NOTES PURCHASE AGREEMENT
by and between
CHINA SECURITY & SURVEILLANCE
TECHNOLOGY, INC.
as the Company
and
CITADEL EQUITY FUND LTD.
as the Purchaser
Dated: February 5, 2007
This Notes Purchase Agreement (this “
Agreement ”) is dated as of February 5,
2007, by and between China Security & Surveillance Technology,
Inc., a Delaware corporation (the “ Company
”) and Citadel Equity Fund Ltd. (the “
Purchaser ”).
WHEREAS, the Company proposes to issue, and the
Purchaser proposes to purchase, US$60,000,000 Senior Notes due
February 16, 2007 (or such other date to be extended up to 120 days
from the date of this Agreement by mutual agreement by and between
the Company and the Purchaser, the “ Maturity
Date ”) on the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and promises contained herein and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise
requires:
“
Acquisition ” has the meaning given in
Section 7(f).
“
Act ” means the Securities Act of 1933, as
amended.
“
Affiliate ” of any specified Person
means:
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(a)
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any other
Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person,
or
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(b)
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any other
Person who is a director or officer of:
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(1)
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such specified
Person,
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(2)
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any Subsidiary
of such specified Person, or
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(3)
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any Person
described in clause (a) above.
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For the
purposes of this definition, “control” when used with
respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and
the terms “controlling” and “controlled”
have meanings correlative to the foregoing.
“
Agreement ” has the meaning given in the
recitals.
“
Applicable Agreements ” has the meaning
given in Section 6(g).
“
Applicable Law ” has the meaning given in
Section 6(g).
“
Business Day ” has the meaning given in the
Conditions.
“
Charter Documents ” has the meaning given in
Section 6(g).
“
Closing ” has the meaning given in Section
5(a).
“
Closing Date ” means the date of the
Closing.
“
Collateral ” means the collateral described
and pledged under the Share Pledge Agreement.
“
Commission ” means the Securities and
Exchange Commission.
“
Common Stock ” means shares of common stock
of the Company, par value US$0.0001 per share.
“
Conditions ” means the terms and conditions
of the Notes.
“
Disclosure Schedule ” has the meaning given
in Section 6.
“
Environmental Laws ” has the meaning given
in Section 6(z).
“
Exchange Act ” means the Securities Exchange
Act of 1934, as amended.
“
GAAP ” has the meaning given in Section
6(a).
“
Governmental Authority ” has the meaning
given in Section 6(g).
“
Indemnified Party ” has the meaning given in
Section 10(a).
“
Indemnifying Party ” has the meaning given
in Section 10(a).
“
Intellectual Property ” has the meaning
given in Section 6(o)(i).
“
Lien ” means a mortgage, charge, pledge,
lien or other security interest securing any obligation of any
person or any other agreement or arrangement having a similar
effect.
“
Material Adverse Change ” has the meaning
given in Section 6(q).
“
Material Adverse Effect ” means a material
adverse effect on:
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(a)
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the business,
operations, property or financial condition of the Company and its
Subsidiaries taken as a whole;
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(b)
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the ability of
the Company or any Shareholder to perform its material obligations
under the Transaction Documents; or
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(c)
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the validity or
enforceability of the Transaction Documents or the rights and
remedies of any holder of the Notes under the Notes.
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“
Maturity Date ” has the meaning given in the
recitals.
“
Money Laundering Laws ” has the meaning
given in Section 6(hh).
“
Notes ” has the meaning given in Section
3.
“
OFAC ” has the meaning given in Section
6(gg).
“
OTC ” has the meaning given in Section
6(a).
“
Outside Financing ” has the meaning given in
Section 7(e).
“
Permits ” has the meaning given in Section
6(k).
“
Person ” means any individual, corporation,
company (including any limited liability company), association,
partnership, joint venture, trust, unincorporated organization,
government or any agency or political subdivision thereof or any
other entity.
“
PFIC ” has the meaning given in Section
6(ff).
“
PRC ” means People’s Republic of
China.
“
Proceedings ” has the meaning given in
Section 6(j).
“
Purchaser ” has the meaning given in the
recitals.
“
Resale Restriction Termination Date ” has
the meaning given in Section 8(c).
“
SEC Reports ” has the meaning given in
Section 6(a).
“
Shareholder ” means Mr. Tu Guo Shen and Ms.
Li Zhi Qun, together with Whitehorse Technology Limited, a British
Virgin Islands company wholly owned by Mr. Tu Guo Shen and the
registered owner of the Common Stock pledged under the Share Pledge
Agreement.
“
Share Pledge Agreement ” means the share
pledge agreement dated on or prior to the Closing Date made between
the Shareholder and the Purchaser, a form of which is attached
hereto as Exhibit B .
“
Subsidiary ” means, in respect of any
Person, any corporation, company (including any limited liability
company), association, partnership, joint venture or other business
entity of which at least a majority of the total voting power of
the voting stock is at the time owned or controlled, directly or
indirectly, by:
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(b)
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such Person and
one or more Subsidiaries of such Person, or
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(c)
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one or more
Subsidiaries of such Person.
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“
Tax ” has the meaning given in Section
6(n).
“
Transaction Document ” means this Agreement,
the Share Pledge Agreement and the Notes, or any of them as the
context may so require.
“
US$ ” means the lawful currency of the
United States from time to time.
2.
Rules of
Construction .
(a) Unless the context otherwise
requires:
(i) a term has the meaning assigned to
it;
(ii) “or” is not exclusive;
(iii) words in the singular include the plural, and in
the plural include the singular;
(iv) all references in this Agreement to
“Sections”, “Exhibits” and other
subdivisions are to the designated Sections, Exhibits and
subdivisions of this Agreement as originally executed;
(v) a reference to any person is, where relevant,
deemed to be a reference to or to include, as appropriate, that
person’s successors and permitted assignees or
transferees;
(vi) a reference to (or to any specified provision
of) any agreement or document (including any Transaction Document)
is to be construed as a reference to that agreement or document as
it may be amended from time to time;
(vii) the words “herein,”
“hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision.
(viii) “including” means “including
without limitation;”
(ix) provisions apply to successive events and
transactions; and
(x) references to a statute or statutory provision
is to be construed as a reference to that statute or statutory
provision as it may be amended from time to time.
Subject to the terms and conditions of this
Agreement, the Company will issue and sell to the Purchaser, and
the Purchaser will purchase from the Company, on the Closing Date,
an aggregate principal amount of US$60,000,000 of the
Company’s Senior Notes due on the Maturity Date (the “
Notes ”).
The Notes will be secured by a perfected
first-priority Lien on certain of the equity interests of the
Shareholder in the Company pursuant to the Share Pledge
Agreement.
The Notes will be offered and sold to the
Purchaser pursuant to Regulation S or other exemption from the
registration requirements under the Act. Upon original issuance
thereof, and until such time as the same is no longer required
under the applicable requirements of the Act, the Notes shall bear
the legends relating to the offer and the sale of the Notes as
required by (i) Regulation S under the Act or (ii) any other
applicable laws or regulations relating to the issuance of the
Notes.
The Notes shall be issued in a certificated form
and shall be substantially in the form of Exhibit A and
shall represent such aggregate principal amount of the outstanding
Notes as shall be specified therein. The Conditions shall form an
integral part of the Notes and the Company shall comply with its
obligations thereunder.
5.
Purchase, Sale and
Delivery .
The sale and purchase of the Notes to be
purchased by the Purchaser shall occur at the Hong Kong office of
Simpson Thacher & Bartlett LLP, at 10:00 a.m., Chicago time, at
a closing (the “ Closing ”) on
February 8, 2007 or on such other time or Business Day thereafter
on or prior to February 15, 2007 as may be agreed upon by the
Company and the Purchaser. At the Closing, the Company shall
deliver to the Purchaser one or more certificates representing the
Notes in definitive form (duly executed by the Company’s
Chief Executive Officer and President on behalf of the Company),
registered in such names and denominations as the Purchaser may
request, against payment by the Purchaser of US$60,000,000 as the
purchase price therefor by immediately available federal funds bank
wire transfer to such bank account or accounts as the Company shall
have beforehand designated to the Purchaser.
6.
Representations and
Warranties of the Company . Except as set forth in the Disclosure Schedule
attached hereto as Exhibit C (“ Disclosure
Schedule ”), the Company represents and warrants
to the Purchaser the following:
(a)
SEC Reports; Financial
Statements .
(i) Except as set forth on Schedule 6(a) of
the Disclosure Schedule, the Company has filed all reports,
schedules, forms, statements and other documents required to be
filed by it under the Act and the Exchange Act (the foregoing
materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to
herein as the “ SEC Reports ”) on a
timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration
of any such extension, and to the Company’s best knowledge
after due inquiry, no disciplinary actions or proceedings have been
initiated against the Company and no such actions are threatened.
As of the date of filing, in the case of SEC Reports filed pursuant
to the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the twenty-four months preceding the date hereof (or
such shorter period as the Company was required by law to file such
reports, forms or other information) (and to the extent any such
SEC Report was amended, then as of the date of filing of such
amendment), and as of the date of effectiveness in the case of SEC
Reports filed pursuant to the Act (and to the extent any such SEC
Report was amended, then as of the date of effectiveness of such
amendment), the SEC Reports complied in all material respects with
the requirements of the Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, as
applicable, and none of the SEC Reports, as of the date of filing,
in the case of SEC Reports filed pursuant to the Exchange Act (and
to the extent any such SEC Report was amended, then as to the date
of filing of such amendment), and as of the date of effectiveness
in the case of SEC Reports filed pursuant to the Act (and to the
extent any such SEC Report was amended, then as of the date of
effectiveness of such amendment), contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Reports have been prepared in accordance with
the applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods
involved (“ GAAP ”), except as may be
otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not
contain all footnotes required by GAAP, and fairly present in all
material respects the financial condition, results of operations
and cash flows of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All
other financial, statistical, and market and industry-related data
included in the SEC Reports are based on or derived from sources
that the Company reasonably believes to be reliable and accurate.
For the purposes of this Agreement, the term “filed”
(or any derivations thereof) includes filing, furnishing or
otherwise providing any reports, forms or other information
provided to the Commission.
(ii) Except as set forth on Schedule 6(a) of
the Disclosure Schedule, the Company has not, in the 12 months
preceding the date hereof, received notice from the Over The
Counter (“ OTC ”) Bulletin Board on
which the Common Stock has been traded to the effect that the
Company is not in compliance with the OTC requirements, and to the
Company’s best knowledge after due inquiry, no disciplinary
actions or proceedings have been initiated against the Company and
no such actions are threatened. The Company is, and upon
consummation of the transactions contemplated hereby expects to be,
in compliance with all of the OTC listing requirements.
(b)
Ownership of Shares of
Subsidiaries; Affiliates .
(i) The SEC Reports contain complete and correct
lists of each Person in which the Company owns, directly or
indirectly, any capital stock or similar equity interests, showing,
as to each Subsidiary, the correct name thereof, the jurisdiction
of its organization, and the percentage of shares of each class of
its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary.
(ii) All of the outstanding shares of capital stock
or similar equity interests of each Subsidiary owned by the Company
and its Subsidiaries have been validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary
free and clear of any Lien.
(iii) No Subsidiary is a party to, or otherwise
subject to any legal or regulatory restriction or any agreement
(other than this Agreement) restricting the ability of such
Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or
similar equity interests of such Subsidiary.
(c)
Organization
. Each of the Company and its
Subsidiaries (i) has been duly organized, is validly existing and
is in good standing under the laws of its jurisdiction of
organization, (ii) has all requisite power and authority to carry
on its business and to own, lease and operate its properties and
assets, and (iii) is duly qualified or licensed to do business and
is in good standing as a domestic or foreign corporation or limited
liability company, as the case may be, authorized to do business in
each jurisdiction in which the nature of such business or the
ownership or leasing of such properties requires such
qualification, except where, for the purposes of (ii) or (iii)
only, the failure to have all such requisite power and authority or
to be so duly qualified or licensed does not, and would not,
individually or in the aggregate, have a Material Adverse
Effect.
(d)
Capitalization
. All of the outstanding shares of
capital stock or similar equity interests of the Company have been
validly issued, are fully paid and non-assessable, and are free and
clear of any Lien.
(e)
Authorization
. (i) The Company has all requisite
corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents to which it is
a party and to consummate the transactions contemplated thereby,
(ii) this Agreement has been duly authorized, executed and
delivered by the Company and (iii) this Agreement shall constitute
a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of
creditors’ rights generally.
(f)
Valid Issuance of
Notes . The Notes, when
issued, sold and delivered in accordance with the terms and for the
consideration set forth herein, will be free of restrictions on
transfer, other than restrictions on transfer under applicable
state and federal securities laws. Assuming the accuracy of the
Purchaser’s representations in Section 8 below, the Notes
will be issued in compliance with applicable state and federal
securities laws. The Notes have been duly authorized by the Company
and, when executed and delivered by the Company to the Purchaser,
in accordance with the terms of this Agreement, the Notes will have
been duly executed, issued and delivered by the Company and will
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms,
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights
generally.
(g)
Compliance with
Instruments . Neither the
Company nor any of its Subsidiaries is in violation of its
respective articles of incorporation, certificate of incorporation,
by-laws or other organizational documents (the “
Charter Documents ”). Neither the Company
nor any of its Subsidiaries is, nor does any condition exist (with
the passage of time or otherwise) that could reasonably be expected
to cause the Company or any of its Subsidiaries to be, (i) in
violation of any statute, rule, regulation, law or ordinance, or
any judgment, decree or order applicable to the Company, any of its
Subsidiaries or any of their properties (collectively, “
Applicable Law ”) of any federal, state,
national, provincial, local or other governmental authority,
governmental or regulatory agency or body, court, arbitrator or
self-regulatory organization of applicable jurisdictions (each, a
“ Governmental Authority ”), or (ii)
in breach of or in default under any bond, debenture, note or other
evidence of indebtedness, indenture, mortgage, deed of trust, lease
or any other agreement or instrument to which any of them is a
party or by which any of them or their respective property is bound
(collectively, “ Applicable Agreements
”), other than in each of clause (i) and (ii) such
violations, breaches or defaults that do not, and would not,
individually or in the aggregate, have a Material Adverse
Effect.
(h)
No Conflicts
. Neither the execution, delivery or
performance of this Agreement or any other Transaction Document nor
the consummation of any of the transactions contemplated herein or
therein will conflict with, violate, constitute a breach of or a
default (with the passage of time or otherwise) under, require the
consent of any Person or a Governmental Authority (other than
consents already obtained) or result in the imposition of a Lien on
any assets of the Company or any of its Subsidiaries under or
pursuant to (i) the Charter Documents, (ii) any Applicable
Agreement, or (iii) any Applicable Law, other than in each of
clause (ii) and (iii) such violations, breaches or defaults that do
not, and would not, individually or in the aggregate, have a
Material Adverse Effect. Immediately following consummation of the
transactions contemplated in the Transaction Documents, no default
will exist under the Notes.
(i)
Governmental Filings
. No filing with, consent,
approval, authorization or order of, any Governmental Authority is
required to be made by the Company or any of its Subsidiaries for
the consummation of the transactions contemplated by the
Transaction Documents, except as have been made or obtained prior
to the date of this Agreement or obtained after the Closing in
accordance with the terms of the Transaction Documents.
(j)
Proceedings
. There is no action, claim, suit,
demand, hearing, notice of violation or deficiency, or proceeding,
domestic or foreign (collectively, “
Proceedings ”), pending or, to the knowledge
of the Company, threatened, that seeks to restrain, enjoin, prevent
the consummation of, or otherwise challenges any of the Transaction
Documents or any of the transactions contemplated
therein.
(k)
Permits . Each of the Company and its Subsidiaries
possesses all material licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made all
declarations and filings with, all Governmental Authorities,
presently required or necessary to own or lease, as the case may
be, and to operate their respective properties and to carry on
their respective businesses as now conducted (“
Permits ”), except where the failure to
possess such permits could not, individually or in the aggregate,
have a Material Adverse Effect. All of the Permits are valid and in
full force and effect. Each of the Company and its Subsidiaries has
fulfilled and performed all of its respective obligations with
respect to such Permits and no event has occurred which allows, or
after notice or lapse of time could allow, revocation or
termination thereof or result in any other material impairment of
the rights of the holder of any such Permit. None of the Company or
its Subsidiaries has received actual notice of any Proceeding
relating to revocation or modification of any such
Permit.
(l)
Title to Property
. Each of the Company and its
Subsidiaries has good and marketable title to all real property and
personal property owned by it that is material to their respective
businesses, in each case free and clear of any Liens as of the
Closing Date. For unowned real property of the Company or its
Subsidiaries that is currently used or currently planned to be used
for the business operations of the Company or its Subsidiaries,
each of the Company and its Subsidiary has good and marketable
title to all leasehold estates in real and personal property being
leased by it that is material to their respective businesses and,
in each case free and clear of all Liens as of the Closing
Date.
(m)
Insurance . Each of the Company and its Subsidiaries
maintains reasonably adequate insurance covering its material
properties, operations, personnel and business, and is insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which it is engaged. All policies of insurance
insuring the Company and any of its Subsidiaries and their
respective businesses, assets, employees, officers and directors
are in full force and effect. Each of the Company and its
Subsidiaries is in compliance with the terms of such policies and
instruments in all material respects, and there are no claims by
the Company or any of its Subsidiaries under any such policy or
instrument as to which, to the Company’s knowledge, any
insurance company is denying liability or defending under a
reservation of rights clause. Neither the Company nor any
Subsidiary has been refused any insurance coverage sought or
applied for, and neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to
continue its business at a cost that does not, and would not,
individually or in the aggregate, have a Material Adverse
Effect.
(n)
Taxes . All Tax returns required to be filed by the
Company or any of its Subsidiaries have been filed (taking into
account all extensions of due dates), and all such returns are
true, complete and correct in all material respects. All material
Taxes that are due from the Company or any of its Subsidiaries have
been paid other than those (i) currently payable without penalty or
interest or (ii) being diligently contested in good faith and by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP. To the knowledge of the
Company, there are no proposed Tax assessments against the Company
or any of its Subsidiaries. The accruals and reserves on the books
and records of the Company and its Subsidiaries in respect of any
Tax liability for any Taxable period not finally determined are
adequate to meet any assessments of Tax for any such period. For
purposes of this Agreement, the term “ Tax
” and “ Taxes ” shall mean all
federal, state, national, provincial, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or
through withholding), including any interest, additions to tax, or
penalties applicable thereto.
(o)
Intellectual Property
.
(i) Each of the Company and its Subsidiaries owns,
or is validly licensed under, or has the right to use, all patents,
patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems, software or
procedures), trademarks, service marks, trade names or master
works, whether or not registered, filed, or issued under the
authority of any governmental authority, (collectively, “
Intellectual Property ”) necessary for the
conduct of its business and all Intellectual Properties owned by
the Company and its Subsidiaries necessary for the conduct of their
businesses are valid and in full force and effect. As of the
Closing Date, such Intellectual Property is or will be free and
clear of all Liens, except where the failure to own, possess, or
have the right to use such Intellectual Property does not, and
would not, individually or in the aggregate, have a Material
Adverse Effect. To the Company’s knowledge, no Proceedings
have been asserted by any Person challenging the use of any such
Intellectual Property by the Company or any of its Subsidiaries or
questioning the validity or effectiveness of the Intellectual
Property or any license or agreement related thereto, and, to the
Company’s knowledge, there are no facts which would form a
valid basis for any such Proceeding. To the Company’s
knowledge, the use of such Intellectual Property by the Company or
any of its Subsidiaries will not infringe on the Intellectual
Property rights of any other Person.
(ii) Each of the Company and its Subsidiaries has
taken reasonable steps and measures to establish and preserve
ownership of or right to use all Intellectual Property material to
the operation of its business, including any Intellectual Property
that was jointly developed with any third-parties, or any
Intellectual Property for which improper or unauthorized disclosure
would impair its value or validity, and has had executed
appropriate nondisclosure and confidentiality agreements and made
all appropriate filings, registrations and payments of fees in
connection with the foregoing. To the Company’s knowledge,
there is no infringement or misappropriation by any other Person of
any Intellectual Property of the Company or its Subsidiaries. No
Proceedings in which the Company or any of its Subsidiaries alleges
that any Person is infringing upon, or otherwise violating, any
Intellectual Property of the Company or its Subsidiaries are
pending, and none has been served, instituted or asserted by the
Company or its Subsidiaries.
(iii) No former or current employee, no former or
current consultant, and no third-party joint developer of the
Company or its Subsidiaries has any rights in any Intellectual
Property made, developed, conceived, created or written by the
aforesaid employee or consultant during the period of his or her
retention by the Company and its Subsidiaries which can be asserted
against the Company and its Subsidiaries.
(iv) No Intellectual Property owned by the Company
or its Subsidiaries necessary for the conduct of their business is
the subject of any Lien, license or other contract granting rights
or security interest therein to any other Person, except for Liens,
licenses or other contracts granting rights or security interest
that do not materially interfere with the use made and proposed to
be made of such Intellectual Property by the Company and the
Subsidiaries. Each of the Company and its Subsidiaries has not (A)
transferred or assigned, (B) granted an exclusive license to or (C)
provided or licensed, any Intellectual Property owned by the
Company or its Subsidiaries and necessary for the conduct of their
business to any Person.
(p)
Internal Controls
. Each of the Company and its
Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance 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 asset
accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any material
differences.
(q)
Financial Statements
. Subsequent to the date
