Exhibit 10.1
Execution Version
CONDITIONAL LOAN CONVERSION AGREEMENT
THIS CONDITIONAL LOAN CONVERSION AGREEMENT (this "Agreement") is entered into as
of November 16, 2007 by and between China Biopharmaceuticals Holdings Inc.
("CBH"), and RimAsia Capital Partners, L.P. ("RimAsia"). CBH and RimAsia
hereinafter collectively may be referred to as the "Parties" and each
individually as a "Party."
RECITALS
WHEREAS, in connection with the prior acquisition of Shenyang Enshi
Pharmaceutical Co., Ltd. ("Enshi") by RACP Pharmaceutical Holdings Ltd.
("RACP"), which was set up by RimAsia for the sole purpose to acquire Enshi,
RimAsia extended a loan in the aggregate principal amount of US$11.5 million to
RACP (the "Loan") for the purpose of the acquisition of Enshi, pursuant to the
terms and conditions of that certain Facility Agreement dated May 29, 2006 (the
"Loan Agreement").
WHEREAS, CBH acquired RACP from RimAsia pursuant to a Stock Purchase Agreement
and a Conditional Stock Purchase Agreement dated May 29, 2006 and a Deed of
Accession dated June 30, 2006 (the "Deed of Accession"), and thereby RACP became
a wholly-owned subsidiary of CBH and the Loan was assumed by CBH in June 2006.
WHEREAS, the Loan is currently in default under the terms of the Loan Agreement,
with a total amount due and payable on October 15, 2007 of approximately
US$12,508,534 comprising of (i) a principal amount of US$11,500,000, (ii) unpaid
interest (up to October 15, 2007) of US$1,008,534 (the "Balance Outstanding").
WHEREAS, RimAsia and CBH have entered into a definitive letter of intent and a
term sheet to restructure the Loan where RimAsia has agreed to convert the Loan
into newly issued Preferred Shares, subject to the changes and modifications in
this Agreement. The conversion of the Loan and the Balance Outstanding into the
Preferred Shares pursuant to this Agreement and the other Transaction Documents
is to be referred to herein as the "Conversion."
WHEREAS, pursuant to the provisions of this Agreement, the Parties have agreed
that the Conversion is subject to the condition subsequent of the completion of
one of the three acquisitions planned, which are more fully described in a
separate confidential side letter between the Parties due to the confidential
nature of these possible acquisitions.
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THEREFORE, in consideration of the premises, agreements, covenants,
representations and warranties contained in this Agreement, and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the Parties hereby agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have
the respective indicated meanings below:
1.1. "Action" has the meaning ascribed to such term in Section 3.1.10.
1.2. "Additional Warrant" means the warrant to be issued to RimAsia under
this Agreement with its terms set forth in the Form of Additional Common Stock
Purchase Warrant attached hereto as Exhibit C.
1.3. "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 144 under the
Securities Act. With respect to RimAsia, any investment fund or managed account
that is managed on a discretionary basis by the same investment manager as
RimAsia will be deemed to be an Affiliate of RimAsia. For purposes of the
Transaction Documents, RimAsia shall not be deemed an "Affiliate" of CBH or
Erye.
1.4. "Balance Outstanding" has the meaning ascribed to such term in the
Recitals of this Agreement.
1.5. "Closing" means the closing of the Conversion and issuance of the
Securities pursuant to Section 2.1.
1.6. "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) RimAsia's obligations to convert the Loan
and (ii) CBH's obligations to deliver the Securities have been satisfied or
waived.
1.7. "Commission" means the United States Securities and Exchange
Commission.
1.8. "Common Stock" means the common stock of CBH, par value $.001 per
share, and any other class of securities into which such common stock may
hereafter have been reclassified or changed into.
1.9. "Common Stock Equivalents" means any securities of CBH 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 or other securities that entitle the holder to receive,
directly or indirectly, Common Stock.
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1.10. "Company Counsel" means Baker & McKenzie, LLP.
1.11. "Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Shares.
1.12. "Effectiveness Date" means the date on which the initial
Registration Statement filed by CBH pursuant to the Registration Rights
Agreement is first declared effectively by the Commission.
1.13. "Erye" means Suzhou Erye Pharmaceutical Company Ltd.
1.14. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.15. "GAAP" has the meaning ascribed to such term in Section 3.1.8.
1.16. "Knowledge" means, with respect to any statement made to the
knowledge of a party, that the statement is based upon actual knowledge of the
officers of such party having responsibility for the matter or matters that are
the subject of the statement, after due inquiry.
1.17. "Lien" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
1.18. "Litigation Agreement" means the agreement between CBH and RimAsia,
dated the date hereof, concerning certain litigation matters, substantially in
the form of Exhibit F attached hereto.
1.19. "Loan" has the meaning ascribed to such term in the Recitals of this
Agreement.
1.20. "Material Adverse Effect" has the meaning assigned to such term in
Section 3.1.2.
1.21. "Modified Warrant" means the warrant which was previously issued to
RimAsia exercisable into 12,000,000 shares of the Common Stock (such previously
issued warrant, the "Original Warrant") and is being modified to reduce the
per-share exercise price and to extend the exercise period to 4.5 years from the
Closing Date, all as set forth in the Form of Amended Common Stock Purchase
Warrant attached hereto as Exhibit B.
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1.22. "Legend Removal Date" has the meaning ascribed to such term in
Section 4.1.3.
1.23. "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.
1.24. "Original Warrant" has the meaning ascribed to it in Section 1.21.
1.25. "Preferred Shares" means 6,185,607 shares of Series B Senior
Convertible Redeemable Preferred Stock of CBH.
1.26. "Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
1.27. "Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among between CBH and RimAsia, in the form of
Exhibit E attached hereto.
1.28. "Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Conversion Shares and Warrant Shares by RimAsia as provided for in
the Registration Rights Agreement.
1.29. "Required Approvals" has the meaning ascribed to such term in
Section 3.1.5.
1.30. "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.
1.31. "SEC Reports" has the meaning ascribed to such term in Section
3.1.8.
1.32. "Securities" means the Preferred Shares, the Modified Warrant and
the Additional Warrant.
1.33. "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
1.34. "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).
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1.35. "Subsidiary" means any subsidiary of CBH as disclosed in the SEC
Reports.
1.36. "Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
1.37. "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
NASDAQ Capital Market, the American Stock Exchange, the New York Stock Exchange,
the NASDAQ National Market or the OTC Bulletin Board.
1.38. "Transaction Document" means (a) this Agreement, (b) the Modified
Warrant, (c) the Additional Warrant, (d) CBH's Certificate of Designation of
Series B Convertible Redeemable Preferred Stock attached hereto as Exhibit A,
(e) the Registration Rights Agreement, (f) the Litigation Agreement, (g) Service
Agreement regarding Enshi (the "Service Agreement"); (h) Assignment of Claims by
CBH in favor of RACP (the "Damage Assignment"); and (i) any other documents or
agreements executed in connection with the transactions contemplated hereunder.
1.39. "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 Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets" published by
the 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 (c) 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 RimAsia and reasonably acceptable to CBH.
1.40. "Warrants" means the Modified Warrant and Additional Warrant.
1.41. "Warrant Shares" means shares of the Common Stock issuable upon
exercise of the Modified Warrant or Additional Warrant.
2. CONVERSION AND ISSUANCE OF SECURITIES
2.1. Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, RimAsia agrees to convert Twelve Million Four
Hundred Ninety Four Thousand Six Hundred Seventy One United States Dollars
(US$12,508,534 ), representing the total principal amount of the Loan and the
unpaid interest (up to October 15, 2007) of US$1,008,534 (the "Loan Conversion
Amount") and the warrant to
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purchase 12,000,000 shares of Common Stock, into 6,185,607 Preferred Shares,
with a conversion price of US$2.0222 per Preferred Share, and CBH agrees to
issue to RimAsia (a) the Preferred Shares, (b) the Modified Warrant to purchase
12,000,000 shares of CBH's Common Stock with a new exercise price of $1.26 per
share and with a new term of four and a half years from the Closing Date, and
(c) the Additional Warrant exercisable into such a number of shares of CBH's
Common Stock and at such an exercise price to be determined according to the
terms of such Additional Warrants, with a term of four years from the date of
issuance. The voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of the Series B Preferred Stock are
all as set forth in the Certificate of Designation of Series B Convertible
Redeemable Preferred Stock attached hereto as Exhibit A (the "Series B
Certificate of Designation"). The terms and conditions of the Modified Warrants
are set forth in the Form of Amended Common Stock Purchase Warrant attached
hereto as Exhibit B. The terms and conditions of the Additional Warrant are set
forth in the Form of Additional Common Stock Purchase Warrant attached hereto as
Exhibit C.
2.2. Deliveries.
2.2.1. On the Closing Date, CBH shall deliver or cause to be
delivered to RimAsia the following:
2.2.1.1. this Agreement duly executed by CBH;
2.2.1.2. a certificate evidencing the Preferred Shares;
2.2.1.3. the Modified Warrant registered in the name of
RimAsia;
2.2.1.4. the Additional Warrant registered in the name of
RimAsia;
2.2.1.5. the legal opinion of Company Counsel, in
substantially the form attached hereto as Exhibit D, addressed to RimAsia;
2.2.1.6. the Registration Rights Agreement, duly executed by
CBH;
2.2.1.7. the Litigation Agreement, duly executed by CBH;
2.2.1.8. the Service Agreement, duly executed by CBH; and
2.2.1.9. the Damage Assignment, duly executed by CBH.
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2.2.2. On the Closing Date, RimAsia shall deliver or cause to be
delivered to CBH the following:
2.2.2.1. this Agreement duly executed by RimAsia;
2.2.2.2. the Litigation Agreement, duly executed by RimAsia;
2.2.2.3. the Service Agreement executed by RimAsia;
2.2.2.4. the Registration Rights Agreement, duly executed by
RimAsia; and
2.2.2.5. The Original Warrant dated June 30, 2006 to purchase
12,000,000 shares of Common Stock.
2.3. Closing Conditions.
2.3.1. The obligations of CBH hereunder in connection with the
Closing are subject to the following conditions precedent being met by the
Closing Date, unless otherwise waived by CBH:
2.3.1.1. the accuracy in all material respects when made and
on the Closing Date of the representations and warranties of RimAsia contained
herein;
2.3.1.2. all obligations, covenants and agreements of RimAsia
required to be performed at or prior to the Closing Date shall have been
performed; and
2.3.1.3. the delivery by RimAsia of the items set forth in
Section 2.2.2 of this Agreement.
2.3.2. The obligations of RimAsia hereunder in connection with
the Closing are subject to the following conditions precedent being met by the
Closing Date, unless otherwise waived by RimAsia:
2.3.2.1. the accuracy in all material respects on the Closing
Date of the representations and warranties of CBH contained herein;
2.3.2.2. all obligations, covenants and agreements of CBH
required to be performed at or prior to the Closing Date shall have been
performed;
2.3.2.3. the delivery by CBH of the items set forth in Section
2.2.1 of this Agreement;
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2.3.2.4. since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably could have or
result in (i) an adverse effect on the legality, validity or enforceability of
any Transaction Document, or (ii) a Material Adverse Effect;
2.3.2.5. no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents; and
from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or CBH's principal
Trading Market (except for any suspension of trading of limited duration agreed
to by CBH, which suspension shall be terminated prior to the Closing), and, at
any time prior to the Closing Date, trading in securities generally as reported
by Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such magnitude in its
effect on, or any material adverse change in, any financial market which, in
each case, in the reasonable judgment of RimAsia, makes it impracticable or
inadvisable to convert the Loan at the Closin
2.3.3. Notwithstanding anything in this Agreement or any other
Transaction Document to the contrary, the Conversion contemplated by this
Agreement is subject to the conditions subsequent of (i) the execution of an
Acquisition LOI, as such term is defined in a side letter between the Parties
dated as of even date herewith (the "Side Letter"), by January 15, 2008 (the
"First Condition Subsequent Cutoff Date"), and, (ii) if an Acquisition LOI has
been executed by the First Condition Subsequent Cutoff Date, the actual closing,
by no later than June 30, 2008 (the "Second Condition Subsequent Cutoff Date";
each of the First Condition Subsequent Cutoff Date and the Second Condition
Subsequent Cutoff Date, a "Condition Subsequent Cutoff Date"), of the
Acquisition (as such term is defined in the Side Letter) which was the subject
of the Acquisition LOI. If no Acquisition LOI has been executed by the First
Condition Subsequent Cutoff Date or, following the execution of an Acquisition
LOI by the First Condition Subsequent Cutoff Date, the closing of the
Acquisition has not occurred by the Second Condition Subsequent Cutoff Date,
RimAsia shall have the option to unwind the Conversion within 60 days following
the relevant Condition Subsequent Cutoff Date by serving a written notice to CBH
(the "Re-Conversion Notice"). Upon the delivery of the Re-Conversion Notice, (a)
the Preferred Shares shall automatically, and without further action, be
converted back to (via a conversion, exchange, a repurchase by CBH in
consideration of the Loan and the Outstanding Balance and the revival of the
Loan Agreement and the Loan Assumption Agreement, or any other lawful means)
(the "Re-
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Conversion") the Loan and the Outstanding Balance, (b) all the terms and
conditions of the Loan Agreement and the Loan Assumption Agreement (including,
without limitation, interest accrual and RimAsia's right of acceleration) shall
be deemed revived as if the Conversion had never occurred, (c) the Modified
Warrant shall be deemed reverted back to the Original Warrant, and (d) the
Additional Warrant shall be deemed cancelled. For purposes of clarification, the
Litigation Agreement, the Service Agreement and the Claim Assignment shall
survive the Re-Conversion Notice. In furtherance of the foregoing, CBH hereby
represents and covenants that, at all times prior to the occurrence of the above
described condition subsequent, the Preferred Shares will always be treated as
debt and will not be treated as capital on its books. CBH hereby represents and
warrants to RimAsia that nothing in (i) the Delaware General Corporation Law,
CBH's Certificate of Incorporation or bylaws, or any agreement or understanding
between CBH and any third party or (ii) CBH's financial condition, will prohibit
the Re-Conversion as contemplated by this section.
3. REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of CBH. CBH hereby makes the
representations and warranties as of the date hereof and as of the Closing Date
set forth below to RimAsia.
3.1.1. Subsidiaries. All of the direct and indirect subsidiaries of
CBH have been disclosed in the SEC Reports. CBH owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all 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.
3.1.2. Organization and Qualification. Each of CBH and its
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 CBH nor any Subsidiary is in violation of, or
default under, any of the provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or charter documents. Each of
CBH 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, individually, or in the aggregate, 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 CBH and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on CBH's ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of
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(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.
3.1.3. Authorization; Enforcement. CBH 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 CBH and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of CBH and no further action is required by CBH, 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 CBH and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of CBH
enforceable against CBH in accordance with its terms except (i) as limited by
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) in so far as
indemnification and contribution provisions may be limited by applicable law.
3.1.4. No Conflicts. The execution, delivery and performance of the
Transaction Documents by CBH and the consummation by CBH of the other
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of CBH'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 CBH 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 Company or Subsidiary debt or
otherwise) or other understanding to which CBH or any Subsidiary is a party or
by which any property or asset of CBH 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 CBH or a Subsidiary
is subject (including federal and state securities laws and regulations), or by
which any property or asset of CBH or a Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not, individually,
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect.
3.1.5. Filings, Consents and Approvals. CBH 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 CBH of the Transaction Documents, other
than (i) filings required pursuant to Section 4.6, (ii) the
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filing with the Commission of one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, (iii) filings
required by state securities laws in accordance with the requirements of the
Registration Rights Agreement, which when permitted, will be made prior to the
Effectiveness Date (as such term is defined in the Registration Rights
Agreement), (iv) the notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Registrable Securities (as such term is
defined in the Registration Rights Agreement) and the listing of the Registrable
Securities for trading thereon in the time and manner required thereby, (v) the
filing of Form D with the Commission and such filings as are required to be made
under applicable state securities laws and (vi) the filing of the certificate of
designation for the Preferred Shares with the Secretary of the State of Delaware
(collectively, the "Required Approvals").
3.1.6. Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for (or converted into) in accordance with
the applicable Transaction Documents, will be duly and validly issued, fully
paid and non-assessable, free and clear of all Liens other than restrictions on
transfer provided for in the Transaction Documents. The Conversion Shares and
the Warrant Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and non-assessable, free and clear
of all Liens, other than the restrictions on transfer provided for in the
Transaction Documents. CBH has reserved from its duly authorized capital stock
the number of shares of Common Stock issuable pursuant to the Series B
Certificate of Designation, the Modified Warrant and the Additional Warrants in
order to issue the Conversion Shares and the Warrant Shares. The Securities are
not subject to any preemptive or similar rights to subscribe for or purchase
securities.
3.1.7. Capitalization. Other than disclosed in the SEC Reports, CBH
has not issued any capital stock other than pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. Other than disclosed in the
SEC Reports, as of the date of this Agreement, except for the Preferred Shares,
there is no share of any preferred stock of CBH outstanding. No securities of
CBH are entitled to preemptive or similar rights and no Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents. As of
the date of this Agreement, except as disclosed in the SEC Reports and as a
result of the issuance of the Securities, there are no outstanding options,
warrants, script 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 the capital stock of CBH, or contracts, commitments,
understandings or arrangements by which CBH or any Subsidiary is or may become
bound to issue additional shares of its capital stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issuance and sale
of the Securities will not obligate CBH to issue shares of Common Stock or other
securities to any Person (other than RimAsia) and will not result in a right of
any holder of CBH securities to adjust the
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exercise, conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of CBH are validly issued, fully paid and
non-assessable, 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 CBH or others is required for the issuance and sale of the Securities, the
Conversion Shares or the Warrant Shares. There are no stockholders agreements,
voting agreements or other similar agreements with respect to CBH's capital
stock to which CBH is a party or, to the Knowledge of CBH, between or among any
of CBH's stockholders.
3.1.8. SEC Reports; Financial Statements. CBH has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as CBH was required by law 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, other than the SEC Reports relating to Enshi, which
may be subject to further amendment pursuant to new investigation and
discoveries, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act, 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 CBH included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with 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 fairly present in all material respects the financial position of
CBH and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
CBH maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the Exchange Act.
3.1.9. Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports or certain litigation events previously disclosed
to RimAsia, (i) there has been no event, occurrence or development that has had
or that, individually, or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect, (ii) CBH 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,
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(B) liabilities not required to be reflected in CBH's financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, and (C) other liabilities that would not, individually or in the
aggregate, have a Material Adverse Effect, (iii) CBH has not altered its method
of accounting or the identity of its auditors, (iv) CBH 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) CBH has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock option
plans. As of the date of this Agreement, CBH does not have pending before the
Commission any request for confidential treatment of information.
3.1.10. Litigation. Except as disclosed in the SEC Reports or
previously disclosed to RimAsia, there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of CBH,
threatened against or affecting CBH, 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) (each,
an "Action") which , could, if there were an unfavorable decision, individually,
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect. Neither CBH 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 CBH, there is not
pending or contemplated, any investigation by the Commission involving CBH or
any current or former director or officer of CBH. The Commission has not issued
any stop order or other order suspending the effectiveness of any registration
statement filed by CBH or any Subsidiary under the Exchange Act or the
Securities Act. No executive officer, to the Knowledge of CBH, 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, and the continued employment of each such executive officer does not
subject CBH or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. CBH and its Subsidiaries are in compliance with all
applicable 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.
3.1.11. Labor Relations. Neither CBH nor any of its Subsidiaries is
a party to a collective bargaining agreement, and CBH and its Subsidiaries
believe that their relationships with their employees are good. No material
labor dispute exists or, to the Knowledge of CBH, is imminent with respect to
any of the employees of CBH which could reasonably be expected to result in a
Material Adverse Effect.
3.1.12. Compliance. Except as disclosed in the SEC Reports or
previously disclosed to RimAsia in connection with certain litigation events,
neither CBH nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred
13
that has not been waived that, with notice or lapse of time or both, would
result in a default by CBH or any Subsidiary under), nor has CBH 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, individually, or in the
aggregate, have a Material Adverse Effect. CBH is in compliance with all
effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the
rules and regulations thereunder, that are applicable to it, except where such
noncompliance, individually or in the aggregate, could not have or reasonably be
expected to result in a Material Adverse Effect.
3.1.13. Regulatory Permits. Except as disclosed in the SEC Reports,
CBH 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 as described in the
SEC Reports, except where the failure to possess such permits could not,
individually, or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither CBH nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
3.1.14. Title to Assets. CBH and the Subsidiaries have good and
marketable land use rights with respect to all real property owned by them that
is material to the business of CBH and the Subsidiaries and good and marketable
title in all personal property owned by them that is material to the business of
CBH 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 CBH and the Subsidiaries. Any real property and facilities held under lease
by CBH and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which CBH and the Subsidiaries are in compliance.
3.1.15. Patents and Trademarks. CBH 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 or similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could, individually, or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither CBH nor any
Subsidiary has received a notice (written or otherwise) that the Intellectual
Property Rights used by CBH or any Subsidiary violates or infringes upon the
rights of any Person. All such Intellectual Property Rights are enforceable and
do not violate or infringe the Intellectual Property Rights of others in any
respect that would, individually
14
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect and, to the Knowledge of CBH, there is no existing infringement by
another Person of any of CBH's or the Subsidiary's Intellectual Property Rights.
CBH 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.
3.1.16. Insurance. CBH and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which CBH and the
Subsidiaries are engaged, including, but not limited to, directors and officers
insurance coverage at least equal to the aggregate Loan Conversion Amount. To
the best Knowledge of CBH, such insurance contracts and policies are accurate
and complete. Neither CBH nor any Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
3.1.17. Transactions with Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of CBH and, to the
Knowledge of CBH, none of the employees of CBH is presently a party to any
transaction with CBH 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 CBH, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
3.1.18. Sarbanes-Oxley; Internal Accounting Controls. CBH is in
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date.
3.1.19. Private Placement. Assuming the accuracy of RimAsia's
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by CBH
to RimAsia as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.
Except as described in the SEC Reports, CBH has not granted or agreed to grant
to any Person any rights (including "piggy-back" registration rights) to have
any securities of CBH registered with the Commission or any other governmental
authority that have not been satisfied.
3.1.20. Investment Company. CBH is not, and is not an Affiliate of,
and immediately after issuance of 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. CBH shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
15
3.1.21. Registration Rights. RimAsia has the right to cause CBH to
effect the registration under the Securities Act pursuant to the Registration
Rights Agreement.
3.1.22. Listing and Maintenance Requirements. CBH's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and CBH has taken no
action designed to, or which to its Knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
CBH received any notification that the Commission is contemplating terminating
such registration. CBH has not, in the 24 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that CBH is not in compliance with the listing or
maintenance requirements of such Trading Market. CBH is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements. The issuance and sale of the
Securities under the Transaction Documents does not contravene the rules and
regulations of the Trading Market on which the Common Stock is currently listed
or quoted, and no approval of the stockholders of CBH thereunder is required for
CBH to issue and deliver to RimAsia the Securities contemplated by the
Transaction Documents. As of the date hereof, CBH's Common Stock is listed on
the OTC Bulletin Board.
3.1.23. No Integrated Public Offering. Neither CBH, 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 CBH for purposes of the
Securities Act or any applicable shareholder approval provisions, which would
have made the issuance of the Securities in this offering a public offering
subject to a registration statement, including, without limitation, under the
rules and regulations of any Trading Market on which any of the securities of
CBH are listed or designated.
3.1.24. Solvency. Based on the financial condition of CBH as of the
Closing Date after giving effect to the receipt by CBH of the proceeds from the
sale of the Securities hereunder, (i) CBH's cash and fair saleable value of its
assets in an orderly liquidation exceeds the amount that will be required to be
paid on or in respect of CBH's existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) CBH's assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by CBH, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of CBH, together with the
proceeds CBH would receive, were it to liquidate all of its assets, after taking
into account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be paid.
CBH does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be
16
payable on or in respect of its debt). CBH has no Knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.
3.1.25. 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, CBH and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and CBH has no Knowledge of a tax deficiency which has
been asserted or threatened against CBH or any Subsidiary.
3.1.26. No General Solicitation. Neither CBH nor any person acting
on behalf of CBH has offered or sold any of the Securities by any form of
general solicitation or general advertising. CBH has offered the Securities for
sale only to RimAsia.
3.1.27. No Disagreements with Accountants. There are no
disagreements of any kind presently existing, or reasonably anticipated by CBH
to arise, with the accountants formerly or presently employed by CBH with
respect to CBH's financial statements.
3.1.28. Acknowledgment Regarding RimAsia's Receipt of Securities.
CBH acknowledges and agrees that RimAsia is acting solely in the capacity of an
arm's length acquiror of securities with respect to the Transaction Documents
and the transactions contemplated hereby. CBH further acknowledges that RimAsia
is not acting as a financial advisor or fiduciary of CBH (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by RimAsia or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
merely incidental to RimAsia's acquisition of the Securities. CBH further
represents to RimAsia that CBH's decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by CBH and its representatives.
3.1.29. Certain Fees. RimAsia shall have no obligation with respect
to any fees or with respect to any claims (other than such fees or commissions
owed by RimAsia pursuant to written agreements executed by RimAsia which fees or
commissions shall be the sole responsibility of RimAsia) made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
3.1.30. No Additional Agreements. CBH does not have any agreement or
understanding with RimAsia with respect to the transactions contemplated by the
Transaction Documents other than as specified in the Transaction Documents.
17
3.1.31. Disclosure. All disclosure provided to RimAsia regarding
CBH, its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf of CBH with
respect to the representations and warranties made herein are true and correct
with respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. CBH acknowledges and agrees that
RimAsia makes or has made no representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
3.2. Representations and Warranties of RimAsia. RimAsia hereby represents
and warrants as of the date hereof and as of the Closing Date to CBH as follows:
3.2.1. Organization; Authority. RimAsia is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, 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,
delivery and performance by RimAsia of the transactions contemplated by this
Agreement have been duly authorized by all necessary partnership action on the
part of RimAsia. Each Transaction Document to which it is a party has been duly
executed by RimAsia, and when delivered by RimAsia in accordance with the terms
hereof, will constitute the valid and legally binding obligation of RimAsia,
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.
3.2.2. Own Account. RimAsia 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
in violation of the Securities Act or any applicable state securities law.
Subject to the immediately preceding sentence, nothing contained herein shall be
deemed a representation or warranty by RimAsia to hold the Securities for any
period of time. RimAsia is acquiring the Securities hereunder in the ordinary
course of its business. RimAsia does not have any agreement or understanding,
directly or indirectly, with any
18
Person to distribute any of the Securities. This representation and warranty
shall not limit RimAsia's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws.
3.2.3. Investor Status. At the time RimAsia was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises either the Modified Warrant or the Additional Warrant 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.
RimAsia is not required to be registered as broker-dealers under Section 15 of
the Exchange Act.
3.2.4. Experience of Investor. RimAsia, either alone or together
with its representatives, have 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 have so evaluated the
merits and risks of such investment. RimAsia 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.
3.3. Acknowledgment by CBH. CBH acknowledges and agrees that RimAsia
does not make or have not made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2.
4. OTHER AGREEMENTS OF THE PARTIES.
4.1. Transfer Restrictions.
4.1.1. 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 or Rule 144, to CBH
or to an affiliate of RimAsia or in connection with a pledge as contemplated in
Section 4.1.2, CBH may require the transferor thereof to provide to CBH an
opinion of counsel selected by the transferor and reasonably acceptable to CBH,
the form and substance of which opinion shall be reasonably satisfactory to CBH,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.
4.1.2. RimAsia agrees to the imprinting, so long as is required by
this Section 4.1.2, of a legend on any of the Securities in the following form:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE EXERCISABLE CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES
19
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 CBH. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE
CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.
CBH acknowledges and agrees that RimAsia 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, if required under the terms of such arrangement, RimAsia may transfer
pledged or secured Securities to the pledgees or secured parties. Such a pledge
or transfer would not be subject to approval of CBH and no legal opinion of
legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At
the expense of RimAsia, CBH will execute and deliver such reasonable
documentation as a pledgee 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.
4.1.3. Certificates evidencing the Conversion Shares and Warrant
Shares shall not contain any legend (including the legend set forth in Section
4.1.2 hereof): (i) whenever the Conversion Shares and Warrant Shares are resold
following the Effective Date concerning the resale of such shares, or (ii)
following any sale or transfer of such Conversion Shares or Warrant Shares
pursuant to Rule 144, or (iii) while such Conversion Shares or Warrant Shares
are eligible for sale under Rule 144(k), or (iv) if
20
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). CBH shall cause its counsel to issue a standing legal opinion
to CBH's transfer agent promptly after the Effective Date if required by CBH's
transfer agent to effect the removal of the legend hereunder. Following such
time as restrictive legends are not required to be placed on certificates
representing the Conversion Shares or Warrant Shares, CBH will, no later than
three Trading Days following the delivery by RimAsia to CBH or CBH's transfer
agent of (i) a certificate representing such Conversion Shares or Warrant Shares
containing a restrictive legend (endorsed or with stock power attached,
signatures guaranteed, and otherwise in form necessary to affect reissuance and/
or transfer), or (ii) an Exercise Notice in the manner stated in the Warrants to
affect the exercise of such Warrant in accordance with its terms (such tenth
Trading Day, the "Legend Removal Date"), deliver or cause to be delivered to Rim
Asia a certificate representing such Conversion Shares or Warrant Shares that is
free from all restrictive and other legends. CBH may not make any notation on
its records or give instructions to any transfer agent of CBH that enlarge the
restrictions on transfer set forth in this Section. Certificates for securities
subject to legend removal hereunder shall be transmitted by the transfer agent
of CBH to RimAsia by crediting the account of RimAsia's prime broker with the
Depository Trust Company System.
4.1.4. In addition to RimAsia's other available remedies, CBH shall
pay to RimAsia, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Conversion Shares and Warrant Shares, respectively (based on the
VWAP of the Common Stock on the date such securities are submitted to CBH's
transfer agent) delivered for removal of the restrictive legend and subject to
Section 4.1.3, $7.5 per Trading Day (increasing to $15 per Trading Day 5 Trading
Days after the Legend Removal Date) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend. Payment shall
be made to RimAsia no later than on each monthly anniversary of each such Legend
Removal Date until the applicable certificate free from all restrictive and
other legends is delivered. Nothing herein shall limit RimAsia's right to pursue
actual damages for CBH's failure to deliver certificates representing any
securities as required by the Transaction Documents, and RimAsia shall have the
right to pursue all remedies available to them at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
4.2. Acknowledgment of Dilution. CBH acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. CBH further
acknowledges that its obligations under the Transaction Documents, including
without limitation its obligation to issue the Securities, the Conversion Shares
and Warrant 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 CBH may
have against RimAsia and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of CBH.
21
4.3. Furnishing of Information. As long as RimAsia owns the Securities,
CBH covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by CBH
after the date hereof pursuant to the Exchange Act. As long as RimAsia owns the
Securities, if CBH is not required to file reports pursuant to the Exchange Act,
it will prepare and furnish to RimAsia and make publicly available in accordance
with Rule 144(c) such information as is required for RimAsia to sell the
Securities under Rule 144. CBH further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4. Integration. CBH shall not, and shall use its best efforts to ensure
that no Affiliate of CBH shall, 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 in a manner that would require the registration under the Securities
Act of the sale of the Securities to RimAsia 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. Conversion and Exercise Procedures.
4.5.1. The form of Notice of Exercise included in the Warrants set
forth the totality of the procedures required of RimAsia in order to exercise
the Warrants. No additional legal opinion or other information or instructions
shall be required of RimAsia to exercise the Warrants. CBH shall honor exercises
of the Warrants and shall deliver Warrant Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.
4.5.2. The section entitled "Mechanics of Conversion" in the Series
B Certificate of Designation sets forth the totality of the procedures required
of holders of the Preferred Shares in order to convert the Preferred Shares into
shares of the Common Stock. No additional legal opinion or other information or
instructions shall be required of such holders to convert the Preferred Shares.
CBH shall honor conversions of the Preferred Shares and shall deliver Conversion
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6. Shareholder Rights Plan. No claim will be made or enforced by CBH or,
to the Knowledge of CBH, any other Person that RimAsia is an "Acquiring Person"
under any shareholder rights plan or similar plan or arrangement in effect or
hereafter adopted by CBH, or that RimAsia 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 CBH and
RimAsia. CBH shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
22
4.7. Non-Public Information. CBH covenants and agrees that neither it nor
any other Person acting on its behalf will provide RimAsia or its agents or
counsel with any information that CBH believes constitutes material non-public
information, unless prior thereto RimAsia shall have executed a written
agreement regarding the confidentiality and use of such information. CBH
understands and confirms that RimAsia shall be relying on the foregoing
representations in effecting transactions in securities of CBH.
4.8. Reimbursement. If RimAsia becomes the target of a lawsuit or any
other Proceeding brought by any Person who is a stockholder of CBH (except as a
result of sales, pledges, margin sales and similar transactions by RimAsia to or
with any current stockholder), solely as a result of RimAsia's acquisition of
the Securities under this Agreement, CBH will reimburse RimAsia for its
reasonable legal and other defense-related expenses (including the reasonable
cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of CBH under this paragraph shall be in addition to
any liability which CBH may otherwise have, shall extend upon the same terms and
conditions to any Affiliates of RimAsia who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of RimAsia and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of CBH, RimAsia and any such
Affiliate and any such Person. CBH also agrees that neither RimAsia nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to CBH or any Person asserting claims on behalf of or in
right of CBH solely as a result of acquiring the Securities under this
Agreement.
4.9. Indemnification of RimAsia. Subject to the provisions of this Section
4.9 and in addition to the indemnity provided in the Registration Rights
Agreement, CBH will indemnify and hold RimAsia 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 RimAsia (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, 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 "RimAsia Party") harmless from
any and all losses, liabilities, obligations, claims, contingencies, damages,
reasonable costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such RimAsia Party may suffer or incur as a result of or
relating to (a) any breach, misrepresentation or inaccuracy of any of the
representations, warranties, covenants or agreements made by CBH in this
Agreement or in the other Transaction Documents or (b) any action instituted
against RimAsia, or any of its Affiliates, by any stockholder of CBH who is not
an Affiliate of RimAsia, with respect to any of the transactions contemplated by
the Transaction Documents (unless such action is based
23
upon a material breach of RimAsia's representations, warranties or covenants
under the Transaction Documents or any agreements or understandings that RimAsia
may have with any such stockholder or any violations by RimAsia of state or
federal securities laws or any conduct by RimAsia which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any RimAsia Party in respect of which indemnity may be sought pursuant
to this Agreement, such RimAsia Party shall promptly notify CBH in writing, and
CBH shall have the right to assume the defense thereof with counsel of its own
choosing. Any RimAsia 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 RimAsia Party except to
the extent that (i) the employment thereof has been specifically authorized by
CBH in writing, (ii) CBH 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 an independent counsel, a material conflict on any
material issue between the position of CBH and the position of such RimAsia
Party. CBH will not be liable to any RimAsia Party under this Agreement (i) for
any settlement by a RimAsia Party effected without CBH'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 RimAsia Party's material breach of any of the representations, warranties,
covenants or agreements made by RimAsia in this Agreement or in the other
Transaction Documents.
4.10. Form D. CBH agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of RimAsia.
4.11. Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date, CBH may not file any registration
statement (other than on Form S-8) with the Commission with respect to any
securities of CBH.
4.12. Limitation on Issuance of Future Priced Securities. During the
twelve (12) months following the Closing Date, CBH shall not issue any security
that would be a "Future Priced Securities" as such term is described by NASD
IM-4350-1, that would have a conversion price lower than $1.0111 per share or
exercise price lower than $1.26 per share.
4.13. Listing of Common Stock. CBH hereby agrees to use its best efforts
to maintain the listing and trading of its Common Stock on the OTC Bulletin
Board (or another nationally recognized Trading Market). CBH further agrees, if
CBH applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Conversion Shares and Warrant Shares, and will
take such other action as is necessary or desirable in the opinion of RimAsia to
cause all of the Conversion Shares and Warrant Shares to be listed on such other
Trading Market as promptly as possible. CBH will use its best efforts and take
all action reasonably necessary to continue the listing and trading of its
Common Stock on the Trading Market on which the Common
24
Stock is currently listed or quoted and will comply in all respects with CBH's
reporting, filing and other obligations under the bylaws or rules of such
Trading Market.
4.14. Form SB-2 or Form S-1 Eligibility. CBH is eligible to register the
resale of the Conversion Shares and the Warrant Shares by RimAsia under Form
SB-2 or Form S-1 promulgated under the Securities Act and CBH hereby covenants
and agrees to use its best efforts to maintain its eligibility to use Form SB-2
until the Registration Statement covering the resale of the Conversion Shares
and Warrant Shares shall have been filed with, and declared effective by, the
Commission. If for any reason CBH is not eligible to register the resale of the
Conversion Shares and the Warrant Shares by RimAsia under Form SB-2, CBH
covenants and agrees to register the resale of the Conversion Shares and Warrant
Shares on Form S-1 promulgated under the Securities Act.
4.15. Other Reporting. From the Closing Date to the earlier of (a) the
date of the fourth anniversary of the Closing Date and (b) the date on which all
Preferred Shares are redeemed or converted into shares of the Common Stock, CBH
shall provide RimAsia the following information:
4.15.1. Summary management financial and operational report on a
monthly and quarterly basis within 15 and 30 calendar days of the end of each
month or quarter, respectively, both for CBH on a consolidated basis and each of
its Subsidiaries on a stand-alone basis;
4.15.2. Annual consolidated accounts of CBH and each of its
Subsidiaries on a stand-alone basis within 120 days of the fiscal year end;
4.15.3. Business plan and budget for the overall Company within 60
days prior to the commencement of each new fiscal year; and
4.15.4. Special updates and analysis with respect to extraordinary
events such as merger and acquisition transactions and major financings of CBH.
4.16. Certain Disclosures. Subject to confidentiality and relevant insider
trading restrictions, from July 15, 2007 until such time as all the Preferred
Shares will have been converted or redeemed, CBH shall provide RimAsia a copy of
any and all public disclosures (including without limitation filings with the
Commission, press releases, and similar statements) for RimAsia's reference and,
where such disclosure involves a reference to RimAsia, the comments by RimAsia
at least 72 hours prior to the filing or release of such disclosure.
4.17. Taxation of Payments. Any and all payments required to be made by
CBH to RimAsia under any Transaction Document shall be paid free and clear of
any taxes, withholdings or similar levies.
4.18 Ratio of Assets versus Liabilities
25
After the conditional conversion and until the satisfaction of the
condition subsequent as provided in Section 2.3.3, CBH shall not incur any debt
which will make total liabilites exceed total assets.
5. MISCELLANEOUS
5.1. Fees and Expenses.
5.1.1. Following the Closing, upon RimAsia's request and
presentation of invoices for all expenses including, but not limited to, the
fees of its attorneys, advisors, consultants, auditors, travel and accommodation
expenses, and other related out-of-pocket expenses incurred in connection with
the transactions contemplated in the Transaction Documents (the "Reimbursable
Costs"), CBH shall reimburse RimAsia such expenses up to US$40,000.
5.1.2. Except as specified in Section 5.1.1, 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 the Transaction
Documents. CBH shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Securities, the Conversion Shares and the
Warrant Shares.
5.2. Termination. This Agreement may be terminated prior to Closing:
5.2.1. by written agreement of both Parties; or
5.2.2. by CBH or RimAsia upon written notice to the other Party, if
the Closing shall not have taken place by 6:30 p.m. Eastern time on November 15,
2007; provided, that the right to terminate this Agreement under this Section
shall not be available to any Person whose failure to comply with its
obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or before such time.
5.2.3. Upon a termination in accordance with this Section, CBH and
RimAsia shall have no further obligation or liability (including as arising from
such termination) to the other except pursuant to Section 4.9.
5.3. 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 thereof and supersede all prior agreements
and understandings, discussions, oral or written, with respect to such matters,
which the Parties acknowledge have been merged into such documents, exhibits and
schedules.
26
5.4. 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 (provided the sender
receives a machine-generated confirmation of successful transmission) 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 2nd Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, (d) the fifth calendar
following the date of mailing, if sent by a commonly recognized international
courier, or (e) upon actual receipt by the party to whom such notice is required
to be given. The addresses for such notices and communications shall be as set
forth on the signature pages attached hereto. Any notice to any Party shall be
simultaneously copied to the receiving Party's legal counsel.
5.5. 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 CBH and RimAsia or, in the case of a waiver, by the
Party against whom enforcement of any such waiver 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 either Party to exercise
any right hereunder in any manner impair the exercise of any such right.
5.6. 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. The language used in this Agreement will be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the Parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
5.7. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
CBH may not assign this Agreement or any rights or obligations hereunder without
the prior written consent of RimAsia. RimAsia may assign any or all of its
rights under this Agreement to any Person to whom RimAsia assigns or transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
RimAsia.
5.8. No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the Parties and their respective successors and permitted assigns and
is not for
27
the benefit of, nor may any provision hereof be enforced by, any other Person,
except as otherwise set forth in Section 4.9.
5.9. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware, without
regard to the principles of conflicts of law thereof. Each Party agrees that all
legal proceedings arising from any Transaction Document (whether brought against
a party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in Wilmington, Delaware. Each Party hereby irrevocably submits to
the exclusive jurisdiction of such courts in such proceedings and hereby
irrevocably waives any objection to the jurisdiction of such courts in such
proceedings on grounds of lack of personal jurisdiction or inconvenient forum.
If either Party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other Party for its reasonable attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
5.10. Survival. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11. 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, 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 signature page
were an original thereof.
5.12. Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13. Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever RimAsia exercises a right, election, demand or
option under a Transaction Document and CBH does not timely perform its related
obligations within the periods therein provided, then RimAsia may rescind or
withdraw, in its sole discretion from time to time upon written notice to CBH,
any relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights; provided,
28
however, in the case of a rescission of exercise of a Warrant, RimAsia shall be
required to return any shares of Common Stock subject to any such rescinded
exercise notice.
5.14. Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each Party
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 described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
5.15. Liquidated Damages. CBH's obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of CBH 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.
5.16. 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.
5.17. Languages. The Transaction Documents shall in both English and
Chinese with equal force and validity.
29
IN WITNESS WHEREOF, the Parties have caused this Conditional Loan Conversion
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
(86)-512-6855-0568
(86)-512-6855-0578
___________________________
Chris Mao__________________
CEO
RimAsia Capital Partners, L.P.
c/o RimAsia Capital Partners (Hong Kong) Ltd.
1808 Hutchison House
10 Harcourt Road, Admiralty
Hong Kong
Attention: Eric Wei
Fax: 852-2970-0078
___________________________
___________________________
___________________________
30
1. CERTAIN DEFINITIONS................................................... 2
2. CONVERSION AND ISSUANCE OF SECURITIES................................. 5
2.1. Closing......................................................... 5
2.2. Deliveries...................................................... 6
2.3. Closing Conditions.............................................. 7
3. REPRESENTATIONS AND WARRANTIES........................................ 9
3.1. Representations and Warranties of CBH........................... 9
3.1.1. Subsidiaries................................................. 9
3.1.2. Organization and Qualification............................... 9
3.1.3. Authorization; Enforcement................................... 10
3.1.4. No Conflicts................................................. 10
3.1.5. Filings, Consents and Approvals.............................. 10
3.1.6. Issuance of the Securities................................... 11
3.1.7. Capitalization............................................... 11
3.1.8. SEC Reports; Financial Statements............................ 12
3.1.9. Material Changes............................................. 12
3.1.10. Litigation................................................... 13
3.1.11. Labor Relations.............................................. 13
3.1.12. Compliance................................................... 13
3.1.13. Regulatory Permits........................................... 14
3.1.14. Title to Assets.............................................. 14
3.1.15. Patents and Trademarks....................................... 14
3.1.16. Insurance.................................................... 15
3.1.17. Transactions with Affiliates and Employees................... 15
3.1.18. Sarbanes-Oxley; Internal Accounting Controls................. 15
3.1.19. Private Placement............................................ 15
3.1.20. Investment Company........................................... 15
3.1.21. Registration Rights.......................................... 16
3.1.22. Listing and Maintenance Requirements......................... 16
3.1.23. No Integrated Public Offering................................ 16
3.1.24. Solvency..................................................... 16
3.1.25. Tax Status................................................... 17
3.1.26. No General Solicitation...................................... 17
3.1.27. No Disagreements with Accountants............................ 17
3.1.28. Acknowledgment Regarding RimAsia's Receipt of Securities..... 17
3.1.29. Certain Fees................................................. 17
3.1.30. No Additional Agreements..................................... 17
3.1.31. Disclosure................................................... 18
3.2. Representations and Warranties of RimAsia....................... 18
3.2.1. Organization; Authority...................................... 18
3.2.2. Own Account.................................................. 18
3.2.3. Investor Status.............................................. 19
3.2.4. Experience of Investor....................................... 19
i
3.3. Acknowledgment by CBH........................................... 19
4. OTHER AGREEMENTS OF THE PARTIES....................................... 19
4.1. Transfer Restrictions........................................... 19
4.2. Acknowledgment of Dilution...................................... 21
4.3. Furnishing of Information....................................... 22
4.4. Integration..................................................... 22
4.5. Conversion and Exercise Procedures.............................. 22
4.6. Shareholder Rights Plan......................................... 22
4.7. Non-Public Information.......................................... 23
4.8. Reimbursement................................................... 23
4.9. Indemnification of RimAsia...................................... 23
4.10. Form D.......................................................... 24
4.11. Subsequent Registrations........................................ 24
4.12. Limitation on Issuance of Future Priced Securities.............. 24
4.13. Listing of Common Stock......................................... 24
4.14. Form SB-2 or Form S-1 Eligibility............................... 25
4.15. Other Reporting................................................. 25
4.16. Certain Disclosures............................................. 25
4.17. Taxation of Payments............................................ 25
5. MISCELLANEOUS......................................................... 26
5.1. Fees and Expenses............................................... 26
5.2. Termination..................................................... 26
5.3. Entire Agreement................................................ 26
5.4. Notices......................................................... 27
5.5. Amendments; Waivers............................................. 27
5.6. Headings........................................................ 27
5.7. Successors and Assigns.......................................... 27
5.8. No Third-Party Beneficiaries.................................... 27
5.9. Governing Law................................................... 28
5.10. Survival........................................................ 28
5.11. Execution....................................................... 28
5.12. Severability.................................................... 28
5.13. Rescission and Withdrawal Right................................. 28
5.14. Remedies........................................................ 29
5.15. Liquidated Damages.............................................. 29
5.16. Construction.................................................... 29
5.17. Languages....................................................... 29
ii
Execution Version
CERTIFICATE OF DESIGNATIONS
OF
SERIES B PREFERRED STOCK
OF
CHINA BIOPHARMACEUTICALS HOLDINGS, INC.
(Pursuant to Section 151 of the General Corporation Law of the
State of Delaware)
China Biopharmaceuticals Holdings, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware
(hereinafter, the "Corporation"), hereby certifies that the following resolution
was duly adopted by the Board of Directors of the Corporation as required by
Section 151 of the General Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation in accordance with the provisions
of the certificate of incorporation of the Corporation, the Board of Directors
of the Corporation hereby creates out of the authorized but unissued preferred
stock, par value $0.01 per share, of the Corporation ("Preferred Stock"), a new
series of Preferred Stock, and hereby states the designation and the number of
shares of such series, and fixes the relative, participating, optional or other
special rights, preferences, privileges, powers, qualifications and limitations
thereof as follows:
1. SERIES B PREFERRED STOCK
2. DESIGNATION AND AMOUNT.
2.1. General. The shares of such series shall be designated as shares of
"Series B Preferred Stock," par value $0.01 per share, of the Corporation (the
"Series B Preferred Stock"), and the number of shares constituting such series
shall be 6,185,607 ("Series B Preferred Shares").
3. DIVIDENDS.
3.1. General.
3.1.1. Entitlement. On or after the original issuance date of the
Series B Preferred Stock pursuant to the Conditional Loan Conversion Agreement,
dated on or about November 16, 2007, by and among the Corporation and the
original holder of the Series B Preferred Stock (the "Series B Issuance Date"),
the holders of Series B Preferred Shares shall be entitled to receive dividends
(the "Dividends"), if, as and when declared by the Board of Directors of the
Corporation (the "Board of Directors") out of any assets legally available
therefor at the dividend rates (the "Dividend Rates") as provided below in this
Section 2.
3.1.2. Original Price. The Dividend Rates herein are expressed as
percentages of the original issue price of $2.0222 for each Series B Preferred
Share (as adjusted for any stock splits, stock dividends, combinations,
subdivisions, recapitalizations, reclassifications or the like) (the "Original
Series B Issue Price").
3.1.3. Annual Payment. The holders of the Series B Preferred Shares
shall be entitled to receive an annual dividend of 5% of the Original Series B
Issue Price (the "Annual Dividend"), payable annually on the first day of
January (the "Annual Dividend Payment Date"). Payment of the Annual Dividend may
be either in cash or in kind as determined by the Board of Directors. In the
event that the Annual Dividend Payment Date shall fall due on a Saturday, Sunday
or legal holiday in the State of Delaware, the dividend due on such date shall
be paid on the next day thereafter that is not a Saturday, Sunday or legal
holiday in the State of Delaware. The Annual Dividend shall be cumulative and
shall begin to accrue on outstanding Series B Preferred Shares from and after
the Series B Issuance Date on a daily basis computed on the basis of a 365-day
year and compounded annually whether or not the Corporation shall have assets
legally available therefor.
3.1.4. Limitation on Other Dividends. So long as any Series B
Preferred Shares shall be outstanding, no dividend shall be declared or paid or
set apart for payment on any class or series of stock of the Corporation ranking
junior to the Series B Preferred Shares as to dividends, including, without
limitation, the common stock, par value $0.01 per share, of the Corporation (the
"Common Stock") and the Series A Convertible Preferred Stock par value $0.01 per
share, of the Corporation (the "Series A Preferred Stock"), unless there shall
also have been declared and paid or set apart for payment on the Series B
Preferred Shares, all accrued and unpaid Annual Dividends. In the event that
full cumulative dividends on the Series B Preferred Shares have not been
declared and paid or set apart for payment when due, the Corporation shall not
declare or pay or set apart for payment any dividends or make any other
distributions on, or make payment on account of the purchase, redemption or
other retirement of any other class or series of stock of the Corporation
ranking junior to the Series B Preferred Shares as to dividends, including,
without limitation, the Common Stock and the Series A Preferred Stock, until
full cumulative dividends on the Series B Preferred Shares shall have been paid
or declared and set a part for payment; provided, however, that the foregoing
shall not apply to (i) any dividend payable solely in shares of any class or
series of stock of the Corporation ranking junior to the Series B Preferred
Shares as to dividends, including, without limitation, the Common Stock and the
Series A Preferred Stock, or (ii) the purchase, redemption or conversion of
shares of any class or series of stock of the Corporation ranking junior to the
Series B Preferred Shares as to dividends, including without limitation, the
Common Stock and the Series A Preferred Stock, in exchange solely for shares of
any other class or series of stock of the Corporation ranking junior to the
Series B Preferred Shares as to dividends, including, without limitation, Common
Stock and the Series A Preferred Stock.
3.1.5. Timing. Accrued but unpaid Annual Dividends shall cumulate as
of each Annual Dividend Payment Date on which they first become payable whether
or not the Corporation shall have assets legally available for the payment
thereof, and shall be payable as provided in this Section 2.1 and/or as further
provided herein.
3.1.6. Waiver. To the fullest extent permitted by law and
notwithstanding anything contained herein to the contrary, the holders of the
outstanding Series B Preferred Shares may waive any Annual Dividend that such
holders shall be entitled to receive under this Section 2.1 by the affirmative
vote or written consent of the holders of at least a majority of the Series B
Preferred Shares then outstanding.
2
4. LIQUIDATION PREFERENCE.
4.1. Liquidation Amount.
4.1.1. In the event of any Liquidation Event (as defined below),
either voluntary or involuntary, the holders of outstanding Series B Preferred
Shares shall be entitled to receive, out of (i) the proceeds of such Liquidation
Event received by the Corporation, in the case of a Liquidation Event under
Section 3.3.1, (ii) the proceeds received by the stockholders of the
Corporation, in the case of a Liquidation event under Section 3.3.2 or Section
3.3.3, or (iii) the assets of the Corporation legally available for distribution
to the stockholders of the Corporation, in the case of a Liquidation event under
Section 3.3.4 (as applicable, the "Proceeds") prior and in preference to the
holders of Common Stock, the Series A Preferred Stock or any other class or
series of stock of the Corporation ranking junior to the Series B Preferred
Shares with respect to any Liquidation Event, by reason of their ownership
thereof, an amount equal to the sum of (i) $3.0333 (the "Series B Liquidation
Price") per Series B Preferred Share, (ii) an amount equal to all declared or
accrued but unpaid dividends on such share, (iii) the accrued Four-Percent
Suspendible Premium (as defined in Section 5.1), and (iv) the accrued
Six-Percent Triggered Premium (as defined in Section 5.1), if any (the "Series B
Liquidation Amount").
4.1.2. If upon the occurrence of any Liquidation Event, the Proceeds
thus distributed among the holders of Series B Preferred Shares shall be
insufficient to permit the payment to such holders of the full Series B
Liquidation Amount, then, the Proceeds shall be distributed ratably among the
holders of Series B Preferred Stock in proportion to the full Series B
Liquidation Amount each such holder is otherwise entitled to receive under this
Section 3.1.
4.2. Distribution of Remaining Proceeds. Upon the completion of the
distribution required by Section 3.1 and any distribution required for any other
class or series of Preferred Stock ranking as to such distribution prior to the
Common Stock, all of the Proceeds shall be distributed among the holders of
Series B Preferred Stock and Common Stock and any other class or series of
Preferred Stock entitled thereto pro rata based on the number of shares of
Common Stock held by each (assuming full conversion of all Series B Preferred
Shares).
4.3. "Liquidation Event" Defined. For purposes of this Section 3, a
"Liquidation Event" shall include:
4.3.1. the closing of the sale, lease, exchange, transfer,
conveyance, exclusive license or other disposition of all or substantially all
of the Corporation's assets;
4.3.2. the consummation of the merger or consolidation of the
Corporation with or into another entity (except a merger or consolidation in
which the holders of capital stock of the Corporation immediately prior to such
merger or consolidation continue to hold at least 50% of the voting power of the
capital stock of the Corporation or the surviving or acquiring entity);
4.3.3. the closing of the transfer (whether by merger, consolidation
or otherwise), in one transaction or a series of related transactions, to a
person or group of affiliated persons (other than an underwriter of the
Corporation's securities), of the Corporation's
3
securities if, after such closing, such person or group of affiliated persons
would hold 50% or more of the outstanding voting stock of the Corporation (or
the surviving or acquiring entity); or
4.3.4. a liquidation, dissolution or winding up of the Corporation;
provided, however, that a transaction described above shall not constitute a
Liquidation Event if its sole purpose is to change the state of the
Corporation's incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Corporation's
securities immediately prior to such transaction. To the fullest extent
permitted by law and notwithstanding anything contained herein to the contrary,
the treatment of any particular transaction or series of related transactions as
a Liquidation Event may be waived by the affirmative vote or written consent of
the holders of at least a majority of the Series B Preferred Shares then
outstanding.
3.4 Liquidation Event Notice. The Corporation shall give each holder of
record of Series B Preferred Shares written notice of any impending Liquidation
Event not later than 20 days prior to the stockholders' meeting called to
approve such transaction, or 20 days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than 20 days after the Corporation has given the first notice provided
for herein or sooner than 10 days after the Corporation has given notice of any
material changes; provided, however, that, subject to compliance with the
Delaware General Corporation Law (the "DGCL"), such periods may be shortened
upon the affirmative vote or written consent of the holders of at least a
majority of the Series B Preferred Shares then outstanding.
5. REDEMPTION.
5.1. Optional Redemption. Prior to the fourth anniversary of the Series B
Issuance Date, the Corporation may at any time it may lawfully do so (including
upon the non-approval by a majority of the holders of the Series B Preferred
Shares of the events referred to in Section 7.6 through 7.10), at the option of
the Board of Directors and after giving the holders of Series B Preferred Shares
written notice thereof containing the redemption date (which date shall not be
less than 60 days from the date of such notice) (the "Redemption Date") and
offering the holders of the Series B Preferred Shares at least 60 days to
convert all such shares into shares of Common Stock pursuant to Section 5,
redeem in whole, but not in part, all the Series B Preferred Shares then
outstanding by paying in cash, for each share, an amount equal to the sum of (i)
the Original Series B Issue Price, (ii) all accrued but unpaid Annual Dividends
on such share, (iii) 5% of the Original Series B Issue Price per annum, which
amount shall be deemed to have begun to accrue from and after the occurrence of
a Triggering Event (as defined below) and until the occurrence of a cure of the
Triggering Event, on a daily basis computed on the basis of a 365-day year and
compounded annually, and (iv) the Four-Percent Suspendible Premium (as defined
below) (such sum, as adjusted for any stock splits, dividends combinations,
subdivisions, recapitalizations, reclassifications or the like, the "Optional
Redemption Price").
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5.2. Mandatory Redemption. At any time following the fourth anniversary of
the Series B Issuance Date, within sixty (60) days after the receipt by the
Corporation of the written request of the holders of not less than a majority of
the Series B Preferred Shares then outstanding, the Corporation shall redeem all
of the Series B Preferred Shares (or, if less, the maximum amount it may
lawfully redeem) by paying in cash , for each share, an amount equal to the sum
of (i) the Original Series B Issue Price, (ii) all accrued but unpaid Annual
Dividends on such share, and (iii) 5% of the Original Series B Issue Price per
annum, which amount shall be deemed to have begun to accrue from and after the
occurrence of a Triggering Event (as defined below) and until the occurrence of
a cure of the Triggering Event, on a daily basis computed on the basis of a
365-day year and compounded annually (such sum, as adjusted for any stock
splits, dividends combinations, subdivisions, recapitalizations,
reclassifications or the like, the "Mandatory Redemption Price").
5.3. Triggering Event. For purposes of Section 4 and 5, "Triggering Event"
shall mean any one or more of the following, whether or not the same may be
cured and reoccur from time to time:
4.3.1 The Corporation's failure to pay any Annual Dividends,
Mandatory Redemption Price or any other amount due and
payable on the Series B Preferred Shares;
4.3.2 The Corporation's failure to comply with its obligations
under Section 4;
4.3.3 The Corporation's failure to comply with its obligations
under that certain Litigation Agreement, dated as of
November __, 2007; or
4.3.4 The Corporation's failure to provide operational and
financial reports on a monthly basis within 15 calendar
days of the end of the preceding month, or operational
and financial reports on a quarterly basis within 30
calendar days of the end of the proceeding quarter, in
each case, to the holders of the Series B Preferred
Shares then outstanding.
6. CONVERSION.
6.1. Right to Convert. Each Series B Preferred Share shall be convertible,
at the option of the holder thereof, at any time after the Series B Issuance
Date but before the fourth anniversary thereof, into such number of fully paid
and non-assessable shares of Common Stock as is determined by dividing (x) the
sum of (1) the Original Series B Issue Price, (2) all accrued but unpaid Annual
Dividends on such share, (3) 4% of the Original Series B Issue Price per annum,
which amount shall be deemed to have begun to accrue from and after the Series B
Issuance Date and shall continue to accrue until the occurrence of a Suspension
Date (as defined below), on a daily basis based on a 365-day year and compounded
annually (the "Four-Percent Suspendible Premium"), and (4) 6% of the Original
Series B Issue Price per annum, which amount shall be deemed to have begun to
accrue from and after the occurrence of a Triggering Event and until the
occurrence of a cure of the Triggering Event, on a daily basis computed on the
basis of a 365-day year and compounded annually (the "Six-Percent Triggered
Premium")
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by (y) the Initial Conversion Price (as defined below) (as adjusted pursuant to
Section 5.3, "Conversion Price") applicable to such share, determined as
hereinafter provided, in effect on the date the certificate for such shares is
surrendered for conversion (the "Conversion Rate").
6.1.1. For purposes of this Section 5.1, the "Initial Conversion
Price" shall be 50% of the Original Series B Issue Price.
6.1.2. For purposes of this Section 5.1, the "Suspension Date" shall
mean the date when the average closing price of the Common Stock (which is
traded on a recognized market) over a prior period of 30 consecutive trading
days each with a daily trading volume of no fewer than 100,000 shares exceeds
the following price thresholds: during the second year from the Series B
Issuance Date, US$1.40; during the third year, US$1.58, and during the fourth
year, US$1.72, in each case as adjusted for any stock splits, dividends,
combinations, subdivisions, recapitalizations, reclassifications or the like
with respect to the Common Stock.
6.2. Mechanics of Conversion.
6.2.1. Any holder of Series B Preferred Shares desiring to convert
such shares, into shares of Common Stock pursuant to Section 5.1, shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for Series B Preferred Shares and
shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued and the number of Series B Preferred Shares sought to be converted.
6.2.2. In the event the Corporation has given such holder notice of
its intent to redeem such holder's Series B Preferred Shares pursuant to Section
4.1, such holder's written notice to the Corporation shall be sufficient to
permit such holder to convert pursuant to this Section 5.2 notwithstanding such
redemption notice, provided that such holder delivers such certificates prior to
the Redemption Date.
6.2.3. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of shares of Series B Preferred
Stock so converted or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid.
6.2.4. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
6.2.5. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933, as
amended, the conversion may, at
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the option of any holder tendering shares of Series B Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the persons entitled to
receive the Common Stock upon conversion of the shares of Series B Preferred
Stock sought to be converted pursuant to this Section 5.2, shall not be deemed
to have converted such shares of Series B Preferred Stock until immediately
prior to the closing of such sale of securities.
6.3. Conversion Price Adjustments for Certain Dilutive Issuances, Splits
and Combinations. The Conversion Price shall be subject to adjustment from time
to time as follows:
6.3.1. If the Corporation shall issue, on or after the Series B
Issuance Date, any Additional Stock (as defined below) without consideration,
the Conversion Price in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this Section 5.3.1) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock Outstanding (as
defined below) immediately prior to such issuance; and the denominator of which
shall be the number of shares of Common Stock Outstanding immediately prior to
such issuance plus the number of shares of such Additional Stock. For purposes
of this Section 5.3, the term "Common Stock Outstanding" shall mean and include
the following: (1) outstanding Common Stock; (2) Common Stock issuable upon
conversion of outstanding Preferred Stock; (3) Common Stock issuable upon
exercise of outstanding stock options; and (4) Common Stock issuable upon
exercise (and, in the case of warrants to purchase Preferred Stock, conversion)
of outstanding warrants. Shares described in (1) through (4) above shall be
included whether vested or unvested, whether contingent or non-contingent and
whether exercisable or not yet exercisable.
6.3.2. If the Corporation shall issue after the Series B Issuance
Date any Additional Stock at a per-share price lower than the Conversion Price
then in effect, the Conversion Price shall be decreased to equal such per-share
price of the Additional Stock.
6.3.3. In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as mutually determined
in good faith by the Board of Directors and a majority of the holders of Series
B Preferred Shares then outstanding.
6.3.4. In the case of the issuance of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for purposes of determining the number of shares of Additional Stock
issued and the consideration paid therefor:
6.3.4.1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions of
exercisability, including, without limitation, the passage of time, but without
taking into account potential anti-dilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration, if any, received by the Corporation upon the
issuance of
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such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential anti-dilution adjustments) for
the Common Stock covered thereby.
6.3.4.2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
anti-dilution adjustments) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received (without taking into account potential anti-dilution
adjustments) by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights).
6.3.4.3. In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, the Conversion Price, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
6.3.4.4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price, to the extent in any way affected by or computed using
such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities that remain
in effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
6.3.4.5. The number of shares of Additional Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections 5.3.4.1
and 5.3.4.2 shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 5.3.4.3 or 5.3.4.4.
6.3.5. "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 5.3.4) by the
Corporation after the Series B Issuance Date other than:
6.3.5.1. Common Stock issued pursuant to a transaction
described in Section 5.3.8;
8
6.3.5.2. Up to 10,000,000 shares of Common Stock (excluding
shares repurchased at cost by the Corporation in connection with the termination
of service) issued to employees, directors, consultants and other service
providers for the primary purpose of soliciting or retaining their services
pursuant to plans or agreements approved by the Board of Directors; or
6.3.5.3. Common Stock issued or deemed issued pursuant to
Section 5.3.4 as a result of a decrease in the Conversion Price of any series of
Preferred Stock resulting from the operation of this Section 5.3.
6.3.6. If the Corporation should at any time or from time to time
after the Series B Issuance Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock ("Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable upon conversion of each
share of Series B Preferred Stock shall be increased in proportion to such
increase in the aggregate number of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
6.3.7. If the number of shares of Common Stock outstanding at any
time after the Series B Issuance Date is decreased by a split or combination of
the outstanding shares of Common Stock, then, following the record date of such
split or combination, the Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable upon conversion of each share
of Series B Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares of Common Stock.
6.4. Other Distributions. If the Corporation shall declare a dividend or
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 5.3, then, in each such case for
the purpose of this Section 5.4, the holders of Series B Preferred Shares shall
be entitled to a proportionate share of any such dividend or distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their Series B Preferred Shares are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such dividend or distribution.
6.5. Recapitalizations or Reclassifications. If at any time or from time
to time there shall be a recapitalization or reclassification of Common Stock
(other than a split, subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 5 provision shall be made so
that the holders of Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of each share of Series B Preferred Shares the number of
shares of
9
stock or other securities or property of the Corporation or otherwise, to which
a holder of Common Stock deliverable upon conversion would have been entitled on
such recapitalization or reclassification. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Series B Preferred Shares after the
recapitalization or reclassification to the end that the provisions of this
Section 5 (including adjustment of the Conversion Price then in effect and the
number of shares purchasable upon conversion of each share of Series B Preferred
Stock) shall be applicable after that event as nearly equivalently as may be
practicable.
6.6. No Impairment. The Corporation may not, without the affirmative vote
or written consent of the holders of at least a majority of the Series B
Preferred Shares then outstanding, by amendment of its certificate of
incorporation (whether by merger, consolidation or otherwise) or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such lawful action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series B Preferred Shares
against impairment.
6.7. Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class or series of stock of the Corporation
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Corporation shall mail to each holder of
Series B Preferred Shares at least 10 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution, and the amount and character of such
dividend or distribution.
6.8. Notices. Any notice required by the provisions of this Section 5 to
be given to the holders of Series B Preferred Shares shall be deemed given if
deposited in the United States mail, postage prepaid first class international
airmail, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
6.9. Status of Reacquired Stock. If any share of Series B Preferred Stock
is purchased, redeemed or otherwise acquired by the Corporation in any manner
whatsoever, the share of Series B Preferred Stock so acquired shall, to the
fullest extent permitted by law, be retired and cancelled upon such acquisition,
and shall not be reissued as a share of Series B Preferred Stock. The share of
Series B Preferred Stock so acquired shall, upon its retirement and
cancellation, and upon the taking of any action required by law, become an
authorized but unissued share of Preferred Stock undesignated as to series and
may be reissued a part of a new series of Preferred Stock, subject to the
conditions and restrictions set forth in the certificate of incorporation of the
Corporation or imposed by the DGCL.
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7. VOTING RIGHTS.
Except as otherwise required by law or provided herein, the Series B Preferred
Shares shall have no special voting rights and their consent shall not be
required for the taking of any corporate action.
8. PROTECTIVE PROVISIONS. So long as any of Series B Preferred Shares are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent) of the holders of at least a majority of the Series B
Preferred Shares then outstanding, voting together as a separate class:
8.1. sell, lease, exchange, transfer, convey, exclusively license or
otherwise dispose of all or substantially all of the Corporation's assets or
merge into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation provided that the Corporation is the surviving
corporation) or effect any transaction or series of related transactions in
which 50% or more of the voting power of the Corporation is transferred or
otherwise disposed of;
8.2. amend, alter, or repeal any provision of the Corporation's
certificate of incorporation or Bylaws (whether by merger, consolidation or
otherwise) if such amendment, alteration or repeal would alter or change the
powers, preferences or special rights of the Series B Preferred Shares so as to
effect them adversely;
8.3. authorize, create or issue any class or series of stock or any other
securities convertible into or exercisable for or issued in connection with
equity securities of the Corporation having rights, preferences or privileges
superior to or on parity with the Series B Preferred Shares;
8.4. increase or decrease the number of authorized shares of Series B
Preferred Stock;
8.5. pay any dividend or other distribution on, or make any repurchase or
redemption of, any shares(s) of any class or series of stock or other securities
of the Corporation; provided, however, that this restriction shall not apply to
the redemption described in Section 4;
8.6. incur any debt obligations or any other liabilities (beyond those
existing on the Series B Issuance Date), provided such restrictions will apply
only with respect to: (A) the funding of merger, consolidation and acquisition
transactions (or the portion thereof) undertaken by the Corporation or its
affiliates that are paid in cash; and (B) financings by the Corporation and/or
any of its subsidiaries (collectively, the "CBH Group") that are undertaken
outside of the normal course of business such as capital expenditure, bank
financing or refinancing, or similar funding normally undertaken by the CBH
Group pursuant to prior board approvals or within pre-approved operating
budgets;
8.7. asset disposals by the CBH Group over cumulative amount of
$10,000,000 or resulting in total remaining carrying cost of net property, plant
and equipment and other long-term tangible assets of the CBH Group decreasing
below $15,000,000;
8.8. diversifications into ventures not related to the Corporation's core
business on the Series B Issuance Date;
11
8.9. the departure of Mr. Shi Mingsheng or Mm. Zhang Jian from the CBH
Group (voluntary or otherwise); or
8.10. the occurrence of any transaction or series of related transaction
pursuant to which stockholders of the Corporation comprising members of its
senior management and directors on the Series B Issuance Date, and those
shareholders affiliated with Suzhou Erye Pharmaceutical Company Ltd., sell,
exchange, transfer, convey, pledge or otherwise dispose in full or in part any
of their securities in the Corporation to an unrelated third party who then as a
result will have the ability to exert control of the Corporation by virtue of
gaining control of the Board of Directors or through other similar means.
9. GROSS-UP
Notwithstanding any provision herein to the contrary, if any amount in
cash, stock, property, or other item of value paid or reimbursed to holders
hereunder is subject to any deductions or withholdings for any present or future
taxes, withholding taxes, levies, imposts, duties, fees, deductions, charges,
withholdings, or liabilities imposed by any competent governmental authority
then an additional amount shall be paid or reimbursed to holders as is necessary
so that the amount actually received by holders after such deduction or
withholding shall equal the full amount to be payable, due or reimbursable
hereunder. Any such deductions or withholdings shall be paid promptly to the
appropriate governmental authority, and receipts or other proof of such payment
shall be provided to holders promptly.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation
of the Series B Preferred Stock of China Biopharmaceuticals Holdings, Inc., on
this ___ day of November, 2007.
China Biopharmaceuticals Holdings, Inc.
_______________________________________
Name:
Title:
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