AMENDED AND RESTATED INVESTOR
RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS
AGREEMENT (this “ Agreement ”) is made
and entered into as of June 4, 2008, by and among (i) (a) Fushi
International, Inc., a Nevada corporation (the “
Company ”), Fushi Holdings, Inc., a Delaware
corporation (“ FHI ”), Dalian Fushi
Bimetallic Manufacturing Company Limited, a limited liability
company organized and existing under the laws of the PRC (
“ Dalian Fushi ”), Fushi International
(Dalian) Bimetallic Cable Co., Ltd., a wholly foreign-owned limited
liability company organized and existing under the laws of the PRC
(the “ WFOE ”, and, together with the
Company, FHI and Dalian Fushi, the “ Group
Companies ”) ; (b) Mr. Fu Li (the “
Controlling Shareholder ”), a resident of Dalian,
Liaoning Province in the People’s Republic of China (the
“ PRC ”) ; and (c) Mr. Fu Li and Mr.
Chris Wang Wenbing, a resident of Dalian, Liaoning Province in the
PRC (together with Mr. Fu Li, the “ Senior
Management ”) and (ii) Citadel Equity Fund Ltd.
(“Citadel”). Capitalized terms used herein but
not otherwise defined herein shall have the respective meanings set
forth in the Notes Purchase Agreement (as defined
below).
WITNESSETH:
WHEREAS, the Group Companies and Citadel have
entered into that certain Notes Purchase Agreement dated as of
January 24, 2007 (the “ Notes Purchase Agreement
”) , pursuant to which the Company has agreed to issue to
Citadel, and Citadel has agreed to purchase from the Company,
US$40,000,000 Guaranteed Senior Secured Floating Rate Notes due
2012 (the “ HY Notes ”) and US$20,000,000
3.0% Guaranteed Senior Secured Convertible Notes due 2012 (the
“ Convertible Notes ”, and together with
the HY Notes, the “Notes”) , which
are convertible into the Company’s common stock, par value
$.006 (the “ Common Stock ” , and,
together with the Notes, the “ Securities
”) ;
WHEREAS, in consideration of Citadel entering
into the Notes Purchase Agreement, the Company has agreed to
provide certain rights set forth in the Investor Rights Agreement
dated as of the January 25, 2007 (the “ Original
Agreement ”) and
WHEREAS, the parties to the Original Agreement
desire to amend and restate the Original Agreement in its entirety
pursuant to the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound by this agreement, agree to amend and
restate the Original Agreement in its entirety to read as
follows:
1. Representations and Warranties of the
Group Companies, the Controlling Shareholder and the Senior
Management . Each of the Group Companies, the Controlling
Shareholder and the Senior Management, jointly and severally,
represents and warrants that:
1.1. (i) The Controlling Shareholder is the
beneficial owner, free and clear of all Liens, of 11,988,242 shares
of Common Stock (of record or through a brokerage firm or other
nominee arrangement), which constitutes 43.67% of the outstanding
voting power of the Company’s capital stock and (ii) Mr.
Chris Wang Wenbing is the beneficial owner, free and clear of all
Liens, of 200,000 shares of Common Stock (of record or through a
brokerage firm or other nominee arrangement), which constitutes
0.73% of the outstanding voting power of the Company’s
capital stock. The Controlling Shareholder is the beneficial owner,
free and clear of all Liens, of an aggregate of 87.73% of the
equity interests of Dalian Fushi.
1.2. Each of the Group Companies, the
Controlling Shareholder and each member of the Senior Management
(each of the foregoing, a “ Warrantor ”)
has full power and authority to make, enter into and carry out the
terms of this Agreement. This Agreement has been duly executed and
delivered by each Warrantor and constitutes the legal, valid and
binding obligations of such Warrantor enforceable against such
Warrantor in accordance with its terms.
1.3. The execution and delivery of this
Agreement by each Warrantor do not, and the performance of this
Agreement by such Warrantor will not: (i) conflict with or violate
any law, rule regulation, order, decree or judgment applicable to
any Warrantor or by which any Warrantor or any of the properties of
any Warrantor is or may be bound or affected, or the Charter
Documents of any Group Company; (ii) result in or constitute (with
or without notice or lapse of time) any breach of or default under
any contract to which any Warrantor is a party or by which any
Warrantor or any of the affiliates or properties of any Warrantor
is or may be bound or affected, or (iii) result in the creation of
any encumbrance or restriction on any of the shares of Common Stock
or equity interests in any other Group Company or properties of any
Warrantor. The execution and delivery of this Agreement by each
Warrantor do not, and the performance of this Agreement by each
Warrantor will not, require any consent or approval of any
Person.
1.4. Each of the Group Companies (i) has been
duly organized, is validly existing and is in good standing under
the laws of its jurisdiction of organization, (ii) has all
requisite power and authority to carry on its business and to own,
lease and operate its properties and assets, and (iii) is duly
qualified or licensed to do business and is in good standing as a
foreign corporation or limited liability company, as the case may
be, authorized to do business in each jurisdiction in which the
nature of such business or the ownership or leasing of such
properties requires such qualification, except where the failure to
be so qualified would not, individually or in the aggregate, have a
material adverse effect on (A) the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial
or otherwise) of the Group Companies, taken as a whole, (B) the
ability of the Group Companies to perform their respective
obligations under any Document or (C) the validity of any of the
Documents or the consummation of any of the transactions
contemplated therein (each, a “ Material Adverse
Effect ”) .
1.5. Except as set forth on Schedule 1.5
of the Disclosure Schedule, there are no outstanding (A) options,
warrants or other rights to purchase from any Group Company, (B)
agreements, contracts, arrangements or other obligations of any
Group Company to issue, or (C) other rights to convert any
obligation into or exchange any securities for, in the case of each
of clauses (A) through (C), shares of capital stock of or other
ownership or equity interests in, any Group Company. Except as
otherwise contemplated by that certain voting agreement set forth
in this Agreement, the Company is not a party or subject to any
agreement or understanding, and, to the Company’s knowledge
after due inquiry, there is no agreement or understanding with any
Person that affects or relates to (i) the voting or giving of
written consents with respect to any security of the Company
(including, without limitation, any voting agreements, voting trust
agreements, shareholder agreements or similar agreements) or the
voting by a director of the Company or (ii) the sale, transfer or
other disposition with respect to any security of the
Company.
1.6. Each of the HY Notes and the Convertible
Notes, when issued, sold and delivered in accordance with the terms
thereof and for the consideration set forth herein, will be free of
restrictions on transfer, other than restrictions on transfer under
applicable state and federal securities laws. Assuming the accuracy
of the Purchaser’s representations in Section 6 of the Notes
Purchase Agreement, the Notes will be issued in compliance with
applicable state and federal securities laws. The HY Notes, when
issued, will be in the form contemplated by the HY Note Indenture,
and the Convertible Notes, when issued, will be in the form
contemplated by the Convertible Note Indenture. Each of the HY
Notes and the Convertible Notes has been duly authorized by the
Company and, when executed and delivered by the Company,
authenticated by the Trustee and delivered to the Purchaser in
accordance with the terms of the Notes Purchase Agreement and its
respective Indenture, such Notes will have been duly executed,
issued and delivered by the Company and will constitute legal,
valid and binding obligations of the Company, entitled to the
benefits of its respective Indenture, and enforceable against the
Company in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of
creditors’ rights generally. The Guarantees have been duly
authorized, and, when the Notes have been duly executed,
authenticated and issued in accordance with the provisions of its
respective Indenture and delivered to and paid for by the Purchaser
with the Guarantee endorsed thereon by the Guarantor, will
constitute the legal, valid and binding obligations of the
Guarantor entitled to the benefits of such Indenture.
1.7. The Conversion Shares have been duly and
validly authorized for issuance by the Company, and when issued
pursuant to the terms of the Convertible Note Indenture, will be
validly issued, fully paid and non-assessable, not subject to any
preemptive or similar rights, free from all taxes, Liens, charges
and security interests with respect to the issuance thereof and
free of restrictions on transfer other than as expressly
contemplated by the Documents.
1.8. Except as disclosed in the SEC Reports,
there is no action, claim, suit, demand, hearing, notice of
violation or deficiency, or proceeding, domestic or foreign
(collectively, “ Proceedings ” ), pending
or, to the knowledge of the Company, threatened, that seeks to
restrain, enjoin, prevent the consummation of, or otherwise
challenges any of the Documents, any Restructuring Agreement
(considered alone or with other Restructuring Agreements) or any of
the transactions contemplated therein. Except as disclosed in the
SEC Reports, none of the Group Companies is subject to any
judgment, order or decree of which the Company has
knowledge.
1.9. Each of the Group Companies has good and
marketable title to all real property and personal property owned
by it, in each case free and clear of any Liens as of the Closing
Date, except such Liens as permitted under the Documents. For the
real property not owned by any of the Group Companies and currently
used or planned to be used for the business operations of the Group
Companies, each of such Group Companies has good and marketable
title to all leasehold estates in real and personal property being
leased by it and, in each case free and clear of all Liens as of
the Closing Date.
1.10. All Indebtedness represented by the Notes
and the Guarantees is being incurred for proper purposes and in
good faith. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company
of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the Group Companies’ assets exceeds
the amount that will be required to be paid on or in respect of the
Group Companies’ existing debts and other liabilities
(including contingent liabilities) as they mature; (ii) the present
fair saleable value of the assets of the Group Companies is greater
than the amount that will be required to pay the probable
liabilities of the Group Companies on their respective debt as they
become absolute and mature, and (iii) the Group Companies are able
to realize upon their assets and pay their debt and other
liabilities (including contingent obligations) as they mature; (iv)
the Group Companies’ assets do not constitute unreasonably
small capital to carry on their respective businesses as now
conducted and as proposed to be conducted including their
respective capital needs taking into account the particular capital
requirements of the business conducted by the Group Companies, and
projected capital requirements and capital availability thereof;
and (v) the current cash flow of each of the Group Companies,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its liabilities when such amounts are
required to be paid. None of the Group Companies intends to incur
debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in
respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it or any other Group
Company will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. For the purposes of this Agreement,
“ Indebtedness ” shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $75,000
(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 $75,000 due under
leases required to be capitalized in accordance with GAAP. None of
the Group Companies is, or is reasonably likely to be, in default
with respect to any Indebtedness and no waiver of default is
currently in effect. None of the Group Companies has agreed or
consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or
hereafter acquired, to be subject to a Lien. None of the Group
Companies is a party to, or otherwise subject to any provision
contained in, any instrument evidencing Indebtedness of any of the
Group Companies, any agreement relating thereto or any other
agreement (including, but not limited to, its Charter Document)
which limits the amount of, or otherwise imposes restrictions on
the incurring of, Indebtedness of the Company.
2. Covenants and Agreements.
Unless the context requires otherwise, each
Group Company hereby covenants and agrees as follows:
2.1. FCPA. Each Group Company and the
Controlling Shareholder shall, and shall cause each Group Company,
any of the Company’s Subsidiaries and their respective
management to, (i) comply with the U.S. Foreign Corrupt Practices
Act of 1977, as amended, and the rules and regulations thereunder
(the “ FCPA ” ), including, without
limitation, not making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of
an offer, payment, promise to pay or authorization of the payment
of any money, or other property, gift, promise to give, or
authorization of the giving of value to any “foreign
official” (as the term is defined in the FCPA) or any foreign
political party or official thereof or any candidate for foreign
political office, in contravention of the FCPA, (ii) conduct each
such company’s respective business in compliance with the
FCPA, and (iii) institute and maintain policies and procedures
designed to ensure, and which are reasonably expected to continue
to ensure, continued compliance therewith.
2.2. PFIC. No Group Company shall, and
the Controlling Shareholder shall cause each Group Company not to,
become a “passive foreign investment company” within
the meaning of Section 1297 of the U.S. Internal Revenue Code of
1986.
2.3. OFAC. Neither any Group Company nor,
to the knowledge of any Group Company, any director, officer,
agent, employee, Affiliate or Person acting on behalf of any Group
Company is currently subject to any U.S. sanctions administered by
the Office of Foreign Assets Control of the U.S. Treasury
Department ( “ OFAC ” ); and no Group
Company shall, and the Controlling Shareholder shall cause each
Group Company not to, directly or indirectly use the proceeds of
the sale of the Notes, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture
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