Securities Purchase Agreement

EXHIBIT 10.6

           RE:     XINHUA CHINA LTD

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement (the “ Securities Purchase Agreement ”) of even date herewith by and between Xinhua China Ltd, a Nevada corporation (the “ Company ”), and the Buyers set forth on Schedule I attached thereto (collectively the “ Buyers ”) and that certain Escrow Shares Escrow Agreement (the “ Escrow Agreement ”) of even date herewith among the Company, the Buyers and Gottbetter & Partners, LLP, as escrow agent (the “ Escrow Agent ”).  Pursuant to the Securities Purchase Agreement, the Company shall sell to the Buyers, and the Buyers shall purchase from the Company, convertible debentures (collectively, the “ Debentures ”) in the aggregate principal amount of Four Million Dollars ($4,000,000), plus accrued interest, which are convertible into shares of the Company’s common stock, par value $.00001 per share (the “ Common Stock ”), at the Buyers discretion.  These instructions relate to the following stock or proposed stock issuances or transfers:

1. The Company has agreed to issue to the Buyers (i) up to 10,000,000 shares of Common Stock upon conversion of the Debentures (the “Maximum Conversion ”); provided, however, that upon the Maximum Conversion, the Company shall, at its option (a) increase the Maximum Conversion or (b) redeem the unconverted amount of all of the Convertible Debentures in whole at one hundred thirty five percent (135%) of the unconverted amount of such Convertible Debentures being redeemed plus accrued interest thereon, (ii) 1,035,000 shares of Common Stock upon exercise of the Warrant (as defined in the Securities Purchase Agreement) (the “ Warrant Shares ”) if required under the Securities Purchase Agreement, and (iii) to issue in the name of the Buyer(s) 20,000,000 shares of Common Stock as “security stock” to be held in escrow (the “Escrow Shares”) pursuant to the Securities Purchase Agreement, the Convertible Debentures and the Escrow Shares Escrow Agreement.
2. The Company has issued the 20,000,000 Escrow Shares (the “Escrow Shares”) in the Buyer’s name that have been or are being delivered to the Escrow Agent pursuant to the Securities Purchase Agreement and the Escrow Agreement.

This letter shall serve as our irrevocable authorization and direction to Pacific Stock Transfer Co. (the “ Transfer Agent ”) to do the following:

1.      Conversion Shares . 

a.       Instructions Applicable to Transfer Agent .  With respect to the Conversion Shares and the Warrant Shares, the Transfer Agent shall issue the Conversion Shares or the Warrant Shares to the Buyers from time to time upon delivery to the Transfer Agent of a properly completed and duly executed Conversion Notice (the “ Conversion Notice ”), in the form attached hereto as Exhibit I , delivered on behalf of the Company to the Transfer Agent by the Escrow Agent or a properly completed and duly executed notice of exercise substantially in the form attached to the Warrant (the “ Exercise Notice ”), respectively.  Upon receipt of a Conversion Notice or Exercise Notice, the Transfer Agent shall within three (3) Trading Days thereafter (i) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice or Exercise Notice, a certificate or certificates, registered in the name of the Buyers or their designees, for the number of shares of Common Stock to which the Buyers shall be entitled as set forth in the Conversion Notice or Exercise Notice or (ii) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Buyers, credit such aggregate number of shares of Common Stock to which the Buyers shall be entitled to the Buyers’ or their designees’ balance account with DTC through their Deposit Withdrawal At Custodian (“ DWAC ”) system provided the Buyers causes its bank or broker to initiate the DWAC transaction. For purposes hereof “ Trading Day ” shall mean any day on which the Nasdaq National Market is open for customary trading. 

b.       The Company hereby confirms to the Transfer Agent and the Buyers that certificates representing the Conversion Shares and Warrant Shares shall not bear any legend restricting transfer and should not be subject to any stop-transfer restrictions and shall otherwise be freely transferable on the books and records of the Company; provided that counsel to the Company delivers (i) the Notice of Effectiveness set forth in Exhibit II attached hereto and (ii) an opinion of counsel in the form set forth in Exhibit III attached hereto, and that if the Conversion Shares and the Warrant Shares are not registered for resale under the Securities Act of 1933, as amended, then the provisions of paragraph 1(a)(ii), above, shall not be applicable until such shares are registered, and the certificates for the Conversion Shares and Warrant Shares shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY

 

ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.”

The Company hereby confirms that in the event that a stop order suspending the effectiveness of the Registration Statement has been issued by the SEC or any proceeding for that purpose are threatened by the SEC the Company will notify the Transfer Agent promptly, in light of the circumstances, of such order or notice.  In addition, the Company shall promptly inform the Transfer Agent of any voluntary suspension of the effectiveness of the Registration Statement and confirm the continued effectiveness of the Registration Statement upon inquiry by the Transfer Agent.

c.       In the event that counsel to the Company fails or refuses to render an opinion as required to issue the Conversion Shares or Warrant Shares in accordance with the preceding paragraph (either with or without restrictive legends, as applicable), then the Company irrevocably and expressly authorizes counsel to the Buyers to render such opinion substantially in the form set forth in Exhibit III attached hereto.  The Transfer Agent shall accept and be entitled to rely on such opinion for the purposes of issuing the Conversion Shares and Warrant Shares. 

d.      Instructions Applicable to Escrow Agent .  Upon the Escrow Agent’s receipt of a properly completed Conversion Notice and/or the Exercise Notice, the Escrow Agent shall, within one (1) Trading Day thereafter, send to the Transfer Agent a Conversion Notice and/or the Exercise Notice in the form attached hereto as Exhibit I , which shall constitute an irrevocable instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms of these instructions.

2.      Escrow Shares .

a.       If the Escrow Agent sends the Escrow Shares to the Transfer Agent for removal of the restrictive legend pursuant to the Securities Purchase Agreement, the Company hereby confirms that the Transfer Agent shall reissue to the Escrow Agent the Escrow Shares which shall not bear any legend restricting transfer and should not be subject to any stop-transfer restrictions and shall otherwise be freely transferable on the books and records of the Company; provided that counsel to the Company delivers (i) the Notice of Effectiveness set forth in Exhibit II attached hereto and (ii) an opinion of counsel in the form set forth in Exhibit III attached hereto, or counsel to the Company shall issue a legal opinion to the Company’s Transfer Agent that the legend shall be removed pursuant to Rule 144, Rule 144(k) or applicable requirements of the Securities Act.

b.      In the event that counsel to the Company fails or refuses to render an opinion as required to issue the Escrow Shares in accordance with the preceding paragraph (either with or without restrictive legends, as applicable), then the Company irrevocably and expressly authorizes Gottbetter & Partners, LLP counsel to the

 

Buyers to render such opinion.  The Transfer Agent shall accept and be entitled to rely on such opinion for the purposes of issuing the Escrow Shares without a legend.

3.      All Shares .

a.       The Transfer Agent shall reserve for issuance to the Buyers the Conversion Shares and Warrant Shares.  All such shares shall remain in reserve with the Transfer Agent until the Buyers provides the Transfer Agent instructions that the shares or any part of them shall be taken out of reserve and shall