SECURITIESPURCHASE AGREEMENT among AMERICANBUSINESS HOLDINGS, INC. asIssuer, TongLiu, asChairman and THEPERSONS LISTED ON THE SIGNATURE PAGES HERETO asPurchasers April__, 2008 SECURITIESPURCHASE AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This Securities Purchase Agreement (this “Agreement”) is dated as of  April __, 2008 among American Business Holdings, Inc., a Delaware corporation (the “Issuer”), Tong Liu (the “Chairman”) and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS, the Purchasers have agreed to purchase, and the Issuer has agreed to sell, the Securities (as defined herein) in connection with the Purchasers’ agreement to provide financing to the Issuer in the amount of U.S. $2,000,000;

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Regulation D under the U.S. Securities Act of 1933, as amended (the “Act”) upon issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Common Stock, Warrants and the Warrant Shares (as such terms are defined herein) shall bear the legends relating to the offer and the sale of the Common Stock, Warrants and the Warrant Shares as required by (i) Regulation D under the Securities Act or (ii) any other applicable laws or regulations relating to the issuance of the Securities.

 

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 Issuer and each Purchaser agree as follows:

 

 

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement the following terms have the meanings set forth in this Section 1.1:

 

“Action” has the meaning ascribed to such term in Section 3.1(j).

 

“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, as such terms are used in and construed under Rule 405 under the Securities Act.  With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Chairman” has the meaning ascribed to such term in the first paragraph.

 

“Shell” has the meaning ascribed to such term in Section 2.3(b).

 

 

 

 

 

 “Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Issuer’s obligations to deliver the Securities have been satisfied or waived.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Issuer, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Issuer or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

 “Corporate Authorization Documents” means (i) the resolutions of the Board of Directors of the Issuer, in form and substance satisfactory to the Purchasers,  authorizing the transactions contemplated herein, including, without limitation, the issuance of the Common Stock and the Warrants and the execution and delivery of the remaining Transaction Documents (ii) a certificate of the Secretary of the Issuer in usual and customary form attesting to the copies of the certificate of incorporation and bylaws of the Issuer attached thereto.

 

 “Disclosure Schedules” has the meaning ascribed to such term in Section 3.1.

 

“Effective Date” means the date that the initial Registration Statement filed by the Issuer pursuant to the Registration Rights Agreement is first declared effective by the Commission.

 

“Escrow Agent” means Crone Rozynko LLP.

 

“Escrow Agreement” means the escrow agreement entered into on the date hereof, by and among the Issuer, the Issuer’s management, the Purchasers and the Escrow Agent pursuant to which the Issuer’s management shall deliver into an escrow account, an aggregate number of common shares owned by them equal to one hundred (100%) percent of the shares issued to the Purchasers to be applied to the transactions contemplated hereunder, in the form of Exhibit A attached hereto.

 

 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

 

 

 

 

“Fundamental Transaction” means any of the following actions or agreements by the Issuer or any Subsidiary: (i) a merger or consolidation in which the Issuer is not the surviving entity or the shareholders (or owners of registered capital or other form of ownership) of the Issuer or its Subsidiary are not the controlling shareholders after such transaction (ii) a sale of all or substantially all of the assets of the Issuer or any Subsidiary, as the case may be, or (iii) the sale of any of the legal and beneficial ownership of any Subsidiary.

 

 “GAAP” has the meaning ascribed to such term in Section 3.1(h).

 

“Intellectual Property Rights” has the meaning ascribed to such term in Section 3.1(o).

 

“Legend Removal Date” has the meaning ascribed to such term in Section 4.1(d).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Lock-Up” means the several lock-up agreements entered into on the date hereof, by and among the Issuer and its existing shareholders pursuant to which the shareholders will be locked up until twelve (12) months after the Closing Date, in the form of Exhibit D attached hereto.

 

“Material Adverse Effect” has the meaning assigned to such term in Section 3.1(b).

 

“Material Permits” has the meaning ascribed to such term in Section 3.1(m).

 

 “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.

 

“Pre-Notice” has the meaning ascribed to such term in Section 4.12(b).

 

“PRC” means the People’s Republic of China.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Purchaser’s Counsel” means Crone Rozynko LLP, with offices located at 101 Montgomery Street, Suite 1950, San Francisco, California, 94105.

 

“Purchaser Party” has the meaning ascribed to such term in Section 4.10.

 

 

 

 

 

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Issuer and the Purchasers, in the form of Exhibit B attached hereto.

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement.

 

“Required Approvals” has the meaning ascribed to such term in Section 3.1(e).

 

 “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” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Common Stock, Warrants and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

 “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

 

 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsequent Financing” has the meaning ascribed to such term in Section 4.12.

 

“Subsequent Financing Notice” has the meaning ascribed to such term in Section 4.13.

 

“Subsidiary” means any subsidiary of the Issuer as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Issuer formed or acquired after the date hereof.

 

 “Trading Day” means a day on which the New York Stock Exchange is open for trading.

 

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

 

 

 

 

 “Transaction Documents” means this Agreement, the Warrants, the Registration Rights Agreement, the Escrow Agreement, the Lock-Up and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Interest Transfer Company, Inc. with a mailing address of 1981 East Murray Holladay Road, Suite 100, Salt Lake City, UT 84117 and a facsimile number of ###-###-#### and any successor transfer agent of the Issuer.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon exercise of the Warrants.

 

 “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Issuer, the fees and expenses of which shall be paid by the Issuer.

 

“Warrants” means the Common Stock warrants to purchase an aggregate of 2,000,000 shares of the Issuer with an exercise price of U.S. $1.25 per share and substantially in the form of Exhibit C hereto.

 

2.1           Closing.

 

(a)           On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Issuer agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, in the aggregate, up to $2,000,000 in principal amount of the Shares and the Warrants.  Each Purchaser shall deliver to the Issuer, via wire transfer or a certified check, immediately available funds equal to its Subscription Amount to the account as specified by the Issuer and the Issuer shall deliver to each Purchaser its respective certificates for shares of Common Stock and the respective Warrants, and the Issuer and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the conditions set forth in Section 2.3, the Closing shall occur at the offices of Purchaser’s Counsel or such

 

 

 

(b)           Allocation of Purchase Price. The Issuer and its independent auditors shall confirm the amount of the aggregate purchase price of $2,000,000 allocated by the Issuer to each of the Shares and the Warrants and shall provide the Purchasers with such determination. The allocation shall be made in accordance with United States GAAP.

 

2.2           Deliveries.

 

(a)   On the Closing Date, the Issuer shall deliver or cause to be delivered to each Purchaser the following:

 

(i)	this Agreement duly executed by the Issuer;

 

(ii)	a Warrant certificate for the number of shares of Common Stock in an amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser;

 

(b)   Within five (5) days of the Closing Date, the Issuer shall deliver or cause to be delivered to each Purchaser the following:

 

(i)	a certificate for shares of Common Stock in an amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser.

 

(c)       On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Issuer the following:

 

 

 

2.3           Closing Conditions.

 

(a) The obligations of the Issuer hereunder in connection with the Closing are subject to the following conditions being met:

 

 

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(iv)	there shall have been no Material Adverse Effect with respect to the Issuer since the date hereof;

 

(v)

simultaneously on the Closing Date, the Issuer shall have completed a transaction involving the acquisition of a Cayman Island Holding Company, which has the rights to the Issuer’s business and properties into a publicly traded shell (the “Shell”) listed on a Trading Market; the Purchasers reserve the right to approve the Shell; and

 

 

 

 

 

 

 

3.1           Representations and Warranties of the Issuer.  For purposes of this Article III, the term the “Issuer” shall be deemed to include the Issuer and each Subsidiary.  Except as set forth in the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Issuer hereby makes the following representations and warranties to each Purchaser:

 

(a)  Subsidiaries.  All of the direct and indirect Subsidiaries of the Issuer are set forth on Schedule 3.1(a).  The Issuer owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b)  Organization and Qualification.  The Issuer and each of the Subsidiaries is an entity 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.  Neither the Issuer nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Issuer and the Subsidiaries is duly qualified to conduct business 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 have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Issuer and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Issuer’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

 

 

 

 

(c)  Authorization; Enforcement.  The Issuer has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of each of the Transaction Documents by the Issuer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Issuer and no further action is required by the Issuer, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Issuer and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d)  No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Issuer and the consummation by the Issuer of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Issuer’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, 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, result in the creation of any Lien upon any of the properties or assets of the Issuer or any Subsidiary, 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 a Issuer or Subsidiary debt or otherwise) or other understanding to which the Issuer or any Subsidiary is a party or by which any property or asset of the Issuer or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Issuer or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Issuer or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)  Filings, Consents and Approvals.  The Issuer is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Issuer of the Transaction Documents, other than (i) filings required pursuant to Section 4.7, (ii) and the filing with the Commission of the Registration Statement (collectively, the “Required Approvals”).

 

 

 

 

 

(f)  Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Issuer other than restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Issuer other than restrictions on transfer provided for in the Transaction Documents.  The Issuer has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares.

 

(g)  Capitalization.  The capitalization of the Issuer is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Issuer as of the date hereof. The Issuer has not issued any capital stock since its most recently audited financial statements.  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 a result of the purchase and sale of the Securities, 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 exercisable 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 Issuer or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Issuer to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Issuer securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Issuer are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors of the Issuer or others is required for the issuance and sale of the Securities.  There are no stockholders agreements, voting agreements or other similar agreements with respect to the Issuer’s capital stock to which the Issuer is a party or, to the knowledge of the Issuer, between or among any of the Issuer’s stockholders.

 

(h)  SEC Reports; Financial Statements.  The Shell has filed all reports, schedules, forms, statements and other documents required to be filed by the Shell under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Shell was required by law or regulation to file such material) (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 their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, 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 the light of the circumstances under which they were made, not misleading.  The financial statements of the Shell 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 and the audited financial statements of the Issuer for fiscal year ending December 31, 2007 and 2006 have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Shell and the Issuer, as the case may be, and their 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 audited financial statements of the Issuer for fiscal year ending December 31, 2007, (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 Issuer has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Issuer’s financial statements pursuant to GAAP, (iii) the Issuer has not altered its method of accounting, (iv) the Issuer has 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 and (v) the Issuer has not issued any equity securities to any officer, director or Affiliate, (except pursuant to existing Issuer stock option plans).

 

(j)  Litigation.  Other than as disclosed on Schedule 3.1(j) there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Issuer, threatened against or affecting the Issuer, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Issuer nor any Subsidiary, nor any director or officer thereof, 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.  There has not been, and to the knowledge of the Issuer, there is not pending or contemplated, any investigation by the Commission involving the Issuer or any current or former director or officer of the Issuer.

 

(k)  Labor Relations.  No material labor dispute exists or, to the knowledge of the Issuer, is imminent with respect to any of the employees of the Issuer which could reasonably be expected to result in a Material Adverse Effect.  

 

 

 

 

 

None of the Issuer’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Issuer or such Subsidiary, and neither the Issuer nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Issuer and its Subsidiaries believe that their relationships with their employees are good.  No executive officer, to the knowledge of the Issuer, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Issuer or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Issuer and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)  Compliance.  Neither the Issuer nor any Subsidiary (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 the Issuer or any Subsidiary under), nor has the Issuer or any Subsidiary 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 without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m)  Regulatory Permits.  The Issuer and the Subsidiaries 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 reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Issuer nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. Schedule 3.1(m) sets forth a complete list of all permits and licenses and regulatory approvals required by the subsidiaries to operate their respective business in the PRC, each of which has been obtained and has not been revoked or amended.  The Issuer and its Subsidiaries have paid all fees for permits and licenses required to be paid by them in the PRC in connection with the operation of their respective businesses.

 

(n)   Title to Assets.  The Issuer and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Issuer and the Subsidiaries, 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 Issuer and the Subsidiaries and Liens for the payment of PRC, federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Issuer and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Issuer and the Subsidiaries are in compliance in all respects.

 

 

 

 

 

(o)  Patents and Trademarks.  The Issuer and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Issuer nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Issuer or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Issuer, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Issuer and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)  Insurance.  The Issuer and the Subsidiaries have no insurance against losses and risks including, but not limited to, directors and officers insurance coverage.  Neither the Issuer nor any Subsidiary has any reason to believe that it will not be able to obtain such coverage from insurers as may be necessary to continue its business.

 

(q)  Transactions with Affiliates and Employees.  Except as contemplated by this Agreement, none of the officers or directors of the Issuer and, to the knowledge of the Issuer, none of the employees of the Issuer is presently a party to any transaction with the Issuer or any Subsidiary (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 officer, director or such employee or, to the knowledge of the Issuer, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $10,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Issuer and (iii) other employee benefits, including stock option agreements under any stock option plan of the Issuer.

 

(r)  Internal Controls.  The Issuer maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at quarterly intervals and appropriate action is taken with respect to any material differences.

 

 

 

 

 

(s)  Certain Fees.  Other than as described on Schedule 3.1(s) no brokerage or finder’s fees or commissions are or will be payable by the Issuer to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims 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 the Transaction Documents.

 

(t)  Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.3, no registration under the Securities Act is required for the offer and sale of the Securities by the Issuer to the Purchasers as contemplated hereby.

 

(u)  Investment Company. The Issuer is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Issuer shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

 

           (v)  Registration Rights.  Other than each of the Purchasers, no Person has any right to cause the Issuer to effect the registration under the Securities Act of any securities of the Issuer.

 

(w)  Leases.  The Issuer and each Subsidiary is in compliance with the terms and conditions of all of its material contracts and leases, and is not aware of any dispute or disagreement with the other parties or their Affiliates regarding such contracts or leases. The Issuer is not aware of, and has not received any notice of (whether written or oral) or any disputes, defaults or claims under such contracts or leases.

 

(x)  Application of Takeover Protections.  The Issuer and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Issuer’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Issuer fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Issuer’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(y)  Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Issuer confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, nonpublic information.  

 

 

 

 

The Issuer understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Issuer.  All disclosure furnished by or on behalf of the Issuer to the Purchasers regarding the Issuer, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does 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.   The press releases disseminated by the Issuer during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit 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 and when made, not misleading.  The Issuer acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.3 hereof.

 

(z)  No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.3, neither the Issuer, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Issuer for purposes of the Securities Act which would require the registration of any such securities under the Securities Act.

 

(aa)           Exemption from Registration. Subject to the accuracy of the Purchaser’s representations and warranties set forth in Section 3.3, except as required pursuant to the Registration Rights Agreement, the sale of the Common Stock and Warrants by the Issuer to the Purchaser will not require registration under the Securities Act, but may require registration under New York state securities law if applicable to the Purchaser.    The Issuer is issuing the Common Stock and the Warrants in accordance with and in reliance upon the exemption from securities registration afforded, inter alia, by Rule 506 under Regulation D as promulgated by the Commission under the Securities Act, and/or Section 4(2) of the Securities Act; provided, however, that certain filings and registrations may be required under state securities “blue sky” laws depending upon the residency of the Purchaser.

 

(bb)  No General Solicitation. Neither the Issuer nor any of its Affiliates, or any person acting on its or their behalf, directly or indirectly, (i) has conducted or will conduct any general solicitation (as that term is used in Rule 502(c) of Regulation D as promulgated by the Commission under the Securities Act) or general advertising with respect to the sale of the Common Stock or Warrants, or (ii) made any offers or sales of any security or solicited any offers to buy any security under any circumstances that would require registration of the Common Stock or Warrants, under the Securities Act, except as required herein.

 

 

 

 

(cc)  Foreign Corrupt Practices.  Neither the Issuer, nor to the knowledge of the Issuer, any agent or other person acting on behalf of the Issuer, has (i) directly or indirectly, used any funds 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 Issuer (or made by any person acting on its behalf of which the Issuer is aware) which is  in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(dd) Accountants.  The Issuer’s accounting firm is set forth on Schedule 3.1(dd) of the Disclosure Schedule.  To the knowledge and belief of the Issuer, such accounting firm is a registered public accounting firm as required by the Exchange Act.  If the accounting firm set forth on Schedule 3.1(dd) of the Disclosure Schedule is not now, or in the future fails to be, a registered public accounting firm as required by the Exchange Act, such accounting firm will be replace immediately with an accounting firm that is a registered public accounting firm as required by the Exchange Act.

 

(ee)  No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Issuer to arise, between the Issuer and the accountants and lawyers formerly or presently employed by the Issuer and the Issuer is current with respect to any fees owed to its accountants and lawyers which could affect the Issuer’s ability to perform any of its obligations under any of the Transaction Documents.

 

(ff)  Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Issuer and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns (including, without limitation, all PRC tax returns and filings) and has paid or accrued all taxes shown as due thereon, has paid all PRC taxes and the Issuer has no knowledge of a tax deficiency which has been asserted or threatened against the Issuer or any Subsidiary.  The Issuer warrants that the transactions contemplated by the Transaction Documents will not subject the Issuer or its subsidiaries to U.S. taxation or require the Issuer to deem income in any material amount from its subsidiaries to be subject to U.S. taxation.

(gg)  Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Issuer acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby.  The Issuer further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Issuer (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities.  The Issuer further represents to each Purchaser that the Issuer’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Issuer and its representatives.

 

 

 

 

 

(hh)  Sovereign Immunity.  Under the laws of their respective jurisdiction of incorporation and the PRC, neither the Issuer nor any Subsidiary, is, nor are  any of their respective properties, assets or revenues,  entitled to any right of immunity on the grounds of sovereignty from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment prior to or in aid of execution of judgment, or from other legal process or proceeding for the giving of any relief or for the enforcement of any judgment.

 

(ii)  Environmental Law Compliance

 

(i)           The Issuer and each of its Subsidiaries has at all times complied with all environmental legislation in force, relevant or applicable to each company, whether in the PRC or elsewhere (the “Environmental Legislation”) and there is nothing in, on, or under the Property (as defined below) upon which the presence, existence or condition of which constitutes a breach of such Environmental Legislation nor is there or has there been any manufacturing, storage, generation, servicing, treatment, disposal or other process carried on at the Property in such a way as to amount to a breach of the same.

 

(ii)           No complaints have been received from any third party (includingany employee of any of the Issuer and/or its Subsidiaries or governmental, regulatory,supervisory oradministrative body) with regard to any breach of the Environmental Legislation in connection with the Property and the development and construction thereon and, after due and careful enquiry, the Issuer is not aware of any events, circumstances or matters which may lead to such complaint.

(iii)           No toxic industrial waste or toxic substance (as defined in anyEnvironmental  Legislation) or any other similar substance (howsoever termed) has beensplit, released, discharged or disposed in the soil or water in, under, around or upon the Property.

For purposes of this clause, the term “Property” shall mean any and all locations in which the Issuer and/or each of its Subsidiaries carry on their respective business operations.

 

(jj)           PFIC.  The Issuer is not nor intends to become a “passive foreigninvestment company” (a “PFIC”) within the meaning of Section 1297 of the InternalRevenue Code.

 

(kk)           Money Laundering Laws.  The operations of the Issuer are and have been conducted at all times in compliance with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable governmental agency and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving any of the Issuer with respect thereto is pending or, to the best knowledge of the Issuer, threatened.

 

 

 

 

 

3.2           Other Representations and Warranties Relating to the PRC by the Issuer.

 

(a)           The constitutional documents and certificates and related material contracts of the Issuer and the Issuer’s subsidiaries have been established under the laws of the PRC for purposes of this Section 3.2 (sometimes referred to as a “PRC Company”) and are valid and have been duly approved or registered (as applicable) by competent PRC governmental authorities.

 

(b)           All material consents, approvals, authorizations or licenses requisite under PRC law for the due and proper establishment and operation of each PRC Company have been duly obtained from the relevant PRC governmental authorities and are in full force and effect.

 

(c)           All filings and registrations with the PRC governmental authorities required in respect of each of the PRC Companies and their respective operations including, without limitation, the registrations with the Ministry of Commerce, the State Administration of Industry and Commerce, the State Administration for Foreign Exchange, tax bureau and customs authorities have been duly completed in accordance with the relevant PRC rules and regulations.

 

(d)           The Issuer has complied with all relevant PRC laws and regulations regarding the contribution and payment of its registered share capital, the payment schedule of which has been approved by the relevant PRC government authorities.  There are no outstanding rights of, or commitments made by, the Issuer to sell any equity interest in any PRC Company, or by any of the other PRC Company’s shareholders to sell any equity interest in such other PRC the Issuer. To the extent that any controlling shareholder of the Issuer or any Subsidiary is subject to or under the jurisdiction of Circular 75 issued by the PRC State Administration of Foreign Exchange on October 21, 2005, including any amendment, implementing rules, or official interpretation thereof or any replacement, successor or alternative legislation having the same subject matter thereof (collectively “Circular 75”), each of the Issuer and its Subsidiaries and any controlling shareholder represents and warrants to the Purchaser that it shall fully comply in all respects with Circular 75 and any related requirement of law, including without limitation, the completion of any applicable foreign exchange registration, settlement or remittance requirement therein within 90 days of the Closing.

 

(e)           The Issuer is not in receipt of any letter or notice from any relevant PRC governmental authority notifying it of revocation of any licenses or qualifications issued to it or any subsidy granted to it by any PRC governmental authority for non-compliance with the terms thereof or with applicable PRC laws, or the need for compliance or remedial actions in respect of the activities carried out by the Issuer.

 

 

 

 

(f)           The Issuer 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 authorities.

 

(g)           As to licenses, approvals and government grants and concessions requisite or useful for the conduct of any part of the PRC, the Issuer’s business which are subject to periodic renewal, the Issuer has no knowledge of any grounds on which such requisite renewals will not be granted by the relevant PRC governmental authorities.

 

(h)           With regard to employment and staff or labor, each of the Issuer has complied with all applicable PRC laws and regulations in all material respects, including without limitation, laws and regulations pertaining to welfare funds, social benefits, medical benefits, insurance, retirement benefits, pensions or the like.

 

3.3  Representations and Warranties of the Purchasers.  Each Purchaser, for itself and for no other Purchaser hereby, represents and warrants as of the date hereof and as of the Closing Date to the Issuer as follows:

 

(a) Organization; Authority.  Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.  The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b) Own Account.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

 

 

 

(c) Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e) General Solicitation.  Such Purchaser 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 or presented at any seminar or any other general solicitation or general advertisement.

 

(f) Short Sales.  Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Issuer during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Issuer or any other Person representing the Issuer setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

(g)           Investment Intent.  The Purchaser is not acquiring the Securities with a view to any distribution thereof that would violate the Securities Act or the securities laws of any state of the United States or any other applicable jurisdiction.

 

 

 

 

 

(h)           Resale Restrictions.  The Purchaser (A) agrees that it will not offer, sell or otherwise transfer any of the Securities nor, unless in compliance with the Securities Act or as allowed under Regulation D, engage in hedging transactions involving such securities, on or prior to (x) the date which is 40 days (in the case of the Common Stock) or six months (in the case of the Warrants and the Warrant Shares) after the later of the date of the commencement of the offering and the date of original issuance (or of any predecessor of any Security proposed to be transferred by the Purchaser) and (y) such later date, if any, as may be required by applicable law, except (a) to the Issuer, (b) pursuant to a registration statement that has been declared effective under the Securities Act, (c) pursuant to offers and sales to Persons who are not “U.S. Persons” (within the meaning of Regulation S) that occur outside the United States within the meaning of Regulation S or (d) pursuant to any other available exemption from the registration requirements of the Securities Act, and (B) agrees that it will give to each person to whom such Security is transferred a notice substantially to the effect of  this paragraph.  The Purchaser acknowledges that the Securities are “restricted securities” as defined in Rule 144 under the Securities Act and subject to resale restrictions during the period set forth in Rule 144.

 

 

 

4.1           Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement, Regulation S or Rule 144, to the Issuer or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(c), the Issuer may require the transferor thereof to provide to the Issuer an opinion of counsel selected by the transferor and reasonably acceptable to the Issuer, the form and substance of which opinion shall be reasonably satisfactory to the Issuer, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement.

 

(b)  The Purchasers agree to the imprinting, so long as is required by this Section  4.1, of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE ISSUER.  THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

 

 

 

(c)  The Issuer acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledged or secured parties.  Such a pledge or transfer would not be subject to approval of the Issuer and no legal opinion of legal counsel of the pledge, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Issuer will execute and deliver such reasonable documentation as a pledge or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

(d) Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Issuer shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder.  If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends.  The Issuer agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(d), it will, no later than three Trading Days following the delivery by a Purchaser to the Issuer or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends.  The Issuer may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section.  Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 

 

 

 

 

 

(e) In addition to such Purchaser’s other available remedies, the Issuer shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend and subject to Section 4.1(d), $5.00 per Trading Day (increasing to $10.00 per Trading Day 45 Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Issuer’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

(f) Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Issuer’s reliance upon this understanding.

 

4.2           Acknowledgment of Dilution.  The Issuer acknowledges that the issuance of the Underlying Shares may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Issuer further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Issuer may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Issuer.

 

4.3           Furnishing of Information.  So long as the Purchaser owns Securities, the Issuer covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Issuer after the date hereof pursuant to the Exchange Act.   As long as any Purchaser owns Securities, if the Issuer is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Issuer further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144.

 

 

 

 

4.4           Integration.  The Issuer shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

 

4.5           Non-Public Information.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Issuer covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Issuer believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information.  The Issuer understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Issuer.

 

4.6           Listing.   The Issuer shall use its best efforts to have its Common Stock listed with the Nasdaq Stock Market, the American Stock Exchange or any other national exchange as soon as possible, shall use all commercially reasonable efforts to comply with the listing requirements and shall file any and all applications with the Nasdaq Stock Market, the American Stock Exchange or such other national exchange to obtain a listing for its Common Stock by the earlier of (a) the closing of the Issuer’s the next financing or (b) August 31, 2009 and, assuming the Common Stock is accepted for listing, shall use its best efforts to maintain such listing for so long as the Purchasers hold shares of Common Stock.

 

4.7           Securities Laws Disclosure; Publicity.  The Issuer and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Issuer nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Issuer, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Issuer, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Issuer shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with any registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Issuer shall provide the Purchasers with prior notice of such disclosure permitted under this clause (ii).

 

4.8           Shareholder Rights Plan.  No claim will be made or enforced by the Issuer or, with the consent of the Issuer, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Issuer, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Issuer and the Purchasers.

 

 

 

 

 

4.9           Use of Proceeds.   The Issuer shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.

 

4.10           Indemnification of Purchasers.   Subject to the provisions of this Section 4.10, the Issuer will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Issuer in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Issuer who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Issuer in writing, and the Issuer shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Issuer in writing, (ii) the Issuer has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Issuer and the position of such Purchaser Party, in which case the Issuer shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Issuer will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Issuer’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

 

 

 

 

(a)           The Issuer shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

 

(b)           If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the required minimum on such date, then the Board of Directors of the Issuer shall use commercially reasonable efforts to amend the Issuer’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock, as soon as possible and in any event not later than the 75th day after such date.

 

4.12           Participation in Future Financing.

 

(a) From the date hereof until the second anniversary of the Effective Date upon any issuance by the Issuer or any of its Subsidiaries of Common Stock, Common Stock Equivalents or debt security (a “Subsequent Financing”), each Purchaser shall have the right of first refusal to participate in the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b) At least ten (10) Trading Days prior to the closing of the Subsequent Financing, the Issuer shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Issuer shall promptly, but no later than one Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.  The Subsequent Financing Notice shall also include an analysis or description of the effect of such Subsequent Financing upon the exercise price of the Warrants and the capitalization of the Issuer.

 

(c) Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Issuer by not later than 5:30 p.m. (New York City time) on the 10th Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.  If the Issuer receives no notice from a Purchaser as of such 10th Trading Day, such Purchaser shall be deemed to have notified the Issuer that it does not elect to participate.

 

 

 

 

(d) If by 5:30 p.m. (New York City time) on the 10th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Issuer may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e) The Issuer must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice.

 

(f) Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an issuance of (a) shares of Common Stock or options to employees, officers or directors of the Issuer pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors of the Issuer or a majority of the members of a committee of non-employee directors established by the Board of Directors, provided, however, in no event shall the number of shares reserved under any such plan or issued under such plan or issued to employees, officers, directors or officers of the Issuer exceed a number of shares equal to 5% of the issued and outstanding shares of Common Stock of the Issuer on the date hereof or; (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities.

 

4.13           Subsequent Equity Sales.

 

(a) From the date hereof until 180 days after the Effective Date, neither the Issuer nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 180 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which  following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.

 

 

 

 

 

4.14           Equal Treatment of Purchasers.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Issuer and negotiated separately by each Purchaser, and is intended for the Issuer to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15           Short Sales.  Each Purchaser severally and not jointly with the other Purchasers, covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any Short Sales during the period commencing at the Discussion Time and ending at the eighteen month anniversary of the Closing Date.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

5.1           Leases.

(a)     Each of the Issuer and Chairman covenant and agree with Purchasers that the stores listed in this Section 5.1(a) owned by Chairman shall be leased to the Issuer pursuant to binding written lease agreements containing terms no less favorable to the Issuer than the Issuer could have negotiated in an arm’s length transaction with a motivated landlord, including substantially the following terms:

(i)           Harbin Daoli Queen Demonstration Beauty Parlor: 5 years from January 1, 2008 through December 31, 2012, for $47,300 per year, prepaid for 1 year plus an option for additional 5 years at no more than $55,000 per year.

(ii)           Harbin Queen Beauty Demonstration Center: 5 years from January 1, 2008 through December 31, 2012 for $20,300 per year, prepaid for 1 year plus an option for additional 5 years at no more than $24,000 per year.

(b)           The Issuer covenants and agrees with Purchasers that the following stores with leases expiring in December 2008 owned by third parties shall be extended pursuant to binding written lease agreements containing terms no less favorable to the Issuer than the Issuer could have negotiated in an arm’s length transaction with a motivated landlord, including substantially the following terms:

 

 

 

 

 Store shall have signed additional terms as follows:

 

(i) Harbin Huang Emperor & Golden Gym Club Co., Ltd.: 5 years, at $85,100, prepaid 1 year, ending December 2013.

(c) The following stores shall be leased to the Issuer, subject to cancellation if and when a more desirable location is found:

 

(i)  Harbin Queen Beauty Demonstration Center Kunlun Branch: 5 years ending December 2013 at no more than $13,000 per year, prepaid 1 year.

 

(ii) Harbin Queen Beauty Demonstration Center Branch: 5 years ending December 2013 at no more than $40,000 per year, prepaid 1 year.

 

The dollar amounts quoted above use an assumed exchange rate of 1:7.4 between US Dollars (“USD”) and Renminbi (“RMB”).  The actual dollar amount quoted above shall be adjusted according to the actual exchange rate between USD and RMB at the time of execution of the lease.

 

5.2           Office Building.  The Issuer will purchase its current office building during fiscal year 2008 for an amount not to exceed $1.65 million.  The purchase price for such office building will be funded solely by the return of funds identified by the Balance Sheet item “Advance to Employee”.  In the event the office building is not purchased, the $1.65 million Advance to Employee shall be immediately repaid, such repayment is unconditionally guaranteed by the Chairman.

5.3           Liquidated Damages.  In the Event the Issuer is unable to extend any lease set forth in Section 5.1 for a minimum of 5 years by October 1, 2008, then within 30 days of such date, the Issuer shall issue to the Purchasers 50,000 additional shares of Common Stock per lease (with registration rights comparable to the Securities issued on the Closing Date) pro rata to the Securities issued to Purchasers on the Closing Date, as liquidated damages for such breach and not as a penalty.  The amount of shares issuable under this Section 5.3 shall be appropriately adjusted for any stock split, stock dividend or other recapitalization after the Closing Date.

 

    5.4           Certain Payments.

(a)           Advances to suppliers shall never exceed (i) $3 million at any time for Fiscal Year 2008, or (ii) $4 million at any time for Fiscal Year 2009.

(b)           Advances to Affiliates or employees of the Issuer shall never exceed for Fiscal Years 2008 or 2009 (i) $100,000 to any single Person, or (ii) $500,000 in the aggregate.

 

 

 

 

(c)           Within three Trading Days of the end of Fiscal Years 2008 and 2009, respectively, for each breach of the provisions of Section 5.4(a),  the Issuer shall issue to the Purchasers 50,000 additional shares of Common Stock per each $1 million of such breach and for each breach of the provisions of Section 5.4(b),  the Issuer shall issue to the Purchasers 50,000 additional shares of Common Stock per each $100,000 of such breach (in each case, with registration rights comparable to the shares issued on the Closing Date) pro rata to the shares issued to Purchasers on the Closing Date, as liquidated damages for such breach and not as a penalty.  The amount of shares issuable under this Section 5.4 shall be appropriately adjusted for any stock split, stock dividend or other recapitalization after the Closing Date.

 

 

6.1      Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Issuer and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before April 30, 2008; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

 

6.2 Fees and Expenses; Breakup Fees.

 

(a)  At the Closing, the Issuer will reimburse the Purchasers the sum of up to $25,000, for their legal fees and expenses, none of which has been paid prior to the Closing, and such other expenses as are listed on the Disbursement Schedule set forth in Annex A.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Issuer shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

(b)           The Purchasers will be entitled to a fee in the amount of $200,000 in the event that (i) the Issuer or any Affiliate accepts or approves any proposal that provides equity or debt financing to it prior to the Closing Date (any such proposal, an “Alternative Transaction”), or (ii) the Issuer fails to satisfy any of the closing conditions set forth in Section 2.3(b), and such conditions have not been waived in writing by each of the Purchasers.

                    (c)    The Issuer will not be obligated to pay the fee set forth in Section 6.2(b) if the Purchasers terminate this Agreement for any reason other than as a result of (i) the Issuer’s willful failure to satisfy any of the closing conditions set forth in Section 2.3(b) for the purposes of delaying or precluding the closing of the transaction; or (ii) the Issuer’s failure to adhere to comply with the requirements of Section 2.1 on the Closing Date. In the event the Issuer accepts or approves an Alternative Transaction, the fee set forth in Section 6.2(b) shall be due and payable immediately.

 

 

 

 

(d)           To the maximum extent permitted by applicable law, in no event will the Purchasers be liable for any punitive damages arising out of this Agreement.

6.3      Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

6.4 Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

6.5      Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Issuer and the Purchasers of at least 66% principal amount of Securities still held by Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

6.6      Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

6.7      Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Issuer may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

6.8 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

 

 

 

6.9      Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in  the City of New York, New York and shall be arbitrated in accordance with the rules of the International Chamber of Commerce before three (3) arbitrators and otherwise held in accordance with its rules.  Each party shall choose one arbitrator and the two arbitrators shall choose the third.  The third arbitrator so chosen shall have a background in either corporate finance, banking or law. The arbitration shall be conducted in the English language and the arbitration award shall include the allocation of costs and expenses among the parties. The arbitration ruling shall be final and binding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.   Any ruling by the arbitration panel shall be binding and non appealable.

 

6.10 Survival.  The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statue of limitations.

 

6.11 Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

6.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

 

 

 

 

6.13 Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Issuer does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Issuer, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, in the case of exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock delivered in connection with any such rescinded exercise notice.

 

6.14 Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Issuer shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Issuer of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

6.15 Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Issuer will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

6.16 Payment Set Aside. To the extent that the Issuer makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Issuer, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

6.17 Independent Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

 

 

 

 

6.18 Liquidated Damages.  The Issuer’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Issuer and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

6.19 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

 

 

 

 

 

 

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

AMERICAN BUSINESS HOLDINGS, Inc.	Address for Notice:
By:__________________________________________      Name:      Title:	194 Guo Ge Li Street, Nangang District, Harbin City, Heilongjiang Province, Zip‐code: 150001, P.R.China ***@***
With a copy to (which shall not constitute notice):   Sichenzia Ross Friedman Ference LLP 61 Broadway, 32nd Fl. New York, New York 10006 Fax: (212) 930-9725
Tong Liu	194 Guo Ge Li Street, Nangang District, Harbin City, Heilongjiang Province, Zip‐code: 150001, P.R.China ***@***

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 

 

 

 

 

 

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: GUERRILLA PARTNERS, LP

Signature of Authorized Signatory of Purchaser: ______________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Purchaser: ______________________________________________________

Facsimile Number of Purchaser: ___________________________________________________

Address for Notice of Purchaser:

237 Park Avenue 9th Floor, New York, NY 10017

With a copy to (which shall not constitute notice):

Crone Rozynko LLP

101 Montgomery Street

Suite 1950

San Francisco, CA 94105

Fax: (415) 955-8910

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount:

Warrant Shares:

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

Name of Purchaser: HUA-MEI 21ST CENTURY PARTNERS

Signature of Authorized Signatory of Purchaser: ______________________________________

Name of Authorized Signatory: ____________________________________________________

Title of Authorized Signatory: _____________________________________________________

Email Address of Purchaser: ______________________________________________________

Facsimile Number of Purchaser: ____________________________________________________

Address for Notice of Purchaser:

237 Park Avenue 9th Floor, New York, NY 10017

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount:

Warrant Shares:

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

 

 

 

 

 

[SIGNATURE PAGES CONTINUE]

 

Signature of Authorized Signatory of Purchaser: __________________________________

Name of Authorized Signatory: James J. Fuld, Jr.

Email Address of Purchaser: ***@***

Facsimile Number of Purchaser: ________________________________________________

Address for Notice of Purchaser:

114 East 72 Street

New York, NY 10021

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount:

Warrant Shares:

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

Schedule 3.1 (m)

Mege Union:

·	Cert of Approval for establishment of foreign…

·	Business License:

·

By-law:

Queen Beauty Demo Ctr – Biz Lic

Ctr Kunlun Branch – Biz Lic

Queen Beauty Ctr Branch – Biz Lic

Queen Beauty Demo Ctr – Hygienic Lic

Queen Beauty Demo Ctr:

By-law

Amendment to By - law

Huang Emperor & Golden Gym Club:

Biz Lic

Hygienic Lic

By-law

Amendment to By-law

Daoli Queen Parlor:

Hygienic License

Biz Lic

Queen Vocational Skill:

Voluntary School Permit

School Registration

By-law

 

Schedule 3.1 (s)

The Company is represented by Etech Securities, Inc., a member FINRA/SIPC, and has an

agreement whereby Etech Securities is receive 7% of the total fund raised in cash and 2% of the

total issued and outstanding shares of common stock after the financing.

Schedule 3.1 (dd)

Bagell, Josephs, Levine & Company, LLC

406 Lippincott Drive, Suite J

Marlton, New Jersey 08053

(Tel)856‐346‐2828

(Fax)856‐396‐0022