Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”
) is dated as of September 30, 2009 among China Nutrifruit Group
Limited, a Nevada corporation (the “Company” )
and the investors listed on the Schedule of Buyers attached hereto
as Exhibit A and identified on the signature pages hereto
(each, an “Investor” and collectively, the
“Investors” ).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and
pursuant to the Securities Act (as defined below), the Company
desires to issue and sell to each Investor, and each Investor,
severally and not jointly, desires to purchase from the Company
certain securities of the Company, as more fully described in this
Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Company
and the Investors agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions . In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following
terms shall have the meanings indicated in this Section
1.1:
“Action” means any action, suit, inquiry, notice
of violation, proceeding (including any partial proceeding such as
a deposition) or investigation pending or threatened in writing
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator,
governmental or administrative agency, regulatory authority
(federal, state, county or local), stock market, stock exchange or
trading facility.
“Affiliate” means any Person that, directly or
indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person.
“Business Day” means any day except Saturday,
Sunday and any day which is a legal holiday or a day on which
banking institutions in the State of New York and the
People’s Republic of China are authorized or required by law
or other governmental action to close.
“BVI” means Fezdale Investments
Limited, a British Virgin Island Company .
“Certificate of Designation” means a Certificate
of Designation to be filed prior to the Closing by the Company with
the Secretary of State of the State of Nevada, setting forth the
rights, preferences and privileges of the Series A Convertible
Preferred Stock, in the form attached as Exhibit B
hereto.
“Closing” means the closing of the
purchase and sale of the Units pursuant to Article 2.
“Closing Date” means the Business Day on which
all of the conditions set forth in Sections 5.1 and 5.2 hereof are
satisfied, or such other date as the parties may agree.
“Closing Escrow Agreement” means that certain
Escrow Agreement, dated as of the date hereof, among the Investors,
Securities Transfer Corp., as escrow agent (the “ Escrow
Agent ”) and the investors identified on the signature
pages thereto and the Company, in the form of Exhibit E
hereto.
“Commission” means the United States
Securities and Exchange Commission. “Common
Stock” means the common stock of the Company, par value
$0.001 per share. “Common Stock Equivalents” has
the meaning set forth in Section 3.1(g) .
“Company Deliverables” has the meaning
set forth in Section 2.2(a) .
“Company Entities” means the Company, BVI, WFOE
and all existing Subsidiaries of any such entities and any other
entities which hereafter become Subsidiaries of any such
entities.
“
Conversion Price” has the meaning set forth in Section
2.1(a) .
“Conversion Shares” means shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred
Stock.
“Disclosure Materials” has the meaning
set forth in Section 3.1(h) hereof.
“Effectiveness Period” means, as to any
registration statement required to be filed pursuant to Section 4.2
of this Agreement, the period commencing on the date when such
registration statement is declared effective by the Commission and
ending on the earlier to occur of (a) the second anniversary of
such effective date, (b) such time as all of the Registrable
Securities covered by such registration statement have been
publicly sold by the Investors included therein, or (c) such time
as all of the Registrable Securities covered by such registration
statement may be sold by the Investors without volume restrictions
pursuant to Rule 144 as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected
Investors.
“Evaluation Date” has the meaning set
forth in Section 3.1(v) .
“Exchange Cap” has the meaning set
forth in Section 6.2 hereof.
“Exchange Act” means the Securities
Exchange Act of 1934, as amended.
“Existing Company Entities” means the Company,
BVI, WFOE and their respective Subsidiaries and “ Existing
Company Entity ” means any of the Company, BVI, WFOE and
any of their respective Subsidiaries.
“GAAP” means U.S. generally accepted
accounting principles.
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“Governmental Body” shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; or (c) governmental
or quasi-governmental authority of any nature (including any
governmental or administrative division, department, agency,
commission, instrumentality, official, organization, unit, body or
entity) and any court or other tribunal.
“Intellectual Property Rights” has the
meaning set forth in Section 3.1(o) .
“Investment Amount” means, with respect to each
Investor, the Investment Amount indicated on such Investor’s
signature page and set forth opposite such Investor’s name on
Exhibit A to this Agreement.
“Investor Deliverables” has the
meaning set forth in Section 2.2(b) .
“Investors’ Expenses” has the
meaning set forth in Section 4.2(d) .
“Legal Requirement” shall mean any federal
state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into
effect by or under the authority of any Governmental Body (or under
the authority of any national securities exchange upon which the
Common Stock is then listed or traded). Reference to any Legal
Requirement means such Legal Requirement as amended, modified,
codified, replaced or reenacted, in whole or in part, and in effect
from time to time, and reference to any section or other provision
of any Legal Requirement means that provision of such Legal
Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or
reenactment of such section or other provision.
“Lien” means any lien, charge,
encumbrance, security interest, or other charge of any
kind.
“Material Adverse Effect” means any of (i) a
material and adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and
adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and
the Subsidiaries, taken as a whole, except for results or
consequences attributable to the effects of, or changes in, general
economic or capital markets conditions or effects and changes that
generally affect the industries in which the Company Entities
operate, such as regulatory action by the PRC or municipal
governments or (iii) an adverse impairment to the Company’s
ability to perform on a timely basis its obligations under any
Transaction Document.
“New York Courts” means the state and federal
courts sitting in the City of New York, Borough of
Manhattan.
“Outside Date” means the forty-fifth (45th)
calendar day (if such calendar day is a Trading Day and if not,
then the first Trading Day following such forty-fifth (45th)
calendar day) following the date of this Agreement.
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“PRC” means, for the purpose of this Agreement,
the People’s Republic of China, not including Taiwan, Hong
Kong and Macau.
“Participation Maximum” has the
meaning set forth in Section 4.7(a) .
“Person” means an individual or corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of
any kind.
“Per Unit Purchase Price” equals
$33.00.
“Piggyback Notice” has the meaning set
forth in Section 4.2(b) .
“Piggyback Registration” has the
meaning set forth in Section 4.2(b) .
“Placement Agent” means WLT Brothers
Capital, Inc.
“Pre-Notice” has the meaning set forth
in Section 4.7(b) .
“Proceeding” means an action, claim, suit,
investigation or proceeding (including an investigation or partial
proceeding, such as a deposition), whether commenced or
threatened.
“Qualified Investor” has the meaning
set forth in Section 4.7(a) .
“Regulation D” has the meaning set
forth in Section 2.1(c) .
“Registrable Securities” means the
Shares.
“Rule 144” means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same
effect as such Rule.
“SEC Reports” has the meaning set
forth in Section 3.1(h) .
“Securities” means the Series A
Convertible Preferred Stock and the Warrants.
“Securities Act” means the Securities
Act of 1933, as amended.
“Series A Convertible Preferred Stock” means the
Series A Convertible Preferred Stock, par value $0.001 per share,
issued or issuable to the Investors pursuant to this Agreement,
which is convertible into shares of the Common Stock at an initial
conversion price of $3.30 per share, subject to adjustments as set
forth in the Certificate of Designation.
“Shares” means the Conversion Shares
and the Warrant Shares.
“Short Sales” include all “short
sales” as defined in Rule 200 promulgated under Regulation
SHO under the Exchange Act and all types of direct and indirect
stock pledges, forward sale contracts, options, puts, calls, swaps
and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or
foreign regulated brokers.
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“Subsequent Financing ” has the
meaning set forth in Section 4.7(a) .
“Subsequent Financing Notice” has the
meaning set forth in Section 4.7(b) .
“Subsidiary” means any “significant
subsidiary” as defined in Rule 1-02(w) of Regulation S-X
promulgated by the Commission under the Exchange Act.
“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market, or (ii) if the Common
Stock is not quoted on any Trading Market, a day on which the
Common Stock is quoted in the over-the-counter market as reported
by the Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set
forth in (i) and (ii) hereof, then Trading Day shall mean a
Business Day.
“Trading Market” means whichever of the New York
Stock Exchange, NYSE Amex, the NASDAQ Global Select Market, the
NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin
Board on which the Common Stock is listed or quoted for trading on
the date in question.
“Transaction Documents” means this Agreement,
the Certificate of Designation, the Warrant and the Closing Escrow
Agreement.
“Transfer Agent” means Interwest Transfer
Company, Inc., and any successor transfer agent of the
Company.
“Units” has the meaning set forth in
Section 2.1(a) .
“Warrants” means the Common Stock purchase
warrants in the form of Exhibit C , which are issuable to
the Investors at the Closing.
“Warrant Shares” means shares of Common Stock
issuable upon exercise of the Warrants.
“WFOE” means Daqing Longheda Food Company
Limited, a wholly foreign-owned enterprise organized under the laws
of the People’s Republic of China .
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase
Price and Closing.
(a)
Subject to the terms and conditions hereof, the Company agrees to
issue and sell to the Investors and, in consideration of and in
express reliance upon the representations, warranties, covenants,
terms and conditions of this Agreement, the Investors, severally
but not jointly, agree to purchase, up to an aggregate purchase
price of $15,000,000 (subject to increase prior to the Outside
Date, as contemplated by Section 6.5) of Units (the
“Units” ), each consisting of one (1) share of
Series A Convertible Preferred Stock and a Warrant to purchase 2.5
shares of Common Stock. The closing of the purchase and sale of the
Units to be acquired by the Investors from the Company under this
Agreement shall take place at the offices of Loeb & Loeb LLP,
345 Park Avenue, New York, New York 10154 at 9:00 a.m., New York
time on such date as the Investors and the Company may agree upon;
provided, that all of the conditions set forth in Article 5 hereof
and applicable to the Closing shall have been fulfilled or waived
in accordance herewith. Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be
delivered to each Investor (x) a certificate evidencing a number of
shares of Series A Convertible Preferred Stock as determined
pursuant to Section 2.2(a)(i) hereof, and (y) a Warrant to purchase
such number of shares of Common Stock as determined pursuant to
Section 2.2(a)(ii) hereof. At or prior to the Closing, each
Investor shall deliver its Investment Amount set forth opposite to
such Investor’s name on Exhibit A hereto by wire
transfer to the escrow account established pursuant to the Closing
Escrow Agreement.
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(b)
No Fractional Shares . Notwithstanding anything to the
contrary herein, no certificate or scrip representing fractional
shares of the Series A Convertible Preferred Stock or Warrant shall
be issued and any such fractional share will be rounded up to the
nearest whole number.
(c)
Regulation D . The Company and the Investors are executing
and delivering this Agreement in accordance with and in reliance
upon the exemption from securities registration afforded by Rule
506 of Regulation D ( “Regulation D” ) as
promulgated by the Commission under the Securities Act.
2.2
Closing Deliveries.
(a) At
the Closing, the Company shall deliver or cause to be delivered to
each Investor the following (the “Company
Deliverables” ):
(i)
a certificate representing the shares of Series A Convertible
Preferred Stock equal to such Investor’s Investment Amount
divided by the Per Unit Purchase Price as is set forth opposite the
name of such Investor on Exhibit A attached
hereto;
(ii)
a Warrant to purchase such number of shares of Common Stock equal
to 25% of such Investor’s Investment Amount divided by the
Per Unit Purchase Price, as is set forth opposite the name of such
Investor on Exhibit A attached hereto;
(iii)
an officer’s certificate, in agreed form, certifying the
satisfaction of each of the conditions precedent to the
Investors’ obligation to purchase Shares;
(iv) this
Agreement, duly executed by the Company;
(v)
the Closing Escrow Agreement, duly executed by the Company;
and
(vi)
legal opinions of Nevada and PRC counsel to the Company.
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(b) At
or prior to the Closing, each Investor shall deliver or cause to be
delivered
(i) to
the Company, this Agreement, duly executed by such
Investor;
(ii) to
the Company, the Closing Escrow Agreement, duly executed by such
Investor;
(iii) to
the Company, one or more investor questionnaires in the respective
forms of Exhibit D-1, D-2 and D-3 hereto;
(iv) to
the Escrow Agent, its Investment Amount, in immediately available
funds, by wire transfer to the account designated in the Closing
Escrow Agreement (the “Investor Deliverables”
).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Subject
to exceptions set forth in the disclosure schedule of the Existing
Company Entities or in the SEC Reports (as hereinafter defined),
the Company hereby makes the following representations and
warranties to each Investor:
(a)
Subsidiaries . The Existing Company Entities have no direct
or indirect Subsidiaries other than as disclosed in Schedule 3.1(a)
. Except as disclosed in Schedule 3.1(a), the Company owns,
directly or indirectly, all of the capital stock of each Subsidiary
free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid except as permitted under PRC laws,
non-assessable and free of preemptive and similar
rights.
(b)
Organization and Qualification . Each of the Existing
Company Entities is duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable),
with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. No Existing Company Entity is in violation of any of the
provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each Existing Company Entity is duly qualified to conduct its
respective businesses and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect.
(c)
Authorization; Enforcement . The Company has the requisite
corporate and other power and authority to enter into and to
consummate the transactions contemplated by each Transaction
Document to which it is a party and otherwise to carry out its
obligations thereunder. The execution and delivery of the
Transaction Documents, by the Company and the consummation by the
Company of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company, and
no further action is required by the Company in connection with
such authorization. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Company, enforceable against
the Company each in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar Legal
Requirement relating to, or affecting generally the enforcement of,
creditors’ rights and remedies or by other equitable
principles of general application.
7
(d)
No Conflicts . Except as set forth on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company’s, or any Existing
Company Entity’s certificate of incorporation or bylaws, or
(ii) conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing any of the debt of any Existing Company Entity’s
debt or otherwise) or other understanding to which any of the
Existing Company Entities is a party or by which any property or
asset of any of the Existing Company Entities is bound or affected,
or (iii) result in a violation of any Legal Requirement, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of any Existing Company Entity is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. It is understood that the
failure by the Company to timely make payments of cash dividends on
the Series A Convertible Preferred Stock would be a Material
Adverse Effect for purposes of the foregoing sentence and Schedule
3.1(d) contains an explanation of the Company’s intended
method of transmitting dividend payment funds from the PRC to the
holders from time to time of the Series A Convertible Preferred
Stock.
(e)
Filings, Consents and Approvals . None of the Existing
Company Entities is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing
or registration with, any Governmental Body in connection with the
execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the
Commission of one or more Registration Statements in accordance
with the requirements of this agreement, (ii) filings required by
state securities laws, (iii) the filing of a Notice of Sale of
Securities on Form D with the Commission under Regulation D of the
Securities Act, (iv) the filings required in accordance with
Section 4.5, (v) such filing as required to be made under the rules
and regulations of the applicable Trading Market, and (vi) those
that have been made or obtained prior to the date of this
Agreement.
(f)
Issuance of the Securities . The Securities have been duly
authorized and when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens. The Warrants are
valid and binding obligations of the Company, enforceable in
accordance with their terms. The Company has reserved from its duly
authorized capital stock the shares of Common Stock issuable
pursuant to all Securities sold to the Investors.
8
(g)
Capitalization . The number of shares and type of all
authorized, issued and outstanding capital stock of the Company,
and all shares of Common Stock reserved for issuance under the
Company’s various option and incentive plans, is specified on
Schedule 3.1(g) . Except as specified on Schedule 3.1(g), no
securities of the Company are entitled to preemptive or similar
rights, and no Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.
Except as specified on Schedule 3.1(g), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares
of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of
Common Stock ( “Common Stock Equivalents” ). The
sale of Shares to the Investors will not, immediately or with the
passage of time, obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Investors)
or result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under such
securities.
(h)
Financial Statements . The Company has filed all reports
required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the twelve months preceding the date hereof (or such shorter
period as the Company was required by law to file such reports)
(the foregoing materials being collectively referred to herein as
the “SEC Reports” and, together with the
Schedules to this Agreement (if any), the “Disclosure
Materials” ) on a timely basis or has timely filed a
valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied, as to form, in all
material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of the Company and each Subsidiary included in the SEC
Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved, 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 for full year financial
statements, and fairly present in all material respects the
financial position 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.
(i)
Material Changes . Since the date of the latest audited
financial statements of the Company, except as disclosed in the
Disclosure Materials (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Existing Company
Entities have not incurred any liabilities (contingent or
otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to
be reflected in the Company’s financial statements pursuant
to GAAP, (iii) the Existing Company Entities have not altered its
method of accounting or the identity of its auditors, and (iv) the
Existing Company Entities have not declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock.
9
(j)
Litigation . There is no Action which (i) adversely affects
or challenges the legality, validity or enforceability of any of
the Transaction Documents or the Shares or (ii) except as disclosed
in the Disclosure Materials, could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. Neither the
Existing Company Entities, nor to the knowledge of the Existing
Company Entities, any director or officer thereof (in his or her
capacity as such), is or has been the subject of any Action
involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty,
except as disclosed in the Disclosure Materials. There has not
been, and to the knowledge of the Company, there is not pending any
investigation by the Commission involving any Existing Company
Entity or any current or former director or officer of an Existing
Company Entity (in his or her capacity as such).
(k)
Labor Relations . No material labor dispute exists or, to
the knowledge of the Existing Company Entities, is imminent with
respect to any of the employees of the Existing Company
Entities.
(l)
Compliance . None of the Existing Company Entities (i) is in
default under or in violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both,
would result in a default by an Existing Company Entity under), nor
has any Existing Company Entity received notice of a claim that it
is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority,
including all federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each
case, such as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse
Effect.
(m)
Regulatory Permits . The Existing Company Entities possess
all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses, except where the
failure to possess such permits could not, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect, and the Existing Company Entities have not received
any notice of proceedings relating to the revocation or
modification of any such permits.
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(n)
Title to Assets . The Existing Company Entities own or have
valid land use rights to all real property that is material to
their respective businesses and good and marketable title in all
personal property owned by them that is material to their
respective businesses, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and
proposed to be made of such property by the Existing Company
Entities. Any real property and facilities held under lease by the
Existing Company Entities are held by them under valid, subsisting
and enforceable leases.
(o)
Patents and Trademarks . The Existing Company Entities have,
or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights (collectively, the
“Intellectual Property Rights” ) that are
necessary or material for use in connection with their respective
businesses and which the failure to so have could, individually or
in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. No Existing Company Entity has received a
written notice that the Intellectual Property Rights used by such
Existing Company Entity violates or infringes upon the rights of
any Person. Except as set forth in the Disclosure Materials, to the
knowledge of the Existing Company Entities, all such Intellectual
Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property
Rights.
(p)
Insurance . The Existing Company Entities are 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 the Existing Company Entities are
engaged.
(q)
Certain Registration Matters . Assuming the accuracy of the
Investors’ representations and warranties set forth in
Section 3.2(b) -(e), no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to
the Investors to the Investors under the Transaction Documents. The
Company is eligible to register its Common Stock underlying the
Securities for resale by the Investors under the Securities
Act.
(r)
Certain Fees . Except as described in Schedule 3.1(r), no
brokerage or finder’s fees or commissions are or will be
payable by the Existing Company Entities to any broker, financial
advisor or consultant, finder, placement agent, investment banker,
bank or other Person with respect to the transactions contemplated
by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such
fees or commissions owed by an Investor pursuant to written
agreements executed by such Investor which fees or commissions
shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions
contemplated by this Agreement.
(s)
Transactions With Affiliates and Employees; Customers .
Except as described in the Disclosure Materials, none of the
officers or directors of the Company, and, to the knowledge of the
Company, none of the employees of any of the Company, is presently
a party to any transaction of a value of $120,000 or greater with
the Company or any of its Subsidiaries which would be required to
be reported under Item 404 Regulation S-K (other than for services
as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
such Person or, to the knowledge of the Company, any entity in
which any officer, director, or such employee or 5% or more
shareholder has a substantial interest or is an officer, director,
trustee or partner. None of the Existing Company Entities owes any
money or other compensation to any of their respective officers or
directors or shareholders, except to the extent of ordinary course
compensation arrangements and reimbursement for expenses incurred
on behalf of the Company. No material customer of any of the
Existing Company Entities has indicated their intention to diminish
their relationship with such Existing Company Entity and none of
the Existing Company Entities has any knowledge from which it could
reasonably conclude that any such customer relationship may be
adversely affected.
11
(t)
No Additional Agreements . None of the Existing Company
Entities has any agreement or understanding with any Investor with
respect to the transactions contemplated by the Transaction
Documents other than as specified in the Transaction
Documents.
(u)
Foreign Corrupt Practices Act . None of the Existing Company
Entities nor to the knowledge of the Company, any agent or other
person acting on behalf of the Existing Company Entities, has,
directly or indirectly, (i) used any funds, or will use any
proceeds from the sale of the Securities, 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 any such Existing Company
Entity (or made by any Person acting on their behalf of which the
Company is aware) or, to the knowledge of the Existing Company
Entities, any members of their respective management which is in
violation of any Legal Requirement, or (iv) has violated in any
material respect any provision of the Foreign Corrupt Practices Act
of 1977, as amended, and the rules and regulations thereunder which
was applicable to the Existing Company Entities.
(v)
Sarbanes-Oxley; Internal Accounting Controls . The Company
is in material compliance with all provisions of the Sarbanes-Oxley
Act of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information
relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities,
particularly during the period in which the Company’s most
recently filed periodic report under the Exchange Act, as the case
may be, is being prepared. The Company’s certifying officers
have evaluated the effectiveness of the Company’s controls
and procedures as of the date prior to the filing date of the most
recently filed periodic report under the Exchange Act (such date,
the “ Evaluation Date ”). The Company presented
in its most recently filed periodic report under the Exchange Act
the conclusions of the certifying officers about the effectiveness
of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date,
there have been no significant changes in the Company’s
internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the best knowledge of
the Company, in other factors that could significantly affect the
Company’s internal controls.
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(w) Other
Representations and Warranties Relating to WFOE.
(i) All
material consents, approvals, authorizations or licenses requisite
under PRC Legal Requirements for the due and proper establishment
and operation of WFOE have been duly obtained from the relevant PRC
Governmental Bodies and are in full force and effect.
(ii) All
filings and registrations with the PRC Governmental Bodies required
in respect of WFOE and its capital structure and operations
including, without limitation, the registration with the Ministry
of Commerce, the China Securities Regulatory Commission, the State
Administration of Industry and or their respective local divisions
of Commerce, the State Administration of Foreign Exchange, tax
bureau and customs authorities have been duly completed in
accordance with the relevant PRC Legal Requirements, except where,
the failure to complete such filings and registrations does not,
and would not, individually or in the aggregate, have a Material
Adverse Effect.
(iii)
WFOE has complied with all relevant PRC Legal Requirements
regarding the contribution and payment of its registered share
capital, the payment schedule of which has been approved by the
relevant PRC Governmental Bodies. There are no outstanding
commitments made by the Company or any Subsidiary (or any of their
shareholders) to sell any equity interest in WFOE.
(iv) WFOE
has not received any letter or notice from any relevant PRC
Governmental Body notifying it of revocation of any licenses or
qualifications issued to it or any subsidy granted to it by any PRC
Governmental Body for non-compliance with the terms thereof or with
applicable PRC Legal Requirements, or the lack of compliance or
remedial actions in respect of the activities carried out by WFOE,
except such revocation as does not, and would not, individually or
in the aggregate, have a Material Adverse Effect.
(v) WFOE
has conducted its business activities within the permitted scope of
business or has otherwise operated its business in compliance with
all relevant Legal Requirements and with all requisite licenses and
approvals granted by competent PRC Governmental Bodies other than
such non-compliance that do not, and would not, individually or in
the aggregate, have a Material Adverse Effect. As to licenses,
approvals and government grants and concessions requisite or
material for the conduct of any material part of WFOE’s
business which is subject to periodic renewal, the Company has no
knowledge of any reasons related to the WFOE for which such
requisite renewals will not be granted by the relevant PRC
Governmental Bodies.
13
(vi) With
regard to employment and staff or labor, WFOE has complied with all
applicable PRC Legal Requirements in all material respects,
including without limitation, those pertaining to welfare funds,
social benefits, medical benefits, insurance, retirement benefits,
pensions or the like, other than such non-compliance that do not,
and would not, individually or in the aggregate, have a Material
Adverse Effect.
(x)
Acknowledgement Regarding Investors’ Trading Activity
. Except as set forth in Section 3.2(f), anything in this Agreement
or elsewhere herein to the contrary notwithstanding, but subject to
compliance by the Investors with applicable law, it is understood
and agreed by the Company (i) that past or future open market or
other transactions by any Investor, including Short Sales, and
specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing
of this or future private placement transactions, may negatively
impact the market price of the Company’s publicly-traded
securities; (ii) that any Investor, and counter parties in
“derivative” transactions to which any such Investor is
a party, directly or indirectly, presently may have a
“short” position in the Common Stock, and (iv) that
each Investor shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (a) one or more Investors may
engage in hedging activities at various times during the period
that the Securities are outstanding, including, without limitation,
during the periods that the value of the shares deliverable with
respect to Securities are being determined and (b) such hedging
activities (if any) could reduce the value of the existing
shareholders’ equity interests in the Company at and after
the time that the hedging activities are being
conducted.
(y)
Manipulation of Price . The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities (other than for the
Placement Agent’s placement of the Securities), or (iii) paid
or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company, other than
commissions payable to the Placement Agent.
(z)
Disclosure . Other than the Transactions contemplated by the
Transaction Documents, the Company confirms that neither it nor, to
its knowledge, any other Person acting on its behalf has provided
any of the Investors or their agents or counsel with any
information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that
the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.
All disclosure provided to the Investors in connection with the
transactions contemplated hereunder regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties
made herein are true and correct in all material respects with
respect to such representations and warranties and do not contain
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made,
not misleading.
14
Each
Investor hereby acknowledges and agrees that the Company does not
make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those
specifically set forth in Section 3.1 hereof.
3.2
Representations and Warranties of the Investors . Each
Investor hereby, for itself and for no other Investor, represents
and warrants to the Company as follows:
(a)
Organization; Authority . If such Investor is a business
entity, such Investor is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and
authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations thereunder. The execution, delivery
and performance by such Investor of the transactions contemplated
by this Agreement has been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such
partnership, limited liability company or other applicable like
action, on the part of such Investor. Each Transaction Document to
which it is a party has been duly executed by such Investor, and
when delivered by such Investor in accordance with the terms
hereof, will constitute the valid and legally binding obligation of
such Investor, enforceable against it in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable
principles of general application.
(b)
Investment Intent . Such Investor is acquiring the
Securities as principal for its own account for investment purposes
only and not with a view towards, or resale in connection with, a
public sale or distribution of such Securities or any part thereof,
without prejudice, however, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such
Securities in compliance with applicable federal and state
securities laws. Subject to the immediately preceding sentence,
nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of
time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any
agreement or understanding, directly or indirectly, with any Person
to distribute any of the Securities.
(c)
Investor Status . At the time such Investor was offered the
Securities, it was an “accredited investor” as defined
in Rule 501(a) under the Securities Act. Such Investor is not a
registered broker dealer under Section 15 of the Exchange
Act.
(d)
General Solicitation . Such Investor is not purchasing the
Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any
newspaper, magazine or similar media or broadcast over television
or radio.
(e)
Access to Information . Such Investor acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of,
and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the
Securities and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations,
business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can
acquire without unreasonable effort or expense that is necessary to
make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Investor or its representatives
or counsel shall modify, amend or affect such Investor’s
right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents.
15
(f)
Certain Trading Activities . Such Investor has not directly
or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Investor, engaged in any
transactions in the securities of the Company (including any Short
Sales involving the Company’s securities) since the time that
such Investor was first contacted by the Company, the Placement
Agent, or any other Person acting on behalf of the Company
regarding the investment in the Company contemplated by this
Agreement. Such Investor covenants that neith
