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Exhibit
10.1
FORM OF SECURITIES
PURCHASE AGREEMENT
AMERICAN ORIENTAL
BIOENGINEERING, INC.
(a Nevada
corporation)
5.00% Convertible Senior
Notes due 2015
SECURITIES PURCHASE
AGREEMENT
Dated: July 9,
2008
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American Oriental
Bioengineering, Inc.
(a Nevada
corporation)
$115,000,000
5.00% Convertible Senior
Notes due 2015
SECURITIES PURCHASE
AGREEMENT
July 9, 2008
Ladies and
Gentlemen:
American Oriental
Bioengineering, Inc., a Nevada corporation (the “
Company ”), and the several purchasers named on the
signature pages hereto (each a “ Purchaser ” and
together the “ Purchasers ”) agree that each
Purchaser will purchase from the Company and the Company will issue
and sell to such Purchaser, subject to the terms and conditions set
forth herein, the aggregate principal amount of the Company’s
5.00% Convertible Senior Notes due 2015 (the “
Securities ”) set forth on such Purchaser’s
signature page attached hereto. The Securities are to be issued
pursuant to an indenture to be dated as of July 15, 2008 (the
“ Indenture ”) between the Company and Wells
Fargo Bank, N.A., as trustee (the “ Trustee ”).
The Securities will be delivered through the book-entry facilities
of The Depository Trust Company (“ DTC ”), to an
account specified by each Purchaser on its signature page and will
be released by Wells Fargo Bank, N.A. (the “ Escrow
Agent ”) to such Purchaser at the Closing (as defined in
Section 2(b)).
The Securities are
convertible prior to maturity into shares of common stock, par
value $0.001 per share, of the Company (the “ Common
Stock ”) in accordance with the terms of the Securities
and the Indenture.
The Securities are being
offered to qualified institutional buyers (“ QIBs
”) within the meaning of Rule 144A (“
Rule 144A ”) under the Securities Act of 1933, as
amended (the “ 1933 Act ”), pursuant to a
private placement exemption from registration under the
1933 Act. On or prior to the Closing Time (as defined in
Section 2(b)), the Company will enter into a registration
rights agreement with the Purchasers (the “ Registration
Rights Agreement ”), pursuant to which, subject to the
conditions set forth therein, the Company will be required to file
and use its commercially reasonable efforts to have declared
effective a registration statement (the “ Registration
Statement ”) under the 1933 Act to register resales of
the Securities and the shares of Common Stock issuable upon
conversion thereof.
The Company has
(a) prepared and delivered to each Purchaser copies of a
preliminary private placement memorandum dated July 7, 2008 (the
“Preliminary Private Placement Memorandum”) and
(b) has prepared and will deliver to each Purchaser, as
promptly as possible prior to the Closing Time, copies of a final
private placement memorandum dated July 9, 2008 (the “
Final Private Placement Memorandum ”). “
Private Placement Memorandum ” means, with respect to
any date or time referred to in this Agreement, the most recent
private placement memorandum (whether the Preliminary Private
Placement Memorandum or the Final Private Placement Memorandum, or
any amendment or supplement to either such document), including
exhibits thereto, if any, and any documents incorporated therein by
reference, which has been prepared and delivered by the Company to
the Purchasers.
All references in this
Agreement to financial statements and schedules and other
information which is “contained,”
“included” or “stated” in the Private
Placement Memorandum (or other references of like import) shall be
deemed to mean and include all such financial statements and
schedules and other information which are incorporated by reference
in the Private Placement Memorandum; and all references in this
Agreement to amendments or supplements to the Private Placement
Memorandum shall be deemed to mean and include the filing of any
document under the Securities Exchange Act of 1934, as amended (the
“ 1934 Act ”) which is incorporated by
reference in the Private Placement Memorandum.
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The preliminary private
placement memorandum dated July 7, 2008, as amended and
supplemented, including any documents filed under the 1934 Act
prior to the date hereof and incorporated by reference therein, is
referred to herein as the “ Preliminary Private Placement
Memorandum .”
SECTION 1.
Representations and Warranties by the Company.
(a) Representations and
Warranties. The Company represents and warrants to each
Purchaser as of the date hereof and as of Closing Time referred to
in Section 2(b) hereof, and agrees with each Purchaser, as
follows:
(1) Preliminary Private
Placement Memorandum and Final Private Placement Memorandum.
Neither the Preliminary Private Placement Memorandum, as of the
date of this agreement (exclusive of any pricing terms and related
information), nor the Final Private Placement Memorandum, as of its
date and as of the Closing Time, includes or will include any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(2) Incorporated
Documents . The Private Placement Memorandum as delivered from
time to time shall incorporate by reference the most recent Annual
Report of the Company on Form 10-K filed with the Securities
and Exchange Commission (the “ Commission ”) and
each Quarterly Report of the Company on Form 10-Q and each
Current Report of the Company on Form 8-K filed with the
Commission since the end of the fiscal year to which such Annual
Report relates. The documents incorporated by reference in the
Private Placement Memorandum at the time they were filed with the
Commission complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the Commission
thereunder (the “ 1934 Act Regulations ”), and
none of such documents contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
(3) Independent
Accountants . The accountants who expressed their opinion with
respect to the financial statements and supporting schedules
included in the Private Placement Memorandum are a registered
public accounting firm and independent public accountants with
respect to the Company and its subsidiaries within the meaning of
the 1933 Act and the rules and regulations thereunder (the “
1933 Act Regulations ”).
(4) Financial
Statements . The financial statements, together with the
related schedules and notes, included in the Private Placement
Memorandum, present fairly in all material respects the financial
position of the Company and its subsidiaries at the dates indicated
and the statement of operations, shareholders’ equity and
cash flows of the Company and its subsidiaries for the periods
specified, except as noted in the notes thereto; said financial
statements have been prepared in conformity with generally accepted
accounting principles in the United States (“ GAAP
”) applied on a consistent basis throughout the periods
involved. The selected financial data included in the Private
Placement Memorandum present fairly in all material respects the
information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included
in the Private Placement Memorandum.
(5) No Material Adverse
Change in Business . Except as disclosed in the Private
Placement Memorandum, since the respective dates as of which
information is given in the Private Placement Memorandum,
(i) there has been no material adverse change in the
condition, financial or otherwise, management, properties, business
operations or in the earnings, business affairs or business
prospects (with respect to business prospects as disclosed in the
Private Placement Memorandum) of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the
ordinary course of business (a “ Material Adverse
Effect ”) (ii) there have been no material changes
in short-term or long- term debt or any transactions entered into
by the Company or its subsidiaries, which are material
with
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respect to the Company and
its subsidiaries considered as one enterprise, and (iii) there
has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(6) Good Standing of the
Company and its Subsidiaries . Each of the Company and its
subsidiaries has been duly organized and is validly existing and in
good standing under the laws of the jurisdiction of its
organization, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Private Placement Memorandum and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect. Except as
otherwise disclosed in the Private Placement Memorandum, all of the
issued and outstanding capital stock of each subsidiary has been
duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any subsidiary was issued in violation
of any preemptive or similar rights of any securityholder of such
subsidiary.
(7) Capitalization and
Other Capital Stock Matters . The total shareholders’
equity of the Company is as set forth in the Private Placement
Memorandum in the column entitled “Actual” under the
caption “Capitalization” as of the respective dates set
forth therein, and the actual, authorized, issued and outstanding
number of shares of capital stock of the Company is as set forth in
the section entitled “Description of Capital Stock” in
the Private Placement Memorandum as of the date set forth therein,
and there have been no changes to such amounts (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements, employee benefit plans referred to in
the Private Placement Memorandum or pursuant to the exercise of
convertible securities or options referred to in the Private
Placement Memorandum). The capital stock conforms in all material
respects to the description thereof set forth in the Private
Placement Memorandum. All of the outstanding shares of capital
stock have been duly authorized and validly issued, are fully paid
and nonassessable and have been issued in compliance with federal
and state securities laws. Upon issuance and delivery of the
Securities in accordance with this Agreement and the Indenture, the
Securities will be convertible at the option of the holder thereof
into shares of Common Stock in accordance with the terms of the
Securities and the Indenture; the shares of Common Stock issuable
upon conversion of the Securities have been duly authorized and
reserved for issuance upon such conversion by all necessary
corporate action and such shares, when issued upon such conversion
in accordance with the terms of the Securities, will be validly
issued and will be fully paid and non-assessable; no holder of such
shares will be subject to personal liability by reason of being
such a holder; and the issuance of such shares upon such conversion
will not be subject to the preemptive rights, rights of first
refusal or other similar rights of any securityholder of the
Company. None of the outstanding shares of Common Stock were issued
in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company
or its subsidiaries other than those described in the Private
Placement Memorandum (except for subsequent issuances, if any,
pursuant to this Agreement, pursuant to reservations, agreements,
employee benefit plans referred to in the Private Placement
Memorandum or pursuant to the exercise of convertible securities or
options referred to in the Private Placement Memorandum). The
description of the Company’s stock option, stock bonus and
other stock plans or arrangements, and the options or other rights
granted thereunder, set forth or incorporated by reference in the
Private Placement Memorandum, accurately and fairly describes such
plans, arrangements, options and rights in all material
respects.
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(8) Stock Exchange
Listing . The Common Stock is registered pursuant to
Section 12(b) of the 1934 Act and is listed on The New York
Stock Exchange (the “ NYSE ”), and the Company
has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the
1934 Act or delisting the Common Stock from the NYSE, nor has
the Company received any notification that the Commission or the
NYSE is contemplating terminating such registration or listing. The
Company has complied in all material respects with the applicable
requirements of the NYSE for maintenance of inclusion of the Common
Stock thereon.
(9) Corporate Power .
The Company has corporate right, power and authority to execute and
deliver this Agreement, the Securities, the Indenture, the Escrow
Agreement and the Registration Rights Agreement (collectively, the
“ Transaction Documents ”) and to perform its
obligations hereunder and thereunder; and all action required to be
taken for the due and proper authorization, execution and delivery
of each of the Transaction Documents and the consummation of the
transactions contemplated thereby has been duly and validly
taken.
(10) Authorization of
Agreement . This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors’ rights
generally and by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
(11) Authorization of the
Indenture . The Indenture has been duly authorized by the
Company and, when executed and delivered by the Company and the
Trustee, will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
other similar laws relating to or affecting enforcement of
creditors’ rights generally and by general principles of
equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(12) Authorization of the
Registration Rights Agreement . The Registration Rights
Agreement has been duly authorized by the Company and, at the
Closing Time, will be duly executed and delivered by, and will
constitute a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors’ rights generally, by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and, as to rights
of indemnification, by principles of public policy.
(13) Authorization of the
Securities . The Securities have been duly authorized and, at
Closing Time, will have been duly executed by the Company and, when
authenticated, issued and delivered in the manner provided for in
the Indenture and delivered against payment of the purchase price
therefor as provided in this Agreement, will constitute valid and
binding obligations of the Company, enforceable against the Company
in accordance with their terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers)
reorganization, moratorium or other similar laws affecting
enforcement of creditors’ rights generally and by general
principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), and will be in the
form contemplated by, and entitled to the benefits of, the
Indenture.
(14) Description of
Transaction Documents . The description of the Transaction
Documents and the rights, preferences and privileges of the capital
stock of the Company, including the Securities and the shares of
Common Stock issuable upon conversion of the Securities, contained
in the Final Private Placement Memorandum, are accurate in all
material respects.
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(15) Absence of Defaults
and Conflicts . Neither the Company nor any of its subsidiaries
is in violation of its articles of incorporation or by-laws or in
breach of or otherwise in default, and no event has occurred which,
with notice or lapse of time or both, would constitute such a
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which any of them may be
bound, or to which any of the property or assets of the Company or
any of its subsidiaries is subject (collectively, “
Agreements and Instruments ”) except for such defaults
that would not result in a Material Adverse Effect; and the
execution, delivery and performance of the Transaction Documents
and any other agreement or instrument entered into or issued or to
be entered into or issued by the Company in connection with the
transactions contemplated hereby or thereby or in the Private
Placement Memorandum and the consummation of the transactions
contemplated herein and in the Private Placement Memorandum
(including the issuance and sale of the Securities and the use of
the proceeds from the sale of the Securities as described in the
Private Placement Memorandum under the caption “Use of
Proceeds”) and compliance by the Company with its obligations
hereunder do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below) under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments except for
such conflicts, breaches or defaults or Repayment Events or liens,
charges or encumbrances that, singly or in the aggregate, would not
result in a Material Adverse Effect, nor will such action result in
any violation of the provisions of the articles of incorporation or
by-laws of the Company or its subsidiaries or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or
any of their assets, properties or operations. As used herein, a
“ Repayment Event ” means any event or condition
which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder’s behalf)
the right to require the repurchase, redemption or repayment of all
or a portion of such indebtedness by the Company or any
subsidiary.
(16) Absence of
Proceedings . Except as otherwise disclosed in the Private
Placement Memorandum, there is no action, suit or proceeding before
or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or its subsidiaries
which would reasonably be expected to result in a Material Adverse
Effect, or which would reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated
by this Agreement or the performance by the Company of its
obligations hereunder.
(17) Absence of
Manipulation . Neither the Company nor to its knowledge any
affiliate, as such term is defined in Rule 501(b) under the 1933
Act (“Affiliate”), of the Company has taken, nor will
take, directly or indirectly, any action which is designed to or
which has constituted or which would reasonably be expected to
cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities.
(18) Possession of
Intellectual Property . Except as otherwise disclosed in the
Private Placement Memorandum, the Company and each of its
subsidiaries owns, possesses, or can acquire on reasonable terms,
all Intellectual Property (as defined below) necessary for the
conduct of the Company’s and it subsidiaries’ business
as now conducted or as described in the Private Placement
Memorandum to be conducted, except as such failure to own, possess,
or acquire such rights would not result in a Material Adverse
Effect. Furthermore, (i) to the knowledge of the Company,
there is no infringement, misappropriation or violation by third
parties of any such Intellectual Property, except as such
infringement, misappropriation or violation would not result in a
Material Adverse Effect; (ii) there is no pending or, to the
knowledge of the Company, threatened, action, suit, proceeding or
claim by others
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challenging the
Company’s or any of its subsidiaries’ rights in or to
any such Intellectual Property, and the Company is unaware of any
facts which would form a reasonable basis for any such claim;
(iii) the Intellectual Property owned by the Company and its
subsidiaries, and to the knowledge of the Company, the Intellectual
Property licensed to the Company and its subsidiaries, has not been
adjudged invalid or unenforceable, in whole or in part, and there
is no pending or threatened action, suit, proceeding or claim by
others challenging the validity or scope of any such Intellectual
Property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; (iv) there is no
pending or threatened action, suit, proceeding or claim by others
that the Company or any of its subsidiaries infringes,
misappropriates or otherwise violates any Intellectual Property or
other proprietary rights of others, neither the Company or any of
its subsidiaries has received any written notice of such claim and
the Company is unaware of any other fact which would form a
reasonable basis for any such claim; and (v) to the
Company’s knowledge, no employee of the Company or any of its
subsidiaries is in or has ever been in violation of any term of any
employment contract, patent disclosure agreement, invention
assignment agreement, non-competition agreement, non-solicitation
agreement, nondisclosure agreement or any restrictive covenant to
or with a former employer where the basis of such violation relates
to such employee’s employment with the Company nor any of its
subsidiaries or actions undertaken by the employee while employed
with the Company or any of its subsidiaries, except as such
violation would not result in a Material Adverse Effect. “
Intellectual Property ” shall mean all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, domain names, technology, know how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other
intellectual property. Notwithstanding anything to the contrary
contained on product labels or advertisements for the
Company’s soybean peptide based products, the Company
possesses all Intellectual Property necessary for the manufacturing
and marketing of such products.
(19) Absence of Further
Requirements . No filing with, or authorization, approval,
consent, license, order, registration, qualification or decree of,
any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions
contemplated by the Transaction Documents or for the due execution,
delivery or performance of the Transaction Documents by the
Company, except (i) such as have been already obtained or will
be made on or prior to the Closing Time, (ii) as may be
required under the securities or blue sky laws of the various
states in which the Securities will be offered or sold and the 1933
Act and 1933 Act Regulations with respect to the registration of
the resale of the Securities under the 1933 Act pursuant to the
Registration Rights Agreement and the Trust Indenture Act of 1939,
and (iii) the listing requirements of the NYSE, except those
which, singly or in the aggregate, if not made would not result in
a Material Adverse Effect or would have a material effect on the
consummation of the transactions contemplated by the Transaction
Documents.
(20) Possession of
Licenses and Permits . The Company and each of its subsidiaries
holds, and is operating in compliance in all material respects
with, all franchises, grants, authorizations, approvals, licenses,
permits, easements, consents, certificates and orders
(collectively, “ Government Licenses ”) of any
applicable national, provincial, governmental or local or foreign
self regulatory agency or body required for the conduct of its
business and all such franchises, grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid
and in full force and effect; and neither the Company nor any of
its subsidiaries has received notice of any revocation or
modification of any such Government License or has reason to
believe that any such Government License will not be renewed in the
ordinary course; and the Company and each of its subsidiaries is in
compliance in all material respects with all applicable national,
provincial, federal, state, local and foreign laws, regulations,
orders and decrees. The Company has no reason to believe that any
National Final Production Standard (as defined below) for its
products, where application for such standard is currently pending,
will not be granted or obtained, free from any condition or
requirement. “ National Final Production Standard
”
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means the final state
production standard for a medicine required under the
Administrative Measures of Medicine Registration dated
February 28, 2005 issued by the State Food and Drugs
Administration of China (the “ SFDA
”).
(21) SAFE Rules and
Regulations . The Company has taken all steps to comply with,
and to cause all of the Company’s stockholders who
beneficially own 5% or more of the Company’s outstanding
Common Stock and who are known to the Company to be Chinese
residents or Chinese citizens, to comply with any applicable rules
and regulations of the State Administration of Foreign Exchange
(the “ SAFE Rules and Regulations ”), including,
without limitation, taking reasonable steps to require each such
stockholder that is, or is directly or indirectly owned or
controlled by, a Chinese resident or Chinese citizen to complete
any registration and other procedures required under applicable
SAFE Rules and Regulations.
(22) Preclinical Tests and
Clinical Trials . The preclinical tests and clinical trials
that are described in, or the results of which are referred to in,
the Private Placement Memorandum were or, if still ongoing, are
being conducted in all material respects in accordance with
protocols filed with the appropriate regulatory authorities for
each such test or trial, as the case may be, and with standard
medical and scientific research procedures; each description of the
results of such tests and trials contained in the Private Placement
Memorandum is accurate and complete in all material respects and
fairly presents the data derived from such tests and trials, and
the Company and its subsidiaries have no knowledge of any other
studies or tests authorized or conducted by the Company or its
subsidiaries the results of which are inconsistent with, or
otherwise call into question, the results described or referred to
in the Private Placement Memorandum; neither the Company nor its
subsidiaries has received any notices or other correspondence from
the SFDA or from any other Chinese, United States or other
government or drug or medical device regulatory agency
(collectively, the “ Regulatory Agencies ”)
requiring the termination, suspension or modification of any
clinical trials that are described or referred to in the Private
Placement Memorandum; and the Company and its subsidiaries have
each operated and currently are in compliance in all material
respects with all applicable rules, regulations and policies of the
Regulatory Agencies.
(23) Product
Mislabeling . Except as described in the Private Placement
Memorandum, the Company does not have any product labeling or
advertising that contains any incorrect or misleading statements,
including without limitation any incorrect or misleading statements
regarding the product’s attributes, active or other
ingredients, method of action, regulatory status or the
Intellectual Property associated with such product. The Private
Placement Memorandum contains a full and complete list of existing
product mislabeling, the consequences of which have been, and are
expected to remain, immaterial.
(24) Title to Property
. The Company and each of its subsidiaries has good and marketable
title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(a)(4) above (or
elsewhere in the Private Placement Memorandum), in each case free
and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except
(i) for liens for taxes not yet due or payable, (ii) as
otherwise disclosed in the Private Placement Memorandum or
(iii) as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The real
property, improvements, equipment and personal property held under
lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do
not materially interfere with the use made or proposed to be made
of such real property, improvements, equipment or personal property
by the Company or such subsidiary.
(25) Environmental
Laws . Except as described in the Private Placement Memorandum
and except such matters as would not, singly or in the aggregate,
result in a Material Adverse Effect,
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(i) neither the Company
nor its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy
or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation,
laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products,
asbestos-containing materials or mold (collectively, “
Hazardous Materials ”) or to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, “
Environmental Laws ”), (ii) the Company and its
subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in
compliance with their requirements, (iii) there are no
administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or
violation, or proceedings relating to any Environmental Law pending
or, to the Company’s knowledge, threatened against the
Company or its subsidiaries and (iv) there are no events or
circumstances that would reasonably be expected to form the basis
of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency,
against or affecting the Company or its subsidiaries relating to
Hazardous Materials or Environmental Laws.
(26) Occupational Laws
. The Company and each of its subsidiaries (i) is in
compliance, in all material respects, with any and all applicable
national, provincial, foreign, federal, state and local laws,
rules, regulations, treaties, statutes and codes promulgated by any
and all governmental authorities and local or foreign regulatory
agencies or bodies (including pursuant to the Occupational Health
and Safety Act) relating to the protection of human health and
safety in the workplace (“ Occupational Laws ”);
(ii) has received all material permits, licenses, approvals,
consents and other approvals required of it under applicable
Occupational Laws to conduct its business as currently conducted;
and (iii) is in compliance, in all material respects, with all
terms and conditions of such permit, license or approval. No
action, proceeding, revocation proceeding, writ, injunction or
claim is pending or, to the Company’s knowledge, threatened
against the Company or any of its subsidiaries relating to
Occupational Laws, and the Company does not have knowledge of any
facts, circumstances or developments relating to its operations or
cost accounting practices that could reasonably be expected to form
the basis for or give rise to such actions, suits, investigations
or proceedings.
(27) Labor Disputes .
No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent,
which would result in a Material Adverse Effect.
(28) Accounting Controls
and Disclosure Controls . The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with
management’s general or specific authorization;
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences. Since the end of the Company’s most recent
audited fiscal year, there has been (A) no material weakness
in the Company’s internal control over financial reporting
(as defined in Rules 13a-15 and l5d-15 under the 1934 Act
Regulations) (whether or not remediated), and (B) no change in
the Company’s internal control over financial reporting that
has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting, and (c) no fraud involving management or other employees
who have a significant role in internal controls that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal controls. The Company and each of its
subsidiaries employ disclosure controls and procedures (as defined
in Rules 13a-15 and 15d-15 under the 1934 Act Regulations)
that are designed to ensure that information
9
required to be disclosed by
the Company in the reports that it files or submits under the 1934
Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms,
and is accumulated and communicated to the Company’s
management, including its principal executive officer or officers
and principal financial officer or officers, as appropriate, to
allow timely decisions regarding disclosure. The Company has used
such disclosure controls and procedures in preparing and evaluating
the disclosures in the Private Placement Memorandum.
(29) Compliance with the
Sarbanes-Oxley Act . The Company and its officers and directors
are in compliance in all material respects with applicable
provisions of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated in connection therewith (the “
Sarbanes-Oxley Act ”) that, with respect to the
Company, are effective as of the date hereof.
(30) Payment of Taxes
. The Company and its consolidated subsidiaries (as determined for
financial accounting purposes) have filed all necessary federal,
state, national, provincial, local and foreign income and franchise
tax returns required to be filed and have paid all taxes required
to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them,
except such taxes that are being contested in good faith and as to
which adequate reserves have been provided as set forth in the
following sentence and except where the failure to file or failure
to pay would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has made adequate charges, accruals and
reserves in the applicable financial statements referred to in
Section 1(a)(4) above in respect of all federal, state and
foreign income and franchise taxes for all periods as to which the
tax liability of the Company or any of its consolidated
subsidiaries has not been finally determined. There is no pending
dispute with any taxing authority relating to any of such tax
returns, and the Company has no knowledge of any proposed liability
for any tax to be imposed upon the properties or assets of the
Company for which there is not an adequate reserve reflected in the
Company’s financial statements included in the Private
Placement Memorandum. Except as disclosed in the Private Placement
Memorandum, no transaction, stamp, capital or other issuance,
registration, transaction, transfer or withholding taxes or duties
are payable in China by or on behalf of the Company or the
Purchasers to any Chinese taxing authority in connection with
(i) the issuance, sale and delivery of the Securities by the
Company (ii) the issuance and delivery by the Company of the
shares of Common Stock issuable upon conversion of the Securities
or (iii) the execution and delivery of this
Agreement.
(31) Insurance . The
Company and its subsidiaries carry or are entitled to the benefits
of insurance in such amounts and covering such risks as is
generally deemed adequate and customary for the businesses in which
they are currently engaged and the value of their properties and as
is customary for companies in China engaged in similar businesses
and in similar industries and all such insurance is in full force
and effect, except in each case as would not reasonably be expected
to have a Material Adverse Effect. The Company and its subsidiaries
are in compliance with the terms of such policies and instruments
in all material respects; there are no claims by the Company or any
of its subsidiaries under any such policy or instrument as to which
any insurance company is denying liability or defending under a
reservation of rights clause; and neither the Company nor any of
its subsidiaries has been refused any insurance coverage sought or
applied for. The Company has no reason to believe that it or its
subsidiaries will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted
and at a cost that would not result in a Material Adverse
Change.
(32) Investment Company
Act . The Company is not required, and after giving effect to
the issuance and sale of the offered Securities and the application
of the net proceeds therefrom as described in the Private Placement
Memorandum under “Use of Proceeds,” will not be
required, to register as an “investment company” under
the Investment Company Act of 1940, as amended (the “ 1940
Act ”).
10
(33) Passive Foreign
Investment Company . The Company does not expect to be a
Passive Foreign Investment Company (“ PFIC ”)
within the meaning of Section 1297(a) of the United States
Internal Revenue Code of 1986, as amended and the regulations and
published interpretations thereunder (the “ Code
”), for the taxable year ending December 31, 2008, and
has no plan or intention to conduct its business in a manner that
would be reasonably expected to result in the Company becoming a
PFIC in the future under current laws and regulations.
(34) Registration
Rights . There are no persons with registration rights or other
similar rights to have any securities registered by the Company
under the 1933 Act, other than with respect to the
registration of the resale of the Securities under the
1933 Act pursuant to the Registration Rights
Agreement.
(35) Similar Offerings
. Neither the Company nor to its knowledge any of its Affiliates
has, directly or indirectly, solicited any offer to buy, sold or
offered to sell or otherwise negotiated in respect of, or will
solicit any offer to buy, sell or offer to sell or otherwise
negotiate in respect of, in the United States or to any United
States citizen or resident, any security which is or would be
integrated with the sale of the Securities in a manner that would
require the offered Securities to be registered under the
1933 Act.
(36) Rule 144A
Eligibility . The Securities are eligible for resale pursuant
to Rule 144A and will not be, at Closing Time, of the same
class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in
a U.S. automated interdealer quotation system.
(37) No General
Solicitation . Subject to compliance by Merrill Lynch, Pierce,
Fenner & Smith Incorporated, CRT Capital Group LLC,
Oppenheimer & Co. Inc. and Collins Stewart LLC (the “
Placement Agent s”) with their representations and
warranties in the Private Placement Agency Agreement dated July 8,
2008 (“ Placement Agency Agreement ”), none of
the Company, to its knowledge, its Affiliates or any person acting
on its or any of their behalf has engaged or will engage, in
connection with the offering of the offered Securities, in any form
of general solicitation or general advertising within the meaning
of Rule 502(c) under the 1933 Act.
(38) No Registration
Required . Subject to compliance by the Purchasers with the
representations and warranties of the Purchasers and the procedures
set forth in Section 6 hereof and the Placement Agents with
their representations and warranties in the Placement Agency
Agreement, it is not necessary in connection with the offer, sale
and delivery of the offered Securities to the Purchasers in the
manner contemplated by this Agreement and the Private Placement
Memorandum to register the Securities under the 1933 Act or, until
the Registration Statement is declared effective by the Commission,
to qualify the Indenture under the Trust Indenture Act of 1939, as
amended (the “ 1939 Act ”).
(39) ERISA Compliance
. The Company and its subsidiaries and any “employee benefit
plan” (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, “ ERISA
”)) established, administered, contributed to or maintained
by the Company, its subsidiaries or their ERISA Affiliates (as
defined below) for employees or former employees of the Company and
its affiliates are in compliance in all material respects with
ERISA, the Internal Revenue Code of 1986, as amended (the “
Code ”) and any other applicable statutes, orders,
rules and regulations to the extent applicable to the
“employee benefit plans” of the Company. No prohibited
transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, to the extent applicable to the
Company, has occurred with respect to any such plan, excluding
transactions effected pursuant to a statutory or administrative
exemption; and for each such plan that is subject to the funding
rules of Section 412 of the Code or Section 302 of ERISA,
no “accumulated funding deficiency,” as defined in
Section 412 of the Code, has been incurred, whether or not
waived, and the fair market value of the assets of each such plan
(excluding for these purposes
11
accrued but unpaid
contributions) exceeds the present value of all benefits accrued
under such plan determined using reasonable actuarial assumptions.
“ ERISA Affiliate ” means, with respect to the
Company or its subsidiaries, any member of any group of
organizations described in Section 414 of the Code, of which
the Company or its subsidiaries is a member. No “reportable
event” (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any “employee benefit
plan” established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates. No “employee
benefit plan” subject to Title IV of ERISA established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such “employee benefit plan” were
terminated, would have any “amount of unfunded benefit
liabilities” (as defined under ERISA). Neither the Company,
its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV
of ERISA with respect to termination of, or withdrawal from, any
“employee benefit plan” or (ii) Sections 412,
4971, 4975 or 4980B of the Code. Each “employee benefit
plan” established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to
be qualified under Section 401 of the Code is so qualified and
nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification.
(40) Regulatory
Matters . Except as described in the Private Placement
Memorandum, the Company and each of its subsidiaries: (i) is
and at all times has been in material compliance with all statutes,
rules or regulations applicable to the ownership, testing,
development, manufacture, packaging, processing, use, distribution,
marketing, labeling, promotion, sale, offer for sale, storage,
import, export or disposal of any product manufactured or
distributed by the Company or such subsidiary (“
Applicable Laws ”); (ii) has not received any
notice of adverse finding, warning letter, untitled letter or other
correspondence or notice from the SFDA or any other Regulatory
Agency alleging or asserting noncompliance with any Applicable Laws
or any Governmental Licenses; (iii) has not received notice of
any claim, action, suit, proceeding, hearing, enforcement,
investigation, arbitration or other action from any Regulatory
Agency or third party alleging that any product operation or
activity is in violation of any Applicable Laws or Government
Licenses and has no knowledge that any such Regulatory Agency or
third party is considering any such claim, litigation, arbitration,
action, suit, investigation or proceeding; (iv) has not
received notice that any Regulatory Agency has taken, is taking or
intends to take action to materially limit, suspend, materially
modify or revoke any Government Licenses and has no knowledge that
any such Regulatory Agency is considering such action; and
(v) has filed, obtained, maintained or submitted all material
reports, documents, forms, notices, applications, records, claims,
submissions and supplements or amendments as required by any
Applicable Laws or Government Licenses and that all such reports,
documents, forms, notices, applications, records, claims,
submissions and supplements or amendments were complete and correct
on the date filed in all material respects (or were corrected or
supplemented by a subsequent submission). The statements in the
Private Placement Memorandum, or incorporated by reference into the
Private Placement Memorandum from the Company’s Form 10-K for
the period ended December 31, 2007, under the captions “Risk
Factors—There could be changes in government regulations
toward the pharmaceutical and nutraceutical industries that may
adversely affect our business,” “Risk Factors—Our
business may be affected by unexpected changes in regulatory
requirements in the jurisdictions in which we operate,”
“Risk Factors—Our international operations require us
to comply with a number of U.S. and international
regulations,” “Risk Factors—We may be unable to
secure the government licenses that are necessary for us to engage
in the sale of analgesic pharmaceuticals,” “Risk
Factors—Some of our TCM products and technologies potentially
could be restricted from foreign ownership” and
“Business—Regulation of Our Industry”
(collectively, the “ Regulatory Sections ”)
fairly present in all material respects any Applicable Laws, and
all pending or to the Company’s knowledge threatened legal or
governmental proceedings relating to such Applicable Laws that are
material to the Company’s business in light of the applicable
disclosure requirements under the 1934 Act.
(41) Public Officials
. Neither the Company nor any of its subsidiaries nor, to the
knowledge of the Company, any director, officer, agent, employee or
affiliate of the Company or any of its
12
subsidiaries is aware of or
has taken any action directly or indirectly, that would result in a
violation by such persons of the FCPA (as defined below),
including, without limitation, 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 anything of value to any
“Foreign official” (as such 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 and the Company and its subsidiaries have conducted their
businesses in compliance with the FCPA and have instituted and
maintain policies and procedures designed to ensure, and which are
reasonably expected to continue to ensure, continued compliance
therewith. “ FCPA ” means the Foreign Corrupt
Practices Act of 1977, as amended, and the rules and regulations
thereunder.
(42) Money Laundering
Laws . The operations of the Company and its subsidiaries have
complied in all material respects with applicable financial
recordkeeping and reporting requirements of the Currency and
Foreign Transactions Reporting Act of 1970, as amended, the money
laundering statutes of all jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental
agency (collectively, the “ Money Laundering Laws
”) and no action, suit or proceeding by or before any court
or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries with respect to
the Money Laundering Laws is pending or, to the knowledge of the
Company, threatened.
(43) U.S. Sanctions .
Neither the Company nor any of its subsidiaries nor, to the
knowledge of the Company, any director, officer or employee of the
Company or any of its subsidiaries is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of
the U.S. Department of the Treasury.
(44) Enforceability .
The Transaction Documents are in proper form under the laws of
China for the enforcement thereof against the Company in accordance
with the laws of China and to ensure the legality, validity,
enforceability or admissibility into evidence in China of the
Transaction Documents; it is not necessary that the Transaction
Documents, the Private Placement Memorandum or any other document
be filed or recorded with any court or other authority in China or
that any Chinese stamp duty or similar tax be paid on or in respect
of the Transaction Documents or any other document to be furnished
thereunder.
(45) Choice of Law .
The choice of the law of the State of New York as the
governing law of the Transaction Documents is a valid choice of law
under the laws of China and will be honored by courts in China,
subject to compliance with relevant civil procedural requirements
(which do not involve a reexamination of the merits of the claim)
in China.
(46) Immunity .
Neither the Company or any subsidiary nor any of their respective
properties, assets or revenues has any right of immunity under
Chinese, New York or U.S. federal law, from any legal action, suit
or proceeding, from the giving of any relief in any such legal
action, suit or proceeding, from setoff or counterclaim, from the
jurisdiction of any Chinese, New York or U.S. federal court, from
service of process, attachment upon or prior to judgment, or
attachment in aid of execution of judgment, or from execution of a
judgment, or other legal process or proceeding for the giving of
any relief or for the enforcement of a judgment, in any such court,
with respect to its obligations, liabilities or any other matter
under or arising out of or in connection with the Transaction
Documents or the offered Securities; and, to the extent that the
Company, or any subsidiary or any of their respective properties,
assets or revenues may have or may hereafter become entitled to any
such right of immunity in any such court in which proceedings may
at any time be commenced, each of the Company and the subsidiaries
waives or will waive such right to the extent permitted by
law.
13
(47) Enforceability of
Judgments . Any final judgment for a fixed sum of money
rendered by a New York Court having jurisdiction under New York law
in respect of any suit, action or proceeding against the Company
based upon the Transaction Documents would be recognized and
enforced against the Company by Chinese courts without reexamining
the merits of the case under the common law doctrine of obligation;
provided that (i) adequate service of process has been
effected and the defendant has had a reasonable opportunity to be
heard, (ii) such judgments or the enforcement thereof are not
contrary to the law, public policy, security or sovereignty of
China, (iii) such judgments were not obtained by fraudulent
means and do not conflict with any other valid judgment in the same
matter between the same parties, and (iv) an action between
the same parties in the same matter is not pending in any Chinese
court at the time the lawsuit is instituted in the foreign
court.
(48) Solvency . As of
the date hereof and immediately prior to, and immediately
following, the issuance of the Securities, and immediately after
the application of the proceeds from the offering and sale of the
Securities, the Company and each of its subsidiaries is, and will
be, Solvent (as defined below); neither the Company nor any of its
subsidiaries is contemplating either the filing of a petition by it
under any bankruptcy or insolvency laws or the liquidating of all
or a substantial portion of its property, and neither the Company
nor any of its subsidiaries has knowledge of any person
contemplating the filing of any such petition against the Company
or any of its subsidiaries. As used herein, “Solvent”
means, for any person on a particular date, that, on such date, (i)
the fair value of the property of such person is greater than the
total amount of liabilities, including, without limitation,
contingent liabilities, of such person, (ii) the present fair
salable value of the assets of such person is not less than the
amount that will be required to pay the probable liability of such
person on its debts as they become absolute and matured, (iii) such
person does not intend to, and does not be
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