YAYI INTERNATIONAL INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT

Exhibit 10.1

EXECUTION VERSION

YAYI INTERNATIONAL INC.

SERIES A PREFERRED STOCK

PURCHASE AGREEMENT

 

Dated as of June 18, 2009

 

 

TABLE OF CONTENTS
			Page
1.	DEFINITIONS.		1
2.	PURCHASE AND SALE OF THE SHARES.		9
	2.1	Sale and Issuance of the Shares.	9
	2.2	Closing.	9
	2.3	Company Deliveries at Closing.	9
	2.4	Deliveries by Global Rock, Charleston and Founders at Closing.	10
	2.5	Investor Deliveries at Closing	10
3.	REPRESENTATIONS AND WARRANTIES OF THE WARRANTORS		10
	3.1	Organization, Good Standing, Qualification and Business Scope	10
	3.2	Capitalization.	11
	3.3	Subsidiaries	12
	3.4	Authorization.	12
	3.5	Valid Issuance of the Shares	13
	3.6	Consents; No Conflicts.	13
	3.7	SEC Reports; Financial Statements.	13
	3.8	Changes	14
	3.9	Internal Controls and Securities Law Compliance.	16
	3.10	Actions.	16
	3.11	Liabilities.	16
	3.12	Commitments	17
	3.13	Compliance with Laws; Consents	18
	3.14	Anti-Bribery, Anti-Corruption, Anti-Money Laundering and Sanctions.	19
	3.15	Related Party Transactions.	20
	3.16	Tax Matters.	20
	3.17	Environmental and Safety Laws.	21
	3.18	Title; Liens	22
	3.19	Intellectual Property Rights.	22
	3.20	Real Property.	23
	3.21	Labor and Employment Matters.	23
	3.22	Offering	23
	3.23	Over-the-Counter Bulletin Board Quotation.	24
	3.24	Investment Company.	24
	3.25	Selling Restrictions Compliance	24
	3.26	Full Disclosure	24
4.	REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.		25
	4.1	Organization and Good Standing	25
	4.2	Authorization.	25
	4.3	Investment Experience	25
	4.4	Purchase for Own Account.	25
	4.5	Independent Investment Decision	25
	4.6	General Solicitation.	25
	4.7	Access to Information	25

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TABLE OF CONTENTS
(continued)
			Page
5.	CONDITIONS OF THE INVESTOR’S OBLIGATIONS AT THE CLOSING.		26
	5.1	Representations and Warranties	26
	5.2	Consents	26
	5.3	Proceedings and Documents	26
	5.4	Opinions of Counsel.	26
	5.5	Adoption and Filing of Certificate of Designation.	26
	5.6	Transaction Documents.	26
	5.7	Board of Directors	26
	5.8	Bank Account	27
	5.9	Financial Information	27
	5.10	Budget and Business Plan	27
	5.11	PRC Companies Restructuring.	27
	5.12	Jinghai Plant Transfer Supplemental Agreement.	27
	5.13	Share Pledge	27
	5.14	Employee Proprietary Information, Inventions Assignment and Non-
		Competition Agreement	27
	5.15	Trade Secret Escrow.	27
	5.16	Lock-up Agreements	27
	5.17	Agreement with Richlink	27
	5.18	Absence of Material Litigation.	28
	5.19	Absence of Material Adverse Effect	28
	5.20	Completion of Diligence	28
	5.21	Legal Matters.	28
	5.22	Closing Certificate.	28
6.	CONDITIONS OF THE COMPANY’S OBLIGATIONS AT CLOSING		28
7.	COVENANTS.		28
	7.1	Use of Proceeds	28
	7.2	Subsidiary Boards.	29
	7.3	Supervisors Committee	29
	7.4	Board Activities.	29
	7.5	ESOP	29
	7.6	Completion of PRC Companies Restructuring	30
	7.7	Jinghai Real Property	30
	7.8	Due to Related Parties	30
	7.9	Executive Search	30
	7.10	Warrantors’ Additional Covenants.	30
8.	INDEMNITY		31
	8.1	Indemnification by the Warrantors.	31
	8.2	Defense of Third Party Claims.	31
9.	MISCELLANEOUS.		32
	9.1	Survival of Representations, Warranties and Covenants	32
	9.2	Governing Law.	32

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TABLE OF CONTENTS
(continued)
		Page
9.3	Successors and Assigns	32
9.4	Confidentiality.	32
9.5	Public Announcements.	32
9.6	Amendments and Waivers.	32
9.7	Dispute Resolution	33
9.8	Enforcement	35
9.9	Notices.	35
9.10	Fees and Expenses.	35
9.11	Severability.	35
9.12	No Waiver	36
9.13	Rights Cumulative.	36
9.14	Delays or Omissions.	36
9.15	No Presumption.	36
9.16	Headings and Subtitles; Interpretation	36
9.17	Counterparts	37
9.18	No Commitment for Additional Financing	37
9.19	Entire Agreement	37
Schedule I	Schedule of Founders
Schedule II	Group Companies
Schedule III	PRC Companies Restructuring
Exhibit A	Certificate of Designation
Exhibit B	Investor Rights Agreement
Exhibit C	Voting Agreement

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SERIES A PREFERRED STOCK PURCHASE AGREEMENT

THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this " Agreement ") is entered into as of June 18, 2009, by and among:

(i)

Yayi International Inc., a Delaware company (the " Company ");

(ii)

Global Rock Stone Industrial Ltd, a British Virgin Islands company (" Global Rock ");

(iii)

Charleston Industrial Ltd, a British Virgin Islands company (" Charleston ");

(iv)

Tianjin Yayi Industrial Co., Ltd. ( 天津市 亚亿实业有限公司 ), a company organized under the laws of the People’s Republic of China (the " Tianjin Yayi ");

(v)

the individuals as set forth in Schedule I attached hereto (collectively, the " Founders "); and

(vi)

SAIF Partners III L.P., a Cayman Islands exempted limited partnership (the " Investor ").

Each of the parties listed above referred to herein individually as a " Party " and collectively as the " Parties. "

RECITALS

WHEREAS, the Company has created a new class of convertible preferred shares designated as Series A Preferred Stock (the " Series A Preferred Stock ") through the adoption by the Board of Directors of the Company of a certificate of designation in the form attached as Exhibit A hereto (the " Certificate of Designation ");

WHEREAS, the Company wishes to issue and sell to the Investor, and the Investor wishes to purchase from the Company, 1,530,612 shares of Series A Preferred Stock (the " Shares ") upon the terms and subject to the conditions set forth herein;

WHEREAS, Global Rock is a principal stockholder of the Company, Charleston is a whole-owned subsidiary of the Company and Tianjin Yayi is a subsidiary of Charleston; and

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

AGREEMENT

1.

Definitions. The following terms shall have the meanings ascribed to them below:

" 1933 Act " means the U.S. Securities Act of 1933, as amended and interpreted from time to time.

" Action " means any notice, charge, claim, action, complaint, petition, investigation, suit or other proceeding, whether administrative, civil or criminal, whether at Law or in equity, and whether or not before any mediator, arbitrator or Governmental Authority.

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“ Affiliate ” means, with respect to a Person, any other Person that, directly or indirectly, Controls, is Controlled by or is under common Control with such Person. In the case of an Investor, the term “Affiliate” also includes (v) any shareholder of the Investor, (w) any of such shareholder’s general partners or limited partners, (x) the fund manager managing such shareholder (and general partners, limited partners and officers thereof) and (y) trusts controlled by or for the benefit of any such Person referred to in (v), (w) or (x). In the case of a natural person, the term “Affiliate” also includes his or her Relatives, and any Affiliates of his or her Relatives. For purposes of this Agreement, each Group Company shall be deemed an Affiliate of each other.

“ Benefits Plan ” means any employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employment compensation agreement or any other plan which provides or provided benefits for any employee, officer, consultant, and/or director or with respect to which contributions are or have been made on account of an employee, officer, consultant, and/or a director.

“ Board ” or “ Board of Directors ” means the board of directors of the Company.

“ Business Day ” means any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks are required or authorized by law to be closed in the PRC.

“ Charter Documents ” means, with respect to a particular legal entity, the articles of incorporation, certificate of incorporation, memorandum of association, articles of association, Bylaws, articles of organization, certificate of formation, limited liability company agreement, operating agreement, certificate of designation, or similar or other constitutive, governing, or charter documents, or equivalent documents, of such entity.

 “ Circular 75 ” means the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Financing and Round Trip Investment via Overseas Special Purpose Companies issued by SAFE on October 21, 2005.

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended.

“ Common Stock ” means the Company’s common stock, par value US$0.001.

“ Company Registered IP ” means all Intellectual Property for which registrations have been obtained throughout the world (and all applications for, or extensions or reissues of, any of the foregoing throughout the world) that are owned by, or registered or applied for in the name of, any Group Company.

“ Consent ” means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority.

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“ Contract ” means, a contract, agreement, understanding, indenture, note, bond, loan, instrument, lease, mortgage, franchise, license, commitment, purchase order, purchasing arrangement and other legally binding arrangement, whether written, oral, express or implied.

“ Control ” of a given Person means the power or authority, whether exercised or not, to direct the business, management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise; provided, that such power or authority shall conclusively be presumed to exist upon possession of beneficial ownership or power to direct the vote of more than fifty percent (50%) of the votes entitled to be cast at a meeting of the members or shareholders of such Person or power to control the composition of a majority of the board of directors of such Person. The terms “Controlled” and “Controlling” have meanings correlative to the foregoing.

“ Conversion Shares ” means collectively, the Common Stock issuable upon conversion of the Shares in accordance with the terms under Certificate of Designation.

“ Disclosure Schedule ” means the Disclosure Schedule, dated of even date herewith, delivered by the Warrantors to the Investor in connection with Section 3 of this Agreement.

“ Environmental Law ” means any and all applicable Laws of or by any Governmental Authority relating to (i) environmental matters, (ii) the generation, use, storage, transportation or disposal of hazardous substances, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare.

“ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended and interpreted from time to time.

“ FCPA ” means the U.S. Foreign Corrupt Practices Act of 1977, as amended, and interpreted from time to time.

“ Governmental Authority ” means any nation or government or any federation, province or state or any other political subdivision thereof; any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the PRC or any other country, or any political subdivision thereof, any court, tribunal or arbitrator, and any self-regulatory organization.

“ Governmental Order ” means any applicable order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, consent, approval, award, judgment, injunction or other similar determination or finding by, before or under the supervision of any Governmental Authority.

3

“ Group ” means, collectively, the Company and its Subsidiaries, including without limitation, the entities set forth on Schedule II attached hereto.

“ Group Company ” means any member of the Group.

“ Indebtedness ” of any Person means, without duplication, each of the following of such Person: (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business consistent with past practice), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced that are incurred in connection with the acquisition of properties, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all obligations that are capitalized in accordance with US GAAP, (vii) all obligations under banker’s acceptance, letter of credit or similar facilities, (viii) all obligations to purchase, redeem, retire, defease or otherwise acquire for value any Securities of such Person, (ix) all obligations in respect of any interest rate swap, hedge or cap agreement, (x) all indebtedness referred to in clauses (i) through (ix) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any other Person, even though such other Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (xi) all contingent obligations in respect of indebtedness or obligations of other Persons of the kinds referred to in clauses (i) through (x) above.

“ Indemnifiable Loss ” means, with respect to any Person, any action, cost, damage, disbursement, expense, liability, loss, deficiency, diminution in value, obligation, penalty or settlement of any kind or nature, including without limitation, (i) interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Person, and (ii) any Taxes that may be payable by such Person by reason of the indemnification of any Indemnifiable Loss hereunder, other than Taxes that would have been payable notwithstanding the event giving rise to indemnification.

“ Intellectual Property ” means any and all (i) patents, all patent rights and all patent rights and all applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, (ii) inventions (whether patentable or not), discoveries, improvements, concepts, innovations and industrial models, (iii) registered and unregistered copyrights, copyright registrations and applications, mask works and mask work registrations and applications therefor, author’s rights and works of authorship (including artwork of any kind and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, firmware, development tools, files, records and data, and  related documentation), (iv) URLs, web sites, web pages and any part thereof, (v) technical information, know-how, trade secrets, drawings, designs, design protocols, specifications, proprietary data, customer lists, databases, proprietary processes, technology, formulae, and algorithms, (vi) trade names, trade dress, trademarks, domain names, service marks, logos, business names, and registrations and applications therefor, and (vii) the goodwill symbolized or represented by the foregoing.

4

“ Investor Directors ” means the directors of the Company that are nominated by the holders of shares of Series A Preferred Stock and elected to the Board pursuant to the Certificate of Designation and other Charter Documents of the Company.

“ Investor Rights Agreement ” means a certain Investor and Registration Rights Agreement in the form attached as Exhibit B hereto entered into by Global Rock, the Company, the Investor and certain other parties thereto, at the Closing.

“ Jinghai Plant Transfer Supplemental Agreement ” means that certain Plant Transfer Supplemental Agreement dated as of June 12, 2009 by and between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd.

“ Jinghai Real Property ” means the real property located in Jinghai, Tianjin and set forth in the Jinghai Plant Transfer Supplemental Agreement, which shall consist of (i) approximately 7,800 square meters of office building, (ii) approximately 30,165 square meters of plants and warehouses, and (iii) the land use rights relating to (i) and (ii) above.

“ Key Employees ” means with respect to an entity, the president, chief executive officer, the chief financial officer, the chief operating officer, the general manager, any other senior manager or any other employee with responsibilities similar to any of the foregoing, of such entity.

“ Laws ” means any and all provisions of any constitution, treaty, statute, law, regulation, ordinance, code, rule, rule of common law, governmental approval, concession, grant, franchise, license, agreement, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, in each case as amended, and any and all Governmental Order.

“ Liabilities ” means, with respect to any Person, all liabilities, obligations and commitments of such Person of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due.

“ Lien ” means any claim, charge, easement, encumbrance, lease, covenant, security interest, lien, option, pledge, rights of others, or restriction (whether on voting, sale, transfer, disposition or otherwise), whether imposed by Contract, understanding, law, equity or otherwise.

“ Management Rights Agreement ” means a certain management rights agreement delivered by the Company to the Investor at the Closing.

5

“ Material Adverse Effect ” means any event, occurrence, fact, condition, change or development, either individually or with other events, occurrences, facts, conditions, changes or developments, that (i) has or is reasonably likely to have a material adverse effect on the operations, results of operations, condition (financial or otherwise), prospects, assets or liabilities of any Group Company, (ii) materially impairs or is reasonably likely to materially impair the ability of any party (other than the Investor) to perform its/his/her material obligations under any Transaction Document, or (iii) materially impairs or is reasonably likely to materially impair the validity or enforceability of any Transaction Document against any party thereto (other than the Investor).

“ MOFCOM ” means the Ministry of Commerce or, with respect to any matter to be submitted for examination and approval by the Ministry of Commerce, any Governmental Authority which is similarly competent to examine and approve such matter under the laws of the PRC.

“ Notice 106 ” means the Implementing Rules for Circular 75 issued by SAFE on May 31, 2007.

“ Order No. 10 ” means the Rules for Mergers with and Acquisitions of Domestic Enterprises by Foreign Investors ( 《 关于外国投资者并购境内企业的规定》 ) jointly issued by the MOFCOM, the State-owned Assets Supervision and Administration Commission, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission and the SAFE on August 8, 2006.

" Permitted Liens " means (i) Liens for Taxes not yet due and payable or the validity of which are being contested, and (ii) Liens incurred in the ordinary course of business consistent with past practice, which (x) do not in the aggregate materially detract from the value or use of the assets that are subject to such Liens and (y) were not incurred in connection with the borrowing of money.

" Person " means any individual, corporation, partnership, limited partnership, proprietorship, association, limited liability company, firm, trust, estate or other enterprise or entity.

" PRC " means the People’s Republic of China, but solely for the purposes of this Agreement and the other Transaction Documents, excluding Hong Kong, Macau and Taiwan.

" PRC Companies Restructuring " means all the actions need to taken and all such agreements, documents and instruments need to executed, as set forth in Schedule III hereto in connection with the restructuring of Tianjin Yayi and its Subsidiaries.

" PRC Entities " means any Group Company that is organized under the laws of the PRC.

" Public Official " means any executive, official, or employee of a Governmental Authority, political party or member of a political party, political candidate; executive, employee or officer of a public international organization; or  director, officer or employee or agent of a wholly owned or partially state-owned or controlled enterprise, including a PRC state-owned or controlled enterprise.

6

“ Related Party ” means (i) any officer, director, supervisory board member, or holder of a Security of any Group Company, (ii) any Affiliate of any such officer, director, supervisory board member, or holder, (iii) any Group Company or any Affiliates of any Group Company, and (iv) each member of the immediate family of each of the foregoing that is an individual, and any Affiliates of such member.

“ Relatives ” of a natural person means the spouse of such person, and any parent, grandparent, child, grandchild, sibling, uncle, aunt, nephew, or niece of such person, and the spouse of the foregoing persons.

“ Reserve ” or “ reservation ” means, with respect to a specified number of shares of Common Stock of the Company, the Company shall refrain from issuing such number of shares so that such number of shares shall remain in the authorized but unissued share capital of the Company and available for issuance upon exercise of the conversion rights attached to the Series A Preferred Stock.

“ SAFE ” means the State Administration of Foreign Exchange of the PRC.

“ SAFE Rules and Regulations ” means collectively, the Circular 75, Notice 106, and any other applicable SAFE rules and regulations.

“ SAIC ” means the State Administration of Industry and Commerce or, with respect to the issuance of any business license or filing or registration to be effected by or with the State Administration of Industry and Commerce, any Governmental Authority which is similarly competent to issue such business license or accept such filing or registration under the laws of the PRC.

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities ” means, with respect to any Person that is a legal entity, any and all shares of capital stock, membership interests, units, profits interests, ownership interests, equity interests, registered capital, and other securities of such Person, and any right, warrant, option, call, commitment, conversion privilege, preemptive right or other right to acquire any of the foregoing, or security convertible into, exchangeable or exercisable for any of the foregoing, or any Contract providing for the acquisition of any of the foregoing.

“ Social Insurance ” means any form of social insurance required under applicable Laws, including without limitation, national and local contributions for pensions, medical insurance, unemployment insurance, work-related injury insurance, pregnancy benefits, and housing accumulation funds.

“ Statement Date ” means April 30, 2009.

“ Subsidiary ” means, with respect to any given Person, any other Person that is not a natural person and that is Controlled directly or indirectly by such given Person.

7

“ Tax ” means (i) in the PRC: (a) any national, provincial, municipal, or local taxes, charges, fees, levies, or other assessments, including, without limitation, all net income (including enterprise income tax and individual income withholding tax), turnover (including value-added tax, business tax, and consumption tax), resource (including urban and township land use tax), special purpose (including land value-added tax, urban maintenance and construction tax, and additional education fees), property (including urban real estate tax and land use fees), documentation (including stamp duty and deed tax), filing, recording, social insurance (including pension, medical, unemployment, housing, and other social insurance withholding), tariffs (including import duty and import value-added tax), and estimated and provisional taxes, charges, fees, levies, or other assessments of any kind whatsoever, (b) all interest, penalties (administrative, civil or criminal), or additional amounts imposed by any Governmental Authority in connection with any item described in clause (a) above, and (c) any form of transferee liability imposed by any Governmental Authority in connection with any item described in clauses (a) and (b) above, and (ii) in any jurisdiction other than the PRC: all similar liabilities as described in clause (i) above.

“ Tax Return ” means any return, report or statement showing Taxes, used to pay Taxes, or required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof), including any information return, claim for refund, amended return or declaration of estimated or provisional Tax.

“ Transaction Documents ” means this Agreement, the Investor Rights Agreement, the Voting Agreement, the Pledge Agreement, the Management Rights Agreement and each of the agreements and other documents otherwise required in connection with implementing the transactions contemplated by any of the foregoing.

“ US GAAP ” means generally accepted accounting principles in the United States, consistently applied.

“ Voting Agreement ” means a certain Voting Agreement in the form attached as Exhibit C hereto entered into by Global Rock, the Company, the Investor and certain other parties thereto, at the Closing.

“ Warrantors ” means collectively, the Company, Global Rock, Charleston, Tianjin Yayi and the Founders.

In addition, the following capitalized terms have the meanings given thereto in the referenced section below:

 

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2.

Purchase and Sale of the Shares.

2.1

Sale and Issuance of the Shares. Subject to the terms and conditions of this Agreement, at the Closing (as defined below), the Company shall sell and issue to the Investor, and the Investor shall purchase from the Company, 1,530,612 shares of Series A Preferred Stock for an aggregate consideration of US$15,000,000 (Fifteen Million US Dollars) (the “ Total Purchase Price ”) at an issuance price of US$9.80 per Share (the “ Purchase Price ”).

2.2

Closing. The consummation of the sale and issuance of the Shares pursuant to Section 2.1 above (the “ Closing ”) shall take place at the offices of Latham & Watkins, 41st Floor, One Exchange Square, 8 Connaught Place, Central, Hong Kong, at 10:00 a.m. Hong Kong time on the date hereof (or at such later time and place as the Parties may agree) after notification of satisfaction (or waiver) of the conditions specified in Sections 5 and 6 .

2.3

Company Deliveries at Closing. At the Closing, the Company shall cause to be delivered to the Investor:

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(i)

a certificate or certificates representing the Shares, in form reasonably satisfactory to the Investor;

(ii)

to each Investor, a copy of the Company’s updated share ledger, evidence of the appointment of the directors as contemplated by Section 5.7 hereof, and an application form to be filed with the relevant Administration of Industry and Commerce of the appointment of the directors to the board of directors of each of the PRC Entities as contemplated by Section 5.7 hereof, each certified as true and accurate by the Company’s Chief Executive Officer and Chief Financial Officer; and

(iii)

such other documents, agreements and instruments required to be delivered by the Company to the Investor under Section 5 hereof.

 

2.4

Deliveries by Global Rock, Charleston and Founders at Closing. At the Closing, each of Global Rock, Charleston and Founders shall deliver to each Investor the agreements, documents, and instruments required to be delivered by them under Section 5 hereof.

2.5

Investor Deliveries at Closing. At the Closing, the Investor shall cause to be delivered to the Company the Total Purchase Price by wire transfer of immediately available United States Dollar funds to a bank account designated by the Company.

3.

Representations and Warranties of the Warrantors. The Warrantors jointly and severally represent and warrant to the Investor that:

3.1

Organization, Good Standing, Qualification and Business Scope.

(i)

Each Group Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Group Company has all requisite legal and corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted. Each Group Company is duly qualified to transact business and is in good standing in each other jurisdiction in which such qualification is required, except where the failure to so qualify would not cause a Material Adverse Effect.

(ii)

Each PRC Entity has a valid business license issued by the SAIC or its local branch or other relevant Government Authorities, and has, since its establishment, carried on its business materially in compliance with the business scope set forth in its business license.

(iii)

The minute books for each Group Company contain, in all material respects, complete and accurate records of all meetings conducted, resolutions adopted, and written consents entered into by such company’s shareholders and board of directors (or committees thereof) since the date of its incorporation. A true and complete copy of the minute books for each Group Company has been made available to the Investor or its advisors.

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iv)

The true and complete copies of the Charter Documents of each Group Company in effect have been provided to the Investor. No Group Company is in violation, breach or default of any of its Charter Documents.

3.2

Capitalization.

(i)

Section 3.2(i) of the Disclosure Schedule sets forth, as of the date hereof and immediately following the Closing, the authorized, issued, outstanding and reserved Securities of the Company. Other than those set forth in Section 3.2(i) of the Disclosure Schedule: (i) there are no options, warrants or other rights outstanding which give any Person the right to acquire any share capital of the Company or to subscribe to any increase of any share capital of the Company; and (ii) there are no disputes, arbitrations or litigation proceedings involving the Company with respect to the share capital of the Company.

(ii)

Section 3.2(ii) of the Disclosure Schedule sets forth the following information for Global Rock and each Group Company as of and immediately following the Closing: (a) the authorized, issued and outstanding Securities of Global Rock and each Group Company (other than the Company), the record and beneficial owners of such Securities, the nature and amount of their shareholding, and any nominee shareholder arrangement with respect to such Securities,(b) the legal entity nature of Global Rock and each Group Company, (c) the jurisdiction in which Global Rock and each Group Company was organized and exists, and (d) each jurisdiction in which Global Rock and each Group Company is required to be qualified or licensed to do business as a foreign Person.

(iii)

All share capital of each Group Company (other than PRC Entities) (a) has been duly and validly issued (or subscribed for), is fully paid and is non-assessable, (b) is free of limitation in voting rights, preemptive rights, any other restrictions on transfer (except for any restrictions on transfer under applicable securities laws or as expressly contemplated under the Transaction Documents), and other Liens, (c) has been issued in compliance with the requirements of all applicable securities Laws, including, to the extent applicable, the 1933 Act, and (d) was not issued or subscribed to in violation of the preemptive rights of any Person, any Contract, or any applicable Laws.

(iv)

All outstanding registered capital of each PRC Entity has been fully contributed (and such contribution has been duly verified by a certified accountant registered in the PRC and the accounting firm employing such accountant, and the report of the certified accountant evidencing such verification has been registered with the relevant Government Authorities) with no personal liability attaching to ownership thereof, and free of all limitations in voting rights, preemptive rights and any other restrictions on transfer (except for any preemptive rights or restrictions required under applicable Laws or as expressly contemplated under the Transaction Documents), and other Liens. No registered capital of any PRC Entity was obtained by the current holder thereof in violation of the preemptive rights of any Person, the terms of any Contract or any applicable Laws.

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(v)

Except as set forth in Section 3.2(v) of the Disclosure Schedule, there are no (a) resolutions pending to increase the authorized share capital or registered capital of any Group Company; (b) authorized or outstanding Securities of any Group Company other than as set forth in Section 3.2(i) and Section 3.2(ii) hereof; (c) dividends which have accrued or been declared but are unpaid by any Group Company; (d) equity incentive plans with respect to any Group Company; (e) obligations, contingent or otherwise, of any Group Company to repurchase, redeem, or otherwise acquire any Securities; or (f) voting trusts, shareholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any Securities of any Group Company. Other than pursuant to the Transaction Documents, no Group Company has granted or agreed to grant any Person any registration rights (including piggyback registration rights) with respect to any of its Securities.

3.3

Subsidiaries. Except as set forth in Section 3.3 of the Disclosure Schedule, none of the Group Companies has any Subsidiaries or owns or Controls, directly or indirectly, any interest in any other Person, or is a participant in any joint venture, partnership or similar arrangement, or maintains any representative offices or any branches. None of the Group Companies has any obligations to provide working capital to, or make any investment (in the form of a loan, capital contribution or otherwise) in any Person.

3.4

Authorization.

(i)

Each Group Company has all requisite power and authority to execute and deliver the Transaction Documents to which it is a party and to carry out and perform its obligations thereunder. All corporate action necessary on the part of each Group Company and their respective officers, directors and shareholders has been taken for the authorization, execution, and delivery by such Group Company of each Transaction Document to which it is a party, and the performance by such Group Company of its obligations thereunder. Each Transaction Document has been duly and validly executed and delivered by each of the parties thereto other than the Investor, and constitutes a legal, valid, and binding obligation of each of the parties thereto (other than the Investor), enforceable against such parties in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other applicable Laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by applicable Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

(ii)

Each Founder is of sound mind, has the necessary legal capacity to perform such Founder’s obligations under any Transaction Documents to which such Founder is a party, has entered into or will enter into the Transaction Documents on such Founder’s own will after obtaining full independent professional advice (including legal advice) in respect thereof and understands the nature of the obligations to be assumed by him/her under the Transaction Documents to which such Founder is a party.

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3.5

Valid Issuance of the Shares. The Shares, when issued, sold and delivered in accordance with the terms and for the consideration set forth herein, will be duly and validly issued in compliance with all applicable Laws, including those regulating the offer, sale or issuance of securities, will be fully-paid and non-assessable, and will be free of restrictions on transfer (other than restrictions on transfer under applicable securities laws) and other Liens. Immediately following the Closing, the Investor will be the sole legal and beneficial owner of, and will have good and marketable title to the Shares. As of the Closing, the Conversion Shares will have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate of Designation, will be duly and validly issued, fully-paid, and non-assessable and will be free restrictions on transfer (other than restrictions on transfer under applicable securities laws) and other Liens.

3.6

Consents; No Conflicts. No Consent from any Governmental Authority or any other Person is required in connection with the valid execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated by the Transaction Documents on the part of any party thereto (other than the Investor) or any Group Company. The execution, delivery and performance of each Transaction Document by each party thereto (other than the Investor) and the consummation by such party of the transactions contemplated thereby will not (i) result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice, or give any Person rights of termination, amendment, acceleration or cancellation under, (w) any Governmental Order, (x) any provision of the Charter Documents of any Group Company, (y) any applicable Laws (including without limitation, Order No. 10 and the SAFE Rules and Regulations), or (z) any Material Contract, (ii) result in any termination, modification, cancellation, or suspension of any material right of, or any augmentation or acceleration of any material obligation of, any Group Company (including without limitation, any Indebtedness of such Group Company), or trigger any preemptive right or transfer restriction, or (iii) except pursuant to the Pledge Agreement, result in the creation of any Lien upon any of the properties or assets of any Group Company.

3.7

SEC Reports; Financial Statements.

 

(i)

The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the 1933 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. As of the date of filing, in the case of SEC Reports filed pursuant to the Exchange Act (and to the extent 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 1933 Act (and to the extent 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 1933 Act and the Exchange Act and the rules and regulations of the SEC 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 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 1933 Act (and to the extent 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. 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.

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(ii)

As of their respective dates, the financial statements contained in the SEC Reports and the related notes (the “ Financial Statements ”) complied as to form in all material respects with all applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Financial Statements: (i) were prepared in accordance with US GAAP during the periods involved (ii) fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments) and (iii) are in all material respects in accordance with the books of account and records of the Company and its consolidated subsidiaries.

(iii)

Each Group Company maintains its books of accounts and records relating to its business, operations, conditions (financial or other), and assets and properties in the usual, regular and ordinary manner, on a basis consistent with prior practice, and which permits its Financial Statements to be prepared in accordance with US GAAP.

3.8

Changes. Since the Statement Date, the Group has operated its business in the ordinary course consistent with its past practice. Except as expressly set forth on Section 3.8 of the Disclosure Schedule, since the Statement Date, there has not been:

(i)

any Material Adverse Effect;

(ii)

any waiver of a material right or of a material debt owed to any Group Company;

(iii)

any receipt of notice that there has been a loss of, or material order cancellation by, any major customer or supplier of, or major licensor;

(iv)

any incurrence, creation, assumption, repayment, satisfaction or discharge of any Indebtedness or any material Lien (except Permitted Liens), or any loan or advance to, guarantee for the benefit of, or investment in, any Person (other than advances to employees in the ordinary course of business consistent with past practice that are immaterial in the aggregate), in any case with respect to a Group Company;

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(v)

any resignation or termination of any Key Employee of any Group Company or any material group of employees of any Group Company;

(vi)

any waiver, change, amendment to or termination of a Material Contract; any entering of any new Material Contract or any termination of any Contract that would have been a Material Contract if in effect on the date hereof; or any amendment to, or waiver under any Charter Documents of any Group Company;

(vii)

any change in any compensation arrangement or agreement with any Key Employee, or adoption of any Benefits Plan, in any case of any Group Company;

(viii)

any sale, assignment, exclusive license, or transfer of any Intellectual Property of any Group Company, other than non-exclusive licenses to customers in the ordinary course of business consistent with past practice;

(ix)

any declaration, setting aside or payment of any dividend or other distribution in respect of any Securities of any Group Company, or any direct or indirect redemption, purchase or other acquisition of any Securities of any Group Company;

(x)

any capital expenditures or commitments therefor by any Group Company that aggregate in excess of US$100,000;

(xi)

except in the ordinary course of business consistent with past practice, entry by any Group Company into any closing agreement in respect of material Taxes, settlement of any claim or assessment in respect of any material Taxes, or consent by any Group Company to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any material Taxes, or entry or change by any Group Company of any material Tax election, change of any method of accounting resulting in a material amount of additional Tax or filing of any material amended Tax Return;

(xii)

entry into any transaction or series of related transactions by any Group Company in an aggregate amount in excess of US$50,000, other than in the ordinary course of business consistent with past practice; or entry into any transaction by any Group Company with any Related Party;

(xiii)

any material change in the nature, scope or organization of the Group’s business; or disposal of the whole or substantial part of the business or material assets; or any purchase, acquisition, sale, lease, disposal of or transfer of any assets that are individually or in the aggregate material to the Group’s business, other than the purchase or sale of inventory in the ordinary course of business consistent with past practice;

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(xiv)

any acquisition or formation of any Subsidiary, any branch companies, any Security in any Person or the whole or any substantial part of the undertaking, assets or business of any Person or entering into any joint venture or partnership with any Person, in any case with respect to a Group Company;

(xv)

entry into any consolidation, amalgamation, scheme of arrangement or merger with or into any Person or other similar corporate reorganization, in any case with respect to a Group Company;

(xvi)

any sale, issuance, transfer, pledge or other disposition of any Securities of any Group Company (except for the Company);

(xvii)

any settlement or commencement of any material Action by any Group Company; or

(xviii)

any agreement or commitment to do any of the things described in this Section 3.8 .

  3.9

Internal Controls and Securities Law Compliance. The Company is in compliance with any and all applicable securities laws and excepted as disclosed in the SEC Reports, each Group Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions by it and its Subsidiaries are executed in accordance with management’s general or specific authorization, (ii) transactions by it are recorded as necessary to permit preparation of financial statements in conformity with US GAAP and to maintain asset accountability, (iii) access to assets of it is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets of it and its Subsidiaries is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences.

3.10

Actions. There is no material Action pending or threatened against or affecting any Group Company or any of its officers, directors or employees with respect to its businesses or p