SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this
“
Agreement ”),
is dated as of September 12, 2007, by and among Franklin Towers
Enterprises Inc., a Nevada corporation
(the
“
Company ”),
and the subscribers identified on the signature page hereto (each a
“
Subscriber ”
and collectively “
Subscribers ”).
WHEREAS ,
the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities
registration afforded by the provisions of Section 4(2), Section
4(6) and/or 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 “
1933 Act ”);
and
WHEREAS ,
the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to
the Subscribers, as provided herein, and the Subscribers, in the
aggregate, shall purchase up to $5,000,000 (the "
Purchase Price ")
of principal amount of promissory notes of the Company
(“
Note ”
or “
Notes ”),
a form of which is annexed hereto as
Exhibit A ,
convertible into shares of the Company's Common Stock, $0.0001 par
value (the "
Common Stock ")
at a per share conversion price set forth in the Note
(“
Conversion Price ”);
and share purchase warrants (the “
Warrants ”),
in the form annexed hereto as
Exhibit B ,
to purchase shares of Common Stock (the “
Warrant Shares ”).
The Notes, shares of Common Stock issuable upon conversion of the
Notes (the “
Shares ”),
the Warrants and the Warrant Shares are collectively referred to
herein as the "
Securities ";
and
WHEREAS ,
the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms
of a Funds Escrow Agreement to be executed by the parties
substantially in the form attached hereto as
Exhibit C (the
“
Escrow Agreement ”).
NOW, THEREFORE ,
in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby
agree as follows:
1.
"
Closing Date .
Subject to the satisfaction or waiver of the terms and conditions
of this Agreement, on the Closing Date, Subscriber shall purchase
and the Company shall sell to Subscribers Notes in the aggregate
principal amount of $2,500,000 of Purchase Price (“
First Closing Date ”)
designated on the signature page hereto for the purchase price set
forth on the signature page hereto. The consummation of the
transactions contemplated herein shall take place at the offices of
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New
York, New York 10176, as soon as practicable following the
satisfaction or waiver of all conditions to closing set forth in
this Agreement (the “
Closing Date ”).
The Company shall have up to ten (10) additional days after the
first Closing to close on the balance of the Closing Purchase Price
in one or more closings. The Notes and Warrants to be issued on the
additional closing dates will have the same Maturity Dates and
exercise periods, respectively, as the Notes and Warrants issued on
the First Closing Date. The first such Closing Date shall be the
Closing Date for all amounts representing the Closing Purchase
Price."
2.
Warrants .
On the Closing Date, the Company will issue and deliver Warrants to
the Subscribers. One Class A and one Class B Warrant will be issued
for each Share which would be issued on the Closing Date assuming
the complete conversion of the Notes issued on the Closing Date at
the Conversion Price in effect on the Closing Date. The per Warrant
Share exercise price to acquire a Warrant Share upon exercise of a
Class A Warrant shall be equal to $0.50. The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of a Class
B Warrant shall be equal to $1.00. The Class A and Class B Warrants
shall be exercisable until five (5) years after the Actual
Effective Date (as defined in Section 11.1(iv) of this
Agreement).
3.
Security Interest .
The Subscribers will be granted a security interest in the assets
of the Company including ownership of the Subsidiaries (as defined
in Section 5(a) of this Agreement), which security interest
will be memorialized in one or more “
Security
Agreements ,”
a form of which is annexed hereto as
Exhibit D .
The Company will also execute all such documents reasonably
necessary in the opinion of Subscriber to memorialize and further
protect the security interest described herein. The Subscribers
will appoint a Collateral Agent to represent them collectively in
connection with the security interest to be granted to the
Subscribers. The appointment will be pursuant to a “
Collateral Agent Agreement ,”
a form of which is annexed hereto as
Exhibit E .
Xinshengxiang Industrial Development Co., Ltd., the holder of
17,100,000 shares of Common Stock, and Dingliang
Kuang, the majority owner of the Subsidiary and its manager, will
pledge all of the Common Stock of the Company owned by him as
additional security for the Company’s obligations to the
Subscribers. The pledge will be memorialized in a
Stock Pledge Agreement ,
a form of which is annexed hereto as
Exhibit F .
4.
Subscriber's Representations and Warranties .
Each Subscriber hereby represents and warrants to and agrees with
the Company only as to such Subscriber that:
(a)
Organization and Standing of the Subscribers
. If the Subscriber is an entity, such Subscriber is a corporation,
partnership or other entity 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 .
Each Subscriber has the requisite power and authority to enter into
and perform this Agreement and to purchase the Notes and Warrants
being sold to it hereunder. The execution, delivery and performance
of this Agreement by such Subscriber 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 such Subscriber or its Board of
Directors, stockholders, partners, members, as the case may be, is
required. This Agreement has been duly authorized, executed and
delivered by Subscriber and constitutes, or shall constitute when
executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with
the terms thereof.
(c)
No Conflicts .
The execution, delivery and performance of this Agreement and the
consummation by such Subscriber of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a
violation of such Subscriber’s charter documents or bylaws 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 such
Subscriber 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 such Subscriber or its properties (except for such
conflicts, defaults and violations as would not, individually or in
the aggregate, have a material adverse effect on such Subscriber).
Such Subscriber 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
to purchase the Securities in accordance with the terms hereof,
provided that for purposes of the representation made in this
sentence, such Subscriber is assuming and relying upon the accuracy
of the relevant representations and agreements of the Company
herein.
(
d)
Information on Company .
The Subscriber has been furnished with or has had access at the
EDGAR Website of the Commission to the Company's Form 10-KSB filed
on March 26, 2007 for the fiscal year ended December 31, 2006, and
the financial statements included therein for the year ended
December 31, 2006, together with all subsequent filings made with
the Commission available at the EDGAR website (hereinafter referred
to collectively as the "
Reports ").
In addition, the Subscriber may have received in writing from the
Company such other information concerning its operations, financial
condition and other matters as the Subscriber has requested in
writing, identified thereon as OTHER WRITTEN INFORMATION (such
other information is collectively, the "
Other Written Information "),
and considered all factors the Subscriber deems material in
deciding on the advisability of investing in the
Securities.
(e)
Information on Subscriber .
The Subscriber is, and will be at the time of the conversion of the
Notes and exercise of the Warrants, an "
accredited investor ",
as such term is defined in Regulation D promulgated by the
Commission under the 1933 Act, is experienced in investments and
business matters, has made investments of a speculative nature and
has purchased securities of United States publicly-owned companies
in private placements in the past and, with its representatives,
has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the
information made available by the Company to evaluate the merits
and risks of and to make an informed investment decision with
respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities. The
Subscriber is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof. The
information set forth on the signature page hereto regarding the
Subscriber is accurate.
(f)
Purchase of Notes and Warrants .
On the Closing Date, the Subscriber will purchase the Notes and
Warrants as principal for its own account for investment only and
not with a view toward, or for resale in connection with, the
public sale or any distribution thereof.
(g)
Compliance with Securities Act .
The
Subscriber understands and agrees that the Securities have not been
registered under the 1933 Act or any applicable state securities
laws, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held
indefinitely unless a subsequent disposition is registered under
the 1933 Act or any applicable state securities laws or is exempt
from such registration. The
Subscribers will comply with all applicable rules and regulations
in connection with the sales of the securities including laws
relating to short sales.
(h)
Shares Legend .
The Shares, and the Warrant Shares shall bear the following or
similar legend:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO [THE COMPANY] THAT SUCH REGISTRATION IS NOT
REQUIRED."
(i)
Warrants Legend .
The Warrants shall bear the following or
similar legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR
ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO [ THE
COMPANY] THAT
SUCH REGISTRATION IS NOT REQUIRED."
(j)
Note Legend .
The Note shall bear the following legend:
"THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO [
THE
COMPANY] THAT
SUCH REGISTRATION IS NOT REQUIRED."
(k)
Communication of Offer .
The offer to sell the Securities was directly communicated to the
Subscriber by the Company. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article,
radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such
communicated offer.
(
l
)
Authority; Enforceability .
This Agreement and other agreements delivered together with this
Agreement or in connection herewith have been duly authorized,
executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors’ rights generally and to general
principles of equity; and Subscriber has full power and authority
necessary to enter into this Agreement and such other agreements
and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating
hereto.
(
m
)
Restricted Securities .
Subscriber understands that the Securities have not been registered
under the 1933 Act and such Subscriber will not sell, offer to
sell, assign, pledge, hypothecate or otherwise transfer any of the
Securities unless pursuant to an effective registration statement
under the 1933 Act, or unless an exemption from registration is
available. Notwithstanding anything to the contrary contained in
this Agreement, such Subscriber may transfer (without restriction
and without the need for an opinion of counsel) the Securities to
its Affiliates (as defined below) provided that each such Affiliate
is an “accredited investor” under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this
Agreement. For the purposes of this Agreement, an “
Affiliate ”
of any person or entity means any other person or entity directly
or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate
includes each subsidiary of the Company. For purposes of this
definition, “
control ”
means the power to direct the management and policies of such
person or firm, directly or indirectly, whether through the
ownership of voting securities, by contract or
otherwise.
(
n
)
No Governmental Review .
Each Subscriber understands that no United States federal or state
agency or any other governmental or state agency has passed on or
made recommendations or endorsement of the Securities or the
suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of
the Securities.
(o)
Correctness of Representations .
Each Subscriber represents as to such Subscriber that the foregoing
representations and warranties are true and correct as of the date
hereof and, unless a Subscriber otherwise notifies the Company
prior to the Closing Date shall be true and correct as of the
Closing Date.
(p)
Survival .
The foregoing representations and warranties shall survive the
Closing Date for a period of three years.
5.
Company Representations and Warranties .
The Company represents and warrants to and agrees with each
Subscriber that:
(a)
Due Incorporation .
The Company is a corporation or other entity duly incorporated or
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization and has the
requisite corporate power to own its properties 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 each jurisdiction where
the nature of the business conducted or property owned by it makes
such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a Material Adverse
Effect. For purposes of this Agreement, a “
Material Adverse Effect ”
shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Company and
its Subsidiaries taken as a whole. For purposes of this Agreement,
“
Subsidiary ”
means, with respect to any entity at any date, any corporation,
limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity of
which more than 30% of (i) the outstanding capital stock
having (in the absence of contingencies) ordinary voting power to
elect a majority of the board of directors or other managing body
of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such
partnership or limited liability company or (iii) in the case
of a trust, estate, association, joint venture or other entity, the
beneficial interest in such trust, estate, association or other
entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more
intermediaries, by such entity. The Company’s Subsidiaries as
of the Closing Date are set forth on
Schedule 5(a) .
(b)
Outstanding Stock .
All issued and outstanding shares of capital stock of the Company
and Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable.
(c)
Authority; Enforceability .
This Agreement, the Note, the Warrants, the Security Agreements,
the Escrow Agreement, and any other agreements delivered together
with this Agreement or in connection herewith (collectively
“
Transaction Documents ”)
have been duly authorized, executed and delivered by the Company
and are valid and binding agreements of the Company enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full
corporate power and authority necessary to enter into and deliver
the Transaction Documents and to perform its obligations
thereunder.
(d)
Additional Issuances .
There
are no outstanding agreements or preemptive or similar rights
affecting the Company's Common Stock or equity and no outstanding
rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of Common Stock or
equity of the Company or Subsidiaries or other equity interest in
the Company except as described in the Reports or on
Schedule 5(d) .
The
Common Stock of the Company on a fully diluted basis outstanding as
of the last Business Day preceding the Closing Date is set forth
on
Schedule 5(d) .
(e)
Consents .
No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its Affiliates, the OTC Bulletin Board (the
“
Bulletin Board ”)
nor the Company's shareholders is required for the execution by the
Company of the Transaction Documents and compliance and performance
by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the
Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.
(f)
No Violation or Conflict .
Assuming the representations and warranties of the Subscribers in
Section 4 are true and correct, neither the issuance and sale of
the Securities nor the performance of the Company’s
obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company
will:
(i)
violate,
conflict with, result in a breach of, or constitute a default
(or an event which with the giving of notice or the lapse of
time or both would be reasonably likely to constitute a
default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty,
rule, regulation or determination applicable to the Company of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any
bond, debenture, note or any other evidence of indebtedness,
or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument
to which the Company or any of its Affiliates is a party, by
which the Company or any of its Affiliates is bound, or to
which any of the properties of the Company or any of its
Affiliates is subject, or (D) the terms of any "lock-up" or
similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates is a party except
the violation, conflict, breach, or default of which would not
have a Material Adverse Effect ;
or
(ii)
result
in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the
Company or any of its Affiliates except as described herein;
or
(iii)
except
as described in
Schedule 5(d) ,
result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor
or equity holder of the Company, nor result in the acceleration of
the due date of any obligation of the Company; or
(iv)
will
result in the triggering of any piggy-back registration rights
of any person or entity holding securities of the Company or
having the right to receive securities of the
Company.
(g)
The Securities .
The Securities upon issuance:
(i)
are,
or will be, free and clear of any security interests, liens,
claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state
securities laws;
(ii)
have
been, or will be, duly and validly authorized and on the date
of issuance of the Shares upon conversion of the Notes and the
Warrant Shares and upon exercise of the Warrants, the Shares
and Warrant Shares will be duly and validly issued, fully paid
and non-assessable and if registered pursuant to the 1933 Act
and resold pursuant to an effective registration statement
will be free trading and unrestricted;
(iii)
will
not have been issued or sold in violation of any preemptive or
other similar rights of the holders of any securities of the
Company;
(iv)
will
not subject the holders thereof to personal liability by
reason of being such holders; and
(v)
assuming
the representations warranties of the Subscribers as set forth
in Section 4 hereof are true and correct, will not result in a
violation of Section 5 under the 1933 Act.
(h)
Litigation .
There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its Affiliates that would
affect the execution by the Company or the performance by the
Company of its obligations under the Transaction Documents. Except
as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any
of its Affiliates which litigation if adversely determined would
have a Material Adverse Effect .
(i)
No Market Manipulation .
The Company and its Affiliates have not taken, and will not take,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities or affect the price
at which the Securities may be issued or resold.
(j)
Information Concerning Company .
The Reports and Other Written Information contain all material
information relating to the Company and its operations and
financial condition as of their respective dates which information
is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as
modified in the Other Written Information or in the Schedules
hereto, there has been no Material Adverse Event relating to the
Company's business, financial condition or affairs not disclosed in
the Reports. The Reports and Other Written Information do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, taken as a whole, not misleading in light
of the circumstances when made.
(k)
Stop Transfer .
The Company will not issue any stop transfer order or other order
impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such
instruction is given to the Subscriber.
(l)
Defaults .
The Company is not in violation of its articles of incorporation or
bylaws. The Company is (i) not in default under or in violation of
any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected,
which default or violation would have a Material Adverse
Effect ,
(ii) not in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order
of any court or governmental authority arising out of any action,
suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental
authority which violation would have a Material Adverse
Effect .
(m)
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 offer of the Securities
pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation,
under the rules and regulations of the Bulletin Board which would
impair the exemptions relied upon in this Offering or the
Company’s ability to timely comply with its obligations
hereunder. Nor will the Company nor any of its Affiliates take any
action or steps that would cause the offer or issuance of the
Securities to be integrated with other offerings which would impair
the exemptions relied upon in this Offering or the Company’s
ability to timely comply with its obligations hereunder. The
Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or
issuance of the Securities, which would impair the exemptions
relied upon in this Offering or the Company’s ability to
timely comply with its obligations hereunder.
(n)
No General Solicitation .
Neither the Company, nor any of its Affiliates, nor to its
knowledge, 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 1933 Act) in connection with the
offer or sale of the Securities.
(o)
No Undisclosed Liabilities .
The Company has no liabilities or obligations which are material,
individually or in the aggregate, which are not disclosed in the
Reports and Other Written Information, other than those incurred in
the ordinary course of the Company businesses since December 31,
2006 and which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect ,
except as disclosed in the Reports or on
Schedule 5(o) .
(p)
No Undisclosed Events or Circumstances .
Since December 31, 2006, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties,
operations or financial condition, that, under applicable law, rule
or regulation, requires public disclosure or announcement prior to
the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
(q)
Capitalization .
The authorized and outstanding capital stock of the Company and
Subsidiaries as of the date of this Agreement and the Closing Date
(not including the Securities) are set forth in the Reports or
on
Schedule 5(d) .
Except as set forth on
Schedule 5(d) ,
there
are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or
giving any right to subscribe for any shares of capital stock of
the Company or any of its Subsidiaries .
(r)
Dilution .
The Company's executive officers and directors understand the
nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on
the equity holdings of other holders of the Company’s equity
or rights to receive equity of the Company. The board of directors
of the Company has concluded, in its good faith business judgment
that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation
to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants, is binding upon the Company
and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company or
parties entitled to receive equity of the Company.
(s)
No Disagreements with Accountants and Lawyers.
There
are no material disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise between the Company
and the accountants and lawyers presently employed by the Company,
including but not limited to disputes or conflicts over payment
owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing
Date.
(t)
Investment Company .
Neither the Company nor any Affiliate of the Company is an
“investment company” within the meaning of the
Investment Company Act of 1940, as amended.
(u)
Foreign Corrupt Practices. Neither
the Company, nor to the knowledge of the Company, any agent or
other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or
domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any
foreign or domestic political parties or campaigns from corporate
funds, (iii) failed to disclose fully any contribution made by the
Company (or made by any person acting on its behalf of which the
Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
(v)
Reporting Company .
The Company is a publicly-held company subject to reporting
obligations pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended (the "
1934 Act ")
and has a class of Common Stock registered pursuant to Section
12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act,
the Company has timely filed all reports and other materials
required to be filed thereunder with the Commission during the
preceding twelve months.
(w)
Listing .
The Company's Common Stock is quoted on the Bulletin Board under
the symbol FRTW.OB. The Company has not received any oral or
written notice that its Common Stock is not eligible nor will
become ineligible for quotation on the Bulletin Board nor that its
Common Stock does not meet all requirements for the continuation of
such quotation. The Company satisfies all the requirements for the
continued quotation of its Common Stock on the Bulletin
Board.
(x)
DTC Status .
The Company’s transfer agent is a participant in and the
Common Stock is eligible for transfer pursuant to the Depository
Trust Company Automated Securities Transfer Program. The name,
address, telephone number, fax number, contact person and email
address of the Company transfer agent is set forth on
Schedule 5(x) hereto.
(y)
Solvency .
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 Notes hereunder, (i) the
Company’s fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the
current cash flow of the Company, 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 debt when
such amounts are required to be paid. The Company does not intend
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).
(z)
Company Predecessor and Subsidiaries .
The Company makes each of the representations contained in Sections
5(a), (b), (c), (d), (e), (f), (h), (j), (l), (o), (p), (q), (s),
(t), and (u) of this Agreement, as same relate to the Subsidiary of
the Company. All representations made by or relating to the Company
of a historical or prospective nature and all undertakings
described in Sections 9(g) through 9(l) shall relate, apply and
refer to the Company and its predecessors.
(AA)
Correctness of Representations .
The Company represents that the foregoing representations and
warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in
all material respects as of the Closing Date.
(BB)
Survival .
The foregoing representations and warranties shall survive the
Closing Date for a period of three years.
(CC)
Preferred Shares .
The Company will convert the Series A Convertible Preferred Shares
within thirty (30) days of Closing.
6.
Regulation D Offering/Legal Opinion .
The offer and issuance of the Securities to the Subscribers is
being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an
opinion reasonably acceptable to Subscriber from the Company's
legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested
by Subscribers. A form of the legal opinion is annexed hereto
as
Exhibit G .
The Company will provide, at the Company's expense, such other
legal opinions in the future as are reasonably necessary for the
issuance and resale of the Common Stock issuable upon conversion of
the Notes and exercise of the Warrants pursuant to an effective
registration statement, Rule 144 under the 1933 Act or an exemption
from registration.
7.1.
Conversion of Note .
(a)
Upon
the conversion of a Note or part thereof, the Company shall,
at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to
assure that the Company's transfer agent shall issue stock
certificates in the name of Subscriber (or its permitted
nominee) or such other persons as designated by Subscriber and
in such denominations to be specified at conversion
representing the number of shares of Common Stock issuable
upon such conversion. The Company warrants that no
instructions other than these instructions have been or will
be given to the transfer agent of the Company's Common Stock
and that the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction
from transfer legend. If and when the Subscriber sells the
Shares, assuming (i) the Registration Statement (as defined
below) is effective and the prospectus, as supplemented or
amended, contained therein is current and (ii) the Subscriber
or its agent confirms in writing to the transfer agent that
the Subscriber has complied with the prospectus delivery
requirements, the Company will reissue the Shares without
restrictive legend and the Shares will be free-trading, and
freely transferable. In the event that the Shares are sold in
a manner that complies with an exemption from registration,
the Company will promptly instruct its counsel to issue to the
transfer agent an opinion permitting removal of the legend
(indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or
for 90 days if pursuant to the other provisions of Rule 144 of
the 1933 Act).
(b)
Subscriber
will give notice of its decision to exercise its right to
convert the Note, interest, or part thereof by telecopying, or
otherwise delivering a completed Notice of Conversion (a form
of which is annexed as
Exhibit A to
the Note) to the Company via confirmed telecopier transmission or
otherwise pursuant to Section 13(a) of this Agreement. The
Subscriber will not be
required to surrender the Note until
the Note has been fully converted or satisfied. Each date on which
a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof by 6 PM (or if received by the Company
after 6 PM then the next business day) shall be deemed a
“
Conversion Date .”
The Company will itself or cause the Company’s transfer agent
to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within three (3)
business days after receipt by the Company of the Notice of
Conversion (such third day being the "
Delivery Date ").
In the event the Shares are electronically transferable, then
delivery of the Shares
must be
made by electronic transfer provided request for such electronic
transfer has been made by the Subscriber.
A Note representing the balance of the Note not so converted will
be provided by the Company to the Subscriber if requested by
Subscriber, provided the Subscriber delivers the
original Note to the Company. In the event that a Subscriber elects
not to surrender a Note for reissuance upon partial payment or
conversion of a Note, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under
the Note.
(c)
The
Company understands that a delay in the delivery of the Shares
in the form required pursuant to Section 7.1 hereof, or the
Mandatory Redemption Amount described in Section 7.2 hereof,
respectively later than the Delivery Date or the Mandatory
Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to the Subscriber for
late issuance of Shares in the form required pursuant to
Section 7.1 hereof upon Conversion of the Note in the amount
of $100 per business day after the Delivery Date for each
$10,000 of Note principal amount (and proportionately for
other amounts) being converted of the corresponding Shares
which are not timely delivered. The Company shall pay any
payments incurred under this Section in immediately available
funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery
of the Shares within seven (7) business days after the
Delivery Date or make payment within seven (7) business days
after the Mandatory Redemption Payment Date (as defined in
Section 7.2 below), the Subscriber will be entitled to revoke
all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery
of a notice to such effect to the Company whereupon the
Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such
notice, except that the liquidated damages described above
shall be payable through the date notice of revocation or
rescission is given to the Company.
(d)
The
Company agrees and acknowledges that despite the pendency of a
not yet effective Registration Statement which includes for
registration the Registrable Securities (as defined in Section
11.1(iv)), the Subscriber is permitted to and the Company will
issue to the Subscriber Shares upon conversion of the Note and
Warrant Shares upon exercise of the Warrants. Such Shares
will, if required by law, bear the legends described in
Section 4 above and if the requirements of Rule 144 under the
1933 Act are satisfied, be resalable thereunder.
7.2.
Mandatory Redemption at Subscriber’s Election
.
In the event (i) the Company is prohibited from issuing Shares,
(ii) upon the occurrence of any other Event of Default (as defined
in the Note or in this Agreement), that continues for more than
twenty (20) business days, (iii) a Change in Control (as defined
below), or (iv) of the liquidation, dissolution or winding up of
the Company, then at the Subscriber's election, the Company must
pay to the Subscriber ten (10) business days after request by the
Subscriber (“
Calculation Period ”),
a sum of money determined by multiplying up to the outstanding
principal amount of the Note designated by the Subscriber by 120%
("
Mandatory Redemption Payment ").
The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Shares otherwise deliverable or within ten
(10) business days after request, whichever is sooner ("
Mandatory Redemption Payment Date ").
Upon receipt of the Mandatory Redemption Payment, the corresponding
Note principal and interest will be deemed paid and no longer
outstanding. Liquidated damages calculated pursuant to Section
7.1(c) hereof, that have been paid or accrued for the ten day
period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory
Redemption Payment. For purposes of this Section 7.2,
“
Change in Control ”
shall mean (i) the Company no longer having a class of shares
publicly traded or listed on a Principal Market, (ii) the Company
becoming a Subsidiary of another entity (other than a corporation
formed by the Company for purposes of reincorporation in another
U.S. jurisdiction), (iii) a majority of the board of directors of
the Company as of the Closing Date no longer serving as directors
of the Company except due to natural causes and except due to the
appointment of Dingliang Kuang to the board, (iv) the sale, lease
or transfer of substantially all the assets of the Company or
Subsidiaries, (v) if the holders of the Company’s Common
Stock as of the Closing Date beneficially own at any time after the
Closing Date less than 40% of the Common Stock owned by them on the
Closing Date, or (vi) if the Chief Executive Officer of the
Company, as of the Closing Date, no longer serves as Chief
Executive Officer of the Company unless the new Chief Executive
Officer is Dingliang Kuang, who is currently the principal and
majority owner of the Subsidiary.
7.3.
Maximum Conversion .
The Subscriber shall not be entitled to convert on a Conversion
Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i)
the number of shares of Common Stock beneficially owned by the
Subscriber and its Affiliates on a Conversion Date, and (ii) the
number of shares of Common Stock issuable upon the conversion of
the Note with respect to which the determination of this provision
is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more
than 4.99% of the outstanding shares of Common Stock of the Company
on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to
aggregate conversions of only 4.99% and aggregate conversions by
the Subscriber may exceed 4.99%. The Subscriber may increase the
permitted beneficial ownership amount up to 9.99% upon and
effective after 61 days’ prior written notice to the Company.
Such Subscriber may allocate which of the equity of the Company
deemed beneficially owned by the Subscriber shall be included in
the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.
7.4.
Injunction
Posting of Bond .
In the event a Subscriber shall elect to convert a Note or part
thereof, the Company may not refuse conversion or exercise based on
any claim that such Subscriber or any one associated or affiliated
with such Subscriber has been engaged in any violation of law, or
for any other reason, unless, an injunction from a court, on
notice, restraining and or enjoining conversion of all or part of
such Note shall have been sought and obtained by the Company or at
the Company’s request or with the Company’s
assistance, and
the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and
interest of the Note, or aggregate purchase price of the Shares
which are sought to be subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such
Subscriber to the extent Subscriber obtains judgment in
Subscriber’s favor.
7.5.
Buy-In .
In addition to any other rights available to the Subscriber, if the
Company fails to deliver to the Subscriber such shares issuable
upon conversion of a Note by the Delivery Date and if after seven
(7) business days after the Delivery Date the Subscriber or a
broker on the Subscriber’s behalf purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Subscriber of the Common Stock
which the Subscriber was entitled to receive upon such conversion
(a "
Buy-In "),
then the Company shall pay in cash to the Subscriber (in addition
to any remedies available to or elected by the Subscriber) the
amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note for which such conversion was not
timely honored together
with interest thereon at a rate of 15% per annum, accruing until
such amount and any accrued interest thereon is paid in full (which
amount shall be paid as liquidated damages and not as a
penalty. For
example, if the Subscriber purchases shares of Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or
interest, the Company shall be required to pay the Subscriber
$1,000 plus interest. The Subscriber shall provide the Company
written notice and evidence indicating the amounts payable to the
Subscriber in respect of the Buy-In.
7.6
Adjustments. The
Conversion Price, Warrant exercise price and amount of Shares
issuable upon conversion of the Notes and exercise of the Warrants
shall be equitably adjusted and as otherwise described in this
Agreement, the Notes and Warrants.
7.7.
Redemption .
The Notes and Warrants shall not be redeemable or callable by the
Company except as described in the Notes, Warrants and Subscription
Agreement.
8.
Commissions/Due Diligence/Legal Fees.
(a)
Commissions. The
Company on the one hand, and each Subscriber (for himself only) on
the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party
in connection with this Agreement or the transactions contemplated
hereby or in connection with any investment in the Company at any
time, whether or not such investment was consummated and arising
out of such party’s actions.
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