SECURITIES PURCHASE AGREEMENT Dated as of July 18, 2008 among SOUTHERN SAUCE COMPANY, INC. and THE PURCHASER LISTED ON EXHIBIT A
Dated
as of July 18, 2008
among
and
THE
PURCHASER LISTED ON EXHIBIT A
Table
of
Contents
Page
|
||
ARTICLE
I
|
Purchase
and Sale of Preferred Stock
|
1
|
Section
1.1
|
Purchase
and Sale of Stock
|
1
|
Section
1.2
|
Warrants
|
1
|
Section
1.3
|
Conversion
Shares
|
1
|
Section
1.4
|
Purchase
Price and Closing
|
2
|
Section
1.5
|
Reverse
Merger Transaction
|
2
|
ARTICLE
II
|
Representations
and Warranties
|
3
|
Section
2.1
|
Representations
and Warranties of the Company
|
3
|
Section
2.2
|
Representations
and Warranties of the Purchaser
|
14
|
ARTICLE
III
|
Covenants
|
17
|
Section
3.1
|
Securities
Compliance
|
17
|
Section
3.2
|
Registration
and Listing
|
17
|
Section
3.3
|
Inspection
Rights
|
17
|
Section
3.4
|
Compliance
with Laws
|
18
|
Section
3.5
|
Keeping
of Records and Books of Account
|
18
|
Section
3.6
|
Reporting
Requirements
|
18
|
Section
3.7
|
Amendments
|
18
|
Section
3.8
|
Other
Agreements
|
19
|
Section
3.9
|
Distributions
|
19
|
Section
3.10
|
Use
of Proceeds
|
19
|
Section
3.11
|
Reservation
of Shares
|
19
|
Section
3.12
|
Transfer
Agent Instructions
|
19
|
Section
3.13
|
Disposition
of Assets
|
20
|
Section
3.14
|
Reporting
Status
|
20
|
i
Table
of
Contents
Page
|
||
Section
3.15
|
Disclosure
of Transaction
|
20
|
Section
3.16
|
Disclosure
of Material Information
|
20
|
Section
3.17
|
Pledge
of Securities
|
20
|
Section
3.18
|
Reserved.
|
21
|
Section
3.19
|
Lock-Up
Agreement
|
21
|
Section
3.20
|
Investor
and Public Relations Escrow
|
21
|
Section
3.21
|
Reserved.
|
21
|
Section
3.22
|
DTC
|
21
|
Section
3.23
|
Subsequent
Financings
|
22
|
Section
3.24
|
Xxxxxxxx-Xxxxx
Act
|
23
|
Section
3.25
|
Exchange
Listing
|
23
|
Section
3.26
|
No
Commissions in Connection with Conversion of Preferred
Shares
|
24
|
Section
3.27
|
Financial
Public Relations Firm and Appearances
|
24
|
ARTICLE
IV
|
CONDITIONS
|
24
|
Section
4.1
|
Conditions
Precedent to the Obligation of the Company to Sell the
Shares
|
24
|
Section
4.2
|
Conditions
Precedent to the Obligation of the Purchaser to Purchase the
Units
|
25
|
ARTICLE
V
|
Stock
Certificate Legend
|
28
|
Section
5.1
|
Legend
|
28
|
ARTICLE
VI
|
Indemnification
|
29
|
Section
6.1
|
General
Indemnity
|
29
|
Section
6.2
|
Indemnification
Procedure
|
30
|
ARTICLE
VII
|
Miscellaneous
|
30
|
Section
7.1
|
Fees
and Expenses
|
30
|
ii
Table
of
Contents
Page
|
||
Section
7.2
|
Capital
Contribution
|
31
|
Section
7.3
|
Transfer
of Vehicles
|
31
|
Section
7.4
|
Reserved.
|
31
|
Section
7.5
|
Specific
Enforcement, Consent to Jurisdiction
|
31
|
Section
7.6
|
Entire
Agreement; Amendment
|
32
|
Section
7.7
|
Notices
|
32
|
Section
7.8
|
Waivers
|
33
|
Section
7.9
|
Headings
|
33
|
Section
7.10
|
Successors
and Assigns
|
33
|
Section
7.11
|
No
Third Party Beneficiaries
|
33
|
Section
7.12
|
Governing
Law
|
33
|
Section
7.13
|
Survival
|
33
|
Section
7.14
|
Counterparts
|
33
|
Section
7.15
|
Publicity
|
33
|
Section
7.16
|
Severability
|
33
|
Section
7.17
|
Further
Assurances
|
34
|
iii
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”)
is
dated as of July 18, 2008 by and among Southern Sauce Company, Inc., a Florida
corporation (the “Company”),
and
the Purchaser of Units whose name is set forth on Exhibit
A
hereto
(the “Purchaser”).
The
parties hereto agree as follows:
ARTICLE
I
Purchase
and Sale of Preferred Stock
Section
1.1 Purchase
and Sale of Stock.
Upon
the following terms and conditions, the Company shall issue and sell to the
Purchaser and the Purchaser shall purchase from the Company, Units (the
“Units”),
each
consisting of one share of the Company’s Series A Convertible Preferred Stock,
par value $0.001 per share (the “Preferred
Shares”),
convertible into one share of the Company’s common stock, par value $0.001 per
share (the “Common
Stock”)
and
one Series A Warrant (as defined below) to purchase Common Stock in the amounts
set forth opposite the Purchaser’s name on Exhibit
A
hereto.
The designation, rights, preferences and other terms and provisions of the
Series A Convertible Preferred Stock are set forth in the Series A Certificate
of Designation of the Relative Rights and Preferences of the Series A
Convertible Preferred Stock as filed with Secretary of State of Florida on
June
10, 2008, attached hereto as Exhibit
B
(the
“Series
A Certificate of Designation”).
The
Company and the Purchaser are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission (the
“Commission”)
under
the Securities Act of 1933, as amended (the “Securities
Act”)
or
Section 4(2) of the Securities Act.
Section
1.2 Warrants.
Upon
the following terms and conditions and for no additional consideration, the
Purchaser shall be issued Series A Warrants, in substantially the form attached
hereto as Exhibit
C
(the
“Warrants”),
to
purchase the number of shares of Common Stock equal to One Hundred Twenty (120%)
of the number of shares of Common Stock issuable upon conversion of the
Preferred Shares purchased by the Purchaser pursuant to the terms of this
Agreement, as set forth opposite the Purchaser’s name on Exhibit
A
hereto.
The Warrants shall expire five (5) years following the Closing Date. The
Warrants shall have an exercise price per share equal to the Warrant Price
(as
defined in the Warrant).
Section
1.3 Conversion
Shares.
The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of stockholders,
a number of shares of Common Stock equal to one hundred fifty percent (150%)
of
the number of shares of Common Stock as shall from time to time be sufficient
to
effect the conversion of all of the Preferred Shares and exercise of the
Warrants then outstanding. Any shares of Common Stock issuable upon conversion
of the Preferred Shares and exercise of the Warrants (and such shares when
issued) are herein referred to as the “Conversion
Shares”
and
the
“Warrant
Shares”,
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the “Shares”.
Section
1.4 Purchase
Price and Closing.
Subject
to the terms and conditions hereof, the Company agrees to issue and sell to
the
Purchaser and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchaser, severally but not jointly, agree to purchase the Units for an
aggregate purchase price of up to $5,000,000 (the “Maximum
Offering Amount”),
or
$2.5357 per Unit (the “Purchase
Price”).
The
closing of the purchase and sale of the Units to be acquired by the Purchaser
from the Company under this Agreement shall take place at the offices of
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, 00 Xxxxxxxx, Xxx Xxxx, XX 00000 (the
“Closing”).
Subject to the terms and conditions set forth in this Agreement, the date and
time of the Closing shall be the Closing Date (or such later date as is mutually
agreed to by the Company and the Purchaser), provided,
that
all of the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith (the
“Closing
Date”).
Subject to the terms and conditions of this Agreement, at the Closing the
Company shall deliver or cause to be delivered to the Purchaser or its
nominee(s) (x) a certificate for the number of Preferred Shares set forth
opposite the name of the Purchaser or its nominee(s) on Exhibit
A
hereto,
(y) its Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of the Purchaser or its nominee(s) on Exhibit
A
attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof. At the Closing, the Purchaser shall deliver its Purchase Price by
wire transfer to Company and its nominees as so directed. In addition, the
parties acknowledge that Five Hundred Thousand Dollars ($500,000) have been
deposited in an escrow account pursuant to an Escrow General Agreement and
related amendment entered into as of June 2, 2008 and June 4, 2008 respectively,
by and between the Company, Shen Kun International Limited, Vision Opportunity
China LP (“Vision”), and Loeb & Loeb LLP, to be used by the Company in
connection with investor and public relations.
Section
1.5 Reverse
Merger Transaction.
The
parties acknowledge that prior to the consummation of the transactions
contemplated by this Agreement, the Company issued shares of its Common Stock
to
Shen Kun International Limited, a company organized in the British Virgin
Islands (the “BVI”)
(“Shen
Kun”),
pursuant to that certain Merger Agreement dated as of June 9, 2008 by and among
the Company, Shen Kun Acquisition Sub Limited, a BVI company which is a wholly
owned subsidiary of the Company (“Acquisition
Subsidiary”),
Shen
Kun, Parent Controlling Shareholders (as that term is defined in the Merger
Agreement), Shen Kun Shareholders (as that term is defined in the Merger
Agreement), and Shengkai (Tianjin) Ceramic Valves Co., Ltd., a PRC wholly
foreign-owned enterprise (“WFOE”)
organized under the laws of the People’s Republic of China (the “PRC”),
and
Tianjin Shengkai Industrial Technology Development Co., Ltd., a PRC company,
(the “Merger Agreement”), and upon the consummation of the transactions
contemplated by the Merger Agreement, WFOE, a direct wholly-owned subsidiary
of
Shen Kun immediately prior to the consummation of the transactions contemplated
by the Merger Agreement, on June 9, 2008 became an indirect wholly-owned
subsidiary of the Company (the “Reverse
Merger Transaction”).
2
ARTICLE
II
Representations
and Warranties
Section
2.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchaser, as of the date hereof
(except as set forth on the Schedule of Exceptions attached hereto with each
numbered Schedule corresponding to the section number herein), as
follows:
(a) Organization,
Good Standing and Power.
The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Florida and has the requisite corporate
power to own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. The Company does not have any
subsidiaries except as set forth in the Company’s Form 10-KSB for the year ended
December 31, 2007, including the accompanying financial statements (the
“Form
10-KSB”),
in
the Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 31,
2007, June 30, 2007, September 30, 2007 and March 31, 2008 (collectively, the
“Form
10-QSBs”)
or as
set forth in Schedule 2.1(g). Except as set forth on Schedule
2.1(a),
the
Company and each such subsidiary is duly qualified as a foreign corporation
to
do business and is in good standing in every jurisdiction in which the nature
of
the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction(s) (alone or in the aggregate) in which
the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the Company’s financial
condition.
(b) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement in the form attached
hereto as Exhibit
D
(the
“Registration
Rights Agreement”),
the
Securities Escrow Agreement by and among the Company, the Purchaser and the
escrow agent named therein, dated as of the date hereof, substantially in the
form of Exhibit
F
attached
hereto (the “Securities
Escrow Agreement”)
and,
together with the Securities Escrow Agreement, the “Escrow Agreements”), the
Irrevocable Transfer Agent Instructions (as defined in Section 3.13), the Series
A Certificate of Designation, and the Warrants (collectively, the “Transaction
Documents”)
and to
issue and sell the Units, the Shares and the Warrants in accordance with the
terms hereof. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been duly executed and delivered by the Company. The other Transaction
Documents will have been duly executed and delivered by the Company at the
Closing. Each of the Transaction Documents constitutes, or shall constitute
when
executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s
rights and remedies or by other equitable principles of general
application.
3
(c) Capitalization.
The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding as of the date hereof are set forth on Schedule
2.1(c)
hereto.
All of the outstanding shares of the Common Stock and the Preferred Shares
have
been duly and validly authorized. Except as contemplated by the Transaction
Documents, the Securities Purchase Agreement dated as of June 10, 2008, by
and
between the Company and Vision in connection with a financing transaction closed
on June 11, 2008 (the “June 2008 Purchase Agreement”), all other “Transaction
Documents” (as such term is defined in the June 2008 Purchase Agreement) (the
June 2008 Purchase Agreement and other “Transaction Documents” collectively
defined hereto as the “June 2008 Transaction Documents”), or as set forth on
Schedule
2.1(c)
hereto,
no shares of Common Stock are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to,
or
securities or rights convertible into, any shares of capital stock of the
Company. Except as contemplated by the Transaction Documents or the June 2008
Transaction Documents there are no contracts, commitments, understandings,
or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except as contemplated
by the Transaction Documents or the June 2008 Transaction Documents or as set
forth on Schedule
2.1(c)
hereto,
the Company is not a party to any agreement granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. The Company is not a party to, and it has no knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of the Company. The offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable federal and state securities laws, and no stockholder has
a
right of rescission or claim for damages with respect thereto which would have
a
Material Adverse Effect (as defined below). The Company has furnished or made
available to the Purchaser true and correct copies of the Company’s Articles of
Incorporation as in effect on the date hereof (the “Articles”),
and
the Company’s Bylaws as in effect on the date hereof (the “Bylaws”).
For
the purposes of this Agreement, “Material
Adverse Effect”
means
any material adverse effect on the business, operations, properties, or
financial condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with
the
ability of the Company to perform any of its obligations under this Agreement
in
any material respect.
(d) Issuance
of Shares.
The
Units, the Preferred Shares and the Warrants to be issued at the Closing have
been duly authorized by all necessary corporate action and the Preferred Shares,
when paid for or issued in accordance with the terms hereof, shall be validly
issued and outstanding, fully paid and nonassessable and entitled to the rights
and preferences set forth in the Series A Certificate of Designation. When
the
Conversion Shares and the Warrant Shares are issued in accordance with the
terms
of the Series A Certificate of Designation and the Warrants, respectively,
such
shares will be duly authorized by all necessary corporate action and validly
issued and outstanding, fully paid and nonassessable, and the holders shall
be
entitled to all rights accorded to a holder of Common Stock.
4
(e) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated herein
and
therein do not and will not (i) violate any provision of the Company’s Articles
or Bylaws, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party or by which
it or its properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any property
of the Company under any agreement or any commitment to which the Company is
a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to
the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries are bound or affected, except, in all cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations
and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in
the
aggregate do not and will not have a Material Adverse Effect. The Company is
not
required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under the Transaction Documents, or issue and sell the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares
in
accordance with the terms hereof or thereof (other than (x) any consent,
authorization or order that has been obtained as of the date hereof, (y) any
filing or registration that has been made as of the date hereof or (z) any
filings which may be required to be made by the Company with the Commission
or
state securities administrators subsequent to the Closing; provided,
that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchaser herein.
(f) Commission
Documents, Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “Commission
Documents”).
At
the request of the Purchaser, the Company has delivered or made available to
the
Purchaser true and complete copies of the Commission Documents. The Company
has
not provided to the Purchaser any material non-public information or other
information which, according to applicable law, rule or regulation, was required
to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. At the times of their respective filings, the Form 10-KSBs, Form
10-QSBs and Form 10Q and the current report on Form 8-K/A filed with the
Commission on June 23, 2008 to disclose the transactions contemplated under
the
June 2008 Transaction Documents and the transactions contemplated by the Merger
Agreement and the Restructuring Agreements (as defined in Section 2.1(gg)
hereof) (the “Form
8-K/A”),
complied in all material respects with the requirements of the Exchange Act
and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, as of respective dates, neither the Form 10-KSB, the Form
10-QSBs and 10Q, nor the Form 8-K/A contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Commission Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance
with
United States generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may
be
otherwise indicated in such financial statements or the notes thereto or (ii)
in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in
all
material respects the financial position of the Company and its subsidiaries
as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The Shen Kun Financial Statements (as defined
in
Section 4.2(t) hereof) 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. The Shen Kun Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved and fairly present in all material respects,
the financial conditions and results of Shen Kun has defined in Section 4.2(t)
hereof and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended.
5
(g) Subsidiaries.
Schedule
2.1(g)
hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person’s
ownership. For the purposes of this Agreement, “subsidiary”
shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and
are
fully paid and nonassessable. Other than as contemplated by the Transaction
Documents, there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of
any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Other
than as contemplated by the Transaction Documents or the June 2008 Transaction
Documents, neither the Company nor any subsidiary is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any subsidiary or any convertible securities,
rights, warrants or options of the type described in the preceding sentence.
Neither the Company nor any subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any subsidiary, with the exception of the Restructuring Agreements
(as
defined in Section 2.1(gg)(i) below).
(h) No
Material Adverse Effect.
Other
than as disclosed in the Company’s Commission Documents, since March 31, 2008,
neither the Company nor any of its subsidiaries has experienced or suffered
any
Material Adverse Effect.
(i) No
Undisclosed Liabilities.
Except
as disclosed in the Form 10-KSB, the Form 10-QSBs, the Form 10-Q and the Form
8-K/A, neither the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured
or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company’s or its subsidiaries respective
businesses since March 31, 2008 and which, individually or in the aggregate,
do
not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
6
(j) No
Undisclosed Events or Circumstances.
To the
Company’s knowledge, no event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness.
The
Form 10-KSB, Form 10-QSBs, Form 10-Q and the Form 8-K/A set forth all
outstanding secured and unsecured Indebtedness of the Company or any subsidiary,
or for which the Company or any subsidiary has commitments. For the purposes
of
this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect
of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth in Schedule
2.1(k),
neither
the Company nor any subsidiary is in default with respect to any
Indebtedness.
(l) Title
to Assets.
Each of
the Company and its subsidiaries has good and marketable title to all of its
real and personal property reflected in the Form 10-KSB, the Form 10-QSBs,
the
Form 10-Q and the Form 8-K/A free and clear of any mortgages, pledges, charges,
liens, security interests or other encumbrances, all properties and assets
(i)
purportedly owned or used by them as reflected in the Form 10-KSB, Form 10-QSBs,
Form 10-Q and the Form 8-K/A or (ii) necessary for the conduct of their business
as currently conducted except for those disclosed in the Form 10-KSB, Form
10-QSBs, Form 10-Q and the Form 8-K/A. All leases of the Company and each of
its
subsidiaries are valid and subsisting and in full force and effect.
(m) Actions
Pending.
There
is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge
of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or
the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
There are no outstanding orders, judgments, injunctions, awards or decrees
of
any court, arbitrator or governmental or regulatory body against the Company
or
any subsidiary or any executive officers or directors of the Company or
subsidiary in their capacities as such.
7
(n) Compliance
with Law.
The
business of the Company and each of its subsidiaries has been and is presently
being conducted in material compliance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances. The Company and
each
of its subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business in all material respects as now being conducted by
it
unless the failure to possess such franchises, permits, licenses, consents
and
other governmental or regulatory authorizations and approvals, individually
or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes.
The
Company and each of its subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected
in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been audited by the Internal Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain
Fees.
Except
as set forth in the June 2008 Transaction Documents and on Schedule
2.1(p)
hereto,
no brokers, finders or financial advisory fees or commissions will be payable
by
the Company or any subsidiary or to the Purchaser with respect to the
transactions contemplated by this Agreement and the other Transaction
Documents.
(q) Disclosure.
Except
as set forth in Schedule
2.1(q),
neither
this Agreement nor the Schedules hereto nor any other documents, certificates
or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact
necessary in order to make the statements made herein or therein, taken as
a
whole and in the light of the circumstances under which they were made herein
or
therein, not false or misleading.
(r) Operation
of Business.
The
Company and each of its subsidiaries owns or possesses all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property
rights relating thereto, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing, which are
necessary for the conduct of its business as now conducted without any conflict
with the rights of others, except where the failure to so own or possess would
not have a Material Adverse Effect.
8
(s) Environmental
Compliance.
Since
their inception, neither the Company, nor any of its subsidiaries have been,
in
violation of any applicable law relating to the environment or occupational
health and safety, where such violation would have a Material Adverse Effect
on
the business or financial condition of any of the Company and its subsidiaries.
Each of Company and its subsidiaries has operated all facilities and properties
owned, leased or operated by it in material compliance with the Environmental
Laws. “Environmental
Laws”
shall
mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. The Company
and
each of its subsidiaries have all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of
any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. There are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its subsidiaries that violate or may violate any
Environmental Law after the Closing Date or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.
(t) Books
and Record Internal Accounting Controls.
Except
as otherwise disclosed in the Form 10-KSB, the Form 10-QSBs, the Form 10-Q
or
the Form 8-K/A, the books and records of the Company and its subsidiaries
accurately reflect in all material respects the information relating to the
business of the Company and its subsidiaries, the location and collection of
their assets, and the nature of all transactions giving rise to the obligations
or accounts receivable of the Company or any subsidiary. The Company and each
of
its subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company, to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any
differences.
(u) Material
Agreements.
Neither
the Company nor any subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy
of
which would be required to be filed with the Commission as an exhibit to a
registration statement on Form S-1 (collectively, the “Material
Agreements”)
if the
Company or any subsidiary were registering securities under the Securities
Act.
The Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and are not in default under
any
Material Agreement now in effect the result of which would cause a Material
Adverse Effect. Except as restricted under applicable laws and regulations,
the
incorporation documents, certificates of designations or the Transaction
Documents, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits
or
shall limit the payment of dividends on the Company’s Preferred Shares, other
preferred stock, if any, or its Common Stock.
9
(v) Transactions
with Affiliates.
Except
as set forth in the Commission Documents, the Transaction Documents or the
Restructuring Agreements (as defined in Section 2.1(gg)(i) below) there are
no
loans, leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions between (a) the Company or
any
subsidiary on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its subsidiaries, or any person
owning any capital stock of the Company or any subsidiary or any member of
the
immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate family of
such
officer, employee, consultant, director or stockholder.
(w) Securities
Act of 1933.
Assuming the accuracy of the representations of the Purchaser set forth in
Section 2.2 (d)-(h) hereof, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares and the Warrants hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell,
offer
to sell or solicit offers to buy any of the Units, the Shares, the Warrants
or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Units, the Shares and the Warrants in violation of the
registration provisions of the Securities Act and applicable state securities
laws, and neither the Company nor any of its affiliates, nor any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of any of the Units, the Shares and
the Warrants.
(x) Governmental
Approvals.
Except
for the filing of any notice prior or subsequent to the Closing Date that may
be
required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis), including the filing of a Form
D
and a registration statement or statements pursuant to the Registration Rights
Agreement, no authorization, consent, approval, license, exemption of, filing
or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Units, the
Preferred Shares and the Warrants, or for the performance by the Company of
its
obligations under the Transaction Documents.
(y) Employees.
Except
as disclosed in the Commission Documents or the Form 8-K/A, neither the Company
nor any subsidiary has any collective bargaining arrangements or agreements
covering any of its employees. Except as disclosed in the Commission Documents
or the Form 8-K/A, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary required to be disclosed in the Commission Documents on the Form
8-K/A that is not so disclosed. Since March 31, 2008, no officer, consultant
or
key employee of the Company or any subsidiary whose termination, either
individually or in the aggregate, would have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.
10
(z) Absence
of Certain Developments.
Since
March 31, 2008, neither the Company nor any subsidiary has:
(i) issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;
(ii) borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of
its
prior fiscal year, as adjusted to reflect the current nature and volume of
the
Company’s or such subsidiary’s business;
(iii) discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;
(iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements
so
to purchase or redeem, any shares of its capital stock;
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchaser or their
representatives;
(vii) suffered
any substantial losses or waived any rights of material value, whether or not
in
the ordinary course of business, or suffered the loss of any material amount
of
prospective business;
(viii) made
any
changes in employee compensation except in the ordinary course of business
and
consistent with past practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$50,000;
(x) entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;
11
(xi) made
charitable contributions or pledges in excess of $10,000;
(xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced
any material problems with labor or management in connection with the terms
and
conditions of their employment;
(xiv) effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or
(xv) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.
(aa) Public
Utility Holding Company Act and Investment Company Act Status.
The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
The
Company is not, and as a result of and immediately upon the Closing will not
be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) ERISA.
No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries.
The
execution and delivery of this Agreement and the other Transaction Documents
and
the issuance and sale of the Units, the Preferred Shares and the Warrants will
not involve any transaction which is subject to the prohibitions of Section
406
of ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided, that, if any
of
the Purchaser, or any person or entity that owns a beneficial interest in any
of
the Purchaser, is an “employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
this
Section 2.1(bb), the term “Plan”
shall
mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which
is or has been established or maintained, or to which contributions are or
have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the
Code.
(cc) Dilutive
Effect.
The
Company understands and acknowledges that it has an obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with
this Agreement and the Series A Certificate of Designation and to issue the
Warrant Shares upon the exercise of the Warrants in accordance with this
Agreement and the Warrants regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the
Company.
(dd) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Shares pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Shares to be integrated
with other offerings. The Company does not have any registration statement
pending before the Commission or currently under the Commission’s review and
since January 1, 2007, except as contemplated under the Transaction Documents
or
the June 2008 Transaction Documents, the Company has not offered or sold any
of
its equity securities or debt securities convertible into shares of Common
Stock.
12
(ee) Independent
Nature of Purchaser.
The
Company acknowledges that the obligations of the Purchaser under the Transaction
Documents are several and not joint with the obligations of any third party,
and
no Purchaser shall be responsible in any way for the performance of the
obligations of any other party under the Transaction Documents. The Company
acknowledges that the decision of the Purchaser to purchase securities pursuant
to this Agreement has been made by the Purchaser independently of any third
party and independently of any information, materials, statements or opinions
as
to the business, affairs, operations, assets, properties, liabilities, results
of operations, condition (financial or otherwise) or prospects of the Company
or
of its subsidiaries which may have made or given by any third party, and no
third party or any of its agents or employees shall have any liability to the
Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained herein, or in any Transaction Document, and no action taken
by
the Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchaser and any third party as a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Purchaser and
any
third party are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The
Company acknowledges that the Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of this Agreement or out of the other Transaction Documentsand it shall
not
be necessary for any third party to be joined as an additional party in any
proceeding for such purpose.
(ff) Transfer
Agent. The name, address, telephone
number, fax number, contact person and email address of the Company’s current
transfer agent is set forth on Schedule
2.1(ff)
hereto.
(gg) WFOE.
The
Company represents on behalf of WFOE, an indirect wholly-owned subsidiary of
the
Company:
(i) that
WFOE
has the legal right, power and authority (corporate and other) to enter into
and
perform its obligations under each of agreements as set forth on Schedule
2.1(gg)
(collectively, the “Restructuring
Agreements”)
to
which it is a party and has taken all necessary corporate action to authorize
the execution, delivery and performance of, and has authorized, executed and
delivered, each of the Restructuring Agreements to which it is a party; and
each
of the Restructuring Agreements to which WFOE is a party constitutes a valid
and
legally binding obligation of WFOE, enforceable in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights and to general equity
principles.
13
(ii) that
WFOE
does not own or lease properties or conduct any business outside of the PRC
and
that WFOE does not need to be duly qualified as a foreign corporation for the
transaction of business under the laws of any jurisdiction in which it is not
now so qualified.
(iii) that
the
execution and delivery by WFOE of, and the performance by WFOE of its
obligations under, each of the Restructuring Agreements to which it is a party
and the consummation by WFOE of the transactions contemplated therein will
not:
(A) conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of
trust, loan agreement or other agreement or instrument to which WFOE is a party
or by which WFOE is bound or to which any of the properties or assets of WFOE
is
subject; (B) result in any violation of the provisions of the articles of
association or business license of WFOE; and (C) will not result in any
violation of any laws, regulations, rules, orders, decrees, guidelines or
notices of the PRC, except that, with respect to (A) and (C), such conflict,
breach or violation would not reasonably be expected to have a Material Adverse
Effect on WFOE.
(iv) that
each
of the Restructuring Agreements is in proper and enforceable legal form under
the laws of the PRC and to ensure the legality, validity, enforceability or
admissibility in evidence of each of the Restructuring Agreements in the PRC,
it
is not necessary that any such document be filed or recorded with any court
or
other authority in the PRC or that any stamp or similar tax be paid on or in
respect of any of the Restructuring Agreements, except as set forth on
Schedule
2.1(gg)(iv).
Section
2.2 Representations
and Warranties of the Purchaser.
The
Purchaser hereby makes the following representations and warranties to the
Company as of the date hereof and Closing Date, with respect solely to itself
and not with respect to any other Purchaser:
(a) Organization
and Good Standing of the Purchaser.
The
Purchaser is a corporation, partnership or limited liability company duly
incorporated or organized, validly existing and in good standing under the
laws
of the jurisdiction of its incorporation or organization.
(b) Authorization
and Power.
The
Purchaser has the requisite power and authority to enter into and perform this
Agreement and each of the other Transaction Documents to which the Purchaser
is
a party and to purchase the Preferred Shares and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement and each
of
the other Transaction Documents to which the Purchaser is a party by the
Purchaser and the consummation by it of the transactions contemplated hereby
and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of the Purchaser or its Board
of
Directors, stockholders, or partners, as the case may be, is required. This
Agreement and each of the other Transaction Documents to which the Purchaser
is
a party has been duly authorized, executed and delivered by the Purchaser and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with the terms thereof.
14
(c) No
Conflicts.
The
execution, delivery and performance of this Agreement and each of the other
Transaction Documents to which the Purchaser is a party and the consummation
by
the Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of the Purchaser’s charter
documents, bylaws, operating agreement, partnership agreement or other
organizational documents or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
the Purchaser is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment
or
decree of any court or governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Purchaser). The Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or any other Transaction Document to which the Purchaser
is
a party or to purchase the Preferred Shares or acquire the Warrants in
accordance with the terms hereof, provided, that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying
upon
the accuracy of the relevant representations and agreements of the Company
herein.
(d) Acquisition
for Investment.
The
Purchaser is acquiring the Units, and the underlying Preferred Shares and the
Warrants solely for its own account for the purpose of investment and not with
a
view to or for sale in connection with distribution. The Purchaser does not
have
a present intention to sell the Preferred Shares or the Warrants, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Shares or the Warrants to or through any person or entity;
provided,
however,
that by
making the representations herein and subject to Section 2.2(h) below, the
Purchaser does not agree to hold the Shares or the Warrants for any minimum
or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with federal and state securities laws
applicable to such disposition. The Purchaser acknowledges that it is able
to
bear the financial risks associated with an investment in the Shares and the
Warrants and that it has been given full access to such records of the Company
and the subsidiaries and to the officers of the Company and the subsidiaries
and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience
in
investing in companies similar to the Company in terms of the Company’s stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company. The Purchaser further acknowledges that the Purchaser
understands the risks of investing in companies domiciled and/or which operate
primarily in the People’s Republic of China and that the purchase of the Shares
and Warrants involves substantial risks.
(e) Status
of Purchaser.
The
Purchaser is an “accredited investor” as defined in Regulation D promulgated
under the Securities Act. The Purchaser is not required to be registered as
a
broker-dealer under Section 15 of the Exchange Act and the Purchaser is not
a
broker-dealer.
(f) Opportunities
for Additional Information.
The
Purchaser acknowledges that the Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other affairs
of the Company. In making the decision to invest in the Company and its
business, the Purchaser hereby acknowledges that the Purchaser has relied solely
upon the Shen Kun Financial Statements, the Form 8-K/A (defined in Section
2.1(f) hereto) and other written information provided to the Purchaser by the
Company and Shen Kun.
15
(g) No
General Solicitation.
The
Purchaser acknowledges that the Units were not offered to the Purchaser by
means
of any form of general or public solicitation or general advertising, or
publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio,
or
(ii) any seminar or meeting to which the Purchaser was invited by any of the
foregoing means of communications.
(h) Rule
144.
The
Purchaser understands that the Shares must be held indefinitely unless such
Shares are registered under the Securities Act or an exemption from registration
is available. The Purchaser acknowledges that the Purchaser is familiar with
Rule 144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act (“Rule
144”),
and
that such person has been advised that Rule 144 permits resales only under
certain circumstances. The Purchaser understands that to the extent that Rule
144 is not available, the Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General.
The
Purchaser understands that the Shares are being offered and sold in reliance
on
a transactional exemption from the registration requirement of federal and
state
securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of
the Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of the Purchaser to acquire the
Shares.
(j) Independent
Investment.
Except
as may be disclosed in any filings with the Commission by the Purchaser under
Section 13 and/or Section 16 of the Exchange Act, the Purchaser has not agreed
to act with any third party for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and the Purchaser is acting independently with respect to
its
investment in the Shares.
(k) Trading
Activities.
The
Purchaser agrees that it shall not, directly or indirectly, engage in any short
sales with respect to the Common Stock for a period of one (1) year following
the Closing.
(l) Brokers.
Other
than to Mass Harmony Asset Management Limited and Aegis Capital Corp., the
Purchaser has no knowledge of any brokerage or finder’s fees or commissions that
are or will be payable by the Company or any subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other
person or entity with respect to the transactions contemplated by this
Agreement.
16
ARTICLE
III
Covenants
The
Company covenants with the Purchaser as follows, which covenants are for the
benefit of the Purchaser and their permitted assignees (as defined
herein).
Section
3.1 Securities
Compliance.
The
Company shall notify the Commission in accordance with their rules and
regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Units, the Preferred
Shares, Warrants, Conversion Shares and Warrant Shares as required under
Regulation D and applicable “blue sky” laws, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law,
rule
and regulation, for the legal and valid issuance of the Units, the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares to the
Purchaser or subsequent holders.
Section
3.2 Registration
and Listing.
The
Company shall (a) comply in all respects with its reporting and filing
obligations under the Exchange Act, (b) comply with all requirements related
to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and (c) not take any action or file any document (whether
or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act except as
permitted under the Transaction Documents. The Company will take all action
necessary to continue the quotation or listing of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading
or may be traded in the future. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action
as the Purchaser may reasonably request, all to the extent required from time
to
time to enable the Purchaser to sell the Shares without registration under
the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, as amended. Upon the request of the
Purchaser, the Company shall deliver to the Purchaser a written certification
of
a duly authorized officer as to whether it has complied with such
requirements.
Section
3.3 Inspection
Rights.
The
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, the Purchaser or any employees, agents or representatives
thereof, so long as the Purchaser shall (i) be obligated hereunder to purchase
the Units, or (ii) shall beneficially own Preferred Shares or Warrants which,
in
the aggregate, are convertible into or exercisable for securities representing
more than 5% of the total combined voting power of all voting securities then
outstanding on a fully diluted basis, or (iii) shall own Shares which, in the
aggregate, represent more than 5% of the total combined voting power of all
voting securities then outstanding on a fully diluted basis (“Information Rights
Purchaser”), for purposes reasonably related to the Purchaser’s interests as a
stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any subsidiary, and to discuss the
affairs, finances and accounts of the Company and any subsidiary with any of
its
officers, consultants, directors, and key employees. The Purchaser agrees that
the Purchaser and its employees, agents and representatives will keep
confidential and will not disclose, divulge or use (other than for purposes
of
monitoring its investment in the Company) any confidential information which
the
Purchaser may obtain from the Company pursuant to financial statements, reports
and other materials submitted by the Company to the Purchaser pursuant to this
Agreement or pursuant to inspection rights granted hereunder, unless such
information is known to the public through no fault of the Purchaser or his
or
its employees or representatives; provided, however, that a Purchaser may
disclose such information (i) to its attorneys, accountants and other
professionals in connection with their representation of the Purchaser in
connection with the Purchaser’s investment in the Company, (ii) to any
prospective permitted transferee of the Preferred Shares, so long as the
prospective transferee agrees to be bound by the provisions of this Section
3.3,
(iii) to any general partner or affiliate of the Purchaser. The Company may
require the Purchaser to execute a separate confidentiality agreement in form
and substance reasonably acceptable to the Company as a prerequisite to the
exercise of the Purchaser’s inspection rights pursuant to this Section
3.3.
17
Section
3.4 Compliance
with Laws.
The
Company shall comply, and cause each subsidiary to comply in all material
respects, with all applicable laws, rules, regulations and orders.
Section
3.5 Keeping
of Records and Books of Account.
The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company
and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section
3.6 Reporting
Requirements.
If the
Commission ceases making periodic reports filed under the Exchange Act available
via the Internet, then at a Purchaser’s request the Company shall furnish the
following to the Purchaser so long as the Purchaser shall beneficially own
any
Shares:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB or Form 10-Q as soon as
practicable after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the
Commission;
(b) Annual
Reports filed with the Commission on Form 10-KSB or Form 10-K as soon as
practicable after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;
and
(c) Copies
of
all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices
or
information to such holders of Common Stock.
Section
3.7 Amendments.
The
Company shall not amend or waive any provision of the Articles or Bylaws of
the
Company in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of
the
Preferred Shares; provided,
however,
that
while the Preferred Shares are outstanding, any creation and issuance of another
series of Junior Stock (as defined in the Series A Certificate of Designation)
shall not be deemed to materially and adversely affect such rights, preferences
or privileges.
18
Section
3.8 Other
Agreements.
The
Company shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Company or
any
subsidiary under any Transaction Document.
Section
3.9 Distributions.
So long
as any Preferred Shares remain outstanding, the Company agrees that it shall
not
(i) declare or pay any dividends or make any distributions to any holder(s)
of
Common Stock unless such dividends or distributions are also simultaneously
paid
or made to the holders of the Preferred Shares on an as-converted basis or
(ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section
3.10 Use
of
Proceeds.
The net
proceeds from the sale of the Units hereunder shall be used by the Company
for
working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock
or to settle any outstanding litigation.
Section
3.11 Reservation
of Shares.
So long
as any of the Preferred Shares or Warrants remain outstanding, the Company
shall
take all action necessary to at all times have authorized, and reserved for
the
purpose of issuance, no less than one hundred fifty percent (150%) of the
aggregate number of shares of Common Stock needed to provide for the issuance
of
the Conversion Shares and the Warrant Shares.
Section
3.12 Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of
the
Purchaser or its nominee(s), for the Conversion Shares and the Warrant Shares
in
such amounts as specified from time to time by the Purchaser to the Company
upon
conversion of the Preferred Shares or exercise of the Warrants in the form
of
Exhibit
G
attached
hereto (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to
in this Section 3.12 will be given by the Company to its transfer agent and
that
the Shares shall otherwise be freely transferable on the books and records
of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Shares may be made without registration under
the
Securities Act or the Purchaser provides the Company with reasonable assurances
that such Shares can be sold pursuant to Rule 144 without any restriction as
to
the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of
the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by the Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this Section 3.12
will
cause irreparable harm to the Purchaser by vitiating the intent and purpose
of
the transaction contemplated hereby. Accordingly, the Company acknowledges
that
the remedy at law for a breach of its obligations under this Section 3.12 will
be inadequate and agrees, in the event of a breach or threatened breach by
the
Company of the provisions of this Section 3.12, that the Purchaser shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
19
Section
3.13 Disposition
of Assets.
So long
as any Preferred Shares remain outstanding, neither the Company nor any
subsidiary shall sell, transfer or otherwise dispose of any of its properties,
assets and rights including, without limitation, its software and intellectual
property, to any person except for (i) sales to customers in the ordinary course
of business (ii) sales or transfers between the Company and its subsidiaries
or
between subsidiaries of the Company, (iii) sales or transfers between the
Company, any of its subsidiaries or (iv) otherwise with the prior written
consent of the holders of a majority of the Preferred Shares then
outstanding.
Section
3.14 Reporting
Status.
So long
as a Purchaser beneficially owns any of the Shares, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or
the
rules and regulations thereunder would permit such termination.
Section
3.15 Disclosure
of Transaction.
The
Company shall file with the Commission a Form 8-K describing the material terms
of the transactions contemplated hereby (and attaching as exhibits thereto
this
Agreement, the Registration Rights Agreement, the Series A Certificate of
Designation, the Securities Escrow Agreement, and a form of Warrant) as soon
as
practicable following the Closing Date but in no event more than four (4)
Trading Days following the Closing Date, which the Form 8-K shall be subject
to
prior review and comment by counsel for the Purchaser. “Trading
Day”
means
any day during which the OTC Bulletin Board (or other quotation venue or
principal exchange on which the Common Stock is traded) shall be open for
trading.
Section
3.16 Disclosure
of Material Information.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf has provided or will provide any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto the Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the
Company.
Section
3.17 Pledge
of Securities.
The
Company acknowledges and agrees that the Shares may be pledged by a Purchaser
in
connection with a bona fide
margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale
or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge
of
Common Stock shall be required to provide the Company with any notice thereof
or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document; provided,
that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchaser’s expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.
20
Section
3.18 Reserved.
Section
3.19 Lock-Up
Agreement.
The
persons listed on Schedule
3.19
attached
hereto are subject to the terms and provisions of the lock-up agreement executed
on June 10, 2008, attached under Exhibit
E
hereto
(collectively, the “Lock-Up
Agreements”),
which
provides the manner in which such persons will sell, transfer or dispose of
their shares of Common Stock. The Company hereby covenants and agrees that
it
will diligently and timely enforce the terms and conditions of each Lock-up
Agreement.
Section
3.20 Investor
and Public Relations Escrow.
The
Company shall have caused to be deposited pursuant to the terms of the Investor
and Public Relations Escrow Agreement dated June 10, 2008 entered into by and
between the Company, Vision, and Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, as escrow
agent (the “Investor and Public Relations Escrow Agreement”), Five Hundred
Thousand Dollars ($500,000) in an escrow account to be used by the Company
in
connection with investor and public relations. One Hundred Fifty Thousand
Dollars ($150,000) of the Five Hundred Thousand Dollars ($500,000) shall be
released from escrow once the Company appoints a Chief Financial Officer or
Vice
President of Investor Relations pursuant to Section 4.2(x) hereto. In
addition, an additional One Hundred Fifty Thousand Dollars ($150,000) will
be
released to the Company after the Company engages a new independent accounting
firm that is listed as one of the top 20 firms by stock market client number
as
calculated by Hemscott Group Limited, a division of Morningstar,
Inc.
Section
3.21 Reserved.
Section
3.22 DTC.
Not
later than the effective date of the Registration Statement (as defined in
the
Registration Rights Agreement), the Company shall cause its Common Stock to
be
eligible for transfer with its transfer agent pursuant to the Depository Trust
Company Automated Securities Transfer Program.
21
Section
3.23 Subsequent
Financings.
(a) For
a
period of two (2) years following the effective date of the initial Registration
Statement (as defined in the Registration Rights Agreement), the Company
covenants and agrees to promptly notify (in no event later than ten (10) days
after making or receiving an applicable offer) in writing (a “Rights
Notice”)
each
holder of Preferred Shares (each, a “Preferred
Stockholder”
and
collectively the “Preferred
Stockholders”)
of the
terms and conditions of any proposed offer or sale to, or exchange with (or
other type of distribution to) any third party, of Common Stock, any debt or
equity securities convertible, exercisable or exchangeable into Common Stock
or
any debt securities (a “Subsequent
Financing”);
provided,
however,
prior
to delivering to each Preferred Stockholder a Rights Notice, the Company shall
first deliver to each Preferred Stockholder a written notice of its intention
to
effect a Subsequent Financing (“Pre-Notice”)
within
three (3) Trading Days of receiving an applicable offer, which Pre-Notice shall
ask such Preferred Stockholder if it wants to review the details of such
financing. Upon the request of a Preferred Stockholder, and only upon a request
by such Preferred Stockholder within three (3) Trading Days of receipt of a
Pre-Notice, the Company shall promptly, but no later than two (2) Trading Days
after such request, deliver a Rights Notice to such Preferred Stockholder.
The
Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating
in
the Subsequent Financing (if known), the proposed closing date of the Subsequent
Financing, which shall be no earlier than ten (10) Trading Days from the date
of
the Rights Notice, and all of the terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The Rights
Notice shall provide each Preferred Stockholder an option (the “Rights
Option”)
during
the ten (10) Trading Days following delivery of the Rights Notice (the
“Option
Period”)
to
inform the Company whether such Preferred Stockholder will purchase up to its
pro rata portion of all or a portion of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing. If any Preferred Stockholder elects not to
participate in such Subsequent Financing, the other Preferred Stockholders
may
participate on a pro-rata basis. For purposes of this Section, all references
to
“pro rata” means, for any Preferred Stockholder electing to participate in such
Subsequent Financing, the percentage obtained by dividing (x) the number of
Preferred Shares held by such Preferred Stockholder by (y) the total number
of
all of the Preferred Shares issued hereunder. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no
other
material terms and conditions, arrangements, agreements or otherwise except
for
those disclosed in the Rights Notice, to provide additional compensation to
any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price
or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Preferred Stockholder within the Option Period, the Company
shall have the right to close the Subsequent Financing on the scheduled closing
date with a third party; provided,
that
all of the material terms and conditions of the closing are the same as those
provided to the Preferred Stockholder in the Rights Notice. If the closing
of
the proposed Subsequent Financing does not occur that date, any closing of
the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.23(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.23(a) shall not apply to issuances of securities in a Permitted
Financing.
(b) For
purposes of this Agreement, a Permitted Financing (as defined hereinafter)
shall
not be considered a Subsequent Financing. A “Permitted
Financing”
shall
mean (i) securities issued (other than for cash) in connection with a merger,
acquisition, or consolidation, (ii) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities issued or outstanding
on or
prior to the date of this Agreement or issued pursuant to this Agreement or
any
of the other Transaction Documents (so long as the conversion or exercise price
in such securities are not amended to lower such price and/or adversely affect
the Purchaser), (iii) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (iv) Common Stock issued or the
issuance or grants of options to purchase Common Stock pursuant to the Company’s
stock option plans and employee stock purchase plans outstanding as they exist
on the date of this Agreement, and (v) any warrants issued to the placement
agent, financial advisors and their respective designees for the transactions
contemplated by the Transaction Documents.
22
(c) Nothing
herein shall prohibit the Company from establishing an employee stock option,
restricted stock or other form of equity incentive plan. The Company agrees
that
as long as Vision, the Purchaser or any of their respective affiliates hold
five
percent (5%) of the aggregate total number of shares of Common Stock and Shares
of the Company on a fully diluted basis, such plan may not exceed in the
aggregate ten percent (10%) of the total number of then issued and outstanding
shares of Common Stock and Conversion Shares issuable upon conversion of all
outstanding Preferred Stock, for employees, officers or directors of the
Company, and any awards made under such plan or exercises of such awards by
the
recipients thereof shall be deemed to be a Permitted Financing. Notwithstanding
the foregoing, in the event that the Company’s Common Stock is listed on Nasdaq,
as defined below, and Vision, the Purchaser or any of their respective
affiliates hold five percent (5%) of the aggregate total number of shares of
Common Stock and Shares of the Company on a fully diluted basis, such plan
may
not exceed in the aggregate fifteen percent (15%) of the total number of then
issued and outstanding shares of Common Stock and Conversion Shares issuable
upon conversion of all outstanding Preferred Stock.
Section
3.24 Xxxxxxxx-Xxxxx
Act.
The
Company shall be in compliance with the applicable provisions of the
Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and regulations
promulgated thereunder, as required under such Act.
Section
3.25 Exchange
Listing.
The
Company shall list and trade its shares of Common Stock on the Nasdaq Capital
Market or the Nasdaq Global Market or any successor market thereto
(collectively, “Nasdaq”),
or
American Stock Exchange or any successor market thereto (together with Nasdaq,
each a “National
Stock Exchange”)
at the
earliest possible time and shall take all commercially reasonable actions to
fulfill the said requirement by no later than the date which is eighteen months
after the Closing Date. In the event the shares of Common Stock are not listed
and trading on a National Stock Exchange by the date which is eighteen months
from the Closing Date and the Purchaser and Vision believe, using reasonable
judgment, that commercially reasonable actions have not been taken to meet
such
requirement, the stockholder of the Company as listed on Schedule
3.25
(the
“Principal
Stockholder”)
shall
transfer such number of shares of Common Stock held by such Principal
Stockholder as set forth opposite such Principal Stockholder’s name on
Schedule
3.25
(the
“Listing
Penalty Shares”)
to the
Purchaser to be distributed to the Purchaser and Vision on a pro rata basis.
The
number of Listing Penalty Shares to be transferred by the Principal Stockholder
to the Purchaser and Vision shall, in the aggregate, be equal to 1,000,000
shares of Common Stock times a fraction, the numerator of which is the number
of
shares of Common Stock held by such Principal Stockholder and the denominator
of
which is the total number of shares of Common Stock held by the Principal
Stockholder. In the event the Principal Stockholder fails to transfer the
Listing Penalty Shares by the date which is nineteen months after the Closing
Date, the Purchaser may elect, at the Purchaser’s sole discretion and upon
notice to the Company, Escrow Agent and Principal Stockholder (each as defined
in the Securities Escrow Agreement), to receive a portion of the Escrow Shares
(as defined in the Securities Escrow Agreement) in such amount as set forth
in
the preceding sentence. In the event a Purchaser elects to receive shares of
Common Stock from the Escrow Shares pursuant to the foregoing and if the Escrow
Shares then remaining are insufficient to satisfy the Principal Stockholder’s
obligations under Sections 1.3 and 1.4 of the Securities Escrow Agreement,
the
Principal Stockholder shall deliver to the Escrow Agent additional shares of
Common Stock it owns in the amounts released to the Purchaser within five (5)
days of the release of such shares from escrow. Notwithstanding the foregoing
to
the contrary, the Principal Stockholder shall not be required to transfer such
Listing Penalty Shares pursuant to this Section 3.25 if the Company has taken
commercially reasonable actions to list and trade its Common Stock on a National
Stock Exchange.
23
Section
3.26 No
Commissions in Connection with Conversion of Preferred Shares.
In
connection with the conversion of the Preferred Shares into Conversion Shares,
neither the Company nor any Person acting on its behalf will take any action
that would result in the Conversion Shares being exchanged by the Company other
than with the then existing holders of the Preferred Shares exclusively where
no
commission or other remuneration is paid or given directly or indirectly for
soliciting the exchange in compliance with Section 3(a)(9) of the Securities
Act.
Section
3.27 Financial
Public Relations Firm and Appearances.
Within
three (3) months from the Closing Date, the Company shall retain a financial
public relations firm (the “Firm”) reasonably acceptable to the Purchaser and to
Vision Capital Advisors, LLC, the advisor to Vision, for a term to be agreed
upon by the Company, the Purchaser and Vision Capital Advisors, LLC. The Company
agrees that, for so long as the Purchaser, Vision or any of their respective
affiliates hold five percent (5%) of the aggregate total number of shares of
Common Stock and Shares of the Company on a fully diluted basis, it shall
provide for its management to visit the United States no fewer than four times
during every twelve month period following the Closing Date for the purpose
of
introductions by the Firm with the investment community. Such visits shall
also
include attendance at no fewer than two industry conferences reasonably
acceptable to Vision Capital Advisors, LLC and the Purchaser. Further, as set
forth in Section 1.4, Five Hundred Thousand Dollars ($500,000) shall have been
deposited in an escrow account pursuant to the Investor and Public Relations
Escrow Agreement to be used by the Company in connection with investor and
public relations in its discretion.
ARTICLE
IV
CONDITIONS
Section
4.1 Conditions
Precedent to the Obligation of the Company to Sell the Shares.
The
obligation hereunder of the Company to issue and sell the Units, and the
underlying Preferred Shares and the Warrants to the Purchaser is subject to
the
satisfaction or waiver, at or before each Closing, of each of the conditions
set
forth below. These conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion.
24
(a) Accuracy
of The Purchaser’s Representations and Warranties.
The
representations and warranties of the Purchaser in this Agreement and each
of
the other Transaction Documents to which the Purchaser is a party shall be
true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be
true
and correct in all material respects as of such date.
(b) Performance
by the Purchaser.
The
Purchaser shall have performed, satisfied and complied in all respects with
all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the respective
Closing.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(d) Delivery
of Purchase Price.
The
Purchase Price for the Units has been delivered to the Company and the Preferred
Shares and Warrants have been delivered to the Purchaser or its
nominee(s).
(e) Delivery
of Transaction Documents.
The
Transaction Documents to which the Purchaser is a party have been duly executed
and delivered by the Purchaser to the Company.
Section
4.2 Conditions
Precedent to the Obligation of the Purchaser to Purchase the
Units.
The
obligation hereunder of the Purchaser to acquire and pay for the Units is
subject to the satisfaction or waiver, at or before the Closing, of each of
the
conditions set forth below. These conditions are for the Purchaser’s sole
benefit and may be waived by the Purchaser at any time in its sole
discretion.
(a) Accuracy
of the Company’s Representations and Warranties.
Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all respects as of
the
date when made and as of the Closing Date as though made at that time, except
for representations and warranties that are expressly made as of a particular
date, which shall be true and correct in all respects as of such
date.
(b) Performance
by the Company.
The
Company shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing.
(c) No
Suspension, Etc.
Quotation of the Common Stock shall not have been suspended by the Commission
or
the OTC Bulletin Board (except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets (“Bloomberg”)
shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the
New
York Stock Exchange, nor shall a banking moratorium have been declared either
by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of the Purchaser, makes it impracticable or inadvisable to purchase
the
Preferred Shares.
25
(d) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of
the transactions contemplated by this Agreement.
(e) No
Proceedings or Litigation.
No
action, suit or proceeding before any arbitrator or any governmental authority
shall have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or any of
the
officers, directors or affiliates of the Company or any subsidiary seeking
to
restrain, prevent or change the transactions contemplated by this Agreement,
or
seeking damages in connection with such transactions.
(f) Series
A Certificate of Designation of Rights and Preferences.
Prior
to the Closing, the Articles of Amendment to the Articles of Incorporation
including the Series A Certificate of Designation attached as Exhibit
B
hereto
shall have been filed with the Secretary of State of Florida.
(g) Opinions
of Counsel, Etc.
At
Closing, the Purchaser shall have received an opinion of U.S. counsel to the
Company, and an opinion of British Virgin Islands counsel to the Company, dated
the date of the Closing, in substantially the form of Exhibit
H
hereto,
and such other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing. Four (4) days prior to Closing,
the
Purchaser shall have received an opinion of PRC counsel to Shen Kun, dated
the
date of the Closing with respect to the Restructuring Agreements and such other
matters as the Purchaser may reasonably request.
(h) Registration
Rights Agreement.
At the
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to the Purchaser.
(i) Certificates.
The
Company shall have executed and delivered to the Purchaser the certificates
(in
such denominations as the Purchaser shall request) for the Preferred Shares
and
the Warrants being acquired by the Purchaser at the Closing (in such
denominations as the Purchaser shall request) to such address set forth next
to
the Purchaser’s name on Exhibit
A
hereto.
(j) Resolutions.
The
Board of Directors of the Company shall have adopted resolutions consistent
with
Section 2.1(b) hereof in a form reasonably acceptable to the Purchaser (the
“Resolutions”).
(k) Reservation
of Shares.
As of
the Closing Date, the Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the
Preferred Shares and the exercise of the Warrants, a number of shares of Common
Stock equal to one hundred fifty percent (150%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares issued or
to
be issued pursuant to this Agreement and the number of Warrant Shares issuable
upon exercise of the number of Warrants issued or to be issued pursuant to
this
Agreement.
26
(l) Transfer
Agent Instructions.
As of
the Closing Date, the Irrevocable Transfer Agent Instructions, in the form
of
Exhibit
G
attached
hereto, shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.
(m) Lock-Up
Agreement.
As of
the Closing Date, the persons listed on Schedule
3.19
hereto
shall have delivered to the Purchaser a fully executed Lock-Up Agreement as
provided in Section 3.19, and the Company shall affirm that the Lock-Up
Agreement for each such person is in full force and effect.
(n) Secretary’s
Certificate.
The
Company shall have delivered to the Purchaser a secretary’s certificate, dated
as of the Closing Date, as to (i) the Resolutions, (ii) the Articles, (iii)
the
Bylaws, (iv) the Series A Certificate of Designation, each as in effect at
Closing, and (v) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(o) Officer’s
Certificate.
The
Company shall have delivered to the Purchaser a certificate of an executive
officer of the Company, dated as of the Closing Date, confirming the accuracy
of
the Company’s representations, warranties and covenants as of such Closing Date
and confirming the compliance by the Company with the conditions precedent
set
forth in this Section 4.2 as of the Closing Date.
(p) Securities
Escrow Agreement.
At
Closing, the Securities Escrow Agreement shall have been executed by the parties
thereto and the Escrow Shares (as defined in the Securities Escrow Agreement)
shall have been deposited into the escrow account pursuant to the terms of
the
Securities Escrow Agreement in the form of Exhibit
F
attached
hereto.
(q) Material
Adverse Effect.
No
Material Adverse Effect shall have occurred at or before the Closing
Date.
(r) Financial
Statements.
No
later than the fifth Business Day prior to the Closing Date, the Company shall
have delivered to the Purchaser the audited financial statements of Shen Kun
for
the fiscal years ended June 30, 2006 and 2007 audited by Xxxxxx Xxxx & Co.,
Certified Public Accountants (the “Shen
Kun Financial Statements”),
which
Shen Kun Financial Statements shall be acceptable to the Purchaser.
(s) Capitalization
Table.
No later
than the third Business Day prior to the Closing Date, the Company shall have
delivered to the Purchaser a capitalization table setting forth (i) its
capitalization, on a fully diluted basis immediately prior to the Closing and
(ii) its pro forma capitalization, on a fully diluted basis, giving effect
to
the consummation of the transactions contemplated by this Agreement. In each
case, the table shall list all outstanding options, warrants and other
securities convertible into equity of the Company.
(t) Draft
Form 8-K.
No later
than four (4) Business Days prior to the Closing Date, the Company shall have
delivered to the Purchaser, a draft of the Form 8-K (the “Draft
Form 8-K”),
in
substantially final form, that it proposes to file with the Securities and
Exchange Commission, which Draft Form 8-K shall be reasonably acceptable to
the
Purchaser.
27
(u) Chief
Financial Officer/Vice President of Investor Relations.
As soon
as possible following the Closing, the Company shall use its best efforts to
appoint an individual to serve as Chief Financial Officer and/or Vice President
of Investor Relations of the Company who is fluent in English (individually,
an
“English Speaking Officer”), which English Speaking Officer shall be acceptable
to Vision and the Purchaser.
ARTICLE
V
Stock
Certificate Legend
Section
5.1 Legend.
Each
certificate representing the Preferred Shares and the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):
THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such securities, such holder thereof shall
give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company
has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and
has
become effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or “blue sky” laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or “blue sky” laws has been effected or a valid exemption
exists with respect thereto. The Company will respond to any such notice from
a
holder within five (5) business days. In the case of any proposed transfer
under
this Section 5.1, the Company will use reasonable efforts to comply with any
such applicable state securities or “blue sky” laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Conversion Shares
or
Warrant Shares is required to be issued to a Purchaser without a legend, in
lieu
of delivering physical certificates representing the Conversion Shares or
Warrant Shares (provided that a registration statement under the Securities
Act
providing for the resale of the Warrant Shares and Conversion Shares is then
in
effect), the Company may cause its transfer agent to electronically transmit
the
Conversion Shares or Warrant Shares to a Purchaser by crediting the account
of
the Purchaser or the Purchaser’s Prime Broker with the Depository Trust Company
(“DTC”)
through its Deposit Withdrawal Agent Commission (“DWAC”)
system
(to the extent not inconsistent with any provisions of this
Agreement).
28
ARTICLE
VI
Indemnification
Section
6.1 General
Indemnity.
The
Company agrees to indemnify and hold harmless the Purchaser (and their
respective directors, officers, managers, partners, members, shareholders,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchaser as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. The Purchaser severally
but
not jointly agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys’ fees, charges and disbursements)
incurred by the Company as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Purchaser herein. The
maximum aggregate liability of the Purchaser pursuant to its indemnification
obligations under this Article VII shall not exceed the portion of the Purchase
Price paid by the Purchaser hereunder.
29
Section
6.2 Indemnification
Procedure.
Any
party entitled to indemnification under this Article VI (an “indemnified party”)
will give written notice to the indemnifying party of any matters giving rise
to
a claim for indemnification; provided,
that
the failure of any party entitled to indemnification hereunder to give notice
as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled
to
participate in and, unless in the reasonable judgment of the indemnified party
a
conflict of interest between it and the indemnifying party may exist with
respect of such action, proceeding or claim, to assume the defense thereof
with
counsel reasonably satisfactory to the indemnified party. In the event that
the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of
its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after
it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party’s
costs and expenses arising out of the defense, settlement or compromise of
any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to
such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party’s prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does
not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect
of
such claim. The indemnification required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation
or
defense, as and when bills are received or expense, loss, damage or liability
is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction
that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE
VII
Miscellaneous
Section
7.1 Fees
and Expenses.
Except
as otherwise set forth in this Agreement and the other Transaction Documents,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of
this Agreement, provided that the Company shall pay all actual and reasonable
attorneys’ fees and expenses (including disbursements and out-of-pocket
expenses) up to a maximum of $25,000 incurred by the Purchaser in connection
with the preparation, negotiation, execution and delivery of this Agreement
and
the other Transaction Documents and the consummation of the transactions and
the
review of the Restructuring Agreements. The Company shall also pay all
reasonable fees and expenses incurred by the Purchaser in connection with the
enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys’ fees and expenses but
only if the Purchaser are successful in any litigation or arbitration relating
to such enforcement.
30
Section
7.2 Capital
Contribution.
Within
fifteen (15) days of the Closing, the Company will cause Shen Kun to contribute
one hundred percent (100%) of the net proceeds from the sale of the Units in
the
Closing to WFOE. The Company will cause Shen Kun to contribute one hundred
percent (100%) of the registered capital of WFOE within two years from the
date
of issuance of the business license of WFOE.
Section
7.3 Transfer
of Vehicles.
The
Company covenants and agrees to, as soon as legally possible after the Closing,
effect the change of title owner for the vehicles listed on Schedule 7.3 from
the individuals listed as title owners on Schedule 7.3 to Tianjin Shengkai
Industrial Technology Development Co., Ltd.
Section
7.4 Reserved.
Section
7.5 Specific
Enforcement, Consent to Jurisdiction.
(a) The
Company and the Purchaser acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific
terms
or were otherwise breached. It is accordingly agreed that the parties shall
be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement or the other Transaction Documents and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.
(b) Each
of
the Company and the Purchaser (i) hereby irrevocably submits to the jurisdiction
of the United States District Court sitting in the Southern District of New
York
and the courts of the State of New York located in New York county for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchaser consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.5 shall affect
or limit any right to serve process in any other manner permitted by
law.
31
Section
7.6 Entire
Agreement; Amendment.
This
Agreement and the other Transaction Documents contains the entire understanding
and agreement of the parties with respect to the matters covered hereby and
thereby and, except as specifically set forth herein or in the Transaction
Documents, neither the Company nor any of the Purchaser makes any
representations, warranty, covenant or undertaking with respect to such matters
and they supersede all prior understandings and agreements with respect to
said
subject matter, all of which are merged herein. No provision of this Agreement
nor any of the Transaction Documents may be waived or amended other than by
a
written instrument signed by the Company and the holders of at least fifty
percent (50%) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Preferred Shares then outstanding. No consideration shall be offered
or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration
is
also offered to all of the parties to the Transaction Documents or holders
of
Preferred Shares, as the case may be. The June 2008 Purchase Agreement and
all
other June 2008 Transaction Documents contain the entire understanding and
agreement of the parties thereto with respect to the matters covered thereby,
and there are no other understandings or agreements with respect to said subject
matter, all of which are merged therein.
Section
7.7 Notices.
Any
notice, demand, request, waiver or other communication required or permitted
to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy or facsimile
at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day
during normal business hours where such notice is to be received) or (b) on
the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If
to the
Company:
Xx.
00,
Xxxx Xxxx Xxxx
Xxx
Xxx
(Xxxxxx Xxxx) Development Area
Tianjin,
People’s Republic of China 300350
Attention:
Xxxx Xxxx
Tel.
No.:
00-00-0000-0000
Fax
No.:
00-00-0000-0000
with
copies to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx, 00xx Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxx X. Xxxx, Esq.
Tel.
No.:
(000) 000-0000
Fax
No.:
(000) 000-0000
If
to any
Purchaser: At
the
address of the Purchaser set forth on Exhibit
A
to this
Agreement, as the case may be, with copies to Purchaser’s counsel as set forth
on Exhibit A or as specified in writing by the Purchaser.
Any
party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.
32
Section
7.8 Waivers.
No
waiver by any party of any default with respect to any provision, condition
or
requirement of this Agreement shall be deemed to be a continuing waiver in
the
future or a waiver of any other provisions, condition or requirement hereof,
nor
shall any delay or omission of any party to exercise any right hereunder in
any
manner impair the exercise of any such right accruing to it
thereafter.
Section
7.9 Headings.
The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose
and
shall not be deemed to limit or affect any of the provisions
hereof.
Section
7.10 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
Section
7.11 No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section
7.12 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts
of
law principles which would result in the application of the substantive law
of
another jurisdiction. This Agreement shall not be interpreted or construed
with
any presumption against the party causing this Agreement to be
drafted.
Section
7.13 Survival.
The
representations and warranties of the Company and the Purchaser shall survive
the execution and delivery hereof and the Closing hereunder for a period of
two
years following the Closing Date.
Section
7.14 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or
on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
Section
7.15 Publicity.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchaser without the consent of the Purchaser
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section
7.16 Severability.
The
provisions of this Agreement and the Transaction Documents are severable and,
in
the event that any court of competent jurisdiction shall determine that any
one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or
part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.
33
Section
7.17 Further
Assurances.
From
and after the date of this Agreement, upon the request of any Purchaser or
the
Company, each of the Company and the Purchaser shall execute and deliver such
instrument, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Preferred Shares, the Conversion Shares, the
Warrants, the Warrant Shares, the Series A Certificate of Designation, the
Registration Rights Agreement and the other Transaction Documents.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
34
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.
By:
|
/s/
Xxxx Xxxx
|
Name:
|
Xxxx
Xxxx
|
Title:
|
Chief
Executive Officer
|
PURCHASER
|
|
BLUE
RIDGE INVESTMENTS, LLC
|
|
By:
|
/s/
Xxxx Xxxxxxxxxx
|
Name:
|
Xxxx
Xxxxxxxxxx
|
Title:
|
Vice
President
|
ACKNOWLEDGED
AND AGREED FOR PURPOSES OF SECTION 3.25
|
|
LONG
SUNNY LIMITED
|
|
By:
|
/s/
Xxxx Xxxx
|
Name:
|
Xxxx
Xxxx
|
Title:
|
Chief
Executive Officer
|
35
EXHIBIT
A TO THE
LIST
OF PURCHASER
Purchaser and Address
|
Investment
|
Units
Purchased
|
Shares of
Preferred Stock
|
Series A
Warrants
|
|||||||||
Hare &
Co., as custodian for Blue Ridge Investments, LLC
Attn:
Xxxx Xxxxxxxxxx
000
X. Xxxxx Xxxxxx
Xxxxxxxxx,
XX 00000
Mailcode:
NC1-027-14-01
|
$
|
5,000,000
|
1,971,842
|
1,971,842
|
2,366,211
|
36
EXHIBIT
B TO THE
SERIES
A CERTIFICATE OF DESIGNATION
Incorporated
by reference to our Form 8-K/A filed with the SEC on June 23,
2008.
37
EXHIBIT
C TO THE
FORM
OF SERIES A WARRANT
Please
refer to Exhibit 4.1 of this 8-K.
38
EXHIBIT
D TO THE
FORM
OF REGISTRATION RIGHTS AGREEMENT
Please
refer to Exhibit 4.5 of this 8-K.
39
EXHIBIT
E TO THE
LOCK-UP
AGREEMENTS
Incorporated
by reference to our Form 8-K/A filed with the SEC on June 23,
2008.
40
EXHIBIT
F TO THE
FORM
OF SECURITIES ESCROW AGREEMENT
Please
refer to Exhibit 10.1 of this 8-K.
41
EXHIBIT
G TO THE
SECURITIES
PURCHASE AGREEMENT
FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
as
of
____________, 2008
[Name
and address of Transfer Agent]
Attn:
_____________
Ladies
and Gentlemen:
Reference
is made to that certain Securities Purchase Agreement (the “Purchase
Agreement”),
dated
as of July 18, 2008, by and among by and among Southern Sauce Company, Inc.,
a
Florida corporation (the “Company”),
and
the Purchaser of Units whose name is set forth on Exhibit
A
hereto
(the “Purchaser”).
pursuant to which the Company is issuing to the Purchaser shares of its Series
A
Convertible Preferred Stock, par value $0.001 per share, (the “Preferred
Shares”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”).
This
letter shall serve as our irrevocable authorization and direction to you
provided that you are the transfer agent of the Company at such time) to issue
shares of Common Stock upon conversion of the Preferred Shares (the
“Conversion
Shares”)
and
exercise of the Warrants (the “Warrant
Shares”)
to or
upon the order of a Purchaser from time to time upon (i) surrender to you
of a properly completed and duly executed Conversion Notice or Exercise Notice,
as the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, (ii) in the case of the conversion of Preferred Shares, a
copy of the certificates (with the original certificates delivered to the
Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the
case
of their loss, theft or destruction), and (iii) delivery of a treasury
order or other appropriate order duly executed by a duly authorized officer
of
the Company. So long as you have previously received (x) written confirmation
from counsel to the Company that a registration statement covering resales
of
the Conversion Shares or Warrant Shares, as applicable, has been declared
effective by the Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”),
and
no subsequent notice by the Company or its counsel of the suspension or
termination of its effectiveness and (y) a copy of such registration statement,
and if the Purchaser represents in writing that the Conversion Shares or the
Warrant Shares, as the case may be, were sold pursuant to the Registration
Statement, then certificates representing the Conversion Shares and the Warrant
Shares, as the case may be, shall not bear any legend restricting transfer
of
the Conversion Shares and the Warrant Shares, as the case may be, thereby and
should not be subject to any stop-transfer restriction. Provided, however,
that
if you have not previously received those items and representations listed
above, then the certificates for the Conversion Shares and the Warrant Shares
shall bear the following legend:
42
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR
THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF
SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE
SECURITIES LAWS IS NOT REQUIRED.”
and,
provided, further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares and
the
Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then
current.
A
form of
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been
declared effective by the SEC under the 1933 Act is attached hereto as Exhibit
III.
Please
be
advised that the Purchaser is relying upon this letter as an inducement to
enter
into the Purchase Agreement and, accordingly, the Purchaser is a third party
beneficiary to these instructions.
Please
execute this letter in the space indicated to acknowledge your agreement to
act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at ___________.
Very
truly yours,
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[__________________________________________________________]
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By:
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Name:
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Title:
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43
ACKNOWLEDGED
AND AGREED:
|
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[TRANSFER
AGENT]
|
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By:
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Name:
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Title:
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Date:
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44
EXHIBIT
I
CONVERSION NOTICE
Reference
is made to the Series A Certificate of Designation of the Relative Rights and
Preferences of the Series A Convertible Preferred Stock of Southern Sauce
Company, Inc. (the “Series A Certificate of Designation”). In accordance with
and pursuant to the Series A Certificate of Designation, the undersigned hereby
elects to convert the number of shares of Series A Convertible Preferred Stock,
par value $________ per share (the “Preferred Shares”) of Southern Sauce
Company, Inc., a Florida corporation (the “Company”), indicated below into
shares of Common Stock, par value $_________ per share (the “Common Stock”), of
the Company, by tendering the stock certificate(s) representing the share(s)
of
Preferred Shares specified below as of the date specified below.
Date
of
Conversion: ______________________________________
Number
of
Preferred Shares to be converted: _________
Stock
certificate no(s). of Preferred Shares to be converted: _______
The
Common Stock have been sold pursuant to the Registration Statement (as defined
in the Registration Rights Agreement): YES _______ NO______
Please
confirm the following information:
Conversion
Price: _______________________________________
Number
of
shares of Common Stock
to
be
issued: _______________________________________
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _____________________
Please
issue the Common Stock into which the Preferred Shares are being converted
and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue
to: _________________________________
_________________________________
Facsimile
Number: ___________________________________
45
Authorization:
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By:
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Title:
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Dated:
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46
EXHIBIT
II
FORM
OF EXERCISE NOTICE
EXERCISE
FORM
The
undersigned____________, pursuant to the provisions of the within Warrant,
hereby elects to purchase ______ shares of Common Stock of
______________________________________ covered by the within
Warrant.
Dated:
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Signature
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Address
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||
Number
of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _______________________
ASSIGNMENT
FOR
VALUE
RECEIVED, ________________ hereby sells, assigns and transfers unto
_______________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint ______________, attorney, to transfer the
said Warrant on the books of the within named corporation.
Dated:
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Signature
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|
Address
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||
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED, ________________ hereby sells, assigns and transfers unto
_______________ the right to purchase ___________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint __________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.
Dated:
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Signature
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Address
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||
47
FOR
USE
BY THE ISSUER ONLY:
This
Warrant No. W-_________ canceled (or transferred or exchanged) this _______
day
of __________, _______, shares of Common Stock issued therefor in the name
of
_______________, Warrant No. W-______ issued for _______ shares of Common Stock
in the name of ________________.
48
EXHIBIT
III
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[Name
and address of Transfer Agent]
Attn:
_________
Re:
[__________________________________]
Ladies
and Gentlemen:
We
are
counsel to Southern Sauce Company, Inc., a Florida corporation (the
“Company”),
and
have represented the Company in connection with that certain Securities Purchase
Agreement (the “Purchase
Agreement”),
dated
as of July 18, 2008, by and among the Company and the Purchaser named therein
(the “Purchaser”)
pursuant to which the Company issued to the Purchaser shares of its Series
A
Convertible Preferred Stock, par value $0.001 per share, (the “Preferred
Shares”)
and
warrants (the “Warrants”)
to
purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”).
Pursuant to the Purchase Agreement, the Company has also entered into a
Registration Rights Agreement with the Purchaser (the “Registration
Rights Agreement”),
dated
as of July 18, 2008, pursuant to which the Company agreed, among other things,
to register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of
the
Preferred Shares and exercise of the Warrants, under the Securities Act of
1933,
as amended (the “1933
Act”).
In
connection with the Company’s obligations under the Registration Rights
Agreement, on [ ], 2008, the Company filed a Registration Statement on Form
S-1
(File No. 333-________) (the “Registration
Statement”)
with
the Securities and Exchange Commission (the “SEC”)
relating to the resale of the Registrable Securities which names the present
Purchaser as a selling stockholder thereunder.
In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and we
have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and
accordingly, the Registrable Securities are available for resale under the
1933
Act pursuant to the Registration Statement.
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
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By:
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cc:
[LIST
NAMES OF PURCHASER]
49
EXHIBIT
H TO THE
SECURITIES
PURCHASE AGREEMENT
FORM
OF OPINION OF COUNSEL
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Florida and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on
its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary.
2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
and
validly authorized by all necessary corporate action and no further consent
or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants
are
not subject to any preemptive rights under the Articles or the
Bylaws.
3. The
Preferred Stock and the Warrants have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Stock, have been duly authorized and reserved for
issuance, and, when delivered upon conversion or against payment in full as
provided in the Series A Certificate of Designation will be validly issued,
fully paid and nonassessable.
4. The
execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Preferred Stock, the Warrants
and
the Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants do not (i) violate any provision of the Articles or Bylaws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights
of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or impose
a lien, charge or encumbrance on any property of the Company under any agreement
or any commitment to which the Company is a party or by which the Company is
bound or by which any of its respective properties or assets are bound, or
(iv)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment, injunction or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
50
5. No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required under federal,
state or local law, rule or regulation in connection with the valid execution
and delivery of the Transaction Documents, or the offer, sale or issuance of
the
Preferred Stock, the Warrants or the Common Stock issuable upon conversion
of
the Preferred Stock and exercise of the Warrants other than the Series A
Certificate of Designation and the Registration Statement.
6. To
our
knowledge, there is no action, suit, claim, investigation or proceeding pending
or threatened against the Company which questions the validity of this Agreement
or the transactions contemplated hereby or any action taken or to be taken
pursuant hereto or thereto. To our knowledge, there is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against
or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or
any
officers or directors of the Company in their capacities as such.
7. Based
upon the representations of the Purchaser, the offer, issuance and sale of
the
Preferred Stock and the Warrants and the offer, issuance and sale of the shares
of Common Stock issuable upon conversion of the Preferred Stock and exercise
of
the Warrants pursuant to the Purchase Agreement, the Series A Certificate of
Designation and the Warrants, as applicable, are exempt from the registration
requirements of the Securities Act.
8. The
Company is not, and as a result of and immediately upon Closing will not be,
an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
Very
truly yours,
51