction other than the British
Virgin Islands.
8.8. Dispute Resolution: In the event of any dispute, claim or difference
(the "Dispute") between any Parties arising out of or in connection
with this Agreement, the Dispute shall be resolved in accordance with
the following:
(a) Negotiation between Parties; Mediations. The Parties agree to
negotiate in good faith to resolve any Dispute. If the
negotiations do not resolve the Dispute to the reasonable
satisfaction of all parties within thirty (30) days,
subsection (b) below shall apply.
(b) Arbitration. In the event the Parties are unable to settle a
Dispute in accordance with subsection (a) above, such Dispute
shall be referred to and finally settled by arbitration at
Hong Kong International Arbitration Centre in accordance with
the UNCITRAL Arbitration Rules (the "UNCITRAL Rules") in
effect, which rules are deemed to be incorporated by reference
into this subsection (b). The arbitration tribunal shall
consist of three arbitrators to be appointed according to the
UNCITRAL Rules. The language of the arbitration shall be
English.
8.9. Counterparts: This Agreement may be signed in any number of
counterparts, all of which taken together shall constitute one and the
same instrument. Any Party hereto may enter into this Agreement by
signing any such counterpart.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF the Parties hereto have executed this Agreement on the date
first above written.
The Transferor
By: /s/ Li Shaoqing
-----------------------------
Li Shaoqing
The Transferee
By: /s/ Xxxx Xxxx
-----------------------------
Xxxx Xxxx
[SIGNATURE PAGE TO CALL OPTION AGREEMENT]
EXHIBIT A
PERFORMANCE TARGETS
A. The Group shall have generated a gross revenue of at least RMB
1,500,000 per month during the period commencing June 1, 2008 through December
31, 2008 (each monthly period constituting a "Performance Period and
collectively, the "Performance Periods").
B. The Option Effective Date for each Performance Period shall be that
date that is forty five (45) days following the last day of each such
Performance Period.
